[Federal Register Volume 81, Number 147 (Monday, August 1, 2016)]
[Notices]
[Pages 50502-50520]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-17982]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

[CMS-1650-N]
RIN 0938-AS76


Medicare Program; FY 2017 Inpatient Psychiatric Facilities 
Prospective Payment System--Rate Update

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

ACTION: Notice.

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SUMMARY: This notice updates the prospective payment rates for Medicare 
inpatient hospital services provided by inpatient psychiatric 
facilities (IPFs) (which include freestanding IPFs and psychiatric 
units of an acute care hospital or critical access hospital). These 
changes are applicable to IPF discharges occurring during the fiscal 
year (FY) beginning October 1, 2016 through September 30, 2017 (FY 
2017).

DATES: Effective: The updated IPF prospective payment rates are 
effective for discharges occurring on or after October 1, 2016 through 
September 30, 2017.

FOR FURTHER INFORMATION CONTACT: Katherine Lucas (410) 786-7723 or Jana 
Lindquist (410) 786-9374 for general information.
    Theresa Bean (410) 786-2287 or James Hardesty (410) 786-2629 for 
information regarding the regulatory impact analysis.

SUPPLEMENTARY INFORMATION:

Availability of Certain Tables Exclusively Through the Internet on the 
CMS Web Site

    In the past, tables setting forth the Wage Index for Urban Areas 
Based on Core-Based Statistical Area (CBSA) Labor Market Areas and the 
Wage Index Based on CBSA Labor Market Areas for Rural Areas were 
published in the Federal Register as an Addendum to the annual IPF 
Prospective Payment System (PPS) rulemaking (that is, the IPF PPS 
proposed and final rules or notice). However, since FY 2015, these wage 
index tables are no longer published in the Federal Register. Instead, 
these tables are available exclusively through the Internet, on the CMS 
Web site at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/IPFPPS/WageIndex.html.
    To assist readers in referencing sections contained in this 
document, we are providing the following table of contents.

Table of Contents

I. Executive Summary
    A. Purpose
    B. Summary of the Major Provisions
    C. Summary of Impacts
II. Background
    A. Overview of the Legislative Requirements of the IPF PPS
    B. Overview of the IPF PPS
    C. Annual Requirements for Updating the IPF PPS
III. Provisions of the Notice
    A. Updated FY 2017 Market Basket for the IPF PPS
    1. Background
    2. FY 2017 IPF Market Basket Update
    3. IPF Labor-Related Share
    B. Updates to the IPF PPS Rates for FY Beginning October 1, 2016
    1. Determining the Standardized Budget-Neutral Federal Per Diem 
Base Rate
    2. Update of the Federal Per Diem Base Rate and 
Electroconvulsive Therapy Payment per Treatment
    C. Updates to the IPF PPS Patient-Level Adjustment Factors
    1. Overview of the IPF PPS Adjustment Factors
    2. IPF-PPS Patient-Level Adjustments
    a. MS-DRG Assignment
    i. Code First
    b. Payment for Comorbid Conditions
    3. Patient Age Adjustments
    4. Variable Per Diem Adjustments
    D. Updates to the IPF PPS Facility-Level Adjustments

[[Page 50503]]

    1. Wage Index Adjustment
    a. Background
    b. Updated Wage Index for FY 2017
    c. OMB Bulletins
    d. Adjustment for Rural Location and Continuing Phase Out the 
Rural Adjustment for IPFs That Lost Their Rural Adjustment Due to 
CBSA Changes Implemented in FY 2016
    e. Budget Neutrality Adjustment
    2. Teaching Adjustment
    3. Cost of Living Adjustment for IPFs Located in Alaska and 
Hawaii
    4. Adjustment for IPFs With a Qualifying Emergency Department 
(ED)
    E. Other Payment Adjustments and Policies
    1. Outlier Payment Overview
    2. Update to the Outlier Fixed Dollar Loss Threshold Amount
    3. Update to IPF Cost-to-Charge Ratio Ceilings
IV. Update on IPF PPS Refinements
V. Waiver of Notice and Comment
VI. Collection of Information Requirements
VII. Regulatory Impact Analysis
    A. Statement of Need
    B. Overall Impact
    C. Anticipated Effects
    1. Budgetary Impact
    2. Impact on Providers
    3. Results
    4. Effect on Beneficiaries
    D. Alternatives Considered
    E. Accounting Statement
Addendum A--IPF PPS FY 2017 Rates and Adjustment Factors
Addendum B--Changes to the FY 2017 ICD-10-CM/PCS Code Sets Which 
Affect the FY 2017 IPF PPS Comorbidity Adjustments

Acronyms

    Because of the many terms to which we refer by acronym in this 
notice, we are listing the acronyms used and their corresponding 
meanings in alphabetical order below:

ADC Average Daily Census
BBRA Medicare, Medicaid and SCHIP [State Children's Health Insurance 
Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106-113)
BLS Bureau of Labor Statistics
CAH Critical Access Hospital
CBSA Core-Based Statistical Area
CCR Cost-to-Charge Ratio
CPI Consumer Price Index
CPI-U Consumer Price Index for all Urban Consumers
CY Calendar Year
DRGs Diagnosis-Related Groups
ECT Electroconvulsive Therapy
ESRD End State Renal Disease
FR Federal Register
FTE Full-time equivalent
FY Federal Fiscal Year (October 1 through September 30)
GDP Gross Domestic Product
GME Graduate Medical Education
HCRIS Healthcare Cost Report Information System
ICD-9-CM International Classification of Diseases, 9th Revision, 
Clinical Modification
ICD-10-CM International Classification of Diseases, 10th Revision, 
Clinical Modification
ICD-10-PCS International Classification of Diseases, 10th Revision, 
Procedure Coding System
IGI IHS Global Insight, Inc.
IPF Inpatient Psychiatric Facility
IPFQR Inpatient Psychiatric Facilities Quality Reporting
IPPS Inpatient Prospective Payment System
IRFs Inpatient Rehabilitation Facilities
LOS Length of Stay
LRS Labor-related Share
LTCHs Long-Term Care Hospitals
MAC Medicare Administrative Contractor
MedPAR Medicare Provider Analysis and Review File
MFP Multifactor Productivity
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003
MSA Metropolitan Statistical Area
NDAA National Defense Authorization Act
NQF National Quality Forum
OMB Office of Management and Budget
OPPS Outpatient Prospective Payment System
POS Provider of Services
PPS Prospective Payment System
RFA Regulatory Flexibility Act
RPL Rehabilitation, Psychiatric, and Long-Term Care
RY Rate Year (July 1 through June 30)
SBA Small Business Administration
SCHIP State Children's Health Insurance Program
SNF Skilled Nursing Facility
TEFRA Tax Equity and Fiscal Responsibility Act of 1982 (Pub. L. 97-
248)

I. Executive Summary

A. Purpose

    This notice updates the prospective payment rates for Medicare 
inpatient hospital services provided by inpatient psychiatric 
facilities (IPFs) for discharges occurring during the fiscal year (FY) 
beginning October 1, 2016 through September 30, 2017.

B. Summary of the Major Provisions

    In this notice, we are updating the IPF Prospective Payment System 
(PPS), as specified in 42 CFR 412.428. The updates include the 
following:
     Effective for the FY 2016 IPF PPS update, we adopted a 
2012-based IPF market basket. For FY 2017, we adjusted the 2012-based 
IPF market basket update (2.8 percent) by a reduction for economy-wide 
productivity (0.3 percentage point) as required by section 
1886(s)(2)(A)(i) of the Social Security Act (the Act). We further 
reduced the 2012-based IPF market basket update by 0.2 percentage point 
as required by section 1886(s)(2)(A)(ii) of the Act, resulting in an 
estimated IPF payment rate update of 2.3 percent for FY 2017.
     The 2012-based IPF market basket resulted in a labor-
related share of 75.1 percent for FY 2017.
     We updated the IPF PPS per diem rate from $743.73 to 
$761.37. Providers that failed to report quality data for FY 2017 
payment will receive a FY 2017 per diem rate of $746.48.
     We updated the electroconvulsive therapy (ECT) payment per 
treatment from $320.19 to $327.78. Providers that failed to report 
quality data for FY 2017 payment will receive a FY 2017 ECT payment per 
treatment of $321.38.
     We used the updated labor-related share of 75.1 percent 
(based on the 2012-based IPF market basket) and CBSA rural and urban 
wage indices for FY 2017, and established a wage index budget-
neutrality adjustment of 1.0007.
     We updated the fixed dollar loss threshold amount from 
$9,580 to $10,120 in order to maintain estimated outlier payments at 2 
percent of total estimated aggregate IPF PPS payments.

C. Summary of Impacts

------------------------------------------------------------------------
          Provision  description                   Total transfers
------------------------------------------------------------------------
FY 2017 IPF PPS payment update............  The overall economic impact
                                             of this notice is an
                                             estimated $100 million in
                                             increased payments to IPFs
                                             during FY 2017.
------------------------------------------------------------------------

II. Background

A. Overview of the Legislative Requirements for the IPF PPS

    Section 124 of the Medicare, Medicaid, and SCHIP (State Children's 
Health Insurance Program) Balanced Budget Refinement Act of 1999 (BBRA) 
(Pub. L. 106-113) required the establishment and implementation of an 
IPF PPS. Specifically, section 124 of the BBRA mandated that the 
Secretary of the Department of Health and Human Services (the 
Secretary) develop a per diem PPS for inpatient hospital services 
furnished in psychiatric hospitals and psychiatric units including an 
adequate patient classification system that reflects the differences in 
patient resource use and costs among psychiatric hospitals and 
psychiatric units.
    Section 405(g)(2) of the Medicare Prescription Drug, Improvement, 
and Modernization Act of 2003 (MMA) (Pub. L. 108-173) extended the IPF 
PPS to distinct part psychiatric units of critical access hospitals 
(CAHs).
    Section 3401(f) and section 10322 of the Patient Protection and 
Affordable Care Act (Pub. L. 111-148) as amended by section 10319(e) of 
that Act and by section 1105(d) of the Health Care and Education 
Reconciliation Act of 2010 (Pub. L. 111-152) (hereafter referred to 
jointly as ``the Affordable Care Act'')

[[Page 50504]]

added subsection (s) to section 1886 of the Act.
    Section 1886(s)(1) of the Act titled ``Reference to Establishment 
and Implementation of System'', refers to section 124 of the BBRA, 
which relates to the establishment of the IPF PPS.
    Section 1886(s)(2)(A)(i) of the Act requires the application of the 
productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of 
the Act to the IPF PPS for the Rate Year (RY) beginning in 2012 (that 
is, a RY that coincides with a FY) and each subsequent RY. As noted in 
our previous IPF PPS final rule (the FY 2016 IPF PPS final rule), for 
the RY beginning in 2015 (that is, FY 2016), the current estimate of 
the productivity adjustment is equal to 0.5 percent.
    Section 1886(s)(2)(A)(ii) of the Act requires the application of an 
``other adjustment'' that reduces any update to an IPF PPS base rate by 
percentages specified in section 1886(s)(3) of the Act for the RY 
beginning in 2010 through the RY beginning in 2019. As noted in our FY 
2016 IPF PPS final rule, for the RY beginning in 2015 (that is, FY 
2016), section 1886(s)(3)(D) of the Act requires the reduction to be 
0.2 percentage point.
    Sections 1886(s)(4)(A) and 1886(s)(4)(B) of the Act require that 
for RY 2014 and every subsequent year, IPFs that fail to report 
required quality data shall have their annual payment rate update 
reduced by 2.0 percentage points. This may result in an annual update 
being less than 0.0 for a rate year, and may result in payment rates 
for the upcoming rate year being less than such payment rates for the 
preceding rate year. Any reduction for failure to report required 
quality data shall apply only with respect to the rate year involved 
and the Secretary shall not take into account such reduction in 
computing the payment amount for a subsequent rate year. More 
information about the IPF Quality Reporting Program is available in the 
April 27, 2016 FY 2017 Hospital Inpatient Prospective Payment Systems 
for Acute Care Hospitals and the Long-Term Care Hospital Prospective 
Payment System Proposed Rule (81 FR 25238 through 25244).
    To implement and periodically update these provisions, we have 
published various proposed and final rules and notices in the Federal 
Register. For more information regarding these documents, see the CMS 
Web site at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/index.html?redirect=/
InpatientPsychFacilPPS/.

