[Federal Register Volume 78, Number 192 (Thursday, October 3, 2013)]
[Rules and Regulations]
[Pages 61191-61197]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-24209]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1599-IFC]
RIN 0938-AR53


Medicare Program; FY 2014 Inpatient Prospective Payment Systems: 
Changes to Certain Cost Reporting Procedures Related to 
Disproportionate Share Hospital Uncompensated Care Payments

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

ACTION: Interim final rule with comment period.

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SUMMARY: In the fiscal year (FY) 2014 inpatient prospective payment 
systems (IPPS)/long-term care hospital (LTCH) PPS final rule, we 
established the methodology for determining the amount of uncompensated 
care payments made to hospitals eligible for the disproportionate share 
hospital (DSH) payment adjustment in FY 2014 and a process for making 
interim and final payments. This interim final rule with comment period 
revises certain operational considerations for hospitals with Medicare 
cost reporting periods that span more than one Federal fiscal year and 
also makes changes to the data that will be used in the uncompensated 
care payment calculation in order to ensure that data from Indian 
Health Service (IHS) hospitals are included in Factor 1 and Factor 3 of 
that calculation.

DATES: Effective date: These regulations are effective on October 1, 
2013.
    Comment date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on November 29, 2013.

ADDRESSES: In commenting, please refer to file code CMS-1599-IFC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed).
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY:

Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-1599-IFC, P.O. Box 8013, Baltimore, MD 
21244-8013.

    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.

    3. By express or overnight mail. You may send written comments to 
the following address ONLY:

Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-1599-IFC, Mail Stop C4-26-05, 7500 
Security Boulevard, Baltimore, MD 21244-1850.

    4. By hand or courier. Alternatively, you may deliver (by hand or 
courier) your written comments ONLY to the following addresses prior to 
the close of the comment period:

a. For delivery in Washington, DC--
Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Room 445-G, Hubert H. Humphrey Building, 200 
Independence Avenue SW., Washington, DC 20201.

    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal government 
identification, commenters are encouraged to leave

[[Page 61192]]

their comments in the CMS drop slots located in the main lobby of the 
building. A stamp-in clock is available for persons wishing to retain a 
proof of filing by stamping in and retaining an extra copy of the 
comments being filed.)

b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.

    If you intend to deliver your comments to the Baltimore address, 
call telephone number (410) 786-9994 in advance to schedule your 
arrival with one of our staff members.
    Comments erroneously mailed to the addresses indicated as 
appropriate for hand or courier delivery may be delayed and received 
after the comment period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Tzvi Hefter or Ing Jye Cheng, (410) 
786-4548.

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

I. Background

    Section 3133 of the Patient Protection and Affordable Care Act 
(PPACA), as amended by section 10316 of PPACA and section 1104 of the 
Health Care and Education Reconciliation Act (Pub. L. 111-152), added a 
new section 1886(r) to the Social Security Act (the Act) that modifies 
the methodology for computing the Medicare disproportionate share 
hospital (DSH) payment adjustment beginning in fiscal year (FY) 2014. 
For the purposes of this interim final rule with comment period, we 
refer to these provisions collectively as section 3133 of the 
Affordable Act. Currently, hospitals qualify for a DSH payment 
adjustment under a statutory formula that considers their Medicare 
utilization due to beneficiaries who also receive Supplemental Security 
Income (SSI) benefits and their Medicaid utilization. Under section 
1886(r) of the Act, starting in FY 2014, hospitals that are eligible 
for Medicare DSH payments will receive 25 percent of the amount they 
previously would have received under the current statutory formula for 
Medicare DSH payments. The remaining amount, equal to an estimate of 75 
percent of what otherwise would have been paid as Medicare DSH 
payments, reduced for changes in the percentage of individuals under 
age 65 who are uninsured will become available to make additional 
payments to each hospital that qualifies for Medicare DSH payments and 
that has uncompensated care. Each Medicare DSH hospital will receive an 
additional amount based on its estimated share of the total amount of 
uncompensated care reported for all Medicare DSH hospitals for a given 
time period. In this interim final rule with comment period, we are 
revising certain policies and processes described in the FY 2014 IPPS/
LTCH PPS final rule. Specifically, we are revising certain operational 
considerations for hospitals with Medicare cost reporting periods that 
span more than one Federal fiscal year and also making changes to the 
data that will be used in the uncompensated care payment calculation in 
order to ensure that data from Indian Health Service (IHS) hospitals 
are included in Factor 1 and Factor 3 of that calculation.
    In the final rule titled ``Medicare Program; Hospital Inpatient 
Prospective Payment Systems for Acute Care Hospitals and the Long-Term 
Care Hospital Prospective Payment System and Fiscal Year 2014 Rates; 
Quality Reporting Requirements for Specific Providers; Hospital 
Conditions of Participation; Payment Policies Related to Patient 
Status'' (which appeared in the August 19, 2013 Federal Register (78 FR 
50496)), we made payment and policy changes under the Medicare 
inpatient prospective payment systems (IPPS) for operating costs of 
acute care hospitals. Section 1886(r) of the Act, as added by section 
3133 of the Affordable Care Act, provides for a reduction to 
disproportionate share payments under section 1886(d)(5)(F) of the Act 
and for a new uncompensated care payment to eligible hospitals. 
Specifically, section 1886(r) of the Act now requires that, for 
``fiscal year 2014 and each subsequent fiscal year,'' ``subsection (d) 
hospitals'' that would otherwise receive a ``disproportionate share 
payment . . . made under subsection (d)(5)(F)'' will receive two 
separate payments: (1) 25 percent of the amount they previously would 
have received under subsection (d)(5)(F) for DSH (``the empirically 
justified amount''); and (2) an additional payment for the DSH 
hospital's proportion of uncompensated care, determined as the product 
of three factors. These three factors are: (1) 75 percent of the 
payments that would otherwise be made under subsection (d)(5)(F); (2) 1 
minus the percent change in the percent of individuals under the age of 
65 who are uninsured (minus 0.1 percentage points for FY 2014, and 
minus 0.2 percentage points for FY 2015 through FY 2017); and (3) a 
hospital's uncompensated care amount relative to the uncompensated care 
amount of all DSH hospitals expressed as a percentage.

