[Federal Register Volume 84, Number 151 (Tuesday, August 6, 2019)]
[Rules and Regulations]
[Pages 38424-38482]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-16370]



[[Page 38423]]

Vol. 84

Tuesday,

No. 151

August 6, 2019

Part III





Department of Health and Human Services





-----------------------------------------------------------------------





Centers for Medicare & Medicaid Services





-----------------------------------------------------------------------





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); Rules

  Federal Register / Vol. 84 , No. 151 / Tuesday, August 6, 2019 / 
Rules and Regulations  

[[Page 38424]]


-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1712-F]
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: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule updates 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 final rule revises and rebases the IPF 
market basket to reflect a 2016 base year and removes the IPF 
Prospective Payment System (PPS) 1-year lag of the wage index data. 
Finally, this final rule implements updates to the Inpatient 
Psychiatric Facilities Quality Reporting Program. These changes will be 
effective for IPF discharges beginning during the fiscal year (FY) from 
October 1, 2019 through September 30, 2020 (FY 2020).

DATES: These regulations are effective on October 1, 2019.

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:

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

    Addendum A to this final rule summarizes the FY 2020 IPF PPS 
payment rates, outlier threshold, cost of living adjustment factors for 
Alaska and Hawaii, national and upper limit cost-to-charge ratios, and 
adjustment factors. In addition, the B Addenda to this final 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 final rule is a 
provider-level file of the effects of the change to the wage index 
methodology, and is available at the same CMS website address.

I. Executive Summary

A. Purpose

    This final rule updates 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 final rule rebases and revises 
the IPF market basket to reflect a 2016 base year and uses 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. Finally, this final rule updates the Inpatient 
Psychiatric Facility Quality Reporting (IPFQR) Program.

B. Summary of the Major Provisions

1. Inpatient Psychiatric Facilities Prospective Payment System (IPF 
PPS)
    In this final rule we:
     Rebase and revise 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 periodically 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 (2.9 
percent) by a reduction for economy-wide productivity (0.4 percentage 
point) as required by section 1886(s)(2)(A)(i) of the Social Security 
Act (the Act). We further reduced the 2016-based IPF market basket 
update by 0.75 percentage point as required by section 
1886(s)(2)(A)(ii) of the Act, resulting in an IPF payment rate update 
of 1.75 percent for FY 2020.
     Made technical rate setting changes: The IPF PPS payment 
rates are adjusted annually for inflation, as well as statutory and 
other policy factors. We updated:
    ++ The IPF PPS federal per diem base rate from $782.78 to $798.55.
    ++ The IPF PPS federal per diem base rate for providers who failed 
to report quality data to $782.85.
    ++ The Electroconvulsive therapy (ECT) payment per treatment from 
$337.00 to $343.79.
    ++ The ECT payment per treatment for providers who failed to report 
quality data to $337.03.
    ++ The labor-related share from 74.8 percent to 76.9 percent.
    ++ 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 factor to 1.0026.
    ++ The fixed dollar loss threshold amount from $12,865 to $14,960 
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 
aligned 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.
2. Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program
    We updated the IPFQR Program by adding a new measure for the 
program.

C. Summary of Impacts

[[Page 38425]]



------------------------------------------------------------------------
                                              Total transfers & cost
         Provision description                      reductions
------------------------------------------------------------------------
FY 2020 IPF PPS payment update.........  The overall economic impact of
                                          this final rule is an
                                          estimated $65 million in
                                          increased payments to IPFs
                                          during FY 2020.
Updated quality reporting program        $0.
 (IPFQR) Program requirements.
------------------------------------------------------------------------

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 
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 Act.
    Section 1886(s)(1) of the Act titled ``Reference to Establishment 
and Implementation of System,'' refers to section 124 of the BBRA, 
which relates to the establishment of the IPF PPS.
    Section 1886(s)(2)(A)(i) of the Act requires the application of the 
productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of 
the Act to the IPF PPS for the rate year (RY) beginning in 2012 (that 
is, a RY that coincides with a FY) and each subsequent RY. As noted in 
our 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)-(D) of the Act require that for RY 2014 and 
each subsequent RY, IPFs that fail to report required quality data with 
respect to such a RY will 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 RY being less than such payment rates 
for the preceding RY. Any reduction for failure to report required 
quality data will apply only to the RY involved, and the Secretary will 
not take into account such reduction in computing the payment amount 
for a subsequent RY. (See section II.C of this final 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 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 for characteristics that were 
found in the regression analysis to be associated with statistically 
significant per diem cost differences, with statistical significance 
defined as p less than 0.05.
    The patient-level adjustments include age, Diagnosis-Related Group 
(DRG) assignment, and comorbidities; additionally, there are 
adjustments to reflect higher per diem costs at the beginning of a 
patient's IPF stay and lower costs for later days of the 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.

[[Page 38426]]

    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. Annual 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. That regression analysis is described 
in detail in our November 28, 2003 IPF proposed rule (68 FR 66923; 
66928 through 66933) and our November 15, 2004 IPF final rule (69 FR 
66933 through 66960). 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 412.428.
    The 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 Final Rule and Responses to 
Comments

    On April 23, 2019 we published the FY 2020 IPF PPS proposed rule 
(84 FR 16948). We received 24 comments on the FY 2020 IPF PPS proposed 
rule, with some commenters addressing multiple issues. We received 4 
comments on payment policy issues, 19 comments on quality issues, and 6 
comments that were outside of the scope of the proposed rule.