B. Overview of the IPF PPS

    The November 2004 IPF PPS final rule (69 FR 66922) established the 
IPF PPS, as required by section 124 of the BBRA and codified at subpart 
N of part 412 of the Medicare regulations. The November 2004 IPF PPS 
final rule set forth the per diem federal rates for the implementation 
year (the 18-month period from January 1, 2005 through June 30, 2006), 
and provided payment for the inpatient operating and capital costs to 
IPFs for covered psychiatric services they furnish (that is, routine, 
ancillary, and capital costs, but not costs of approved educational 
activities, bad debts, and other services or items that are outside the 
scope of the IPF PPS). Covered psychiatric services include services 
for which benefits are provided under the fee-for-service Part A 
(Hospital Insurance Program) of the Medicare program.
    The IPF PPS established the federal per diem base rate for each 
patient day in an IPF derived from the national average daily routine 
operating, ancillary, and capital costs in IPFs in FY 2002. The average 
per diem cost was updated to the midpoint of the first year under the 
IPF PPS, standardized to account for the overall positive effects of 
the IPF PPS payment adjustments, and adjusted for budget-neutrality.
    The federal per diem payment under the IPF PPS is comprised of the 
federal per diem base rate described above and certain patient- and 
facility-level payment adjustments that were found in the regression 
analysis to be associated with statistically significant per diem cost 
differences.
    The patient-level adjustments include age, Diagnosis-Related Group 
(DRG) assignment, comorbidities; additionally, there are variable per 
diem adjustments to reflect higher per diem costs at the beginning of a 
patient's IPF stay. Facility-level adjustments include adjustments for 
the IPF's wage index, rural location, teaching status, a cost-of-living 
adjustment for IPFs located in Alaska and Hawaii, and an adjustment for 
the presence of a qualifying Emergency Department (ED).
    The IPF PPS provides additional payment policies for: Outlier 
cases; interrupted stays; and a per treatment adjustment for patients 
who undergo ECT. During the IPF PPS mandatory 3-year transition period, 
stop-loss payments were also provided; however, since the transition 
ended in 2008, these payments are no longer available.
    A complete discussion of the regression analysis that established 
the IPF PPS adjustment factors appears in the November 2004 IPF PPS 
final rule (69 FR 66933 through 66936).
    Section 124 of the BBRA did not specify an annual rate update 
strategy for the IPF PPS and was broadly written to give the Secretary 
discretion in establishing an update methodology. Therefore, in the 
November 2004 IPF PPS final rule, we implemented the IPF PPS using the 
following update strategy:
     Calculate the final federal per diem base rate to be 
budget-neutral for the 18-month period of January 1, 2005 through June 
30, 2006.
     Use a July 1 through June 30 annual update cycle.
     Allow the IPF PPS first update to be effective for 
discharges on or after July 1, 2006 through June 30, 2007.
    In RY 2012, we proposed and finalized switching the IPF PPS payment 
rate update from a rate year that begins on July 1 and ends on June 30 
to one that coincides with the federal fiscal year that begins October 
1 and ends on September 30. In order to transition from one timeframe 
to another, the RY 2012 IPF PPS covered a 15-month period from July 1, 
2011 through September 30, 2012. Therefore, the update cycle for FY 
2016 was October 1, 2015 through September 30, 2016. For further 
discussion of the 15-month market basket update for RY 2012 and 
changing the payment rate update period to coincide with a FY period, 
we refer readers to the RY 2012 IPF PPS proposed rule (76 FR 4998) and 
the RY 2012 IPF PPS final rule (76 FR 26432).

C. Annual Requirements for Updating the IPF PPS

    In November 2004, we implemented the IPF PPS in a final rule that 
appeared in the November 15, 2004 Federal Register (69 FR 66922). In 
developing the IPF PPS, to ensure that the IPF PPS is able to account 
adequately for each IPF's case-mix, we performed an extensive 
regression analysis of the relationship between the per diem costs and 
certain patient and facility characteristics to determine those 
characteristics associated with statistically significant cost 
differences on a per diem basis. For characteristics with statistically 
significant cost differences, we used the regression coefficients of 
those variables to determine the size of the corresponding payment 
adjustments.
    In that final rule, we explained the reasons for delaying an update 
to the adjustment factors, derived from the regression analysis, until 
we have IPF PPS data that include as much information as possible 
regarding the patient-level characteristics of the

[[Page 50505]]

population that each IPF serves. We indicated that we did not intend to 
update the regression analysis and the patient-level and facility-level 
adjustments until we complete that analysis. Until that analysis is 
complete, we stated our intention to publish a notice in the Federal 
Register each spring to update the IPF PPS (71 FR 27041). We have been 
performing the necessary analysis to make refinements to the IPF PPS 
using more current data to set the adjustment factors. We expect we 
will be ready to propose potential refinements in future rulemaking.
    In the May 6, 2011 IPF PPS final rule (76 FR 26432), we changed the 
payment rate update period to a RY that coincides with a FY update. 
Therefore, update notices are now published in the Federal Register in 
the summer to be effective on October 1. When proposing changes in IPF 
payment policy, a proposed rule would be issued in the spring and the 
final rule in the summer in order to be effective on October 1. For 
further discussion on changing the IPF PPS payment rate update period 
to a RY that coincides with a FY, see the IPF PPS final rule published 
in the Federal Register on May 6, 2011 (76 FR 26434 through 26435). For 
a detailed list of updates to the IPF PPS, see 42 CFR 412.428.
    Our most recent IPF PPS annual update occurred in an August 5, 
2015, Federal Register final rule (80 FR 46652) (hereinafter referred 
to as the August 2015 IPF PPS final rule), which updated the IPF PPS 
payment rates for FY 2016. That rule updated the IPF PPS per diem 
payment rates that were published in the August 2014 IPF PPS final rule 
(79 FR 45938) in accordance with our established policies.

III. Provisions of the Notice

A. Updated FY 2017 Market Basket for the IPF PPS

1. Background
    The input price index that was used to develop the IPF PPS was the 
``Excluded Hospital with Capital'' market basket. This market basket 
was based on 1997 Medicare cost reports for Medicare participating 
inpatient rehabilitation facilities (IRFs), inpatient psychiatric 
facilities (IPFs), long-term care hospitals (LTCHs), cancer hospitals, 
and children's hospitals. Although ``market basket'' technically 
describes the mix of goods and services used in providing health care 
at a given point in time, this term is also commonly used to denote the 
input price index (that is, cost category weights and price proxies) 
derived from that market basket. Accordingly, the term ``market 
basket,'' as used in this document, refers to an input price index.
    Beginning with the May 2006 IPF PPS final rule (71 FR 27046 through 
27054), IPF PPS payments were updated using a 2002-based 
rehabilitation, psychiatric, and long-term care (RPL) market basket 
reflecting the operating and capital cost structures for freestanding 
IRFs, freestanding IPFs, and LTCHs. Cancer and children's hospitals 
were excluded from the RPL market basket because their payments are 
based entirely on reasonable costs subject to rate-of-increase limits 
established under the authority of section 1886(b) of the Act and not 
through a PPS. Also, the 2002 cost structures for cancer and children's 
hospitals are noticeably different than the cost structures of 
freestanding IRFs, freestanding IPFs, and LTCHs. See the May 2006 IPF 
PPS final rule (71 FR 27046 through 27054) for a complete discussion of 
the 2002-based RPL market basket.
    In the May 1, 2009 IPF PPS notice (74 FR 20376), we expressed our 
interest in exploring the possibility of creating a stand-alone IPF 
market basket that reflects the cost structures of only IPF providers. 
One available option was to combine the Medicare cost report data from 
freestanding IPF providers with Medicare cost report data from 
hospital-based IPF providers. We indicated that an examination of the 
Medicare cost report data comparing freestanding IPFs and hospital-
based IPFs showed differences between cost levels and cost structures. 
At that time, we were unable to fully understand these differences even 
after reviewing explanatory variables such as geographic variation, 
case mix (including DRG, comorbidity, and age), urban or rural status, 
teaching status, and presence of a qualifying emergency department. As 
a result, we continued to research ways to reconcile the differences 
and solicited public comment for additional information that might help 
us to better understand the reasons for the variations in costs and 
cost structures, as indicated by the Medicare cost report data (74 FR 
20376). We summarized the public comments received and our responses in 
the April 2010 IPF PPS notice (75 FR 23111 through 23113). Despite 
receiving comments from the public on this issue, we were still unable 
to sufficiently reconcile the observed differences in costs and cost 
structures between hospital-based and freestanding IPFs; and therefore, 
at that time we did not believe it to be appropriate to incorporate 
data from hospital-based IPFs with those of freestanding IPFs to create 
a stand-alone IPF market basket.
    Beginning with the RY 2012 IPF PPS final rule (76 FR 26432), IPF 
PPS payments were updated using a 2008-based RPL market basket 
reflecting the operating and capital cost structures for freestanding 
IRFs, freestanding IPFs, and LTCHs. The major changes for RY 2012 
included: Updating the base year from FY 2002 to FY 2008; using a more 
specific composite chemical price proxy; breaking the professional fees 
cost category into two separate categories (Labor-related and Non-
labor-related); and adding two additional cost categories 
(Administrative and Facilities Support Services and Financial 
Services), which were previously included in the residual All Other 
Services cost categories. The RY 2012 IPF PPS proposed rule (76 FR 
4998) and RY 2012 final rule (76 FR 26432) contain a complete 
discussion of the development of the 2008-based RPL market basket.
    In the FY 2016 IPF PPS proposed rule, we proposed to create a 2012-
based IPF market basket, using Medicare cost report data for both 
freestanding and hospital-based IPFs. After consideration of the public 
comments, we finalized the creation and adoption of a 2012-based IPF 
market basket with a modification to the Wages and Salaries and 
Employee Benefits cost methodologies based on public comments. We 
believe that the use of the 2012-based IPF market basket to update IPF 
PPS payments is a technical improvement as it is based on Medicare Cost 
Report data from both freestanding and hospital-based IPFs. 
Furthermore, the 2012-based IPF market basket does not include costs 
from either IRF or LTCH providers, which were included in the 2008-
based RPL market basket. We refer readers to the FY 2016 IPF PPS final 
rule for a detailed discussion of the 2012-based IPF PPS Market Basket 
and its development (80 FR 46656 through 46679).
2. FY 2017 IPF Market Basket Update
    For FY 2017 (beginning October 1, 2016 and ending September 30, 
2017), we use an estimate of the 2012-based IPF market basket increase 
factor to update the IPF PPS base payment rate. Consistent with 
historical practice, we estimate the market basket update for the IPF 
PPS based on IHS Global Insight's forecast. IHS Global Insight, Inc. 
(IGI) is a nationally recognized economic and financial forecasting 
firm that contracts with the Centers for Medicare & Medicaid Services 
(CMS) to forecast the components of the market baskets and multifactor 
productivity (MFP). Based on IGI's second quarter 2016 forecast with 
historical data

[[Page 50506]]

through the first quarter of 2016, the 2012-based IPF market basket 
increase factor for FY 2017 is 2.8 percent.
    Section 1886(s)(2)(A)(i) of the Act requires the application of the 
productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of 
the Act to the IPF PPS for the RY beginning in 2012 (a RY that 
coincides with a FY) and each subsequent RY. For this FY 2017 IPF PPS 
Notice, based on IGI's second quarter 2016 forecast, the MFP adjustment 
for FY 2017 (the 10-year moving average of MFP for the period ending FY 
2017) is projected to be 0.3 percent. We reduced the IPF market basket 
estimate by this 0.3 percentage point productivity adjustment, as 
mandated by the Act. For more information on the productivity 
adjustment, please see the discussion in the FY 2016 IPF PPS final rule 
(80 FR 46675).
    In addition, for FY 2017 the 2012-based IPF PPS market basket 
update is further reduced by 0.2 percentage point as required by 
sections 1886(s)(2)(A)(ii) and 1886(s)(3)(D) of the Act. This results 
in an estimated FY 2017 IPF PPS payment rate update of 2.3 percent (2.8 
- 0.3 - 0.2 = 2.3).
3. IPF Labor-Related Share
    Due to variations in geographic wage levels and other labor-related 
costs, we believe that payment rates under the IPF PPS should continue 
to be adjusted by a geographic wage index, which would apply to the 
labor-related portion of the Federal per diem base rate (hereafter 
referred to as the labor-related share).
    The labor-related share is determined by identifying the national 
average proportion of total costs that are related to, influenced by, 
or vary with the local labor market. We continue to classify a cost 
category as labor-related if the costs are labor-intensive and vary 
with the local labor market.
    Based on our definition of the labor-related share and the cost 
categories in the 2012-based IPF market basket, we are continuing to 
include in the labor-related share the sum of the relative importance 
of Wages and Salaries, Employee Benefits, Professional Fees: Labor-
Related, Administrative and Facilities Support Services, Installation, 
Maintenance, and Repair, All Other: Labor-related Services, and a 
portion (46 percent) of the Capital-Related cost weight from the 
proposed 2012-based IPF market basket. The relative importance reflects 
the different rates of price change for these cost categories between 
the base year (FY 2012) and FY 2017. Using IGI's second quarter 2016 
forecast for the final 2012-based IPF market basket, the IPF labor-
related share for FY 2017 is the sum of the FY 2017 relative importance 
of each labor-related cost category.
    Please see the FY 2016 IPF PPS final rule for more information on 
the labor-related share and its calculation (80 FR 46675 through 
46679). For FY 2017, the updated labor-related share based on IGI's 
second quarter 2016 forecast of the 2012-based IPF PPS market basket is 
75.1 percent.

