[Federal Register Volume 84, Number 78 (Tuesday, April 23, 2019)]
[Proposed Rules]
[Pages 16948-17002]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07884]



[[Page 16947]]

Vol. 84

Tuesday,

No. 78

April 23, 2019

Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Part 412





Medicare Program; FY 2020 Inpatient Psychiatric Facilities Prospective 
Payment System and Quality Reporting Updates for Fiscal Year Beginning 
October 1, 2019 (FY 2020); Proposed Rule

  Federal Register / Vol. 84 , No. 78 / Tuesday, April 23, 2019 / 
Proposed Rules  

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1712-P]
RIN 0938-AT69


Medicare Program; FY 2020 Inpatient Psychiatric Facilities 
Prospective Payment System and Quality Reporting Updates for Fiscal 
Year Beginning October 1, 2019 (FY 2020)

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would update the prospective payment rates, 
the outlier threshold, and the wage index for Medicare inpatient 
hospital services provided by Inpatient Psychiatric Facilities (IPFs), 
which include psychiatric hospitals and excluded psychiatric units of 
an inpatient prospective payment system hospital or critical access 
hospital. Additionally, this proposed rule would revise and rebase the 
IPF market basket to reflect a 2016 base year and remove the IPF 
Prospective Payment System (PPS) 1-year lag of the wage index data. 
This proposed rule also solicits comments on the IPF wage index. 
Finally, this rule proposes updates to the Inpatient Psychiatric 
Facilities Quality Reporting Program. These changes would be effective 
for IPF discharges occurring during the fiscal year (FY) beginning 
October 1, 2019 through September 30, 2020 (FY 2020).

DATES: To be assured consideration, comments must be received at one of 
the addresses provided in the ADDRESSES section no later than 5 p.m. on 
June 17, 2019.

ADDRESSES: In commenting, please refer to file code CMS-1712-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    Comments, including mass comment submissions, must be submitted in 
one of the following three 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-1712-P, P.O. Box 8010, 
Baltimore, MD 21244-8010.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-1712-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    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.
    Mollie Knight, (410) 786-7948 or Hudson Osgood, (410) 786-7897, for 
information regarding the market basket rebasing, update, or the labor 
related share.
    Theresa Bean, (410) 786-2287 or James Hardesty, (410) 786-2629, for 
information regarding the regulatory impact analysis.
    James Poyer, (410) 786-2261 or Jeffrey Buck, (410) 786-0407, for 
information regarding the inpatient psychiatric facility quality 
reporting program.

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 
website as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that website to 
view public comments.

Availability of Certain Tables Exclusively Through the Internet on the 
CMS Website

    Addendum A to this proposed rule summarizes the FY 2020 IPF PPS 
payment rates, outlier threshold, Cost of Living Adjustment factors, 
national and upper limit cost-to-charge ratio, and adjustment factors. 
In addition, the B Addenda to this proposed rule show the complete 
listing of ICD-10 Clinical Modification (CM) and Procedure Coding 
System codes underlying the Code First table (Addendum B-1), the FY 
2020 IPF PPS comorbidity adjustment (Addenda B-2 and B-3), and 
electroconvulsive therapy (ECT) procedure codes (Addendum B-4). The A 
and B addenda are available online at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html.
    Tables setting forth the FY 2020 Wage Index for Urban Areas Based 
on Core-Based Statistical Area (CBSA) Labor Market Areas and the FY 
2020 Wage Index Based on CBSA Labor Market Areas for Rural Areas are 
available exclusively through the internet, on the CMS website at 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/IPFPPS/WageIndex.html. In addition, Addendum C to this proposed rule is a 
provider-level file of the effects of the proposed change to the wage 
index methodology, and is available at the same CMS website address.

I. Executive Summary

A. Purpose

    This proposed rule would update the prospective payment rates, the 
outlier threshold, and the wage index for Medicare inpatient hospital 
services provided by Inpatient Psychiatric Facilities (IPFs) for 
discharges occurring during the Fiscal Year (FY) beginning October 1, 
2019 through September 30, 2020. Additionally, this proposed rule would 
revise and rebase the IPF market basket to reflect a 2016 base year and 
use the concurrent hospital wage data as the basis of the IPF wage 
index rather than using the prior year's Inpatient Prospective Payment 
System (IPPS) hospital wage data. This proposed rule also solicits 
comments on the IPF wage index. Finally, this proposed rule proposes 
updates to the Inpatient Psychiatric Facility Quality Reporting (IPFQR) 
Program.

B. Summary of the Major Provisions

1. Inpatient Psychiatric Facilities Prospective Payment System (IPF 
PPS)
    For the IPF PPS, we propose to:
     Revise and rebase the IPF market basket to reflect a 2016 
base year: Since the IPF PPS inception, the market basket used to 
update IPF PPS payments has been rebased and revised to reflect more 
recent data on IPF cost structures. We last rebased and revised the 
market basket applicable to IPFs in the FY 2016 IPF PPS rule (80 FR 
46656 through 46679), when we adopted a 2012-based IPF-specific market-
basket.
     Adjust the 2016-based IPF market basket update: We would 
adjust the 2016-based IPF market basket update (currently estimated to 
be 3.1 percent) by a reduction for economy-wide productivity (currently 
estimated to be 0.5 percentage point) as required by section 
1886(s)(2)(A)(i) of the Social Security Act (the Act). We would further 
reduce the 2016-based IPF

[[Page 16949]]

market basket update by 0.75 percentage point as required by section 
1886(s)(2)(A)(ii) of the Act, resulting in a proposed estimated IPF 
payment rate update of 1.85 percent for FY 2020.
     Make technical rate setting changes: The IPF PPS payment 
rates are adjusted annually for inflation, as well as statutory and 
other policy factors. We are proposing to update:
    ++ The IPF PPS federal per diem base rate from $782.78 to $803.48.
    ++ The IPF PPS federal per diem base rate for providers who failed 
to report quality data to $787.70.
    ++ The Electroconvulsive therapy (ECT) payment per treatment from 
$337.00 to $345.91.
    ++ The ECT payment per treatment for providers who failed to report 
quality data to $339.12.
    ++ The labor-related share from 74.8 percent to 76.8 percent (based 
on the proposed 2016-based IPF market basket).
    ++ The core-based statistical area (CBSA) rural and urban wage 
indices for FY 2020, using the FY 2020 pre-floor, pre-reclassified IPPS 
hospital wage index data and OMB designations from OMB Bulletin 17-01.
    ++ The wage index budget-neutrality adjustment from 1.0013 to 
1.0078.
    ++ The fixed dollar loss threshold amount from $12,865 to $14,590 
to maintain estimated outlier payments at 2 percent of total estimated 
aggregate IPF PPS payments.
     Eliminate the 1-year lag in the wage index data: We would 
align IPF wage index data with the concurrent IPPS wage index data by 
removing the 1-year lag of the pre-floor, pre-reclassified IPPS 
hospital wage index upon which the IPF wage index is based.
    We are also soliciting comments on the IPF wage index.
2. Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program
    We are proposing to update the IPFQR Program by proposing a new 
measure for the program.

C. Summary of Impacts

------------------------------------------------------------------------
    Provision description          Total transfers & cost reductions
------------------------------------------------------------------------
FY 2020 IPF PPS payment        The overall economic impact of this
 update.                        proposed rule is an estimated $75
                                million in increased payments to IPFs
                                during FY 2020.
Updated quality reporting      $0.
 program (IPFQR) Program
 requirements.
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II. Background

A. Overview of the Legislative Requirements of the IPF PPS

    Section 124 of the Medicare, Medicaid, and 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 excluded psychiatric units including an adequate patient 
classification system that reflects the differences in patient resource 
use and costs among psychiatric hospitals and excluded psychiatric 
units. ``Excluded psychiatric unit'' means a psychiatric unit in an 
Inpatient Prospective Payment System (IPPS) hospital that is excluded 
from the IPPS, or a psychiatric unit in a Critical Access Hospital 
(CAH) that is excluded from the CAH payment system. These excluded 
psychiatric units would be paid under the IPF PPS.
    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 psychiatric distinct part units of 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 
Social Security Act (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 fiscal year (FY)) and each subsequent 
RY. As noted in our FY 2019 IPF PPS final rule with comment period, 
published in the Federal Register on August 6, 2018 (83 FR 38576 
through 38620), for the RY beginning in 2018, the productivity 
adjustment currently in place is equal to 0.8 percentage point.
    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 
a percentage point amount specified in section 1886(s)(3) of the Act 
for the RY beginning in 2010 through the RY beginning in 2019. As noted 
in the FY 2019 IPF PPS final rule, for the RY beginning in 2018, 
section 1886(s)(3)(E) of the Act requires that the other adjustment 
reduction currently in place be equal to 0.75 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 RY 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 RY, 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 RY involved, and the Secretary shall not take into account 
such reduction in computing the payment amount for a subsequent RY. 
(See section II.C of this proposed rule for an explanation of the IPF 
PPS RY.) More information about the specifics of the current IPFQR 
Program is available in the FY 2019 IFP PPS and Quality Reporting 
Updates for Fiscal Year Beginning October 1, 2018 final rule (83 FR 
38589 through 38608).
    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 
Center for Medicare & Medicaid (CMS) website 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 42 CFR 
part 412, subpart N. The November 2004 IPF PPS

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final rule set forth the federal per diem base rate 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, and 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 
electroconvulsive therapy (ECT). During the IPF PPS mandatory 3-year 
transition period, stop-loss payments were also provided; however, 
since the transition ended as of January 1, 2008, these payments are no 
longer available.
    A complete discussion of the regression analysis that established 
the IPF PPS adjustment factors can be found in the November 2004 IPF 
PPS final rule (69 FR 66933 through 66936).

C. Requirements for Updating the IPF PPS

    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 RY 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. Therefore, the IPF RY has been equivalent to the 
October 1 through September 30 federal FY since RY 2013. 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).
    In November 2004, we implemented the IPF PPS in a final rule that 
published on November 15, 2004 in the Federal Register (69 FR 66922). 
In developing the IPF PPS, and 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, 
including waiting until we have IPF PPS data that yields 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 (69 FR 66966).
    On May 6, 2011, we published a final rule in the Federal Register 
titled, ``Inpatient Psychiatric Facilities Prospective Payment System--
Update for Rate Year Beginning July 1, 2011 (RY 2012)'' (76 FR 26432), 
which changed the payment rate update period to a RY that coincides 
with a FY update. Therefore, final rules 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 to be effective 
on October 1. For a detailed list of updates to the IPF PPS, we refer 
readers to our regulations at 42 CFR 412.428.
    Our most recent IPF PPS annual update was published in a final rule 
on August 6, 2018 in the Federal Register titled, ``Medicare Program; 
FY 2019 Inpatient Psychiatric Facilities Prospective Payment System and 
Quality Reporting Updates'' (83 FR 38576), which updated the IPF PPS 
payment rates for FY 2019. That final rule updated the IPF PPS federal 
per diem base rates that were published in the FY 2018 IPF PPS Rate 
Update final rule (82 FR 36771) in accordance with our established 
policies.

III. Provisions of the FY 2020 IPF PPS Proposed Rule

A. Proposed Rebasing and Revising of the Market Basket for the IPF PPS

1. Background
    Originally, the input price index 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.
    Since the IPF PPS inception, the market basket used to update IPF 
PPS payments has been rebased and revised to reflect more recent data 
on IPF cost structures. We last rebased and revised the market basket 
applicable to the IPF PPS in the FY 2016 IPF PPS final rule

[[Page 16951]]

(80 FR 46656 through 46679), where we adopted a 2012-based IPF market 
basket. The 2012-based IPF market basket used Medicare cost report data 
for both Medicare-participating freestanding psychiatric hospitals and 
hospital-based psychiatric units. References to the historical market 
baskets used to update IPF PPS payments are listed in the FY 2016 IPF 
PPS final rule (80 FR 46656). For the FY 2020 IPF PPS proposed rule, we 
are proposing to rebase and revise the IPF market basket to reflect a 
2016 base year.
2. Overview of the Proposed 2016-Based IPF Market Basket
    The proposed 2016-based IPF market basket is a fixed-weight, 
Laspeyres-type price index. A Laspeyres price index measures the change 
in price, over time, of the same mix of goods and services purchased in 
the base period. Any changes in the quantity or mix of goods and 
services (that is, intensity) purchased over time relative to a base 
period are not measured.
    The index itself is constructed in three steps. First, a base 
period is selected (in this proposed rule, the base period is 2016) and 
total base period expenditures are estimated for a set of mutually 
exclusive and exhaustive spending categories. Each category is 
calculated as a proportion of total costs. These proportions are called 
cost or expenditure weights. Second, each expenditure category is 
matched to an appropriate price or wage variable, referred to as a 
price proxy. In nearly every instance, these price proxies are derived 
from publicly available statistical series that are published on a 
consistent schedule (preferably at least on a quarterly basis). 
Finally, the expenditure weight for each cost category is multiplied by 
the level of its respective price proxy. The sum of these products 
(that is, the expenditure weights multiplied by their price levels) for 
all cost categories yields the composite index level of the market 
basket in a given period. Repeating this step for other periods 
produces a series of market basket levels over time. Dividing an index 
level for a given period by an index level for an earlier period 
produces a rate of growth in the input price index over that timeframe.
    As noted, the market basket is described as a fixed-weight index 
because it represents the change in price over time of a constant mix 
(quantity and intensity) of goods and services needed to furnish IPF 
services. The effects on total expenditures resulting from changes in 
the mix of goods and services purchased after the base period are not 
measured. For example, an IPF hiring more nurses after the base period 
to accommodate the needs of patients will increase the volume of goods 
and services purchased by the IPF, but would not be factored into the 
price change measured by a fixed-weight IPF market basket. Only when 
the index is rebased will changes in the quantity and intensity be 
captured, with those changes being reflected in the cost weights. 
Therefore, we rebase the market basket periodically so that the cost 
weights reflect recent changes in the mix of goods and services that 
IPFs purchase to furnish inpatient care between base periods.
3. Creating an IPF-Specific Market Basket
    As discussed in the FY 2016 final rule (80 FR 46656 through 46679), 
the 2012-based IPF market basket reflects the Medicare cost reports for 
both freestanding and hospital-based facilities. Previous market 
baskets, such as the 2008-based rehabilitation, psychiatric, and long-
term care (RPL) market basket, were calculated using Medicare cost 
report data for freestanding facilities only. We used only freestanding 
facilities due to concerns regarding our ability to incorporate 
Medicare cost report data for hospital-based providers. After research 
on the available Medicare cost report data, we concluded that Medicare 
cost report data for both freestanding IPFs and hospital-based IPFs can 
be used to calculate the major market basket cost weights for a stand-
alone IPF market basket. In the FY 2016 IPF PPS final rule (80 FR 46656 
through 46679), we finalized a detailed methodology to derive market 
basket cost weights using Medicare cost report data for both 
freestanding IPFs and hospital-based IPFs.
    For this FY 2020 proposed rule, we are proposing to rebase and 
revise the 2012-based IPF market basket to a 2016 base year reflecting 
both freestanding IPFs and hospital-based IPFs. In section III.A.3.a., 
``Development of Cost Categories and Weights,'' we provide a detailed 
description of our proposed methodology used to develop the 2016-based 
IPF market basket.
a. Development of Cost Categories and Weights
i. Medicare Cost Reports
    We are proposing a 2016-based IPF market basket that consists of 
seven major cost categories and a residual derived from the 2016 
Medicare cost reports (CMS Form 2552-10 effective for cost reports 
beginning on or after May 1, 2010) for freestanding and hospital-based 
IPFs. CMS Form 2552-10 was also used to derive the major cost 
categories in the 2012-based IPF market basket. The seven cost 
categories are Wages and Salaries, Employee Benefits, Contract Labor, 
Pharmaceuticals, Professional Liability Insurance (PLI), Home Office 
Contract Labor, and Capital. The 2012-based IPF market basket did not 
have a Home Office Contract Labor cost category. The residual ``All 
Other'' category reflects all remaining costs not captured in the seven 
cost categories. The 2016 cost reports include providers whose cost 
reporting period beginning date is on or between October 1, 2015 and 
September 30, 2016. We are proposing to select 2016 as the base year 
because we believe that the Medicare cost reports for this year 
represent the most recent, complete set of Medicare cost report data 
available at the time of this rulemaking.
    Similar to the Medicare cost report data used to develop the 2012-
based IPF market basket, the Medicare cost report data for 2016 show 
large differences between some providers' Medicare length of stay (LOS) 
and total facility LOS. Our goal has always been to measure cost 
weights that are reflective of case mix and practice patterns 
associated with providing services to Medicare beneficiaries. 
Therefore, we are again proposing to limit our selection of Medicare 
cost reports used in the 2016-based IPF market basket to those 
facilities that had a Medicare LOS within a comparable range of their 
total facility average LOS. The Medicare average LOS for freestanding 
IPFs is calculated from data reported on line 14 of Worksheet S-3, part 
I. The Medicare average LOS for hospital-based IPFs is calculated from 
data reported on line 16 of Worksheet S-3, part I. To derive the 
proposed 2016-based IPF market basket, for those IPFs with an average 
facility LOS of greater than or equal to 15 days, we are proposing to 
include IPFs where the Medicare LOS is within 50 percent (higher or 
lower) of the average facility LOS. For those IPFs whose average 
facility LOS is less than 15 days, we are proposing to include IPFs 
where the Medicare LOS is within 95 percent (higher or lower) of the 
facility LOS. We are proposing to apply this LOS edit to the data for 
IPFs to exclude providers that serve a population whose LOS would 
indicate that the patients served are not consistent with a LOS of a 
typical Medicare patient. This is the same LOS edit applied to the 
2012-based IPF market basket.
    Applying these trims to the approximate 1,600 total cost reports 
(freestanding and hospital-based)