A. 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 (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 
proposed to rebase and revise the IPF market basket to reflect a 2016 
base year.
2. Overview of the 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 (for the proposed IPF market basket, 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

[[Page 38427]]

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 the FY 2020 proposed rule, we proposed 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 proposed 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 proposed 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 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 proposed 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 proposed 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 proposed 
to include IPFs where the Medicare LOS is within 95 percent (higher or 
lower) of the facility LOS. We proposed 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) 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

[[Page 38428]]

(routine, ancillary, and capital costs) that are eligible for inclusion 
under the IPF PPS payments. We proposed 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 proposed 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 
proposed 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 provide a description of the proposed methodologies used to 
derive costs for the seven major cost categories.
Wages and Salaries Costs
    For freestanding IPFs, we proposed 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 
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 
proposed 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 proposed 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 proposed to calculate hospital-based inpatient routine salary 
costs using Worksheet A, column 1, line 40.
    We proposed 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 proposed 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 4-18, line 40 
less Worksheet B, part II, columns 4-18) for each ancillary department. 
We then multiplied total noncapital overhead costs by the ratio of 
total facility overhead salaries (as reported on Worksheet A, column 1, 
lines 4-18) to total facility noncapital overhead costs (as reported on 
Worksheet A, column 1 and 2, lines 4-18).
    We proposed 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 4-18 less Worksheet B, part 
II, columns 4-18). We then identified 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 4-18) to total overhead costs (as reported 
on Worksheet A, column 1 & 2, lines 4-18). 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 proposed Employee Benefits costs were 
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 
reported Worksheet S-3, part II data, but not Worksheet S-3, part V, we 
proposed to use the sum of Worksheet S-3, part II lines 17, 18, 20, and 
22 to derive Employee Benefits costs. This proposed method allowed us 
to obtain data from more than 20 freestanding IPFs (roughly 5 percent 
of all freestanding IPFs) than if we were to only use Worksheet S-3, 
part V data as done for the 2012-based IPF market basket.
    For hospital-based IPFs, we proposed 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 proposed hospital-based inpatient unit benefit costs be equal to 
Worksheet S-3 part V, column 2, line 3.
    We proposed 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 proposed 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

[[Page 38429]]

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 final rule. 
To derive contract labor costs using Worksheet S-3, part V data, for 
freestanding IPFs, we proposed 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 reported Worksheet S-3, part II data, but 
not Worksheet S-3, part V, we proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed that PLI costs (often referred 
to as malpractice costs) are equal to premiums, paid losses and self-
insurance costs reported on Worksheet S-2, part I, columns 1 through 3, 
line 118.
    For hospital-based IPFs, we proposed 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 were equal to total facility 
PLI (as reported on Worksheet S-2, part I, 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 proposed 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 (52 FR 38159).
    For hospital-based IPFs, we proposed 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 proposed 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 are used among each unit of the 
hospital. Similar to the other market basket costs weights, we proposed 
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 proposed 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'' in section 
ii. of this final rule.
    Freestanding IPFs are not required to complete Worksheet S-3, part 
II. Therefore, to estimate the Home Office Contract Labor cost weight, 
we proposed the following methodology:
    (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).
    (2) We identify freestanding IPFs that report a home office on 
Worksheet S-2, part I, line 140--roughly 85 percent. We proposed 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.
    (3) We then calculated 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 
proposed 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 was 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

[[Page 38430]]

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) of this final rule.
Capital Costs
    For freestanding IPFs, we proposed 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 proposed 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 
calculated 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 derived costs for the seven major cost categories for each 
provider using the Medicare cost report data as described, we proposed 
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 divided 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 applied a 
mutually exclusive top and bottom 5 percent trim for each cost weight 
to remove outliers. After the outliers have been removed, we summed the 
costs for each category across all remaining providers. We then divided 
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 calculated the residual ``All Other'' cost weight that 
reflects all remaining costs that are not captured in the seven cost 
categories listed. We did not receive any comments on the derivation of 
the major cost weights. In this final rule, we are finalizing our 
methodology for deriving the major cost weights as we proposed.
    Table 1 presents the major cost categories and weights calculated 
from the Medicare cost reports for the 2016-based IPF market basket as 
well as for the 2012-based IPF market basket.

  Table 1--Major Cost Categories as Derived From Medicare Cost Reports
------------------------------------------------------------------------
                                            Final 2016-     2012-based
                                             based IPF      IPF market
          Major cost categories            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
------------------------------------------------------------------------
Note: Total may not sum to 100 due to rounding.

    As we did for the 2012-based IPF market basket, we proposed 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 proposed 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. We 
did not receive any comments on the allocation of the Contract Labor 
cost weight.
    Table 2 shows the Wages and Salaries and Employee Benefit cost 
weights after Contract Labor cost weight allocation for both the 2016-
based IPF market basket and 2012-based IPF market basket.

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


[[Page 38431]]

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 proposed 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 proposed 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 proposed 
to calculate the cost shares that each cost category represents of the 
inflated 2016 data. These resulting 2016 cost shares were 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 proposed 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 
were: (1) Electricity, (2) Fuel, Oil, and Gasoline, (3) Food: Direct 
Purchases, (4) Food: Contract Services, (5) Chemicals, (6) Medical 
Instruments, (7) Rubber & 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 
proposed to include Water and Sewerage in the Electricity cost weight 
due to the small amount of costs in this category.
    We did not receive any comments on the derivation of the detailed 
operating cost weights. In this final rule, we are finalizing our 
methodology for deriving the detailed operating cost weights as we 
proposed.
iv. Derivation of the Detailed Capital Cost Weights
    As described in section III.A.3.a.i. of this final rule, we 
proposed 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 proposed to further separate this total Capital-Related 
cost weight into more detailed cost categories. Using 2016 Medicare 
cost reports, we were able to group Capital-Related costs into the 
following categories: Depreciation, Interest, Lease, and Other Capital-
Related costs. For each of these categories, we proposed to determine 
separately for hospital-based IPFs and freestanding IPFs what 
proportion of total capital-related costs the category represent.
    For freestanding IPFs, we proposed 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 were not 
reported separately for the subprovider; therefore, we proposed 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 was 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 proposed 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 proposed to allocate lease costs across each of the 
remaining detailed capital-related cost categories as done in the 2012-
based IPF market basket. This resulted 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 proposed 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 
done under the 2012-based IPF market basket, we proposed 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 proposed 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 proposed to further divide the Depreciation and 
Interest cost categories. We proposed to separate Depreciation into the 
following two categories: (1) Building and Fixed Equipment; and (2) 
Movable Equipment;

