[Federal Register Volume 74, Number 105 (Wednesday, June 3, 2009)]
[Proposed Rules]
[Pages 26600-26636]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-12907]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1406-P2]
RIN 0938-AP39


Medicare Program; Proposed Rate Year (RY) 2010 Medicare Severity-
Long-Term Care Diagnosis-Related Group (MS-LTC-DRG) Relative Weights 
and High-Cost Outlier Fixed-Loss Amount

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

ACTION: Proposed rule; supplemental.

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SUMMARY: This supplemental proposed rule presents both proposed rate 
year (RY) 2010 Medicare severity-long-term care diagnosis-related group 
(MS-LTC-DRG) relative weights and a proposed RY 2010 high cost outlier 
(HCO) fixed-loss amount based on the revised fiscal year (FY) 2009 MS-
LTC-DRG relative weights presented in an interim final rule with 
comment period published elsewhere in this Federal Register.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on June 30, 2009.

ADDRESSES: In commenting, please refer to file code CMS-1406-P2. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.

[[Page 26601]]

    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 under 
the ``More Search Options'' tab.
    2. By regular mail. You may mail written comments to the following 
address only: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1406-P2, P.O. Box 8011, 
Baltimore, MD 21244-8011.
    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 to 
the following address only: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-1406-P2, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments before the close of the comment period 
to either of the following addresses: a. For delivery in Washington, 
DC--Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Room 445-G, Hubert H. Humphrey Building, 200 
Independence Avenue, SW., Washington, DC 20201.
    (Because access to the interior of the Hubert H. Humphrey 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. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 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: Tzvi Hefter, (410) 786-4487.

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.

I. Background

A. Legislative and Regulatory Authority

    Section 123 of the Medicare, Medicaid, and SCHIP (State Children's 
Health Insurance Program) Balanced Budget Refinement Act of 1999 (BBRA) 
(Pub. L. 106-113) as amended by section 307(b) of the Medicare, 
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 
(BIPA) (Pub. L. 106-554) provides for payment for both the operating 
and capital-related costs of hospital inpatient stays in long-term care 
hospitals (LTCHs) under Medicare Part A based on prospectively set 
rates. The Medicare prospective payment system (PPS) for LTCHs applies 
to hospitals that are described in section 1886(d)(1)(B)(iv) of the 
Social Security Act (the Act), effective for cost reporting periods 
beginning on or after October 1, 2002.
    In the August 30, 2002 (67 FR 55954) Federal Register, we issued a 
final rule that implemented the LTCH PPS authorized under the BBRA and 
BIPA. The same final rule established regulations for the LTCH PPS 
under 42 CFR Part 412, Subpart O. This system currently uses 
information from LTCH patient records to classify patients into 
distinct Medicare Severity-long-term care diagnosis-related groups (MS-
LTC-DRGs) based on clinical characteristics and expected resource 
needs. Payments are calculated for each MS-LTC-DRG and provisions are 
made for appropriate payment adjustments. Payment rates under the LTCH 
PPS are updated annually and published in the Federal Register. We 
refer readers to the August 30, 2002 (67 FR 55954) final rule for a 
comprehensive discussion of the research and data that supported the 
establishment of the LTCH PPS.

B. Annual Updates to the LTCH PPS

    For RYs 2004 through 2009, annual payment rate update and policy 
changes under the LTCH PPS were effective beginning on July 1 of each 
year (RY 2009 is the 15-month rate period July 1, 2008 through 
September 30, 2009 (see Sec.  412.503)). However, the annual update of 
the LTC-DRG (and, beginning in FY 2008, the MS-LTC-DRG) classifications 
and relative weights for LTCHs are linked to the annual update of the 
acute care hospital inpatient prospective payment system (IPPS) DRGs 
and are effective each October 1.
    The most recent annual update to the payment rates and policy 
changes under the LTCH PPS was established in the RY 2009 LTCH PPS 
final rule (73 FR 26788 through 26874), and is currently effective for 
the 15-month rate year of July 1, 2008 through September 30, 2009. The 
most recent annual update to the MS-LTC-DRGs was established in the FY 
2009 IPPS final rule (73 FR 48528 through 48551), and is currently 
effective October 1, 2008 through September 30, 2009. In an interim 
final rule with comment period published elsewhere in this Federal 
Register, we revised the FY 2009 MS-LTC-DRG relative weights. The 
revised FY 2009 MS-LTC-DRG relative weights are effective for the 
remainder of FY 2009 (that is, from June 3, 2009 through September 30, 
2009).
    Beginning October 1, 2009, the annual updates to the LTCH PPS 
rates, and factors, including the MS-LTC-DRG relative weights, and 
other payment policy changes are effective on October 1. The proposed 
changes to the LTCH PPS payment rates, factors, and other payment 
policies under the LTCH PPS for RY 2010, including the proposed 
standard federal rate, proposed MS-LTC-DRG relative weights and 
proposed high cost outlier fixed-loss amount, are presented in the 
proposed rule entitled ``Medicare Program; Proposed Changes to the 
Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals 
and Fiscal Year 2010 Rates and to the Long-Term Care Hospital 
Prospective Payment System and Rate Year 2010 Rates'' issued in the May 
22, 2009 Federal Register (74 FR 24080) and hereinafter referred to as 
the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule. These proposed 
changes would be applicable to LTCH PPS discharges occurring on or 
after October 1, 2009.

[[Page 26602]]