[[Page 16952]]

resulted in roughly 1,500 IPF Medicare cost reports with an average 
Medicare LOS of 12 days, average facility LOS of 9 days, and Medicare 
utilization (as measured by Medicare inpatient IPF days as a percentage 
of total facility days) of 26 percent. Providers excluded from the 
proposed 2016-based IPF market basket (about 130 Medicare cost reports) 
had an average Medicare LOS of 25 days, average facility LOS of 55 
days, and a Medicare utilization of 4 percent. Of those excluded, about 
70 percent of these were freestanding providers; on the other hand, 
freestanding providers represent about 30 percent of all IPFs. We note 
that seventy percent of those excluded from the 2012-based IPF market 
basket using this LOS edit were also freestanding providers.
    Using the post-LOS set of 2016 Medicare cost reports, we calculated 
costs for the seven major cost categories (Wages and Salaries, Employee 
Benefits, Contract Labor, Professional Liability Insurance, 
Pharmaceuticals, Home Office Contract Labor, and Capital). For 
comparison, the 2012-based IPF market basket utilized the Bureau of 
Economic Analysis Benchmark Input-Output data to derive the Home Office 
Contract Labor cost weight rather than the Medicare cost report data. A 
more detailed discussion of this methodological change is provided.
    Similar to the 2012-based IPF market basket major cost weights, the 
proposed 2016-based IPF market basket cost weights reflect Medicare 
allowable costs (routine, ancillary, and capital costs) that are 
eligible for inclusion under the IPF PPS payments. We propose to define 
Medicare allowable costs for freestanding IPFs as Worksheet B, part I, 
column 26, lines 30 through 35, 50 through 76 (excluding 52 and 75), 90 
through 91, and 93. For hospital-based IPFs, we propose that total 
Medicare allowable costs be equal to total costs for the IPF inpatient 
unit after the allocation of overhead costs (Worksheet B, part I, 
column 26, line 40) and a portion of total ancillary costs (Worksheet 
B, part I, column 26, lines 50 through 76 (excluding 52 and 75), 90 
through 91, and 93). We propose to calculate the portion of ancillary 
costs attributable to the hospital-based IPF for a given ancillary cost 
center by multiplying total facility ancillary costs for the specific 
cost center (as reported on Worksheet B, part I, column 26) by the 
ratio of IPF Medicare ancillary costs for the cost center (as reported 
on Worksheet D-3, column 3 for IPF subproviders) to total Medicare 
ancillary costs for the cost center (equal to the sum of Worksheet D-3, 
column 3 for all Inpatient Prospective Payment System (IPPS), Skilled 
Nursing Facility (SNF), IRF, and IPF). This is the same methodology 
used for the 2012-based IPF market basket.
    We are providing a description of the proposed methodologies used 
to derive costs for the seven major cost categories.
Wages and Salaries Costs
    For freestanding IPFs, we are proposing that Wages and Salaries 
costs be derived as the sum of routine inpatient salaries, ancillary 
salaries, and a proportion of overhead (or general service cost centers 
in the Medicare Cost Report (MCR)) salaries as reported on Worksheet A, 
column 1. Since overhead salary costs are attributable to the entire 
IPF, we only include the proportion attributable to the Medicare 
allowable cost centers. We are proposing to estimate the proportion of 
overhead salaries that are attributed to Medicare allowable costs 
centers by multiplying the ratio of Medicare allowable salaries 
(Worksheet A, column 1, lines 50 through 76 (excluding 52 and 75), 90 
through 91, and 93) to total salaries (Worksheet A, column 1, line 200) 
times total overhead salaries (Worksheet A, column 1, lines 4 through 
18). This is the same methodology used in the 2012-based IPF market 
basket.
    We are proposing that Wages and Salaries costs for hospital-based 
IPFs are derived by summing inpatient routine salary costs, ancillary 
salaries, overhead salary costs attributable to the IPF inpatient unit, 
and a portion of overhead salary costs attributable to the ancillary 
departments.
    We are proposing to calculate hospital-based inpatient routine 
salary costs using Worksheet A, column 1, line 40.
    We are proposing to calculate hospital-based ancillary salary costs 
for a specific cost center (Worksheet A, column 1, lines 50 through 76 
(excluding 52 and 75), 90 through 91, and 93) using salary costs from 
Worksheet A, column 1 multiplied by the ratio of IPF Medicare ancillary 
costs for the cost center (as reported on Worksheet D-3, column 3 for 
IPF subproviders) to total Medicare ancillary costs for the cost center 
(equal to the sum of Worksheet D-3, column 3 for IPPS, SNF, IRF, and 
IPF).
    We are proposing to calculate the hospital-based overhead salaries 
attributable to the IPF inpatient unit by first calculating total 
noncapital overhead costs (Worksheet B, part I, columns 4 through 18, 
line 40 less Worksheet B, part II, columns 4 through 18) for each 
ancillary department. We then multiply total noncapital overhead costs 
by the ratio of total facility overhead salaries (as reported on 
Worksheet A, column 1, lines 4 through 18) to total facility noncapital 
overhead costs (as reported on Worksheet A, column 1 and 2, lines 4 
through 18).
    We are proposing to calculate the hospital-based portion of 
overhead salaries attributable to each ancillary department by first 
calculating total noncapital overhead costs attributable to each 
specific ancillary department (Worksheet B, part I, columns 4 through 
18 less Worksheet B, part II, columns 4 through 18). We then identify 
the portion of these noncapital overhead costs attributable to Wages 
and Salaries by multiplying these costs by the ratio of total facility 
overhead salaries (as reported on Worksheet A, column 1, lines 4 
through 18) to total overhead costs (as reported on Worksheet A, column 
1 and 2, lines 4 through 18). Finally, we identified the portion of 
these overhead salaries for each ancillary department that is 
attributable to the hospital-based IPF by multiplying by the ratio of 
IPF Medicare ancillary costs for the cost center (as reported on 
Worksheet D-3, column 3 for hospital-based IPFs) to total Medicare 
ancillary costs for the cost center (equal to the sum of Worksheet D-3, 
column 3 for all IPPS, SNF, IRF, and IPF).
    This is the same Wages and Salaries Costs methodology used to 
derive the 2012-based IPF market basket.
Employee Benefits Costs
    Effective with the implementation of CMS Form 2552-10, we began 
collecting Employee Benefits and Contract Labor data on Worksheet S-3, 
part V.
    For 2016 Medicare cost report data, the majority of providers did 
not report data on Worksheet S-3, part V. One (1) percent of 
freestanding IPFs and roughly 40 percent of hospital-based IPFs 
reported data on Worksheet S-3, part V. Again, we continue to encourage 
all providers to report these data on the Medicare cost report.
    For freestanding IPFs, we are proposing Employee Benefits costs are 
equal to the data reported on Worksheet S-3, part V, column 2, line 2. 
We note that while not required to do so, freestanding IPFs also may 
report Employee Benefits data on Worksheet S-3, part II, which is 
applicable to only IPPS providers. For those freestanding IPFs that 
report Worksheet S-3, part II data, but not Worksheet S-3, part V, we 
are proposing to use the sum of Worksheet S-3, part II lines 17, 18, 
20, and 22 to derive Employee Benefits costs. This proposed method 
allows us to obtain data from more than 20 freestanding IPFs (roughly 5 
percent of

[[Page 16953]]

all freestanding IPFs) than if we were to only use Worksheet S-3, part 
V data as was done for the 2012-based IPF market basket.
    For hospital-based IPFs, we are proposing to calculate total 
benefit costs as the sum of inpatient unit benefit costs, a portion of 
ancillary benefits, and a portion of overhead benefits attributable to 
the routine inpatient unit and a portion of overhead benefits 
attributable to the ancillary departments.
    We are proposing hospital-based inpatient unit benefit costs be 
equal to Worksheet S-3 part V, column 2, line 3.
    We are proposing the hospital-based portion of ancillary benefit 
costs be equal to hospital-based ancillary salaries times the ratio of 
total facility benefits to total facility salaries.
    We are proposing that the hospital-based portion of overhead 
benefits attributable to the routine inpatient unit and ancillary 
departments be calculated by multiplying ancillary salaries for the 
hospital-based IPF and overhead salaries attributable to the hospital-
based IPF (determined in the derivation of hospital-based IPF Wages and 
Salaries costs as described) by the ratio of total facility benefits to 
total facility salaries. Total facility benefits is equal to the sum of 
Worksheet S-3, part II, column 4, lines 17-25 and total facility 
salaries is equal to Worksheet S-3, part II, column 4, line 1.
Contract Labor Costs
    Contract Labor costs are primarily associated with direct patient 
care services. Contract Labor costs are exclusive of Home Office 
Contract Labor costs. Contract labor costs for other services such as 
accounting, billing, and legal are calculated separately using other 
government data sources as described in section III.A.3.a.iii of this 
proposed rule. To derive contract labor costs using Worksheet S-3, part 
V data, for freestanding IPFs, we are proposing Contract Labor costs be 
equal to Worksheet S-3, part V, column 1, line 2. As we noted for 
Employee Benefits, freestanding IPFs also may report Contract Labor 
data on Worksheet S-3, part II, which is applicable to only IPPS 
providers. For those freestanding IPFs that report Worksheet S-3, part 
II data, but not Worksheet S-3, part V, we are proposing to use the sum 
of Worksheet S-3, part II lines 11 and 13 to derive Contract Labor 
costs. For the 2012-based IPF market basket, we only used data from 
Worksheet S-3, part V, column 1, line 2 to derive the Contract Labor 
costs for freestanding IPFs.
    For hospital-based IPFs, we are proposing that Contract Labor costs 
be equal to Worksheet S-3, part V, column 1, line 3. Reporting of this 
data continues to be somewhat limited; therefore, we continue to 
encourage all providers to report these data on the Medicare cost 
report.
Pharmaceuticals Costs
    For freestanding IPFs, we are proposing to calculate 
pharmaceuticals costs using non-salary costs reported on Worksheet A, 
column 7 less Worksheet A, column 1 for the pharmacy cost center (line 
15) and drugs charged to patients cost center (line 73).
    For hospital-based IPFs, we are proposing to calculate 
pharmaceuticals costs as the sum of a portion of the non-salary 
pharmacy costs and a portion of the non-salary drugs charged to patient 
costs reported for the total facility.
    We propose that hospital-based non-salary pharmacy costs 
attributable to the hospital-based IPF are calculated by multiplying 
total pharmacy costs attributable to the hospital-based IPF (as 
reported on Worksheet B, part I, column 15, line 40) by the ratio of 
total non-salary pharmacy costs (Worksheet A, column 2, line 15) to 
total pharmacy costs (sum of Worksheet A, column 1 and 2 for line 15) 
for the total facility.
    We propose that hospital-based non-salary drugs charged to patient 
costs attributable to the hospital-based IPF are calculated by 
multiplying total non-salary drugs charged to patient costs (Worksheet 
B, part I, column 0, line 73 plus Worksheet B, part I, column 15, line 
73 less Worksheet A, column 1, line 73) for the total facility by the 
ratio of Medicare drugs charged to patient ancillary costs for the IPF 
unit (as reported on Worksheet D-3 for IPF subproviders, column 3, line 
73) to total Medicare drugs charged to patients ancillary costs for the 
total facility (equal to the sum of Worksheet D-3, column 3, line 73, 
for all IPPS, SNF, IRF, and IPF).
    This is the same Pharmaceuticals Costs methodology used to derive 
the 2012-based IPF market basket.
Professional Liability Insurance (PLI) Costs
    For freestanding IPFs, we are proposing that PLI costs (often 
referred to as malpractice costs) are equal to premiums, paid losses 
and self-insurance costs reported on Worksheet S-2, columns 1 through 
3, line 118.
    For hospital-based IPFs, we are proposing to assume that the PLI 
weight for the total facility is similar to the hospital-based IPF unit 
since the only data reported on this worksheet is for the entire 
facility. Therefore, hospital-based IPF PLI costs are equal to total 
facility PLI (as reported on Worksheet S-2, columns 1 through 3, line 
118) divided by total facility costs (as reported on Worksheet A, 
columns 1 and 2, line 200) times hospital-based IPF Medicare allowable 
total costs. Our assumption is that the same proportion of expenses are 
used among each unit of the hospital.
    This is the same methodology used to derive the 2012-based IPF 
market basket.
Home Office/Related Organization Contract Labor Costs
    For the 2016-based IPF market basket, we are proposing to determine 
the home office/related organization contract labor costs using 
Medicare cost report data. This is a different methodology compared to 
the 2012-based IPF market basket. We believe this proposed methodology 
is an improvement as it is based on the data directly submitted by 
providers on the Medicare cost report. It is also consistent with the 
methodology we adopted when we rebased and revised the 2014-based IPPS 
market basket (82 FR 38159).
    For hospital-based IPFs, we are proposing to calculate the home 
office contract labor cost weight using data reported on Worksheet S-3, 
part II, column 4, lines 14, 1401, 1402, 2550, and 2551 and total 
facility costs (Worksheet B, part 1, column 26, line 202). We are 
proposing to use total facility costs as the denominator for 
calculating the home office contract labor cost weight as these 
expenses reported on Worksheet S-3, part II reflect the entire hospital 
facility. Our assumption is that the same proportion of expenses is 
used among each unit of the hospital. Similar to the other market 
basket costs weights, we are proposing to trim the Home Office Contract 
Labor cost weight to remove outliers. Since not all hospital-based IPFs 
will have home office contract labor costs, we are proposing to trim 
the top one percent of the Home Office Contract Labor cost weight. This 
is the same trimming methodology used to calculate the Home Office 
Contract Labor cost weight in the 2016-based IPPS market basket. Using 
this proposed methodology, we calculate a Home Office Contract Labor 
cost weight for hospital-based IPFs of 3.7 percent. We discuss the 
trimming methodology for the other major cost categories in the ``Final 
Major Cost Category Computation'' section.
    Freestanding IPFs are not required to complete Worksheet S-3, part 
II. Therefore, to estimate the Home Office Contract Labor cost weight, 
we are proposing the following methodology:

[[Page 16954]]

    Step 1: Using hospital-based IPFs with a home office and also 
passing the one percent trim as described, we calculate the ratio of 
the Home Office Contract Labor cost weight to the Medicare allowable 
nonsalary, noncapital cost weight (Medicare allowable nonsalary, 
noncapital costs as a percent of total Medicare allowable costs).
    Step 2: We identify freestanding IPFs that report a home office on 
Worksheet S-2, line 140--roughly 85 percent. We are proposing to 
calculate a Home Office Contract Labor cost weight for these 
freestanding IPFs by multiplying the ratio calculated in Step (1) by 
the Medicare allowable nonsalary, noncapital cost weight for those 
freestanding IPFs with a home office.
    Step 3: We then calculate the freestanding IPF cost weight by 
multiplying the Home Office Contract Labor cost weight in step (2) by 
the total Medicare allowable costs for IPFs with a home office as a 
percent of total Medicare allowable costs for all freestanding IPFs.
    To calculate the Home Office Contract Labor cost weight, we are 
proposing to weight together the freestanding Home Office Contract 
Labor cost weight (3.0 percent) and the hospital-based Home Office 
Contract Labor cost weight (3.7 percent) using total Medicare allowable 
costs. The resulting overall cost weight for Home Office is 3.5 percent 
(3.0 percent x 37 percent + 3.7 percent x 63 percent).
    For the 2012-based IPF market basket, we calculated the Home Office 
Contract Labor cost weight using the Bureau of Economic Analysis Input-
Output expense data for North American Industry Classification System 
(NAICS) code 55, Management of Companies and Enterprises using the 
methodology described in section III.A.3.a.iii (Derivation of the 
Detailed Operating Cost Weights).
Capital Costs
    For freestanding IPFs, we are proposing capital costs to be equal 
to Medicare allowable capital costs as reported on Worksheet B, part 
II, column 26, lines 30 through 35, 50 through 76 (excluding 52 and 
75), 90 through 91, and 93. This is the same methodology used for the 
2012-based IPF market basket.
    For hospital-based IPFs, we are proposing capital costs to be equal 
to IPF inpatient capital costs (as reported on Worksheet B, part II, 
column 26, line 40) and a portion of IPF ancillary capital costs. We 
calculate the portion of ancillary capital costs attributable to the 
hospital-based IPF for a given cost center by multiplying total 
facility ancillary capital costs for the specific ancillary cost center 
(as reported on Worksheet B, part II, column 26) by the ratio of IPF 
Medicare ancillary costs for the cost center (as reported on Worksheet 
D-3, column 3 for IPF subproviders) to total Medicare ancillary costs 
for the cost center (equal to the sum of Worksheet D-3, column 3 for 
all IPPS, SNF, IRF, and IPF). This is the same methodology used for the 
2012-based IPF market basket.
ii. Final Major Cost Category Computation
    After we derive costs for the seven major cost categories for each 
provider using the Medicare cost report data as described, we are 
proposing to trim the data for outliers. The proposed trimming 
methodology for the Home Office Contract Labor cost weight is slightly 
different than the proposed trimming methodology for the other six cost 
categories. For the Wages and Salaries, Employee Benefits, Contract 
Labor, Pharmaceuticals, Professional Liability Insurance, and Capital 
cost weights, we first divide the costs for each of these six 
categories by total Medicare allowable costs calculated for the 
provider to obtain cost weights for the universe of IPF providers. 
Next, we apply a mutually exclusive top and bottom 5 percent trim for 
each cost weight to remove outliers. After the outliers have been 
removed, we sum the costs for each category across all remaining 
providers. We then divide this by the sum of total Medicare allowable 
costs across all remaining providers to obtain a cost weight for the 
proposed 2016-based IPF market basket for the given category.
    Finally, we calculate the residual ``All Other'' cost weight that 
reflects all remaining costs that are not captured in the seven cost 
categories listed. See Table 1 for the resulting cost weights for these 
major cost categories that we obtain from the Medicare cost reports.

  Table 1--Major Cost Categories as Derived From Medicare Cost Reports
------------------------------------------------------------------------
                                       Proposed 2016-    2012-based IPF
        Major cost categories         based IPF market    market basket
                                      basket (percent)      (percent)
------------------------------------------------------------------------
Wages and Salaries..................              51.2              51.0
Employee Benefits...................              13.5              13.1
Contract Labor......................               1.3               1.3
Professional Liability Insurance                   0.9               1.1
 (Malpractice)......................
Pharmaceuticals.....................               4.7               4.8
Home Office/Related Organization                   3.5               n/a
 Contract Labor.....................
Capital.............................               7.1               7.0
``All Other'' Residual..............              17.9              21.6
------------------------------------------------------------------------
* Total may not sum to 100 due to rounding.

    As we did for the 2012-based IPF market basket, we are proposing to 
allocate the Contract Labor cost weight to the Wages and Salaries and 
Employee Benefits cost weights based on their relative proportions 
under the assumption that contract labor costs are comprised of both 
wages and salaries and employee benefits. The Contract Labor allocation 
proportion for Wages and Salaries is equal to the Wages and Salaries 
cost weight as a percent of the sum of the Wages and Salaries cost 
weight and the Employee Benefits cost weight. For the proposed rule, 
this rounded percentage was 79 percent; therefore, we are proposing to 
allocate 79 percent of the Contract Labor cost weight to the Wages and 
Salaries cost weight and 21 percent to the Employee Benefits cost 
weight. The 2012-based IPF market basket percentage was 80 percent. 
Table 2 shows the Wages and Salaries and Employee Benefit cost weights 
after Contract Labor cost weight allocation for both the proposed 2016-
based IPF market basket and 2012-based IPF market basket.

[[Page 16955]]



  Table 2--Wages and Salaries and Employee Benefits Cost Weights After
                        Contract Labor Allocation
------------------------------------------------------------------------
                                       Proposed 2016-
        Major cost categories         based IPF market   2012-based IPF
                                           basket         market basket
------------------------------------------------------------------------
Wages and Salaries..................              52.2              52.1
Employee Benefits...................              13.8              13.4
------------------------------------------------------------------------

iii. Derivation of the Detailed Operating Cost Weights
    To further divide the ``All Other'' residual cost weight estimated 
from the 2016 Medicare Cost Report data into more detailed cost 
categories, we propose to use the 2012 Benchmark Input-Output (I-O) 
``Use Tables/Before Redefinitions/Purchaser Value'' for NAICS 622000 
Hospitals, published by the Bureau of Economic Analysis (BEA). These 
data, publicly available at http://www.bea.gov/industry/io_annual.htm, 
are the most recent data available at the time of rulemaking. For the 
2012-based IPF market basket, we used the 2007 Benchmark I-O data.
    The BEA Benchmark I-O data are scheduled for publication every five 
years. The 2012 Benchmark I-O data are derived from the 2012 Economic 
Census and are the building blocks for BEA's economic accounts. They 
represent the most comprehensive and complete set of data on the 
economic processes or mechanisms by which output is produced and 
distributed.\1\ BEA also produces Annual I-O estimates; however, while 
based on a similar methodology, these estimates reflect less 
comprehensive and less detailed data sources and are subject to 
revision when benchmark data becomes available. Instead of using the 
less detailed Annual I-O data, we propose to inflate the 2012 Benchmark 
I-O data forward to 2016 by applying the annual price changes from the 
respective price proxies to the appropriate market basket cost 
categories obtained from the 2012 Benchmark I-O data. We then propose 
to calculate the cost shares that each cost category represents of the 
inflated 2016 data. These resulting 2016 cost shares are applied to the 
``All Other'' residual cost weight to obtain the proposed detailed cost 
weights for the 2016-based IPF market basket. For example, the cost for 
Food: Direct Purchases represents 5.0 percent of the sum of the ``All 
Other'' 2016 Benchmark I-O Hospital Expenditures inflated to 2016. 
Therefore, the Food: Direct Purchases cost weight represents 5.0 
percent of the 2016-based IPF market basket's ``All Other'' cost 
category (17.9 percent), yielding a ``final'' Food: Direct Purchases 
cost weight of 0.9 percent in the proposed 2016-based IPF market basket 
(0.05 * 17.9 percent = 0.9 percent).
---------------------------------------------------------------------------

    \1\ http://www.bea.gov/papers/pdf/IOmanual_092906.pdf.
---------------------------------------------------------------------------

