[Federal Register Volume 82, Number 150 (Monday, August 7, 2017)]
[Notices]
[Pages 36771-36789]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-16430]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

[CMS-1673-NC]
RIN 0938-AS97


Medicare Program; FY 2018 Inpatient Psychiatric Facilities 
Prospective Payment System--Rate Update

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

ACTION: Notice with comment period.

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SUMMARY: This notice with comment period 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, 2017 through September 
30, 2018 (FY 2018).

DATES: The updated IPF prospective payment rates are effective for 
discharges occurring on or after October 1, 2017 through September 30, 
2018.
    Comment Date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on October 6, 2017.

ADDRESSES: In commenting, refer to file code CMS-1673-NC. Because of 
staff and resource limitations, we cannot accept comments by facsimile 
(FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1673-NC, P.O. Box 8010, 
Baltimore, MD 21244-1850.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.

[[Page 36772]]

    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-1673-NC, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. Alternatively, you may deliver (by hand or 
courier) your written comments ONLY to the following addresses:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 
20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
call telephone number (410) 786-9994 in advance to schedule your 
arrival with one of our staff members.
    Comments erroneously mailed to the addresses indicated as 
appropriate for hand or courier delivery may be delayed and received 
after the comment period. For information on viewing public comments, 
see the beginning of the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: The IPF Payment Policy mailbox at 
[email protected] for general information. Theresa Bean 
(410) 786-2287 or James Hardesty (410) 786-2629 for information 
regarding the regulatory impact analysis.

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

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

    Tables setting forth the fiscal year (FY) 2018 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 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.
    In addition, tables showing the complete listing of ICD-10 Clinical 
Modification (CM) and Procedure Coding System (PCS) codes underlying 
the FY 2018 Inpatient Psychiatric Facilities (IPF) Prospective Payment 
System (PPS) for comorbidity adjustment, code first, and 
Electroconvulsive Therapy (ECT) are available online at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html. Addendum B to this notice with 
comment period only shows the table of changes to the ICD-10-CM/PCS 
codes which affect FY 2018 IPF PPS comorbidity categories.
    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 FY 2018 IPF PPS Notice
    A. Updated FY 2018 Market Basket for the IPF PPS
    1. Background
    2. FY 2018 IPF Market Basket Update
    3. IPF Labor-Related Share
    B. Updates to the IPF PPS Rates for FY Beginning October 1, 2017
    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
     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
    1. Wage Index Adjustment
    a. Background
    b. Updated Wage Index for FY 2018
    c. OMB Bulletins
    d. Adjustment for Rural Location
    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. Request for Information on CMS Flexibilities and Efficiencies
VII. Collection of Information Requirements
VIII. Response to Comments
IX. 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
    5. Regulatory Review Costs
    6. Reducing Regulation and Controlling Regulatory Costs
    D. Alternatives Considered
    E. Accounting Statement
Addendum A--IPF PPS FY 2018 Rates and Adjustment Factors
Addendum B--Changes to the FY 2018 ICD-10-CM/PCS Code Sets Which 
Affect the FY 2018 IPF PPS Comorbidity Categories and the Code First 
List

Acronyms

    Because of the many terms to which we refer by acronym in this 
notice with comment period, 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

[[Page 36773]]

 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, 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
 MS-DRG Medicare Severity-Diagnosis Related Group
 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
 RFI Request for Information
 RPL Rehabilitation, Psychiatric, and Long-Term Care
 RY Rate Year
 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 with comment period updates the prospective payment 
rates, the outlier threshold, and the wage index for Medicare inpatient 
hospital services provided by IPFs for discharges occurring during the 
FY beginning October 1, 2017 through September 30, 2018.

B. Summary of the Major Provisions

    In this notice with comment period, we are updating the IPF 
Prospective Payment System (PPS), as specified in 42 CFR 412.428. The 
updates include the following:
     For FY 2018, we adjusted the 2012-based IPF market basket 
update (2.6 percent) by a reduction for economy-wide productivity (0.6 
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 0.75 percentage point as required by section 
1886(s)(2)(A)(ii) of the Act, resulting in an estimated IPF payment 
rate update of 1.25 percent for FY 2018.
     The 2012-based IPF market basket resulted in a labor-
related share of 75.0 percent for FY 2018.
     We updated the IPF PPS per diem rate from $761.37 to 
$771.35. Providers that failed to report quality data for FY 2018 
payment will receive a FY 2018 per diem rate of $756.11.
     We updated the ECT payment per treatment from $327.78 to 
$332.08. Providers that failed to report quality data for FY 2018 
payment will receive a FY 2018 ECT payment per treatment of $325.52.
     We used the updated labor-related share of 75.0 percent 
(based on the 2012-based IPF market basket) and CBSA rural and urban 
wage indices for FY 2018, and established a wage index budget-
neutrality adjustment of 1.0006. The FY 2018 IPF wage index includes 
minor updates to a few CBSA delineations based upon a July 15, 2015 OMB 
Bulletin.
     We updated the fixed dollar loss threshold amount from 
$10,120 to $11,425 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 2018 IPF PPS payment        The overall economic impact of this
 update.                        notice with comment period is an
                                estimated $45 million in increased
                                payments to IPFs during FY 2018.
------------------------------------------------------------------------

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 certified 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).
    Sections 3401(f) and 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'') 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 notice (the FY 2017 IPF PPS notice), for the RY 
beginning in 2016 (that is, FY 2017), the productivity adjustment 
currently in place is equal to 0.3 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 
previous (FY 2017) IPF PPS notice, for the RY beginning in 2016 (that 
is, FY

[[Page 36774]]

2017), section 1886(s)(3)(D) of the Act requires that the reduction 
currently in place be equal to 0.2 percentage point.
    Sections 1886(s)(4)(A) and 1886(s)(4)(B) of the Act require that 
for RY 2014 and each subsequent rate year, IPFs that fail to report 
required quality data with respect to such a rate year shall have their 
annual update to a standard federal rate for discharges 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 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 August 22, 2016 FY 2017 Hospital IPPS for 
Acute Care Hospitals and the Long-Term Care Hospital Prospective 
Payment System final rule (81 FR 57236 through 57249) and the FY 2018 
Hospital IPPS for Acute Care Hospitals and the Long-Term Care Hospital 
PPS proposed rule (82 FR 20120 through 20130).
    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 previously 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 payment 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 FY 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. 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 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).
    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

[[Page 36775]]

updates to the IPF PPS, see 42 CFR 412.428.
    Our most recent IPF PPS annual update occurred in an August 1, 
2016, Federal Register notice (81 FR 50502) (hereinafter referred to as 
the August 2016 IPF PPS notice), which updated the IPF PPS payment 
rates for FY 2017. That notice updated the IPF PPS per diem payment 
rates that were published in the August 2015 IPF PPS final rule (80 FR 
46652) in accordance with our established policies.