II. Provisions of the Proposed Regulations

A. Proposed RY 2010 MS-LTC-DRG Relative Weights

    Beginning with the FY 2008 update, we established a budget neutral 
requirement for the annual update to the MS-LTC-DRG classifications and 
relative weights at 42 CFR 412.517(b) (in conjunction with Sec.  
412.503), such that estimated aggregate LTCH PPS payments would be 
unaffected, that is, would be neither greater than nor less than the 
estimated aggregate LTCH PPS payments that would have been made without 
the classification and relative weight changes. (See the May 11, 2007 
LTCH PPS final rule (72 FR 26882 through 26884).)
    Consistent with Sec.  412.517(b), we apply a two-step budget 
neutrality methodology, which is based on the current year MS-LTC-DRG 
classifications and relative weights. (For additional information on 
the established two-step budget neutrality methodology, refer to the FY 
2008 IPPS final rule (72 FR 47295 through 47296).) Thus, the annual 
update to the MS-LTC-DRG classifications and relative weights for RY 
2010 will be based on the FY 2009 MS-LTC-DRG classifications and 
relative weights. In the FY 2010 IPPS and LTCH PPS proposed rule (74 FR 
24218 through 24227), we proposed RY 2010 MS-LTC-DRG relative weights 
based on the FY 2009 MS-LTC-DRG relative weights published in the FY 
2009 IPPS final rule (73 FR 48528 through 48551 and 49041 through 
49062). In an interim final rule with comment period published 
elsewhere in this Federal Register, we have revised the published FY 
2009 MS-LTC-DRG relative weights based on the appropriate application 
of the FY 2009 budget neutrality factor determined consistent with our 
established methodology.
    Based on the revised FY 2009 MS-LTC-DRG relative weights published 
in an interim final rule with comment period published elsewhere in 
this Federal Register, we are proposing budget neutral RY 2010 MS-LTC 
DRG relative weights in this supplemental proposed rule.
    Specifically, we are proposing to apply the same two-step budget 
neutrality methodology described in the FY 2010 IPPS and RY 2010 LTCH 
PPS proposed rule (74 FR 24226 through 24227), which involves 
calculating and applying a proposed normalization factor and a proposed 
budget neutrality factor to determine proposed budget neutral MS-LTC 
DRG relative weights for RY 2010. These proposed RY 2010 MS-LTC-DRG 
relative weights, which would be effective for LTCH PPS discharges 
occurring on after October 1, 2009 through September 30, 2010, are 
shown in Table 11 (Amended) of this supplemental proposed rule. We 
recalibrated the MS-LTC-DRG relative weights using FY 2008 LTCH claims 
data from the December 2008 update of the MedPAR files, as described in 
section VIII.B.3. of the preamble of the FY 2010 IPPS and RY 2010 LTCH 
PPS proposed rule (74 FR 24218 through 24226). After recalibration, we 
applied our two-step budget neutrality methodology. First we calculated 
a proposed normalization factor of 1.07264 using the following steps: 
(1) We used the most recent available LTCH claims data (FY 2008) and 
grouped them using the proposed RY 2010 GROUPER (Version 27.0) and the 
proposed recalibrated RY 2010 MS-LTC-DRG relative weights to calculate 
the average case-mix index (CMI); (2) we grouped the same LTCH claims 
data (FY 2008) using the FY 2009 GROUPER (Version 26.0) and the revised 
FY 2009 MS-LTC-DRG relative weights shown in Table 11 of the interim 
final rule with comment period published elsewhere in this Federal 
Register to calculate the average CMI; and (3) we computed the ratio of 
these average CMIs by dividing the average CMI for FY 2009 (determined 
in Step 2) by the average CMI for RY 2010 (determined in Step 1). In 
determining the proposed RY 2010 MS-LTC-DRG relative weights, each 
recalibrated proposed MS-LTC-DRG relative weight is multiplied by 
1.07264 in the first step of the proposed budget neutrality process to 
produce proposed RY 2010 ``normalized relative weights.''
    In the second step of the proposed RY 2010 budget neutrality 
methodology, we determined a proposed budget neutrality factor of 
0.993343 using the following steps: (1) We simulated estimated total RY 
2010 LTCH PPS payments using the proposed RY 2010 MS-LTC-DRG 
classifications (proposed GROUPER Version 27.0) and the proposed 
normalized RY 2010 MS-LTC-DRG relative weights; (2) we simulated 
estimated total RY 2009 LTCH PPS payments using the FY 2009 GROUPER 
(Version 26.0) and the revised FY 2009 MS-LTC-DRG relative weights 
shown in Table 11 of the interim final rule with comment period 
published elsewhere in this Federal Register; and (3) we calculated the 
ratio of these simulated estimated total LTCH PPS payments by dividing 
the estimated total RY 2009 LTCH PPS payments using the FY 2009 GROUPER 
and revised FY 2009 MS-LTC-DRG relative weights (determined in Step 2) 
by the estimated total RY 2010 LTCH PPS payments using the proposed RY 
2010 GROUPER and the proposed RY 2010 normalized MS-LTC-DRG relative 
weights (determined in Step 1). Then, each of the proposed RY 2010 
normalized relative weights is multiplied by the proposed RY 2010 
budget neutrality adjustment factor of 0.993343 to determine the 
proposed budget neutral RY 2010 relative weight for each proposed MS-
LTC-DRG.
    The proposed RY 2010 MS-LTC-DRG relative weights, that would be 
effective for LTCH PPS discharges occurring on after October 1, 2009 
through September 30, 2010, are shown in Table 11 (Amended) of this 
supplemental proposed rule. These proposed RY 2010 MS-LTC-DRG relative 
weights reflect the application of the proposed RY 2010 normalization 
factor of 1.07264 and the proposed RY 2010 budget neutrality factor 
0.993343. (For the convenience of the reader, in addition to the 
proposed budget neutral RY 2010 MS-LTC-DRG relative weights, Table 11 
(Amended) also includes the proposed geometric mean length of stay and 
five-sixths of the geometric mean length of stay (Short-Stay Outlier 
(SSO) Threshold for payments under Sec.  412.529) for each proposed MS-
LTC-DRG for RY 2010.) The proposed RY 2010 MS-LTC-DRG relative weights 
do not affect the calculation of the geometric mean length of stay and 
the SSO threshold for RY 2010 that were presented in Table 11 of the FY 
2010 IPPS and RY 2010 LTCH PPS proposed rule (74FR 24589 through 
24608).

B. Proposed RY 2010 High Cost Outlier Fixed-Loss Amount

    In the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24268 
through 24269), we proposed a high cost outlier (HCO) fixed-loss amount 
of $16,059 for RY 2010 to maintain that total estimated HCO payments 
are projected to equal 8 percent of total estimated payments under the 
LTCH PPS as required under Sec.  412.523(d)(1). This proposed HCO 
fixed-loss amount of $16,059 for RY 2010 was calculated based in part 
on the proposed RY 2010 MS-LTC-DRG relative weights presented in Table 
11 of that same proposed rule (74 FR 24589 through 24608). Because the 
estimated payment for most LTCH PPS cases, including any applicable HCO 
payment, is based in-part on the proposed relative weight of the MS-
LTC-DRG presented, in this supplemental proposed rule, we have 
determined based on the proposed RY 2010 MS-LTC-DRG relative weights 
presented in Table 11 (Amended) of this