    Using this methodology, we propose to derive seventeen detailed IPF 
market basket cost category weights from the proposed 2016-based IPF 
market basket residual cost weight (17.9 percent). These categories 
are: (1) Electricity, (2) Fuel, Oil, and Gasoline, (3) Food: Direct 
Purchases, (4) Food: Contract Services, (5) Chemicals, (6) Medical 
Instruments, (7) Rubber and Plastics, (8) Paper and Printing Products, 
(9) Miscellaneous Products, (10) Professional Fees: Labor-related, (11) 
Administrative and Facilities Support Services, (12) Installation, 
Maintenance and Repair, (13) All Other Labor-related Services, (14) 
Professional Fees: Nonlabor-related, (15) Financial Services, (16) 
Telephone Services, and (17) All Other Nonlabor-related Services. We 
note that for the 2012-based IPF market basket, we had a Water and 
Sewerage cost weight. For the proposed 2016-based IPF market basket, we 
are proposing to include Water and Sewerage in the Electricity cost 
weight due to the small amount of costs in this category.
iv. Derivation of the Detailed Capital Cost Weights
    As described in section III.A.3.a.i. of this proposed rule, we 
propose a Capital-Related cost weight of 7.1 percent as obtained from 
the 2016 Medicare cost reports for freestanding and hospital-based IPF 
providers. We propose to further separate this total Capital-Related 
cost weight into more detailed cost categories. Using 2016 Medicare 
cost reports, we are able to group Capital-Related costs into the 
following categories: Depreciation, Interest, Lease, and Other Capital-
Related costs. For each of these categories, we propose to determine 
separately for hospital-based IPFs and freestanding IPFs what 
proportion of total capital-related costs the category represent.
    For freestanding IPFs, we propose to derive the proportions for 
Depreciation, Interest, Lease, and Other Capital-related costs using 
the data reported by the IPF on Worksheet A-7, which is the same 
methodology used for the 2012-based IPF market basket.
    For hospital-based IPFs, data for these four categories are not 
reported separately for the subprovider; therefore, we propose to 
derive these proportions using data reported on Worksheet A-7 for the 
total facility. We are assuming the cost shares for the overall 
hospital are representative for the hospital-based subprovider IPF 
unit. For example, if depreciation costs make up 60 percent of total 
capital costs for the entire facility, we believe it is reasonable to 
assume that the hospital-based IPF will also have a 60 percent 
proportion because it is a subprovider unit contained within the total 
facility. This is the same methodology used for the 2012-based IPF 
market basket.
    In order to combine each detailed capital cost weight for 
freestanding and hospital-based IPFs into a single capital cost weight 
for the 2016-based IPF market basket, we propose to weight together the 
shares for each of the categories (Depreciation, Interest, Lease, and 
Other Capital-related costs) based on the share of total capital costs 
each provider type represents of the total capital costs for all IPFs 
for 2016. Applying this methodology results in proportions of total 
capital-related costs for Depreciation, Interest, Lease and Other 
Capital-related costs that are representative of the universe of IPF 
providers. This is the same methodology used for the 2012-based IPF 
market basket.
    Next, we propose to allocate lease costs across each of the 
remaining detailed capital-related cost categories as was done in the 
2012-based IPF market basket. This will result in three primary 
capital-related cost categories in the 2016-based IPF market basket: 
Depreciation, Interest, and Other Capital-Related costs. As done in the 
2012-based IPF market basket, lease costs are unique in that they are 
not broken out as a separate cost category in the 2016-based IPF market 
basket, but rather we propose to proportionally distribute these costs 
among the cost categories of Depreciation, Interest, and Other Capital-
Related, reflecting the assumption that the underlying cost structure 
of leases is similar to that of capital-related costs in general. As 
was

[[Page 16956]]

done under the 2012-based IPF market basket, we propose to assume that 
10 percent of the lease costs as a proportion of total capital-related 
costs represents overhead and assign those costs to the Other Capital-
Related cost category accordingly. We propose to distribute the 
remaining lease costs proportionally across the three cost categories 
(Depreciation, Interest, and Other Capital-Related) based on the 
proportion that these categories comprise of the sum of the 
Depreciation, Interest, and Other Capital-related cost categories 
(excluding lease expenses). This is the same methodology used for the 
2012-based IPF market basket. The allocation of these lease expenses 
are shown in Table 3.
    Finally, we propose to further divide the Depreciation and Interest 
cost categories. We propose to separate Depreciation into the following 
two categories: (1) Building and Fixed Equipment; and (2) Movable 
Equipment; and propose to separate Interest into the following two 
categories: (1) Government/Nonprofit; and (2) For-profit.
    To disaggregate the Depreciation cost weight, we determine the 
percent of total Depreciation costs for IPFs that is attributable to 
Building and Fixed Equipment, which we hereafter refer to as the 
``fixed percentage.'' For the proposed 2016-based IPF market basket, we 
propose to use slightly different methods to obtain the fixed 
percentages for hospital-based IPFs compared to freestanding IPFs.
    For freestanding IPFs, we propose to use depreciation data from 
Worksheet A-7 of the 2016 Medicare cost reports. However, for hospital-
based IPFs, we determined that the fixed percentage for the entire 
facility may not be representative of the IPF subprovider unit due to 
the entire facility likely employing more sophisticated movable assets 
that are not utilized by the hospital-based IPF. Therefore, for 
hospital-based IPFs, we propose to calculate a fixed percentage using: 
(1) Building and fixture capital costs allocated to the subprovider 
unit as reported on Worksheet B, part I line 40; and (2) building and 
fixture capital costs for the top five ancillary cost centers utilized 
by hospital-based IPFs. We propose to then weight these two fixed 
percentages (inpatient and ancillary) using the proportion that each 
capital cost type represents of total capital costs in the proposed 
2016-based IPF market basket. We then propose to weight the fixed 
percentages for hospital-based and freestanding IPFs together using the 
proportion of total capital costs each provider type represents. For 
both freestanding and hospital-based IPFs, this is the same methodology 
used for the 2012-based IPF market basket.
    To disaggregate the Interest cost weight, we determine the percent 
of total interest costs for IPFs that are attributable to government 
and nonprofit facilities, the ``nonprofit percentage.'' For the 2016-
based IPF market basket, we propose to use interest costs data from 
Worksheet A-7 for both freestanding and hospital-based IPFs. We then 
determine the percent of total interest costs that are attributed to 
government and nonprofit IPFs separately for hospital-based and 
freestanding IPFs and weight the nonprofit percentages for hospital-
based and freestanding IPFs together using the proportion of total 
capital costs each provider type represents. This is the same 
methodology used for the 2012-based IPF market basket.
    Table 3 provides the proposed detailed capital cost share 
composition. These detailed capital cost share composition percentages 
are applied to the total Capital-Related cost weight of 7.1 percent 
determined in section III.A.3.a.i. of the proposed rule.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP23AP19.000

v. 2016-Based IPF Market Basket Cost Categories and Weights
    Table 4 shows the cost categories and weights for the proposed 
2016-based IPF market basket and the 2012-based IPF market basket.

[[Page 16957]]

[GRAPHIC] [TIFF OMITTED] TP23AP19.001


[[Page 16958]]


[GRAPHIC] [TIFF OMITTED] TP23AP19.002

b. Selection of Price Proxies
    After developing the cost weights for the proposed 2016-based IPF 
market basket, we select the most appropriate wage and price proxies 
currently available to represent the rate of price change for each 
expenditure category. For the majority of the cost weights, we base the 
price proxies on Bureau of Labor Statistics (BLS) data and grouped them 
into one of the following BLS categories:
     Employment Cost Indexes. Employment Cost Indexes (ECIs) 
measure the rate of change in employment wage rates and employer costs 
for employee benefits per hour worked. These indexes are fixed-weight 
indexes and strictly measure the change in wage rates and employee 
benefits per hour. ECIs are superior to Average Hourly Earnings (AHE) 
as price proxies for input price indexes because they are not affected 
by shifts in occupation or industry mix, and because they measure pure 
price change and are available by both occupational group and by 
industry. The industry ECIs are based on the NAICS and the occupational 
ECIs are based on the Standard Occupational Classification System 
(SOC).
     Producer Price Indexes. Producer Price Indexes (PPIs) 
measure the average change over time in the selling prices received by 
domestic producers for their output. The prices included in the PPI are 
from the first commercial transaction for many products and some 
services (https://www.bls.gov/ppi/).
     Consumer Price Indexes. Consumer Price Indexes (CPIs) 
measure the average change over time in the prices paid by urban 
consumers for a market basket of consumer goods and services (https://www.bls.gov/cpi/). CPIs are only used when the purchases are similar to 
those of retail consumers rather than purchases at the producer level, 
or if no appropriate PPIs are available.
    We evaluated the price proxies using the criteria of reliability, 
timeliness, availability, and relevance:
     Reliability. Reliability indicates that the index is based 
on valid statistical methods and has low sampling variability. Widely 
accepted statistical methods ensure that the data were collected and 
aggregated in a way that can be replicated. Low sampling variability is 
desirable because it indicates that the sample reflects the typical 
members of the population (and it is representative). (Sampling 
variability is variation that occurs by chance because only a sample 
was surveyed rather than the entire population.)
     Timeliness. Timeliness implies that the proxy is published 
regularly, preferably at least once a quarter. The market baskets are 
updated quarterly and, therefore, it is important for the underlying 
price proxies to be up-to-date, reflecting the most recent data 
available. We believe that using proxies that are published regularly 
(at least quarterly, whenever possible) helps to ensure that we are 
using the most recent data available to update the market basket. We 
strive to use publications that are disseminated frequently, because we 
believe that this is an optimal way to stay abreast of the most current 
data available.
     Availability. Availability means that the proxy is 
publicly available. We prefer that our proxies are publicly available 
because this will help ensure that our market basket updates are as 
transparent to the public as possible. In addition, this enables the 
public to be able to obtain the price proxy data on a regular basis.
     Relevance. Relevance means that the proxy is applicable 
and representative of the cost category weight to which it is applied. 
The CPIs, PPIs, and ECIs that we selected to propose in this regulation 
meet these criteria. Therefore, we believe that they continue to be the 
best measure of price changes for the cost categories to which they 
would be applied.
    Table 12 lists all price proxies that we propose to use for the 
2016-based IPF market basket. A detailed explanation of the price 
proxies we are proposing for each cost category weight is provided.
i. Price Proxies for the Operating Portion of the Proposed 2016-Based 
IPF Market Basket
Wages and Salaries
    There is not a published wage proxy that we believe represents the 
occupational distribution of workers in IPFs. To measure wage price 
growth in the proposed 2016-based IPF market basket, we are proposing 
to apply a proxy blend based on six occupational subcategories within 
the Wages and Salaries category, which would reflect the IPF 
occupational mix, as was done for the 2012-based IPF market basket.
    We are proposing to use the National Industry-Specific Occupational 
Employment and Wage estimates for NAICS 622200, Psychiatric & Substance 
Abuse Hospitals, published by the BLS Office of Occupational Employment 
Statistics (OES), as the data source for the wage cost shares in the 
wage proxy blend. We are proposing to use May 2016 OES data. Detailed 
information on the methodology for the national industry-specific 
occupational employment and wage estimates survey can be found at 
http://www.bls.gov/oes/current/oes_tec.htm. For the 2012-based IPF 
market basket, we used May 2012 OES data.
    Based on the OES data, there are six wage subcategories: 
Management; NonHealth Professional and Technical; Health Professional 
and Technical; Health Service; NonHealth Service; and Clerical. Table 5 
lists the 2016 occupational assignments for the six wage subcategories; 
these are the same occupational groups used in the 2012-based IPF 
market basket.

[[Page 16959]]

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[[Page 16960]]


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    Total expenditures by occupation (that is, occupational assignment) 
were calculated by taking the OES number of employees multiplied by the 
OES annual average salary. These expenditures were aggregated based on 
the six groups in Table 5. We next calculated the proportion of each 
group's expenditures relative to the total expenditures of all six 
groups. These proportions, listed in Table 6, represent the weights 
used in the wage proxy blend. We then propose to use the published wage 
proxies in Table 6 for each of the six groups (that is, wage 
subcategories) as we believe these six price proxies are the most 
technically appropriate indices available to measure the price growth 
of the Wages and Salaries cost category. These are the same price 
proxies used in the 2012-based IPF market basket.

[[Page 16961]]

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BILLING CODE 4120-01-C
    A comparison of the yearly changes from FY 2017 to FY 2020 for the 
proposed 2016-based IPF wage blend and the 2012-based IPF wage blend is 
shown in Table 7. The average annual growth rate is the same for both 
price proxies over 2017-2020.

     Table 7--Fiscal Year Growth in the 2016-Based IPF Wage Proxy Blend and 2012-Based IPF Wage Proxy Blend
----------------------------------------------------------------------------------------------------------------
                                                                                                   Average 2017-
                                       2017            2018            2019            2020            2020
----------------------------------------------------------------------------------------------------------------
2016-based IPF Proposed Wage                 2.4             2.6             3.0             3.3             2.8
 Proxy Blend....................
2012-based IPF Wage Proxy Blend.             2.4             2.6             3.0             3.2             2.8
----------------------------------------------------------------------------------------------------------------
**Source: IHS Global Inc., 4th Quarter 2018 forecast with historical data through 3rd Quarter 2018.

Benefits
    To measure benefits price growth in the 2016-based IPF market 
basket, we are proposing to apply a benefits proxy blend based on the 
same six subcategories and the same six blend weights for the wage 
proxy blend. These subcategories and blend weights are listed in Table 
8.
    The benefit ECIs, listed in Table 8, are not publically available. 
Therefore, an ``ECIs for Total Benefits'' is calculated using 
publically available ``ECIs for Total Compensation'' for each 
subcategory and the relative importance of wages within that 
subcategory's total compensation. This is the same benefits ECI 
methodology that we implemented in our 2012-based IPF market basket as 
well as used in the IPPS, SNF, Home Health Agency (HHA), 
Rehabilitation, Psychiatric, and Long-Term Care (RPL), Long-Term Care 
Hospital (LTCH), and End-Stage Renal Disease (ESRD) market baskets. We 
believe that the six price proxies listed in Table 8 are the most 
technically appropriate indices to measure the price growth of the 
Benefits cost category in the proposed 2016-based IPF market basket.

[[Page 16962]]



                       Table 8--Proposed 2016-Based IPF Market Basket Benefits Proxy Blend
----------------------------------------------------------------------------------------------------------------
                                               2016-based      2012-based
              Wage subcategory                benefit blend   benefit blend              Price proxy
                                                 weight          weight
----------------------------------------------------------------------------------------------------------------
Health Service.............................         36.3(%)            36.2  ECI for Total Benefits for All
                                                                              Civilian workers in Healthcare and
                                                                              Social Assistance.
Health Professional and Technical..........            34.9            33.5  ECI for Total Benefits for All
                                                                              Civilian workers in Hospitals.
NonHealth Service..........................             8.9             9.2  ECI for Total Benefits for Private
                                                                              Industry workers in Service
                                                                              Occupations.
NonHealth Professional and Technical.......             7.0             7.3  ECI for Total Benefits for Private
                                                                              Industry workers in Professional,
                                                                              Scientific, and Technical
                                                                              Services.
Management.................................             6.8             7.1  ECI for Total Benefits for Private
                                                                              Industry workers in Management,
                                                                              Business, and Financial.
Clerical...................................             6.1             6.7  ECI for Total Benefits for Private
                                                                              Industry workers in Office and
                                                                              Administrative Support.
                                            --------------------------------
    Total..................................           100.0           100.0
----------------------------------------------------------------------------------------------------------------

    A comparison of the yearly changes from FY 2017 to FY 2020 for the 
proposed 2016-based IPF benefit proxy blend and the 2012-based IPF 
benefit proxy is shown in Table 9. The average annual growth rate is 
the same for both price proxies over 2017-2020.

 Table 9--Fiscal Year Growth in the Proposed 2016-Based IPF Benefit Proxy Blend and 2012-Based IPF Benefit Proxy
                                                      Blend
----------------------------------------------------------------------------------------------------------------
                                                                                                   Average 2017-
                                       2017            2018            2019            2020            2020
----------------------------------------------------------------------------------------------------------------
2016-based IPF Proposed Benefit              1.9             2.1             2.8             3.3             2.5
 Proxy Blend....................
2012-based IPF Benefit Proxy                 1.9             2.1             2.8             3.3             2.5
 Blend..........................
----------------------------------------------------------------------------------------------------------------
Source: IHS Global Inc., 4th Quarter 2018 forecast with historical data through 3rd Quarter 2018.

Electricity
    We are proposing to continue to use the PPI Commodity Index for 
Commercial Electric Power (BLS series code WPU0542) to measure the 
price growth of this cost category. This is the same price proxy used 
in the 2012-based IPF market basket.
Fuel, Oil, and Gasoline
    Similar to the 2012-based IPF market basket, for the 2016-based IPF 
market basket, we are proposing to use a blend of the PPI for Petroleum 
Refineries and the PPI Commodity for Natural Gas. Our analysis of the 
BEA's 2012 Benchmark I-O data (use table before redefinitions, 
purchaser's value for NAICS 622000 [Hospitals]) shows that Petroleum 
Refineries expenses accounts for approximately 90 percent and Natural 
Gas accounts for approximately 10 percent of Hospitals (NAICS 622000) 
total Fuel, Oil, and Gasoline expenses. Therefore, we propose to use a 
blend of 90 percent of the PPI for Petroleum Refineries (BLS series 
code PCU324110324110) and 10 percent of the PPI Commodity Index for 
Natural Gas (BLS series code WPU0531) as the price proxy for this cost 
category. The 2012-based IPF market basket used a 70/30 blend of these 
price proxies, reflecting the 2007 I-O data. We believe that these two 
price proxies continue to be the most technically appropriate indices 
available to measure the price growth of the Fuel, Oil, and Gasoline 
cost category in the proposed 2016-based IPF market basket.
Professional Liability Insurance
    We are proposing to continue to use the CMS Hospital Professional 
Liability Index to measure changes in professional liability insurance 
(PLI) premiums. To generate this index, we collect commercial insurance 
premiums for a fixed level of coverage while holding non-price factors 
constant (such as a change in the level of coverage). This is the same 
proxy used in the 2012-based IPF market basket.
Pharmaceuticals
    We are proposing to continue to use the PPI for Pharmaceuticals for 
Human Use, Prescription (BLS series code WPUSI07003) to measure the 
price growth of this cost category. This is the same proxy used in the 
2012-based IPF market basket.
Food: Direct Purchases
    We are proposing to continue to use the PPI for Processed Foods and 
Feeds (BLS series code WPU02) to measure the price growth of this cost 
category. This is the same proxy used in the 2012-based IPF market 
basket.
Food: Contract Purchases
    We are proposing to continue to use the CPI for Food Away From Home 
(BLS series code CUUR0000SEFV) to measure the price growth of this cost 
category. This is the same proxy used in the 2012-based IPF market 
basket.
Chemicals
    Similar to the 2012-based IPF market basket, we are proposing to 
use a four part blended PPI as the proxy for the chemical cost category 
in the proposed 2016-based IPF market basket. The proposed blend is 
composed of the PPI for Industrial Gas Manufacturing Primary Products 
(BLS series code PCU325120325120P), the PPI for Other Basic Inorganic 
Chemical Manufacturing (BLS series code PCU32518-32518-), the PPI for 
Other Basic Organic Chemical Manufacturing (BLS series code PCU32519-
32519-), and the PPI for Other Miscellaneous Chemical Product 
Manufacturing (BLS series code PCU325998325998).
    We note that the four part blended PPI used in the 2012-based IPF 
market basket is composed of the PPI for Industrial Gas Manufacturing 
(BLS series code PCU325120325120P), the PPI for Other Basic Inorganic 
Chemical

[[Page 16963]]

Manufacturing (BLS series code PCU32518-32518-), the PPI for Other 
Basic Organic Chemical Manufacturing (BLS series code PCU32519-32519-), 
and the PPI for Soap and Cleaning Compound Manufacturing (BLS series 
code PCU32561-32561-).
    We are proposing to derive the weights for the PPIs using the 2012 
Benchmark I-O data. The 2012-based IPF market basket used the 2007 
Benchmark I-O data to derive the weights for the four PPIs.
    Table 10 shows the weights for each of the four PPIs used to create 
proposed blended Chemical proxy for the proposed 2016 IPF market basket 
compared to the 2012-based blended Chemical proxy.