III. Provisions of the FY 2018 IPF PPS Notice

A. Updated FY 2018 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), 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.
    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. We first expressed our interest 
in exploring the possibility of creating a stand-alone IPF market 
basket in the May 1, 2009 IPF PPS notice (74 FR 20376). In the FY 2016 
PPS proposed rule, we solicited comments on the 2012-based IPF market 
basket. After consideration of these 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 FR46656 
through 46679).
2. FY 2018 IPF Market Basket Update
    For FY 2018 (beginning October 1, 2017 and ending September 30, 
2018), 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, Inc.'s (IGI) forecast. IGI is a nationally 
recognized economic and financial forecasting firm that contracts with 
the CMS to forecast the components of the market baskets and 
multifactor productivity (MFP). Based on IGI's second quarter 2017 
forecast with historical data through the first quarter of 2017, the 
2012-based IPF market basket increase factor for FY 2018 is 2.6 
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 2018 IPF PPS 
Notice, based on IGI's second quarter 2017 forecast, the MFP adjustment 
for FY 2018 (the 10-year moving average of MFP for the period ending FY 
2018) is projected to be 0.6 percent. We reduced the 2.6 percent IPF 
market basket update by this 0.6 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 2018 the 2012-based IPF PPS market basket 
update is further reduced by 0.75 percentage point as required by 
sections 1886(s)(2)(A)(ii) and 1886(s)(3)(E) of the Act. This results 
in an estimated FY 2018 IPF PPS payment rate update of 1.25 percent 
(2.6-0.6-0.75 = 1.25).
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 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 2018. Using IGI's second quarter 2017 forecast for the 
2012-based IPF market basket, the IPF labor-related share for FY 2018 
is the sum of the FY 2018 relative importance

[[Page 36776]]

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 46676 through 46679). For FY 2018, the updated 
labor-related share based on IGI's second quarter 2017 forecast of the 
2012-based IPF PPS market basket is 75.0 percent.

B. Updates to the IPF PPS Rates for FY Beginning October 1, 2017

    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 2018.
2. Update of the Federal per Diem Base Rate and Electroconvulsive 
Therapy Payment per Treatment
    The current (FY 2017) federal per diem base rate is $761.37 and the 
ECT payment per treatment is $327.78. For FY 2018, we applied a payment 
rate update of 1.25 percent (that is, the 2012-based IPF market basket 
increase for FY 2018 of 2.6 percent less the productivity adjustment of 
0.6 percentage point, and further reduced by the 0.75 percentage point 
required under section 1886(s)(3)(E) of the Act), and the wage index 
budget-neutrality factor of 1.0006 (as discussed in section III.D.1.e 
of this notice with comment period) to the FY 2017 federal per diem 
base rate of $761.37, yielding a federal per diem base rate of $771.35 
for FY 2018. Similarly, we applied the 1.25 percent payment rate update 
and the 1.0006 wage index budget-neutrality factor to the FY 2017 ECT 
payment per treatment, yielding an ECT payment per treatment of $332.08 
for FY 2018.
    Section 1886(s)(4)(A)(i) of the Act requires that, for RY 2014 and 
each subsequent RY, in the case of an IPF that fails to report required 
quality data with respect to such rate year, the Secretary shall reduce 
any annual update to a standard federal rate for discharges during the 
RY by 2.0 percentage points. 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 -0.75 percent 
payment rate update (that is, 1.25 percent reduced by 2 percentage 
points in accordance with section 1886(s)(4)(A)(ii) of the Act, which 
results in a negative update percentage) and the wage index budget-
neutrality factor of 1.0006 to the FY 2017 federal per diem base rate 
of $761.37, yielding a federal per diem base rate of $756.11 for FY 
2018. Similarly, for IPFs that failed to submit quality reporting data 
under the IPFQR Program, we are applying the -0.75 percent annual 
payment rate update and the 1.0006 wage index budget-neutrality factor 
to the FY 2017 ECT payment per treatment of $327.78, yielding an ECT 
payment per treatment of $325.52 for FY 2018.

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 2018. 
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.

[[Page 36777]]

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 2018 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 2018, 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 of this notice with comment period. 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, 
2017, using the final FY 2018 ICD-10-CM/PCS code sets. The FY 2018 IPPS 
Final Rule with comment period includes tables of the changes to the 
ICD-10-CM/PCS code sets which underlie the FY 2018 IPF MS-DRGs. Both 
the FY 2018 IPPS final rule and the tables of changes to the ICD-10-CM/
PCS code sets which underlie the FY 2018 MS-DRGs are available on the 
IPPS Web site at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.
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 
first'' instructions apply in ICD-10-CM that were present in ICD-9-CM 
(79 FR 46009). In the FY 2018 update to the ICD-10-CM/PCS code sets, 
there were a number of codes deleted from the IPF Code First list for 
diagnosis codes F0280 and F0281. These changes are shown in Addendum B 
of this notice with comment period.
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

[[Page 36778]]