[[Page 26603]]

supplemental proposed rule, a proposed fixed-loss amount of $18,868 for 
RY 2010, which would maintain that total estimated HCO payments are 
projected to equal 8 percent of total estimated payments under the LTCH 
PPS in RY 2010.
    To determine the proposed fixed-loss amount for RY 2010 for this 
supplemental proposed rule, we are proposing to use the same proposed 
methodology used to calculate the proposed RY 2010 fixed-loss amount in 
the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24268). 
Specifically, we propose to use LTCH claims data from the December 2008 
update of the FY 2008 MedPAR files and cost-to-charge (CCRs) from the 
December 2008 update of the provider-specific file (PSF) to calculate 
the proposed RY 2010 fixed-loss amount. Furthermore, we propose to 
calculate the proposed RY 2010 fixed-loss amount using the MS-LTC-DRG 
classifications and relative weights from the version of the GROUPER 
that will be in effect as of the beginning of RY 2010 (October 1, 
2009), that is, proposed Version 27.0 of the GROUPER and the proposed 
RY 2010 MS-LTC-DRG relative weights presented in Table 11 (Amended) of 
this supplemental proposed rule.
    Applying the proposed methodology described above, we have 
determined that a proposed RY 2010 fixed-loss amount of $18,868 would 
result in estimated HCO payments equal to 8 percent of estimated total 
LTCH PPS payments, as required under Sec.  412.523(d)(1), for LTCH PPS 
discharges occurring during RY 2010. Therefore, in this supplemental 
proposed rule, under the broad authority of section 123(a)(1) of the 
BBRA and section 307(b)(1) of BIPA, we are proposing a fixed-loss 
amount for RY 2010 of $18,868. The proposed RY 2010 fixed-loss amount 
of $18,868 would be effective for LTCH PPS discharges occurring on 
October 1, 2009 through September 30, 2010. Thus, for RY 2010, we would 
propose to pay a HCO case 80 percent of the difference between the 
estimated cost of the case and the proposed outlier threshold (the sum 
of the proposed adjusted Federal LTCH payment for the discharge and the 
proposed fixed-loss amount of $18,868).
    As we proposed in the FY 2010 IPPS and RY 2010 LTCH PPS proposed 
rule and consistent with our historical practice of using the most 
recent data available, we are proposing in this supplemental proposed 
rule that if more recent LTCH data become available, we will use them 
for determining the fixed-loss amount for RY 2010 in the final rule.

III. Waiver of 60-Day Comment Period

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and permit a 60-day comment period, as provided in 
section 1871(b)(1) of the Act. This period, however, may be shortened, 
as provided under section 1871(b)(2)(C), when the Secretary finds good 
cause that a 60-day comment period would be impracticable, unnecessary, 
or contrary to the public interest and incorporates a statement of the 
finding and its reasons in the rule issued. For this supplemental 
proposed rule, we are waiving the 60-day comment period for good cause 
and allowing a comment period that coincides with the comment period 
provided for on the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 
FR 24080).
    Ordinarily, we begin our preparations for issuing an LTCH PPS 
proposed rule early so that our proposals may be on public display by 
May 1 of that year. This schedule allows for a 60-day comment period 
closing within a sufficient amount of time to also allow for a 1- to 2-
month period to consider all comments received and appropriately 
respond to them. In this case, elsewhere in this Federal Register an 
interim final rule with public comment is issued that provides for 
revised FY 2009 MS-LTC-DRG relative weights. The revised MS-LTC-DRG 
relative weights affect some of the proposals contained in the FY 2010 
IPPS and RY 2010 LTCH PPS proposed rule, which went on display on May 
1, 2009, and was published in the Federal Register on May 22, 2009. 
Therefore, we need to immediately replace those affected proposals. A 
60-day comment period on this supplemental proposed rule would be both 
impracticable and contrary to the public interest because it would not 
allow for coordinated consideration of the comments on this 
supplemental proposed rule with those on the FY 2010 IPPS and RY 2010 
LTCH PPS proposed rule. Because the issues raised in this supplemental 
proposed rule are integral to our consideration of comments on certain 
proposals in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule, we do 
not believe it would be appropriate to review comments on the issues 
raised in this supplemental proposed rule in isolation from the 
comments received on the FY 2010 IPPS and RY 2010 LTCH PPS proposed 
rule. We further note that a full 60-day comment period would end on a 
date that would not allow the agency sufficient time to process the 
comments and respond to them in a meaningful manner by the August 1, 
2009 date for issuing the final rule. Timely filed comments would 
receive a shorter period of time for consideration by the agency, and 
the agency would be left with insufficient time to properly respond to 
comments and appropriately resolve whether any of the proposed policies 
should be modified in light of comments received. For all of these 
reasons, we find good cause to waive the 60-day comment period for this 
rule of proposed rulemaking, and we are instead providing for a comment 
period that coincides with the comment period provided for on the FY 
2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24080).

IV. Collection of Information Requirements

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

V. Response to Comments

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

VI. Regulatory Impact Analysis

A. Introduction and Overall Impact

    In this section of this supplemental proposed rule, we discuss the 
impact of these proposed RY 2010 MS-LTC-DRG relative weights and 
proposed RY 2010 HCO threshold presented in the preamble of this 
supplemental proposed rule and the proposed rates, factors and policies 
presented in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule, in 
terms of their estimated fiscal impact on the Medicare budget and on 
LTCHs. We note that this impact analysis replaces the analysis included 
in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24079). 
As discussed in the interim final rule with comment period published 
elsewhere in this Federal Register, we are revising the FY 2009 MS-LTC-
DRG relative weights. This prospective revision to the FY 2009 MS-LTC-
DRG relative weights affects the determination of the proposed RY 2010 
MS-LTC-DRG relative weights. The FY 2009 MS-LTC-

[[Page 26604]]

DRG relative weights (73 FR 48528 through 48552) were the basis for 
determining the proposed normalization factor and proposed budget 
neutrality factor that were applied in determining the proposed RY 2010 
MS-LTC-DRG relative weights presented in the FY 2010 IPPS and RY 2010 
LTCH PPS proposed rule (74 FR 24079). Consequently, based on this 
revision to the FY 2009 MS-LTC-DRG relative weights issued in an 
interim rule with comment period published elsewhere in this Federal 
Register, we are proposing budget neutral MS-LTC-DRG relative weights 
for RY 2010 and a HCO fixed loss amount for RY 2010 in this 
supplemental proposed rule.
    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993, as 
further amended), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, 
section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4), Executive Order 13132 on Federalism (August 4, 1999), and the 
Congressional Review Act (5 U.S.C. 804(2)).
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any 1 year). Based on the 
399 LTCHs in our database, we estimate RY 2009 LTCH PPS payments based 
on the FY 2009 MS-LTC-DRG relative weights issued in an interim final 
rule with comment period published elsewhere in this Federal Register, 
to be approximately $4.634 billion and RY 2010 LTCH PPS payments to be 
approximately $4.735 billion.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small government 
jurisdictions. Most hospitals and most other providers and suppliers 
are considered to be small entities, either by being nonprofit 
organizations or by meeting the Small Business Administration 
definition of a small business (having revenues of $34.5 million or 
less in any 1 year). (For details on the latest standards for health 
care providers, we refer readers to the Table of Small Business Size 
Standards for NAIC 622 found on the Small Business Administration 
Office of Size Standards Web site at: http://www.sba.gov/contractingopportunities/officials/size/GC-SMALL-BUS-SIZE-STANDARDS.html.) For purposes of the RFA, all hospitals and other 
providers and suppliers are considered to be small entities. 
Individuals and States are not included in the definition of a small 
entity. Because we lack data on individual hospital receipts, we cannot 
determine the number of small proprietary LTCHs. Therefore, we are 
assuming that all LTCHs are considered small entities for the purpose 
of this analysis. Because we acknowledge that many of the affected 
entities are small entities, the analysis discussed throughout the 
preamble of this supplemental proposed rule constitutes our proposed 
regulatory flexibility analysis. Therefore, we are soliciting public 
comments on our estimates and analysis of the impact of this 
supplemental proposed rule on those small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis for any proposed or final rule that 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. With the exception of hospitals located in 
certain New England counties, for purposes of section 1102(b) of the 
Act, we now define a small rural hospital as a hospital that is located 
outside of an urban area and has fewer than 100 beds. Section 601(g) of 
the Social Security Amendments of 1983 (Pub. L. 98-21) designated 
hospitals in certain New England counties as belonging to the adjacent 
urban area. Thus, for purposes of the LTCH PPS, we continue to classify 
these hospitals as urban hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4) also requires that agencies assess anticipated costs and 
benefits before issuing any rule whose mandates require spending in any 
1 year of $100 million in 1995 dollars, updated annually for inflation. 
That threshold level is currently approximately $133 million. This 
supplemental proposed rule will not mandate any requirements for State, 
local, or tribal governments, nor would it affect private sector costs.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. As stated above, this supplemental proposed rule would 
not have a substantial effect on State and local governments.