                                     Table 10--Blended Chemical PPI Weights
----------------------------------------------------------------------------------------------------------------
                                                                  Proposed 2016-     2012-based
                              Name                                   based IPF      IPF weights        NAICS
                                                                    weights (%)         (%)
----------------------------------------------------------------------------------------------------------------
PPI for Industrial Gas Manufacturing............................              19              32          325120
PPI for Other Basic Inorganic Chemical Manufacturing............              13              17          325180
PPI for Other Basic Organic Chemical Manufacturing..............              60              45          325190
PPI for Soap and Cleaning Compound Manufacturing................             n/a               6          325610
PPI for Other Miscellaneous Chemical Product Manufacturing......               8             n/a          325998
----------------------------------------------------------------------------------------------------------------

Medical Instruments
    We are proposing to continue to use a blend of two PPIs for the 
Medical Instruments cost category. The 2012 Benchmark I-O data shows an 
approximate 57/43 split between Surgical and Medical Instruments and 
Medical and Surgical Appliances and Supplies for this cost category. 
Therefore, we propose a blend composed of 57 percent of the commodity-
based PPI for Surgical and Medical Instruments (BLS series code 
WPU1562) and 43 percent of the commodity-based PPI for Medical and 
Surgical Appliances and Supplies (BLS series code WPU1563). The 2012-
based IPF market basket used a 50/50 blend of these PPIs based on the 
2007 Benchmark I-O data.
Rubber and Plastics
    We are proposing to continue to use the PPI for Rubber and Plastic 
Products (BLS series code WPU07) to measure price growth of this cost 
category. This is the same proxy used in the 2012-based IPF market 
basket.
Paper and Printing Products
    We are proposing to continue to use the PPI for Converted Paper and 
Paperboard Products (BLS series code WPU0915) to measure the price 
growth of this cost category. This is the same proxy used in the 2012-
based IPF market basket.
Miscellaneous Products
    We are proposing to continue to use the PPI for Finished Goods Less 
Food and Energy (BLS series code WPUFD4131) to measure the price growth 
of this cost category. This is the same proxy used in the 2012-based 
IPF market basket.
Professional Fees: Labor-Related
    We are proposing to continue to use the ECI for Total Compensation 
for Private Industry workers in Professional and Related (BLS series 
code CIU2010000120000I) to measure the price growth of this category. 
This is the same proxy used in the 2012-based IPF market basket.
Administrative and Facilities Support Services
    We are proposing to continue to use the ECI for Total Compensation 
for Private Industry workers in Office and Administrative Support (BLS 
series code CIU2010000220000I) to measure the price growth of this 
category. This is the same proxy used in the 2012-based IPF market 
basket.
Installation, Maintenance, and Repair
    We are proposing to continue to use the ECI for Total Compensation 
for Civilian workers in Installation, Maintenance, and Repair (BLS 
series code CIU1010000430000I) to measure the price growth of this cost 
category. This is the same proxy used in the 2012-based IPF market 
basket.
All Other: Labor-Related Services
    We are proposing to continue to use the ECI for Total Compensation 
for Private Industry workers in Service Occupations (BLS series code 
CIU2010000300000I) to measure the price growth of this cost category. 
This is the same proxy used in the 2012-based IPF market basket.
Professional Fees: Nonlabor-Related
    We are proposing to continue to use the ECI for Total Compensation 
for Private Industry workers in Professional and Related (BLS series 
code CIU2010000120000I) to measure the price growth of this category. 
This is the same proxy used in the 2012-based IPF market basket.
Financial Services
    We are proposing to continue to use the ECI for Total Compensation 
for Private Industry workers in Financial Activities (BLS series code 
CIU201520A000000I) to measure the price growth of this cost category. 
This is the same proxy used in the 2012-based IPF market basket.
Telephone Services
    We are proposing to continue to use the CPI for Telephone Services 
(BLS series code CUUR0000SEED) to measure the price growth of this cost 
category. This is the same proxy used in the 2012-based IPF market 
basket.
All Other: Nonlabor-Related Services
    We are proposing to continue to use the CPI for All Items Less Food 
and Energy (BLS series code CUUR0000SA0L1E) to measure the price growth 
of this cost category. This is the same proxy used in the 2012-based 
IPF market basket.
ii. Price Proxies for the Capital Portion of the Proposed 2016-Based 
IPF Market Basket
Capital Price Proxies Prior to Vintage Weighting
    We are proposing to continue to use the same price proxies for the 
capital-related cost categories as were applied in the 2012-based IPF 
market basket, which are provided and described in Table 12. 
Specifically, we are proposing to proxy:
     Depreciation: Building and Fixed Equipment cost category 
by BEA's Chained Price Index for Nonresidential Construction for 
Hospitals and Special Care Facilities (BEA Table 5.4.4. Price

[[Page 16964]]

Indexes for Private Fixed Investment in Structures by Type).
     Depreciation: Movable Equipment cost category by the PPI 
for Machinery and Equipment (BLS series code WPU11).
     Nonprofit Interest cost category by the average yield on 
domestic municipal bonds (Bond Buyer 20-bond index).
     For-profit Interest cost category by the average yield on 
Moody's Aaa bonds (Federal Reserve).
     Other Capital-Related cost category by the CPI-U for Rent 
of Primary Residence (BLS series code CUUS0000SEHA).
    We believe that these are the most appropriate proxies for IPF 
capital-related costs that meet our selection criteria of relevance, 
timeliness, availability, and reliability. We are also proposing to 
continue to vintage weight the capital price proxies for Depreciation 
and Interest in order to capture the long-term consumption of capital. 
This vintage weighting method is similar to the method used for the 
2012-based IPF market basket and is described in the section labeled 
Vintage Weights for Price Proxies.
Vintage Weights for Price Proxies
    Because capital is acquired and paid for over time, capital-related 
expenses in any given year are determined by both past and present 
purchases of physical and financial capital. The vintage-weighted 
capital-related portion of the proposed 2016-based IPF market basket is 
intended to capture the long-term consumption of capital, using vintage 
weights for depreciation (physical capital) and interest (financial 
capital). These vintage weights reflect the proportion of capital-
related purchases attributable to each year of the expected life of 
building and fixed equipment, movable equipment, and interest. We are 
proposing to use vintage weights to compute vintage-weighted price 
changes associated with depreciation and interest expenses.
    Capital-related costs are inherently complicated and are determined 
by complex capital-related purchasing decisions, over time, based on 
such factors as interest rates and debt financing. In addition, capital 
is depreciated over time instead of being consumed in the same period 
it is purchased. By accounting for the vintage nature of capital, we 
are able to provide an accurate and stable annual measure of price 
changes. Annual non-vintage price changes for capital are unstable due 
to the volatility of interest rate changes and, therefore, do not 
reflect the actual annual price changes for IPF capital-related costs. 
The capital-related component of the proposed 2016-based IPF market 
basket reflects the underlying stability of the capital-related 
acquisition process.
    The methodology used to calculate the vintage weights for the 
proposed 2016-based IPF market basket is the same as that used for the 
2012-based IPF market basket with the only difference being the 
inclusion of more recent data. To calculate the vintage weights for 
depreciation and interest expenses, we first need a time series of 
capital-related purchases for building and fixed equipment and movable 
equipment. We found no single source that provides an appropriate time 
series of capital-related purchases by hospitals for all of the listed 
components of capital purchases. The early Medicare cost reports did 
not have sufficient capital-related data to meet this need. Data we 
obtained from the American Hospital Association (AHA) do not include 
annual capital-related purchases. However, the AHA does provide a 
consistent database of total expenses back to 1963. Consequently, we 
are proposing to use data from the AHA Panel Survey and the AHA Annual 
Survey to obtain a time series of total expenses for hospitals. We then 
are proposing to use data from the AHA Panel Survey supplemented with 
the ratio of depreciation to total hospital expenses obtained from the 
Medicare cost reports to derive a trend of annual depreciation expenses 
for 1963 through 2016. We are proposing to separate these depreciation 
expenses into annual amounts of building and fixed equipment 
depreciation and movable equipment depreciation as previously 
determined. From these annual depreciation amounts we derive annual 
end-of-year book values for building and fixed equipment and movable 
equipment using the expected life for each type of asset category. 
While data are not available that are specific to IPFs, we believe this 
information for all hospitals serves as a reasonable alternative for 
the pattern of depreciation for IPFs.
    To continue to calculate the vintage weights for depreciation and 
interest expenses, we also need the expected lives for Building and 
Fixed Equipment, Movable Equipment, and Interest for the proposed 2016-
based IPF market basket. We are proposing to calculate the expected 
lives using Medicare cost report data from freestanding and hospital-
based IPFs. The expected life of any asset can be determined by 
dividing the value of the asset (excluding fully depreciated assets) by 
its current year depreciation amount. This calculation yields the 
estimated expected life of an asset if the rates of depreciation were 
to continue at current year levels, assuming straight-line 
depreciation. We are proposing to determine the expected life of 
building and fixed equipment separately for hospital-based IPFs and 
freestanding IPFs and weight these expected lives using the percent of 
total capital costs each provider type represents. We are proposing to 
apply a similar method for movable equipment. Using these proposed 
methods, we determined the average expected life of building and fixed 
equipment to be equal to 22 years, and the average expected life of 
movable equipment to be equal to 11 years. For the expected life of 
interest, we believe vintage weights for interest should represent the 
average expected life of building and fixed equipment because, based on 
previous research described in the FY 1997 IPPS final rule (61 FR 
46198), the expected life of hospital debt instruments and the expected 
life of buildings and fixed equipment are similar. We note that for the 
2012-based IPF market basket the expected life of building and fixed 
equipment is 23 years and the expected life of movable equipment is 11 
years.
    Multiplying these expected lives by the annual depreciation amounts 
results in annual year-end asset costs for building and fixed equipment 
and movable equipment. We then calculate a time series, beginning in 
1964, of annual capital purchases by subtracting the previous year's 
asset costs from the current year's asset costs.
    For the building and fixed equipment and movable equipment vintage 
weights, we are proposing to use the real annual capital-related 
purchase amounts for each asset type to capture the actual amount of 
the physical acquisition, net of the effect of price inflation. These 
real annual capital-related purchase amounts are produced by deflating 
the nominal annual purchase amount by the associated price proxy as 
provided. For the interest vintage weights, we are proposing to use the 
total nominal annual capital-related purchase amounts to capture the 
value of the debt instrument (including, but not limited to, mortgages 
and bonds). Using these capital-related purchase time series specific 
to each asset type, we are proposing to calculate the vintage weights 
for building and fixed equipment, for movable equipment, and for 
interest.
    The vintage weights for each asset type are deemed to represent the 
average purchase pattern of the asset over its expected life (in the 
case of building and fixed equipment and interest, 22 years, and in the 
case of movable equipment, 11 years). For each

[[Page 16965]]

asset type, we used the time series of annual capital-related purchase 
amounts available from 2016 back to 1964. These data allow us to derive 
thirty-two 22-year periods of capital-related purchases for building 
and fixed equipment and interest, and forty-two 11-year periods of 
capital-related purchases for movable equipment. For each 22-year 
period for building and fixed equipment and interest, or 11-year period 
for movable equipment, we calculate annual vintage weights by dividing 
the capital-related purchase amount in any given year by the total 
amount of purchases over the entire 22-year or 11-year period. This 
calculation is done for each year in the 22-year or 11-year period and 
for each of the periods for which we have data. We then calculate the 
average vintage weight for a given year of the expected life by taking 
the average of these vintage weights across the multiple periods of 
data.
    The vintage weights for the capital-related portion of the proposed 
2016-based IPF market baskets and the 2012-based IPF market basket are 
presented in Table 11.

           Table 11--Proposed 2016-Based IPF Market Basket and 2012-Based IPF Market Basket Vintage Weights for Capital-Related Price Proxies
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Building and fixed equipment          Movable equipment                   Interest
                                                         -----------------------------------------------------------------------------------------------
                          Year                             2016-based 22   2012-based 23   2016-based 11   2012-based 11   2016-based 22   2012-based 23
                                                               years           years           years           years           years           years
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................................           0.035           0.029           0.071           0.069           0.021           0.017
2.......................................................           0.036           0.031           0.075           0.073           0.023           0.019
3.......................................................           0.038           0.034           0.080           0.077           0.025           0.022
4.......................................................           0.038           0.036           0.085           0.083           0.026           0.024
5.......................................................           0.040           0.037           0.087           0.087           0.029           0.026
6.......................................................           0.042           0.039           0.091           0.091           0.031           0.028
7.......................................................           0.042           0.040           0.095           0.096           0.033           0.030
8.......................................................           0.041           0.041           0.099           0.100           0.033           0.032
9.......................................................           0.042           0.042           0.102           0.103           0.036           0.035
10......................................................           0.043           0.044           0.105           0.107           0.038           0.038
11......................................................           0.046           0.045           0.110           0.114           0.042           0.040
12......................................................           0.047           0.045  ..............  ..............           0.045           0.042
13......................................................           0.048           0.045  ..............  ..............           0.048           0.044
14......................................................           0.049           0.046  ..............  ..............           0.052           0.046
15......................................................           0.050           0.046  ..............  ..............           0.055           0.048
16......................................................           0.050           0.048  ..............  ..............           0.057           0.053
17......................................................           0.051           0.049  ..............  ..............           0.060           0.057
18......................................................           0.053           0.050  ..............  ..............           0.065           0.060
19......................................................           0.053           0.051  ..............  ..............           0.068           0.063
20......................................................           0.053           0.051  ..............  ..............           0.069           0.066
21......................................................           0.052           0.051  ..............  ..............           0.070           0.067
22......................................................           0.052           0.050  ..............  ..............           0.072           0.069
23......................................................  ..............           0.052  ..............  ..............  ..............           0.073
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................           1.000           1.000           1.000           1.000           1.000           1.000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Numbers may not add to total due to rounding.

    The process of creating vintage-weighted price proxies requires 
applying the vintage weights to the price proxy index where the last 
applied vintage weight in Table 11 is applied to the most recent data 
point. We have provided on the CMS website an example of how the 
vintage weighting price proxies are calculated, using example vintage 
weights and example price indices. The example can be found at the 
following link: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html in the zip file titled ``Weight Calculations 
as described in the IPPS FY 2010 Proposed Rule.''
iii. Summary of Price Proxies of the Proposed 2016-Based IPF Market 
Basket
    Table 12 shows both the operating and capital price proxies for the 
proposed 2016-based IPF Market Basket.
BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C
4. FY 2020 Market Basket Update
    For FY 2020 (that is, beginning October 1, 2019 and ending 
September 30, 2020), we propose to use an estimate of the 2016-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 CMS to forecast the components of 
the market baskets and multifactor productivity (MFP).
    Using IGI's fourth quarter 2018 forecast with historical data 
through the third quarter of 2018, the projected proposed 2016-based 
IPF market basket increase factor for FY 2020 is 3.1 percent. We are 
proposing that if more recent data are subsequently available (for 
example, a more recent estimate of the market basket) we would use such 
data, to determine the FY 2020 update in the final rule. For 
comparison, the current 2012-based IPF market basket is also projected 
to increase by 3.1 percent in FY 2020 based on IGI's fourth quarter 
2018 forecast. Table 13 compares the proposed 2016-based IPF market 
basket and the 2012-based IPF market basket percent changes.

   Table 13--Proposed 2016-Based IPF Market Basket and 2012-Based IPF
         Market Basket Percent Changes, FY 2015 Through FY 2022
------------------------------------------------------------------------
                                       Proposed 2016-    2012-based IPF
                                      based IPF market    market basket
          Fiscal year (FY)              basket index      index percent
                                       percent change        change
------------------------------------------------------------------------
Historical data:
    FY 2015.........................               1.9               1.8
    FY 2016.........................               1.9               1.9
    FY 2017.........................               2.4               2.5
    FY 2018.........................               2.6               2.6
                                     -----------------------------------
        Average 2015-2018...........               2.2               2.2
------------------------------------------------------------------------
Forecast:
    FY 2019.........................               2.9               2.9
    FY 2020.........................               3.1               3.1
    FY 2021.........................               3.1               3.2
    FY 2022.........................               3.1               3.1
                                     -----------------------------------
        Average 2019-2022...........               3.1               3.1
------------------------------------------------------------------------
Note: These market basket percent changes do not include any further
  adjustments as may be statutorily required. Source: IHS Global Inc.
  4th quarter 2018 forecast.

5. Productivity Adjustment
    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 (that is, a RY that 
coincides with a FY) and each subsequent RY. The statute defines the 
productivity adjustment to be equal to the 10-year moving average of 
changes in annual economy-wide private nonfarm business multifactor 
productivity (MFP) (as projected by the Secretary for the 10-year 
period ending with the applicable FY, year, cost reporting period, or 
other annual period) (the ``MFP adjustment''). The BLS publishes the 
official measure of private non-farm business MFP. We refer readers to 
the BLS website at http://www.bls.gov/mfp for the BLS historical 
published MFP data.
    MFP is derived by subtracting the contribution of labor and capital 
inputs growth from output growth. The projections of the components of 
MFP are currently produced by IGI, a nationally recognized economic 
forecasting firm with which CMS contracts to forecast the components of 
the market baskets and MFP. For more information on the productivity 
adjustment, we refer reader to the discussion in the FY 2016 IPF PPS 
final rule (80 FR 46675).

[[Page 16968]]

    For this FY 2020 proposed rule, using IGI's fourth quarter 2018 
forecast, the MFP adjustment for FY 2020 (the 10-year moving average of 
MFP for the period ending FY 2020) is projected to be 0.5 percent. 
Thus, in accordance with section 1886(s)(2)(A)(i) of the Act, we are 
proposing to base the FY 2020 market basket update, which is used to 
determine the applicable percentage increase for the IPF payments, on 
the most recent estimate of the proposed 2016-based IPF market basket 
(currently estimated to be 3.1 percent based on IGI's fourth quarter 
2018 forecast). We propose to then reduce this percentage increase of 
3.1 percent by the current estimate of the MFP adjustment for FY 2020 
of 0.5 percentage point (the 10-year moving average of MFP for the 
period ending FY 2020 based on IGI's fourth quarter 2018 forecast) 
yielding a productivity-adjusted IPF market basket update of 2.6 
percent. In addition, for FY 2020 the proposed 2016-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 statutory language specifies that the 0.75 percentage point other 
adjustment applies to rate years beginning in 2017, 2018, and 2019; 
since fiscal year 2020 begins on October 1, 2019, the 0.75 percentage 
point other adjustment applies to FY 2020. FY 2020 is the final year of 
the 0.75 percentage point other adjustment as required by section 
1866(s)(3)(E) of the Act. This results in an estimated FY 2020 IPF PPS 
payment rate update of 1.85 percent (3.1-0.5-0.75 = 1.85 percent). 
Finally, we are proposing that if more recent data are subsequently 
available (for example, a more recent estimate of the market basket and 
MFP adjustment), we would use such data to determine the FY 2020 market 
basket update and MFP adjustment in the final rule.
6. Proposed Labor-Related Share for FY 2020
    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 propose to continue to classify a cost category as labor-
related if the costs are labor intensive and vary with the local labor 
market.
    We are proposing to include in the labor-related share the sum of 
the relative importance of the following cost categories: 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 of the Capital-Related cost weight from the proposed 2016-based 
IPF market basket. These are the same categories as the 2012-based IPF 
market basket.
    Similar to the 2012-based IPF market basket, the proposed 2016-
based IPF market basket includes two cost categories for nonmedical 
Professional fees (including but not limited to, expenses for legal, 
accounting, and engineering services). These are Professional Fees: 
Labor-related and Professional Fees: Nonlabor-related. For the proposed 
2016-based IPF market basket, we propose to estimate the labor-related 
percentage of non-medical professional fees (and assign these expenses 
to the Professional Fees: Labor-related services cost category) based 
on the same method that was used to determine the labor-related 
percentage of professional fees in the 2012-based IPF market basket.
    As was done in the 2012-based IPF market basket, we propose to 
determine the proportion of legal, accounting and auditing, 
engineering, and management consulting services that meet our 
definition of labor-related services based on a survey of hospitals 
conducted by CMS in 2008. We notified the public of our intent to 
conduct this survey on December 9, 2005 (70 FR 73250) and did not 
receive any public comments in response to the notice (71 FR 8588). A 
discussion of the composition of the survey and post-stratification can 
be found in the FY 2010 Inpatient Prospective Payment System (IPPS) 
Long-Term Care Hospital (LTCH) Prospective Payment System (PPS) final 
rule (74 FR 43850 through 43856). Based on the weighted results of the 
survey, we determined that hospitals purchase, on average, the 
following portions of contracted professional services outside of their 
local labor market:
     34 percent of accounting and auditing services.
     30 percent of engineering services.
     33 percent of legal services.
     42 percent of management consulting services.
    We are proposing to apply each of these percentages to the 
respective 2012 Benchmark I-O cost category underlying the professional 
fees cost category to determine the Professional Fees: Nonlabor-related 
costs. The Professional Fees: Labor-related costs were determined to be 
the difference between the total costs for each Benchmark I-O category 
and the Professional Fees: Nonlabor-related costs. This is the same 
methodology that we used to separate the 2012-based IPF market basket 
professional fees category into Professional Fees: Labor-related and 
Professional Fees: Nonlabor-related cost categories.
    In the proposed 2016-based IPF market basket, nonmedical 
professional fees that were subject to allocation based on these survey 
results represent 3.6 percent of total costs (and are limited to those 
fees related to Accounting & Auditing, Legal, Engineering, and 
Management Consulting services). Based on our survey results, we 
proposed to apportion 2.3 percentage points of the 3.6 percentage point 
figure into the Professional Fees: Labor-related share cost category 
and designate the remaining 1.3 percentage point into the Professional 
Fees: Nonlabor-related cost category.
    In addition to the professional services listed, for the 2016-based 
IPF market basket, we are proposing to allocate a proportion of the 
Home Office Contract Labor cost weight, calculated using the Medicare 
cost reports, into the Professional Fees: Labor-related and 
Professional Fees: Nonlabor-related cost categories. We are proposing 
to classify these expenses as labor-related and nonlabor-related as 
many facilities are not located in the same geographic area as their 
home office and, therefore, do not meet our definition for the labor-
related share that requires the services to be purchased in the local 
labor market.
    Similar to the 2012-based IPF market basket, we are proposing for 
the 2016-based IPF market basket to use the Medicare cost reports for 
both freestanding IPF providers and hospital-based IPF providers to 
determine the home office labor-related percentages. The Medicare cost 
report requires a hospital to report information regarding their home 
office provider. Using information on the Medicare cost report, we then 
compare the location of the IPF with the location of the IPF's home 
office. We are proposing to classify an IPF with a home office located 
in their respective labor market if the IPF and its home office are 
located in the same Metropolitan Statistical Area (MSA). We then 
determine the proportion of the Home Office Contract Labor cost weight 
that should be allocated to the labor-related share based on the 
percent of total Medicare allowable costs for those IPFs that had home 
offices located in