[[Page 38432]]

and proposed to separate Interest into the following two categories: 
(1) Government/Nonprofit; and (2) For-profit.
    To disaggregate the Depreciation cost weight, we determined 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 2016-based IPF market basket, we proposed 
to use slightly different methods to obtain the fixed percentages for 
hospital-based IPFs compared to freestanding IPFs.
    For freestanding IPFs, we proposed 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 proposed 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 proposed 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 proposed 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 determined the percent 
of total interest costs for IPFs that were attributable to government 
and nonprofit facilities, the ``nonprofit percentage.'' For the 2016-
based IPF market basket, we proposed to use interest costs data from 
Worksheet A-7 for both freestanding and hospital-based IPFs. We then 
determined 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.
    We did not receive public comments on the derivation of the 
detailed capital cost weights. In this final rule, we are finalizing 
our methodology for deriving the detailed capital cost weights as we 
proposed. Table 3 provides the detailed capital cost share composition 
of the 2016-based IPF market basket. 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 this final 
rule.

  Table 3--Capital Cost Share Composition for the Final 2016-Based IPF
                              Market Basket
------------------------------------------------------------------------
                                           Capital cost    Capital cost
                                               share           share
                                            composition     composition
                                           before lease     after lease
                                              expense         expense
                                            allocation      allocation
                                             (percent)       (percent)
------------------------------------------------------------------------
Depreciation............................              60              74
    Building and Fixed Equipment........              43              52
    Movable Equipment...................              18              22
Interest................................              13              16
    Government/Nonprofit................              10              12
For Profit..............................               3               4
Lease...................................              20             n/a
Other...................................               7              10
------------------------------------------------------------------------
Note: Detail may not add to total due to rounding.

v. 2016-Based IPF Market Basket Cost Categories and Weights
    Table 4 shows the cost categories and weights for the final 2016-
based IPF market basket and the 2012-based IPF market basket.
BILLING CODE 4120-01-P

[[Page 38433]]

[GRAPHIC] [TIFF OMITTED] TR06AU19.003


[[Page 38434]]


[GRAPHIC] [TIFF OMITTED] TR06AU19.004

b. Selection of Price Proxies
    After developing the cost weights for the proposed 2016-based IPF 
market basket, we selected 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 based 
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 price changes for goods sold in other than retail markets. PPIs 
are used when the purchases of goods or services are made at the 
wholesale level.
     Consumer Price Indexes. Consumer Price Indexes (CPIs) 
measure change in the prices of final goods and services bought by 
consumers. CPIs are only used when the purchases are similar to those 
of retail consumers rather than purchases at the wholesale 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. (Sampling variability is variation from the 
true population parameter 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 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 proposed to use for the 
2016-based IPF market basket. A detailed explanation of the price 
proxies we proposed for each cost category weight is provided.
i. Price Proxies for the Operating Portion of the 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 proposed to 
apply a proxy blend based on six occupational subcategories within the 
Wages and Salaries category, which would reflect the IPF occupational 
mix, as done for the 2012-based IPF market basket.
    We proposed to use the National Industry-Specific Occupational 
Employment and Wage estimates for NAICS 622200, Psychiatric & Substance 
Abuse Hospitals, published by the Bureau of Labor Statistics Office of 
Occupational Employment Statistics (OES), as the data source for the 
wage cost shares in the wage proxy blend. We proposed 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 38435]]

[GRAPHIC] [TIFF OMITTED] TR06AU19.005


[[Page 38436]]


[GRAPHIC] [TIFF OMITTED] TR06AU19.006

    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 proposed 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. We did not receive 
any public comments on the 2016-based IPF wage price proxy. In this 
final rule, we are finalizing the 2016-based IPF wage price proxy as 
proposed.

[[Page 38437]]

[GRAPHIC] [TIFF OMITTED] TR06AU19.007

BILLING CODE 4120-C
    A comparison of the yearly changes from FY 2017 to FY 2020 for the 
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       2018       2019       2020    2017-2020
----------------------------------------------------------------------------------------------------------------
2016-based IPF Final Wage Proxy Blend....................        2.4        2.6        3.0        3.2        2.8
2012-based IPF Wage Proxy Blend..........................        2.4        2.6        3.0        3.2        2.8
----------------------------------------------------------------------------------------------------------------
**Source: IHS Global Inc., 2nd Quarter 2019 forecast with historical data through 1st Quarter 2019.

Benefits
    To measure benefits price growth in the 2016-based IPF market 
basket, we proposed 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, HHA, RPL, LTCH, and 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. We 
did not receive any public comments on the 2016-based IPF benefit price 
proxy. In this final rule, we are finalizing the 2016-based IPF benefit 
price proxy as proposed.