II. Provisions of the Interim Final Rule

A. Operational Considerations for Hospitals With Medicare Cost 
Reporting Periods That Span More Than One Federal Fiscal Year

    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50645), we finalized 
``a process to distribute interim uncompensated care payments under the 
IPPS on a per-discharge basis through our claims processing system, 
with a reconciliation of the hospitals' [uncompensated care] payments 
at cost report settlement to ensure that hospitals receive no more than 
the estimated amount included in this final rule''. We described that 
process as follows (78 FR 50646):

    [A]t cost report settlement, the fiscal intermediary/MAC will 
issue a notice of program reimbursement that includes a 
determination concerning whether each hospital is eligible for 
empirically justified Medicare DSH payments and, therefore, eligible 
for uncompensated care payments in FY 2014 and each subsequent year. 
In the case where a hospital received interim payments for its 
empirically justified Medicare DSH payments and uncompensated care 
payments for FY 2014 or a subsequent year on the basis of estimates 
prior to the payment year, but is determined to be ineligible for 
the empirically justified Medicare DSH payment at cost report 
settlement, the hospital would no longer be eligible for either 
payment and CMS would recoup those monies. For a hospital that did 
not receive interim payments for its empirically justified Medicare 
DSH payments and uncompensated care payments for FY 2014 or a 
subsequent year, but at cost report settlement is determined to be 
eligible for DSH payments, the uncompensated care payment for such a 
hospital is calculated based on the Factor 3 value determined 
prospectively for that fiscal year. . . . The

[[Page 61193]]

reconciliations at cost report settlement would be based on the 
values for Factor 1, Factor 2, and Factor 3 that we have finalized 
prospectively for a Federal fiscal year.

