[Federal Register Volume 77, Number 146 (Monday, July 30, 2012)]
[Notices]
[Pages 44618-44636]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-18433]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

[CMS-1433-N]
RIN 0938-AR21


Medicare Program; Inpatient Rehabilitation Facility Prospective 
Payment System for Federal Fiscal Year 2013

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

ACTION: Notice.

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SUMMARY: This notice updates the payment rates for inpatient 
rehabilitation facilities (IRFs) for Federal fiscal year (FY) 2013 (for 
discharges occurring on or after October 1, 2012 and on or before 
September 30, 2013) 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.

DATES: Effective Date: The updated IRF prospective payment rates are 
effective for IRF discharges occurring on or after October 1, 2012 and 
on or before September 30, 2013 (FY 2013).

FOR FURTHER INFORMATION CONTACT: Gwendolyn Johnson, (410) 786-6954, for 
general information about the notice. Susanne Seagrave, (410) 786-0044, 
for information about the payment policies and payment rates.

SUPPLEMENTARY INFORMATION:

Executive Summary

I. Purpose

    This notice updates the payment rates for inpatient rehabilitation 
facilities (IRFs) for Federal fiscal year (FY) 2013 (for discharges 
occurring on or after October 1, 2012 and on or before September 30, 
2013) 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.

[[Page 44619]]

Summary of Major Provisions

    In this notice, we use the methods described in the FY 2012 IRF PPS 
final rule (76 FR 47836) to update the Federal prospective payment 
rates for FY 2013 using updated FY 2011 IRF claims and the most recent 
available IRF cost report data. No policy changes are being proposed in 
this notice. Furthermore, we explain the self-implementing changes 
resulting from the provisions in section 1886(j)(3)(C) and (D) of the 
Act.

Summary of Cost and Benefits

------------------------------------------------------------------------
    Provision description          Total costs         Total benefits
------------------------------------------------------------------------
FY 2013 IRF PPS payment rate  The overall economic  The benefits of this
 update.                       impact of this        notice include a
                               notice is an          net increase in
                               estimated $140        payments to IRF
                               million in            providers. Overall,
                               increased payments    no IRFs are
                               to IRFs during FY     estimated to
                               2013.                 experience a net
                                                     decrease in
                                                     payments as a
                                                     result of the
                                                     updates in this
                                                     notice.
------------------------------------------------------------------------

    In the past, the Addenda referred to throughout the preamble of our 
annual IRF PPS proposed and final rules and notices were included in 
the printed Federal Register. However, effective with the FY 2013 IRF 
notice, the IRF Addenda will no longer appear in the Federal Register. 
Instead these Addenda to the annual proposed and final rules and 
notices will be available through the Internet. The IRF PPS Addenda 
along with other supporting documents and tables referenced in this 
notice are available through the Internet on the CMS Web site at http://www.cms.hhs.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/.
    To assist readers in referencing sections contained in this 
document, we are providing the following Table of Contents.

Table of Contents

I. Background
    A. Historical Overview of the Inpatient Rehabilitation Facility 
Prospective Payment System (IRF PPS)
    B. Provisions of the Affordable Care Act Affecting the IRF PPS 
in FY 2012 and Beyond
    C. Operational Overview of the Current IRF PPS
II. Summary of Provisions of the Notice
III. Update to the Case-Mix Group (CMG) Relative Weights and Average 
Length of Stay Values for FY 2013
IV. Updates to the Facility-Level Adjustment Factors
V. FY 2013 IRF PPS Federal Prospective Payment Rates
    A. Market Basket Increase Factor, Productivity Adjustment, Other 
Adjustment, and Secretary's Recommendation for FY 2013
    B. Labor-Related Share for FY 2013
    C. Area Wage Adjustment
    D. Description of the IRF Standard Conversion Factor and Payment 
Rates for FY 2013
    E. Example of the Methodology for Adjusting the Federal 
Prospective Payment Rates
VI. Update to Payments for High-Cost Outliers Under the IRF PPS
    A. Update to the Outlier Threshold Amount for FY 2013
    B. Update to the IRF Cost-to-Charge Ratio Ceilings
VII. Collection of Information Requirements
VIII. Waiver of Proposed Rulemaking
IX. Regulatory Impact Analysis
    A. Statement of Need
    B. Overall Impacts
    C. Anticipated Effects of the Notice
    D. Alternatives Considered
    E. Accounting Statement
    F. Conclusion

I. Background

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

    Section 1886(j) of the Social Security Act (the Act) provides for 
the implementation of a per discharge prospective payment system (PPS) 
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 
2012.
    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 5 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

[[Page 44620]]

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/Medicare/Medicare-Fee-for-Service-Payment/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 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 the Office of Management and Budget's (OMB) 
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 market basket index used to update IRF payments, and updates to the 
rural, low-income percentage (LIP), and high-cost outlier adjustments. 
Beginning with the FY 2006 IRF PPS final rule (70 FR 47908 through 
47917) until it was rebased and revised in the FY 2012 IRF PPS final 
rule (76 FR 47838), the IRF PPS used the 2002-based market basket as 
the market basket index to reflect 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). Any reference to the FY 2006 IRF PPS final rule 
in this notice 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 would 
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 
(MMSEA, Pub. L. 110-173, enacted December 29, 2007), 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/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/Data-Files.html.
    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 market basket 
increase factor for FY 2009 in accordance with section 115 of the 
MMSEA. 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.
    In the FY 2010 IRF PPS final rule (74 FR 39762) and in correcting 
amendments to the FY 2010 IRF PPS final rule (74 FR 50712) that we 
published on October 1, 2009, we updated the Federal prospective 
payment rates, the CMG relative weights, the average length of stay 
values, the rural, LIP, and teaching status adjustment factors, and the 
outlier threshold; implemented new IRF coverage requirements for 
determining whether an IRF claim is reasonable and necessary; and 
revised the regulation text to require IRFs to submit patient 
assessments on Medicare Advantage (Medicare Part C) patients for use in 
the 60 percent rule calculations. Any reference to the FY 2010 IRF PPS 
final rule in this notice also includes the provisions effective in the 
correcting amendments. For more information on the policy changes 
implemented for FY 2010, please refer to the FY 2010 IRF PPS final rule 
(74 FR 39762 and 74 FR 50712), in which we published the final FY 2010 
IRF Federal prospective payment rates.
    After publication of the FY 2010 IRF PPS final rule (74 FR 39762), 
section 3401(d) of the Patient Protection and Affordable Care Act (Pub. 
L. 111-148, enacted on March 23, 2010) (Affordable Care Act), as 
amended by section 10319 of the same act and by section 1105 of the 
Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152, 
enacted on March 30, 2010) (collectively, hereafter referred to as 
``The Affordable Care Act''), amended section 1886(j)(3)(C) of the Act 
and added section 1886(j)(3)(D) of the Act. Section 
1886(j)(3)(C)(ii)(I) of the Act requires the Secretary to estimate a 
multi-factor productivity adjustment to the market basket increase 
factor, and to apply other adjustments as defined by the Act. The 
productivity adjustment applies to FYs from 2012 forward. The other 
adjustments apply to FYs 2010-2019.
    Sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(i) of the Act 
defined the adjustments that were to be applied to the market basket 
increase factors in FYs 2010 and 2011. Under these provisions, the 
Secretary was required to reduce the market basket increase factor in 
FY 2010 by a 0.25 percentage point adjustment. Notwithstanding this 
provision, in accordance with section 3401(p) of the Affordable Care 
Act, the adjusted FY 2010 rate was only to be applied to discharges 
occurring on or after April 1, 2010. Based on the self-implementing 
legislative changes to

[[Page 44621]]

section 1886(j)(3) of the Act, we adjusted the FY 2010 Federal 
prospective payment rates as required, and applied these rates to IRF 
discharges occurring on or after April 1, 2010 and on or before 
September 30, 2010. Thus, the final FY 2010 IRF Federal prospective 
payment rates that were published in the FY 2010 IRF PPS final rule (74 
FR 39762) were used for discharges occurring on or after October 1, 
2009 and on or before March 31, 2010; and the adjusted FY 2010 IRF 
Federal prospective payment rates applied to discharges occurring on or 
after April 1, 2010 and on or before September 30, 2010. The adjusted 
FY 2010 Federal prospective payment rates are available on the CMS Web 
site at http://www.cms.hhs.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/Data-Files.html.
    In addition, sections 1886(j)(3)(C) and (D) of the Act also 
affected the FY 2010 IRF outlier threshold amount because they required 
an adjustment to the FY 2010 RPL market basket increase factor, which 
changed the standard payment conversion factor for FY 2010. 
Specifically, the original FY 2010 IRF outlier threshold amount was 
determined based on the original estimated FY 2010 RPL market basket 
increase factor of 2.5 percent and the standard payment conversion 
factor of $13,661. However, as adjusted, the IRF prospective payments 
are based on the adjusted RPL market basket increase factor of 2.25 
percent and the revised standard payment conversion factor of $13,627. 
In order to maintain estimated outlier payments for FY 2010 equal to 
the established standard of 3 percent of total estimated IRF PPS 
payments for FY 2010, we revised the IRF outlier threshold amount for 
FY 2010 for discharges occurring on or after April 1, 2010. The revised 
IRF outlier threshold amount for FY 2010 was $10,721.
    Sections 1886(j)(3)(ii)(II) and 1886(j)(3)(D)(i) also required the 
Secretary to reduce the market basket increase factor in FY 2011 by a 
0.25 percentage point adjustment. The FY 2011 IRF PPS notice (75 FR 
42836) and the correcting amendments to the FY 2011 IRF PPS notice (75 
FR 70013, November 16, 2010) described the required adjustments to the 
FY 2011 and FY 2010 IRF PPS Federal prospective payment rates and 
outlier threshold amount for IRF discharges occurring on or after April 
1, 2010 and on or before September 30, 2011. It also updated the FY 
2011 Federal prospective payment rates, the CMG relative weights, and 
the average length of stay values. Any reference to the FY 2011 IRF PPS 
notice in this proposed rule also includes the provisions effective in 
the correcting amendments. For more information on the FY 2010 and FY 
2011 adjustments or the updates for FY 2011, please refer to the FY 
2011 IRF PPS notice (75 FR 42836 and 75 FR 70013).
    In the FY 2012 IRF PPS final rule (76 FR 47836), we updated the IRF 
Federal prospective payment rates, rebased and revised the RPL market 
basket, and established a new quality reporting program for IRFs in 
accordance with section 1886(j)(7) of the Act. We also revised 
regulations text for the purpose of updating and providing greater 
clarity. For more information on the policy changes implemented for FY 
2012, please refer to the FY 2012 IRF PPS final rule (76 FR 47836), in 
which we published the final FY 2012 IRF Federal prospective payment 
rates.