[[Page 38438]]



                        Table 8--Final 2016-Based IPF Market Basket Benefits Proxy Blend
----------------------------------------------------------------------------------------------------------------
                                               2016-based      2012-based
                                             benefit  blend  benefit  blend
              Wage subcategory                   weight          weight                  Price proxy
                                                (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
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 
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 2016-Based IPF Benefit Proxy Blend and 2012-Based IPF Benefit Proxy Blend
----------------------------------------------------------------------------------------------------------------
                                                                                                   Average 2017-
                                       2017            2018            2019            2020            2020
----------------------------------------------------------------------------------------------------------------
2016-based IPF Final Benefit                 1.9             2.1             2.5             3.0             2.4
 Proxy Blend....................
2012-based IPF Benefit Proxy                 1.9             2.1             2.5             3.0             2.4
 Blend..........................
----------------------------------------------------------------------------------------------------------------
Source: IHS Global Inc., 2nd Quarter 2019 forecast with historical data through 1st Quarter 2019.

Electricity
    We proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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

[[Page 38439]]

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 Soap and Cleaning Compound Manufacturing (BLS 
series code PCU32561-32561-).
    We proposed 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 2016-based IPF market basket 
compared to the 2012-based IPF market basket blended Chemical proxy.

                                     Table 10--Blended Chemical PPI Weights
----------------------------------------------------------------------------------------------------------------
                                                                    Final 2016-
                                                                     based IPF    2012-based IPF
                              Name                                    weights         weights          NAICS
                                                                     (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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. We did not receive any public comments on the 2016-based 
IPF price proxies. In this final rule, we are finalizing the 2016-based 
IPF price proxies as proposed.
ii. Price Proxies for the Capital Portion of the Proposed 2016-Based 
IPF Market Basket
Capital Price Proxies Prior to Vintage Weighting
    We proposed 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 proposed to proxy:
     Depreciation: Building and Fixed Equipment cost category 
by BEA's

[[Page 38440]]

Chained Price Index for Nonresidential Construction for Hospitals and 
Special Care Facilities (BEA Table 5.4.4. Price 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 these are the most appropriate proxies for IPF capital-
related costs that meet our selection criteria of relevance, 
timeliness, availability, and reliability. We also proposed 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 
proposed 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 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 needed 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 provided a consistent 
database of total expenses back to 1963. Consequently, we proposed 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 proposed 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 proposed 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 derived 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 needed the expected lives for Building and 
Fixed Equipment, Movable Equipment, and Interest for the proposed 2016-
based IPF market basket. We proposed 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 
proposed 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 proposed 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 calculated 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 proposed 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 proposed 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 proposed 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

[[Page 38441]]

interest, 22 years, and in the case of movable equipment, 11 years). 
For each 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 calculated 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 
calculated 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. We did not receive any public comments on the 
methodology used to derive the vintage weights. In this final rule, we 
are finalizing the 2016-based IPF market basket vintage weights as 
proposed. Table 11 presents the vintage weights for the capital-related 
portion of the 2016-based IPF market basket and the 2012-based IPF 
market basket.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR06AU19.008

    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/

[[Page 38442]]

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 Final 2016-Based IPF Market Basket
    Table 12 shows both the operating and capital price proxies for the 
2016-based IPF market basket.

[[Page 38443]]

[GRAPHIC] [TIFF OMITTED] TR06AU19.009


[[Page 38444]]


[GRAPHIC] [TIFF OMITTED] TR06AU19.010

BILLING CODE 4120-01-C
    Comment: One commenter supported the proposal to rebase and revise 
the IPF market basket to reflect a 2016 base year from a 2012 base 
year--as this ensures the most recent cost data is utilized.
    Response: We appreciate the commenter's support.
    Final Decision: After careful consideration of public comments, we 
are finalizing the 2016-based IPF market basket as proposed.
4. FY 2020 Market Basket Update
    For FY 2020 (that is, beginning October 1, 2019 and ending 
September 30, 2020), we proposed 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). In the FY 2020 
IPF proposed rule, we proposed a FY 2020 IPF market basket increase of 
3.1 percent based on IGI's fourth quarter 2018 forecast with historical 
data through third quarter 2018. In the FY 2020 proposed rule, we also 
proposed 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 update in 
the final rule.
    Table 13 compares the final 2016-based IPF market basket and the 
2012-based IPF market basket percent changes using the most recent 
estimate based on IGI's second quarter 2019 forecast with historical 
data through the first quarter of 2019. The projected 2016-based IPF 
market basket increase factor for FY 2020 is 2.9 percent. For 
comparison, the current 2012-based IPF market basket is also projected 
to increase by 2.9 percent in FY 2020 based on IGI's second quarter 
2019 forecast.

 Table 13--Final 2016-Based IPF Market Basket and 2012-Based IPF Market
             Basket Percent Changes, FY 2015 Through FY 2022
------------------------------------------------------------------------
                                            Final 2016-
                                             based IPF    2012-based IPF
            Fiscal year (FY)               market basket   market basket
                                           index percent   index 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.............................             2.6             2.7
    FY 2020.............................             2.9             2.9
    FY 2021.............................             3.1             3.2
    FY 2022.............................             3.1             3.1
                                         -------------------------------
        Average 2019-2022...............             2.9             3.0
------------------------------------------------------------------------
Note: These market basket percent changes do not include any further
  adjustments as may be statutorily required. Source: IHS Global Inc.
  2nd quarter 2019 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).
    For the FY 2020 final rule, using IGI's second quarter 2019 
forecast, the MFP adjustment for FY 2020 (the 10-year moving average of 
MFP for the period ending FY 2020) is projected to be 0.4 percent. 
Thus, in accordance with section 1886(s)(2)(A)(i) of the Act, we