    In the final rule (78 FR 50646), we provided an example in which a 
DSH eligible hospital has a cost reporting period of January 1, 2014 
through December 31, 2014. We stated that this hospital would receive 
interim payments for its uncompensated care payments beginning on 
October 1, 2013. For cost reporting purposes, we stated that the 
uncompensated care payments for federal FY 2014 would be assigned to 
cost reporting periods beginning on or after October 1, 2013, and would 
be reconciled on those cost reports. Thus, in the example of the 
hospital with a cost reporting period beginning on January 1, 2014, if 
the hospital remained eligible for empirically justified DSH payments 
at cost report settlement, then it would receive its full FY 2014 
uncompensated care payment on its cost report for the cost reporting 
period beginning on January 1, 2014. Although we acknowledged that it 
is possible to align interim and final payments for the uncompensated 
care payment with an individual hospital's cost reporting periods, we 
believed it would be administratively efficient and practical to pay 
the uncompensated care payment on the basis of the Federal fiscal year 
because that is how it is determined, and to reconcile that amount in 
the cost reporting period that begins in the respective Federal fiscal 
year. We stated in the final rule (78 FR 50647) that we believed this 
methodology would not delay the full payment of FY 2014 payments to 
hospitals with cost reporting periods that begin after October 1, 2013.
    However, as we prepared to implement the FY 2014 IPPS/LTCH PPS 
final rule, several difficulties regarding this approach that we had 
not previously considered came to our attention. We initially proposed 
to make interim uncompensated care payments on a bi-weekly basis, 
finalizing a different process to make interim uncompensated care 
payments on a per-discharge basis in response to comments. In addition 
to proposing and finalizing a process for making interim uncompensated 
care payments, we also proposed and finalized a reconciliation process 
that would reconcile the uncompensated care payment for a given fiscal 
year, such as FY 2014, on the cost report for the cost reporting period 
beginning in that fiscal year (that is, for FY 2014, the cost report 
for the cost reporting period beginning in FY 2014). We proposed and 
finalized this approach because we believed it would be 
administratively efficient and practical. As indicated previously and 
in the FY 2014 IPPS/LTCH PPS final rule, we believed that this policy 
would neither delay nor substantially affect the disbursement of final 
uncompensated care payments; but, since the final rule was issued, we 
have come to doubt these conclusions.
    We have come to believe that the policy we adopted in the FY 2014 
IPPS/LTCH PPS final rule is inconsistent with longstanding cost 
reporting requirements. As a general rule, payments for discharges are 
reported in the cost reporting period in which they occur, and all 
payments made for discharges during a cost reporting period are 
reconciled on the cost report for that period. (See PRM-I, Section 2805 
and 42 CFR 412.1(a)). We did not specifically address or propose to 
change the cost reporting rules in either the FY 2014 IPPS/LTCH PPS 
proposed or final rules. However, for hospitals with cost reporting 
periods that are not concurrent with the Federal fiscal year, the 
policy adopted in the FY 2014 IPPS/LTCH PPS final rule departs from 
these cost reporting requirements by reconciling interim uncompensated 
care payments made for discharges occurring during the hospital's 2013 
cost reporting period on the hospital's 2014 cost report. Under 
ordinary cost reporting requirements, those payments (having been made 
during the hospital's 2013 cost reporting period) would have to be 
treated as an overpayment on the hospital's 2013 cost report and 
therefore recouped. However, as finalized in the FY 2014 IPPS/LTCH PPS 
final rule, if the hospital was found to be eligible for DSH payments 
for its cost reporting period that begins during FY 2014, we would then 
pay the hospital its full FY 2014 uncompensated care payment during the 
settlement of the hospital's 2014 cost report (that is, we would repay 
the previously recouped uncompensated care payments when we reconciled 
the hospital's 2014 cost report). These administrative issues would 
effectively delay uncompensated care payments, frustrate our policy of 
making uncompensated care payments promptly, and would likely lead to 
serious cash flow difficulties for some hospitals. In sum, we do not 
believe the policy we finalized in the FY 2014 IPPS/LTCH PPS final rule 
of reconciling uncompensated care payments for hospitals with cost 
reporting periods that begin after October 1, 2013 would work as 
intended for the large majority of IPPS hospitals that have cost 
reporting periods that are not concurrent with the Federal fiscal year.
    To effectuate a revised process, we intend to align final payments 
for the uncompensated care payment with each individual hospital's cost 
reporting periods and to reconcile interim uncompensated care payment 
amounts on the hospital's cost report for the proportion of the cost 
reporting period that overlaps a Federal fiscal year and in which the 
interim payments were made or should have been made. Thus, the final 
uncompensated care payment amounts that would be included on a cost 
report spanning two Federal fiscal years would be the pro rata share of 
the uncompensated care payment associated with each Federal fiscal 
year. This pro rata share would be determined based on the proportion 
of the applicable Federal fiscal year that is included in that cost 
reporting period. Earlier in this interim final rule with comment 
period, we reiterated an example from the FY 2014 IPPS/LTCH PPS final 
rule, where a hospital is estimated to be eligible for the empirically 
justified DSH payment and also an uncompensated care payment in FY 2014 
and has a cost reporting period of January 1, 2014 through December 31, 
2014. Under the revised process we are adopting in this interim final 
rule with comment period, in this example, this hospital would still 
begin to receive interim payments for its uncompensated care on October 
1, 2013. However, instead of having the entire FY 2014 payment 
reconciled on its cost report for the cost reporting period beginning 
on January 1, 2014 (which ends on December 31, 2014 and would therefore 
require the hospital to pay back monies received for the portion of its 
cost reporting period beginning on January 1, 2013 that occurs in 
Federal fiscal year 2014), we will reconcile the interim FY 2014 
uncompensated care payments received for discharges from October 1, 
2013 through December 31, 2013 on the hospital's cost report for the 
cost reporting period beginning on January 1, 2013 against a pro rata 
share of its FY 2014 uncompensated care payment. If this hospital is 
eligible for DSH on its cost report for the cost reporting period 
ending on December 31, 2013, it will receive a pro rata share of its FY 
2014 uncompensated care payment. This pro rata share would be 
approximately three-twelfths (that is, the period of time from October 
1, 2013 through December 31, 2013, divided by the period of time from 
January 1, 2013 through December 31, 2013) of the hospital's FY 2014 
uncompensated care payment. If the hospital's subsequent cost reporting 
period is January 1, 2014 through December 31, 2014, we also will