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 through 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 2018, we will 
use the same comorbidity adjustment factors in effect in FY 2017, which 
are found in Addendum A of this notice with comment period.
    We have updated the ICD-10-CM/PCS codes which are associated with 
the existing IPF PPS comorbidity categories, based upon the FY 2018 
update to the ICD-10-CM/PCS code set. The FY 2018 ICD-10-CM/PCS updates 
included additions or deletions which affected the comorbidity 
categories for Oncology (both the Treatment and Procedures lists). 
These updates are detailed in Addendum B of this notice.
    In accordance with the policy established in the FY 2015 IPF PPS 
final rule (79 FR 45949 through 45952), we reviewed all new FY 2018 
ICD-10-CM codes to remove site unspecified codes from the new FY 2018 
ICD-10-CM/PCS codes in instances where more specific codes are 
available. There were no new FY 2018 ICD-10-CM/PCS codes that were site 
unspecified. Please see Addendum B of this notice with comment period 
for a table of changes to the ICD-10-CM/PCS codes which affect FY 2018 
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 2018, we will use the patient age 
adjustments currently in effect in FY 2017, as shown in Addendum A of 
this notice with comment period.
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 with comment period.
    For FY 2018, we will use the variable per diem adjustment factors 
currently in effect as shown in Addendum A of this notice with comment 
period. 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 2018
    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 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 2018, we will continue 
to apply the most recent hospital wage index (the FY 2017 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 2013) without any geographic reclassifications, 
floors, or other adjustments. We apply the FY 2018 IPF PPS wage index 
to payments beginning October 1, 2017.
    We apply the wage index adjustment to the labor-related portion of 
the federal rate, which changed from 75.1 percent in FY 2017 to 75.0 
percent in FY 2018. This percentage reflects the labor-related share of 
the 2012-based IPF market basket for FY 2018 (see section III.A.3 of 
this notice with comment period).
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

[[Page 36779]]

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/information-for-agencies/bulletins.
    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 
IPF wage index was based. We adopted these new OMB CBSA delineations in 
the FY 2016 IPF PPS wage index and subsequent IPF wage indexes.
    Generally, OMB issues major revisions to statistical areas every 10 
years, based on the results of the decennial census. However, OMB 
occasionally issues minor updates and revisions to statistical areas in 
the years between the decennial censuses. On July 15, 2015, OMB issued 
OMB Bulletin No. 15-01, which provides minor updates to, and 
supersedes, OMB Bulletin No. 13-01 that was issued on February 28, 
2013. The attachment to OMB Bulletin No. 15-01 provides detailed 
information on the update to statistical areas since February 28, 2013. 
The updates provided in the attachment to OMB Bulletin No. 15-01 are 
based on the application of the 2010 Standards for Delineating 
Metropolitan and Micropolitan Statistical Areas to Census Bureau 
population estimates for July 1, 2012 and July 1, 2013. The complete 
list of statistical areas incorporating these changes is provided in 
OMB Bulletin No. 15-01. A copy of this bulletin may be obtained at 
https://www.whitehouse.gov/omb/information-for-agencies/bulletins.
    The bulletin establishes revised delineations for the Nation's 
Metropolitan Statistical Areas, Micropolitan Statistical Areas, and 
Combined Statistical Areas. The bulletin also provides delineations of 
Metropolitan Divisions as well as delineations of New England City and 
Town Areas. OMB Bulletin No. 15-01 made the following changes that are 
relevant to the FY 2018 IPF wage index:
     Garfield County, OK, with principal city Enid, OK, which 
was a Micropolitan (geographically rural) area, now qualifies as an 
urban new CBSA 21420 called Enid, OK.
     The county of Bedford City, VA, a component of the 
Lynchburg, VA CBSA 31340, changed to town status and is added to 
Bedford County. Therefore, the county of Bedford City (SSA State county 
code 49088, FIPS State County Code 51515) is now part of the county of 
Bedford, VA (SSA State county code 49090, FIPS State County Code 
51019). However, the CBSA remains Lynchburg, VA, 31340.
     The name of Macon, GA, CBSA 31420, as well as a principal 
city of the Macon-Warner Robins, GA combined statistical area, is now 
Macon-Bibb County, GA. The CBSA code remains as 31420.
    In accordance with our longstanding policy, the IPF PPS continues 
to use the latest labor market area delineations available as soon as 
is reasonably possible to maintain a more accurate and up-to-date 
payment system that reflects the reality of population shifts and labor 
market conditions. As discussed in the FY 2017 IPPS and Long-Term Care 
Hospital (LTCH) PPS final rule (81 FR 56913), these updated labor 
market area definitions from OMB Bulletin 15-01 were implemented under 
the IPPS beginning on October 1, 2016 (FY 2017). Therefore, we are 
implementing these revisions for the IPF PPS beginning October 1, 2017 
(FY 2018), consistent with our historical practice of modeling IPF PPS 
adoption of the labor market area delineations after IPPS adoption of 
these delineations.
    In FY 2016, we applied a 1-year transition period when implementing 
the OMB delineations described in the February 28, 2013 OMB Bulletin 
No. 13-01, as this bulletin contained a number of significant changes 
that resulted in substantial payment implications for some IPF 
providers. That 1-year transition consisted of a blended wage index for 
all providers, consisting of a blend of fifty percent of the FY 2016 
IPF wage index using the existing OMB delineations and fifty percent of 
the FY 2016 IPF wage index using the updated OMB delineations from the 
February 28, 2013 OMB Bulletin (80 FR 46682 through 46689). For FY 
2018, we are incorporating the CBSA changes published in the July 15, 
2015 OMB Bulletin No. 15-01 into the FY 2018 IPF wage index without a 
transition period, as we anticipate that these changes will affect a 
single IPF provider located in Garfield County, OK, and will increase 
this provider's wage index value by almost 14 percent.
    In summary, as the changes made in the July 15, 2015 OMB Bulletin 
15-01 are minor and do not have a large effect on a substantial number 
of providers, we are adopting these updates without any transition 
period. Therefore, the FY 2018 IPF wage index and subsequent IPF wage 
indices will be based solely on the new OMB CBSA delineations in OMB 
Bulletin No. 15-01, without any transitions. The final FY 2018 IPF 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
    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 2018, 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 with comment period, 
we adopted the February 28, 2013 OMB updates to CBSA delineations in 
the FY 2016 IPF PPS transitional wage index.