B. Updates to the IPF PPS Rates for FY Beginning October 1, 2016

    The IPF PPS is based on a standardized Federal per diem base rate 
calculated from the IPF average per diem costs and adjusted for budget-
neutrality in the implementation year. The Federal per diem base rate 
is used as the standard payment per day under the IPF PPS and is 
adjusted by the patient-level and facility-level adjustments that are 
applicable to the IPF stay. A detailed explanation of how we calculated 
the average per diem cost appears in the November 2004 IPF PPS final 
rule (69 FR 66926).
1. Determining the Standardized Budget-Neutral Federal Per Diem Base 
Rate
    Section 124(a)(1) of the BBRA required that we implement the IPF 
PPS in a budget-neutral manner. In other words, the amount of total 
payments under the IPF PPS, including any payment adjustments, must be 
projected to be equal to the amount of total payments that would have 
been made if the IPF PPS were not implemented. Therefore, we calculated 
the budget-neutrality factor by setting the total estimated IPF PPS 
payments to be equal to the total estimated payments that would have 
been made under the Tax Equity and Fiscal Responsibility Act of 1982 
(TEFRA) (Pub. L. 97-248) methodology had the IPF PPS not been 
implemented. A step-by-step description of the methodology used to 
estimate payments under the TEFRA payment system appears in the 
November 2004 IPF PPS final rule (69 FR 66926).
    Under the IPF PPS methodology, we calculated the final Federal per 
diem base rate to be budget-neutral during the IPF PPS implementation 
period (that is, the 18-month period from January 1, 2005 through June 
30, 2006) using a July 1 update cycle. We updated the average cost per 
day to the midpoint of the IPF PPS implementation period (October 1, 
2005), and this amount was used in the payment model to establish the 
budget-neutrality adjustment.
    Next, we standardized the IPF PPS Federal per diem base rate to 
account for the overall positive effects of the IPF PPS payment 
adjustment factors by dividing total estimated payments under the TEFRA 
payment system by estimated payments under the IPF PPS. Additional 
information concerning this standardization can be found in the 
November 2004 IPF PPS final rule (69 FR 66932) and the RY 2006 IPF PPS 
final rule (71 FR 27045). We then reduced the standardized Federal per 
diem base rate to account for the outlier policy, the stop loss 
provision, and anticipated behavioral changes. A complete discussion of 
how we calculated each component of the budget-neutrality adjustment 
appears in the November 2004 IPF PPS final rule (69 FR 66932 through 
66933) and in the May 2006 IPF PPS final rule (71 FR 27044 through 
27046). The final standardized budget-neutral Federal per diem base 
rate established for cost reporting periods beginning on or after 
January 1, 2005 was calculated to be $575.95.
    The Federal per diem base rate has been updated in accordance with 
applicable statutory requirements and Sec.  412.428 through publication 
of annual notices or proposed and final rules. A detailed discussion on 
the standardized budget-neutral Federal per diem base rate and the 
electroconvulsive therapy (ECT) payment per treatment appears in the 
August 2013 IPF PPS update notice (78 FR 46738 through 46739). These 
documents are available on the CMS Web site at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/index.html.
    IPFs must include a valid procedure code for ECT services provided 
to IPF beneficiaries in order to bill for ECT services, as described in 
our Medicare claims processing manual, chapter 3, section 190.7.3 
(available at https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c03.pdf.) There were no changes to the ECT 
procedure codes used on IPF claims as a result of the update to the 
ICD-10-PCS code set for FY 2017.
2. Update of the Federal Per Diem Base Rate and Electroconvulsive 
Therapy Payment Per Treatment
    The current (FY 2016) Federal per diem base rate is $743.73 and the 
ECT payment per treatment is $320.19. For FY 2017, we applied a payment 
rate update of 2.3 percent (that is, the 2012-based IPF market basket 
increase for FY 2017 of 2.8 percent less the productivity adjustment of 
0.3 percentage point, and further reduced by the 0.2 percentage point 
required under section

[[Page 50507]]

1886(s)(3)(D) of the Act), and the wage index budget-neutrality factor 
of 1.0007 (as discussed in section III.D.1.e of this notice) to the FY 
2016 Federal per diem base rate of $743.73, yielding a Federal per diem 
base rate of $761.37 for FY 2017. Similarly, we applied the 2.3 percent 
payment rate update and the 1.0007 wage index budget-neutrality factor 
to the FY 2016 ECT payment per treatment, yielding an ECT payment per 
treatment of $327.78 for FY 2017.
    Section 1886(s)(4)(A)(i) of the Act requires that, for RY 2014 and 
each subsequent RY, the Secretary shall reduce any annual update to a 
standard Federal rate for discharges occurring during the RY by 2.0 
percentage points for any IPF that did not comply with the quality data 
submission requirements with respect to an applicable year. Therefore, 
we are applying a 2.0 percentage point reduction to the Federal per 
diem base rate and the ECT payment per treatment as follows: For IPFs 
that failed to submit quality reporting data under the Inpatient 
Psychiatric Facilities Quality Reporting (IPFQR) program, we are 
applying a 0.3 percent payment rate update (that is, 2.3 percent 
reduced by 2 percentage points in accordance with section 
1886(s)(4)(A)(ii) of the Act) and the wage index budget-neutrality 
factor of 1.0007 to the FY 2016 Federal per diem base rate of $743.73, 
yielding a Federal per diem base rate of $746.48 for FY 2017. 
Similarly, for IPFs that failed to submit quality reporting data under 
the IPFQR program, we are applying the 0.3 percent annual payment rate 
update and the 1.0007 wage index budget-neutrality factor to the FY 
2016 ECT payment per treatment of $320.19, yielding an ECT payment per 
treatment of $321.38 for FY 2017.

C. Updates to the IPF PPS Patient-Level Adjustment Factors

1. Overview of the IPF PPS Adjustment Factors
    The IPF PPS payment adjustments were derived from a regression 
analysis of 100 percent of the FY 2002 MedPAR data file, which 
contained 483,038 cases. For a more detailed description of the data 
file used for the regression analysis, see the November 2004 IPF PPS 
final rule (69 FR 66935 through 66936). We continue to use the existing 
regression-derived adjustment factors established in 2005 for FY 2017. 
However, we have used more recent claims data to simulate payments to 
set the outlier fixed dollar loss threshold amount and to assess the 
impact of the IPF PPS updates.
2. IPF-PPS Patient-Level Adjustments
    The IPF PPS includes payment adjustments for the following patient-
level characteristics: Medicare Severity Diagnosis Related Groups (MS-
DRGs) assignment of the patient's principal diagnosis, selected 
comorbidities, patient age, and the variable per diem adjustments.
a. MS-DRG Assignment
    We believe it is important to maintain the same diagnostic coding 
and DRG classification for IPFs that are used under the Inpatient 
Prospective Payment System (IPPS) for providing psychiatric care. For 
this reason, when the IPF PPS was implemented for cost reporting 
periods beginning on or after January 1, 2005, we adopted the same 
diagnostic code set (ICD-9-CM) and DRG patient classification system 
(CMS DRGs) that were utilized at the time under the IPPS. In the May 
2008 IPF PPS notice (73 FR 25709), we discussed CMS' effort to better 
recognize resource use and the severity of illness among patients. CMS 
adopted the new MS-DRGs for the IPPS in the FY 2008 IPPS final rule 
with comment period (72 FR 47130). In the 2008 IPF PPS notice (73 FR 
25716), we provided a crosswalk to reflect changes that were made under 
the IPF PPS to adopt the new MS-DRGs. For a detailed description of the 
mapping changes from the original DRG adjustment categories to the 
current MS-DRG adjustment categories, we refer readers to the May 2008 
IPF PPS notice (73 FR 25714).
    The IPF PPS includes payment adjustments for designated psychiatric 
DRGs assigned to the claim based on the patient's principal diagnosis. 
The DRG adjustment factors were expressed relative to the most 
frequently reported psychiatric DRG in FY 2002, that is, DRG 430 
(psychoses). The coefficient values and adjustment factors were derived 
from the regression analysis. Mapping the DRGs to the MS-DRGs resulted 
in the current 17 IPF MS-DRGs, instead of the original 15 DRGs, for 
which the IPF PPS provides an adjustment. For the FY 2017 update, we 
are not making any changes to the IPF MS-DRG adjustment factors.
    In FY 2015 rulemaking (79 FR 45945 through 45947), we proposed and 
finalized conversions of the ICD-9-CM-based MS-DRGs to ICD-10-CM/PCS-
based MS-DRGs, which were implemented on October 1, 2015. Further 
information on the ICD-10-CM/PCS MS-DRG conversion project can be found 
on the CMS ICD-10-CM Web site at https://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html.
    For FY 2017, we will continue to make a payment adjustment for 
psychiatric diagnoses that group to one of the existing 17 IPF MS-DRGs 
listed in Addendum A. Psychiatric principal diagnoses that do not group 
to one of the 17 designated DRGs will still receive the Federal per 
diem base rate and all other applicable adjustments, but the payment 
would not include a DRG adjustment.
    The diagnoses for each IPF MS-DRG will be updated as of October 1, 
2016, using the final FY 2017 ICD-10-CM/PCS code sets. The FY 2017 IPPS 
Final Rule with comment period includes tables of the changes to the 
ICD-10-CM/PCS code sets which underlie the FY 2017 IPF MS-DRGs. Both 
the FY 2017 IPPS final rule and the tables of changes to the ICD-10-CM/
PCS code sets which underlie the FY 2017 MS-DRGs are available on the 
IPPS Web site at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.
i. Code First
    As discussed in the ICD-10-CM Official Guidelines for Coding and 
Reporting, certain conditions have both an underlying etiology and 
multiple body system manifestations due to the underlying etiology. For 
such conditions, the ICD-10-CM has a coding convention that requires 
the underlying condition be sequenced first followed by the 
manifestation. Wherever such a combination exists, there is a ``use 
additional code'' note at the etiology code, and a ``code first'' note 
at the manifestation code. These instructional notes indicate the 
proper sequencing order of the codes (etiology followed by 
manifestation). In accordance with the ICD-10-CM Official Guidelines 
for Coding and Reporting, when a primary (psychiatric) diagnosis code 
has a ``code first'' note, the provider would follow the instructions 
in the ICD-10-CM text. The submitted claim goes through the CMS 
processing system, which will identify the primary diagnosis code as 
non-psychiatric and search the secondary codes for a psychiatric code 
to assign a DRG code for adjustment. The system will continue to search 
the secondary codes for those that are appropriate for comorbidity 
adjustment.
    For more information on ``code first'' policy, please see the 
November 2004 IPF PPS Final Rule (69 FR 66945). In the FY 2015 IPF PPS 
final rule, we provided a ``code first'' table for reference that 
highlights the same or similar manifestation codes where the ``code

[[Page 50508]]

first'' instructions apply in ICD-10-CM that were present in ICD-9-CM 
(79 FR 46009). There were no changes to the IPF Code First list as a 
result of the FY 2017 updates to the ICD-10-CM/PCS code sets.
b. Payment for Comorbid Conditions
    The intent of the comorbidity adjustments is to recognize the 
increased costs associated with comorbid conditions by providing 
additional payments for certain existing medical or psychiatric 
conditions that are expensive to treat. In the May 2011 IPF PPS final 
rule (76 FR 26451 through 26452), we explained that the IPF PPS 
includes 17 comorbidity categories and identified the new, revised, and 
deleted ICD-9-CM diagnosis codes that generate a comorbid condition 
payment adjustment under the IPF PPS for RY 2012 (76 FR 26451).
    Comorbidities are specific patient conditions that are secondary to 
the patient's principal diagnosis and that require treatment during the 
stay. Diagnoses that relate to an earlier episode of care and have no 
bearing on the current hospital stay are excluded and must not be 
reported on IPF claims. Comorbid conditions must exist at the time of 
admission or develop subsequently, and affect the treatment received, 
length of stay (LOS), or both treatment and LOS.
    For each claim, an IPF may receive only one comorbidity adjustment 
within a comorbidity category, but it may receive an adjustment for 
more than one comorbidity category. Current billing instructions for 
discharge claims, on or after October 1, 2015, require IPFs to enter 
the complete ICD-10-CM codes for up to 24 additional diagnoses if they 
co-exist at the time of admission, or develop subsequently and impact 
the treatment provided.
    The comorbidity adjustments were determined based on the regression 
analysis using the diagnoses reported by IPFs in FY 2002. The principal 
diagnoses were used to establish the DRG adjustments and were not 
accounted for in establishing the comorbidity category adjustments, 
except where ICD-9-CM ``code first'' instructions apply. In a ``code 
first'' situation, the submitted claim goes through the CMS processing 
system, which will identify the primary diagnosis code as non-
psychiatric and search the secondary codes for a psychiatric code to 
assign a DRG code for adjustment. The system will continue to search 
the secondary codes for those that are appropriate for comorbidity 
adjustment.
    As noted previously, it is our policy to maintain the same 
diagnostic coding set for IPFs that is used under the IPPS for 
providing the same psychiatric care. The 17 comorbidity categories 
formerly defined using ICD-9-CM codes were converted to ICD-10-CM/PCS 
in the FY 2015 IPF PPS final rule (79 FR 45947 to 45955). The goal for 
converting the comorbidity categories is referred to as replication, 
meaning that the payment adjustment for a given patient encounter is 
the same after ICD-10-CM implementation as it would be if the same 
record had been coded in ICD-9-CM and submitted prior to ICD-10-CM/PCS 
implementation on October 1, 2015. All conversion efforts were made 
with the intent of achieving this goal. For FY 2017, we will use the 
comorbidity adjustments in effect in FY 2016, which are found in 
Addendum A to this notice. We have also updated the ICD-10-CM/PCS codes 
which are associated with the existing IPF PPS comorbidity categories, 
based upon the FY 2017 update to the ICD-10-CM/PCS code set. In 
accordance with the policy established in the FY 2015 IPF PPS Final 
Rule (79 FR 45949 through 45952), we reviewed all new FY 2017 ICD-10-CM 
codes to remove site unspecified codes from the new FY 2017 ICD-10-CM/
PCS codes in instances where more specific codes are available. Based 
on our review, we are excluding new FY 2017 ICD-10-CM code D49519 
(``Neoplasm of unspecified behavior of unspecified kidney'') in the 
Oncology Treatment comorbidity category. Please see Addendum B to this 
notice for a table of changes to the ICD-10-CM/PCS codes which affect 
FY 2017 IPF PPS comorbidity categories.
3. Patient Age Adjustments
    As explained in the November 2004 IPF PPS final rule (69 FR 66922), 
we analyzed the impact of age on per diem cost by examining the age 
variable (range of ages) for payment adjustments. In general, we found 
that the cost per day increases with age. The older age groups are more 
costly than the under 45 age group, the differences in per diem cost 
increase for each successive age group, and the differences are 
statistically significant. For FY 2017, we will use the patient age 
adjustments currently in effect in FY 2016, as shown in Addendum A to 
this notice.
4. Variable Per Diem Adjustments
    We explained in the November 2004 IPF PPS final rule (69 FR 66946) 
that the regression analysis indicated that per diem cost declines as 
the LOS increases. The variable per diem adjustments to the Federal per 
diem base rate account for ancillary and administrative costs that 
occur disproportionately in the first days after admission to an IPF. 
We used a regression analysis to estimate the average differences in 
per diem cost among stays of different lengths. As a result of this 
analysis, we established variable per diem adjustments that begin on 
day 1 and decline gradually until day 21 of a patient's stay. For day 
22 and thereafter, the variable per diem adjustment remains the same 
each day for the remainder of the stay. However, the adjustment applied 
to day 1 depends upon whether the IPF has a qualifying ED. If an IPF 
has a qualifying ED, it receives a 1.31 adjustment factor for day 1 of 
each stay. If an IPF does not have a qualifying ED, it receives a 1.19 
adjustment factor for day 1 of the stay. The ED adjustment is explained 
in more detail in section III.D.4 of this notice.
    For FY 2017, we will use the variable per diem adjustment factors 
currently in effect as shown in Addendum A to this notice. A complete 
discussion of the variable per diem adjustments appears in the November 
2004 IPF PPS final rule (69 FR 66946).