[[Page 16969]]

their respective local labor markets of total Medicare allowable costs 
for IPFs with a home office. We determined an IPF's and its home 
office's MSA using their zip code information from the Medicare cost 
report. Using this methodology, we determined that 46 percent of IPFs' 
Medicare allowable costs were for home offices located in their 
respective local labor markets. Therefore, we are allocating 46 percent 
of the Home Office Contract Labor cost weight (1.6 percentage points = 
3.5 percent times 46 percent) to the Professional Fees: Labor-related 
cost weight and 54 percent of the Home Office Contract Labor cost 
weight to the Professional Fees: Nonlabor-related cost weight (1.9 
percentage points = 3.5 percent times 54 percent). For the 2012-based 
IPF market basket, we used a similar methodology but we relied on 
provider counts rather than total Medicare allowable costs to determine 
the labor-related percentage.
    In summary, based on the two allocations mentioned earlier, we 
apportioned percentage points of the professional fees and home office/
related organization contract labor cost weights into the Professional 
Fees: Labor-Related cost category. This amount was added to the portion 
of professional fees that we already identified as labor-related using 
the I-O data such as contracted advertising and marketing costs 
(approximately 0.5 percentage point of total costs) resulting in a 
Professional Fees: Labor-Related cost weight of 4.4 percent.
    As stated, we are proposing 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 of the Capital-Related 
cost weight from the proposed 2016-based IPF market basket. The 
relative importance reflects the different rates of price change for 
these cost categories between the base year (2016) and FY 2020. Based 
on IHS Global Inc. 4th quarter 2018 forecast for the proposed 2016-
based IPF market basket, the sum of the FY 2020 relative importance for 
Wages and Salaries, Employee Benefits, Professional Fees: Labor-
related, Administrative and Facilities Support Services, Installation 
Maintenance & Repair Services, and All Other: Labor-related Services is 
73.7 percent. The portion of Capital costs that is influenced by the 
local labor market is estimated to be 46 percent, which is the same 
percentage applied to the 2012-based IPF market basket. Since the 
relative importance for Capital is 6.8 percent of the proposed 2016-
based IPF market basket in FY 2020, we took 46 percent of 6.8 percent 
to determine the proposed labor-related share of Capital for FY 2020 of 
3.1 percent. Therefore, we are proposing a total labor-related share 
for FY 2020 of 76.8 percent (the sum of 73.7 percent for the operating 
cost and 3.1 percent for the labor-related share of Capital). Table 14 
shows the FY 2020 labor-related share using the proposed 2016-based IPF 
market basket relative importance and the FY 2019 labor-related share 
using the 2012-based IPF market basket.

Table 14--Proposed FY 2020 IPF Labor-Related Share and FY 2019 IPF Labor-
                              Related Share
------------------------------------------------------------------------
                                       FY 2020 labor-     FY 2019 final
                                        related share     labor-related
                                          based on       share based on
                                       proposed 2016-    2012-based IPF
                                      based IPF market    market basket
                                         basket \1\            \2\
------------------------------------------------------------------------
Wages and Salaries..................              52.3              52.0
Employee Benefits...................              13.7              13.2
Professional Fees: Labor-related \3\               4.4               2.8
Administrative and Facilities                      0.6               0.7
 Support Services...................
Installation, Maintenance and Repair               1.3               1.6
All Other: Labor-related Services...               1.4               1.5
                                     -----------------------------------
    Subtotal........................              73.7              71.8
Labor-related portion of capital                   3.1               3.0
 (46%)..............................
                                     -----------------------------------
    Total LRS.......................              76.8              74.8
------------------------------------------------------------------------
\1\ IHS Global Inc. 4th quarter 2018 forecast.
\2\ Based on IHS Global Inc. 2nd quarter 2018 forecast as published in
  the Federal Register (83 FR 38579).
\3\ Includes all contract advertising and marketing costs and a portion
  of accounting, architectural, engineering, legal, management
  consulting, and home office contract labor costs.

B. Proposed Updates to the IPF PPS Rates for FY Beginning October 1, 
2019

    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).

[[Page 16970]]

    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 RY 2007 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 FY 
2014 IPF PPS update notice (78 FR 46738 through 46740). These documents 
are available on the CMS website 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 proposed update 
to the ICD-10-PCS code set for FY 2020. Addendum B-4 to this proposed 
rule shows the ECT procedure codes for FY 2020 and is available on our 
website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html.
2. Proposed Update of the Federal per Diem Base Rate and 
Electroconvulsive Therapy Payment per Treatment
    The current (FY 2019) federal per diem base rate is $782.78 and the 
ECT payment per treatment is $337.00. For the FY 2020 federal per diem 
base rate, we applied the payment rate update of 1.85 percent (that is, 
the 2016-based IPF market basket increase for FY 2020 of 3.1 percent 
less the productivity adjustment of 0.5 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 1.0078 (as discussed in section III.D.1.f of this proposed rule) to 
the FY 2019 federal per diem base rate of $782.78, yielding a federal 
per diem base rate of $803.48 for FY 2020. Similarly, we applied the 
1.85 percent payment rate update and the 1.0078 wage index budget-
neutrality factor to the FY 2018 ECT payment per treatment, yielding an 
ECT payment per treatment of $345.91 for FY 2020.
    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 fail requirements under the Inpatient 
Psychiatric Facilities Quality Reporting (IPFQR) Program, we applied a 
-0.15 percent payment rate update (that is, the IPF market basket 
increase for FY 2020 of 3.1 percent less the productivity adjustment of 
0.5 percentage point, further reduced by the 0.75 percentage point for 
an update of 1.85 percent, and further 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 1.0078 to the FY 2019 federal per diem base rate of $782.78, 
yielding a federal per diem base rate of $787.70 for FY 2020.
     For IPFs that fail to meet requirements under the IPFQR 
Program, we applied the -0.15 percent annual payment rate update and 
the 1.0078 wage index budget-neutrality factor to the FY 2019 ECT 
payment per treatment of $337.00, yielding an ECT payment per treatment 
of $339.12 for FY 2020.

C. Proposed 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 Medicare Provider and Analysis 
Review (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 2020. However, we have used more recent 
claims data to simulate payments to finalize the outlier fixed dollar 
loss threshold amount and to assess the impact of the IPF PPS updates.
2. IPF PPS Patient-Level Adjustments
    The IPF PPS includes payment adjustments for the following patient-
level characteristics: Medicare Severity Diagnosis Related Groups (MS-
DRGs) assignment of the patient's principal diagnosis, selected 
comorbidities, patient age, and the variable per diem adjustments.
a. Proposed Update to MS-DRG Assignment
    We believe it is important to maintain for IPFs the same diagnostic 
coding and Diagnosis Related Group (DRG) classification 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 (MS-DRGs) that were utilized at the time under the IPPS. In the 
RY 2009 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 RY 2009 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 RY 2009 IPF PPS notice (73 FR 25714).

[[Page 16971]]

    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 FY 2020, we are not 
proposing any changes to the IPF MS-DRG adjustment factors but propose 
to maintain the existing IPF MS-DRG adjustment factors.
    In the FY 2015 IPF PPS final rule published August 6, 2014 in the 
Federal Register titled, ``Inpatient Psychiatric Facilities Prospective 
Payment System--Update for FY Beginning October 1, 2014 (FY 2015)'' (79 
FR 45945 through 45947), we 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 website at https://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html.
    For FY 2020, we propose to continue to make the existing payment 
adjustment for psychiatric diagnoses that group to one of the existing 
17 IPF MS-DRGs listed in Addendum A. Addendum A is available on our 
website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html. Psychiatric principal 
diagnoses that do not group to one of the 17 designated MS-DRGs will 
still receive the federal per diem base rate and all other applicable 
adjustments, but the payment will not include an MS-DRG adjustment.
    The diagnoses for each IPF MS-DRG will be updated as of October 1, 
2019, using the final IPPS FY 2020 ICD-10-CM/PCS code sets. The FY 2020 
IPPS proposed rule includes tables of the proposed changes to the ICD-
10-CM/PCS code sets which underlie the FY 2020 IPF MS-DRGs. Both the FY 
2020 IPPS proposed rule and the tables of proposed changes to the ICD-
10-CM/PCS code sets which underlie the FY 2020 MS-DRGs are available on 
the IPPS website 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 the code first policy, see our November 
2004 IPF PPS final rule (69 FR 66945) and see sections I.A.13 and I.B.7 
of the FY 2019 ICD-10-CM Coding Guidelines, available at https://www.cdc.gov/nchs/icd/data/10cmguidelines-FY2019-final.pdf. 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 FY 2018 and FY 2019, there were no changes to the final 
ICD-10-CM/PCS codes in the IPF Code First table. For FY 2020, there 
continue to be no changes to the ICD-10-CM/PCS codes in the proposed 
IPF Code First table. The proposed FY 2020 Code First table is shown in 
Addendum B-1 on our website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html.
b. Proposed 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 our RY 2012 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 applied. In a code first 
situation, the submitted claim goes through the CMS processing system, 
which will identify the principal diagnosis code as non-psychiatric and 
search the secondary codes for a psychiatric code to assign an MS-DRG 
code for adjustment. The system will continue to search the secondary 
codes for those that are appropriate for comorbidity adjustment.
    As noted previously, it is our policy to maintain the same 
diagnostic coding set for IPFs that is used under the IPPS for 
providing the same psychiatric care. The 17 comorbidity categories 
formerly defined using ICD-9-CM codes were converted to ICD-10-CM/PCS 
in our 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/

[[Page 16972]]

PCS implementation on October 1, 2015. All conversion efforts were made 
with the intent of achieving this goal. For FY 2020, we are proposing 
to use the same comorbidity adjustment factors in effect in FY 2019, 
which are found in Addendum A, available on our website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html.
    We have updated the ICD-10-CM/PCS codes which are associated with 
the existing IPF PPS comorbidity categories, based upon the proposed FY 
2020 update to the ICD-10-CM/PCS code set. The proposed FY 2020 ICD-10-
CM/PCS updates include 4 ICD-10-CM codes added to the Poisoning 
comorbidity category and 2 ICD-10-PCS codes added to the Oncology 
Procedures comorbidity category. These updates are detailed in Addenda 
B-2 and B-3 of this proposed rule, which are available on our website 
at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html.
    In accordance with the policy established in the FY 2015 IPF PPS 
final rule (79 FR 45949 through 45952), we reviewed all new FY 2020 
ICD-10-CM codes to remove site unspecified codes from the FY 2020 ICD-
10-CM/PCS codes in instances where more specific codes are available. 
As we stated in the FY 2015 IPF PPS final rule, we believe that 
specific diagnosis codes that narrowly identify anatomical sites where 
disease, injury, or condition exists should be used when coding 
patients' diagnoses whenever these codes are available. We finalized 
that we would remove site unspecified codes from the IPF PPS ICD-10-CM/
PCS codes in instances in which more specific codes are available, as 
the clinician should be able to identify a more specific diagnosis 
based on clinical assessment at the medical encounter. None of the 
proposed additions to the FY 2020 ICD-10-CM/PCS codes were site 
unspecified, therefore we are not removing any of the new codes.
c. Proposed 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 2020, we are proposing to continue to 
use the patient age adjustments currently in effect in FY 2019, as 
shown in Addendum A of this rule (see https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html).
d. Proposed 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 length of stay (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 rule.
    For FY 2020, we are proposing to continue to use the variable per 
diem adjustment factors currently in effect, as shown in Addendum A of 
this rule (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html). A complete 
discussion of the variable per diem adjustments appears in the November 
2004 IPF PPS final rule (69 FR 66946).

D. Proposed 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 RY 2007 IPF PPS final rule (71 FR 27061), RY 
2009 IPF PPS (73 FR 25719) and the RY 2010 IPF PPS notices (74 FR 
20373), 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. Proposed Change to the IPF Wage Index Methodology
    Due to the variation in costs and because of the differences in 
geographic wage levels, in the November 15, 2004 IPF PPS final rule, we 
required that payment rates under the IPF PPS be adjusted by a 
geographic wage index. We proposed and finalized a policy to use the 
unadjusted, pre-floor, pre-reclassified IPPS hospital wage index to 
account for geographic differences in IPF labor costs. We implemented 
use of the pre-floor, pre-reclassified IPPS hospital wage data to 
compute the IPF wage index since there was not an IPF-specific wage 
index available. We believe that IPFs generally compete in the same 
labor market as IPPS hospitals so the pre-floor, pre-reclassified IPPS 
hospital wage data should be reflective of labor costs of IPFs. We 
believe this pre-floor, pre-reclassified IPPS hospital wage index to be 
the best available data to use as proxy for an IPF specific wage index. 
As discussed in the rate year (RY) 2007 IPF PPS final rule (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, we 
refer readers to the FY 2019 IPPS/LTCH PPS final rule (83 FR 41362 
through 41390). Our wage index policy was put into regulation at 42 CFR 
412.424(a)(2), and requires us to use the best Medicare data available 
to estimate costs per day, including an appropriate wage index to 
adjust for wage differences.
    When the IPF PPS was implemented in the November 15, 2004 IPF PPS 
final rule, with an effective date of January 1, 2005, the pre-floor, 
pre-reclassified IPPS hospital wage index that was available at the 
time was the FY 2005 pre-floor, pre-reclassified IPPS hospital wage 
index. Historically, the IPF wage index for a given RY has used the 
pre-floor, pre-reclassified IPPS hospital wage index from the prior 
fiscal year as its basis. This has been due in part to the pre-floor, 
pre-reclassified IPPS hospital wage index data that were available 
during the IPF rulemaking cycle, where an annual IPF notice or IPF 
final rule was usually published in early May. This publication 
timeframe was relatively early compared to other

[[Page 16973]]

Medicare payment rules because the IPF PPS follows an RY, which was 
defined in the implementation of the IPF PPS as the 12-month period 
from July 1 to June 30 (69 FR 66927). Therefore the best available data 
at the time the IPF PPS was implemented was the pre-floor, pre-
reclassified IPPS hospital wage index from the prior fiscal year (for 
example, the RY 2006 IPF wage index was based on the FY 2005 pre-floor, 
pre-reclassified IPPS hospital wage index).
    In the RY 2012 IPF PPS final rule, we changed the reporting year 
timeframe for IPFs from a RY to the FY, which begins October 1 and ends 
September 30 (76 FR 26434 through 26435). In that FY 2012 IPF PPS final 
rule, we continued our established policy of using the pre-floor, pre-
reclassified IPPS hospital wage index from the prior year (that is, 
from FY 2011) as the basis for the FY 2012 IPF wage index. This policy 
of basing a wage index on the prior year's pre-floor, pre-reclassified 
IPPS hospital wage index has been followed by other Medicare payment 
systems, such as hospice and inpatient rehabilitation facilities. By 
continuing with our established policy, we remained consistent with 
other Medicare payment systems.
    We are proposing to change the IPF wage index methodology to align 
the IPF PPS wage index with the same wage data timeframe used by the 
IPPS for FY 2020 and subsequent years. Specifically, we are proposing 
to use the pre-floor, pre-reclassified IPPS hospital wage index from 
the fiscal year concurrent with the IPF fiscal year as the basis for 
the IPF wage index. For example, under this proposal, the FY 2020 IPF 
wage index would be based on the FY 2020 pre-floor, pre-reclassified 
IPPS hospital wage index rather than on the FY 2019 pre-floor, pre-
reclassified IPPS hospital wage index.
    Using the concurrent pre-floor, pre-reclassified IPPS hospital wage 
index would result in the most up-to-date wage data being the basis for 
the IPF wage index. It would also result in more consistency and parity 
in the wage index methodology used by other Medicare payment systems. 
The Medicare SNF PPS already uses the concurrent IPPS hospital wage 
index data as the basis for the SNF PPS wage index. Thus, if our 
proposal is finalized, the wage adjusted Medicare payments of various 
provider types would be based upon wage index data from the same 
timeframe. CMS is considering similar policies to use the concurrent 
pre-floor, pre-reclassified IPPS hospital wage index data in other 
Medicare payment systems, such as hospice and inpatient rehabilitation 
facilities.
    If finalized, this proposed change to the IPF wage index 
methodology would be implemented in a budget-neutral fashion, so that 
total IPF payments would not be affected. However, there would be 
distributional effects, as shown in Table 15. Table 15 compares the 
estimated payments calculated using the FY 2020 IPF wage index based on 
the IPPS hospital wage index data from the prior fiscal year (the 
current methodology) with the estimated payments calculated using the 
proposed FY 2020 IPF wage index based on concurrent IPPS hospital wage 
index data (the proposed change in methodology). Due to budget 
neutrality, the effect on total estimated FY 2020 IPF payments is zero. 
Table 15 shows that urban IPFs are estimated to experience a smaller 
increase in payments if we were to implement the proposed methodology 
(0.01 percent increase) compared to if we were to maintain the current 
methodology (0.08 percent increase). Rural IPFs are estimated to have a 
smaller decrease in estimated payments if the proposed methodology were 
implemented (0.05 percent decrease) compared to if we were to maintain 
the current methodology (0.52 percent decrease).
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BILLING CODE 4120-01-C
    To provide additional information to IPFs about the effect of this 
proposed change in the IPF wage index methodology on estimated 
payments, we have also posted a provider-level table of effects 
(Addendum C) on the CMS website, available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/WageIndex.html.
    We invite comments on this proposal to align the IPF wage index 
data timeframes with that of the IPPS, by using the concurrent pre-
floor, pre-reclassified IPPS hospital wage index as the basis for the 
IPF wage index for FY 2020 and subsequent years.
    For FY 2020, we propose to use the FY 2020 pre-floor, pre-
reclassified IPPS hospital wage index as the basis for the IPF wage 
index; this pre-floor, pre-reclassified IPPS hospital wage index is the 
most appropriate wage index as it best reflects the variation in local 
labor costs of IPFs in the various geographic areas using the most 
recent IPPS