[[Page 61194]]

reconcile the interim FY 2014 uncompensated care payments received for 
discharges from January 1, 2014 through September 30, 2014 on the 
hospital's cost report for the cost reporting period beginning on 
January 1, 2014 against a pro rata share of its FY 2014 uncompensated 
care payment. We would also reconcile the interim FY 2015 uncompensated 
care payments received for discharges from October 1, 2014 through 
December 31, 2014 (that is, discharges occurring in FY 2015 during that 
hospital's cost reporting period) on the hospital's cost report for the 
cost reporting period beginning on January 1, 2014 against a pro rata 
share of its FY 2015 uncompensated care payment. Accordingly, for the 
hospital in this example, if it remained eligible for Medicare DSH on 
its cost report for the cost reporting period beginning on January 1, 
2014, it would receive the sum of two pro rata shares of uncompensated 
care payments, one pro rata share approximately equal to nine-twelfths 
(that is, the period of time from January 1, 2014 through September 30, 
2014 divided by the period of time from January 1, 2014 through 
December 31, 2014) of the hospital's FY 2014 uncompensated care payment 
and one pro rata share equal to approximately three-twelfths or (that 
is, the period of time from October 1, 2014 through December 31, 2014 
divided by the period of time from January 1, 2014 through December 31, 
2014) of the hospital's FY 2015 uncompensated care payment.
    Under this interim final rule with comment period, and in 
accordance with the policies we finalized in the FY 2014 IPPS/LTCH PPS 
final rule regarding eligibility for the uncompensated care payment, 
hospitals with cost reporting periods that span more than one Federal 
fiscal year will be eligible for the respective pro rata shares of 
their uncompensated care payment if they were eligible for DSH in that 
cost reporting period. If they were ineligible for DSH in that cost 
reporting period, they would be ineligible to receive the respective 
pro rata share of the uncompensated care payment for the respective 
Federal fiscal year (or years). We believe this new approach remains 
fundamentally consistent with the policy we finalized in the FY 2014 
IPPS/LTCH PPS final rule (78 FR 50622) where we stated that ``our final 
determination on the hospital's eligibility for uncompensated care 
payments would be based on the hospital's actual DSH status on the cost 
report for that payment year.'' However, it avoids the cost reporting 
difficulties that would have arisen from the reconciliation process 
originally adopted in the final rule.