D. Updates to the IPF PPS Facility-Level Adjustments

    The IPF PPS includes facility-level adjustments for the wage index, 
IPFs located in rural areas, teaching IPFs, cost of living adjustments 
for IPFs located in Alaska and Hawaii, and IPFs with a qualifying ED.
1. Wage Index Adjustment
a. Background
    As discussed in the May 2006 IPF PPS final rule (71 FR 27061) and 
in the May 2008 (73 FR 25719) and May 2009 (74 FR 20373) IPF PPS 
notices, in order to provide an adjustment for geographic wage levels, 
the labor-related portion of an IPF's payment is adjusted using an 
appropriate wage index. Currently, an IPF's geographic wage index value 
is determined based on the actual location of the IPF in an urban or 
rural area as defined in Sec.  412.64(b)(1)(ii)(A) and (C).
b. Updated Wage Index for FY 2017
    Since the inception of the IPF PPS, we have used the pre-floor, 
pre-reclassified acute care hospital wage index in developing a wage 
index to be applied to IPFs because there is not an IPF-specific wage 
index available. We believe that IPFs compete in the same labor markets 
as acute care hospitals, so the pre-floor, pre-reclassified hospital 
wage index should reflect IPF labor costs. As discussed in the May 2006 
IPF PPS final rule for FY 2007 (71 FR 27061 through 27067), under the 
IPF PPS, the wage index is calculated using the IPPS

[[Page 50509]]

wage index for the labor market area in which the IPF is located, 
without taking into account geographic reclassifications, floors, and 
other adjustments made to the wage index under the IPPS. For a complete 
description of these IPPS wage index adjustments, please see the CY 
2013 IPPS/LTCH PPS final rule (77 FR 53365 through 53374). For FY 2017, 
we will continue to apply the most recent hospital wage index (the FY 
2016 pre-floor, pre-reclassified hospital wage index, which is the most 
appropriate index as it best reflects the variation in local labor 
costs of IPFs in the various geographic areas) using the most recent 
hospital wage data (data from hospital cost reports for the cost 
reporting period beginning during FY 2012) without any geographic 
reclassifications, floors, or other adjustments. We apply the FY 2017 
IPF PPS wage index to payments beginning October 1, 2016.
    We apply the wage index adjustment to the labor-related portion of 
the federal rate, which changed from 75.2 percent in FY 2016 to 75.1 
percent in FY 2017. This percentage reflects the labor-related share of 
the 2012-based IPF market basket for FY 2017 (see section III.A.3 of 
this notice).
c. OMB Bulletins
    OMB publishes bulletins regarding Core-Based Statistical Area 
(CBSA) changes, including changes to CBSA numbers and titles. In the 
May 2006 IPF PPS final rule for RY 2007 (71 FR 27061 through 27067), we 
adopted the changes discussed in the Office of Management and Budget 
(OMB) Bulletin No. 03-04 (June 6, 2003), which announced revised 
definitions for Metropolitan Statistical Areas (MSAs), and the creation 
of Micropolitan Statistical Areas and Combined Statistical Areas. In 
adopting the OMB CBSA geographic designations in RY 2007, we did not 
provide a separate transition for the CBSA-based wage index since the 
IPF PPS was already in a transition period from TEFRA payments to PPS 
payments.
    In the May 2008 IPF PPS notice, we incorporated the CBSA 
nomenclature changes published in the most recent OMB bulletin that 
applies to the hospital wage index used to determine the current IPF 
PPS wage index and stated that we expect to continue to do the same for 
all the OMB CBSA nomenclature changes in future IPF PPS rules and 
notices, as necessary (73 FR 25721). The OMB bulletins may be accessed 
online at https://www.whitehouse.gov/omb/bulletins_default/.
    In accordance with our established methodology, we have 
historically adopted any CBSA changes that are published in the OMB 
bulletin that corresponds with the hospital wage index used to 
determine the IPF PPS wage index. For the FY 2015 IPF wage index, we 
used the FY 2014 pre-floor, pre-reclassified hospital wage index to 
adjust the IPF PPS payments. On February 28, 2013, OMB issued OMB 
Bulletin No. 13-01, which established revised delineations for MSAs, 
Micropolitan Statistical Areas, and Combined Statistical Areas, and 
provided guidance on the use of the delineations of these statistical 
areas. A copy of this bulletin may be obtained at https://www.whitehouse.gov/omb/bulletins_default/. Because the FY 2014 pre-
floor, pre-reclassified hospital wage index was finalized prior to the 
issuance of this Bulletin, the FY 2015 IPF PPS wage index, which was 
based on the FY 2014 pre-floor, pre-reclassified hospital wage index, 
did not reflect OMB's new area delineations based on the 2010 Census. 
According to OMB, ``[t]his bulletin provides the delineations of all 
Metropolitan Statistical Areas, Metropolitan Divisions, Micropolitan 
Statistical Areas, Combined Statistical Areas, and New England City and 
Town Areas in the United States and Puerto Rico based on the standards 
published on June 28, 2010, in the Federal Register (75 FR 37246 
through 37252) and Census Bureau data.'' These OMB Bulletin changes are 
reflected in the FY 2015 pre-floor, pre-reclassified hospital wage 
index, upon which the FY 2016 IPPS PPS wage index was based. We adopted 
these new OMB CBSA delineations in the FY 2016 IPF PPS wage index; 
therefore, they are also included in the FY 2017 IPF PPS wage index.
    While we believe that the CBSA delineations implemented in the FY 
2016 IPF PPS final rule resulted in wage index values that are more 
representative of the actual costs of labor in a given area, we also 
recognize that use of the new CBSA delineations resulted in reduced 
payments to some IPFs and increased payments to other IPFs, due to 
changes in wage index values. Therefore, in our FY 2016 IPF PPS final 
rule, we provided for a transition period to mitigate any negative 
impacts on facilities that experience reduced payments as a result of 
our adopting the new OMB CBSA delineations. We implemented these CBSA 
changes using a 1-year transition with a blended wage index for all 
providers (80 FR 46682 through 46689). The FY 2017 IPF PPS wage index 
and subsequent IPF PPS wage indices will be based solely on the new OMB 
CBSA delineations. The final FY 2017 IPF PPS wage index is located on 
the CMS Web site at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/WageIndex.html.
d. Adjustment for Rural Location and Continuing Phase-Out of the Rural 
Adjustment for IPFs That Lost Their Rural Adjustment Due to CBSA 
Changes Implemented in FY 2016
    In the November 2004 IPF PPS final rule, we provided a 17 percent 
payment adjustment for IPFs located in a rural area. This adjustment 
was based on the regression analysis, which indicated that the per diem 
cost of rural facilities was 17 percent higher than that of urban 
facilities after accounting for the influence of the other variables 
included in the regression. For FY 2017, we will continue to apply a 17 
percent payment adjustment for IPFs located in a rural area as defined 
at Sec.  412.64(b)(1)(ii)(C). A complete discussion of the adjustment 
for rural locations appears in the November 2004 IPF PPS final rule (69 
FR 66954).
    As noted in section III.D.1.c of this notice, we adopted OMB 
updates to CBSA delineations in the FY 2016 IPF PPS transitional wage 
index. Adoption of the updated CBSAs changed the status of 37 IPF 
providers designated as ``rural'' in FY 2015 to ``urban'' for FY 2016 
and subsequent fiscal years. As such, these 37 newly urban providers no 
longer receive the 17 percent rural adjustment.
    In the FY 2016 IPF PPS final rule, we implemented a budget-neutral 
3-year phase-out of the rural adjustment for the existing FY 2015 rural 
IPFs that became urban in FY 2016 and that experienced a loss in 
payments due to changes from the new CBSA delineations (80 FR 46689 to 
46690). This policy allowed rural IPFs that were classified as urban in 
FY 2016 to receive two-thirds of the IPF PPS rural adjustment for FY 
2016. For FY 2017, these IPFs will receive one-third of the IPF PPS 
rural adjustment. For FY 2018 and subsequent years, these IPFs will not 
receive any rural adjustment. We are now in the second year of the 3-
year rural adjustment phase-out; therefore, these IPFs that were 
classified as rural in FY 2015, but were changed to urban in FY 2016 as 
a result of the OMB CBSA changes, will receive one-third of the 17 
percent rural adjustment in FY 2017.
e. Budget Neutrality Adjustment
    Changes to the wage index are made in a budget-neutral manner so 
that

[[Page 50510]]

updates do not increase expenditures. Therefore, for FY 2017, we will 
continue to apply a budget-neutrality adjustment in accordance with our 
existing budget-neutrality policy. This policy requires us to update 
the wage index in such a way that total estimated payments to IPFs for 
FY 2017 are the same with or without the changes (that is, in a budget-
neutral manner) by applying a budget neutrality factor to the IPF PPS 
rates. We use the following steps to ensure that the rates reflect the 
update to the wage indexes (based on the FY 2012 hospital cost report 
data) and the labor-related share in a budget-neutral manner:
    Step 1. Simulate estimated IPF PPS payments, using the FY 2016 wage 
index values and labor-related share (as published in the FY 2016 IPF 
PPS final rule (80 FR 46675 to 46679 and 46681 to 46690)).
    Step 2. Simulate estimated IPF PPS payments using the FY 2017 wage 
index values (available on the CMS Web site) and labor-related share 
(based on the latest available data as discussed previously).
    Step 3. Divide the amount calculated in step 1 by the amount 
calculated in step 2. The resulting quotient is the FY 2017 budget-
neutral wage adjustment factor of 1.0007.
    Step 4. Apply the FY 2017 budget-neutral wage adjustment factor 
from step 3 to the Federal per diem base rate for FY 2017, in addition 
to the market basket described in section III.A2 of this notice.
2. Teaching Adjustment
    In the November 2004 IPF PPS final rule, we implemented regulations 
at Sec.  412.424(d)(1)(iii) to establish a facility-level adjustment 
for IPFs that are, or are part of, teaching hospitals. The teaching 
adjustment accounts for the higher indirect operating costs experienced 
by hospitals that participate in graduate medical education (GME) 
programs. The payment adjustments are made based on the ratio of the 
number of full-time equivalent (FTE) interns and residents training in 
the IPF and the IPF's average daily census (ADC).
    Medicare makes direct GME payments (for direct costs such as 
resident and teaching physician salaries, and other direct teaching 
costs) to all teaching hospitals including those paid under a PPS, and 
those paid under the TEFRA rate-of-increase limits. These direct GME 
payments are made separately from payments for hospital operating costs 
and are not part of the IPF PPS. The direct GME payments do not address 
the estimated higher indirect operating costs teaching hospitals may 
face.
    The results of the regression analysis of FY 2002 IPF data 
established the basis for the payment adjustments included in the 
November 2004 IPF PPS final rule. The results showed that the indirect 
teaching cost variable is significant in explaining the higher costs of 
IPFs that have teaching programs. We calculated the teaching adjustment 
based on the IPF's ``teaching variable,'' which is one plus the ratio 
of the number of FTE residents training in the IPF (subject to 
limitations described below) to the IPF's ADC.
    We established the teaching adjustment in a manner that limited the 
incentives for IPFs to add FTE residents for the purpose of increasing 
their teaching adjustment. We imposed a cap on the number of FTE 
residents that may be counted for purposes of calculating the teaching 
adjustment. The cap limits the number of FTE residents that teaching 
IPFs may count for the purpose of calculating the IPF PPS teaching 
adjustment, not the number of residents teaching institutions can hire 
or train. We calculated the number of FTE residents that trained in the 
IPF during a ``base year'' and used that FTE resident number as the 
cap. An IPF's FTE resident cap is ultimately determined based on the 
final settlement of the IPF's most recent cost report filed before 
November 15, 2004 (publication date of the IPF PPS final rule). A 
complete discussion of the temporary adjustment to the FTE cap to 
reflect residents added due to hospital closure and by residency 
program appears in the January 27, 2011 IPF PPS proposed rule (76 FR 
5018 through 5020) and the May 6, 2011 IPF PPS final rule (76 FR 26453 
through 26456).
    In the regression analysis, the logarithm of the teaching variable 
had a coefficient value of 0.5150. We converted this cost effect to a 
teaching payment adjustment by treating the regression coefficient as 
an exponent and raising the teaching variable to a power equal to the 
coefficient value. We note that the coefficient value of 0.5150 was 
based on the regression analysis holding all other components of the 
payment system constant. A complete discussion of how the teaching 
adjustment was calculated appears in the November 2004 IPF PPS final 
rule (69 FR 66954 through 66957) and the May 2008 IPF PPS notice (73 FR 
25721). As with other adjustment factors derived through the regression 
analysis, we do not plan to rerun the teaching adjustment factors in 
the regression analysis until we more fully analyze IPF PPS data. 
Therefore, in this FY 2017 notice, we will continue to retain the 
coefficient value of 0.5150 for the teaching adjustment to the Federal 
per diem base rate.
3. Cost of Living Adjustment for IPFs Located in Alaska and Hawaii
    The IPF PPS includes a payment adjustment for IPFs located in 
Alaska and Hawaii based upon the county in which the IPF is located. As 
we explained in the November 2004 IPF PPS final rule, the FY 2002 data 
demonstrated that IPFs in Alaska and Hawaii had per diem costs that 
were disproportionately higher than other IPFs. Other Medicare PPSs 
(for example: The IPPS and LTCH PPS) adopted a cost of living 
adjustment (COLA) to account for the cost differential of care 
furnished in Alaska and Hawaii.
    We analyzed the effect of applying a COLA to payments for IPFs 
located in Alaska and Hawaii. The results of our analysis demonstrated 
that a COLA for IPFs located in Alaska and Hawaii would improve payment 
equity for these facilities. As a result of this analysis, we provided 
a COLA in the November 2004 IPF PPS final rule.
    A COLA for IPFs located in Alaska and Hawaii is made by multiplying 
the non-labor-related portion of the Federal per diem base rate by the 
applicable COLA factor based on the COLA area in which the IPF is 
located.
    The COLA factors are published on the Office of Personnel 
Management (OPM) Web site (https://www.opm.gov/oca/cola/rates.asp).
    We note that the COLA areas for Alaska are not defined by county as 
are the COLA areas for Hawaii. In 5 CFR 591.207, the OPM established 
the following COLA areas:
     City of Anchorage, and 80-kilometer (50-mile) radius by 
road, as measured from the federal courthouse.
     City of Fairbanks, and 80-kilometer (50-mile) radius by 
road, as measured from the federal courthouse.
     City of Juneau, and 80-kilometer (50-mile) radius by road, 
as measured from the federal courthouse.
     Rest of the State of Alaska.
    As stated in the November 2004 IPF PPS final rule, we update the 
COLA factors according to updates established by the OPM. However, 
sections 1911 through 1919 of the Nonforeign Area Retirement Equity 
Assurance Act, as contained in subtitle B of title XIX of the National 
Defense Authorization Act (NDAA) for Fiscal Year 2010 (Pub. L. 111-84, 
October 28, 2009), transitions the Alaska and Hawaii COLAs to locality 
pay. Under section 1914 of NDAA, locality pay is being phased in over a 
3-year period beginning in