[[Page 36780]]

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 FYs. 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. FY 2018 is the third 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 February 28, 2013 OMB CBSA changes, will receive no 
rural adjustment in FY 2018 or subsequent years.
    Additionally, as noted previously in section III.D.1.c. of this 
notice with comment period, the July 15, 2015 OMB Bulletin No. 15-01 
changed Garfield County, Oklahoma from rural status to urban status, 
under new CBSA 21420. There is a single IPF in this county, which will 
lose the 17 percent rural adjustment in FY 2018. However, as noted in 
section III.D.1.c of this notice with comment period, this provider 
will experience an increase of nearly 14 percent in their FY 2018 wage 
index value. As this provider is not expected to experience as steep of 
a reduction in payments as did the majority of IPFs for which a phase-
out of the rural adjustment was implemented in FY 2016 (80 FR 43689 
through 46690), we do not believe it is appropriate or necessary to 
adopt a rural phase-out policy for this provider.
e. Budget Neutrality Adjustment
    Changes to the wage index are made in a budget-neutral manner so 
that updates do not increase expenditures. Therefore, for FY 2018, 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 2018 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 2013 hospital 
cost report data) and the labor-related share in a budget-neutral 
manner:
    Step 1. Simulate estimated IPF PPS payments, using the FY 2017 IPF 
wage index values (available on the CMS Web site) and labor-related 
share (as published in the FY 2017 IPF PPS notice (81 FR 50506, and 
50508 to 50509)).
    Step 2. Simulate estimated IPF PPS payments using the FY 2018 IPF 
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 2018 budget-
neutral wage adjustment factor of 1.0006.
    Step 4. Apply the FY 2018 budget-neutral wage adjustment factor 
from step 3 to the FY 2017 IPF PPS per diem rate after the application 
of the market basket update described in section III.A.2 of this notice 
with comment period, to determine the FY 2018 IPF PPS per diem rate.
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 2018 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

[[Page 36781]]

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 prospective payment systems (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 through 2009 (before being reduced by locality 
payments) 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 FY 2010 (Pub. L. 111-84, October 
28, 2009), transitions the Alaska and Hawaii COLAs to locality pay. 
Under section 1914 of NDAA, locality pay was phased in over a 3-year 
period beginning in 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 new methodology to update the COLA factors for Alaska and 
Hawaii, and adopted this methodology for the IPF PPS in the FY 2015 IPF 
final rule (79 FR 45958 through 45960). We adopted this new COLA 
methodology for the IPF PPS 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, the IPF COLAs for FY 2015 through FY 2017 were the 
same as those applied under the IPPS in those years. For the FY 2018 
IPF COLAs, we are continuing to adopt the COLA factors implemented in 
the FY 2018 IPPS/LTCH PPS final rule using the methodology finalized in 
the FY 2013 IPPS/LTCH final rule and implemented for the FY 2014 IPPS 
update. Also, as finalized in the FY 2013 IPPS/LTCH PPS final rule (77 
FR 53700 and 53701), the COLA updates are determined every four years, 
when the IPPS market basket labor-related share is updated during 
rebasing. Because the labor-related share of the IPPS market basket is 
being updated for FY 2018, the COLA factors are being updated in FY 
2018 IPPS/LTCH rulemaking. As such, we are also updating the IPF PPS 
COLA factors for FY 2018.
    Specifically, the FY 2018 IPPS/LTCH PPS final rule updates the 2009 
OPM COLA factors (as these are the last COLA factors OPM published 
prior to transitioning from COLAs to locality pay) by a comparison of 
the growth in the Consumer Price Indices (CPIs) for Anchorage, AK and 
Honolulu, HI relative to the growth in the CPI for the average U.S. 
city as published by the Bureau of Labor Statistics (BLS). Because BLS 
publishes CPI data for only Anchorage and Honolulu, using the 
methodology we finalized in the FY 2013 IPPS/LTCH PPS final rule, we 
use the comparison of the growth in the overall CPI relative to the 
growth in the CPI for those cities 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 previously) are appropriate proxies for 
the relative price differences between the ``other areas'' of Alaska 
and Hawaii and the United States.
    BLS publishes the CPI for All Items for Anchorage, Honolulu, and 
for the average U.S. city. However, consistent with the methodology 
finalized in the FY 2013 IPPS/LTCH PPS final rule, in the FY 2018 IPPS/
LTCH PPS final rule, reweighted CPIs were created for each of the 
respective areas to reflect the underlying composition of the IPPS 
market basket nonlabor-related share. The current composition of the 
CPI for All Items for all of the respective areas is approximately 40 
percent commodities and 60 percent services. However, the IPPS 
nonlabor-related share is comprised of a different mix of commodities 
and services. Therefore, reweighted indexes were created for Anchorage, 
Honolulu, and the average U.S. city and use the respective CPI 
commodities index and CPI services index using the approximate 55 
percent commodities/45 percent services shares obtained from the 
updated 2014-based IPPS market basket.
    Reweighted indexes were created using BLS data for 2009 through 
2016, which is the most recent data available at the time of the FY 
2018 IPPS/LTCH final rule. In the FY 2014 IPPS/LTCH PPS final rule (78 
FR 50985 through 50987), reweighted indexes were created based on the 
FY 2010-based IPPS market basket (which was adopted for the FY 2014 
IPPS update) and BLS data for 2009 through 2012 (the most recent BLS 
data at the time of the FY 2014 IPPS/LTCH PPS rulemaking). We continue 
to believe this methodology is appropriate for IPFs because we continue 
to make a COLA for IPFs located in Alaska and Hawaii by multiplying the 
nonlabor-related portion of the per diem amount by a COLA factor.
    Under the COLA factor update methodology established in the FY 2013 
IPPS/LTCH final rule, CMS exercised its discretionary authority to 
adjust payments 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 the IPPS has exercised discretionary authority to 
adjust Alaska and Hawaii payments by incorporating this cap. Because 
the IPF PPS adopted the IPPS COLA factor update methodology in FY 2015 
rulemaking, the IPF PPS also continues to use such a cap for FY 2018.
    The COLA factors that we are establishing for FY 2018 to adjust the 
nonlabor-related portion of the per diem

[[Page 36782]]

amount for IPFs located in Alaska and Hawaii are shown in Table 1. For 
comparison purposes, we also are showing the FY 2015 through FY 2017 
COLA factors.