B. Provisions of the Affordable Care Act Affecting the IRF PPS in FY 
2012 and Beyond

    The Affordable Care Act included several provisions that affect the 
IRF PPS in FYs 2012 and beyond. Section 3401(d) of the Affordable Care 
Act also added section 1886(j)(3)(C)(ii)(I) of the Act (providing for a 
``productivity adjustment'' for fiscal year 2012 and each subsequent 
fiscal year). The productivity adjustment and the 0.1 percentage point 
reduction are both discussed in section V.A. of this notice. Section 
1886(j)(3)(C)(ii)(II) of the Act notes that the application of these 
adjustments to the market basket update may result in an update that is 
less than 0.0 for a fiscal year and in payment rates for a fiscal year 
being less than payment rates for the preceding fiscal year.
    Section 3004(b) of the Affordable Care Act also addressed the IRF 
PPS program. It reassigned the previously-designated section 1886(j)(7) 
of the Act to section 1886(j)(8) and inserted a new section 1886(j)(7), 
which contains new requirements for the Secretary to establish a 
quality reporting program for IRFs. Under that program, data must be 
submitted in a form and manner, and at a time specified by the 
Secretary. Beginning in FY 2014, section 1886(j)(7)(A)(i) will require 
application of a 2 percentage point reduction of the applicable market 
basket increase factor for IRFs that fail to comply with the quality 
data submission requirements. Application of the 2 percentage point 
reduction may result in an update that is less than 0.0 for a fiscal 
year and in payment rates for a fiscal year being less than such 
payment rates for the preceding fiscal year. Reporting-based reductions 
to the market basket increase factor will not be cumulative; they will 
only apply for the FY involved.
    Under section 1886(j)(7)(D)(i) and (ii) of the Act, the Secretary 
is generally required to select quality measures for the IRF quality 
reporting program from those that have been endorsed by the consensus-
based entity which holds a performance measurement contract under 
section 1890(a) of the Act. This contract is currently held by the 
National Quality Forum (NQF). So long as due consideration is given to 
measures that have been endorsed or adopted by a consensus-based 
organization, section 1886(j)(7)(D)(ii) of the Act authorizes the 
Secretary to select non-endorsed measures for specified areas or 
medical topics when there are no feasible or practical endorsed 
measure(s). Under section 1886(j)(7)(D)(iii) of the Act, the Secretary 
is required to publish the measures that will be used in FY 2014 no 
later than October 1, 2012.
    Section 1886(j)(7)(E) of the Act requires the Secretary to 
establish procedures for making the IRF PPS quality reporting data 
available to the public. In so doing, the Secretary must ensure that 
IRFs have the opportunity to review any such data prior to its release 
to the public. Future rulemaking will address these public reporting 
obligations.

C. 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), designated as the Inpatient Rehabilitation Facility-
Patient Assessment Instrument (IRF-PAI). In addition, beginning with 
IRF discharges occurring on or after October 1, 2009, the IRF is also 
required to complete the appropriate sections of the IRF-PAI upon the 
admission and discharge of each Medicare Part C (Medicare Advantage) 
patient, as described in the FY 2010 IRF PPS final rule. 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

[[Page 44622]]

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/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/Software.html.
    Once a patient is discharged, the IRF submits a Medicare claim as a 
Health Insurance Portability and Accountability Act of 1996 (Pub. L. 
104-191, enacted August 21, 1996)(HIPAA), compliant electronic claim 
or, if the Administrative Simplification Compliance Act of 2002 (Pub. 
L. 107-105, enacted December 27, 2002)(ASCA) 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.gov/Regulations-and-Guidance/Guidance/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.gov/Medicare/Billing/ElectronicBillingEDITrans/index.html?redirect=/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 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 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 Notice

    In this notice, we use the methods described in the FY 2012 IRF PPS 
final rule (76 FR 47836) to update the Federal prospective payment 
rates for FY 2013 using updated FY 2011 IRF claims and the most recent 
available IRF cost report data. No policy changes are being proposed in 
this notice. Furthermore, we explain the self-implementing changes 
resulting from the provisions in section 1886(j)(3)(C) and (D) of the 
Act, as described above and in section V.A. of this notice.
    In summary, this notice will:
     Update the FY 2013 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 of this notice.
     Update the FY 2013 IRF PPS payments rates by a market 
basket increase factor, based upon the most current data available, 
with a 0.1 percentage point reduction as required by sections 
1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the Act and a 0.8 
percent productivity adjustment required by section 
1886(j)(3)(C)(ii)(I) of the Act, as described in section V.A. of this 
notice.
     Discuss the Secretary's Recommendation for updating IRF 
PPS payments for FY 2013, in accordance with the statutory 
requirements, as described in section V.A. of this notice.
     Update the FY 2013 IRF PPS payment rates by the FY 2013 
wage index and the labor-related share in a budget neutral manner, as 
discussed in sections V.B and V.C of this notice.
     Describe the calculation of the IRF Standard Payment 
Conversion Factor for FY 2013, as discussed in section V.D of this 
notice.
     Update the outlier threshold amount for FY 2013, as 
discussed in section VI.A. of this notice.
     Update the cost-to-charge ratio (CCR) ceilings and urban/
rural average CCRs for FY 2013, as discussed in section VI.B. of this 
notice.
    This notice does not contain any revisions to existing regulation 
text.

III. Update to the Case-Mix Group (CMG) Relative Weights and Average 
Length of Stay Values for FY 2013

    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.
    As required by statute, we always use the most recent available 
data to update the CMG relative weights and average lengths of stay. 
For FY 2013, we used FY 2011 IRF claims and the most recent available 
IRF cost report data. These data are the most current and most complete 
data available at this time. Currently, only a small portion of the FY 
2011 IRF cost report data are available for analysis, but the majority 
of the FY 2011 IRF claims data are available for analysis.
    We will apply these data using the methodologies that we have used 
to update the CMG relative weights and average length of stay values in 
the FY 2010 IRF PPS final rule (74 FR 39762), the FY 2011 notice (75 FR 
42836), and the FY 2012 final rule (76 FR 47836). 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 notice is as follows:
    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.

[[Page 44623]]

    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 2013 CMG relative weights to the same 
average CMG relative weight from the CMG relative weights implemented 
in the FY 2012 IRF PPS final rule (76 FR 47836).
    Consistent with the methodology that we have used to update the IRF 
classification system in each instance in the past, we are updating the 
CMG relative weights for FY 2013 in such a way that total estimated 
aggregate payments to IRFs for FY 2013 are the same with or without the 
changes (that is, in a budget neutral manner) by applying a budget 
neutrality factor to the standard payment amount. To calculate the 
appropriate budget neutrality factor for use in updating the FY 2013 
CMG relative weights, we use the following steps:
    Step 1. Calculate the estimated total amount of IRF PPS payments 
for FY 2013 (with no changes to the CMG relative weights).
    Step 2. Calculate the estimated total amount of IRF PPS payments 
for FY 2013 by applying the changes to the CMG relative weights (as 
discussed above).
    Step 3. Divide the amount calculated in step 1 by the amount 
calculated in step 2 to determine the budget neutrality factor (1.0000) 
that maintains the same total estimated aggregate payments in FY 2013 
with and without the updates to the CMG relative weights.
    Step 4. Apply the budget neutrality factor (1.0000) to the FY 2012 
IRF PPS standard payment amount after the application of the budget-
neutral wage adjustment factor.
    In section V.D of this notice, we discuss the use of the existing 
methodology to calculate the standard payment conversion factor for FY 
2013.
    The CMG relative weights and average length of stay values for FY 
2013 are presented in Table 1. 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.

                                     Table 1--Relative Weights and Average Length of Stay Values for Case-Mix Groups
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                        Relative weight                     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..............     0.8027     0.7192     0.6541     0.6254       10       10        9        8
0102......................................  Stroke M>44.45 and M<51.05       0.9980     0.8942     0.8132     0.7776       12       10       10       10
                                             and C>18.5.
0103......................................  Stroke M>44.45 and M<51.05       1.1622     1.0414     0.9471     0.9056       12       13       12       12
                                             and C<18.5.
0104......................................  Stroke M>38.85 and M<44.45..     1.2323     1.1041     1.0041     0.9602       13       12       12       12
0105......................................  Stroke M>34.25 and M<38.85..     1.4378     1.2883     1.1716     1.1203       15       16       14       14
0106......................................  Stroke M>30.05 and M<34.25..     1.6373     1.4670     1.3342     1.2758       17       18       16       16
0107......................................  Stroke M>26.15 and M<30.05..     1.8381     1.6469     1.4978     1.4322       18       19       17       18
0108......................................  Stroke M<26.15 and A>84.5...     2.2975     2.0585     1.8721     1.7901       23       23       22       21
0109......................................  Stroke M>22.35 and M<26.15       2.1226     1.9018     1.7296     1.6539       20       22       20       20
                                             and A<84.5.
0110......................................  Stroke M<22.35 and A<84.5...     2.7303     2.4463     2.2248     2.1274       30       29       25       25
0201......................................  Traumatic brain injury           0.8313     0.6948     0.6199     0.5869       10       10        8        8
                                             M>53.35 and C>23.5.
0202......................................  Traumatic brain injury           1.0169     0.8499     0.7583     0.7179       12       11       10       10
                                             M>44.25 and M<53.35 and
                                             C>23.5.
0203......................................  Traumatic brain injury           1.1804     0.9865     0.8803     0.8334       14       13       12       11
                                             M>44.25 and C<23.5.
0204......................................  Traumatic brain injury           1.2938     1.0813     0.9648     0.9134       14       13       12       12
                                             M>40.65 and M<44.25.
0205......................................  Traumatic brain injury           1.5550     1.2996     1.1596     1.0978       16       15       14       14
                                             M>28.75 and M<40.65.
0206......................................  Traumatic brain injury           1.9383     1.6200     1.4455     1.3684       20       20       18       17
                                             M>22.05 and M<28.75.
0207......................................  Traumatic brain injury           2.5535     2.1341     1.9042     1.8027       33       25       22       21
                                             M<22.05.
0301......................................  Non-traumatic brain injury       1.1218     0.9563     0.8462     0.7852       11       12       11       10
                                             M>41.05.
0302......................................  Non-traumatic brain injury       1.4026     1.1957     1.0579     0.9816       14       14       13       12
                                             M>35.05 and M<41.05.
0303......................................  Non-traumatic brain injury       1.6605     1.4155     1.2525     1.1621       17       16       15       14
                                             M>26.15 and M<35.05.
0304......................................  Non-traumatic brain injury       2.2065     1.8810     1.6643     1.5443       25       22       19       18
                                             M<26.15.
0401......................................  Traumatic spinal cord injury     1.0393     0.8778     0.7864     0.7109       13       12       11       10
                                             M>48.45.
0402......................................  Traumatic spinal cord injury     1.4824     1.2521     1.1218     1.0141       17       15       14       13
                                             M>30.35 and M<48.45.
0403......................................  Traumatic spinal cord injury     2.3870     2.0161     1.8063     1.6329       31       23       22       20
                                             M>16.05 and M<30.35.
0404......................................  Traumatic spinal cord injury     4.3665     3.6881     3.3043     2.9870       60       41       33       35
                                             M<16.05 and A>63.5.
0405......................................  Traumatic spinal cord injury     3.3893     2.8627     2.5648     2.3186       41       41       29       24
                                             M<16.05 and A<63.5.
0501......................................  Non-traumatic spinal cord        0.8436     0.6828     0.6306     0.5624        9        9        8        8
                                             injury M>51.35.
0502......................................  Non-traumatic spinal cord        1.1283     0.9132     0.8434     0.7521       11       11       11       10
                                             injury M>40.15 and M<51.35.
0503......................................  Non-traumatic spinal cord        1.4284     1.1561     1.0677     0.9522       15       14       13       12
                                             injury M>31.25 and M<40.15.