[[Page 50511]]

January 2010, with COLA rates frozen as of the date of enactment, 
October 28, 2009, and then proportionately reduced to reflect the 
phase-in of locality pay.
    When we published the proposed COLA factors in the January 2011 IPF 
PPS proposed rule (76 FR 4998), we inadvertently selected the FY 2010 
COLA rates, which had been reduced to account for the phase-in of 
locality pay. We did not intend to propose the reduced COLA rates 
because that would have understated the adjustment. Since the 2009 COLA 
rates did not reflect the phase-in of locality pay, we finalized the FY 
2009 COLA rates for RY 2010 through RY 2014.
    In the FY 2013 IPPS/LTCH final rule (77 FR 53700 through 53701), we 
established a methodology for FY 2014 to update the COLA factors for 
Alaska and Hawaii. Under that methodology, we use a comparison of the 
growth in the Consumer Price Indices (CPIs) in Anchorage, Alaska and 
Honolulu, Hawaii relative to the growth in the overall CPI as published 
by the Bureau of Labor Statistics (BLS) to update the COLA factors for 
all areas in Alaska and Hawaii, respectively. As discussed in the FY 
2013 IPPS/LTCH proposed rule (77 FR 28145), because BLS publishes CPI 
data for only Anchorage, Alaska and Honolulu, Hawaii, our methodology 
for updating the COLA factors uses a comparison of the growth in the 
CPIs for those cities relative to the growth in the overall CPI to 
update the COLA factors for all areas in Alaska and Hawaii, 
respectively. We believe that the relative price differences between 
these cities and the United States (as measured by the CPIs mentioned 
above) are generally appropriate proxies for the relative price 
differences between the ``other areas'' of Alaska and Hawaii and the 
United States.
    The CPIs for ``All Items'' that BLS publishes for Anchorage, 
Alaska, Honolulu, Hawaii, and for the average U.S. city are based on a 
different mix of commodities and services than is reflected in the non-
labor-related share of the IPPS market basket. As such, under the 
methodology we established to update the COLA factors, we calculated a 
``reweighted CPI'' using the CPI for commodities and the CPI for 
services for each of the geographic areas to mirror the composition of 
the IPPS market basket non-labor-related share. The current composition 
of BLS' CPI for ``All Items'' for all of the respective areas is 
approximately 40 percent commodities and 60 percent services. However, 
the non-labor-related share of the IPPS market basket is comprised of 
60 percent commodities and 40 percent services. Therefore, under the 
methodology established for FY 2014 in the FY 2013 IPPS/LTCH PPS final 
rule, we created reweighted indexes for Anchorage, Alaska, Honolulu, 
Hawaii, and the average U.S. city using the respective CPI commodities 
index and CPI services index and applying the approximate 60/40 weights 
from the IPPS market basket. This approach is appropriate because we 
would continue to make a COLA for hospitals located in Alaska and 
Hawaii by multiplying the non-labor-related portion of the standardized 
amount by a COLA factor.
    Under the COLA factor update methodology established in the FY 2014 
IPPS/LTCH final rule, we adjusted payments made to hospitals located in 
Alaska and Hawaii by incorporating a 25 percent cap on the CPI-updated 
COLA factors. We note that OPM's COLA factors were calculated with a 
statutorily mandated cap of 25 percent, and since at least 1984, we 
have exercised our discretionary authority to adjust Alaska and Hawaii 
payments by incorporating this cap. In keeping with this historical 
policy, we continue to use such a cap because our CPI-updated COLA 
factors use the 2009 OPM COLA factors as a basis.
    In FY 2015 IPF PPS rulemaking, we adopted the same methodology for 
the COLA factors applied under the IPPS because IPFs are hospitals with 
a similar mix of commodities and services. We think it is appropriate 
to have a consistent policy approach with that of other hospitals in 
Alaska and Hawaii. Therefore, in the FY 2015 IPF PPS final rule, we 
adopted the cost of living adjustment factors shown in Addendum A for 
IPFs located in Alaska and Hawaii. Under IPPS COLA policy, the COLA 
updates are determined every four years, when the IPPS market basket is 
rebased. Since the IPPS COLA factors were last updated in FY 2014, they 
are not scheduled to be updated again until FY 2018. As such, we will 
continue using the existing IPF PPS COLA factors in effect in FY 2016 
for FY 2017. The IPF PPS COLA factors for FY 2017 are shown in Addendum 
A to this notice.
4. Adjustment for IPFs With a Qualifying Emergency Department (ED)
    The IPF PPS includes a facility-level adjustment for IPFs with 
qualifying EDs. We provide an adjustment to the Federal per diem base 
rate to account for the costs associated with maintaining a full-
service ED. The adjustment is intended to account for ED costs incurred 
by a freestanding psychiatric hospital with a qualifying ED or a 
distinct part psychiatric unit of an acute care hospital or a CAH, for 
preadmission services otherwise payable under the Medicare Outpatient 
Prospective Payment System (OPPS), furnished to a beneficiary on the 
date of the beneficiary's admission to the hospital and during the day 
immediately preceding the date of admission to the IPF (see Sec.  
413.40(c)(2)), and the overhead cost of maintaining the ED. This 
payment is a facility-level adjustment that applies to all IPF 
admissions (with one exception described below), regardless of whether 
a particular patient receives preadmission services in the hospital's 
ED.
    The ED adjustment is incorporated into the variable per diem 
adjustment for the first day of each stay for IPFs with a qualifying 
ED. Those IPFs with a qualifying ED receive an adjustment factor of 
1.31 as the variable per diem adjustment for day 1 of each patient 
stay. If an IPF does not have a qualifying ED, it receives an 
adjustment factor of 1.19 as the variable per diem adjustment for day 1 
of each patient stay.
    The ED adjustment is made on every qualifying claim except as 
described below. As specified in Sec.  412.424(d)(1)(v)(B), the ED 
adjustment is not made when a patient is discharged from an acute care 
hospital or CAH and admitted to the same hospital's or CAH's 
psychiatric unit. We clarified in the November 2004 IPF PPS final rule 
(69 FR 66960) that an ED adjustment is not made in this case because 
the costs associated with ED services are reflected in the DRG payment 
to the acute care hospital or through the reasonable cost payment made 
to the CAH.
    Therefore, when patients are discharged from an acute care hospital 
or CAH and admitted to the same hospital or CAH's psychiatric unit, the 
IPF receives the 1.19 adjustment factor as the variable per diem 
adjustment for the first day of the patient's stay in the IPF. For FY 
2017, we will continue to retain the 1.31 adjustment factor for IPFs 
with qualifying EDs. A complete discussion of the steps involved in the 
calculation of the ED adjustment factor appears in the November 2004 
IPF PPS final rule (69 FR 66959 through 66960) and the May 2006 IPF PPS 
final rule (71 FR 27070 through 27072).

E. Other Payment Adjustments and Policies

1. Outlier Payment Overview
    The IPF PPS includes an outlier adjustment to promote access to IPF 
care for those patients who require expensive care and to limit the 
financial risk of IPFs treating unusually costly patients. In the 
November 2004 IPF PPS

[[Page 50512]]

final rule, we implemented regulations at Sec.  412.424(d)(3)(i) to 
provide a per-case payment for IPF stays that are extraordinarily 
costly. Providing additional payments to IPFs for extremely costly 
cases strongly improves the accuracy of the IPF PPS in determining 
resource costs at the patient and facility level. These additional 
payments reduce the financial losses that would otherwise be incurred 
in treating patients who require more costly care and, therefore, 
reduce the incentives for IPFs to under-serve these patients.
    We make outlier payments for discharges in which an IPF's estimated 
total cost for a case exceeds a fixed dollar loss threshold amount 
(multiplied by the IPF's facility-level adjustments) plus the Federal 
per diem payment amount for the case.
    In instances when the case qualifies for an outlier payment, we pay 
80 percent of the difference between the estimated cost for the case 
and the adjusted threshold amount for days 1 through 9 of the stay 
(consistent with the median LOS for IPFs in FY 2002), and 60 percent of 
the difference for day 10 and thereafter. We established the 80 percent 
and 60 percent loss sharing ratios because we were concerned that a 
single ratio established at 80 percent (like other Medicare PPSs) might 
provide an incentive under the IPF per diem payment system to increase 
LOS in order to receive additional payments.
    After establishing the loss sharing ratios, we determined the 
current fixed dollar loss threshold amount through payment simulations 
designed to compute a dollar loss beyond which payments are estimated 
to meet the 2 percent outlier spending target. Each year when we update 
the IPF PPS, we simulate payments using the latest available data to 
compute the fixed dollar loss threshold so that outlier payments 
represent 2 percent of total projected IPF PPS payments.
2. Update to the Outlier Fixed Dollar Loss Threshold Amount
    In accordance with the update methodology described in Sec.  
412.428(d), we are updating the fixed dollar loss threshold amount used 
under the IPF PPS outlier policy. Based on the regression analysis and 
payment simulations used to develop the IPF PPS, we established a 2 
percent outlier policy, which strikes an appropriate balance between 
protecting IPFs from extraordinarily costly cases while ensuring the 
adequacy of the Federal per diem base rate for all other cases that are 
not outlier cases.
    Based on an analysis of the latest available data (the March 2016 
update of FY 2015 IPF claims) and rate increases, we believe it is 
necessary to update the fixed dollar loss threshold amount in order to 
maintain an outlier percentage that equals 2 percent of total estimated 
IPF PPS payments. To update the IPF outlier threshold amount for FY 
2017, we used FY 2015 claims data and the same methodology that we used 
to set the initial outlier threshold amount in the May 2006 IPF PPS 
final rule (71 FR 27072 and 27073), which is also the same methodology 
that we used to update the outlier threshold amounts for years 2008 
through 2016. Based on an analysis of these updated data, we estimate 
that IPF outlier payments as a percentage of total estimated payments 
are approximately 2.1 percent in FY 2016. Therefore, we will update the 
outlier threshold amount to $10,120 to maintain estimated outlier 
payments at 2 percent of total estimated aggregate IPF payments for FY 
2017.
3. Update to IPF Cost-to-Charge Ratio Ceilings
    Under the IPF PPS, an outlier payment is made if an IPF's cost for 
a stay exceeds a fixed dollar loss threshold amount plus the IPF PPS 
amount. In order to establish an IPF's cost for a particular case, we 
multiply the IPF's reported charges on the discharge bill by its 
overall cost-to-charge ratio (CCR). This approach to determining an 
IPF's cost is consistent with the approach used under the IPPS and 
other PPSs. In the June 2003 IPPS final rule (68 FR 34494), we 
implemented changes to the IPPS policy used to determine CCRs for acute 
care hospitals because we became aware that payment vulnerabilities 
resulted in inappropriate outlier payments. Under the IPPS, we 
established a statistical measure of accuracy for CCRs in order to 
ensure that aberrant CCR data did not result in inappropriate outlier 
payments.
    As we indicated in the November 2004 IPF PPS final rule (69 FR 
66961), because we believe that the IPF outlier policy is susceptible 
to the same payment vulnerabilities as the IPPS, we adopted a method to 
ensure the statistical accuracy of CCRs under the IPF PPS. 
Specifically, we adopted the following procedure in the November 2004 
IPF PPS final rule: We calculated 2 national ceilings, one for IPFs 
located in rural areas and one for IPFs located in urban areas. We 
computed the ceilings by first calculating the national average and the 
standard deviation of the CCR for both urban and rural IPFs using the 
most recent CCRs entered in the CY 2016 Provider Specific File.
    To determine the rural and urban ceilings, we multiplied each of 
the standard deviations by 3 and added the result to the appropriate 
national CCR average (either rural or urban). The upper threshold CCR 
for IPFs in FY 2017 is 1.9315 for rural IPFs, and 1.6374 for urban 
IPFs, based on CBSA-based geographic designations. If an IPF's CCR is 
above the applicable ceiling, the ratio is considered statistically 
inaccurate, and we assign the appropriate national (either rural or 
urban) median CCR to the IPF.
    We apply the national CCRs to the following situations:
     New IPFs that have not yet submitted their first Medicare 
cost report. We continue to use these national CCRs until the 
facility's actual CCR can be computed using the first tentatively or 
final settled cost report.
     IPFs whose overall CCR is in excess of three standard 
deviations above the corresponding national geometric mean (that is, 
above the ceiling).
     Other IPFs for which the Medicare Administrative 
Contractor (MAC) obtains inaccurate or incomplete data with which to 
calculate a CCR.
    We are updating the FY 2017 national median and ceiling CCRs for 
urban and rural IPFs based on the CCRs entered in the latest available 
IPF PPS Provider Specific File. Specifically, for FY 2017, to be used 
in each of the three situations listed above, using the most recent 
CCRs entered in the CY 2016 Provider Specific File, we estimate a 
national median CCR of 0.5960 for rural IPFs and a national median CCR 
of 0.4455 for urban IPFs. These calculations are based on the IPF's 
location (either urban or rural) using the CBSA-based geographic 
designations.
    A complete discussion regarding the national median CCRs appears in 
the November 2004 IPF PPS final rule (69 FR 66961 through 66964).