 Table 1--Comparison of IPF PPS Cost-of-Living Adjustment Factors: IPFs
                      Located in Alaska and Hawaii
------------------------------------------------------------------------
                                              FY 2015
                  Area                     through 2017       FY 2018
------------------------------------------------------------------------
Alaska:
    City of Anchorage and 80-kilometer              1.23            1.25
     (50-mile) radius by road...........
    City of Fairbanks and 80-kilometer              1.23            1.25
     (50-mile) radius by road...........
    City of Juneau and 80-kilometer (50-            1.23            1.25
     mile) radius by road...............
    Rest of Alaska......................            1.25            1.25
Hawaii:
    City and County of Honolulu.........            1.25            1.25
    County of Hawaii....................            1.19            1.21
    County of Kauai.....................            1.25            1.25
    County of Maui and County of Kalawao            1.25            1.25
------------------------------------------------------------------------

    As noted in the FY 2018 IPPS/LTCH PPS final rule, the reweighted 
CPI for Anchorage, AK grew faster than the reweighted CPI for the 
average U.S. city over the 2009 to 2016 time period, at 12.4 percent 
and 10.5 percent, respectively. As a result, for FY 2018, COLA factors 
for the City of Anchorage, City of Fairbanks, and City of Juneau were 
calculated to be 1.25 compared to the FY 2017 COLA factor of 1.23. For 
FY 2018, a COLA factor of 1.27 was calculated for the Rest of Alaska 
compared to the FY 2017 COLA factor of 1.25. However, as stated 
previously, we are applying the methodology finalized in the FY 2013 
IPPS/LTCH final rule and adopted in IPF PPS FY 2015 rulemaking to 
incorporate a cap of 1.25 for the rest of Alaska.
    Similarly, the reweighted CPI for Honolulu, HI grew faster than the 
reweighted CPI for the average U.S. city over the 2009 to 2016 time 
period, at 13.7 percent and 10.5 percent, respectively. As a result, 
for FY 2018, COLA factors were calculated for the City and County of 
Honolulu, County of Kauai, County of Maui, and County of Kalawao to be 
1.29, compared to the FY 2017 COLA factor of 1.25 (which was based on 
OPM's published COLA factors for 2009, as described previously). 
However, as stated previously, we are applying the methodology 
finalized in the FY 2013 IPPS/LTCH PPS final rule and adopted in IPF 
PPS FY 2015 rulemaking to incorporate a cap of 1.25 for these areas. In 
addition, the COLA factor for the County of Hawaii for FY 2018 was 
calculated to be 1.21 compared to the FY 2017 COLA factor of 1.19.
    The IPF PPS COLA factors for FY 2018 are also shown in Addendum A 
of this notice with comment period.
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 
2018, 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 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

[[Page 36783]]

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 December 
2016 update of FY 2016 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 
2018, we used FY 2016 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 2017. Based on an analysis of these updated data, we estimate 
that IPF outlier payments as a percentage of total estimated payments 
are approximately 2.26 percent in FY 2017. Therefore, we will update 
the outlier threshold amount to $11,425 to maintain estimated outlier 
payments at 2 percent of total estimated aggregate IPF payments for FY 
2018.
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 two 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 2017 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 2018 is 1.9634 for rural IPFs, and 1.7071 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 2018 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 2018, to be used 
in each of the three situations listed previously, using the most 
recent CCRs entered in the CY 2017 Provider Specific File, we estimate 
a national median CCR of 0.5930 for rural IPFs and a national median 
CCR of 0.4420 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 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

[[Page 36784]]

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 reports 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 2018, 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 with 
comment period 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. Request for Information on CMS Flexibilities and Efficiencies

    CMS is committed to transforming the health care delivery system--
and the Medicare program--by putting an additional focus on patient-
centered care and working with providers, physicians, and patients to 
improve outcomes. We seek to reduce burdens for hospitals, physicians, 
and patients, improve the quality of care, decrease costs, and ensure 
that patients and their providers and physicians are making the best 
health care choices possible. These are the reasons we are including 
this Request for Information in this notice with comment period.
    As we work to maintain flexibility and efficiency throughout the 
Medicare program, we would like to start a national conversation about 
improvements that can be made to the health care delivery system that 
reduce unnecessary burdens for clinicians, other providers, and 
patients and their families. We aim to increase quality of care, lower 
costs improve program integrity, and make the health care system more 
effective, simple and accessible.
    We would like to take this opportunity to invite the public to 
submit their ideas for regulatory, subregulatory, policy, practice, and 
procedural changes to better accomplish these goals. Ideas could 
include payment system redesign, elimination or streamlining of 
reporting, monitoring and documentation requirements, aligning Medicare 
requirements and processes with those from Medicaid and other payers, 
operational flexibility, feedback mechanisms and data sharing that 
would enhance patient care, support of the physician-patient 
relationship in care delivery, and facilitation of individual 
preferences. Responses to this Request for Information could also 
include recommendations regarding when and how CMS issues regulations 
and policies and how CMS can simplify rules and policies for 
beneficiaries, clinicians, physicians, providers, and suppliers. Where 
practicable, data and specific examples would be helpful. If the 
proposals involve novel legal questions, analysis regarding CMS' 
authority is welcome for CMS' consideration. We are particularly 
interested in ideas for incentivizing organizations and the full range 
of relevant professionals and paraprofessionals to provide screening, 
assessment and evidence-based treatment for individuals with opioid use 
disorder and other substance use disorders, including reimbursement 
methodologies, care coordination, systems and services integration, use 
of paraprofessionals including community paramedics and other 
strategies. We are requesting commenters to provide clear and concise 
proposals that include data and specific examples that could be 
implemented within the law.
    We note that this is a Request for Information only. Respondents 
are encouraged to provide complete but concise responses. This Request 
for Information is issued solely for information and planning purposes; 
it does not constitute a Request for Proposal (RFP), applications, 
proposal abstracts, or quotations. This Request for Information does 
not commit the U.S. Government to contract for any supplies or services 
or make a grant award. Further, CMS is not seeking proposals through 
this Request for Information and will not accept unsolicited proposals. 
Responders are advised that the U.S. Government will not pay for any 
information or administrative costs incurred in response to this 
Request for Information; all costs associated with responding to this 
Request for Information will be solely at the interested party's 
expense. We note that not responding to this Request for Information 
does not preclude participation in any future procurement, if 
conducted. It is the responsibility of the potential responders to 
monitor this Request for Information announcement for additional 
information pertaining to this request. In addition, we note that CMS 
will not respond to questions about the policy issues raised in this 
Request for Information. CMS will not respond to comment submissions in 
response to this Request for Information in the FY 2018 Inpatient 
Psychiatric Facilities Prospective Payment System--Rate Update notice 
with comment period. Rather, CMS will actively consider all input as we 
develop future regulatory proposals or future subregulatory policy 
guidance. CMS may or may not choose to contact individual responders. 
Such communications would be for the sole purpose of clarifying 
statements in the responders' written responses. Contractor support 
personnel may be used to review responses to this Request for 
Information. Responses to this notice with comment period are not 
offers and cannot be accepted by the Government to form a binding 
contract or issue a grant. Information obtained as a result of this 
Request for Information may be used by the Government for program 
planning on a nonattribution basis. Respondents should not include any 
information that might be considered proprietary or confidential. This 
Request for Information should not be construed as a commitment or 
authorization to incur cost for which reimbursement would be required 
or sought. All submissions become U.S. Government property and will not 
be returned. CMS may publicly post the