[[Page 44624]]

 
0504......................................  Non-traumatic spinal cord        1.7220     1.3937     1.2872     1.1479       22       16       15       14
                                             injury M>29.25 and M<31.25.
0505......................................  Non-traumatic spinal cord        1.9656     1.5909     1.4693     1.3103       22       18       18       16
                                             injury M>23.75 and M<29.25.
0506......................................  Non-traumatic spinal cord        2.7707     2.2425     2.0711     1.8470       30       26       24       22
                                             injury M<23.75.
0601......................................  Neurological M>47.75........     0.9703     0.7915     0.7304     0.6647       10       10        9        9
0602......................................  Neurological M>37.35 and         1.2695     1.0356     0.9557     0.8697       13       12       11       11
                                             M<47.75.
0603......................................  Neurological M>25.85 and         1.6243     1.3250     1.2228     1.1128       16       15       14       14
                                             M<37.35.
0604......................................  Neurological M<25.85........     2.1537     1.7568     1.6213     1.4755       22       20       18       17
0701......................................  Fracture of lower extremity      0.9343     0.7841     0.7481     0.6772       11       10       10        9
                                             M>42.15.
0702......................................  Fracture of lower extremity      1.2477     1.0471     0.9990     0.9044       13       13       12       12
                                             M>34.15 and M<42.15.
0703......................................  Fracture of lower extremity      1.4984     1.2575     1.1996     1.0860       16       15       14       14
                                             M>28.15 and M<34.15.
0704......................................  Fracture of lower extremity      1.8994     1.5940     1.5207     1.3767       19       18       18       17
                                             M<28.15.
0801......................................  Replacement of lower             0.7445     0.6142     0.5608     0.5156        8        8        8        7
                                             extremity joint M>49.55.
0802......................................  Replacement of lower             0.9839     0.8117     0.7412     0.6814       10       10        9        9
                                             extremity joint M>37.05 and
                                             M<49.55.
0803......................................  Replacement of lower             1.3381     1.1039     1.0080     0.9266       13       12       13       12
                                             extremity joint M>28.65 and
                                             M<37.05 and A>83.5.
0804......................................  Replacement of lower             1.1889     0.9807     0.8955     0.8233       13       12       11       10
                                             extremity joint M>28.65 and
                                             M<37.05 and A<83.5.
0805......................................  Replacement of lower             1.4728     1.2150     1.1094     1.0199       15       14       13       13
                                             extremity joint M>22.05 and
                                             M<28.65.
0806......................................  Replacement of lower             1.7966     1.4821     1.3533     1.2441       17       17       15       15
                                             extremity joint M<22.05.
0901......................................  Other orthopedic M>44.75....     0.9086     0.7488     0.6954     0.6289       11       10        9        8
0902......................................  Other orthopedic M>34.35 and     1.1916     0.9820     0.9120     0.8248       12       12       11       11
                                             M<44.75.
0903......................................  Other orthopedic M>24.15 and     1.5421     1.2709     1.1803     1.0674       16       15       14       13
                                             M<34.35.
0904......................................  Other orthopedic M<24.15....     1.9596     1.6149     1.4998     1.3564       20       19       17       16
1001......................................  Amputation, lower extremity      1.0168     0.9097     0.8224     0.7491       11       11       10       10
                                             M>47.65.
1002......................................  Amputation, lower extremity      1.2813     1.1464     1.0364     0.9440       14       14       13       12
                                             M>36.25 and M<47.65.
1003......................................  Amputation, lower extremity      1.8523     1.6572     1.4983     1.3647       18       19       17       16
                                             M<36.25.
1101......................................  Amputation, non-lower            1.1553     1.1084     1.1084     0.9005       13       18       12       11
                                             extremity M>36.35.
1102......................................  Amputation, non-lower            1.6083     1.5429     1.5429     1.2536       17       24       16       16
                                             extremity M<36.35.
1201......................................  Osteoarthritis M>37.65......     0.9031     0.9031     0.8675     0.8070        9       12       11       10
1202......................................  Osteoarthritis M>30.75 and       1.0652     1.0652     1.0232     0.9518       10       13       12       12
                                             M<37.65.
1203......................................  Osteoarthritis M<30.75......     1.3740     1.3740     1.3199     1.2278       12       17       15       15
1301......................................  Rheumatoid, other arthritis      1.2084     1.0270     0.9058     0.8066       13       12       11       10
                                             M>36.35.
1302......................................  Rheumatoid, other arthritis      1.5720     1.3360     1.1783     1.0492       16       15       14       13
                                             M>26.15 and M<36.35.
1303......................................  Rheumatoid, other arthritis      2.0006     1.7003     1.4996     1.3354       19       20       17       16
                                             M<26.15.
1401......................................  Cardiac M>48.85.............     0.8930     0.7627     0.6877     0.6266        9        9        9        8
1402......................................  Cardiac M>38.55 and M<48.85.     1.1528     0.9847     0.8877     0.8089       12       12       11       10
1403......................................  Cardiac M>31.15 and M<38.55.     1.3890     1.1864     1.0696     0.9747       14       14       13       12
1404......................................  Cardiac M<31.15.............     1.7811     1.5213     1.3716     1.2498       19       18       16       15
1501......................................  Pulmonary M>49.25...........     0.9698     0.8491     0.7773     0.7364       10       10        9        9
1502......................................  Pulmonary M>39.05 and            1.2118     1.0610     0.9712     0.9201       12       12       11       11
                                             M<49.25.
1503......................................  Pulmonary M>29.15 and            1.4875     1.3025     1.1922     1.1295       16       14       13       13
                                             M<39.05.
1504......................................  Pulmonary M<29.15...........     1.8834     1.6491     1.5095     1.4301       19       18       16       16
1601......................................  Pain syndrome M>37.15.......     1.0499     0.9155     0.8350     0.7581       10       11       10       10
1602......................................  Pain syndrome M>26.75 and        1.3826     1.2056     1.0997     0.9984       15       14       13       12
                                             M<37.15.
1603......................................  Pain syndrome M<26.75.......     1.7346     1.5124     1.3796     1.2525       14       18       16       15
1701......................................  Major multiple trauma            1.0736     0.9323     0.8505     0.7574       11       12       11       10
                                             without brain or spinal
                                             cord injury M>39.25.
1702......................................  Major multiple trauma            1.4056     1.2206     1.1136     0.9916       14       15       13       12
                                             without brain or spinal
                                             cord injury M>31.05 and
                                             M<39.25.
1703......................................  Major multiple trauma            1.6353     1.4201     1.2956     1.1537       18       17       15       14
                                             without brain or spinal
                                             cord injury M>25.55 and
                                             M<31.05.
1704......................................  Major multiple trauma            2.0887     1.8138     1.6547     1.4735       22       21       19       18
                                             without brain or spinal
                                             cord injury M<25.55.
1801......................................  Major multiple trauma with       1.2365     0.9356     0.8675     0.7592       14       13       12       10
                                             brain or spinal cord injury
                                             M>40.85.

[[Page 44625]]

 
1802......................................  Major multiple trauma with       1.8710     1.4158     1.3127     1.1488       18       17       16       14
                                             brain or spinal cord injury
                                             M>23.05 and M<40.85.
1803......................................  Major multiple trauma with       3.3167     2.5096     2.3269     2.0364       38       32       25       23
                                             brain or spinal cord injury
                                             M<23.05.
1901......................................  Guillain Barre M>35.95......     1.0467     0.9509     0.9185     0.8749       13       12       12       11
1902......................................  Guillain Barre M>18.05 and       1.9189     1.7433     1.6839     1.6041       23       20       18       19
                                             M<35.95.
1903......................................  Guillain Barre M<18.05......     3.3119     3.0088     2.9062     2.7685       41       33       33       34
2001......................................  Miscellaneous M>49.15.......     0.8744     0.7276     0.6680     0.6095        9        9        9        8
2002......................................  Miscellaneous M>38.75 and        1.1796     0.9815     0.9012     0.8222       12       12       11       10
                                             M<49.15.
2003......................................  Miscellaneous M>27.85 and        1.4817     1.2329     1.1320     1.0328       15       14       13       13
                                             M<38.75.
2004......................................  Miscellaneous M<27.85.......     1.9594     1.6304     1.4970     1.3659       21       19       17       16
2101......................................  Burns M>0...................     2.1947     1.9009     1.9009     1.6414       24       22       17       17
5001......................................  Short-stay cases, length of   .........  .........  .........     0.1494  .......  .......  .......        3
                                             stay is 3 days or fewer.
5101......................................  Expired, orthopedic, length   .........  .........  .........     0.5866  .......  .......  .......        7
                                             of stay is 13 days or fewer.
5102......................................  Expired, orthopedic, length   .........  .........  .........     1.5325  .......  .......  .......       18
                                             of stay is 14 days or more.
5103......................................  Expired, not orthopedic,      .........  .........  .........     0.7091  .......  .......  .......        8
                                             length of stay is 15 days
                                             or fewer.
5104......................................  Expired, not orthopedic,      .........  .........  .........     1.9053  .......  .......  .......       22
                                             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 how the application of the revisions for FY 2013 will affect 
particular CMG relative weight values, which affect the overall 
distribution of payments within CMGs and tiers. Note that, because we 
are implementing the CMG relative weight revisions in a budget neutral 
manner (as described above), total estimated aggregate payments to IRFs 
for FY 2013 will not be affected as a result of the CMG relative weight 
revisions. However, the revisions will affect the distribution of 
payments within CMGs and tiers.