IV. Update on IPF PPS Refinements

    For RY 2012, we identified several areas of concern for future 
refinement, and we invited comments on these issues in our RY 2012 
proposed and final rules. For further discussion of these issues and to 
review the public comments, we refer readers to the RY 2012 IPF PPS 
proposed rule (76 FR 4998) and final rule (76 FR 26432).
    We have delayed making refinements to the IPF PPS until we have 
completed a thorough analysis of IPF PPS data on which to base those 
refinements. Specifically, we will delay updating the adjustment 
factors derived from the regression analysis until we have IPF

[[Page 50513]]

PPS data that include as much information as possible regarding the 
patient-level characteristics of the population that each IPF serves. 
We have begun and will continue the necessary analysis to better 
understand IPF industry practices so that we may refine the IPF PPS in 
the future, as appropriate.
    As we noted in the FY 2016 IPF PPS final rule (80 FR 46693 to 
46694), our preliminary analysis of 2012 to 2013 IPF data found that 
over 20 percent of IPF stays reported no ancillary costs, such as 
laboratory and drug costs, in their cost reports, or laboratory or drug 
charges on their claims. Because we expect that most patients requiring 
hospitalization for active psychiatric treatment will need drugs and 
laboratory services, we again remind providers that the IPF PPS per 
diem payment rate includes the cost of all ancillary services, 
including drugs and laboratory services. We pay only the IPF for 
services furnished to a Medicare beneficiary who is an inpatient of 
that IPF, except for certain professional services, and payments are 
considered to be payments in full for all inpatient hospital services 
provided directly or under arrangement (see 42 CFR 412.404(d)), as 
specified in 42 CFR 409.10.
    We are continuing to analyze data from claims and cost report that 
do not include ancillary charges or costs, and will be sharing our 
findings with the Center for Program Integrity and the Office of 
Financial Management for further investigation, as the results warrant. 
Our refinement analysis is dependent on recent precise data for costs, 
including ancillary costs. We will continue to collect these data and 
analyze them for both timeliness and accuracy with the expectation that 
these data will be used in a future refinement. Since we are not making 
refinements for FY 2017, we will continue to use the existing 
adjustment factors.

V. 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 it is unnecessary to undertake notice and comment 
rulemaking for this action because the updates in this notice do not 
reflect any substantive changes in policy, but merely reflect the 
application of previously established methodologies. Therefore, under 5 
U.S.C. 553(b)(3)(B), for good cause, we waive notice and comment 
procedures.

VI. Collection of Information Requirements

    This document does not impose information collection requirements, 
that is, reporting, recordkeeping or third-party disclosure 
requirements. Consequently, there is no need for review by the Office 
of Management and Budget under the authority of the Paperwork Reduction 
Act of 1995 (44 U.S.C. 3501 et seq.).

VII. Regulatory Impact Analysis

A. Statement of Need

    This notice updates the prospective payment rates for Medicare 
inpatient hospital services provided by IPFs for discharges occurring 
during FY 2017 (October 1, 2016 through September 30, 2017). We are 
applying the 2012-based IPF market basket increase of 2.8 percent, less 
the productivity adjustment of 0.3 percentage point as required by 
1886(s)(2)(A)(i) of the Act, and further reduced by 0.2 percentage 
point as required by sections 1886(s)(2)(A)(ii) and 1886(s)(3)(D) of 
the Act, for a total FY 2017 payment rate update of 2.3 percent. In 
this notice, we are also updating the IPF labor-related share; updating 
the IPF Wage Index for FY 2017; and continuing with the second year of 
the rural adjustment phase-out for rural providers which became urban 
providers in FY 2016 as a result of FY 2016 changes to CBSA 
delineations.

B. Overall Impact

    We have examined the impact of this notice 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). A 
regulatory impact analysis (RIA) must be prepared for a major rules 
with economically significant effects ($100 million or more in any 1 
year). This notice is designated as economically ``significant'' under 
section 3(f)(1) of Executive Order 12866.
    We estimate that the total impact of these changes for FY 2017 
payments compared to FY 2016 payments will be a net increase of 
approximately $100 million. This reflects a $105 million increase from 
the update to the payment rates (+$130 million from the unadjusted 2nd 
quarter 2016 IGI forecast of the 2012-based IPF market basket of 2.8 
percent, -$15 million for the productivity adjustment of 0.3 percentage 
point, and -$10 million for the other adjustment of 0.2 percentage 
point), as well as a $5 million decrease as a result of the update to 
the outlier threshold amount. Outlier payments are estimated to 
decrease from 2.1 percent in FY 2016 to 2.0 percent of total estimated 
IPF payments in FY 2017.
    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 IPFs and most other providers and 
suppliers are small entities, either by nonprofit status or having 
revenues of $7.5 million to $38.5 million or less in any 1 year, 
depending on industry classification (for details, refer to the SBA 
Small Business Size Standards found at http://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf).
    Because we lack data on individual hospital receipts, we cannot 
determine the number of small proprietary IPFs or the proportion of 
IPFs' revenue derived from Medicare payments. Therefore, we assume that 
all IPFs are considered small entities. 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 1, we estimate that the overall revenue impact of 
this notice on all IPFs is to increase Medicare payments by 
approximately 2.2 percent. As a result, since the estimated impact of 
this notice is a net increase in revenue across almost all categories 
of IPFs, the Secretary has determined that this notice will have a 
positive revenue impact on a substantial number of small entities. MACs 
are not considered to be small entities. Individuals and states are not 
included in the definition of a small entity.

[[Page 50514]]

    In addition, section 1102(b) of the Social Security 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 would not have an adverse impact on the rural hospitals based on 
the data of the 279 rural units and 64 rural hospitals in our database 
of 1,626 IPFs for which data were available. Therefore, the Secretary 
has determined that this notice will not have a significant impact on 
the operations of a substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2016, that 
threshold is approximately $146 million. This notice will not impose 
spending costs on state, local, or tribal governments in the aggregate, 
or by the private sector of $146 million or more.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on state 
and local governments, preempts state law, or otherwise has Federalism 
implications. As stated above, this notice would not have a substantial 
effect on state and local governments.

C. Anticipated Effects

    In this section, we discuss the historical background of the IPF 
PPS and the impact of this notice on the Federal Medicare budget and on 
IPFs.
1. Budgetary Impact
    As discussed in the November 2004 and May 2006 IPF PPS final rules, 
we applied a budget neutrality factor to the Federal per diem base rate 
and ECT payment per treatment to ensure that total estimated payments 
under the IPF PPS in the implementation period would equal the amount 
that would have been paid if the IPF PPS had not been implemented. The 
budget neutrality factor includes the following components: Outlier 
adjustment, stop-loss adjustment, and the behavioral offset. As 
discussed in the May 2008 IPF PPS notice (73 FR 25711), the stop-loss 
adjustment is no longer applicable under the IPF PPS.
    As discussed in section III.D.1 of this notice, we are using the 
wage index and labor-related share in a budget neutral manner by 
applying a wage index budget neutrality factor to the Federal per diem 
base rate and ECT payment per treatment. Therefore, the budgetary 
impact to the Medicare program of this notice will be due to the market 
basket update for FY 2017 of 2.8 percent (see section III.A.2 of this 
notice) less the productivity adjustment of 0.3 percentage point 
required by section 1886(s)(2)(A)(i) of the Act; further reduced by the 
``other adjustment'' of 0.2 percentage point under sections 
1886(s)(2)(A)(ii) and 1886(s)(3)(D) of the Act; and the update to the 
outlier fixed dollar loss threshold amount.
    We estimate that the FY 2017 impact will be a net increase of $100 
million in payments to IPF providers. This reflects an estimated $105 
million increase from the update to the payment rates and a $5 million 
decrease due to the update to the outlier threshold amount to set total 
estimated outlier payments at 2 percent of total estimated payments in 
FY 2017. This estimate does not include the implementation of the 
required 2 percentage point reduction of the market basket increase 
factor for any IPF that fails to meet the IPF quality reporting 
requirements (as discussed in section III.B.2).
2. Impact on Providers
    To show the impact on providers of the changes to the IPF PPS 
discussed in this notice, we compare estimated payments under the IPF 
PPS rates and factors for FY 2017 versus those under FY 2016. We 
determined the percent change of estimated FY 2017 IPF PPS payments 
compared to FY 2016 IPF PPS payments for each category of IPFs. In 
addition, for each category of IPFs, we have included the estimated 
percent change in payments resulting from the update to the outlier 
fixed dollar loss threshold amount; the updated wage index data; the 
changes to rural adjustment payments resulting from the second year of 
the rural adjustment phase-out, due to changes in rural or urban status 
resulting from FY 2016 CBSA changes; the final labor-related share; and 
the final market basket update for FY 2017, as adjusted by the 
productivity adjustment according to section 1886(s)(2)(A)(i) of the 
Act, and the ``other adjustment'' according to sections 
1886(s)(2)(A)(ii) and 1886(s)(3)(D) of the Act.
    To illustrate the impacts of the FY 2017 changes in this notice, 
our analysis begins with a FY 2016 baseline simulation model based on 
FY 2015 IPF payments inflated to the midpoint of FY 2016 using IHS 
Global Insight Inc.'s most recent forecast of the market basket update 
(see section III.A.2. of this notice); the estimated outlier payments 
in FY 2016; the CBSA delineations for IPFs based on revised OMB 
delineations issued on February 28, 2013, in OMB Bulletin No. 13-01 
(which were implemented in the FY 2016 IPF transitional wage index as 
described in section III.D.1); the FY 2015 pre-floor, pre-reclassified 
hospital wage index; the FY 2016 labor-related share; and the FY 2016 
percentage amount of the rural adjustment. During the simulation, total 
outlier payments are maintained at 2 percent of total estimated IPF PPS 
payments.
    Each of the following changes is added incrementally to this 
baseline model in order for us to isolate the effects of each change:
     The update to the outlier fixed dollar loss threshold 
amount;
     the FY 2016 pre-floor, pre-reclassified hospital wage 
index with the updated CBSA delineations, based on OMB's February 28, 
2013 Bulletin No. 13-01, which are applied in full in the FY 2017 IPF 
PPS wage index;
     the FY 2017 labor-related share;
     the market basket update for FY 2017 of 2.8 percent less 
the productivity adjustment of 0.3 percentage point in accordance with 
section 1886(s)(2)(A)(i) of the Act and further reduced by the ``other 
adjustment'' of 0.2 percentage point in accordance with sections 
1886(s)(2)(A)(ii) and 1886(s)(3)(D) of the Act, for a payment rate 
update of 2.3 percent.
    Our final comparison illustrates the percent change in payments 
from FY 2016 (that is, October 1, 2015, to September 30, 2016) to FY 
2017 (that is, October 1, 2016, to September 30, 2017) including all 
the changes in this notice.

[[Page 50515]]



                                        Table 1--IPF Impacts for FY 2017
                                     [Percent change in columns 3 through 6]
----------------------------------------------------------------------------------------------------------------
                                                                     CBSA wage
        Facility by type             Number of        Outlier      index & labor   Payment rate    Total percent
                                    facilities                       share \1\      update \2\      change \3\
(1)                                          (2)             (3)             (4)             (5)             (6)
----------------------------------------------------------------------------------------------------------------
All Facilities..................           1,626            -0.1             0.0             2.3             2.2
    Total Urban.................           1,283            -0.1             0.1             2.3             2.3
    Total Rural.................             343            -0.1            -0.6             2.3             1.6
    Urban unit..................             834            -0.1             0.0             2.3             2.2
    Urban hospital..............             449             0.0             0.2             2.3             2.5
    Rural unit..................             279            -0.1            -0.6             2.3             1.6
    Rural hospital..............              64             0.0            -0.8             2.3             1.4
By Type of Ownership:
Freestanding IPFs:
    Urban Psychiatric Hospitals:
        Government..............             123            -0.1             0.0             2.3             2.2
        Non-Profit..............             103             0.0             0.0             2.3             2.3
        For-Profit..............             223             0.0             0.3             2.3             2.6
    Rural Psychiatric Hospitals:
        Government..............              35             0.0            -0.6             2.3             1.7
        Non-Profit..............              11             0.0             0.2             2.3             2.5
        For-Profit..............              18             0.0            -1.2             2.3             1.1
IPF Units:
    Urban:
        Government..............             122            -0.2             0.0             2.3             2.1
        Non-Profit..............             536            -0.1             0.1             2.3             2.3
        For-Profit..............             176            -0.1             0.0             2.3             2.2
    Rural:
        Government..............              71            -0.1            -0.7             2.3             1.4
        Non-Profit..............             141            -0.1            -0.5             2.3             1.7
        For-Profit..............              67            -0.1            -0.6             2.3             1.6
By Teaching Status:
    Non-teaching................           1,438            -0.1             0.0             2.3             2.2
    Less than 10% interns and                100            -0.1             0.1             2.3             2.3
     residents to beds..........
    10% to 30% interns and                    60            -0.2             0.1             2.3             2.2
     residents to beds..........
    More than 30% interns and                 28            -0.2             0.1             2.3             2.1
     residents to beds..........
By Region:
    New England.................             109            -0.1             0.5             2.3             2.7
    Mid-Atlantic................             237            -0.1             0.1             2.3             2.3
    South Atlantic..............             242            -0.1            -0.1             2.3             2.2
    East North Central..........             267            -0.1             0.1             2.3             2.3
    East South Central..........             158            -0.1            -0.5             2.3             1.7
    West North Central..........             135            -0.1            -0.4             2.3             1.8
    West South Central..........             250            -0.1            -0.4             2.3             1.8
    Mountain....................             105            -0.1            -0.2             2.3             2.0
    Pacific.....................             123            -0.1             0.8             2.3             3.0
By Bed Size:
    Psychiatric Hospitals;
        Beds: 0-24..............              83             0.0            -0.6             2.3             1.7
        Beds: 25-49.............              82             0.0             0.2             2.3             2.4
        Beds: 50-75.............              84             0.0             0.0             2.3             2.3
        Beds: 76 +..............             264             0.0             0.2             2.3             2.5
    Psychiatric Units:
        Beds: 0-24..............             653            -0.1            -0.2             2.3             2.0
        Beds: 25-49.............             298            -0.1             0.0             2.3             2.2
        Beds: 50-75.............             105            -0.1             0.1             2.3             2.2
        Beds: 76 +..............              57            -0.1             0.1             2.3             2.3
----------------------------------------------------------------------------------------------------------------
\1\ Includes a FY 2017 IPF wage index, a labor-related share of 0.751, and a rural adjustment. Providers which
  changed from rural to urban status in FY 2016 will receive \1/3\ of the 17 percent rural adjustment in FY
  2017.
\2\ This column reflects the payment rate update impact of the IPF market basket update for FY 2017 of 2.8
  percent, a 0.3 percentage point reduction for the productivity adjustment as required by section
  1886(s)(2)(A)(i) of the Act, and a 0.2 percentage point reduction in accordance with sections
  1886(s)(2)(A)(ii) and 1886(s)(3)(D) of the Act.
\3\ Percent changes in estimated payments from FY 2016 to FY 2017 include all of the changes presented in this
  notice. Note, the products of these impacts may be different from the percentage changes shown here due to
  rounding effects.