B. General Considerations

    In the impact analysis of this supplemental proposed rule, we are 
using the revised FY 2009 MS-LTC-DRG relative weights as established in 
an interim final rule with comment period published elsewhere in this 
Federal Register and the rates, factors and policies established in the 
LTCH PPS RY 2009 final rule (73 FR 26788 through 24881) to estimate 
payments for the 2009 LTCH PPS rate year. To estimate payments for the 
RY 2010, we are using the proposed RY 2010 MS-LTC-DRG relative weights 
and the proposed RY 2010 HCO threshold presented in this supplemental 
proposed rule, and the proposed rates, factors, and policies presented 
in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24079), 
including proposed updated wage index values the labor-related share, 
and the best available claims and CCR data. Furthermore, as discussed 
in section V.A.2. of the Addendum to the FY 2010 IPPS and RY 2010 LTCH 
PPS proposed rule (74 FR 24079), consistent with our historical policy, 
we have proposed to update the standard Federal rate for RY 2009 by 0.6 
percent in order to calculate the proposed RY 2010 standard Federal 
rate at $39,349.05.
    Moreover, in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule 
(74 FR 24079), we proposed a HCO threshold of $16,059. As discussed in 
detail in section II.B. of this supplemental proposed rule, this HCO 
threshold was calculated based in part on the proposed RY 2010 MS-LTC-
DRG relative weights presented in Table 11 of that same proposed rule. 
Because the estimated payment for most LTCH PPS cases, including any 
applicable HCO payment, is based in-part on the relative weight of the 
MS-LTC-DRG, the revision to the proposed RY 2010 MS-LTC-DRG relative 
weights also affects the proposed HCO threshold for RY 2010. Therefore, 
in this supplemental proposed rule, we are proposing a HCO fixed-loss 
amount for RY 2010 of $18,868, based on the proposed RY 2010 MS-LTC-DRG 
relative weights presented in this supplemental proposed rule, that 
would maintain that total estimated HCO payments are projected to equal 
8 percent of total estimated payments under the LTCH PPS in RY 2010. 
Currently, our database of 399 LTCHs includes the data for 81 nonprofit 
(voluntary ownership control)

[[Page 26605]]