   Table 2--Distributional Effects of the Changes to the CMG Relative
                                 Weights
              [FY 2012 values compared with FY 2013 values]
------------------------------------------------------------------------
                                             Number of     Percentage of
            Percentage change             cases affected  cases affected
------------------------------------------------------------------------
Increased by 15% or more................           1,894             0.5
Increased by between 5% and 15%.........           3,932             1.0
Changed by less than 5%.................         359,907            95.5
Decreased by between 5% and 15%.........          11,307             3.0
Decreased by 15% or more................               0             0.0
------------------------------------------------------------------------
Note: Percentages may not sum to 100% due to rounding.

    As Table 2 shows, over 95 percent of all IRF cases are in CMGs and 
tiers that will experience less than a 5 percent change (either 
increase or decrease) in the CMG relative weight value as a result of 
the revisions for FY 2013. The largest increase in the CMG relative 
weight values affecting the most cases is a 2.8 percent increase in the 
CMG relative weight value for CMG 0802--Replacement of Lower Extremity 
Joint, with a motor score between 37.05 and 49.55--in the ``no 
comorbidity'' tier. In the FY 2011 data, 9,851 IRF discharges were 
classified into this CMG and tier. We believe that the higher costs 
reported by IRFs for this CMG and tier in FY 2011, compared with the 
costs reported in FY 2010, may continue to reflect the IRF trend away 
from admitting lower-severity joint replacement cases in favor of 
higher-severity joint replacement cases. We believe that this may be 
evidence of a response, at least in part, to Medicare's ``60 percent'' 
rule, and the increased focus on the medical review of IRF cases. These 
policies likely increase the complexity of patients being admitted to 
IRFs, especially among the lower-extremity joint replacement cases with 
no comorbidities, which often do not meet the 60 percent rule criteria 
and have been the focus of a lot of the medical review activities.
    The largest decrease in a CMG relative weight value affecting the 
most cases is a 2.3 percent decrease in the CMG relative weight for CMG 
D2004--Miscellaneous, with motor score less than 27.85. In the FY 2011 
IRF claims data, this change affects 6,967 cases.
    The changes in the average length of stay values for FY 2013, 
compared with the FY 2012 average length of stay values, are small and 
do not show any particular trends in IRF length of stay patterns.

IV. Updates to the Facility-Level Adjustment Factors

    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 treatment among rehabilitation 
facilities.'' For example, we adjust the Federal prospective payment 
amount

[[Page 44626]]

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 2010 IRF PPS final rule (74 FR 39762), we updated the 
adjustment factors for calculating the rural, LIP, and teaching status 
adjustments based on the most recent three consecutive years worth of 
IRF claims data (at that time, FY 2006, FY 2007, and FY 2008) and the 
most recent available corresponding IRF cost report data. As discussed 
in the FY 2010 IRF PPS proposed rule (74 FR 21060 through 21061), we 
observed relatively large year-to-year fluctuations in the underlying 
data used to compute the adjustment factors, especially the teaching 
status adjustment factor. Therefore, we implemented a 3-year moving 
average approach to updating the facility-level adjustment factors in 
the FY 2010 IRF PPS final rule (74 FR 39762) to provide greater 
stability and predictability of Medicare payments for IRFs.
    Each year, we review the major components of the IRF PPS to 
maintain and enhance the accuracy of the payment system. For FY 2010, 
we implemented a change to our methodology that was designed to 
decrease the IRF PPS volatility by using a 3-year moving average to 
calculate the facility-level adjustment factors. For FY 2011, we issued 
a notice to update the payment rates, which did not include any policy 
changes or changes to the IRF facility-level adjustments. However, in 
the FY 2012 IRF PPS proposed rule (76 FR 24214 at 24225 through 24226), 
we analyzed the use of a weighting methodology, which assigns greater 
weight to some facilities than to others, in the regression analysis 
used to estimate the facility-level adjustment factors. As we found 
that this weighting methodology inappropriately exaggerated the cost 
differences among different types of IRF facilities, we proposed to 
remove the weighting factor from our analysis and update the IRF 
facility-level adjustment factors for FY 2012 using an un-weighted 
regression analysis. However, after carefully considering all of the 
comments that we received on the proposed FY 2012 updates to the 
facility-level adjustment factors, we decided to hold the facility-
level adjustment factors at FY 2011 levels for FY 2012 in order to 
conduct further research on the underlying data and the best 
methodology for calculating the facility-level adjustment factors. We 
based this decision, in part, on comments we received about the 
financial hardships that the proposed updates would create for 
facilities with teaching programs and a higher disproportionate share 
of low-income patients. Thus, in the FY 2012 final rule (76 FR 47836 at 
47845), we held the FY 2012 facility-level adjustment factors at FY 
2011 levels. We also stated in the FY 2012 final rule that we would 
conduct further research on the underlying data and the best 
methodology for calculating the facility level adjustment factors. Our 
research efforts are still ongoing, as we continue to consider the best 
methodology for calculating the facility level adjustment factors. As a 
result, we are not making changes to the facility-level adjustments for 
FY 2013.

V. FY 2013 IRF PPS Federal Prospective Payment Rates

A. Market Basket Increase Factor, Productivity Adjustment, Other 
Adjustment, and Secretary's Recommendation for FY 2013

    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. Sections 1886(j)(3)(C)(ii)(II) and (D)(ii) of the Act require 
the application of a 0.1 percentage point reduction to the market 
basket increase factor for FYs 2012 and 2013. In addition, section 
1886(j)(3)(C)(ii)(I) of the Act requires the application of a 
productivity adjustment, as described below. Thus, in this notice, we 
are updating the IRF PPS payments for FY 2013 by a market basket 
increase factor based upon the most current data available, with a 
productivity adjustment as required by section 1886(j)(3)(C)(ii)(I) of 
the Act, as described below, and a 0.1 percentage point reduction as 
required by sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the 
Act.
    For this notice, we have used the same methodology described in the 
FY 2012 IRF PPS final rule (76 FR 47836 at 47848 through 47863) to 
compute the FY 2013 market basket increase factor and labor-related 
share. In that final rule, we rebased the RPL market basket from a 2002 
base year to a 2008 base year. Using this method and the IHS Global 
Insight, Inc. forecast for the second quarter of 2012 of the 2008-based 
RPL market basket, the FY 2013 RPL market basket increase factor is 2.7 
percent. IHS Global Insight (IGI) is an economic and financial 
forecasting firm that contracts with CMS to forecast the components of 
providers' market baskets.
    In accordance with section 1886(j)(3)(C)(ii)(I) of the Act, and 
using the methodology described in the FY 2012 IRF PPS final rule (76 
FR 47836, 47858 through 47859), we apply a productivity adjustment to 
the FY 2013 RPL market basket increase factor. The statute defines the 
productivity adjustment to be equal to the 10-year moving average of 
changes in annual economy-wide private nonfarm business multifactor 
productivity (MFP) (as projected by the Secretary for the 10-year 
period ending with the applicable FY cost reporting period, or other 
annual period)(the ``MFP adjustment''). The Bureau of Labor Statistics 
(BLS) is the agency that publishes the official measure of private 
nonfarm business MFP. We refer readers to the BLS Web site at http://www.bls.gov/mfp to obtain the historical BLS-published MFP data. The 
projection of MFP is currently produced by IGI, using the methodology 
described in the FY 2012 IRF PPS final rule (76 FR 47836, 47859). The 
MFP adjustment (the 10-year moving average of MFP for the period ending 
FY 2013) that we apply to the market basket increase factor for FY 2013 
is 0.7 percent, which was calculated using the methodology described in 
the FY 2012 IRF PPS final rule (76 FR 47836, 47858 through 47859) and 
is based on IGI's second quarter 2012 forecast.
    Thus, in accordance with section 1886(j)(3)(C) of the Act, we will 
base the FY 2013 market basket update, which is used to determine the 
applicable percentage increase for the IRF payments, on the second 
quarter 2012 forecast of the FY 2008-based RPL market basket (estimated 
to be 2.7 percent). This percentage increase is then reduced by the MFP 
adjustment (the 10-year moving average of MFP for the period ending FY 
2013) of 0.7 percent, which was calculated as described in the FY 2012 
IRF PPS final rule (76 FR 47836, 47859) and based on IGI's second 
quarter 2012 forecast. Following application of the productivity 
adjustment, the applicable percentage increase is further reduced by 
0.1 percentage point, as required by sections 1886(j)(3)(C)(ii)(II) and 
1886(j)(3)(D)(ii) of the Act. Therefore, the final FY 2013 IRF update 
is 1.9 percent (2.7 percent market basket update less 0.7 percentage 
point MFP adjustment less 0.1 percentage point legislative adjustment).
Secretary's Final Recommendation
    For FY 2013, the Medicare Payment Advisory Commission (MedPAC) 
recommends that a 0 percent update be

[[Page 44627]]

applied to IRF PPS payment rates for FY 2013. As discussed above, and 
in accordance with sections 1886(j)(3)(C) and 1886(j)(3)(D) of the Act, 
the Secretary is updating IRF PPS payment rates for FY 2013 by an 
adjusted market basket increase factor of 1.9 percent because section 
1886(j)(3)(C) of the Act does not provide the Secretary with the 
authority to apply a different update factor to IRF PPS payment rates 
for FY 2013.

B. Labor-Related Share for FY 2013

    Using the methodology described in the FY 2012 IRF PPS final rule 
(76 FR 47836, 47860 through 47863), we are updating the IRF labor-
related share for FY 2013. Using this method and the IHS Global 
Insight, Inc. forecast for the second quarter of 2012 of the 2008-based 
RPL market basket, the IRF labor-related share for FY 2013 is the sum 
of the FY 2013 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 2008) and FY 2013. As shown in 
Table 3, the FY 2013 labor-related share is 69.981 percent.

    Table 3--FY 2013 IRF RPL Labor-Related Share Relative Importance
------------------------------------------------------------------------
                                                   FY 2013 IRF  labor-
                 Cost category                   related share  relative
                                                        importance
------------------------------------------------------------------------
Wages and Salaries.............................                   48.796
Employee Benefits..............................                   13.021
Professional Fees: Labor-Related...............                    2.070
Administrative and Business Support Services...                    0.417
All Other: Labor-Related Services..............                    2.077
    SUBTOTAL...................................                   66.381
Labor-Related Share of Capital Costs (.46).....                    3.600
                                                ------------------------
        TOTAL..................................                   69.981
------------------------------------------------------------------------
Source: IHS GLOBAL INSIGHT, INC, 2nd QTR, 2012; Historical Data through
  1st QTR, 2012.