[[Page 38445]]

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 2016-based IPF market basket (currently estimated to be 
2.9 percent based on IGI's second quarter 2019 forecast). We then 
reduce this percentage increase of 2.9 percent by the current estimate 
of the MFP adjustment for FY 2020 of 0.4 percentage point (the 10-year 
moving average of MFP for the period ending FY 2020 based on IGI's 
second quarter 2019 forecast) yielding a productivity-adjusted IPF 
market basket update of 2.5 percent. In addition, for FY 2020 the 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 results in a FY 2020 IPF PPS payment 
rate update of 1.75 percent (2.9-0.4-0.75 = 1.75 percent).
6. 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 proposed to continue to classify a cost category as labor-
related if the costs are labor intensive and vary with the local labor 
market.
    We proposed 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 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 2016-based IPF market 
basket, we proposed 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 done in the 2012-based IPF market basket, we proposed 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 IPPS/LTCH 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 proposed 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 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 proposed 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 proposed 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 proposed 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 proposed 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 
determined 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 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 proposed to 
allocate 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

[[Page 38446]]

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 proposed 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 of the proposed 2016-based 
IPF market basket, we proposed 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).
    Comment: One commenter opposed the increase in the labor-related 
share from 74.8 percent to 76.8 percent stating it would negatively 
impact any facility with a wage index below 1.0. The growing disparity 
in wage indices places facilities in low wage areas at a significant 
disadvantage, and this proposal will further increase that disparity. 
They encouraged CMS to maintain the FY 2019 labor-related share in FY 
2020.
    Response: For FY 2020, we proposed the FY 2020 labor-related share 
to be equal to the sum of the relative importance of shares of the 
following proposed 2016-based IPF market basket 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. The FY 2019 labor-related 
share reflected the sum of the relative importance shares of the same 
categories using the 2012-based IPF market basket.
    The increase in the labor-related share from FY 2019 to FY 2020 is 
mostly a result of the rebasing and revising of the IPF market basket 
to reflect more recent data. Of the 2.0-percentage point difference 
between the FY 2020 labor-related share using the proposed 2016-based 
IPF market basket and the labor share used in FY 2019, 1.9 percentage 
point is from rebasing the market basket. The detailed factors 
contributing to the difference are: 0.6 percentage point is due to an 
increase in the Compensation and Capital cost weights as a result of 
incorporating the 2016 MCR data, 0.3 percentage point is due to 
revising the starting point of the calculation of the relative 
importance from 2012 to 2016, 0.3 percentage point is due to the use of 
MCR data to calculate the Home Office Contract Labor cost weight (a 
portion of which is included in the Professional Fees: Labor-related 
services cost weight), and the remaining 0.7 percentage point is due to 
the incorporation of the 2012 Benchmark I-O data, primarily stemming 
from an increase in the Professional Fees: Labor-related cost weight.
    We appreciate the commenter's concern over the increase in the 
labor-related share; however, we believe it is technically appropriate 
to use the 2016-based IPF market basket to determine the labor-related 
share for FY 2020 as it is based on more recent data regarding price 
pressures and cost structure of IPFs. Our policy to use the most recent 
market basket to determine the labor-related share is a policy we have 
regularly adopted for the IPF PPS as well as for other PPSs including 
but not limited to the IPPS, the Inpatient Rehabilitation Facility PPS, 
and the Long-term care hospital PPS.
    Final Decision: After careful consideration of comments, in this 
final rule, we are finalizing the 2016-based IPF market basket labor-
related share cost weights as proposed.
    Based on IHS Global Inc. 2nd quarter 2019 forecast of the 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 
73.8 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 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 finalizing a total labor-related share 
for FY 2020 of 76.9 percent (the sum of 73.8 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 final 
2016-based IPF market basket relative importance and the FY 2019 labor-
related share using the 2012-based IPF market basket.

[[Page 38447]]

[GRAPHIC] [TIFF OMITTED] TR06AU19.011

B. 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).
    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

[[Page 38448]]

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 final 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. 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 1.75 percent (that is, 
the 2016-based IPF market basket increase for FY 2020 of 2.9 percent 
less the productivity adjustment of 0.4 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 1.0026 (as discussed in section III.D.1.f of this final rule) to the 
FY 2019 federal per diem base rate of $782.78, yielding a federal per 
diem base rate of $798.55 for FY 2020. Similarly, we applied the 1.75 
percent payment rate update and the 1.0026 wage index budget-neutrality 
factor to the FY 2019 ECT payment per treatment of $337.00, yielding an 
ECT payment per treatment of $343.79 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 will 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 
-0.25 percent payment rate update (that is, the IPF market basket 
increase for FY 2020 of 2.9 percent less the productivity adjustment of 
0.4 percentage point, further reduced by the 0.75 percentage point for 
an update of 1.75 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 1.0026 to the FY 2019 federal per diem base rate of $782.78, 
yielding a federal per diem base rate of $782.85 for FY 2020.
     For IPFs that fail to meet requirements under the IPFQR 
Program, we applied the -0.25 percent annual payment rate update and 
the 1.0026 wage index budget-neutrality factor to the FY 2019 ECT 
payment per treatment of $337.00, yielding an ECT payment per treatment 
of $337.03 for FY 2020.