LTCHs and 267 proprietary LTCHs. Of the remaining 51 LTCHs, 12 LTCHs 
are government-owned and operated and the ownership type of the other 
39 LTCHs is unknown. Based on the best available data for the 399 LTCHs 
in our database used in the impact analysis for this supplemental 
proposed rule, we estimate that the proposed update to the standard 
Federal rate for RY 2010 and the proposed changes to the area wage 
adjustment for the 2010 LTCH PPS rate year would result in an increase 
in estimated payments from the 2009 LTCH PPS rate year of approximately 
$101 million (or about 2.2 percent). That is, based on the 399 LTCHs in 
our database, we estimate RY 2009 LTCH PPS payments based on the FY 
2009 MS-LTC-DRG relative weights issued in an interim final rule with 
comment period published elsewhere in this Federal Register to be 
approximately $4.634 billion and RY 2010 LTCH PPS payments to be 
approximately $4.735 billion. We note that the impact analysis in this 
supplemental proposed rule replaces the impact analysis presented in 
the proposed rule published on May 22, 2009 in which we estimated RY 
2009 LTCH PPS payments to be approximately $4.76 billion and RY 2010 
LTCH PPS payments to be approximately $4.90 billion, resulting in a 
projected increase in estimated payments from RY 2009 to RY 2010 of 
approximately 2.8 percent. Because the combined distributional effects 
and estimated changes to the Medicare program payments would be greater 
than $100 million, this proposed rule is considered a major economic 
rule, as defined in this section.
    As Table I shows, the proposed change in the standard Federal rate 
is projected to result in an increase of 0.5 percent in estimated 
payments per discharge from RY 2009 to RY 2010, on average, for all 
LTCHs. As discussed in the FY 2010 IPPS and RY 2010 LTCH PPS proposed 
rule (74 FR 24079), payments for cost-based SSO cases and a portion of 
payments for SSO cases that are paid based on the ``blend'' option 
(that is, SSO cases paid under Sec.  412.529(c)(2)(iv)) are not 
affected by the proposed update to the standard Federal rate. 
Accordingly, we estimate that the effect of the proposed 0.6 percent 
update to the standard Federal rate would result in a 0.5 percent 
increase (as shown in Column 6 of Table I) on estimated aggregate LTCH 
PPS payments for all LTCH PPS cases, including SSO cases.
    While the effect of the proposed change to the standard Federal 
rate is projected to increase estimated payments from RY 2009 to RY 
2010, the proposed changes to the area wage adjustment from RY 2009 to 
RY 2010 are expected to result in neither an increase nor a decrease in 
estimated aggregate LTCH PPS payments from RY 2009 to RY 2010 (Column 7 
of Table I).
    We note that the overall percent change in estimated LTCH payments 
from RY 2009 to RY 2010 for all proposed changes (shown in Column 8) 
cannot be determined by adding the incremental effect of the proposed 
standard Federal rate (Column 6) and the proposed area wage adjustment 
changes (Column 7) on estimated aggregate LTCH PPS payments. Each of 
those two columns are intended to show the isolated impact of the 
respective change (that is, the proposed change to the standard Federal 
rate or the proposed change to the area wage adjustment) on estimated 
payments for RY 2010 as compared to RY 2009. Since, the interactive 
effects resulting from both the proposed change to the standard Federal 
rate and the proposed change to the area wage adjustment, as well as 
estimated changes to HCO and SSO payments, are not reflected in each of 
these columns the overall percent change in estimated LTCH payments 
from RY 2009 to RY 2010 for all proposed changes cannot be determined 
by simply adding Column 6 and Column 7. However, the interactive 
effects of all proposed changes, including the change in estimated HCO 
and SSO payments, are reflected in the estimated change in payments for 
all proposed changes for RY 2010 as compared to RY 2009 (shown in 
Column 8 of Table I).
    Notwithstanding this limitation in comparing the various columns in 
Table I, the projected increase in payments per discharge from RY 2009 
to RY 2010 is 2.2 percent (shown in Column 8). This projected increase 
in payments is attributable to the proposed impacts of the proposed 
change to the standard Federal rate (0.5 percent in Column 6), and the 
proposed change due to the area wage adjustment (0 percent in Column 
7), and the effect of the estimated increase in payments for HCO and 
SSO cases in RY 2010 as compared to RY 2009, as well as interactive 
effects, as discussed previously. Specifically, estimated total HCO 
payments are projected to increase from RY 2009 to RY 2010 in order to 
ensure that estimated HCO payments will be 8 percent of total estimated 
LTCH PPS payments in RY 2010. As discussed in detail in the IPPS and RY 
2010 LTCH PPS proposed rule (74 FR 24079), an analysis of the most 
recent available LTCH PPS claims data (that is, FY 2008 claims from the 
December 2008 update of the MedPAR files) indicates that the RY 2009 
HCO threshold of $22,960 may result in HCO payments in RY 2009 that 
fall below the estimated 8 percent. Specifically, we currently estimate 
that HCO payments will be approximately 6.7 percent of estimated total 
LTCH PPS payments in RY 2009. Consequently, it is necessary to propose 
to decrease the HCO threshold for RY 2010 in order to ensure that 
estimated HCO payments will be 8 percent of total estimated LTCH PPS 
payments in RY 2010. We estimate that the impact of the increase in HCO 
payments would result in approximately a 1.3 percent increase in 
estimated payments from RY 2009 to RY 2010. Furthermore, in calculating 
the estimated increase in payments from RY 2009 to RY 2010 for HCO and 
SSO cases, we increased estimated costs by the applicable market basket 
percentage increase as projected by our actuaries. We note that 
estimated payments for SSO cases comprise approximately 15 percent of 
estimated total LTCH PPS payments, and estimated payments for HCO cases 
comprise approximately 8 percent of estimated total LTCH PPS payments. 
Payments for HCO cases are based on 80 percent of the estimated cost 
above the HCO threshold, and the majority of the payments for SSO cases 
(over 70 percent) are based on the estimated cost of the SSO case. 
Accordingly, we estimate that of the 2.2 percent increase in payments 
per discharge from RY 2009 to RY 2010, 1.3 percent is attributable to 
the projected increase in HCO payments and 0.4 percent is attributable 
to the projected increase in costs of SSO cases and the interactive 
effects which we have discussed previously.
    The results of this impact analysis are summarized in Table I. As 
we discuss in detail throughout this regulatory impact analysis, based 
on the most recent available data, we believe that the proposed 
provisions of this supplemental proposed rule and the proposed 
provisions relating to the LTCH PPS contained in the FY 2010 IPPS and 
RY 2010 proposed rule (that is, the proposed update to the standard 
Federal rate and the proposed changes to the area wage adjustment) 
would result in an increase in estimated aggregate LTCH PPS payments 
and that the resulting LTCH PPS payment amounts result in appropriate 
Medicare payments.

C. Impact on Rural Hospitals

    For purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. As shown in Table

[[Page 26606]]

I, we are projecting a 3.1 percent increase in estimated payments per 
discharge for the 2010 LTCH PPS rate year as compared to the 2009 LTCH 
PPS rate year for rural LTCHs that would result from the proposed 
changes presented in this supplemental proposed rule and the FY 2010 
IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24079) (that is, the 
update to the standard Federal rate and the proposed changes to the 
area wage adjustment). This estimated impact is based on the data of 
the 26 rural LTCHs in our database of 399 LTCHs for which complete data 
were available.
    The estimated increase in LTCH PPS payments from the 2009 LTCH PPS 
rate year to the 2010 LTCH PPS rate year for rural LTCHs is due to the 
proposed change to the standard Federal rate, and the proposed change 
in the area wage adjustments, as well as the estimated change in HCO 
payments. That is, estimated HCO payments in RY 2009 are currently 
projected to be less than 8 percent of total estimated LTCH PPS 
payments. We believe that the proposed changes to the area wage 
adjustments presented in the FY 2010 IPPS and RY 2010 LTCH PPS 2010 
proposed rule (74 FR 24079) (that is, the proposed use of updated wage 
data and the proposed change in the labor-related share) would result 
in accurate and appropriate LTCH PPS payments in RY 2010 because they 
are based on the most recent available data. Such updated data 
appropriately reflect national differences in area wage levels and 
appropriately identify the portion of the standard Federal rate that 
should be adjusted to account for such differences in area wages, 
thereby resulting in accurate and appropriate LTCH PPS payments.