B. Treatment of Indian Health Service Hospitals

    In the FY 2014 IPPS/LTCH PPS final rule, we discussed the hospitals 
that are eligible to receive the uncompensated care payments under 
section 1886(r)(2) of Act. Specifically, we stated (78 FR 50622) that 
the ``new payment methodology under subsection (r) applies to 
`subsection (d) hospitals' that would otherwise receive a 
`disproportionate share payment . . . made under subsection (d)(5)(F).' 
'' Therefore, eligibility for empirically justified Medicare DSH 
payments is unchanged under this new provision. Consistent with the 
law, hospitals must receive empirically justified Medicare DSH payments 
in FY 2014 or a subsequent year to receive an additional Medicare 
uncompensated care payment for that year.
    In the FY 2014 IPPS/LTCH PPS final rule, we finalized our 
methodology for calculating the new uncompensated care payments. As we 
discussed in the final rule, section 1886(r)(2) of the Act provides 
that for each eligible hospital in FY 2014 and subsequent years, the 
new uncompensated care payment is the product of three factors. Factor 
1 of that methodology is the ``difference between our estimates of: (1) 
The amount that would have been paid in Medicare DSH payments for FY 
2014 and subsequent years, in the absence of the new payment provision; 
and (2) the amount of empirically justified Medicare DSH payments that 
are made for FY 2014 and subsequent years, which takes into account the 
requirement to pay 25 percent of what would have otherwise been paid 
under section 1886(d)(5)(F) of the Act. In other words, this factor 
represents our estimate of 75 percent (100 percent minus 25 percent) of 
our estimate of Medicare DSH payments that would otherwise be made, in 
the absence of section 1886(r) of the Act, for FY 2014 and subsequent 
years.'' (See 78 FR 50627).
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50630), we finalized 
our proposal to use the most recently available estimates, as 
calculated by the our Office of the Actuary, to determine both the 
aggregate amount of empirically justified DSH payments under section 
1886(r)(1) of the Act and the aggregate amount of payments that would 
otherwise have been made under section 1886(d)(5)(F) of the Act. In 
order to calculate these estimates, our Office of the Actuary used the 
March 2013 update of the Medicare Hospital Cost Report Information 
System (HCRIS) and the proposed rule's IPPS Impact file. The estimate 
excluded Maryland hospitals, SCHs paid under their hospital-specific 
rate, and hospitals in the Rural Community Hospital Demonstration 
Program, as these hospitals do not receive a Medicare DSH payment. The 
CMS Office of the Actuary's final estimate for Medicare DSH payments 
for FY 2014 without regard to the application of section 1886(r)(1) of 
the Act, is approximately $12.772 billion. The estimate for empirically 
justified Medicare DSH payments for FY 2014, with the application of 
section 1886(r)(1) of the Act, is approximately $3.193 billion. Factor 
1 is the difference of these two estimates by our Office of the 
Actuary; therefore, in the FY 2014 IPPS/LTCH PPS final rule, we 
calculated Factor 1 to be approximately $9.579 billion.
    IHS hospitals are subsection (d) hospitals that can receive 
empirically justified Medicare DSH payments under section 1886(r)(1) of 
the Act if they meet the eligibility requirements under subsection 
(d)(5)(F). Therefore, eligible IHS hospitals will also receive the new 
uncompensated care payment under subsection (r)(2). However, following 
the issuance of the FY 2014 IPPS/LTCH PPS final rule, it has come to 
our attention that although IHS hospitals can receive Medicare DSH 
payments, they submit Medicare hospital cost reports to CMS that are 
not uploaded in the HCRIS database. Therefore, their Medicare DSH 
payments were not included in the estimates by our Office of the 
Actuary that were used to calculate Factor 1. Because IHS hospitals are 
eligible to receive Medicare DSH payments and the new uncompensated 
care payments, we believe it is inappropriate to exclude the Medicare 
DSH payments to IHS hospitals from the estimates used to calculate 
Factor 1. In addition, we did not intend to finalize a policy that 
specifically excludes DSH payments to IHS hospitals from our estimate 
of Medicare DSH payments for purposes of calculating Factor 1 in the 
calculation of the uncompensated care payment.
    Therefore, in this interim final rule with comment period, we are 
revising the policy originally adopted in the FY 2014 IPPS/LTCH PPS 
final rule in order to change the data that will be considered in 
calculating Factor 1 for FY 2014 and subsequent years. Specifically, in 
addition to the March 2013 update of HCRIS, we will also consider, 
supplemental cost report data provided by IHS hospitals to CMS as of 
March 2013. We will also recalculate

[[Page 61195]]