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

1. Overview of the IPF PPS Adjustment Factors
    The IPF PPS payment adjustments were derived from a regression 
analysis of 100 percent of the FY 2002 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 are finalizing our proposal to 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. 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).
    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 discussed in detail in the November 28, 
2003 IPF proposed rule (68 FR 66923; 66928 through 66933) and the 
November 15, 2004 IPF final rule (69 FR 66933 through 66960). 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 did not propose any changes to the IPF MS-DRG 
adjustment factors but are finalizing our proposal 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 are finalizing our proposal 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 final rule includes tables of the final changes to the ICD-10-CM/
PCS code sets which underlie the FY 2020 IPF

[[Page 38449]]

MS-DRGs. Both the FY 2020 IPPS final 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 final 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. 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/PCS implementation on October 1, 2015. All conversion efforts 
were made with the intent of achieving this goal. For FY 2020, we are 
finalizing our proposal to continue 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 final FY 
2020 update to the ICD-10-CM/PCS code set. The final FY 2020 ICD-10-CM/
PCS updates include 4 ICD-10-CM diagnosis codes added to the Poisoning 
comorbidity category and 88 ICD-10-PCS codes added to the Oncology 
Procedures comorbidity category. In addition, 3 ICD-10-PCS codes were 
deleted from the Oncology Procedures comorbidity category. These 
updates are detailed in Addenda B-2 and B-3 of this final 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 codes that were site ``unspecified'' in terms 
of laterality 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 a 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 when laterality codes 
(site specified 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'' by laterality, therefore 
we are not removing any of the new codes.

[[Page 38450]]

c. 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 finalizing our proposal 
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. 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. As discussed in the November 2004 IPF PPS 
final rule, we used a regression analysis to estimate the average 
differences in per diem cost among stays of different lengths (69 FR 
66947 to 66950). 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 finalizing our proposal 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. 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. 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 
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 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 proposed 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 proposed 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, 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.

[[Page 38451]]

    We explained in the proposed rule (84 FR 16973), that 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, the wage adjusted 
Medicare payments of various provider types would be based upon wage 
index data from the same timeframe. CMS proposed 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.
    For FY 2020, we also proposed to continue use the pre-floor, pre-
reclassified IPPS hospital wage index as the basis for the IPF wage 
index.
    We received 1 comment on our proposal to align the IPF wage index 
data timeframe 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.
    Comment: A commenter wrote that he was not opposed to the proposal 
to eliminate the 1-year lag in the wage index data, but had issues with 
the data itself. The commenter was opposed to using the FY 2020 IPPS 
wage index data file discussed in the FY 2020 IPPS proposed rule 
because the data excluded several hospitals which had wage data based 
upon regional rather than local labor market rates. The commenter felt 
this exclusion was inappropriate and that it would negatively affect 
certain IPFs.
    Response: We appreciate the comment, however, we are finalizing our 
proposal to use the concurrent pre-floor, pre-reclassified IPPS 
hospital wage index as the basis for IPF wage index for FY 2020 and 
subsequent years. For FY 2020, we are also finalizing our proposal to 
continue to use the pre-floor, pre-reclassified IPPS hospital wage 
index as the basis for the IPF wage index. We believe it is the best 
available data to use as a proxy for an IPF wage index. This pre-floor, 
pre-reclassified IPPS hospital wage index is also the most appropriate 
wage index as IPFs compete in the same labor market as IPPS hospitals; 
this wage index best reflects the variation in local labor costs of 
IPFs in the various geographic areas using the most recent IPPS 
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 will apply the FY 
2020 IPF wage index to payments beginning October 1, 2019.
    We identified a slight error in the proposed rule wage index values 
after the FY 2020 IPF PPS proposed rule was published. A programming 
error caused the data for all providers in a single county to be 
included twice, which affected the national average hourly rate, and 
therefore affected nearly all wage index values. We have changed the 
programming logic so this error cannot occur again. In addition, we 
corrected the classification of one provider in North Carolina that was 
erroneously identified as being in an urban CBSA. We also standardized 
our procedures for rounding, to ensure consistency. The correction to 
the NPRM wage index data was not completed until after the comment 
period closed on June 17, 2019. This final rule reflects the corrected 
and updated wage index data.
    We are finalizing this change to the IPF wage index methodology to 
implement it in a budget-neutral manner, so that total IPF payments 
will not be affected. However, as shown in Table 15, there will be 
distributional effects. 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 FY 2020 IPF wage index 
based on concurrent IPPS hospital wage index data (the proposed change 
in methodology which we are finalizing). 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 by finalizing the proposed methodology (0.03 percent increase) 
compared to if we had maintained the current methodology (0.09 percent 
increase). Rural IPFs are estimated to have a smaller decrease in 
estimated payments by finalizing the proposed methodology (0.20 percent 
decrease) compared to if we had maintained the current methodology 
(0.54 percent decrease).
BILLING CODE 4120-01-P

[[Page 38452]]

[GRAPHIC] [TIFF OMITTED] TR06AU19.012


[[Page 38453]]


[GRAPHIC] [TIFF OMITTED] TR06AU19.013

BILLING CODE 4120-01-C
    To provide additional information to IPFs about the effect of 
implementing this 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 are applying the IPF wage index adjustment to the labor-related 
share of the national base rate or ECT payment per treatment. The 
labor-related share of the national rate and ECT payment per treatment 
will change from 74.8 percent in FY 2019 to 76.9 percent in FY 2020. 
This percentage reflects the labor-related share of the 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.

[[Page 38454]]

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/information-for-agencies/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/information-for-agencies/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/information-for-agencies/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 will change 
their status from being rural to being urban. We adopted these new OMB 
designations in FY 2020 as they are 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 
final FY 2020 IPF wage index, will include this new OMB designation.
    Therefore, the 17 percent IPF rural adjustment will cease for IPF 
providers in these two counties. Currently, there is a single IPF in 
new CBSA 46300, which will lose its 17 percent rural adjustment as a 
result of being re-designated as urban. However, the FY 2020 IPF wage 
index value for CBSA 46300 is 0.8291, which is 3.5 percent higher than 
the rural wage index value for Idaho (0.8009). As such, the loss of the 
17 percent IPF wage index adjustment will be mitigated in 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 will 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 are finalizing our proposal 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 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.