D. Anticipated Effects

    We discuss the impact of the proposed changes to the payment rates, 
factors, and other payment rate policies under the LTCH PPS for RY 2010 
(in terms of their estimated fiscal impact on the Medicare budget and 
on LTCHs) in this supplemental proposed rule. We note that this impact 
analysis replaces the analysis included in the FY 2010 IPPS and RY 2010 
LTCH PPS proposed rule (74 FR 24079).
1. Budgetary Impact
    As discussed in this section of the supplemental proposed rule, we 
project an increase in aggregate RY 2010 LTCH PPS payments of 
approximately $101 million (or 2.2 percent) based on the 399 LTCHs in 
our database.
2. Impact on Providers
    The basic methodology for determining a per discharge LTCH PPS 
payment is set forth in Sec.  412.515 through Sec.  412.536. In 
addition to the basic MS-LTC-DRG payment (standard Federal rate 
multiplied by the MS-LTC-DRG relative weight), we make adjustments for 
differences in area wage levels, COLA for Alaska and Hawaii, and SSOs. 
Furthermore, LTCHs may also receive HCO payments for those cases that 
qualify based on the threshold established each rate year.
    To understand the impact of the proposed changes to the LTCH PPS 
payments presented in this supplemental proposed rule on different 
categories of LTCHs for the 2010 LTCH PPS rate year, it is necessary to 
estimate payments per discharge for the 2009 LTCH PPS rate year using 
the rates, factors and policies established in the RY 2009 LTCH PPS 
final rule (73 FR 26788 through 26874) including the FY 2009 GROUPER 
(Version 26.0), and FY 2009 MS-LTC-DRG relative weights, revised in the 
FY 2009 interim final rule with comment period published elsewhere in 
this Federal Register. Furthermore, we note that RY 2009 was a 15-month 
rate year due to the consolidation of the LTCH PPS updating cycles 
while RY 2010 is a 12-month rate year. In order to produce a meaningful 
comparison of the change in estimated payments from RY 2009 to RY 2010, 
for purposes of this impact analysis, we estimated payments for RY 2009 
as if it was a 12-month rate year (that is, October 1, 2008 through 
September 30, 2009). To estimate the payments per discharge for RY 2010 
the proposed LTCH PPS rates, factors, policies, and GROUPER for the 
2010 LTCH PPS rate year (as discussed in section II. of the preamble 
and section V. of the Addendum to the FY 2010 IPPS and RY 2010 LTCH PPS 
proposed rule (74 FR 24079)) and the proposed MS-LTC-DRG relative 
weights and HCO fixed-loss amount (as discussed in section II. of this 
supplemental proposed rule). These estimates of both RY 2009 and RY 
2010 LTCH PPS payments are based on the best available (FY 2008) LTCH 
claims data (that is, for both the RY 2009 and RY 2010 estimates we 
used only 12 months of claims data) and other factors such as the 
application of inflation factors to estimate costs for SSO and HCO 
cases in each year. We also evaluated the change in estimated 2009 LTCH 
PPS rate year payments to estimated 2010 LTCH PPS rate year payments 
(on a per discharge basis) for each category of LTCHs.
    Hospital groups were based on characteristics provided in the OSCAR 
data, FY 2004 through FY 2006 cost report data in HCRIS, and Provider-
Specific File data. Hospitals with incomplete characteristics were 
grouped into the ``unknown'' category. Hospital groups include the 
following:
     Location: Large urban/other urban/rural.
     Participation date.
     Ownership control.
     Census region.
     Bed size.
    To estimate the impacts of the proposed payment rates and policy 
changes among the various categories of existing providers, we used 
LTCH cases from the FY 2008 MedPAR file to estimate payments for RY 
2009 and to estimate payments for RY 2010 for 399 LTCHs. While 
currently there are just over 400 LTCHs, the most recent growth is 
predominantly in for-profit LTCHs that provide respiratory and 
ventilator-dependent patient care. We believe that the discharges based 
on the FY 2008 MedPAR data for the 399 LTCHs in our database, which 
includes 267 proprietary LTCHs, provide sufficient representation in 
the MS-LTC-DRGs containing discharges for patients who received LTCH 
care for the most commonly treated LTCH patients' diagnoses.
3. Calculation of Prospective Payments
    For purposes of this impact analysis, to estimate per discharge 
payments under the LTCH PPS, we simulated payments on a case-by-case 
basis using LTCH claims from the FY 2008 MedPAR files. For modeling 
estimated LTCH PPS payments for RY 2009, we applied the RY 2009 
standard Federal rate (that is, $39,114.36, which is effective for LTCH 
discharges occurring on or after July 1, 2008, and through September 
30, 2009). For modeling estimated LTCH PPS payments for RY 2010, we 
applied the proposed RY 2010 standard Federal rate of $39,349.05, which 
would be effective for LTCH discharges occurring on or after October 1, 
2009, and through September 30, 2010).
    Furthermore, in modeling estimated LTCH PPS payments for both RY 
2009 and RY 2010 in this impact analysis, we applied the RY 2009 and 
proposed RY 2010 adjustments for area wage differences and the COLA for 
Alaska and Hawaii. Specifically, we adjusted for area wage differences 
for estimated 2009 LTCH PPS rate year payments using the current LTCH 
PPS labor-related share of 75.662 percent (73 FR 26815), the wage index 
values established in the Tables 1 and 2 of the Addendum of the RY 2009 
LTCH final

[[Page 26607]]