C. Area Wage Adjustment

    Section 1886(j)(6) of the Act requires the Secretary to adjust the 
proportion of rehabilitation facilities' costs attributable to wages 
and wage-related costs (as estimated by the Secretary from time to 
time) 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 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 2013, we are maintaining the policies and methodologies 
described in the FY 2012 IRF PPS final rule relating to the labor 
market area definitions and the wage index methodology for areas with 
wage data. Thus, we are using the CBSA labor market area definitions 
and the FY 2012 pre-reclassification and pre-floor hospital wage index 
data. In accordance with section 1886(d)(3)(E) of the Act, the FY 2012 
pre-reclassification and pre-floor hospital wage index is based on data 
submitted for hospital cost reporting periods beginning on or after 
October 1, 2007 and before October 1, 2008 (that is, 2008 cost report 
data).
    The labor market designations made by the 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 will continue to use the same methodology discussed in the FY 
2008 IRF PPS final rule (72 FR 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 2013 IRF PPS wage index.
    If applicable, we will continue to use 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 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 notice, we multiply the unadjusted Federal 
payment rate for IRFs by the FY 2013 labor-related share based on the 
FY 2008-based RPL market basket (69.981 percent) to determine the 
labor-related portion of the standard payment amount. We then multiply 
the labor-related portion by the applicable IRF wage index from the 
tables in the addendum to this notice. These tables are available 
through the Internet on the CMS Web site at http://www.cms.hhs.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/. Table 
A is for urban areas and Table B 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 
calculate a budget neutral wage adjustment factor as established in the 
FY 2004 IRF PPS final rule (68 FR 45689), codified at Sec.  
412.624(e)(1), as described in the steps below. We use the listed steps 
to ensure that the FY 2013 IRF standard payment conversion factor 
reflects the update to the wage indexes (based on the FY 2008 hospital 
cost report data) and the labor-related share in a budget neutral 
manner:
    Step 1. Determine the total amount of the estimated FY 2012 IRF PPS 
rates, using the FY 2012 standard payment conversion factor and the 
labor-related share and the wage indexes from FY 2012 (as published in 
the FY 2012 IRF PPS final rule (76 FR 47836)).
    Step 2. Calculate the total amount of estimated IRF PPS payments 
using the FY 2012 standard payment conversion factor and the FY 2013 
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 FY 2013 budget 
neutral wage adjustment factor of 1.0000.
    Step 4. Apply the FY 2013 budget neutral wage adjustment factor 
from step 3 to the FY 2012 IRF PPS standard payment conversion factor 
after the application of the adjusted market

[[Page 44628]]

basket update to determine the FY 2013 standard payment conversion 
factor.
    We discuss the calculation of the standard payment conversion 
factor for FY 2013 in section V.D. of this notice.

D. Description of the IRF Standard Payment Conversion Factor and 
Payment Rates for FY 2013

    To calculate the standard payment conversion factor for FY 2013, as 
illustrated in Table 4, we begin by applying the adjusted market basket 
increase factor for FY 2013 that was adjusted in accordance with 
sections 1886(j)(3)(C) and (D) of the Act, to the standard payment 
conversion factor for FY 2012 ($14,076). Applying the 1.9 percent 
adjusted market basket increase factor for FY 2013 to the revised 
standard payment conversion factor for FY 2012 of $14,076 yields a 
standard payment amount of $14,343. Then, we apply the budget 
neutrality factor for the FY 2013 wage index and labor related share of 
1.0000, which keeps the standard payment amount at $14,343. Finally, we 
apply the budget neutrality factor for the revised CMG relative weights 
of 1.0000, which results in a final standard payment conversion factor 
of $14,343 for FY 2013.

  Table 4--Calculations To Determine the Final FY 2013 Standard Payment
                            Conversion Factor
------------------------------------------------------------------------
              Explanation for adjustment                  Calculations
------------------------------------------------------------------------
Standard Payment Conversion Factor for FY 2012........           $14,076
Market Basket Increase Factor for FY 2013 (2.7                   x 1.019
 percent), reduced by 0.1 percentage point in
 accordance with sections 1886(j)(3)(C) and (D) of the
 Act and a 0.7 percent reduction for the productivity
 adjustment as required by section
 1886(j)(3)(C)(ii)(I) of the Act......................
Budget Neutrality Factor for the Wage Index and Labor-          x 1.0000
 Related Share........................................
Budget Neutrality Factor for the Revisions to the CMG           x 1.0000
 Relative Weights.....................................
Final FY 2013 Standard Payment Conversion Factor......         = $14,343
------------------------------------------------------------------------

    After the application of the CMG relative weights described in 
section III of this notice, the resulting unadjusted IRF prospective 
payment rates for FY 2013 are shown below in Table 5, ``FY 2013 Payment 
Rates.''

                                         Table 5--FY 2013 Payment Rates
----------------------------------------------------------------------------------------------------------------
                                                   Payment rate    Payment rate    Payment rate    Payment rate
                       CMG                            Tier 1          Tier 2          Tier 3      no comorbidity
----------------------------------------------------------------------------------------------------------------
0101............................................      $11,513.13      $10,315.49       $9,381.76       $8,970.11
0102............................................       14,314.31       12,825.51       11,663.73       11,153.12
0103............................................       16,669.43       14,936.80       13,584.26       12,989.02
0104............................................       17,674.88       15,836.11       14,401.81       13,772.15
0105............................................       20,622.37       18,478.09       16,804.26       16,068.46
0106............................................       23,483.79       21,041.18       19,136.43       18,298.80
0107............................................       26,363.87       23,621.49       21,482.95       20,542.04
0108............................................       32,953.04       29,525.07       26,851.53       25,675.40
0109............................................       30,444.45       27,277.52       24,807.65       23,721.89
0110............................................       39,160.69       35,087.28       31,910.31       30,513.30
0201............................................       11,923.34        9,965.52        8,891.23        8,417.91
0202............................................       14,585.40       12,190.12       10,876.30       10,296.84
0203............................................       16,930.48       14,149.37       12,626.14       11,953.46
0204............................................       18,556.97       15,509.09       13,838.13       13,100.90
0205............................................       22,303.37       18,640.16       16,632.14       15,745.75
0206............................................       27,801.04       23,235.66       20,732.81       19,626.96
0207............................................       36,624.85       30,609.40       27,311.94       25,856.13
0301............................................       16,089.98       13,716.21       12,137.05       11,262.12
0302............................................       20,117.49       17,149.93       15,173.46       14,079.09
0303............................................       23,816.55       20,302.52       17,964.61       16,668.00
0304............................................       31,647.83       26,979.18       23,871.05       22,149.89
0401............................................       14,906.68       12,590.29       11,279.34       10,196.44
0402............................................       21,262.06       17,958.87       16,089.98       14,545.24
0403............................................       34,236.74       28,916.92       25,907.76       23,420.68
0404............................................       62,628.71       52,898.42       47,393.57       42,842.54
0405............................................       48,612.73       41,059.71       36,786.93       33,255.68
0501............................................       12,099.75        9,793.40        9,044.70        8,066.50
0502............................................       16,183.21       13,098.03       12,096.89       10,787.37
0503............................................       20,487.54       16,581.94       15,314.02       13,657.40
0504............................................       24,698.65       19,989.84       18,462.31       16,464.33
0505............................................       28,192.60       22,818.28       21,074.17       18,793.63
0506............................................       39,740.15       32,164.18       29,705.79       26,491.52
0601............................................       13,917.01       11,352.48       10,476.13        9,533.79
0602............................................       18,208.44       14,853.61       13,707.61       12,474.11
0603............................................       23,297.33       19,004.48       17,538.62       15,960.89
0604............................................       30,890.52       25,197.78       23,254.31       21,163.10
0701............................................       13,400.66       11,246.35       10,730.00        9,713.08
0702............................................       17,895.76       15,018.56       14,328.66       12,971.81
0703............................................       21,491.55       18,036.32       17,205.86       15,576.50
0704............................................       27,243.09       22,862.74       21,811.40       19,746.01
0801............................................       10,678.36        8,809.47        8,043.55        7,395.25

[[Page 44629]]

 
0802............................................       14,112.08       11,642.21       10,631.03        9,773.32
0803............................................       19,192.37       15,833.24       14,457.74       13,290.22
0804............................................       17,052.39       14,066.18       12,844.16       11,808.59
0805............................................       21,124.37       17,426.75       15,912.12       14,628.43
0806............................................       25,768.63       21,257.76       19,410.38       17,844.13
0901............................................       13,032.05       10,740.04        9,974.12        9,020.31
0902............................................       17,091.12       14,084.83       13,080.82       11,830.11
0903............................................       22,118.34       18,228.52       16,929.04       15,309.72
0904............................................       28,106.54       23,162.51       21,511.63       19,454.85
1001............................................       14,583.96       13,047.83       11,795.68       10,744.34
1002............................................       18,377.69       16,442.82       14,865.09       13,539.79
1003............................................       26,567.54       23,769.22       21,490.12       19,573.89
1101............................................       16,570.47       15,897.78       15,897.78       12,915.87
1102............................................       23,067.85       22,129.81       22,129.81       17,980.38
1201............................................       12,953.16       12,953.16       12,442.55       11,574.80
1202............................................       15,278.16       15,278.16       14,675.76       13,651.67
1203............................................       19,707.28       19,707.28       18,931.33       17,610.34
1301............................................       17,332.08       14,730.26       12,991.89       11,569.06
1302............................................       22,547.20       19,162.25       16,900.36       15,048.68
1303............................................       28,694.61       24,387.40       21,508.76       19,153.64
1401............................................       12,808.30       10,939.41        9,863.68        8,987.32
1402............................................       16,534.61       14,123.55       12,732.28       11,602.05
1403............................................       19,922.43       17,016.54       15,341.27       13,980.12
1404............................................       25,546.32       21,820.01       19,672.86       17,925.88
1501............................................       13,909.84       12,178.64       11,148.81       10,562.19
1502............................................       17,380.85       15,217.92       13,929.92       13,196.99
1503............................................       21,335.21       18,681.76       17,099.72       16,200.42
1504............................................       27,013.61       23,653.04       21,650.76       20,511.92
1601............................................       15,058.72       13,131.02       11,976.41       10,873.43
1602............................................       19,830.63       17,291.92       15,773.00       14,320.05
1603............................................       24,879.37       21,692.35       19,787.60       17,964.61
1701............................................       15,398.64       13,371.98       12,198.72       10,863.39
1702............................................       20,160.52       17,507.07       15,972.36       14,222.52
1703............................................       23,455.11       20,368.49       18,582.79       16,547.52
1704............................................       29,958.22       26,015.33       23,733.36       21,134.41
1801............................................       17,735.12       13,419.31       12,442.55       10,889.21
1802............................................       26,835.75       20,306.82       18,828.06       16,477.24
1803............................................       47,571.43       35,995.19       33,374.73       29,208.09
1901............................................       15,012.82       13,638.76       13,174.05       12,548.69
1902............................................       27,522.78       25,004.15       24,152.18       23,007.61
1903............................................       47,502.58       43,155.22       41,683.63       39,708.60
2001............................................       12,541.52       10,435.97        9,581.12        8,742.06
2002............................................       16,919.00       14,077.65       12,925.91       11,792.81
2003............................................       21,252.02       17,683.48       16,236.28       14,813.45
2004............................................       28,103.67       23,384.83       21,471.47       19,591.10
2101............................................       31,478.58       27,264.61       27,264.61       23,542.60
5001............................................  ..............  ..............  ..............        2,142.84
5101............................................  ..............  ..............  ..............        8,413.60
5102............................................  ..............  ..............  ..............       21,980.65
5103............................................  ..............  ..............  ..............       10,170.62
5104............................................  ..............  ..............  ..............       27,327.72
----------------------------------------------------------------------------------------------------------------