[[Page 38455]]

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 occasionally commented on certain aspects of the IPF 
PPS wage index values and their impact on payments. We solicited 
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. We 
did not receive any comments.
e. 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 finalizing our proposal 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. 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 finalizing our proposal 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 FY 2020 IPF 
wage index values (available on the CMS website) and 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 1.0026.
    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. 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 is 
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 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 final rule, we are finalizing our proposal 
to continue to retain the coefficient value of 0.5150 for the teaching 
adjustment to the federal per diem base rate.
3. Cost of Living Adjustment for IPFs Located in Alaska and Hawaii
    The IPF PPS includes a payment adjustment for IPFs located in 
Alaska and Hawaii based upon the 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

[[Page 38456]]

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 were published by the Office of 
Personnel Management (OPM), and the OPM memo showing the 2009 COLA 
factors is available at https://www.chcoc.gov/content/nonforeign-area-retirement-equity-assurance-act.
    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. 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 are finalizing our proposal 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 IPF PPS COLA factors for FY 2020 are also shown in Addendum A 
to this final rule, available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html.
4. Adjustment for IPFs with a Qualifying Emergency Department (ED)
    The IPF PPS includes a facility-level adjustment for IPFs with 
qualifying EDs. We provide an adjustment to the federal per diem base 
rate to account for the costs associated with maintaining a full-
service ED. The adjustment is intended to account for ED costs incurred 
by a 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 (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

[[Page 38457]]

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 are finalizing our proposal 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 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. The adjusted threshold amount 
is equal to the outlier threshold amount adjusted for wage area, 
teaching status, rural area, and the COLA adjustment (if applicable), 
plus the amount of the Medicare IPF payment for the case. 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. Update to the Outlier Fixed Dollar Loss Threshold Amount
    In accordance with the update methodology described in Sec.  
412.428(d), we updated the fixed dollar loss threshold amount used 
under the IPF PPS outlier policy. Based on the regression analysis and 
payment simulations used to develop the IPF PPS, we established a 2 
percent outlier policy, which strikes an appropriate balance between 
protecting IPFs from extraordinarily costly cases while ensuring the 
adequacy of the federal per diem base rate for all other cases that are 
not outlier cases.
    Based on an analysis of the latest available data (the March 2019 
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 are updating 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 2.23 percent in FY 2019. Therefore, we are finalizing our 
proposal to update the outlier threshold amount to $14,960 to maintain 
estimated outlier payments at 2 percent of total estimated aggregate 
IPF payments for FY 2020. This final rule update is an increase from 
the FY 2019 threshold of $12,865.
    We received one comment on our proposed update to the outlier 
threshold.
    Comment: A commenter was concerned that the 13.4 percent proposed 
increase in the outlier threshold was too steep to implement in a 
single year, and suggested that when an increase in the outlier 
threshold is necessary, it should be limited to no more than 5 percent 
in any given year.
    Response: The outlier fixed dollar threshold amount is calculated 
by simulating aggregate payments and using an iterative process to 
determine a threshold that results in outlier payments being equal to 2 
percent of total payments under the simulation. To determine the IPF 
outlier threshold amount for FY 2020 we estimated the FY 2020 IPF PPS 
aggregate and outlier payments using the most recent claims available 
(March 2019 update of the FY 2018 MedPAR claims) and the FY 2020 final 
payment rates. The outlier threshold was varied in this simulation 
until estimated outlier payments equaled 2 percent of estimated 
aggregate payments. Based on the regression analysis and payment 
simulations used to develop the IPF PPS, we established a 2 percent 
outlier policy in our November 2004 IPF PPS final rule (69 FR 66960 
through 66962), 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. This outlier fixed dollar loss threshold update methodology is 
based on longstanding IPF payment policy and is described in detail in 
the RY 2007 IPF PPS final rule (71 FR 27072 and 27073). To continue to 
maintain this established 2 percent outlier policy, for this final rule 
we must raise the IPF PPS outlier fixed dollar threshold amount from 
$12,865 to $14,960. If the fixed dollar threshold amount increase was 
limited to 5 percent for FY 2020 as suggested by the commenter we would 
not meet the established 2 percent outlier policy. Our IPF PPS outlier 
policy limiting outlier payments to a defined percentage of total 
payments is

[[Page 38458]]

consistent with the outlier policies in other Medicare payment systems.
3. Update to IPF Cost-to-Charge Ratio Ceilings
    Under the IPF PPS, an outlier payment is made if an IPF's cost for 
a stay exceeds a fixed dollar loss threshold amount plus the IPF PPS 
amount. In order to establish an IPF's cost for a particular case, we 
multiply the IPF's reported charges on the discharge bill by its 
overall cost-to-charge ratio (CCR). This approach to determining an 
IPF's cost is consistent with the approach used under the IPPS and 
other PPSs. In the 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 most recent Provider 
Specific File available.
    For FY 2020, we are finalizing our proposal 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 2.0239 for rural IPFs, and 1.7263 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 median CCRs to the following situations:
     New IPFs that have not yet submitted their first Medicare 
cost report. We continue to use these national median CCRs until the 
facility's actual CCR can be computed using the first tentatively or 
final settled cost report.
     IPFs whose overall CCR is in excess of three standard 
deviations above the corresponding national geometric mean (that is, 
above the ceiling).
     Other IPFs for which the Medicare Administrative 
Contractor (MAC) obtains inaccurate or incomplete data with which to 
calculate a CCR.
    We are finalizing our proposal 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 
0.5720 for rural IPFs and a national median CCR of 0.4370 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 did not propose refinements, for FY 2020 we 
will continue to use the existing adjustment factors.