3. Results
    Table 1 displays the results of our analysis. The table groups IPFs 
into the categories listed below based on characteristics provided in 
the Provider of Services (POS) file, the IPF provider specific file, 
and cost report data from the Healthcare Cost Report Information 
System:

 Facility Type
 Location
 Teaching Status Adjustment
 Census Region
 Size


[[Page 50516]]


    The top row of the table shows the overall impact on the 1,626 IPFs 
included in this analysis. In column 3, we present the effects of the 
update to the outlier fixed dollar loss threshold amount. We estimate 
that IPF outlier payments as a percentage of total IPF payments are 2.1 
percent in FY 2016. Thus, we are adjusting the outlier threshold amount 
in this notice to set total estimated outlier payments equal to 2 
percent of total payments in FY 2017. The estimated change in total IPF 
payments for FY 2017, therefore, includes an approximate 0.1 percent 
decrease in payments because the outlier portion of total payments is 
expected to decrease from approximately 2.1 percent to 2.0 percent.
    The overall impact of this outlier adjustment update (as shown in 
column 3 of Table 1), across all hospital groups, is to decrease total 
estimated payments to IPFs by 0.1 percent. The largest decrease in 
payments is estimated to be a 0.2 percent decrease in payments for 
urban government IPF units and IPFs with 10 percent or greater interns 
and residents to beds.
    In column 4, we present the effects of the budget-neutral update to 
the IPF wage index and the Labor Related Share (LRS). This represents 
the effect of using the most recent wage data available and taking into 
account the updated OMB delineations. That is, the impact represented 
in this column reflects the update from the FY 2016 IPF transitional 
wage index to the FY 2017 IPF wage index, which includes the full 
effect of FY 2016 changes to the OMB delineations, and the LRS update 
from 75.2 percent in FY 2016 to 75.1 percent in FY 2017. We note that 
there is no projected change in aggregate payments to IPFs, as 
indicated in the first row of column 4, however, there will be 
distributional effects among different categories of IPFs. For example, 
we estimate the largest increase in payments to be 0.8 percent for IPFs 
in the Pacific region, and the largest decrease in payments to be 1.2 
percent for rural for-profit freestanding IPFs.
    In column 5, we present the estimated effects of the update to the 
IPF PPS payment rates of 2.3 percent, which are based on the 2012-based 
IPF market basket update of 2.8 percent, less the productivity 
adjustment of 0.3 percentage point in accordance with section 
1886(s)(2)(A)(i) of the Act, and further reduced by 0.2 percentage 
point in accordance with sections 1886(s)(2)(A)(ii) and 1886(s)(3)(D) 
of the Act.
    Finally, column 6 compares our estimates of the total changes 
reflected in this notice for FY 2017 to the estimates for FY 2016 
(without these changes). The average estimated increase for all IPFs is 
approximately 2.2 percent. This estimated net increase includes the 
effects of the 2.8 percent market basket update reduced by the 
productivity adjustment of 0.3 percentage point, as required by section 
1886(s)(2)(A)(i) of the Act and further reduced by the ``other 
adjustment'' of 0.2 percentage point, as required by sections 
1886(s)(2)(A)(ii) and 1886(s)(3)(D) of the Act. It also includes the 
overall estimated 0.1 percent decrease in estimated IPF outlier 
payments as a percent of total payments from the update to the outlier 
fixed dollar loss threshold amount.
    IPF payments are estimated to increase by 2.3 percent in urban 
areas and 1.6 percent in rural areas. Overall, IPFs are estimated to 
experience a net increase in payments as a result of the updates in 
this notice. The largest payment increase is estimated at 3.0 percent 
for IPFs in the Pacific region.
4. Effect on Beneficiaries
    Under the IPF PPS, IPFs will receive payment based on the average 
resources consumed by patients for each day. We do not expect changes 
in the quality of care or access to services for Medicare beneficiaries 
under the FY 2017 IPF PPS, but we continue to expect that paying 
prospectively for IPF services will enhance the efficiency of the 
Medicare program.

D. Alternatives Considered

    The statute does not specify an update strategy for the IPF PPS and 
is broadly written to give the Secretary discretion in establishing an 
update methodology. Therefore, we are updating the IPF PPS using the 
methodology published in the November 2004 IPF PPS final rule; applying 
the FY 2017 2012-based IPF PPS market basket update of 2.8 percent, 
reduced by the statutorily required multifactor productivity adjustment 
of 0.3 percentage point and the other adjustment of 0.2 percentage 
point, along with the wage index budget neutrality adjustment to update 
the payment rates; finalizing a FY 2017 IPF PPS wage index which is 
fully based upon the OMB CBSA designations which were adopted in the FY 
2016 IPF PPS wage index; and continuing with the second year of the 3-
year phase-out of the rural adjustment for IPF providers which changed 
from rural to urban status in FY 2016 as a result of adopting the 
updated OMB CBSA delineations used in the FY 2016 IPF PPS transitional 
wage index.

E. Accounting Statement

    As required by OMB Circular A-4 (available at https://www.whitehouse.gov/omb/circulars_a004_a-4), in Table 2 below, we have 
prepared an accounting statement showing the classification of the 
expenditures associated with the updates to the IPF PPS wage index and 
payment rates in this notice. This table provides our best estimate of 
the increase in Medicare payments under the IPF PPS as a result of the 
changes presented in this notice and based on the data for 1,626 IPFs 
in our database.

 Table 2--Accounting Statement: Classification of Estimated Expenditures
------------------------------------------------------------------------
  Change in Estimated Transfers from FY 2016 IPF PPS to FY 2017 IPF PPS
-------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............  $100 million.
From Whom to Whom?                          Federal Government to IPF
                                             Medicare Providers.
------------------------------------------------------------------------

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

    Dated: July 18, 2016.
Andrew M. Slavitt,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Dated: July 19, 2016.
Sylvia M. Burwell,
Secretary, Department of Health and Human Services.
    Note: The following addenda will not publish in the Code of Federal 
Regulations.

Addendum A--IPF PPS FY 2017 Final Rates and Adjustment Factors

                              Per Diem Rate
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Federal Per Diem Base Rate..............................         $761.37
Labor Share (0.751).....................................         $571.79
Non-Labor Share (0.249).................................         $189.58
------------------------------------------------------------------------


         Per Diem Rate Applying the 2 Percentage Point Reduction
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Federal Per Diem Base Rate..............................         $746.48
Labor Share (0.751).....................................         $560.61
Non-Labor Share (0.249).................................         $185.87
------------------------------------------------------------------------

    Fixed Dollar Loss Threshold Amount: $10,120.
    Wage Index Budget-Neutrality Factor: 1.0007.

[[Page 50517]]



                                              Facility Adjustments
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Rural Adjustment Factor.............  1.17.
Teaching Adjustment Factor..........  0.5150.
Wage Index..........................  Pre-reclass Hospital Wage Index (FY 2016).
----------------------------------------------------------------------------------------------------------------


                   Cost of Living Adjustments (COLAs)
------------------------------------------------------------------------
                                                          Cost of living
                          Area                              adjustment
                                                              factor
------------------------------------------------------------------------
Alaska:
  City of Anchorage and 80-kilometer (50-mile) radius by            1.23
   road.................................................
  City of Fairbanks and 80-kilometer (50-mile) radius by            1.23
   road.................................................
  City of Juneau and 80-kilometer (50-mile) radius by               1.23
   road.................................................
  Rest of Alaska........................................            1.25
Hawaii:
  City and County of Honolulu...........................            1.25
  County of Hawaii......................................            1.19
  County of Kauai.......................................            1.25
  County of Maui and County of Kalawao..................            1.25
------------------------------------------------------------------------


                           Patient Adjustments
------------------------------------------------------------------------
 
------------------------------------------------------------------------
ECT--Per Treatment......................................         $327.78
ECT--Per Treatment Applying the 2 Percentage Point               $321.38
 Reduction..............................................
------------------------------------------------------------------------


                      Variable Per Diem Adjustments
------------------------------------------------------------------------
                                                            Adjustment
                                                              factor
------------------------------------------------------------------------
Day 1--Facility Without a Qualifying Emergency                      1.19
 Department.............................................
Day 1--Facility With a Qualifying Emergency Department..            1.31
Day 2...................................................            1.12
Day 3...................................................            1.08
Day 4...................................................            1.05
Day 5...................................................            1.04
Day 6...................................................            1.02
Day 7...................................................            1.01
Day 8...................................................            1.01
Day 9...................................................            1.00
Day 10..................................................            1.00
Day 11..................................................            0.99
Day 12..................................................            0.99
Day 13..................................................            0.99
Day 14..................................................            0.99
Day 15..................................................            0.98
Day 16..................................................            0.97
Day 17..................................................            0.97
Day 18..................................................            0.96
Day 19..................................................            0.95
Day 20..................................................            0.95
Day 21..................................................            0.95
After Day 21............................................            0.92
------------------------------------------------------------------------


                             Age Adjustments
------------------------------------------------------------------------
                                                            Adjustment
                     Age (in years)                           factor
------------------------------------------------------------------------
Under 45................................................            1.00
45 and under 50.........................................            1.01
50 and under 55.........................................            1.02
55 and under 60.........................................            1.04
60 and under 65.........................................            1.07
65 and under 70.........................................            1.10
70 and under 75.........................................            1.13
75 and under 80.........................................            1.15
80 and over.............................................            1.17
------------------------------------------------------------------------


                                                 DRG Adjustments
----------------------------------------------------------------------------------------------------------------
                                                                                                    Adjustment
               MS-DRG                                     MS-DRG Descriptions                         factor
----------------------------------------------------------------------------------------------------------------
056.................................  Degenerative nervous system disorders w MCC...............            1.05
057.................................  Degenerative nervous system disorders w/o MCC.............            1.05
080.................................  Nontraumatic stupor & coma w MCC..........................            1.07
081.................................  Nontraumatic stupor & coma w/o MCC........................            1.07
876.................................  O.R. procedure w principal diagnoses of mental illness....            1.22
880.................................  Acute adjustment reaction & psychosocial dysfunction......            1.05
881.................................  Depressive neuroses.......................................            0.99
882.................................  Neuroses except depressive................................            1.02
883.................................  Disorders of personality & impulse control................            1.02
884.................................  Organic disturbances & mental retardation.................            1.03
885.................................  Psychoses.................................................            1.00
886.................................  Behavioral & developmental disorders......................            0.99
887.................................  Other mental disorder diagnoses...........................            0.92
894.................................  Alcohol/drug abuse or dependence, left AMA................            0.97
895.................................  Alcohol/drug abuse or dependence w rehabilitation therapy.            1.02
896.................................  Alcohol/drug abuse or dependence w/o rehabilitation                   0.88
                                       therapy w MCC.
897.................................  Alcohol/drug abuse or dependence w/o rehabilitation                   0.88
                                       therapy w/o MCC.
----------------------------------------------------------------------------------------------------------------


                         Comorbidity Adjustments
------------------------------------------------------------------------
                                                            Adjustment
                       Comorbidity                            factor
------------------------------------------------------------------------
Developmental Disabilities..............................            1.04
Coagulation Factor Deficit..............................            1.13
Tracheostomy............................................            1.06
Eating and Conduct Disorders............................            1.12
Infectious Diseases.....................................            1.07
Renal Failure, Acute....................................            1.11
Renal Failure, Chronic..................................            1.11
Oncology Treatment......................................            1.07
Uncontrolled Diabetes Mellitus..........................            1.05
Severe Protein Malnutrition.............................            1.13
Drug/Alcohol Induced Mental Disorders...................            1.03
Cardiac Conditions......................................            1.11
Gangrene................................................            1.10
Chronic Obstructive Pulmonary Disease...................            1.12
Artificial Openings--Digestive & Urinary................            1.08

[[Page 50518]]