Factor 1, to reflect the Office of the Actuary's estimate of Medicare 
DSH payments to IHS hospitals, based on this supplemental data. With 
the inclusion of the Medicare DSH payments to IHS hospitals, our Office 
of the Actuary's revised estimate of Medicare DSH payments for FY 2014 
without regard to the application of 1886(r)(1) of the Act is 
approximately $12.791 billion (we note that this revised estimate also 
includes the correction for Factor 1 made in the correcting document 
for the FY 2014 IPPS/LTCH PPS final rule that appears elsewhere in this 
issue of the Federal Register). The CMS Office of the Actuary's revised 
estimate of empirically justified Medicare DSH payments for FY 2014, 
with the application of section 1886(r)(1) of the Act, is approximately 
$3.198 billion (we note that this revised estimate also includes the 
correction for Factor 1 made in the correcting document for the FY 2014 
IPPS/LTCH PPS final rule that appears elsewhere in this issue of the 
Federal Register). Factor 1 is the difference of these two estimates of 
our Office of the Actuary; therefore, in this interim final rule with 
comment period, we recalculated Factor 1 to be approximately $9.593 
billion (we note that this revised estimate also includes the 
correction for Factor 1 made in the correcting document for the FY 2014 
IPPS/LTCH PPS final rule that appears elsewhere in this issue of the 
Federal Register). We note that based on the recalculation of Factor 1, 
the amount available for uncompensated care payments for FY 2014 will 
be approximately $9.046 billion (our Factor 2 finalized in the FY 2014 
IPPS/LTCH PPS final rule of 0.943 times our revised Factor 1 estimate 
of $9.593 billion).
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50634 through 
50643), we discuss the methodology used to calculate Factor 3 in the 
calculation of the uncompensated care payment. Under the final policy 
adopted in that final rule, for FY 2014 we would determine a DSH 
hospital's Factor 3 as the sum of its Medicaid days and SSI days 
(numerator) relative to the total number of Medicaid days and SSI days 
for all DSH hospitals (denominator). Under this policy, we would 
determine a hospital's SSI days based on the most recent SSI fraction. 
As we stated in the final rule, the most recent SSI fraction for FY 
2014 is the FY 2011 SSI fraction. The FY 2011 SSI fractions for each 
subsection (d) hospital were published on the CMS Web site on June 27, 
2013. In addition, under the final policy adopted in the final rule, we 
would determine a hospital's Medicaid days based on the Medicaid days 
reported on the 2011, or if not available, the 2010 Medicare Hospital 
Cost Report, using the March 2013 update of HCRIS.
    Because the cost reports submitted by IHS hospitals are not 
uploaded into HCRIS, we did not include their Medicaid days in our 
calculation of Factor 3. Specifically, Medicaid days for IHS hospitals 
were excluded from the numerator of Factor 3 for those IHS hospitals 
and from the denominator of Factor 3 for all hospitals. As a result, we 
believe that the Factor 3 that was calculated for each IHS hospital 
under the policies adopted in the 2014 IPPS/LTCH PPS final rule, based 
only on FY 2011 SSI days, significantly understated the actual amount 
of uncompensated care furnished by these hospitals. The uncompensated 
care payment amounts calculated for these hospitals were also 
significantly lower than they would have been had these days been 
included. We are concerned that under the policy originally adopted in 
the FY 2014 IPPS/LTCH PPS final rule, IHS hospitals, that serve a 
significant low income population, will be subject to the 75 percent 
reduction to their Medicare DSH payments under subsection (r)(1) but 
will receive reduced uncompensated care payments under subsection 
(r)(2) due to their cost reports not being included in the HCRIS 
database. Given that we intended to base our estimate of the 
uncompensated care provided by IHS hospitals, in part, on the care they 
provide to Medicaid patients, we believe it is appropriate to make a 
change to the data that will be considered in determining Factor 3 of 
the new uncompensated care payment to allow the Medicaid days for IHS 
hospitals to be included. This change will also help to ensure that 
eligible IHS hospitals receive an uncompensated care payment that does 
not significantly understate the amount of uncompensated care they 
provide. Accordingly, in this interim final rule with comment period, 
we are revising the policy adopted in the final rule to permit us to 
consider supplemental cost report data submitted to CMS as of March 
2013 only by IHS hospitals in addition to data reflected in the March 
2013 update of HCRIS, in calculating Factor 3 of the uncompensated care 
payment. The Medicaid days for IHS hospitals that are reflected in the 
supplemental data will be included in the numerator of the Factor 3 
calculation for IHS hospitals and will be included in the denominator 
of Factor 3 for all hospitals eligible to receive the uncompensated 
care payment.

III. Waiver of Proposed Rulemaking and Delay in Effective Date

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite public comment on the proposed rule in 
accordance with 5 U.S.C. 553(b) of the Administrative Procedure Act 
(APA). The notice of proposed rulemaking includes a reference to the 
legal authority under which the rule is proposed, and the provisions of 
the proposed rule or a description of the subjects and issues involved. 
This procedure can be waived, however, if an agency finds good cause 
that a notice-and-comment procedure is impracticable, unnecessary, or 
contrary to the public interest and incorporates a statement of the 
finding and its reasons in the rule issued.
    We believe there is good cause to waive notice and comment 
rulemaking to make the revisions to our policy for reconciling 
uncompensated care payments for hospitals with Medicare cost reporting 
periods that are not concurrent with the Federal fiscal year. We 
believe it would be inequitable and contrary to the public interest to 
require the large majority of IPPS hospitals that have a cost reporting 
period that does not align with the Federal fiscal year to pay back to 
CMS the monies they receive as interim uncompensated care payments for 
Federal FY 2014 during their cost reporting period beginning in Federal 
FY 2013. Additionally, these hospitals would experience a delay in the 
receipt of their final Federal FY 2014 uncompensated care payments 
until their next cost reporting period. This change will not affect the 
manner in which uncompensated care payments are calculated. Rather, it 
affects only the manner in which those payments are reconciled for cost 
reporting purposes. As a result, the policy being adopted in this 
interim final rule with comment period will benefit those hospitals 
that have cost reporting periods that do not align with the Federal 
fiscal year by avoiding administrative issues. These administrative 
issues would effectively delay uncompensated care payments, frustrate 
our policy of making uncompensated care payments promptly, and would 
likely lead to serious cash flow difficulties for some hospitals. There 
will be no impact on hospitals that have cost reporting periods that 
align with the Federal fiscal year. Therefore, we believe it would be 
contrary to the public interest not to change the methodology for 
reconciling uncompensated care payments for hospitals that have cost 
reporting periods that are not concurrent with the