[[Page 36785]]

public comments received, or a summary of those public comments.

VII. Collection of Information Requirements

    This notice does not impose any new or revised information 
collection requirements or burden pertaining to collecting, reporting, 
recordkeeping, or disclosing information. 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.).

VIII. Response to Comments

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

IX. Regulatory Impact Analysis

A. Statement of Need

    This notice with comment period updates the prospective payment 
rates for Medicare inpatient hospital services provided by IPFs for 
discharges occurring during FY 2018 (October 1, 2017 through September 
30, 2018). We are applying the 2012-based IPF market basket increase of 
2.6 percent, less the productivity adjustment of 0.6 percentage point 
as required by 1886(s)(2)(A)(i) of the Act, and further reduced by 0.75 
percentage point as required by sections 1886(s)(2)(A)(ii) and 
1886(s)(3)(E) of the Act, for a total FY 2018 payment rate update of 
1.25 percent. In this notice with comment period, we are also updating 
the IPF labor-related share and updating the IPF wage index for FY 
2018. The rural adjustment phase-out for the small number of rural 
providers which became urban providers in FY 2016 as a result of FY 
2016 changes to CBSA delineations is now in its third and final year, 
and results in no rural adjustment for the affected providers in FY 
2018, or in subsequent years.

B. Overall Impact

    We have examined the impacts of this notice with comment period 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), the Congressional Review Act (5 U.S.C. 
804(2)) and Executive Order 13771 on Reducing Regulation and 
Controlling Regulatory Costs (January 30, 2017).
    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). Section 
3(f) of Executive Order 12866 defines a ``significant regulatory 
action'' as an action that is likely to result in a rule: (1) Having an 
annual effect on the economy of $100 million or more in any 1 year, or 
adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or state, local or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating a serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order. This notice with 
comment period is not designated as economically ``significant'' under 
section 3(f)(1) of Executive Order 12866.
    We estimate that the total impact of these changes for FY 2018 
payments compared to FY 2017 payments will be a net increase of 
approximately $45 million. This reflects a $55 million increase from 
the update to the payment rates (+$115 million from the unadjusted 
second quarter 2017 IGI forecast of the 2012-based IPF market basket of 
2.6 percent, -$25 million for the productivity adjustment of 0.6 
percentage point, and -$35 million for the other adjustment of 0.75 
percentage point), as well as a $10 million decrease as a result of the 
update to the outlier threshold amount. Outlier payments are estimated 
to decrease from 2.26 percent in FY 2017 to 2.0 percent of total 
estimated IPF payments in FY 2018.
    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 2, we estimate that the overall revenue impact of 
this notice with comment period on all IPFs is to increase Medicare 
payments by approximately 0.99 percent. As a result, since the 
estimated impact of this notice with comment period is a net increase 
in revenue across almost all categories of IPFs, the Secretary has 
determined that this notice with comment period 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.
    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 with comment period will not have an adverse impact on the rural 
hospitals based on the data of the 277 rural units and 67 rural 
hospitals in our database of 1,621 IPFs for which data were available. 
Therefore, the Secretary has determined that this notice with comment 
period 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

[[Page 36786]]