E. Example of the Methodology for Adjusting the Federal Prospective 
Payment Rates

    Table 6 illustrates the methodology for adjusting the Federal 
prospective payments (as described in sections V.A through V.D of this 
notice). The following examples are based on two hypothetical Medicare 
beneficiaries, both classified into CMG 0110 (without comorbidities). 
The unadjusted Federal prospective payment rate for CMG 0110 (without 
comorbidities) appears in Table 5 above.
    Example: 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 disproportionate share hospital (DSH) 
percentage of 5 percent (which would result in a LIP adjustment of 
1.0228), a wage index of 0.8551, and a rural adjustment of 18.4 
percent. Facility B, an urban teaching hospital, has a DSH percentage 
of 15 percent (which would result in a LIP adjustment of 1.0666), a 
wage index of 0.8900, and a teaching status adjustment of 0.0610.
    To calculate each IRF's labor and non-labor portion of the Federal 
prospective payment, we begin by taking the unadjusted Federal 
prospective payment rate for CMG 0110 (without comorbidities) from 
Table 5 above. Then, we multiply the labor-related share for FY 2013 
(69.981 percent) described in section V.B of this notice by the 
unadjusted Federal prospective payment rate. To determine the non-labor 
portion of the Federal prospective payment rate, we subtract the labor

[[Page 44630]]

portion of the Federal payment from the unadjusted Federal prospective 
payment.
    To compute the wage-adjusted Federal prospective payment, we 
multiply the labor portion of the Federal payment by the appropriate 
wage index found in Table A and Table B. These tables are available 
through the Internet on the CMS Web site at http://www.cms.hhs.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/. The 
resulting figure is the wage-adjusted labor amount. Next, we compute 
the wage-adjusted Federal payment by adding the wage-adjusted labor 
amount to the non-labor portion.
    Adjusting the 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 
(0.0610, 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 IRF FY 2013 Federal Prospective Payment
----------------------------------------------------------------------------------------------------------------
                                                                           Rural Facility A    Urban Facility B
                 Steps                                                     (Spencer Co., IN)  (Harrison Co., IN)
----------------------------------------------------------------------------------------------------------------
1......................................  Unadjusted Federal Prospective           $30,513.30          $30,513.30
                                          Payment.
2......................................  Labor Share....................           x 0.69981           x 0.69981
3......................................  Labor Portion of Federal               = $21,353.51        = $21,353.51
                                          Payment.
4......................................  CBSA Based Wage Index (shown in            x 0.8551            x 0.8900
                                          the Addendum, Tables 1 and 2).
5......................................  Wage-Adjusted Amount...........        = $18,259.39        = $19,004.63
6......................................  Nonlabor Amount................         + $9,159.79         + $9,159.79
7......................................  Wage-Adjusted Federal Payment..        = $27,419.18        = $28,164.41
8......................................  Rural Adjustment...............             x 1.184             x 1.000
9......................................  Wage- and Rural-Adjusted               = $32,464.30        = $28,164.41
                                          Federal Payment.
10.....................................  LIP Adjustment.................            x 1.0228            x 1.0666
11.....................................  FY 2013 Wage-, Rural- and LIP-         = $33,204.49        = $30,040.16
                                          Adjusted Federal Prospective
                                          Payment Rate.
12.....................................  FY 2013 Wage- and Rural-                 $32,464.30          $28,164.41
                                          Adjusted Federal Prospective
                                          Payment.
13.....................................  Teaching Status Adjustment.....                 x 0            x 0.0610
14.....................................  Teaching Status Adjustment                  = $0.00         = $1,718.03
                                          Amount.
15.....................................  FY 2013 Wage-, Rural-, and LIP-        + $33,204.49        + $30,040.16
                                          Adjusted Federal Prospective
                                          Payment Rate.
16.....................................  Total FY 2013 Adjusted Federal         = $33,204.49        = $31,758.19
                                          Prospective Payment.
----------------------------------------------------------------------------------------------------------------

    Thus, the adjusted payment for Facility A would be $33,204.49 and 
the adjusted payment for Facility B would be $31,758.19.

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

A. Update to the Outlier Threshold Amount for FY 2013

    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 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 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 through 2012 IRF PPS final rules (70 FR 47880, 70 FR 57166, 71 
FR 48354, 72 FR 44284, 73 FR 46370, 74 FR 39762, 75 FR 42836, 75 FR 
42836, and 76 FR 47836, respectively) to maintain estimated outlier 
payments at 3 percent of total estimated payments. We also stated in 
the FY 2009 final rule (73 FR 46370 at 46385) 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.
    To update the IRF outlier threshold amount for FY 2013, we use FY 
2011 claims data and the same methodology that we used to set the 
initial outlier threshold amount in the FY 2002 IRF PPS final rule (66 
FR 41316 and 41362 through 41363), which is also the same methodology 
that we used to update the outlier threshold amounts for FYs 2006 
through 2012. Based on an analysis of this updated data, we estimate 
that IRF outlier payments as a percentage of total estimated payments 
are approximately 2.8 percent in FY 2012. Therefore, we will update the 
outlier threshold amount to $10,466 to maintain estimated outlier 
payments at approximately 3 percent of total estimated aggregate IRF 
payments for FY 2013.

B. 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' CCRs. Using the methodology described in that final rule, we 
update the national urban and rural CCRs for IRFs, as well as the 
national CCR ceiling for FY 2013, based

[[Page 44631]]

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 2013, as discussed below.
     Other IRFs for which accurate data to calculate an overall 
CCR are not available.
    Specifically, for FY 2013, we estimate a national average CCR of 
0.659 for rural IRFs, which we calculated by taking an average of the 
CCRs for all rural IRFs using their most recently submitted cost report 
data. Similarly, we estimate a national average CCR of 0.514 for urban 
IRFs, which we calculated 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 notice, we have used the most recent available cost report data 
(FY 2010). This includes all IRFs whose cost reporting periods began on 
or after October 1, 2009, and before October 1, 2010. If, for any IRF, 
the FY 2010 cost report was missing or had an ``as submitted'' status, 
we used data from the latest settled cost report for FY 2004 through FY 
2009. 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 suggest that these older 
data do not adequately reflect the current cost of care.
    In accordance with past practice, we set the national CCR ceiling 
at 3 standard deviations above the mean CCR. Using this method, the 
national CCR ceiling is set at 1.57 for FY 2013. This means that, if an 
individual IRF's CCR exceeds this ceiling of 1.57 for FY 2013, 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 
calculate 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).
    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.
    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.

VII. Collection of Information Requirements

    This document does not impose any new information collection 
requirements. However, it does provide detailed information about a 
currently approved information collection request pertaining to the IRF 
PPS. Specifically, section I.C. of this notice references the Inpatient 
Rehabilitation Facility-Patient Assessment Instrument (IRF-PAI). As 
stated in section I.C of this notice, IRFs are required to complete the 
IRF-PAI upon the admission and discharge of a Medicare Part A fee-for-
service patients and upon admission and discharge of each Medicare Part 
C (Medicare Advantage) patient. The IRF-PAI is currently approved under 
OMB control number: 0938-0842.

VIII. Waiver of Notice and Comment

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register to provide a period for public comment before the 
provisions of a rule take effect. We can waive this procedure, however, 
if we find good cause that notice and comment procedures are 
impracticable, unnecessary, or contrary to the public interest and we 
incorporate a statement of finding and its reasons in the notice. We 
find that it is unnecessary to undertake notice and comment rulemaking 
for the updates in this notice because the updates contained in this 
Notice do not make any substantive changes in policy, but merely 
reflect the application of previously established methodologies. In 
addition, we applied the statutorily-required adjustments to the update 
to the IRF-PPS increase factor in sections 1886(j)(3)(C) and (D) of the 
Act in this notice. We find that notice and comment rulemaking is 
unnecessary to implement these statutory provisions because they are 
self-implementing provisions of law, not requiring the exercise of any 
discretion on the part of the Secretary. Finally, in accordance with 
1886(e)(5)(B), we noted MEDPAC's recommendations regarding an 
appropriate update for the FY 2013 IRF PPS, and the Secretary's 
inability to implement those recommendations due to the requirements in 
1886(j) regarding the establishment of an update factor. As such, the 
Secretary's recommendation (to follow the statutory requirements 
thereby applying a 1.9 percent update rather than MEDPAC's recommended 
0 percent update) need not be published in a proposed and final rule as 
such publication is unnecessary in the absence of any discretion 
regarding the establishment of the update factor. Therefore, under 5 
U.S.C. 553(b)(3)(B), for good cause, we waive notice and comment 
procedures.

IX. Regulatory Impact Analysis

A. Statement of Need

    This notice updates the IRF prospective payment rates for FY 2013 
as required under section 1886(j)(3)(C) of the Act. It responds to 
Section 1886(j)(5) of the Act, which 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 PPS's case-mix groups and a description of the methodology and 
data used in computing the prospective payment rates for that fiscal 
year.
    This notice also implements sections 1886(j)(3)(C) and (D) of the 
Act. Section 1886(j)(3)(C)(ii)(I) of the Act requires the Secretary to 
apply a multi-factor productivity adjustment to the market basket 
increase factor, and to apply other adjustments as defined by the Act. 
The productivity adjustment applies to FYs from 2012 forward. The other 
adjustments apply to FYs 2010 through 2019.