 
Severe Musculoskeletal & Connective Tissue Diseases.....            1.09
Poisoning...............................................            1.11
------------------------------------------------------------------------


        National Median and Ceiling Cost-to-Charge Ratios (CCRs)
------------------------------------------------------------------------
                                               Rural           Urban
------------------------------------------------------------------------
National Median CCRs....................          0.5960          0.4455
National Ceiling CCRs...................          1.9315          1.6374
------------------------------------------------------------------------

Addendum B--Changes to the FY 2017 ICD-10-CM/PCS Code Sets Which Affect 
FY the FY 2017 IPF PPS Comorbidity Adjustments

Four IPF PPS Comorbidity Categories Were Affected
    (1) Oncology Treatment
    Add the following codes to the Oncology Treatment code list:

------------------------------------------------------------------------
               DX                            Long description
------------------------------------------------------------------------
C49A0..........................  Gastrointestinal stromal tumor,
                                  unspecified site.
C49A1..........................  Gastrointestinal stromal tumor of
                                  esophagus.
C49A2..........................  Gastrointestinal stromal tumor of
                                  stomach.
C49A3..........................  Gastrointestinal stromal tumor of small
                                  intestine.
C49A4..........................  Gastrointestinal stromal tumor of large
                                  intestine.
C49A5..........................  Gastrointestinal stromal tumor of
                                  rectum.
C49A9..........................  Gastrointestinal stromal tumor of other
                                  sites.
D49511.........................  Neoplasm of unspecified behavior of
                                  right kidney.
D49512.........................  Neoplasm of unspecified behavior of
                                  left kidney.
D4959..........................  Neoplasm unspecified behavior of other
                                  genitourinary organ.
------------------------------------------------------------------------

    Delete the following code from the Oncology Treatment code list:

------------------------------------------------------------------------
               DX                            Long description
------------------------------------------------------------------------
D495...........................  Neoplasm of unspecified behavior of
                                  other genitourinary organs.
------------------------------------------------------------------------

    The following codes from the Oncology Treatment code list have long 
description changes:

------------------------------------------------------------------------
             DX               Old long description  New long description
------------------------------------------------------------------------
C7A094.....................  Malignant carcinoid    Malignant carcinoid
                              tumor of the foregut   tumor of the
                              NOS.                   foregut,
                                                     unspecified.
C7A095.....................  Malignant carcinoid    Malignant carcinoid
                              tumor of the midgut    tumor of the
                              NOS.                   midgut,
                                                     unspecified.
C7A096.....................  Malignant carcinoid    Malignant carcinoid
                              tumor of the hindgut   tumor of the
                              NOS.                   hindgut,
                                                     unspecified.
C8110......................  Nodular sclerosis      Nodular sclerosis
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma,              unspecified site.
                              unspecified site.
C8111......................  Nodular sclerosis      Nodular sclerosis
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, lymph        lymph nodes of
                              nodes of head, face,   head, face, and
                              and neck.              neck.
C8112......................  Nodular sclerosis      Nodular sclerosis
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma,              intrathoracic lymph
                              intrathoracic lymph    nodes.
                              nodes.
C8113......................  Nodular sclerosis      Nodular sclerosis
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, intra-       intra-abdominal
                              abdominal lymph        lymph nodes.
                              nodes.
C8114......................  Nodular sclerosis      Nodular sclerosis
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, lymph        lymph nodes of
                              nodes of axilla and    axilla and upper
                              upper limb.            limb.
C8115......................  Nodular sclerosis      Nodular sclerosis
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, lymph        lymph nodes of
                              nodes of inguinal      inguinal region and
                              region and lower       lower limb.
                              limb.
C8116......................  Nodular sclerosis      Nodular sclerosis
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma,              intrapelvic lymph
                              intrapelvic lymph      nodes.
                              nodes.

[[Page 50519]]

 
C8117......................  Nodular sclerosis      Nodular sclerosis
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, spleen.      spleen.
C8118......................  Nodular sclerosis      Nodular sclerosis
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, lymph        lymph nodes of
                              nodes of multiple      multiple sites.
                              sites.
C8119......................  Nodular sclerosis      Nodular sclerosis
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, extranodal   extranodal and
                              and solid organ        solid organ sites.
                              sites.
C8120......................  Mixed cellularity      Mixed cellularity
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma,              unspecified site.
                              unspecified site.
C8121......................  Mixed cellularity      Mixed cellularity
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, lymph        lymph nodes of
                              nodes of head, face,   head, face, and
                              and neck.              neck.
C8122......................  Mixed cellularity      Mixed cellularity
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma,              intrathoracic lymph
                              intrathoracic lymph    nodes.
                              nodes.
C8123......................  Mixed cellularity      Mixed cellularity
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, intra-       intra-abdominal
                              abdominal lymph        lymph nodes.
                              nodes.
C8124......................  Mixed cellularity      Mixed cellularity
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, lymph        lymph nodes of
                              nodes of axilla and    axilla and upper
                              upper limb.            limb.
C8125......................  Mixed cellularity      Mixed cellularity
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, lymph        lymph nodes of
                              nodes of inguinal      inguinal region and
                              region and lower       lower limb.
                              limb.
C8126......................  Mixed cellularity      Mixed cellularity
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma,              intrapelvic lymph
                              intrapelvic lymph      nodes.
                              nodes.
C8127......................  Mixed cellularity      Mixed cellularity
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, spleen.      spleen.
C8128......................  Mixed cellularity      Mixed cellularity
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, lymph        lymph nodes of
                              nodes of multiple      multiple sites.
                              sites.
C8129......................  Mixed cellularity      Mixed cellularity
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, extranodal   extranodal and
                              and solid organ        solid organ sites.
                              sites.
C8130......................  Lymphocyte depleted    Lymphocyte depleted
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma,              unspecified site.
                              unspecified site.
C8131......................  Lymphocyte depleted    Lymphocyte depleted
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, lymph        lymph nodes of
                              nodes of head, face,   head, face, and
                              and neck.              neck.
C8132......................  Lymphocyte depleted    Lymphocyte depleted
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma,              intrathoracic lymph
                              intrathoracic lymph    nodes.
                              nodes.
C8133......................  Lymphocyte depleted    Lymphocyte depleted
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, intra-       intra-abdominal
                              abdominal lymph        lymph nodes.
                              nodes.
C8134......................  Lymphocyte depleted    Lymphocyte depleted
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, lymph        lymph nodes of
                              nodes of axilla and    axilla and upper
                              upper limb.            limb.
C8135......................  Lymphocyte depleted    Lymphocyte depleted
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, lymph        lymph nodes of
                              nodes of inguinal      inguinal region and
                              region and lower       lower limb.
                              limb.
C8136......................  Lymphocyte depleted    Lymphocyte depleted
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma,              intrapelvic lymph
                              intrapelvic lymph      nodes.
                              nodes.
C8137......................  Lymphocyte depleted    Lymphocyte depleted
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, spleen.      spleen.
C8138......................  Lymphocyte depleted    Lymphocyte depleted
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, lymph        lymph nodes of
                              nodes of multiple      multiple sites.
                              sites.
C8139......................  Lymphocyte depleted    Lymphocyte depleted
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, extranodal   extranodal and
                              and solid organ        solid organ sites.
                              sites.
C8140......................  Lymphocyte-rich        Lymphocyte-rich
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma,              unspecified site.
                              unspecified site.
C8141......................  Lymphocyte-rich        Lymphocyte-rich
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, lymph        lymph nodes of
                              nodes of head, face,   head, face, and
                              and neck.              neck.
C8142......................  Lymphocyte-rich        Lymphocyte-rich
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma,              intrathoracic lymph
                              intrathoracic lymph    nodes.
                              nodes.
C8143......................  Lymphocyte-rich        Lymphocyte-rich
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, intra-       intra-abdominal
                              abdominal lymph        lymph nodes.
                              nodes.
C8144......................  Lymphocyte-rich        Lymphocyte-rich
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, lymph        lymph nodes of
                              nodes of axilla and    axilla and upper
                              upper limb.            limb.
C8145......................  Lymphocyte-rich        Lymphocyte-rich
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, lymph        lymph nodes of
                              nodes of inguinal      inguinal region and
                              region and lower       lower limb.
                              limb.
C8146......................  Lymphocyte-rich        Lymphocyte-rich
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma,              intrapelvic lymph
                              intrapelvic lymph      nodes.
                              nodes.
C8147......................  Lymphocyte-rich        Lymphocyte-rich
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, spleen.      spleen.
C8148......................  Lymphocyte-rich        Lymphocyte-rich
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, lymph        lymph nodes of
                              nodes of multiple      multiple sites.
                              sites.
C8149......................  Lymphocyte-rich        Lymphocyte-rich
                              classical Hodgkin      Hodgkin lymphoma,
                              lymphoma, extranodal   extranodal and
                              and solid organ        solid organ sites.
                              sites.
C8170......................  Other classical        Other Hodgkin
                              Hodgkin lymphoma,      lymphoma,
                              unspecified site.      unspecified site.
C8171......................  Other classical        Other Hodgkin
                              Hodgkin lymphoma,      lymphoma, lymph
                              lymph nodes of head,   nodes of head,
                              face, and neck.        face, and neck.
C8172......................  Other classical        Other Hodgkin
                              Hodgkin lymphoma,      lymphoma,
                              intrathoracic lymph    intrathoracic lymph
                              nodes.                 nodes.
C8173......................  Other classical        Other Hodgkin
                              Hodgkin lymphoma,      lymphoma, intra-
                              intra-abdominal        abdominal lymph
                              lymph nodes.           nodes.
C8174......................  Other classical        Other Hodgkin
                              Hodgkin lymphoma,      lymphoma, lymph
                              lymph nodes of         nodes of axilla and
                              axilla and upper       upper limb.
                              limb.
C8175......................  Other classical        Other Hodgkin
                              Hodgkin lymphoma,      lymphoma, lymph
                              lymph nodes of         nodes of inguinal
                              inguinal region and    region and lower
                              lower limb.            limb.

[[Page 50520]]

 
C8176......................  Other classical        Other Hodgkin
                              Hodgkin lymphoma,      lymphoma,
                              intrapelvic lymph      intrapelvic lymph
                              nodes.                 nodes.
C8177......................  Other classical        Other Hodgkin
                              Hodgkin lymphoma,      lymphoma, spleen.
                              spleen.
C8178......................  Other classical        Other Hodgkin
                              Hodgkin lymphoma,      lymphoma, lymph
                              lymph nodes of         nodes of multiple
                              multiple sites.        sites.
C8179......................  Other classical        Other Hodgkin
                              Hodgkin lymphoma,      lymphoma,
                              extranodal and solid   extranodal and
                              organ sites.           solid organ sites.
D3A094.....................  Benign carcinoid       Benign carcinoid
                              tumor of the foregut   tumor of the
                              NOS.                   foregut,
                                                     unspecified.
D3A095.....................  Benign carcinoid       Benign carcinoid
                              tumor of the midgut    tumor of the
                              NOS.                   midgut,
                                                     unspecified.
D3A096.....................  Benign carcinoid       Benign carcinoid
                              tumor of the hindgut   tumor of the
                              NOS.                   hindgut,
                                                     unspecified.
------------------------------------------------------------------------

    2) Oncology Treatment Procedure
    Add the following code to the Oncology Treatment procedure code 
list:

------------------------------------------------------------------------
               DX                            Long description
------------------------------------------------------------------------
3E0Q005.........................  Introduction of Other Antineoplastic
                                   into Cranial Cavity and Brain, Open
                                   Approach.
------------------------------------------------------------------------

    3) Infectious Disease
    Add the following code to the Infectious Disease code list:

------------------------------------------------------------------------
               DX                            Long description
------------------------------------------------------------------------
A925............................  Zika virus disease.
------------------------------------------------------------------------

    4) Artificial Openings Digestive and Urinary
    Add the following codes to the Artificial Openings, Digestive and 
Urinary code list:

------------------------------------------------------------------------
               DX                            Long description
------------------------------------------------------------------------
N99523..........................  Herniation of incontinent stoma of
                                   urinary tract.
N99524..........................  Stenosis of incontinent stoma of
                                   urinary tract.
N99533..........................  Herniation of continent stoma of
                                   urinary tract.
N99534..........................  Stenosis of continent stoma of urinary
                                   tract.
------------------------------------------------------------------------

    The following codes from the Artificial Openings Digestive and 
Urinary code list have long description changes:

------------------------------------------------------------------------
             DX               Old long description  New long description
------------------------------------------------------------------------
N99520......................  Hemorrhage of other   Hemorrhage of
                               external stoma of     incontinent
                               urinary tract.        external stoma of
                                                     urinary tract.
N99521......................  Infection of other    Infection of
                               external stoma of     incontinent
                               urinary tract.        external stoma of
                                                     urinary tract.
N99522......................  Malfunction of other  Malfunction of
                               external stoma of     incontinent
                               urinary tract.        external stoma of
                                                     urinary tract.
N99528......................  Other complication    Other complication
                               of other external     of incontinent
                               stoma of urinary      external stoma of
                               tract.                urinary tract.
N99530......................  Hemorrhage of other   Hemorrhage of
                               stoma of urinary      continent stoma of
                               tract.                urinary tract.
N99531......................  Infection of other    Infection of
                               stoma of urinary      continent stoma of
                               tract.                urinary tract.
N99532......................  Malfunction of other  Malfunction of
                               stoma of urinary      continent stoma of
                               tract.                urinary tract.
N99538......................  Other complication    Other complication
                               of other stoma of     of continent stoma
                               urinary tract.        of urinary tract.
------------------------------------------------------------------------

    Tables showing the complete listing of ICD-10-CM/PCS codes 
underlying the IPF PPS comorbidity adjustment and the IPF PPS Code 
First adjustment, and associated with the IPF PPS ECT per treatment 
payment, are available online at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html.

[FR Doc. 2016-17982 Filed 7-28-16; 4:15 pm]
BILLING CODE 4120-01-P