require spending in any 1 year of $100 million in 1995 dollars, updated 
annually for inflation. In 2017, that threshold is approximately $148 
million. This notice with comment period will not impose spending costs 
on state, local, or tribal governments in the aggregate, or by the 
private sector of $148 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 previously, this notice with comment period 
will 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 with comment period 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 with comment period, 
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 with comment 
period will be due to the market basket update for FY 2018 of 2.6 
percent (see section III.A.2 of this notice with comment period) less 
the productivity adjustment of 0.6 percentage point required by section 
1886(s)(2)(A)(i) of the Act; further reduced by the ``other 
adjustment'' of 0.75 percentage point under sections 1886(s)(2)(A)(ii) 
and 1886 (s)(3)(E) of the Act; and the update to the outlier fixed 
dollar loss threshold amount.
    We estimate that the FY 2018 impact will be a net increase of $45 
million in payments to IPF providers. This reflects an estimated $55 
million increase from the update to the payment rates and a $10 million 
decrease due to the update to the outlier threshold amount to set total 
estimated outlier payments at 2.0 percent of total estimated payments 
in FY 2018. This estimate does not include the implementation of the 
required 2.0 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 of this notice with 
comment period).
2. Impact on Providers
    To show the impact on providers of the changes to the IPF PPS 
discussed in this notice with comment period, we compare estimated 
payments under the IPF PPS rates and factors for FY 2018 versus those 
under FY 2017. We determined the percent change of estimated FY 2018 
IPF PPS payments compared to FY 2017 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 
including the updated labor-related share; and the market basket update 
for FY 2018, 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)(E) of the Act.
    To illustrate the impacts of the FY 2018 changes in this notice 
with comment period, our analysis begins with a FY 2017 baseline 
simulation model based on FY 2016 IPF payments inflated to the midpoint 
of FY 2017 using IHS Global Inc.'s most recent forecast of the market 
basket update (see section III.A.2. of this notice with comment 
period); the estimated outlier payments in FY 2017; the FY 2016 pre-
floor, pre-reclassified hospital wage index; the FY 2017 labor-related 
share; and the FY 2017 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 2017 pre-floor, pre-reclassified hospital wage 
index.
     The FY 2018 labor-related share.
     The market basket update for FY 2018 of 2.6 percent less 
the productivity adjustment of 0.6 percentage point in accordance with 
section 1886(s)(2)(A)(i) of the Act and further reduced by the ``other 
adjustment'' of 0.75 percentage point in accordance with sections 
1886(s)(2)(A)(ii) and 1886(s)(3)(E) of the Act, for a payment rate 
update of 1.25 percent.
    Our final column comparison illustrates the percent change in 
payments from FY 2017 (that is, October 1, 2016, to September 30, 2017) 
to FY 2018 (that is, October 1, 2017, to September 30, 2018) including 
all the changes in this notice with comment period.

                                      Table 2--IPF PPS Impacts for FY 2018
                                     [Percent change in columns 3 through 6]
----------------------------------------------------------------------------------------------------------------
                                                                     CBSA wage
        Facility by type             Number of        Outlier        index and        Payment      Total percent
                                    facilities                      labor share     update \1\      change \2\
(1)                                          (2)             (3)             (4)             (5)             (6)
----------------------------------------------------------------------------------------------------------------
All Facilities..................           1,621           -0.26            0.00            1.25            0.99
    Total Urban.................           1,277           -0.26           -0.06            1.25            0.93
    Total Rural.................             344           -0.26            0.38            1.25            1.37
    Urban unit..................             827           -0.38           -0.20            1.25            0.67
    Urban hospital..............             450           -0.09            0.13            1.25            1.29
    Rural unit..................             277           -0.31            0.39            1.25            1.33
    Rural hospital..............              67           -0.14            0.34            1.25            1.45
By Type of Ownership:

[[Page 36787]]

 
    Freestanding IPFs:
         Urban Psychiatric
         Hospitals:
            Government..........             121           -0.32           -0.09            1.25            0.83
            Non-Profit..........              97           -0.13            0.49            1.25            1.61
            For-Profit..........             232           -0.03            0.04            1.25            1.26
         Rural Psychiatric
         Hospitals:
            Government..........              33           -0.14            0.90            1.25            2.02
            Non-Profit..........              13           -0.12           -0.26            1.25            0.87
            For-Profit..........              21           -0.14            0.11            1.25            1.22
    IPF Units:
         Urban:
            Government..........             118           -0.61           -0.36            1.25            0.27
            Non-Profit..........             535           -0.38           -0.29            1.25            0.57
            For-Profit..........             174           -0.19            0.17            1.25            1.22
         Rural:
            Government..........              68           -0.31            0.35            1.25            1.29
            Non-Profit..........             147           -0.31            0.50            1.25            1.44
            For-Profit..........              62           -0.30            0.19            1.25            1.14
By Teaching Status:
    Non-teaching................           1,436           -0.22            0.04            1.25            1.06
    Less than 10% interns and                104           -0.37           -0.12            1.25            0.75
     residents to beds..........
    10% to 30% interns and                    60           -0.54           -0.39            1.25            0.31
     residents to beds..........
    More than 30% interns and                 21           -0.49            0.17            1.25            0.93
     residents to beds..........
By Region:
    New England.................             106           -0.31           -0.46            1.25            0.47
    Mid-Atlantic................             233           -0.34            0.04            1.25            0.94
    South Atlantic..............             240           -0.15           -0.25            1.25            0.85
    East North Central..........             269           -0.23           -0.03            1.25            0.99
    East South Central..........             165           -0.24           -0.08            1.25            0.93
    West North Central..........             133           -0.34           -0.05            1.25            0.85
    West South Central..........             244           -0.20            0.13            1.25            1.18
    Mountain....................             105           -0.16            0.17            1.25            1.25
    Pacific.....................             126           -0.37            0.62            1.25            1.50
By Bed Size:
 Psychiatric Hospitals
        Beds: 0-24..............              86           -0.09            0.27            1.25            1.43
        Beds: 25-49.............              74           -0.12           -0.04            1.25            1.09
        Beds: 50-75.............              88           -0.14            0.24            1.25            1.35
        Beds: 76+...............             269           -0.08            0.15            1.25            1.32
 Psychiatric Units
        Beds: 0-24..............             640           -0.40           -0.01            1.25            0.83
        Beds: 25-49.............             288           -0.34           -0.12            1.25            0.78
        Beds: 50-75.............             112           -0.35           -0.30            1.25            0.60
        Beds: 76+...............              64           -0.32           -0.08            1.25            0.84
----------------------------------------------------------------------------------------------------------------
\1\ This column reflects the payment update impact of the IPF market basket update for FY 2018 of 2.6 percent, a
  0.6 percentage point reduction for the productivity adjustment as required by section 1886(s)(2)(A)(i) of the
  Act, and a 0.75 percentage point reduction in accordance with sections 1886(s)(2)(A)(ii) and 1886(s)(3)(E) of
  the Act.
\2\ Percent changes in estimated payments from FY 2017 to FY 2018 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 2 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