B. Overall Impact

    We have examined the impacts of this notice as required by 
Executive Order 12866 (September 30, 1993, Regulatory Planning and 
Review), Executive Order 13563 (January 18, 2011, Improving Regulation 
and Regulatory 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 Orders 12866 and 13563 direct 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). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. A regulatory impact analysis (RIA) must be prepared for a 
major notice with

[[Page 44632]]

economically significant effects ($100 million or more in any one 
year). We estimate the total impact of the updates described in this 
notice by comparing the estimated payments in FY 2013 with those in FY 
2012. This analysis results in an estimated $140 million increase for 
FY 2013 IRF PPS payments. As a result, this notice is designated as 
economically ``significant'' under section 3(f)(1) of Executive Order 
12866, and hence a major notice under the Congressional Review Act.
    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 having 
revenues of $7 million to $34.5 million in any 1 year, or by being 
nonprofit organizations that are not dominant in their markets. (For 
details, see the Small Business Administration's final rule that set 
forth size standards for health care industries, at 65 FR 69432 at 
http://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf, effective March 26, 2012.) 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 notice on all IRFs is 
to increase estimated payments by approximately 2.1 percent, with three 
categories of IRFs (6 rural IRFs in the New England region, 29 rural 
IRFs in the West North Central region, and 8 rural IRFs in the Mountain 
region) estimated to receive an increase in estimated payments of 3 
percent or more (3.2 percent, 3.0 percent, and 3.1, respectively). As a 
result, we anticipate this notice would have a positive impact on a 
substantial number of small entities. Medicare fiscal intermediaries, 
Medicare Administrative Contractors, 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 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. As discussed in detail 
below, the rates and policies set forth in this notice will not have an 
adverse impact on rural hospitals based on the data of the 169 rural 
units and 20 rural hospitals in our database of 1,139 IRFs for which 
data were available.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-04, enacted on March 22, 1995) 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 2012, that threshold level is 
approximately $139 million. This notice will not impose spending costs 
on State, local, or tribal governments, in the aggregate, or by the 
private sector, of greater than $139 million.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a 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 notice will not have a substantial effect on State and 
local governments, preempt State law, or otherwise have a Federalism 
implication.

C. Anticipated Effects of the Notice

1. Basis and Methodology of Estimates
    This notice sets forth updates to the IRF PPS rates contained in 
the FY 2012 final rule (76 FR 47836). Specifically, this notice sets 
forth updates to the CMG relative weights and average length of stay 
values, the wage index, and the outlier threshold for high-cost cases. 
This notice also applies a productivity adjustment to the FY 2013 RPL 
market basket increase factor in accordance with section 
1886(j)(3)(C)(ii)(I) of the Act, and a 0.1 percentage point reduction 
to the FY 2013 RPL market basket increase factor in accordance with 
sections 1886(j)(3)(C)(ii)(II) and (D)(ii) of the Act.
    We estimate that the FY 2013 impact will be a net increase of $140 
million in payments to IRF providers. The impact analysis in Table 7 of 
this notice represents the projected effects of the updates to IRF PPS 
payments for FY 2013 compared with the estimated IRF PPS payments in FY 
2012. We determine 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 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 2013, we are implementing standard 
annual revisions described in this notice (for example, the update to 
the wage and market basket indexes used to adjust the Federal rates). 
We are also implementing a productivity adjustment to the FY 2013 RPL 
market basket increase factor in accordance with section 
1886(j)(3)(C)(ii)(I) of the Act, and a 0.1 percentage point reduction 
to the FY 2013 RPL market basket increase factor in accordance with 
sections 1886(j)(3)(C)(ii)(II) and (D)(ii) of the Act. We estimate the 
total increase in payments to IRFs in FY 2013, relative to FY 2012, 
will be approximately $140 million.
    This estimate is derived from the application of the FY 2013 RPL 
market basket increase factor, as reduced by a productivity adjustment 
in accordance with section 1886(j)(3)(C)(ii)(I) of the Act, and a 0.1 
percentage point reduction in accordance with sections 
1886(j)(3)(C)(ii)(II) and (D)(ii) of the Act, which yields an increase 
of aggregate payments to IRFs of $130 million. Furthermore, there is an 
additional estimated $10 million increase in aggregate payments to IRFs 
due to the update in the outlier threshold amount. Outlier payments are 
estimated to increase from approximately 2.8 percent in FY 2012 to 3.0 
percent in FY 2013. Therefore, summed together, these

[[Page 44633]]

updates will result in a net increase in estimated payments of $140 
million from FY 2012 to FY 2013.
    The effects of the updates that impact IRF PPS payment rates are 
shown in Table 7. The following updates that affect the IRF PPS payment 
rates are discussed separately below:
     The effects of the update to the outlier threshold amount, 
from approximately 2.8 percent to 3.0 percent of total estimated 
payments for FY 2013, 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 sections 1886(j)(3)(C) and (D) of the Act, 
including a productivity adjustment in accordance with section 
1886(j)(3)(C)(i)(I) of the Act, and a 0.1 percentage point reduction in 
accordance with sections 1886(j)(3)(C) and (D) 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 budget-neutral changes to the CMG 
relative weights and average length of stay values, under the authority 
of section 1886(j)(2)(C)(i) of the Act.
     The total change in estimated payments based on the FY 
2013 payment updates relative to the estimated FY 2012 payments.
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), by teaching 
status, and by disproportionate share patient percentage (DSH PP). The 
top row of the table shows the overall impact on the 1,139 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 950 IRFs located in 
urban areas included in our analysis. Among these, there are 739 IRF 
units of hospitals located in urban areas and 211 freestanding IRF 
hospitals located in urban areas. There are 189 IRFs located in rural 
areas included in our analysis. Among these, there are 169 IRF units of 
hospitals located in rural areas and 20 freestanding IRF hospitals 
located in rural areas. There are 383 for-profit IRFs. Among these, 
there are 324 IRFs in urban areas and 59 IRFs in rural areas. There are 
697 non-profit IRFs. Among these, there are 579 urban IRFs and 118 
rural IRFs. There are 59 government-owned IRFs. Among these, there are 
47 urban IRFs and 12 rural IRFs.
    The remaining four parts of Table 7 show IRFs grouped by their 
geographic location within a region, by teaching status, and by DSH PP. 
First, IRFs located in urban areas are categorized with respect to 
their location within a particular one of the nine Census geographic 
regions. Second, IRFs located in rural areas are categorized with 
respect to their location within a particular one of the nine Census 
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. IRFs are then 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. Finally, IRFs are 
grouped by DSH PP, including IRFs with zero DSH PP, IRFs with a DSH PP 
less than 5 percent, IRFs with a DSH PP between 5 and less than 10 
percent, IRFs with a DSH PP between 10 and 20 percent, and IRFs with a 
DSH PP greater than 20 percent.
    The estimated impacts of each payment update described in this 
notice 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 2011 analysis file.
     Column (3) shows the number of cases in each category in 
our FY 2011 analysis file.
     Column (4) shows the estimated effect of the adjustment to 
the outlier threshold amount.
     Column (5) shows the estimated effect of the update to the 
IRF PPS payment rates, which includes a productivity adjustment in 
accordance with section 1886(j)(3)(C)(ii)(I) of the Act, and a 0.1 
percentage point reduction in accordance with sections 
1886(j)(3)(C)(ii)(II) and (D)(ii) of the Act.
     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) compares our estimates of the payments per 
discharge, incorporating all of the payment updates reflected in this 
notice for FY 2013 to our estimates of payments per discharge in FY 
2012.
    The average estimated increase for all IRFs is approximately 2.1 
percent. This estimated net increase includes the effects of the RPL 
market basket increase factor for FY 2013 of 2.7 percent, reduced by a 
productivity adjustment of 0.7 percent in accordance with section 
1886(j)(3)(C)(ii)(I) of the Act, and further reduced by 0.1 percentage 
point in accordance with sections 1886(j)(3)(C)(ii)(II) and (D)(ii) of 
the Act. It also includes the approximate 0.2 percent overall estimated 
increase in estimated IRF outlier payments from the update to the 
outlier threshold amount. Since we are making the updates to the IRF 
wage index and the CMG relative weights in a budget-neutral manner, 
they will not affect total estimated IRF payments in the aggregate. 
However, as described in more detail in each section, they will affect 
the estimated distribution of payments among providers.

[[Page 44634]]