[[Page 16976]]

hospital wage data (data from hospital cost reports for the cost 
reporting period beginning during FY 2016) without any geographic 
reclassifications, floors, or other adjustments. We would apply the FY 
2020 IPF wage index to payments beginning October 1, 2019.
    We would apply the IPF wage index adjustment to the labor-related 
portion of the national base rate or ECT payment per treatment. The 
labor-related share of the national rate and ECT payment per treatment 
would change from 74.8 percent in FY 2019 to 76.8 percent in FY 2020. 
This percentage reflects the labor-related share of the proposed 2016-
based IPF market basket for FY 2020 (see section III.A.6 of this rule).
c. Office of Management and Budget Bulletins
    OMB publishes bulletins regarding CBSA changes, including changes 
to CBSA numbers and titles. In the RY 2007 IPF PPS final rule (71 FR 
27061 through 27067), we adopted the changes discussed in the OMB 
Bulletin No. 03-04 (June 6, 2003), which announced revised definitions 
for 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 RY 2009 IPF PPS notice, we incorporated the CBSA 
nomenclature changes published in the most recent OMB bulletin that 
applied to the IPPS hospital wage index used to determine the current 
IPF wage index and stated that we expected 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/.
    In accordance with our established methodology, we have 
historically adopted any CBSA changes that are published in the OMB 
bulletin that corresponds with the IPPS hospital wage index used to 
determine the IPF wage index. For the FY 2015 IPF wage index, we used 
the FY 2014 pre-floor, pre-reclassified IPPS 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 in the 
United States and Puerto Rico based on the 2000 Census, and provided 
guidance on the use of the delineations of these statistical areas. A 
copy of this bulletin may be obtained at https://www.whitehouse.gov/omb/bulletins/.
    Because the FY 2014 pre-floor, pre-reclassified IPPS hospital wage 
index did not reflect the statistical area revisions set forth in OMB 
Bulletin 13-01, the FY 2015 IPF PPS wage index, which was based on the 
FY 2014 pre-floor, pre-reclassified IPPS 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 IPPS 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 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 provided minor updates to, and 
superseded, 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/bulletins/.
    OMB Bulletin No. 15-01 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.
    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/LTCH PPS final rule 
(81 FR 56913), the updated labor market area definitions from OMB 
Bulletin 15-01 were implemented under the IPPS beginning on October 1, 
2016 (FY 2017). Therefore, we implemented 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 (historically 
the IPF wage index has been based upon the pre-floor, pre-reclassified 
IPPS hospital wage index from the prior year).
    On August 15, 2017, OMB announced in OMB Bulletin No. 17-01 that 
one Micropolitan Statistical Area now qualifies as a Metropolitan 
Statistical Area . The new urban CBSA is as follows:
     Twin Falls, Idaho (CBSA 46300).
    This CBSA is comprised of the principal city of Twin Falls, Idaho 
in Jerome County, Idaho and Twin Falls County, Idaho. Prior to this 
redesignation, Jerome County and Twin Falls County, Idaho were 
classified as rural. The OMB bulletin is available on the OMB website 
at https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/bulletins/2017/b-17-01.pdf.
    With the change made by OMB Bulletin No. 17-01, these two counties 
are now designated as urban, and any IPFs in those areas would change 
their status from being rural to being urban. We are proposing to adopt 
these new OMB designations in FY 2020 as they would be included in the 
FY 2020 pre-floor, pre-reclassified IPPS hospital wage index upon which 
the FY 2020 IPF wage index is proposed to be based. That is, the FY 
2020 pre-floor, pre-reclassified IPPS hospital wage index, which is the 
basis of the proposed FY 2020 IPF wage index, would include this new 
OMB designation.
    Therefore, the 17 percent IPF rural adjustment would cease for IPF 
providers in these two counties. Currently, there is a single IPF in 
new CBSA 46300, which would lose its 17 percent rural adjustment as a 
result of being re-designated as urban. However, the FY 2020 pre-floor, 
pre-reclassified hospital IPPS wage index value for CBSA 46300 is 
0.8252, which is 3.5 percent higher than the rural wage index value for 
Idaho (0.7971). As such, the loss of the 17 percent IPF wage index 
adjustment would be mitigated in

[[Page 16977]]

part by the increase in the wage index value when changing from the 
rural Idaho wage index value to the urban CBSA 46300 wage index value. 
Given that the loss of the rural adjustment would be mitigated in part 
by the increase in wage index value, and that only a single IPF is 
affected by this change, we do not believe it is necessary to 
transition this provider from its rural to newly urban status.
    Thus, we propose to adopt this new OMB designation in the proposed 
IPF wage index for FY 2020 and for subsequent fiscal years. The FY 2020 
IPF wage index already includes the OMB delineations that were adopted 
in prior fiscal years. The proposed FY 2020 IPF wage index (including 
the CBSA update from OMB Bulletin No. 17-01) is located on the CMS 
website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/WageIndex.html.
d. Solicitation of Public Comments on the IPF Wage Index
    Historically, we have calculated the IPF PPS wage index values 
using unadjusted wage index values from another provider setting. 
Stakeholders have frequently commented on certain aspects of the IPF 
PPS wage index values and their impact on payments. We are soliciting 
comments on concerns stakeholders may have regarding the wage index 
used to adjust IPF PPS payments and suggestions for possible updates 
and improvements to the geographic adjustment of IPF PPS payments.
e. Proposed 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. This 17 percent adjustment has been part of 
the IPF PPS each year since the inception of the IPF PPS. For FY 2020, 
we are proposing to 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).
f. Proposed 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 2020, we 
are proposing to 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 2020 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 2016 
hospital cost report data) and the labor-related share in a budget-
neutral manner:
    Step 1. Simulate estimated IPF PPS payments, using the FY 2019 IPF 
wage index values (available on the CMS website) and labor-related 
share (as published in the FY 2019 IPF PPS final rule (83 FR 38579)).
    Step 2. Simulate estimated IPF PPS payments using the proposed FY 
2020 IPF wage index values (available on the CMS website) and proposed 
FY 2020 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 2020 budget-
neutral wage adjustment factor of 1.0078.
    Step 4. Apply the FY 2020 budget-neutral wage adjustment factor 
from step 3 to the FY 2019 IPF PPS federal per diem base rate after the 
application of the market basket update described in section III.A.4 of 
this rule, to determine the FY 2020 IPF PPS federal per diem base rate.
2. Proposed 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 (1 + (the number of 
FTE residents training in the IPF/the IPF's ADC)). The teaching 
variable is then raised to 0.5150 power to result in the teaching 
adjustment. This formula is subject to the limitations on the number of 
FTE residents, which are described later in this section of this rule.
    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 RY 2012 IPF PPS proposed rule (76 FR 5018 
through 5020) and the RY 2012 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 RY 2009 IPF PPS notice (73 FR 
25721). As with other adjustment factors

[[Page 16978]]

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 as part of the IPF PPS refinement we discuss 
in section IV of this rule. Therefore, in this FY 2020 proposed rule, 
we are proposing to continue to retain the coefficient value of 0.5150 
for the teaching adjustment to the federal per diem base rate.
3. Proposed 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 area in which the IPF is located. As 
we explained in the November 2004 IPF PPS final rule, the FY 2002 data 
demonstrated that IPFs in Alaska and Hawaii had per diem costs that 
were disproportionately higher than other IPFs. Other Medicare 
prospective payment systems (for example: The IPPS and LTCH PPS) 
adopted a 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 are published on the Office of 
Personnel Management (OPM) website (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 RY 2012 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. As finalized in 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53700 and 53701), the COLA 
updates are determined every 4 years, when the IPPS market basket 
labor-related share is updated during rebasing. Because the labor-
related share of the IPPS market basket was updated for FY 2018, the 
COLA factors were updated in FY 2018 IPPS/LTCH rulemaking (82 FR 
38529). As such, we also updated the IPF PPS COLA factors for FY 2018 
(82 FR 36780 through 36782) to reflect the updated COLA factors 
finalized in the FY 2018 IPPS/LTCH rulemaking. We propose to continue 
to apply the same COLA factors in FY 2020 that were used in FY 2018 and 
FY 2019.

 Table 16--Comparison of IPF PPS Cost-of-Living Adjustment Factors: IPFs
                      Located in Alaska and Hawaii
------------------------------------------------------------------------
                                              FY 2015         FY 2018
                  Area                      through FY      through FY
                                               2017            2020
------------------------------------------------------------------------
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
------------------------------------------------------------------------

    The proposed IPF PPS COLA factors for FY 2020 are also shown in 
Addendum A to this proposed rule, available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html.
4. Proposed 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 psychiatric hospital with a qualifying ED or an excluded 
psychiatric unit of an IPPS hospital or a CAH, for preadmission 
services otherwise payable under the Medicare Hospital Outpatient 
Prospective Payment System

[[Page 16979]]

(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 which we 
described), 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 in this section of the proposed rule. As specified in Sec.  
412.424(d)(1)(v)(B), the ED adjustment is not made when a patient is 
discharged from an IPPS hospital or CAH and admitted to the same IPPS 
hospital's or CAH's excluded 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 IPPS hospital or through the 
reasonable cost payment made to the CAH.
    Therefore, when patients are discharged from an IPPS hospital or 
CAH and admitted to the same hospital's or CAH's excluded 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 2020, we propose to 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 in our November 
2004 IPF PPS final rule (69 FR 66959 through 66960) and the RY 2007 IPF 
PPS final rule (71 FR 27070 through 27072).

E. Other Proposed 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 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 estimated IPF PPS payments.
2. Proposed Update to the Outlier Fixed Dollar Loss Threshold Amount
    In accordance with the update methodology described in Sec.  
412.428(d), we are proposing to update 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 
2018 update of FY 2018 IPF claims) and rate increases, we believe it is 
necessary to update the fixed dollar loss threshold amount to maintain 
an outlier percentage that equals 2 percent of total estimated IPF PPS 
payments. We would update the IPF outlier threshold amount for FY 2020 
using FY 2018 claims data and the same methodology that we used to set 
the initial outlier threshold amount in the RY 2007 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 
2019. Based on an analysis of these updated data, we estimate that IPF 
outlier payments as a percentage of total estimated payments are 
approximately 2.15 percent in FY 2019. Therefore, we propose to update 
the outlier threshold amount to $14,590 to maintain estimated outlier 
payments at 2 percent of total estimated aggregate IPF payments for FY 
2020. This proposed rule update is an increase from the FY 2019 
threshold of $12,865.
3. Proposed 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 FY 2004 IPPS final rule (68 FR 34494), we 
implemented changes to the IPPS policy used to determine CCRs for IPPS 
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 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), we believe that the IPF outlier policy is susceptible to the 
same payment vulnerabilities as the IPPS; therefore, 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:
     Calculated two national ceilings, one for IPFs located in 
rural areas and one for IPFs located in urban areas.
     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 2019 Provider 
Specific File.

[[Page 16980]]

    For FY 2020, we propose to continue to follow this methodology.
    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 2020 is 2.0588 for rural IPFs, and 1.7321 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 propose to continue to update the FY 2020 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 
2020, to be used in each of the three situations listed previously, 
using the most recent CCRs entered in the CY 2019 Provider Specific 
File, we provide an estimated national median CCR of 0.5810 for rural 
IPFs and a national median CCR of 0.4330 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 the RY 2012 IPF 
PPS 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. Our preliminary analysis has also revealed variation in 
cost and claim data, particularly related to labor costs, drugs costs, 
and laboratory services. Some providers have very low labor costs, or 
very low or missing drug or laboratory costs or charges, relative to 
other providers. As we noted in the FY 2016 IPF PPS final rule (80 FR 
46693 through 46694), our preliminary analysis of 2012 to 2013 IPF data 
found that over 20 percent of IPF stays reported no ancillary costs, 
such as laboratory and drug costs, in their cost reports, or laboratory 
or drug charges on their claims. Because we expect that most patients 
requiring hospitalization for active psychiatric treatment will need 
drugs and laboratory services, we again remind providers that the IPF 
PPS federal per diem base rate includes the cost of all ancillary 
services, including drugs and laboratory services.
    On November 17, 2017, we issued Transmittal 12, which made changes 
to the hospital cost report form CMS-2552-10 (OMB No. 0938-0050), and 
included the requirement that cost reports from psychiatric hospitals 
include certain ancillary costs, or the cost report will be rejected. 
On January 30, 2018, we issued Transmittal 13, which changed the 
implementation date for Transmittal 12 to be for cost reporting periods 
ending on or after September 30, 2017. For details, we refer readers to 
see these Transmittals, which are available on the CMS website at 
https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/index.html. CMS suspended the requirement that cost reports from 
psychiatric hospitals include certain ancillary costs effective April 
27, 2018, in order to consider excluding all-inclusive rate providers 
from this requirement. CMS issued Transmittal 15 on October 19, 2018, 
reinstating the requirement that cost reports from psychiatric 
hospitals, except all-inclusive rate providers, include certain 
ancillary costs.
    We only pay 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 will continue to analyze data from claims and cost reports that 
do not include ancillary charges or costs, and will be sharing our 
findings with CMS Office of the Center for Program Integrity and CMS 
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. It is 
currently our intent to explore refinements to the adjustments in 
future rulemaking. Since we are not proposing refinements in this 
proposed rule, for FY 2020 we will continue to use the existing 
adjustment factors.

V. Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program

A. Background and Statutory Authority

    We refer readers to the FY 2019 IPF PPS final rule (83 FR 38589) 
for a discussion of the background and statutory authority \2\ of the 
IPFQR Program.
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    \2\ We note that the statute uses the term ``rate year'' (RY). 
However, beginning with the annual update of the inpatient 
psychiatric facility prospective payment system (IPF PPS) that took 
effect on July 1, 2011 (RY 2012), we aligned the IPF PPS update with 
the annual update of the ICD codes, effective on October 1 of each 
year. This change allowed for annual payment updates and the ICD 
coding update to occur on the same schedule and appear in the same 
Federal Register document, promoting administrative efficiency. To 
reflect the change to the annual payment rate update cycle, we 
revised the regulations at 42 CFR 412.402 to specify that, beginning 
October 1, 2012, the RY update period would be the 12-month period 
from October 1 through September 30, which we refer to as a ``fiscal 
year'' (FY) (76 FR 26435). Therefore, with respect to the IPFQR 
Program, the terms ``rate year,'' as used in the statute, and 
``fiscal year'' as used in the regulation, both refer to the period 
from October 1 through September 30. For more information regarding 
this terminology change, we refer readers to section III. of the RY 
2012 IPF PPS final rule (76 FR 26434 through 26435).
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B. Covered Entities

    In the FY 2013 IPPS/LTCPPS final rule (77 FR 53645), we established 
that the IPFQR Program's quality reporting requirements cover those 
psychiatric hospitals and psychiatric units paid under Medicare's IPF 
PPS (Sec.  412.404(b)). Generally, psychiatric hospitals and 
psychiatric units within acute care and critical access hospitals that 
treat Medicare patients are paid under the IPF PPS. Consistent with 
previous regulations, we continue to use the term IPF to refer to both 
inpatient psychiatric hospitals and psychiatric

[[Page 16981]]

units. This usage follows the terminology in our IPF PPS regulations at 
Sec.  412.402. For more information on covered entities, we refer 
readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53645).

C. Previously Finalized Measures and Administrative Procedures

    The current IPFQR Program includes 13 measures. For more 
information on these measures, we refer readers to the following final 
rules:
     The FY 2013 IPPS/LTCH PPS final rule (77 FR 53646 through 
53652);
     The FY 2014 IPPS/LTCH PPS final rule (78 FR 50889 through 
50897);
     The FY 2015 IPF PPS final rule (79 FR 45963 through 
45975);
     The FY 2016 IPF PPS final rule (80 FR 46695 through 
46714);
     The FY 2017 IPPS/LTCH PPS final rule (81 FR 57238 through 
57247); and
     The FY 2019 IPF PPS final rule (83 FR 38590 through 
38606).
    For more information on previously adopted procedural requirements, 
we refer readers to the following rules:
     The FY 2013 IPPS/LTCH PPS final rule (77 FR 53653 through 
53660);
     The FY 2014 IPPS/LTCH PPS final rule (78 FR 50897 through 
50903;
     The FY 2015 IPF PPS final rule (79 FR 45975 through 
45978);
     The FY 2016 IPF PPS final rule (80 FR 46715 through 
46719);
     The FY 2017 IPPS/LTCH PPS final rule (81 FR 57248 through 
57249);
     The FY 2018 IPPS/LTCH PPS final rule (82 FR 38471 through 
38474); and
     The FY 2019 IPF PPS final rule (83 FR 38606 through 
38608).

D. IPFQR Program Measures

1. Measure Selection Process
    Before being proposed for inclusion in the IPFQR Program, measures 
are placed on a list of measures under consideration (MUC), which is 
published annually by December 1 on behalf of CMS by the NQF. Following 
publication on the MUC list, the Measure Applications Partnership 
(MAP), a multi-stakeholder group convened by the NQF, reviews the 
measures under consideration for the IPFQR Program, among other Federal 
programs, and provides input on those measures to the Secretary. We 
considered the input and recommendations provided by the MAP in 
selecting all measures for the IPFQR Program. Further details 
concerning the input and recommendations from the MAP for the measure 
proposed in this rule (Medication Continuation Following Inpatient 
Psychiatric Discharge, NQF #3205) are provided in Section V.D.3.
2. Removal or Retention of IPFQR Program Measures
a. Background
    In the FY 2018 IPPS/LTCH PPS final rule (82 FR 38463 through 
38465), we finalized our proposals to adopt considerations for removing 
or retaining measures within the IPFQR Program and criteria for 
determining when a measure is ``topped out.'' In the FY 2019 IPF PPS 
final rule (83 FR 38591 through 38593), we added one additional measure 
removal factor. We are not proposing any changes to these removal 
factors, topped-out criteria, or retention factors and refer readers to 
the FY 2018 IPPS/LTCH PPS final rule (82 FR 38463 through 38465) and 
the FY 2019 IPF PPS final rule (83 FR 38591 through 38593) for more 
information. We will continue to retain measures from each previous 
year's IPFQR Program measure set for subsequent years' measure sets, 
except when we specifically propose to remove or replace a measure. We 
will continue to use the notice-and-comment rulemaking process to 
propose measures for removal or replacement, as we described upon 
adopting these factors in the 2018 IPPS/LTCH PPS final rule (82 FR 
38464 through 38465).
b. Application of Considerations for Removal and Retention to Current 
Measure Set
    In the FY 2018 IPPS/LTCH PPS final rule, we noted that several 
commenters requested that we evaluate the current measures in the IPFQR 
Program using the removal and retention factors that we finalized in 
that rule (82 FR 38464). Following this evaluation, we proposed to 
remove eight measures from the IPFQR Program in the FY 2019 IPF PPS 
proposed rule (83 FR 21118 through 21123) for the FY 2020 program year 
and subsequent years. In the FY 2019 IPF PPS final rule (83 FR 38593 
through 38604) we finalized removal of five of these measures. In our 
evaluation of the IPFQR Program measure set subsequent to publication 
of the FY 2019 IPF PPS final rule, we have not identified additional 
measures to which our measure removal factors apply. Therefore, we are 
not proposing to remove any additional measures at this time.
    The previously finalized number of measures for the FY 2021 payment 
determination and subsequent years totals 13.
BILLING CODE 4120-01-P

[[Page 16982]]

[GRAPHIC] [TIFF OMITTED] TP23AP19.010

BILLING CODE 4120-01-C
3. Proposed New Quality Measure for the FY 2021 Payment Determination 
and Subsequent Years--Medication Continuation Following Inpatient 
Psychiatric Discharge (NQF #3205)
a. Background
    Medication continuation is important for patients discharged from 
the inpatient psychiatric setting with major depressive disorder (MDD), 
schizophrenia, or bipolar disorder because of significant negative 
outcomes associated with non-adherence to medication regimens. For 
example, patients with MDD who do not remain on prescribed medications 
are more likely to have negative health outcomes such as relapse and 
readmission, decreased quality of life, and increased healthcare 
costs.3 4 Patients with schizophrenia who do not adhere to 
their medication regimen are more likely to be hospitalized, use 
emergency psychiatric services, be arrested, be victims of crimes, and 
consume alcohol or drugs compared to those who adhere to their 
medication regimen.\5\ Patients