[[Page 61196]]

Federal fiscal year. Further, it would be impracticable to go through 
notice-and-comment rulemaking to achieve what we believe would be the 
more equitable and efficient result. The methodology for reconciling 
uncompensated care payments adopted in the FY 2014 IPPS/LTCH PPS final 
rule goes into effect on October 1, 2013. There is insufficient time to 
undertake notice-and-comment rulemaking before that date. As a result, 
absent this interim final rule with comment period, it would be 
impossible to avoid the administrative issues discussed previously.
    We also believe there is good cause to waive notice-and-comment 
rulemaking to make changes to the data that will be used in the 
uncompensated care payment calculation in order to ensure that data 
from IHS hospitals are included in Factor 1 and Factor 3 of that 
calculation. As discussed previously, IHS hospitals are subsection (d) 
hospitals that can receive Medicare DSH payments and uncompensated care 
payments. However, IHS hospitals submit Medicare Hospital Cost reports 
to CMS that are not uploaded into the HCRIS database. As a result, the 
data for these hospitals were excluded from the estimates for Factor 1, 
which were based upon data from the March 2013 update of HCRIS. In 
addition, the Medicaid days for IHS hospitals were excluded from the 
calculation of Factor 3. Specifically, these Medicaid days were 
excluded from the numerator for the IHS hospitals and excluded from the 
denominator for all hospitals. As a result, the Factor 3 that was 
calculated for each IHS hospital under the policy adopted in the FY 
2014 IPPS/LTCH PPS final rule is understated and will result in reduced 
uncompensated care payments to these hospitals.
    We believe it is contrary to the public interest not to correct 
this inadvertent oversight by supplementing the data used to calculate 
Factor 1 and Factor 3 to reflect cost report data submitted to CMS by 
IHS hospitals. As discussed previously, IHS hospitals are subsection 
(d) hospitals that may receive DSH payments if all other eligibility 
criteria are satisfied. Pursuant to section 1886(r)(1) of the Act, 
starting on October 1, 2013, DSH payments to all hospitals that are 
eligible for DSH, including IHS hospitals, will be reduced by 75 
percent. As a result, we believe it is important that Factor 1 of the 
uncompensated care calculation incorporates the amount by which DSH 
payments to IHS hospitals will be reduced as a result of the 
implementation of section 1886(r)(1) of the Act. Furthermore, we 
believe it is in the public interest to ensure that our estimate of the 
amount of uncompensated care for IHS hospitals for purposes of 
determining Factor 3 of the uncompensated care payment calculation 
takes into account care provided to Medicaid patients. IHS hospitals 
serve a significant low income population, including individuals that 
are eligible for Medicaid. It was not our intention to exclude the care 
furnished by IHS hospitals to Medicaid eligible individuals, and thus 
to understate the amount of Factor 3 for these hospitals. Rather, this 
was an inadvertent error that arose from the data that we originally 
elected to use for the purposes of determining the uncompensated care 
payments. Nevertheless, this omission results in a significant 
reduction in the uncompensated care payments received by IHS hospitals. 
We believe it would be contrary to the public interest not to address 
that inadvertent omission by supplementing the data originally used in 
the FY 2014 IPPS/LTCH PPS final rule to include data that reflects the 
Medicaid days for IHS hospitals for a time period that is 
contemporaneous with the time period of the data used to estimate 
uncompensated care for other subsection (d) hospitals. Further, for the 
same reasons stated previously, it would be impracticable to go through 
notice-and-comment rulemaking to achieve what we believe would be the 
more equitable result. The FY 2014 IPPS/LTCH PPS final rule goes into 
effect on October 1, 2013. There is insufficient time to undertake 
notice-and-comment rulemaking before that date. As a result, absent 
this interim final rule with comment period, it would not be possible 
to recompute Factor 1 and Factor 3 of the uncompensated care payment 
methodology before the start of the fiscal year, and uncompensated care 
payments to IHS hospitals would significantly understate their relative 
share of the total uncompensated care burden.
    For all of these reasons, we find good cause to waive the notice-
and-comment rulemaking procedure for this interim final rule with 
comment period.
    In addition, section 553(d) of the APA (5 U.S.C. 553(d)) ordinarily 
requires a 30-day delay in the effective date of final rules after the 
date of their publication in the Federal Register. This 30-day delay in 
effective date can be waived, however, if an agency finds for good 
cause that the delay is impracticable, unnecessary, or contrary to the 
public interest, and the agency incorporates a statement of the finding 
and its reasons in the rule issued.
    As described previously, the process that we adopted in the FY 2014 
IPPS/LTCH PPS final rule for reconciling uncompensated care payments 
would result in the large majority of IPPS hospitals that do not have 
cost reporting periods concurrent with the Federal fiscal year being 
required to pay back to CMS the monies they receive as interim 
uncompensated care payments during Federal fiscal year 2014 for the 
portion of their cost reporting period beginning in Federal FY 2013 and 
experiencing a delay in the receipt of their final FY 2014 
uncompensated care payments until their next cost reporting period. If 
we were to provide for a 30-day delay in the effective date of this 
provision, hospitals with 2014 cost reporting periods that begin after 
October 1, 2013, but before this interim final rule with comment period 
becomes effective would be adversely affected as we described 
previously. Therefore, we believe it is contrary to the public interest 
to delay the effective date of revising this process.
    Similarly, as described previously, the data used to calculate 
Factor 1 and Factor 3 did not include data from the Medicare Hospital 
Cost Reports for IHS hospitals. This omission resulted in our estimate 
of Factor 1 of the uncompensated care payment being understated. In 
addition, Factor 3, which is used to determine each hospital's share of 
uncompensated care payment amounts, was understated for IHS hospitals 
because it excluded all Medicaid days for those hospitals, which are a 
significant portion of the uncompensated care they provide. If we were 
to provide for a 30-day delay in the effective date of this interim 
final rule with comment period, we believe the exclusion of this data 
from our calculation of uncompensated care payments would pose a 
financial hardship for IHS hospitals that serve a significant low 
income patient population. Therefore, we believe it is contrary to the 
public interest to delay the effective date of this revision to our 
methodology to allow the use of supplemental data submitted by IHS 
hospitals.
    For all of these reasons, we find good cause to waive the 30-day 
delay in the effective date for this interim final rule with comment 
period.