rule (73 FR 26840 through 26863) and the COLA factors established in 
Table III of the preamble of the RY 2009 LTCH final rule (73 FR 26819). 
Similarly, we adjusted for area wage differences for estimated proposed 
2010 LTCH PPS rate year payments using the LTCH PPS proposed RY 2010 
labor-related share of 75.904 percent (72 FR 24079), the proposed RY 
2010 wage index values presented in the Tables 12A and 12B of the 
Addendum to the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 
24079), and the proposed RY 2010 COLA factors shown in the table in 
section V. of the Addendum to the FY 2010 IPPS and RY 2010 LTCH PPS 
proposed rule (74 FR 24079).
    As discussed above, our impact analysis reflects an estimated 
change in payments for SSO cases. In modeling payments for SSO cases in 
RY 2009, we applied an inflation factor of 1.024 percent (determined by 
OACT) to the estimated costs of each case determined from the charges 
reported on the claims in the FY 2008 MedPAR files and the best 
available Cost-to-Charge Ratios (CCRs) from the December 2008 update of 
the Provider-Specific File. In modeling proposed payments for SSO cases 
in RY 2010, we applied an inflation factor of 1.049 (determined by 
OACT) to the estimated costs of each case determined from the charges 
reported on the claims in the FY 2008 MedPAR files and the best 
available CCRs from the December 2008 update of the Provider-Specific 
File.
    These impacts reflect the estimated ``losses'' or ``gains'' among 
the various classifications of LTCHs from the 2009 LTCH PPS rate year 
to the 2010 LTCH PPS rate year based on the proposed payment rates and 
policy changes presented in this supplemental proposed rule and the FY 
2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24079). Table I 
illustrates the estimated aggregate impact of the LTCH PPS among 
various classifications of LTCHs.
     The first column, LTCH Classification, identifies the type 
of LTCH.
     The second column lists the number of LTCHs of each 
classification type.
     The third column identifies the number of LTCH cases.
     The fourth column shows the estimated payment per 
discharge for the 2009 LTCH PPS rate year (as described above).
     The fifth column shows the estimated payment per discharge 
for the 2010 LTCH PPS rate year (as described above).
     The sixth column shows the percentage change in estimated 
payments per discharge from the 2009 LTCH PPS rate year to the 2010 
LTCH PPS rate year for proposed changes to the standard Federal rate 
(as discussed in section V. of the Addendum to the FY 2010 IPPS and RY 
2010 LTCH PPS proposed rule (74 FR 24079)).
     The seventh column shows the percentage change in 
estimated payments per discharge from the 2009 LTCH PPS rate year to 
the 2010 LTCH PPS rate year for proposed changes to the area wage 
adjustment at Sec.  412.525(c) (as discussed in section V.B.4. of the 
Addendum to the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 
24079)).
     The eighth column shows the percentage change in estimated 
payments per discharge from the 2009 LTCH PPS rate year (Column 4) to 
the 2010 LTCH PPS rate year (Column 5) for all proposed changes (and 
includes the effect of estimated changes to SSO payments).
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4. Results
    Based on the most recent available data (as described previously 
for 399 LTCHs), we have prepared the following summary of the impact 
(as shown in Table I) of the proposed LTCH PPS payment rate and policy 
changes presented in this supplemental proposed rule and those 
presented in the FY 2010 IPPS and RY 2010 LTCH proposed rule for the 
2010 LTCH rate year. The impact analysis in Table I shows that 
estimated payments per discharge are expected to increase approximately 
2.2 percent, on average, for all LTCHs from the 2009 LTCH PPS rate year 
to the 2010 LTCH PPS rate year as a result of the proposed payment rate 
and policy changes presented in FY 2010 IPPS and RY 2010 proposed rule 
and the proposed MS-LTC-DRG relative weights and HCO fixed-loss amount 
presented in this supplemental proposed rule, as well as estimated 
increases in HCO and SSO payments. We note that we are proposing a 0.6 
percent increase to the standard Federal rate for RY 2010, based on the 
latest market basket estimate (2.4 percent) and the proposed 
documentation and coding adjustment (-1.8 percent). We noted earlier in 
this section that for most categories of LTCHs, as shown in Table I 
(Column 6), the impact of the proposed increase of 0.6 percent to the 
standard Federal rate is projected to result in a 0.5 percent increase 
in estimated payments per discharge from the 2009 LTCH PPS rate year to 
the 2010 LTCH PPS rate year. In addition to the proposed 0.6 percent 
increase to the standard Federal rate for RY 2010, the projected 
percent increase in estimated payments per discharge from the 2009 LTCH 
PPS rate year to the 2010 LTCH PPS rate year of 2.2 percent shown in 
Table I (Column 8) reflects the effect of estimated increases in HCO 
and SSO payments, as discussed previously. Furthermore, as discussed 
previously in this regulatory impact analysis, the average increase in 
estimated payments per discharge from the 2009 LTCH PPS rate year to 
the 2010 LTCH PPS rate year for all LTCHs of approximately 2.2 percent 
(as shown in Table I) was determined by comparing estimated proposed RY 
2010 LTCH PPS payments (using the proposed rates and policies discussed 
in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule and those 
discussed in this supplemental proposed rule) to estimated RY 2009 LTCH 
PPS payments.
a. Location
    Based on the most recent available data, the majority of LTCHs are 
in urban areas. Approximately 7 percent of the LTCHs are identified as 
being located in a rural area, and approximately 5 percent of all LTCH 
cases are treated in these rural hospitals. The impact analysis 
presented in Table I shows that the average percent increase in 
estimated payments per discharge from the 2009 LTCH PPS rate year to 
the 2010 LTCH PPS rate year for all hospitals is 2.2 percent for all 
proposed changes. For rural LTCHs, the percent change for all proposed 
changes is estimated to be 3.1 percent, while for urban LTCHs, we 
estimate this increase to be nearly average, that is 2.1 percent. Large 
urban LTCHs are projected to experience a near to average increase (2.3 
percent) in estimated payments per discharge from the 2009 LTCH PPS 
rate year to the 2010 LTCH PPS rate year, while other urban LTCHs are 
projected to experience a slightly lower than average increase (2.0 
percent) in estimated payments per discharge from the 2009 LTCH PPS 
rate year to the 2010 LTCH PPS rate year, as shown in Table I.
b. Participation Date
    LTCHs are grouped by participation date into four categories: (1) 
Before October 1983; (2) between October 1983 and September 1993; (3) 
between October 1993 and September 2002; and (4) after October 2002. 
Based on the most recent available data, the majority (approximately 51 
percent) of the LTCH cases are in hospitals that began participating 
between October 1993 and September 2002, and are projected to 
experience a near average increase (2.0 percent) in estimated payments 
per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS 
rate year, as shown in Table I.
    In the two participation categories where LTCHs began participating 
in Medicare before September 1993, LTCHs are projected to experience 
higher than average percent increases (3.1 percent and 2.7 percent, 
respectively) in estimated payments per discharge from the 2009 LTCH 
PPS rate year to the 2010 LTCH PPS rate year, as shown in Table I, due 
to proposed changes in the wage index and an estimated increase in HCO 
and SSO payments. Approximately 4 percent of LTCHs began participating 
in Medicare before October 1983. The LTCHs in this category are 
projected to experience a higher than average increase in estimated 
payments because 65 percent of these LTCHs are located in areas where 
the proposed RY 2010 wage index value is greater than the RY 2009 wage 
index value, and also because the majority of these LTCHs have a 
proposed wage index value greater than 1.0. Approximately 11 percent of 
LTCHs began participating in Medicare between October 1983 and 
September 1993. These LTCHs are projected to experience a higher than 
average increase in estimated payments because the majority (57 
percent) are located in areas where the proposed RY 2010 wage index 
value would be greater than the RY 2009 wage index value. The majority 
of LTCHs, that is, those that began participating in Medicare since 
October 1993, are projected to experience near average increases in 
estimated payments per discharge from the 2009 LTCH PPS rate year to 
the 2010 LTCH PPS rate year, as shown in Table I.
c. Ownership Control
    Other than LTCHs whose ownership control type is unknown, LTCHs are 
grouped into three categories based on ownership control type: 
Voluntary, proprietary, and government. Based on the most recent 
available data, approximately 20 percent of LTCHs are identified as 
voluntary (Table I). We expect that, for these LTCHs in the voluntary 
category, estimated 2010 LTCH PPS rate year payments per discharge 
would increase higher than average (2.5 percent) in comparison to 
estimated payments in the 2009 LTCH PPS rate year, as shown in Table I, 
primarily because the change in estimated HCO payments is projected to 
be higher than average for these LTCHs. The majority (67 percent) of 
LTCHs are identified as proprietary and these LTCHs are projected to 
experience a near average (2.0 percent) increase in estimated payments 
per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS 
rate year. Finally, government owned and operated LTCHs (3.0 percent) 
are expected to experience a higher than the average increase (2.8 
percent) in estimated payments primarily due to a larger than average 
increase in estimated HCO payments.
d. Census Region
    Of the 9 census regions, we project that the increase in estimated 
payments per discharge would have the largest impact on LTCHs in the 
New England, Mountain, and Pacific regions (3.3 percent, 3.4 percent, 
3.3 percent, respectively, as shown in Table I). As explained in 
greater detail above, the estimated percent increase in payments per 
discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate 
year for most regions is attributable to the projected increase in 
estimated HCO and SSO payments, the proposed increase in the standard 
Federal rate and the proposed changes to the area wage adjustment. 
Specifically, for the

[[Page 26611]]