                                                          Table 7--IRF Impact Table for FY 2013
                                                                   [Columns 4-8 in %]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             Adjusted
                                                                                           market basket   FY 2013 CBSA
         Facility classification          Number of IRFs     Number of        Outlier        increase     wage index and        CMG        Total percent
                                                               cases                       factor for FY    labor-share                       change
                                                                                             2013 \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
(1)                                                  (2)             (3)             (4)             (5)             (6)             (7)             (8)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total...................................           1,139         377,040             0.2             1.9             0.0             0.0             2.1
Urban unit..............................             739         182,873             0.2             1.9            -0.1             0.1             2.2
Rural unit..............................             169          27,487             0.2             1.9            -0.1             0.2             2.3
Urban hospital..........................             211         160,712             0.1             1.9             0.1            -0.2             1.9
Rural hospital..........................              20           5,968             0.1             1.9            -0.1            -0.1             1.7
Urban For-Profit........................             324         150,510             0.1             1.9             0.1            -0.1             1.9
Rural For-Profit........................              59          10,972             0.2             1.9            -0.3             0.1             1.8
Urban Non-Profit........................             579         180,668             0.2             1.9             0.0             0.1             2.1
Rural Non-Profit........................             118          20,321             0.2             1.9             0.0             0.2             2.3
Urban Government........................              47          12,407             0.3             1.9            -0.2             0.0             1.9
Rural Government........................              12           2,162             0.2             1.9             0.3             0.4             2.8
Urban...................................             950         343,585             0.2             1.9             0.0             0.0             2.0
Rural...................................             189          33,455             0.2             1.9            -0.1             0.2             2.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Urban by region \2\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Urban New England.......................              32          15,790             0.1             1.9             0.2            -0.1             2.2
Urban Middle Atlantic...................             142          58,285             0.1             1.9             0.1             0.1             2.2
Urban South Atlantic....................             132          62,379             0.1             1.9            -0.1            -0.1             1.8
Urban East North Central................             184          53,412             0.2             1.9            -0.3             0.0             1.7
Urban East South Central................              50          24,111             0.1             1.9            -0.4            -0.1             1.5
Urban West North Central................              72          17,926             0.2             1.9            -0.1             0.1             2.1
Urban West South Central................             170          65,263             0.1             1.9             0.5             0.1             2.6
Urban Mountain..........................              68          22,572             0.2             1.9             0.0            -0.1             2.0
Urban Pacific...........................             100          23,847             0.3             1.9             0.1             0.0             2.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Rural by region \2\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Rural New England.......................               6           1,279             0.3             1.9             0.9             0.1             3.2
Rural Middle Atlantic...................              15           2,807             0.1             1.9            -0.2             0.1             1.9
Rural South Atlantic....................              23           5,699             0.1             1.9            -0.7             0.0             1.4
Rural East North Central................              31           5,498             0.1             1.9            -0.3             0.2             1.9
Rural East South Central................              23           3,944             0.1             1.9            -0.5             0.2             1.7
Rural West North Central................              29           3,857             0.3             1.9             0.5             0.3             3.0
Rural West South Central................              50           9,336             0.2             1.9             0.2             0.2             2.5
Rural Mountain..........................               8             656             0.3             1.9             0.3             0.5             3.1
Rural Pacific...........................               4             379             0.6             1.9             0.3             0.1             2.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     Teaching Status
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-teaching............................           1,024         330,504             0.1             1.9             0.0             0.0             2.1
Resident to ADC less than 10%...........              64          30,956             0.2             1.9            -0.2             0.1             2.0
Resident to ADC 10%-19%.................              39          13,961             0.2             1.9             0.2            -0.1             2.3
Resident to ADC greater than 19%........              12           1,619             0.2             1.9             0.2             0.2             2.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                   Disproportionate Share Patient Percentage (DSH PP)
--------------------------------------------------------------------------------------------------------------------------------------------------------
DSH PP = 0%.............................              49          13,420             0.1             1.9             0.2             0.0             2.3
DSH PP less than 5%.....................             175          51,699             0.2             1.9             0.0             0.1             2.1
DSH PP 5%-10%...........................             347         129,038             0.1             1.9             0.0             0.0             2.0
DSH PP 10%-20%..........................             339         121,832             0.2             1.9            -0.1             0.0             2.0

[[Page 44635]]

 
DSH PP greater than 20%.................             229          61,051             0.2             1.9             0.0            -0.1             2.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ This column reflects the impact of the RPL market basket increase factor for FY 2013 of 1.9 percent, which includes a market basket update of 2.7
  percent, a 0.1 percentage point reduction in accordance with sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the Act and a 0.7 percent
  reduction for the productivity adjustment as required by section 1886(j)(3)(C)(ii)(I) of the Act.
\2\ A map of states that comprise the 9 geographic regions can be found at: http://www.census.gov/geo/www/us_regdiv.pdf.

3. Impact of the Update to the Outlier Threshold Amount
    The outlier threshold adjustment is presented in column 4 of Table 
7. In the FY 2012 IRF PPS final rule (76 FR 47867 through 47868), we 
used FY 2010 IRF claims data (the best, most complete data available at 
that time) to set the outlier threshold amount for FY 2012 so that 
estimated outlier payments would equal 3 percent of total estimated 
payments for FY 2012.
    For this notice, we are updating our analysis using FY 2011 IRF 
claims data and, based on this updated analysis, we estimate that IRF 
outlier payments as a percentage of total estimated IRF payments are 
2.8 percent in FY 2012. Thus, we are adjusting the outlier threshold 
amount in this notice to set total estimated outlier payments equal to 
3 percent of total estimated payments in FY 2013. The estimated change 
in total IRF payments for FY 2013, therefore, includes an approximate 
0.2 percent increase in payments because the estimated outlier portion 
of total payments is estimated to increase from approximately 2.8 
percent to 3 percent.
    The impact of this outlier adjustment update (as shown in column 4 
of Table 7) is to increase estimated overall payments to IRFs by about 
0.2 percent. We estimate the largest increase in payments from the 
update to the outlier threshold amount to be 0.6 percent for rural IRFs 
in the Pacific region. We do not estimate that any group of IRFs will 
experience a decrease in payments from this update.
4. Impact of the Market Basket Update to the IRF PPS Payment Rates
    The adjusted market basket update to the IRF PPS payment rates is 
presented in column 5 of Table 7. In the aggregate the update would 
result in a net 1.9 percent increase in overall estimated payments to 
IRFs. This net increase reflects the estimated RPL market basket 
increase factor for FY 2013 of 2.7 percent, reduced by the 0.1 
percentage point in accordance with sections 1886(j)(3)(C)(ii)(II) and 
1886(j)(3)(D)(ii) of the Act, and further reduced by a 0.7 percent 
productivity adjustment as required by section 1886(j)(3)(C)(ii)(I) of 
the Act.
    5. Impact of the CBSA Wage Index and Labor-Related Share
    In column 6 of Table 7, we present the effects of the budget 
neutral update of the wage index and labor-related share. The changes 
to the wage index and the labor-related share are discussed together 
because the wage index is applied to the labor-related share portion of 
payments, so the changes in the two have a combined effect on payments 
to providers. As discussed in section V.B of this notice, the labor-
related share decreased from 70.199 percent in FY 2012 to 69.981 
percent in FY 2013.
    In the aggregate, since these updates to the wage index and the 
labor-related share are applied in a budget-neutral manner as required 
under section 1886(j)(6) of the Act, we do not estimate that these 
updates will affect overall estimated payments to IRFs. However, we 
estimate that these updates will have small distributional effects. For 
example, we estimate the largest increase in payments from the update 
to the CBSA wage index and labor-related share of 0.9 percent for rural 
IRFs in the New England region. We estimate the largest decrease in 
payments from the update to the CBSA wage index and labor-related share 
to be a 0.7 percent decrease for rural IRFs in the South Atlantic 
region.
6. Impact of the Update to the CMG Relative Weights and Average Length 
of Stay Values
    In column 7 of Table 7, we present the effects of the budget 
neutral update of the CMG relative weights and average length of stay 
values. In the aggregate we do not estimate that these updates will 
affect overall estimated payments to IRFs. However, we estimate that 
these updates will have small distributional effects. The largest 
estimated decrease in payments as a result of these updates is a 0.2 
percent decrease to urban freestanding IRFs. The largest estimated 
increase in payments as a result of these updates is a 0.5 percent 
increase to rural IRFs in the Mountain region.

D. Alternatives Considered

    As stated in section 1X. B of this notice, the notice results in a 
positive economic impact on IRFs. The overall impact on all IRFs is an 
estimated increase in FY 2013 payments of 2.1 percent, relative to FY 
2012, with three categories of IRFs (6 rural IRFs in the New England 
region, 29 rural IRFs in the West North Central region, and 8 rural 
IRFs in the Mountain region) estimated to receive an increase in 
estimated payments of 3 percent or more (3.2 percent, 3.0 percent, 3.1 
percent, respectively). The following is a discussion of the 
alternatives considered to the IRF PPS updates contained in this 
notice.
    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. Thus, we did not consider 
alternatives to updating payments using the estimated RPL market basket 
increase factor for FY 2013. However, as noted previously in this 
notice, section 1886(j)(3)(C)(ii)(I) requires the Secretary to apply a 
productivity adjustment to the market basket increase factor for FY 
2013 and sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the 
Act require the Secretary to apply a 0.1 percentage point reduction to 
the market basket increase factor for FY 2013. Thus, in accordance with 
section 1886(j)(3)(C) of the Act, we are updating IRF Federal 
prospective payments in this notice by

[[Page 44636]]

1.9 percent (which equals the 2.7 percent estimated RPL market basket 
increase factor for FY 2013 reduced by 0.1 percentage points, and 
further reduced by a 0.7 percent productivity adjustment as required by 
section 1886(j)(3)(C)(ii)(I) of the Act).
    We considered maintaining the existing CMG relative weights and 
average length of stay values for FY 2013. However, 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 recent changes in IRF utilization and case mix, we believe that it 
is appropriate to update the CMG relative weights and average length of 
stay values at this time to ensure that IRF PPS payments continue to 
reflect as accurately as possible the current costs of care in IRFs.
    We considered maintaining the existing outlier threshold amount for 
FY 2013. However, analysis of updated FY 2011 data indicates that 
estimated outlier payments would be lower than 3 percent of total 
estimated payments for FY 2012, by approximately 0.2 percent, unless we 
updated the outlier threshold amount. Consequently, we are adjusting 
the outlier threshold amount in this notice to reflect a 0.2 percent 
increase thereby setting the total outlier payments equal to 3 percent, 
instead of 2.8 percent, of aggregate estimated payments in FY 2013.

E. Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/sites/default/files/omb/assets/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 
provisions of this notice. This table provides our best estimate of the 
increase in Medicare payments under the IRF PPS as a result of the 
updates presented in this notice based on the data for 1,139 IRFs in 
our database.

Table 8--Accounting Statement: Classification of Estimated Expenditures,
    From the 2012 IRF PPS Fiscal Year to the 2013 IRF PPS Fiscal Year
------------------------------------------------------------------------
                Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.........  $140 million.
From Whom to Whom?.....................  Federal Government to IRF
                                          Medicare Providers.
------------------------------------------------------------------------

F. Conclusion

    Overall, the estimated payments per discharge for IRFs in FY 2013 
are projected to increase by 2.1 percent, compared with the estimated 
payments in FY 2012, as reflected in column 8 of Table 7. IRF payments 
per discharge are estimated to increase 2.0 percent in urban areas and 
2.2 percent in rural areas, compared with estimated FY 2012 payments. 
Payments per discharge to rehabilitation units are estimated to 
increase 2.2 percent in urban areas and 2.3 percent in rural areas. 
Payments per discharge to freestanding rehabilitation hospitals are 
estimated to increase 1.9 percent in urban areas and 1.7 percent in 
rural areas.
    Overall, no IRFs are estimated to experience a net decrease in 
payments as a result of the updates in this notice. The largest payment 
increase is estimated to be a 3.2 percent increase for rural IRFs 
located in the New England region. This is due to the larger than 
average positive effect of the FY 2013 CBSA wage index and labor-
related share updates for rural IRFs in this region.
    In accordance with the provisions of Executive Order 12866, this 
notice was reviewed by the Office of Management and Budget.

    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 10, 2012.
Marilyn Tavenner,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: July 16, 2012.
Kathleen Sebelius,
Secretary.
[FR Doc. 2012-18433 Filed 7-25-12; 4:15 pm]
BILLING CODE 4120-01-P