[[Page 16983]]

with bipolar disorder who do not adhere to their medications have 
increased suicide risk.\6\ For these reasons, guidelines from the 
American Psychiatric Association (APA) and the Department of Veterans 
Affairs/Department of Defense (VA/DoD), which are based on extensive 
literature, recommend pharmacotherapy as the primary form of treatment 
for patients with these conditions.7 8 9 10 11
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    \3\ Geddes JR, Carney SM, Davies C, et al. Relapse prevention 
with antidepressant drug treatment in depressive disorders: a 
systematic review. Lancet. 2003;361(9358):653-661.
    \4\ Glue P, Donovan MR, Kolluri S, Emir B. Metaanalysis of 
relapse prevention antidepressant trials in depressive disorders. 
The Australian and New Zealand journal of psychiatry. 
2010;44(8):697-705.
    \5\ Gilmer TP, Dolder CR, Lacro JP, et al. Adherence to 
treatment with antipsychotic medication and health care costs among 
Medicaid beneficiaries with schizophrenia. The American journal of 
psychiatry. 2004;161(4):692-699.
    \6\ Gonzalez-Pinto A, Mosquera F, Alonso M, et al. Suicidal risk 
in bipolar I disorder patients and adherence to long-term lithium 
treatment. Bipolar disorders. 2006;8(5 Pt 2):618-624.
    \7\ American Psychiatric Association. (2002). Practice guideline 
for the treatment of patients with bipolar disorder, second edition. 
Retrieved from: http://psychiatryonline.org/pb/assets/raw/sitewide/practice_guidelines/guidelines/bipolar.pdf.
    \8\ American Psychiatric Association. (2010).Practice guideline 
for the treatment of patients with major depressive disorder, 3rd 
ed. Retrieved from: http://psychiatryonline.org/pb/assets/raw/sitewide/practice_guidelines/guidelines/mdd.pdf.
    \9\ American Psychiatric Association. (2010). Practice guideline 
for the treatment of patients with schizophrenia: 2nd ed. Retrieved 
from: http://psychiatryonline.org/pb/assets/raw/sitewide/practice_guidelines/guidelines/schizophrenia.pdf.
    \10\ U.S. Department of Veterans Affairs, & U.S. Department of 
Defense. (2016). Management of major depressive disorder (MDD). 
Retrieved from: http://www.healthquality.va.gov/guidelines/MH/mdd/VADoDMDDCPGFINAL82916.pdf.
    \11\ U.S. Department of Veterans Affairs & U.S. Department of 
Defense. (2010) VA/DOD clinical practice guideline for management of 
bipolar disorder in adults. Retrieved from: http://www.healthquality.va.gov/guidelines/MH/bd/bd_305_full.pdf.
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    Furthermore, we believe that there are factors external to the IPF 
that influence filling prescriptions post-discharge in the psychiatric 
population. While it may not be possible to achieve complete post-
discharge compliance with pharmacotherapy, there is evidence that 
improvements to the quality of care provided by IPFs, including 
discharge processes, can help to increase medication continuation 
rates.12 13 14 15 16 These interventions include patient 
education, enhanced therapeutic relationships, shared decision-making, 
and text-message reminders, with multidimensional approaches resulting 
in the best outcomes.
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    \12\ Haddad PM, Brain C, Scott J. Nonadherence with 
antipsychotic medication in schizophrenia: challenges and management 
strategies. Patient related outcome measures. 2014;5:43-62.
    \13\ Hung CI. Factors predicting adherence to antidepressant 
treatment. Current opinion in psychiatry. 2014;27(5):344-349.
    \14\ Lanouette NM, Folsom DP, Sciolla A, Jeste DV. Psychotropic 
medication nonadherence among United States Latinos: a comprehensive 
literature review. Psychiatric services (Washington, DC). 
2009;60(2):157-174.
    \15\ Mitchell AJ. Understanding Medication Discontinuation in 
Depression. BMedSci Psychiatric Times. 2007;24(4).
    \16\ Sylvia LG, Hay A, Ostacher MJ, et al. Association between 
therapeutic alliance, care satisfaction, and pharmacological 
adherence in bipolar disorder. Journal of clinical 
psychopharmacology. 2013;33(3):343-350.
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    We proposed to adopt the Medication Continuation Following 
Inpatient Psychiatric Discharge measure (NQF #3205) for the FY 2020 
payment determination and subsequent years in the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20122 through 20126) to address this important 
clinical topic. In the FY 2018 IPPS/LTCH PPS final rule (82 FR 38465 
through 38470), we did not finalize adoption of the Medication 
Continuation Following Inpatient Psychiatric Discharge measure (NQF 
#3205), because we recognized that this measure may place undue burden 
on facilities that were updating processes to account for previously 
adopted measures despite being calculated from claims data, which 
should not require additional information collection burden. We did not 
want to place undue burden on facilities, especially small, rural 
facilities, and we wished to accommodate the need for facilities to 
develop and implement innovative efforts, such as updating their 
processes and clinical workflows, for this measure.
    At that time, we stated that we would consider proposing this 
measure again in future rulemaking. We note that since the FY 2018 
IPPS/LTCH PPS final rule, we have removed five measures from the IPFQR 
Program (83 FR 38593 through 38602), reducing burden on IPFs by 
approximately 546,000 hours and $20 million (83 FR38610 through 38611), 
and IPFs have had an additional 2 years to familiarize themselves with 
the remaining IPFQR Program measure set and to update processes and 
clinical workflows accordingly. Therefore, we believe that it is now 
appropriate to propose this measure for the IPFQR Program again.
    Since the FY 2018 IPPS/LTCH PPS final rule, we have not made any 
changes to the Medication Continuation Following Inpatient Psychiatric 
Discharge (NQF #3205) measure's specifications. However, we have taken 
steps to improve upon the suitability of this measure for the IPFQR 
Program. First, we considered recommendations and comments received on 
the Medication Continuation Following Inpatient Psychiatric Discharge 
(NQF #3205) measure from the FY 2018 IPPS/LTCH PPS final rule (82 FR 
38468 through 38470). We provide more detail about these comments 
below.
    Second, since the FY 2018 IPPS/LTCH PPS final rule, we have 
provided additional information about this measure to the MAP and to 
the NQF, including reliability and validity testing. The measure was 
subsequently endorsed by NQF. We continue to believe that this measure 
evaluates a process with a demonstrated quality gap, because in testing 
this measure, we found that the range of performance between the 10th 
percentile and the 80th percentile facility performance was between 67 
percent and 88 percent. We found that if all facilities had at least 
the median rate then 16,000 additional Medicare beneficiaries would 
fill prescriptions for an evidence-based medication to manage their 
condition following discharge.\17\ Furthermore, we believe this measure 
has the potential to benefit patients by encouraging facilities to 
adopt interventions to improve post discharge medication continuation 
rates with no additional reporting burden to IPFs.
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    \17\ https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/Version_1-0_Inpatient_Psychiatric_Facility_Medication_Continuation_Public.zip.
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    In response to our proposal in the FY 2018 IPPS/LTCH PPS proposed 
rule, many comments focused on the potential undue burden of the 
measure given the fact that many facilities were still updating 
processes to account for previously adopted measures (82 FR 38469). 
Between the FY 2018 IPPS/LTCH PPS final rule and this proposed rule, we 
have not adopted any new measures into the program. We believe that 
IPFs no longer need to update processes to account for previously 
adopted measures because they have had 2 years to complete all such 
updates. Therefore, we believe that there is less burden associated 
with the IPFQR program than when we proposed to adopt this measure in 
the FY 2018 IPPS/LTCH PPS proposed rule.
    Some commenters also expressed concern that patients may experience 
barriers to filling prescriptions that are beyond the control of IPFs 
(82 FR 38469 through 38470). While we believe that there are factors 
external to an IPF that influence filling prescriptions after a patient 
is discharge, as the methodology report for the measure indicates,\18\ 
IPFs can also undertake interventions to improve the likelihood of a 
patient's medication continuation post-discharge.
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    \18\ https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/Version_1-0_Inpatient_Psychiatric_Facility_Medication_Continuation_Public.zip.
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    In response to comments that the affected population may be too 
small to report meaningful data because it is limited to Medicare 
patients enrolled in Parts A, B, and D (82 FR 38469 through

[[Page 16984]]

38470), we note that the NQF found this measure to be valid and 
reliable \19\ indicating that the size of the population is sufficient 
to report meaningful data. These commenters additionally expressed that 
because the measure is limited to Medicare patients enrolled in Parts 
A, B, and D, there may not be a performance gap because these patients 
do not experience the same access barriers as other inpatient 
psychiatric populations. However, we note that in their endorsement 
review of the measure, the NQF found that there was evidence of a 
performance gap in the quality area that was addressed by the measure 
even though the measure is limited to patients enrolled in Medicare A, 
B, and D.\20\
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    \19\ https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=85831.
    \20\ https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=85831.
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    Finally, in response to comments that the measure had not completed 
full endorsement review by NQF (82 FR 38469), the measure is now fully 
endorsed by the NQF as discussed in more detail in section b of this 
rule. Further, in its review of the measure for endorsement, the NQF 
standing committee agreed that there is evidence that lack of adherence 
to medication leads to relapse and negative outcomes and that claims 
data related to medication adherence are directly correlated to 
outcomes.\21\
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    \21\ https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=85831.
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b. Overview of Measure
    The Medication Continuation Following Inpatient Psychiatric 
Discharge measure (NQF #3205) assesses whether patients admitted to 
IPFs with diagnoses of MDD, schizophrenia, or bipolar disorder filled 
at least one evidence-based medication prior to discharge or during the 
post-discharge period. As detailed in the following discussion, the NQF 
endorsed this measure on June 28, 2017. For more information about this 
measure, we refer readers to the measure specifications in the measure 
technical report https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/Version_1-0_Inpatient_Psychiatric_Facility_Medication_Continuation_Public.zip) or the measure's NQF page (https://www.qualityforum.org/QPS/3205).
    In compliance with section 1890A(a)(2) of the Act, this measure was 
included in a publicly available document: ``List of Measures under 
Consideration for December 1, 2016'' (https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityMeasures/Downloads/Measures-under-Consideration-List-for-2016.pdf). The MAP 
Hospital Workgroup concluded in its December 2016 meeting that the 
measure addressed a critical quality objective, was evidence-based, and 
would contribute to efficient use of resources.\22\ One Workgroup 
member commented that it was appropriate to hold IPFs accountable for 
patients filling a prescription for an evidence-based medication post-
discharge.
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    \22\ MAP Hospital Workgroup, Preliminary Analysis Worksheet. 
December 2016. http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=84199.
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    The MAP Hospital Workgroup classified the measure as ``Refine and 
Resubmit Prior to Rulemaking.'' \23\ The measure received this 
classification because the MAP recommended that measure testing be 
completed to demonstrate reliability and validity at the facility level 
in the hospital setting and that the measure be submitted to NQF for 
review and endorsement.\24\ The MAP also requested additional details 
on the measure, such as: (1) The definition of medication dispensation; 
(2) how the facility would know whether the medication was dispensed; 
and (3) how the measure would be impacted if Medicare Part D coverage 
is optional.\25\ The methodology report for the measure (https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityMeasures/Downloads/Measures-under-Consideration-List-for-2016.pdf) that we are proposing here, includes the results of 
reliability and validity testing, and additional measure updates that 
occurred after the MAP review. This newest methodology report also 
provides the additional details requested by MAP at the December 2016 
meeting. This includes the specific medication list, which is based on 
APA and VA/DoD practice guidelines for each medication \26\ \27\ \28\ 
\29\ \30\ and information about how facilities can help patients fill 
prescriptions for medications to ensure that the facility knows that 
the prescription has been filled. Additionally, the methodology report 
provides details about measure performance among patients with Part D 
and the performance gap for this patient population.
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    \23\ http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=84452.
    \24\ http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=84452.
    \25\ http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=84452.
    \26\ American Psychiatric Association. (2010). Practice 
guideline for the treatment of patients with major depressive 
disorder, 3rd ed. Retrieved from: http://psychiatryonline.org/pb/assets/raw/sitewide/practice_guidelines/guidelines/mdd.pdf.
    \27\ American Psychiatric Association. (2002). Practice 
guideline for the treatment of patients with bipolar disorder, 
second edition. Retrieved from: http://psychiatryonline.org/pb/assets/raw/sitewide/practice_guidelines/guidelines/bipolar.pdf.
    \28\ American Psychiatric Association. (2010). Practice 
guideline for the treatment of patients with schizophrenia: 2nd ed. 
Retrieved from: http://psychiatryonline.org/pb/assets/raw/sitewide/practice_guidelines/guidelines/schizophrenia.pdf.
    \29\ U.S. Department of Veterans Affairs & U.S. Department of 
Defense. (2016). Management of major depressive disorder (MDD). 
Retrieved from: http://www.healthquality.va.gov/guidelines/MH/mdd/VADoDMDDCPGFINAL82916.pdf.
    \30\ U.S. Department of Veterans Affairs & U.S. Department of 
Defense. (2010) VA/DOD clinical practice guideline for management of 
bipolar disorder in adults. Retrieved from: http://www.healthquality.va.gov/guidelines/MH/bd/bd_305_full.pdf.
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    This measure was submitted to NQF for endorsement on December 16, 
2016. Consistent with the recommendation from the December 2016 MAP 
meeting that testing for reliability and validity should be completed, 
in Spring 2017 we refined our NQF submission by providing the complete 
results of all testing for NQF's review of the measure for endorsement. 
The measure received NQF endorsement on June 28, 2017.\31\
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    \31\ https://www.qualityforum.org/QPS/3205.
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    This measure supports the CMS Meaningful Measure Area ``promote 
effective prevention and treatment of chronic disease,'' which includes 
the meaningful measure area of ``prevention, treatment, and management 
of mental health.'' The measure would also complement the portfolio of 
facility-level measures in the IPFQR Program that assess the transition 
from the inpatient to outpatient setting: Follow-Up After 
Hospitalization for Mental Illness; Thirty-day All Cause Unplanned 
Readmission Following Psychiatric Hospitalization in an Inpatient 
Psychiatric Facility; Transition Record with Specified Elements 
Received by Discharged Patients; and Timely Transmission of Transition 
Record.
c. Data Sources
    The proposed Medication Continuation Following Inpatient 
Psychiatric Discharge measure (NQF

[[Page 16985]]

#3205) uses Medicare fee-for-service (FFS) claims to identify whether 
patients admitted to IPFs with diagnoses of MDD, schizophrenia, or 
bipolar disorder filled at least one evidence-based medication such 
that they would have medication for use post-discharge. The performance 
period for this measure is 24 months. For example, if finalized as 
proposed, for the FY 2021 payment determination, the performance period 
would include discharges between July 1, 2017 and June 30, 2019.\32\
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    \32\ If data availability or operational issues prevent use of 
this performance period, we would announce the updated performance 
period through sub-regulatory communications including announcement 
on a CMS website and/or on our applicable listservs.
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d. Measure Calculation
    The numerator for the measure includes discharges for patients with 
a principal diagnosis of MDD, schizophrenia, or bipolar disorder in the 
denominator who were dispensed at least one evidence-based outpatient 
medication within 2 days prior to discharge through 30 days post-
discharge. The denominator for the measure includes Medicare fee-for-
service (FFS) beneficiaries with Part D coverage aged 18 years and 
older discharged to home or home health care from an IPF with a 
principal diagnosis of MDD, schizophrenia, or bipolar disorder. The 
denominator excludes discharges for patients who:
     Received Electroconvulsive Therapy (ECT) during the 
inpatient stay or 30 day post-discharge period;
     Received Transcranial Magnetic Stimulation (TMS) during 
the inpatient stay or follow-up;
     Were pregnant during the inpatient stay;
     Had a secondary diagnosis of delirium; or
     Had a principal diagnosis of schizophrenia with a 
secondary diagnosis of dementia.
    For more information about the development of the measure, 
including rationale for the 2 day prior to 30 day post-discharge period 
and the denominator exclusions, we refer readers to the measure 
technical report (https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/Version1-0_Inpatient_Psychiatric_Facility_Medication_Continuation_Public.zip).
    We invite public comment on our proposal to adopt the Medication 
Continuation Following Inpatient Psychiatric Discharge (NQF #3205) 
measure for the FY 2021 payment determination and subsequent years as 
discussed above.
4. Summary of Previously Finalized and Newly Proposed Measures for the 
FY 2021 Payment Determination and Subsequent Years
    The previously finalized number of measures for the FY 2021 payment 
determination and subsequent years totals 13. In this proposed rule, we 
are proposing to adopt one additional measure for the FY 2021 payment 
determination and subsequent years which, if finalized as proposed, 
would bring the total to 14, as shown in table 18.
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BILLING CODE 4120-01-C
5. Possible IPFQR Program Measures and Topics for Future Consideration
    As we have previously indicated in the FY 2015 IPF PPS final rule 
(79 FR 45974 through 45975), we seek to develop a comprehensive set of 
quality measures to be available for widespread use for informed 
decision-making and quality improvement in the IPF setting. In this 
proposed rule, we seek public comments on possible new measures or new 
measure topics. We welcome all comments but are particularly interested 
in comments on future adoption of one or more measures of patient 
experience of care based on a consumer survey, especially such as the 
Hospital Consumer Assessment of Healthcare Providers and Systems 
(HCAHPS) Survey, and potential future measures and topics as part of 
CMS' Meaningful Measures Framework.
a. Future Adoption a Patient Experience of Care Survey
    In past assessments of the IPFQR Program Measure Set, we identified 
Patient Experience of Care as a measure gap area for this program (78 
FR 50897, 79 FR 45964 through 45965 and 83 FR 38596 through 38597), 
which is consistent with input from past public comment (77 FR 53653). 
When we adopted the ``Assessment of Patient Experience of Care 
Measure'' for the FY 2016 payment determination and subsequent years, 
we noted that in addition to serving as an indicator of quality within 
IPFs, information gathered through the collection of this measure would 
be helpful in developing a standardized survey as a successor to the 
measure (79 FR 45964). When we removed the Assessment of Patient 
Experience of Care measure from the IPFQR Program, we stated we believe 
that we have now collected sufficient information to inform development 
of a patient experience of care measure (83 FR 38596).
    At that time, several commenters expressed support for ensuring 
that patients have an opportunity to express their perspectives on 
their experience of receiving care at an IPF (83 FR 38597). Our 
analysis of the FY 2018 payment

[[Page 16987]]

determination data (that is, data that represents facility assessment 
of patient experience of care as of December 31, 2016) collected under 
the Assessment of Patient Experience of Care measure shows that 
approximately one third of facilities use the Hospital Consumer 
Assessment of Healthcare Providers and Systems (HCAHPS) survey \33\ to 
assess patient experience of care. This is more than the portion of 
facilities using any other survey.
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    \33\ For more information about the HCAHPS survey, please see 
https://www.ahrq.gov/cahps/surveys-guidance/hospital/about/adult_hp_survey.html.
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    We are seeking public comment on how such providers have 
implemented the survey in their facilities, on whether they use the 
entire HCAHPS survey, or a subset of the survey questions; and if a 
subset, which specific questions they use. Additionally, we are seeking 
public comment on other potential surveys that commenters believe would 
be appropriate to adopt for the IPFQR Program. We intend to use this 
information to inform future development and testing of a survey-based 
patient experience of care measure (or measures) for the inpatient 
psychiatric patient population.
b. Other Future Measures
    In this proposed rule, we are also seeking feedback and suggestions 
for future measures and topics for the IPFQR Program that align with 
CMS's Meaningful Measures Framework (FY IPF PPS final rule, 83 FR 38590 
through 38591).

E. Public Display and Review Requirements

    We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53653 through 53654), the FY 2014 IPPS/LTCH PPS final rule (78 FR 50897 
through 50898), and the FY 2017 IPPS/LTCH PPS final rule (81 FR 57248 
through 57249) for discussion of our previously finalized public 
display and review requirements. We are not proposing any changes to 
these requirements.