New England region, all the LTCHs located in this region have a 
proposed wage index value greater than 1.0; and the majority (87 
percent) of these LTCHs are located in areas where the proposed RY 2010 
wage index value is greater than the RY 2009 wage index value. The 
projected increase in estimated payments per discharge from the 2009 
LTCH PPS rate year to the 2010 LTCH PPS rate year for LTCHs in the 
Mountain and Pacific regions is also due to the projected increase in 
estimated HCO and SSO payments and the significantly higher than 
average estimated impact from the proposed changes to the area wage 
adjustment. That is, the majority (60 percent) of the LTCHs located in 
the Mountain region have a proposed wage index value greater than 1.0, 
and in addition, most of these LTCHs are located in areas where the 
proposed RY 2010 wage index value is greater than the RY 2009 wage 
index value. Furthermore, all the LTCHs located in the Pacific region 
have a proposed wage index value greater than 1.0 and are located in 
areas where the proposed RY 2010 wage index value would be greater than 
the RY 2009 wage index value.
    In contrast, LTCHs located in the Middle Atlantic and East North 
Central regions are projected to experience a lower than average 
increase in estimated payments per discharge from the 2009 LTCH PPS 
rate year to the 2010 LTCH PPS rate year. The projected increase in 
payments of 1.2 percent for LTCHs in the Middle Atlantic region is 
primarily due to the 59 percent of LTCHs in this region that are 
located in areas where the proposed RY 2010 wage index value would be 
less than the RY 2009 wage index value. Similarly, the lower than 
average increase (1.3 percent) in payments per discharge for LTCHs in 
the East North Central region is largely due to the majority of LTCHs 
in this region that are expected to experience a decrease in estimated 
payments per discharge due to the proposed changes in the area wage 
adjustment. The remaining regions, South Atlantic, East South Central, 
West North Central, and West South Central, are expected to experience 
near the national average increase in estimated payments per discharge 
from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year.
e. Bed Size
    LTCHs were grouped into six categories based on bed size: 0-24 
beds; 25-49 beds; 50-74 beds; 75-124 beds; 125-199 beds; and greater 
than 200 beds.
    We are projecting an increase in estimated 2010 LTCH PPS rate year 
payments per discharge in comparison to the 2009 LTCH PPS rate year for 
all bed size categories. Approximately 38 percent of LTCHs are in bed 
size categories where estimated 2010 LTCH PPS rate year payments per 
discharge are projected to increase near the average increase for all 
LTCHs in comparison to estimated 2009 LTCH PPS rate year payments per 
discharge. That is, LTCHs in bed size categories of 50-74 beds, 75-124 
beds, and 125-199 beds are projected to experience an overall increase 
of 2.3 percent. LTCHs in the bed size category of 0-24 beds are 
projected to experience a higher than average increase (2.8 percent) in 
estimated payments per discharge from the 2009 LTCH PPS rate year to 
the 2010 LTCH PPS rate year due primarily to their estimated increase 
in HCO payments. For LTCHs with 200+ beds, the higher than average 
projected increase in estimated payments of 2.6 percent is due to the 
projected increase in estimated HCO and SSO payments and the 
significantly higher than average impact from the proposed changes to 
the area wage adjustment. Specifically, 69 percent of LTCHs in this 
category are expected to have a proposed RY 2010 wage index value 
greater than 1.0, and 62 percent of the LTCHs in this category are 
located in areas where the proposed RY 2010 wage index value is greater 
than the RY 2009 wage index value. We are projecting a lower than the 
average increase in estimated 2010 LTCH PPS rate year payments per 
discharge in comparison to the 2009 LTCH PPS rate year for LTCHs in bed 
size category 25-49 beds, which is largely due to the 87 percent of 
LTCHs in this category expected to have a proposed RY 2010 wage index 
value of less than 1.0. In addition, 54 percent of the LTCHs in this 
category are located in areas where the proposed RY 2010 wage index 
value is less than the RY 2009 wage index value.

E. Effect on the Medicare Program

    As noted previously, we project that the provisions of the FY 2010 
IPPS and RY 2010 proposed rule relating to the LTCH PPS and the 
provisions of this supplemental proposed rule would result in an 
increase in estimated aggregate LTCH PPS payments in RY 2010 of 
approximately $101 million (or about 2.2 percent) for the 399 LTCHs in 
our database.

F. Effect on Medicare Beneficiaries

    Under the LTCH PPS, hospitals receive payment based on the average 
resources consumed by patients for each diagnosis. We do not expect any 
changes in the quality of care or access to services for Medicare 
beneficiaries under the LTCH PPS, but we expect that paying 
prospectively for LTCH services would enhance the efficiency of the 
Medicare program.

G. Alternatives Considered

    The preamble of this supplemental proposed rule provides 
descriptions of the statutory provisions that are addressed, identifies 
implementing policies where discretion has been exercised, and presents 
rationales for our decisions and, where relevant, alternatives that 
were considered.

H. Overall Conclusion

    Overall, LTCHs are projected to experience an increase in estimated 
payments per discharge in RY 2010. In the impact analysis, we are using 
the proposed rates, factors, and policies presented in this 
supplemental proposed rule and those in the FY 2010 IPPS and RY 2010 
LTCH PPS proposed rule, including proposed MS-DRG relative weights, 
updated proposed wage index values, and the best available claims and 
CCR data to estimate the change in payments for the 2010 LTCH PPS rate 
year. Accordingly, based on the best available data for the 399 LTCHs 
in our database, we estimate that RY 2010 LTCH PPS payments will 
increase approximately $101 million (or about 2.2 percent).

I. Accounting Statement

    As discussed previously, the impact analysis for the proposed 
changes to the LTCH PPS presented in the FY 2010 IPPS and RY 2010 LTCH 
PPS proposed rule and those presented in this proposed rule projects an 
increase in estimated aggregate payments of approximately $101 million 
(or about 2.2 percent) for the 399 LTCHs in our database that are 
subject to payment under the LTCH PPS. Therefore, as required by OMB 
Circular A 4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table II we have prepared an accounting statement 
showing the classification of the expenditures associated with these 
provisions as they relate to proposed changes to the LTCH PPS. Table II 
provides our best estimate of the proposed increase in Medicare 
payments under the LTCH PPS as a result of the proposed provisions 
presented in FY 2010 IPPS and RY 2010 LTCH PPS proposed rule and those 
presented in this supplemental proposed rule based on the data for the 
399 LTCHs in our database. All expenditures are classified as transfers 
to Medicare providers (that is, LTCHs).

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

    Dated: May 21, 2009.
Charlene Frizzera,
Acting Administrator, Centers for Medicare & Medicaid Services.

    Approved: May 27, 2009.
Kathleen Sebelius,
Secretary.
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[FR Doc. E9-12907 Filed 5-29-09; 4:15 pm]
BILLING CODE C