IV. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995.

[[Page 61197]]

V. Response to Comments

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

VI. Regulatory Impact Statement

    We have examined the impact of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), 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 (March 22, 
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 
major rules with economically significant effects ($100 million or more 
in any 1 year). The monetary impact of this final rule is approximately 
a $15 million increase in payments to hospitals relative to the 
estimates included in the FY 2014 IPPS/LTCH PPS final rule. Therefore, 
this interim final rule with comment period does not reach the economic 
threshold and thus is not considered a major rule.
    The 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 hospitals and most other providers and 
suppliers are small entities, either by nonprofit status or by having 
revenues of less than $7.0 million to $35.5 million in any 1 year. 
Individuals and States are not included in the definition of a small 
entity. For purposes of the RFA, all hospitals and other providers and 
suppliers are considered to be small entities. Individuals and States 
are not included in the definition of a small entity. We believe that 
this interim final rule with comment period will have an impact on 
small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. With 
the exception of hospitals located in certain New England counties, for 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside a metropolitan 
statistical area and has fewer than 100 beds. Section 601(g) of the 
Social Security Amendments of 1983 (Pub. L. 98-21) designated hospitals 
in certain New England counties as belonging to the adjacent urban 
area. Thus, for purposes of the IPPS and the LTCH PPS, we continue to 
classify these hospitals as urban hospitals. (We refer readers to Table 
I in section I.G. of the Appendix for the FY 2014 IPPS/LTCH PPS final 
rule for the quantitative effects of the final policy changes under the 
IPPS for operating costs.)
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2013, that 
threshold is approximately $141 million. This interim final rule with 
comment period will have no consequential effect on State, local, or 
tribal governments, nor will it affect private sector costs.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a final rule that imposes 
substantial direct requirement costs on State and local governments, 
preempts State law, or otherwise has Federalism implications. Since 
this regulation does not impose any costs on State or local 
governments, the requirements of Executive Order 13132 are not 
applicable.
    In accordance with the provisions of Executive Order 12866, this 
rule was not reviewed by the Office of Management and Budget.

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

    Dated: September 27, 2013.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: September 27, 2013.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2013-24209 Filed 9-30-13; 4:15 pm]
BILLING CODE 4120-01-P