F. Form, Manner, and Timing of Quality Data Submission for the FY 2021 
Payment Determination and Subsequent Years

1. Procedural Requirements for the FY 2021 Payment Determination and 
Subsequent Years
    We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53654 through 53655), the FY 2014 IPPS/LTCH PPS final rule (78 FR 50898 
through 50899), and the FY 2018 IPPS/LTCH PPS final rule (82 FR 38471 
through 38472) for our previously finalized procedural requirements. In 
this proposed rule, we are not proposing any changes to these policies.
2. Data Submission Requirements for the FY 2021 Payment Determination 
and Subsequent Years
    We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53655 through 53657), the FY 2014 IPPS/LTCH PPS final rule (78 FR 50899 
through 50900), and the FY 2018 IPPS/LTCH PPS final rule (82 FR 38472 
through 38473) for our previously finalized data submission 
requirements.
    Because the Medication Continuation following Discharge from an IPF 
(NQF #3205) measure is calculated by CMS using Medicare Fee-for-Service 
claims, there would be no additional data submission requirements for 
the FY 2021 payment determination and subsequent years. Therefore, in 
this proposed rule, we are not proposing any changes to our previously 
finalized data submission policies.
3. Reporting Requirements for the FY 2021 Payment Determination and 
Subsequent Years
    We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53656 through 53657), the FY 2014 IPPS/LTCH PPS final rule (78 FR 50900 
through 50901), and the FY 2015 IPF PPS final rule (79 FR 45976 through 
45977) for our previously finalized reporting requirements. In this 
proposed rule, we are not proposing any changes to these policies.
4. Quality Measure Sampling Requirements
    We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53657 through 53658), the FY 2014 IPPS/LTCH PPS final rule (78 FR 50901 
through 50902), the FY 2016 IPF PPS final rule (80 FR 46717 through 
46719), and the FY 2019 IPF PPS final rule (83 FR 38607 through 38608) 
discussions for our previously finalized sampling policies. In this 
proposed rule, we are not proposing any changes to these policies.
5. Non-Measure Data Collection
    We refer readers to the FY 2015 IPF PPS final rule (79 FR 45973), 
the FY 2016 IPF PPS final rule (80 FR 46717), and the FY 2019 IPF PPS 
final rule (83 FR 38608) for our previously finalized non-measure data 
collection policies. In this proposed rule, we are not proposing any 
changes to these policies.
6. Data Accuracy and Completeness Acknowledgement (DACA) Requirements
    We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53658) for our previously finalized DACA requirements. In this proposed 
rule, we are not proposing any changes to these requirements.

G. Reconsideration and Appeals Procedures

    We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53658 through 53659) and the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50903) for our previously finalized reconsideration and appeals 
procedures. In this proposed rule, we are not proposing any changes to 
these policies.

H. Extraordinary Circumstances Exceptions (ECE) Policy

    We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53659 through 53660), the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50903), the FY 2015 IPF PPS final rule (79 FR 45978), and the FY 2018 
IPPS/LTCH PPS final rule (82 FR 38473 through 38474) for our previously 
finalized ECE policies. In this proposed rule, we are not proposing any 
changes to these policies.

VI. Collection of Information Requirements

    This rule does not propose any new or revised ``collection of 
information'' requirements as defined under 5 CFR 1320.3 the Paperwork 
Reduction Act's (PRA) implementing regulations. Nor would it impose any 
new or revised burden within the context of the PRA of 1995 (44 U.S.C. 
3501 et seq.). However, we are proposing to make a number of burden 
adjustments based on updated Bureau of Labor Statistics (BLS) wage 
figures and more recent facility counts and estimated case data. The 
adjustments would reduce our overall time estimate by 50,067 hours and 
increase our cost estimate by $1,820,149.

A. Collection of Information Requirements for the IPFQR Program

    With regard to the IPFQR Program, we are proposing to add one new 
measure (Medication Continuation Following Inpatient Psychiatric 
Discharge (NQF #3205)) that would impact the FY 2021 payment 
determination and subsequent years. If finalized as proposed, the 
measure would be calculated by CMS using IPF submitted claims data. The 
claims' requirements and burden are approved by OMB under control 
number 0938-0050 (CMS-2552-10) for our Medicare cost report. The 
proposed

[[Page 16988]]

measure would not impact any of the cost report's data fields or burden 
estimates as all worksheets and lines would remain unchanged. 
Similarly, this proposed rule would not impose any new or revised 
collection of information requirements or burden under OMB control 
number 0938-1171 (CMS-10432) which contains information about our non-
claims based IPFQR Program quality measure and non-quality measure 
information collection/reporting requirements and burden.
    We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53673), the FY 2014 IPPS/LTCH PPS final rule (78 FR 50964, the FY 2015 
IPF PPS final rule (79 FR 45978 through 45980), the FY 2016 IPF PPS 
final rule (80 FR 46720 through 46721), the FY 2017 IPPS/LTCH PPS \34\ 
final rule (81 FR 57265 through 57266), the FY 2018 IPPS/LTCH PPS final 
rule (82 FR 38507 through 38508), and the FY 2019 IPF PPS final rule 
(83 FR 38609 through 38612) for a detailed discussion of the burden for 
the program requirements that we have previously adopted. Information 
pertaining to the requirements and burden that are currently approved 
by OMB can be found at reginfo.gov under control numbers 0938-0050 and 
0938-1171.
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    \34\ We note that for operational reasons we sometimes publish 
IPFQR program requirements in the IPPS/LTCH PPS proposed and final 
rule as opposed to the IPF PPS proposed and final rule.
---------------------------------------------------------------------------

B. Adjustments to IPFQR Program Burden Estimates

    In the FY 2019 IPF PPS final rule (83 FR 38609), we estimated that 
reporting measures for the IPFQR Program could be accomplished by a 
Medical Records and Health Information Technician (BLS Occupation Code: 
29-2071) with a median hourly wage of $18.29 per hour (as of May 2016). 
Since then, BLS (the Bureau of Labor Statistics) has revised their wage 
data with May 2017 serving as their most recent update.\35\ In 
response, we propose to update our cost estimates using the May 2017 
figure of $18.83 per hour, an increase of $0.54 per hour or $1.08 per 
hour when adjusted by 100 percent to account for fringe benefits and 
overhead. This is necessarily a rough adjustment, both because fringe 
benefits and overhead costs vary significantly from employer-to-
employer and because methods of estimating these costs vary widely from 
study-to-study. Nonetheless, we believe that doubling the hourly wage 
rate ($18.83 x 2 = $37.66) to estimate total cost is a reasonably 
accurate estimation method.
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    \35\ https://www.bls.gov/ooh/healthcare/medical-records-and-health-information-technicians.htm.
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    We are also proposing to update our facility count and case 
estimates to the most recent data available. Specifically, we estimate 
that there are now approximately 1,679 (down from the previous estimate 
of 1,734) facilities and that for measures which require reporting on 
the entire patient population, these facilities will report on an 
average of 1,283 cases per facility (up from the previous estimate of 
1,213). Accordingly, we propose to adjust our currently approved cost 
estimate from $125,511,558 (see tables 19, 20, and 21) to $127,331,707 
(see tables 22, 23, and 24).
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BILLING CODE 4120-01-C
    As mentioned above, the adjustments are in response to updates to 
BLS wage figures and more recent facility counts and estimated case 
data. They are not a result of any of the provisions proposed in this 
rule. The adjusted burden figures will be submitted to OMB for approval 
under control number 0938-1171 (CMS-10432) as a non-substantive change.

C. Submission of PRA-Related Comments

    We invite public comments on our proposed burden adjustments as 
well as on any of the information collection requirements/burden set 
out under OMB control number 0938-1171. If you wish to comment, 
identify the rule (CMS-1712-P) along with the information collection's 
CMS ID number (CMS-10432) and OMB control number (0938-1171).
    To obtain copies of the supporting statement and any applicable 
supplementary materials, you may make your request using one of 
following:
    1. Access CMS' website address at https://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing.html.
    2. Email your request, including your address, phone number, OMB 
control number, and CMS document identifier to [email protected].
    3. Call the Reports Clearance Office at 410-786-1326.
    See this rule's DATES and ADDRESSES sections for the comment due 
date and for additional instructions.

VII. 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.

[[Page 16997]]

VIII. Regulatory Impact Statement

A. Statement of Need

    This rule proposes updates to the prospective payment rates for 
Medicare inpatient hospital services provided by IPFs for discharges 
occurring during FY 2020 (October 1, 2019 through September 30, 2020). 
We propose to apply the proposed 2016-based IPF market basket increase 
of 3.1 percent, less the productivity adjustment of 0.5 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 proposed total FY 2020 payment rate 
update of 1.85 percent. In this proposed rule, we are proposing to 
revise and rebase the IPF market basket to reflect a 2016 base year. We 
also are proposing to align the IPF wage index data with the concurrent 
IPPS wage index data by removing the 1-year lag of the pre-floor, pre-
reclassified IPPS hospital wage index upon which the IPF wage index is 
based. We also are proposing to update the IPF labor-related share and 
the IPF wage index including adoption of a new OMB designation, and are 
soliciting comments on the IPF wage index. Finally, we are proposing 
updates to the IPFQR Program for the FY 2021 payment determination and 
subsequent years.

B. Overall Impact

    We have examined the impacts of this proposed rule as required by 
Executive Order 12866 on Regulatory Planning and Review (September 30, 
1993), Executive Order 13563 on Improving Regulation and Regulatory 
Review (January 18, 2011), the Regulatory Flexibility Act (RFA) 
(September 19, 1980, Pub. L. 96 354), section 1102(b) of the Social 
Security Act, section 202 of the Unfunded Mandates Reform Act of 1995 
(March 22, 1995; Pub. L. 104-4), Executive Order 13132 on Federalism 
(August 4, 1999), 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.
    A regulatory impact analysis (RIA) must be prepared for major rules 
with economically significant effects ($100 million or more in any 1 
year). This proposed rule is not economically significant under 
Executive Order 12866.
    We estimate that the total proposed impact of these changes for FY 
2020 payments compared to FY 2019 payments will be a net increase of 
approximately $75 million. This reflects an $80 million increase from 
the update to the payment rates (+$135 million from the fourth quarter 
2018 IGI forecast of the proposed 2016-based IPF market basket of 3.1 
percent, -$20 million for the productivity adjustment of 0.5 percentage 
point, and -$35 million for the ``other adjustment'' of 0.75 percentage 
point), as well as a $5 million decrease as a result of the update to 
the outlier threshold amount. Outlier payments are estimated to change 
from 2.15 percent in FY 2019 to 2.00 percent of total estimated IPF 
payments in FY 2020.

C. Anticipated Effects

    In this section, we discuss the historical background of the IPF 
PPS and the impact of this proposed rule on the Federal Medicare budget 
and on IPFs.
1. Budgetary Impact
    As discussed in the November 2004 and RY 2007 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 RY 2009 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 proposed rule, 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 proposed rule will be due to the 
market basket update for FY 2020 of 3.1 percent (see section III.A.4 of 
this proposed rule) less the productivity adjustment of 0.5 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 2020 impact will be a net increase of $75 
million in payments to IPF providers. This reflects an estimated $80 
million increase from the update to the payment rates and a $5 million 
decrease due to the update to the outlier threshold amount to set total 
estimated outlier payments at 2.0 percent of total estimated payments 
in FY 2020. 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 V.A. of this proposed rule).
    The RFA requires agencies to analyze options for regulatory relief 
of small entities if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations, and small 
governmental jurisdictions. Most 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). Individuals and states 
are not included in the definition of a small entity.
    Because we lack data on individual hospital receipts, we cannot 
determine the number of small proprietary 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

[[Page 16998]]

impact of 3 to 5 percent as a significance threshold under the RFA. As 
shown in Table 25, we estimate that the overall revenue impact of this 
proposed rule on all IPFs is to increase estimated Medicare payments by 
approximately 1.7 percent. As a result, since the estimated impact of 
this proposed rule is a net increase in revenue across almost all 
categories of IPFs, the Secretary has determined that this proposed 
rule will have a positive revenue impact on a substantial number of 
small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. 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 section 
VIII.C.1 of this proposed rule, the rates and policies set forth in 
this proposed rule will not have an adverse impact on the rural 
hospitals based on the data of the 258 rural excluded psychiatric units 
and 66 rural psychiatric hospitals in our database of 1,593 IPFs for 
which data were available. Therefore, the Secretary has determined that 
this proposed rule will not have a significant impact on the operations 
of a substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2019, that 
threshold is approximately $154 million. This proposed rule does not 
impose spending costs on state, local, or tribal governments in the 
aggregate, or by the private sector of $154 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. This proposed rule will not have a substantial effect on 
state and local governments.
2. Impact on Providers
    To show the impact on providers of the changes to the IPF PPS 
discussed in this proposed rule, we compare estimated payments under 
the IPF PPS rates and factors for FY 2020 versus those under FY 2019. 
We determined the percent change in the estimated FY 2020 IPF PPS 
payments compared to the estimated FY 2019 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 2020, 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 2020 changes in this proposed 
rule, our analysis begins with a FY 2019 baseline simulation model 
based on FY 2018 IPF payments inflated to the midpoint of FY 2019 using 
IHS Global Inc.'s fourth quarter 2018 forecast of the market basket 
update (see section III.A.4 of this proposed rule); the estimated 
outlier payments in FY 2019; the FY 2019 IPF wage index; the FY 2019 
labor-related share; and the FY 2019 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 proposed update to the outlier fixed dollar loss 
threshold amount.
     The proposed FY 2020 IPF wage index and the proposed FY 
2020 labor-related share.
     The proposed market basket update for FY 2020 of 3.1 
percent less the productivity adjustment of 0.5 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 proposed 
payment rate update of 1.85 percent.
    Our final column comparison in Table 25 illustrates the percent 
change in payments from FY 2019 (that is, October 1, 2018, to September 
30, 2019) to FY 2020 (that is, October 1, 2019, to September 30, 2020) 
including all the payment policy changes in this proposed rule.
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3. Impact Results
    Table 25 displays the results of our analysis. The table groups 
IPFs into the categories listed here 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 1,593 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 
2.15 percent in FY 2019. Thus, we are adjusting the outlier threshold 
amount in this proposed rule to set total estimated outlier payments 
equal to 2.0 percent of total payments in FY 2020. The estimated change 
in total IPF payments for FY 2020, therefore, includes an approximate 
0.15 percent decrease in payments because the outlier portion of total 
payments is expected to decrease from approximately 2.15 percent to 2.0 
percent.
    The overall impact of this outlier adjustment update (as shown in 
column 3 of Table 25), across all hospital groups, is to decrease total 
estimated payments to IPFs by 0.15 percent. The largest decrease in 
payments is estimated to be -0.45 percent for teaching IPFs with more 
than 30 percent interns and residents to beds.
    In column 4, we present the effects of the budget-neutral update to 
the IPF wage index and the Labor-Related Share

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(LRS). This represents the effect of using the concurrent hospital wage 
data and taking into account the updated OMB delineations. That is, the 
impact represented in this column reflects the update from the FY 2019 
IPF wage index to the proposed FY 2020 IPF wage index, which includes 
basing the FY 2020 IPF wage index on the FY 2020 pre-floor, pre-
reclassified IPPS hospital wage index data, updating the OMB 
designations for two counties in Idaho, and updating the LRS from 74.8 
percent in FY 2019 to 76.8 percent in FY 2020. 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 1.43 percent for Pacific IPFs, and 
the largest decrease in payments to be 0.73 percent for New England 
IPFs.
    Finally, column 5 compares our estimates of the total proposed 
changes reflected in this proposed rule for FY 2020 to the estimates 
for FY 2019 (without these changes). The average estimated increase for 
all IPFs is approximately 1.7 percent. This estimated net increase 
includes the effects of the proposed 3.1 percent 2016-based market 
basket update reduced by the productivity adjustment of 0.5 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 0.15 percent decrease in estimated 
IPF outlier payments as a percent of total payments from the proposed 
update to the outlier fixed dollar loss threshold amount. Column 5 also 
includes the distributional effects of the updates to the IPF wage 
index and the labor-related share.
    IPF payments are estimated to increase by 1.71 percent in urban 
areas and 1.63 percent in rural areas. Overall, IPFs are estimated to 
experience a net increase in payments as a result of the updates in 
this proposed rule. The largest payment increase is estimated at 3.07 
percent for IPFs in the Pacific region.
4. Effect on Beneficiaries
    Under the IPF PPS, IPFs will receive payment based on the average 
resources consumed by patients for each day. We do not expect changes 
in the quality of care or access to services for Medicare beneficiaries 
under the FY 2020 IPF PPS, but we continue to expect that paying 
prospectively for IPF services will enhance the efficiency of the 
Medicare program.
5. Effects of Updates to the Inpatient Psychiatric Facilities Quality 
Reporting (IPFQR) Program
    As discussed in section V. of this proposed rule and in accordance 
with section 1886(s)(4)(A)(i) of the Act, we will implement a 2 
percentage point reduction in the market basket update when calculating 
the FY 2021 national per diem rate for discharges from IPFs that have 
failed to comply with the IPFQR Program requirements for the FY 2021 
payment determination. In section II.B. of this proposed rule, we 
discuss how the 2 percentage point reduction will be applied. For the 
FY 2019 payment determination (that is, data submitted in CY 2018), of 
the 1,679 IPFs eligible for the IPFQR Program, 50 did not receive the 
full market basket update due to reasons specific to the IPFQR Program; 
24 of these IPFs chose not to participate and 26 did not meet the 
requirements of the Program. Thus, we estimate similar numbers for the 
FY 2021 payment determination and that the IPFQR Program will have a 
negligible impact on overall IPF payments in FY 2021.
    We are proposing provisions that impact the FY 2021 payment 
determination and subsequent years. We refer readers to section VI. of 
the preamble of this proposed rule for details discussing information 
collection requirements for the IPFQR Program. We intend to closely 
monitor the effects of this quality reporting program on IPFs and to 
help facilitate successful reporting outcomes through ongoing 
stakeholder education, national trainings, and a technical help desk.
6. Regulatory Review Costs
    If regulations impose administrative costs on private entities, 
such as the time needed to read and interpret this proposed rule, we 
should estimate the cost associated with regulatory review. Due to the 
uncertainty involved with accurately quantifying the number of entities 
that will review this proposed rule, we assume that the total number of 
unique commenters on the most recent IPF proposed rule from FY 2019 (83 
FR 38576) will be the number of reviewers of this proposed rule. We 
acknowledge that this assumption may understate or overstate the costs 
of reviewing this proposed rule. It is possible that not all commenters 
reviewed the FY 2019 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 proposed 
rule. We solicit comments on this assumption.
    We also recognize that different types of entities are in many 
cases affected by mutually exclusive sections of this proposed rule; 
therefore, for the purposes of our estimate, we assume that each 
reviewer reads approximately 50 percent of the proposed rule. We 
solicit comments on this assumption.
    Using the May, 2017 mean (average) wage information from the BLS 
for medical and health service managers (Code 11-9111), we estimate 
that the cost of reviewing this proposed rule is $107.38 per hour, 
including overhead and fringe benefits (https://www.bls.gov/oes/current/oes119111.htm). Assuming an average reading speed of 250 words 
per minute, we estimate that it would take approximately 1.3 hours for 
the staff to review half of this proposed rule. For each IPF that 
reviews the proposed rule, the estimated cost is (1.3 hours x $107.38) 
or $139.59. Therefore, we estimate that the total cost of reviewing 
this proposed rule is $12,283.92 ($139.59 x 88 reviewers).

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 proposed FY 2020 2016-based IPF PPS market basket update of 3.1 
percent, reduced by the statutorily required multifactor productivity 
adjustment of 0.5 percentage point and the ``other adjustment'' of 0.75 
percentage point, along with the proposed wage index budget neutrality 
adjustment to update the payment rates; proposing a FY 2020 IPF wage 
index which is fully based upon the OMB CBSA designations from Bulletin 
17-01 and which uses the FY 2020 pre-floor, pre-reclassified IPPS 
hospital wage index as its basis; and implementing changes to the IPFQR 
Program.

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 26, we 
have prepared an accounting statement showing the classification of the 
expenditures associated with the proposed updates to the IPF wage index 
and payment rates in this proposed rule. Table 26 provides our best 
estimate of the increase in Medicare payments under the IPF PPS as a 
result of the changes presented in

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this proposed rule and based on the data for 1,593 IPFs in our 
database.

Table 26--Accounting Statement: Classification of Estimated Expenditures
   Change in Estimated Impacts from FY 2019 IPF PPS to FY 2020 IPF PPS
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............  $75 million.
From Whom to Whom?........................  Federal Government to IPF
                                             Medicare Providers.
------------------------------------------------------------------------

F. Conclusion

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

    Dated: March 29, 2019.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: April 2, 2019.
Alex M. Azar II,
Secretary, Department of Health and Human Services.
[FR Doc. 2019-07884 Filed 4-18-19; 4:15 pm]
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