    The top row of the table shows the overall impact on the 1,621 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 
2.26 percent in FY 2017. Thus, we are adjusting the outlier threshold 
amount in this notice with comment period to set total estimated 
outlier payments equal to 2 percent of total payments in FY 2018. The 
estimated change in total IPF payments for FY 2018, therefore, includes 
an approximate 0.26 percent decrease in payments because the outlier 
portion of total payments is expected to decrease from approximately 
2.26 percent to 2.0 percent.
    The overall impact of this outlier adjustment update (as shown in 
column 3 of Table 2), across all hospital groups, is to decrease total 
estimated payments to IPFs by 0.26 percent. The largest

[[Page 36788]]

decrease in payments is estimated to be a 0.61 percent decrease in 
payments for urban government IPF units.
    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 2017 IPF wage index to 
the FY 2018 IPF wage index, which includes the LRS update from 75.1 
percent in FY 2017 to 75.0 percent in FY 2018. 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 0.90 percent for rural government 
psychiatric hospitals, and the largest decrease in payments to be 0.46 
percent for New England IPFs.
    In column 5, we present the estimated effects of the update to the 
IPF PPS payment rates of 1.25 percent, which are based on the 2012-
based IPF market basket update of 2.6 percent, less the productivity 
adjustment of 0.6 percentage point in accordance with section 
1886(s)(2)(A)(i) of the Act, and further reduced by 0.75 percentage 
point in accordance with sections 1886(s)(2)(A)(ii) and 1886(s)(3)(E) 
of the Act.
    Finally, column 6 compares our estimates of the total changes 
reflected in this notice with comment period for FY 2018 to the 
estimates for FY 2017 (without these changes). The average estimated 
increase for all IPFs is approximately 0.99 percent. This estimated net 
increase includes the effects of the 2.6 percent market basket update 
reduced by the productivity adjustment of 0.6 percentage point, as 
required by section 1886(s)(2)(A)(i) of the Act and further reduced by 
the ``other adjustment'' of 0.75 percentage point, as required by 
sections 1886(s)(2)(A)(ii) and 1886(s)(3)(E) of the Act. It also 
includes the overall estimated 0.26 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 0.93 percent in urban 
areas and 1.37 percent in rural areas. Overall, IPFs are estimated to 
experience a net increase in payments as a result of the updates in 
this notice with comment period. The largest payment increase is 
estimated at 2.02 percent for rural government psychiatric hospitals.
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 2018 IPF PPS, but we continue to expect that paying 
prospectively for IPF services will enhance the efficiency of the 
Medicare program.
5. Regulatory Review Costs
    If regulations impose administrative costs on private entities, 
such as the time needed to read and interpret this notice with comment 
period, we should estimate the cost associated with regulatory review. 
Due to the uncertainty involved with accurately quantifying the number 
of entities that will review the notice with comment period, we assume 
that the total number of unique commenters on the most recent IPF 
proposed rule from FY 2016 will be the number of reviewers of this 
notice with comment period. We acknowledge that this assumption may 
understate or overstate the costs of reviewing this notice with comment 
period. It is possible that not all commenters reviewed the FY 2016 IPF 
proposed rule in detail, and it is also possible that some reviewers 
chose not to comment on that proposed rule. For these reasons we 
thought that the number of past commenters would be a fair estimate of 
the number of reviewers of this notice with comment period. We welcome 
any comments on the approach in estimating the number of entities which 
will review this notice with comment period.
    We also recognize that different types of entities are in many 
cases affected by mutually exclusive sections of this notice with 
comment period, and therefore for the purposes of our estimate we 
assume that each reviewer reads approximately 50 percent of the notice 
with comment period. We seek comments on this assumption.
    Using the wage information from the BLS for medical and health 
service managers (Code 11-9111), we estimate that the cost of reviewing 
this notice with comment period is $105.16 per hour, including overhead 
and fringe benefits (https://www.bls.gov/oes/current/oes_nat.htm). 
Assuming an average reading speed, we estimate that it would take 
approximately 0.62 hours for the staff to review half of this notice 
with comment period. For each IPF that reviews the notice with comment 
period, the estimated cost is $65.20 (0.62 hours x $105.16). Therefore, 
we estimate that the total cost of reviewing this notice with comment 
period is $4,955.20 ($65.20 x 76 reviewers).
6. Reducing Regulation and Controlling Regulatory Costs
    Executive Order 13771, titled ``Reducing Regulation and Controlling 
Regulatory Costs,'' was issued on January 30, 2017 (82 FR 9339, 
February 3, 2017). It has been determined that this notice with comment 
period is a transfer notice that does not impose more than de minimis 
costs and thus is not a regulatory action for the purposes of E.O. 
13771.

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 2018 2012-based IPF PPS market basket update of 2.6 percent, 
reduced by the statutorily required multifactor productivity adjustment 
of 0.6 percentage point and the other adjustment of 0.75 percentage 
point, along with the wage index budget neutrality adjustment to update 
the payment rates; finalizing a FY 2018 IPF PPS wage index which is 
fully based upon the OMB CBSA designations found in OMB Bulletin 15-01; 
and continuing with the third and final 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 from OMB Bulletin 13-01, which were used in the FY 2016 
IPF PPS transitional wage index.

E. Accounting Statement

    As required by OMB Circular A-4 (available at www.whitehouse.gov/sites/whitehouse.gov/files/omb/circulars/A4/a-4.pdf), in Table 3, 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 with comment period. 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 with comment 
period and based on the data for 1,621 IPFs in our database.

[[Page 36789]]



 Table 3--Accounting Statement: Classification of Estimated Expenditures
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
  Change in Estimated Transfers from FY 2017 IPF PPS to FY 2018 IPF PPS
------------------------------------------------------------------------
Annualized Monetized Transfers............  $45 million.
From Whom to Whom?                          Federal Government to IPF
                                             Medicare Providers.
------------------------------------------------------------------------

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

    Dated: July 21, 2017.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: July 24, 2017.
Thomas E. Price,
Secretary, Department of Health and Human Services.
[FR Doc. 2017-16430 Filed 8-2-17; 4:15 pm]
BILLING CODE 4120-01-P