[[Page 38459]]

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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

B. Covered Entities

    In the FY 2013 IPPS/LTCH-PPS 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 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 National 
Quality Forum (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 the FY 2020 IPF PPS Proposed 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 38460]]

[GRAPHIC] [TIFF OMITTED] TR06AU19.014

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

[[Page 38461]]

to their medication regimen.\5\ Patients 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
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
    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.
---------------------------------------------------------------------------

    \17\ https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/Version_1-0_Inpatient_Psychiatric_Facility_Medication_Continuation_Public.zip.
---------------------------------------------------------------------------

    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 discharged, 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.
---------------------------------------------------------------------------

    \18\ https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/Version_1-0_Inpatient_Psychiatric_Facility_Medication_Continuation_Public.zip
---------------------------------------------------------------------------

    In response to comments that the affected population may be too 
small to

[[Page 38462]]

report meaningful data because it is limited to Medicare patients 
enrolled in Parts A, B, and D (82 FR 38469 through 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\
---------------------------------------------------------------------------

    \19\ https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=85831.
    \20\ https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=85831.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \21\ https://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=85831
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \22\ MAP Hospital Workgroup, Preliminary Analysis Worksheet. 
December 2016. http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=84199.
---------------------------------------------------------------------------

    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 finalized, 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 the 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \31\ https://www.qualityforum.org/QPS/3205.
---------------------------------------------------------------------------

    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 #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, for

[[Page 38463]]

the FY 2021 payment determination, the performance period will include 
discharges between July 1, 2017 and June 30, 2019.\32\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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 invited 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.
    Comment: Several commenters expressed support for the Medication 
Continuation Following Inpatient Psychiatric Discharge (NQF #3205) 
measure specifically noting that it is an NQF-endorsed measure that 
addresses an important clinical topic with a demonstrated quality gap. 
Several of these commenters noted that the measure will help facilities 
identify interventions for post-discharge medication compliance, 
thereby improving care transitions. Some commenters further expressed 
that the measure aligns with the goal of not increasing provider 
burden.
    Response: We thank these commenters for their support.
    Comment: Some commenters recommended that CMS not adopt the 
Medication Continuation Following Inpatient Psychiatric Discharge (NQF 
#3205) measure because this measure imposes burden on facilities.
    Response: We do not believe that this measure imposes any data 
reporting burden on facilities because it is calculated by CMS using 
data submitted on Medicare Parts A, B, and D claims. We acknowledge 
that to improve performance on this measure there may be costs or 
burden associated with updating clinical workflows to improve discharge 
planning and counseling on the importance of medication continuation. 
However, because of the severity of the negative health outcomes 
associated with medication discontinuation for this patient population, 
we believe that these updates are part of providing high quality 
inpatient psychiatric care.
    Comment: Some commenters recommended that CMS not adopt Medication 
Continuation Following Inpatient Psychiatric Discharge (NQF #3205) 
because they believe that restricting the denominator to patients who 
have Medicare Parts A, B, and D coverage makes the population size too 
small to be meaningful.
    Response: During measure testing, the denominator was restricted to 
patients who have Medicare Parts A, B, and D coverage during measure 
testing and results showed that the majority of providers met the 75 
case minimum threshold required to obtain an overall reliability score 
of at least 0.7, which is the minimum acceptable reliability rating. 
Furthermore, the NQF standing committee evaluated this when considering 
the measure for endorsement and determined that the measure meets their 
scientific acceptability criteria.\33\
---------------------------------------------------------------------------

    \33\ http://www.qualityforum.org/Projects/a-b/Behavioral_Health_2016-2017/Draft_Report_for_Comment.aspx.
---------------------------------------------------------------------------

    Comment: Some commenters recommended that CMS not adopt this 
measure because they believe that the measure assesses patient behavior 
(that is, filling prescriptions) as opposed to provider quality and 
therefore does not produce data that will help consumers select 
facilities.
    Response: We recognize 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 for patients in the IPF setting, 
including the discharge processes, can help to increase medication 
continuation rates.34 35 36 37 38 These interventions 
include patient education, enhanced therapeutic relationships, shared 
decision-making, and text-message reminders, with multidimensional 
approaches resulting in the best outcomes. We note that in testing the 
measure, the measure developer found a median score of 79.6% and an 
approximate 21-percentage point difference between the 10th and 90th 
percentiles. This means that in the 10th percentile facilities, 
depending on their condition, 60.0 to 63.9 percent of patients (with 
Medicare Parts A, B, and D) fill prescriptions for evidence-based 
medications, whereas in the 90th percentile facilities 89.7 to 95.5 
percent of such patients fill prescriptions for evidence-based 
medications.\39\ We believe that this performance gap, coupled with the 
ability of facilities to provide interventions to improve medication 
continuation, indicate that the measure does provide meaningful 
information about the quality of care provided to patients.
---------------------------------------------------------------------------

    \34\ Haddad PM, Brain C, Scott J. Nonadherence with 
antipsychotic medication in schizophrenia: challenges and management 
strategies. Patient related outcome measures. 2014;5:43-62.
    \35\ Hung CI. Factors predicting adherence to antidepressant 
treatment. Current opinion in psychiatry. 2014;27(5):344-349.
    \36\ 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.
    \37\ Mitchell AJ. Understanding Medication Discontinuation in 
Depression. BMedSci Psychiatric Times. 2007;24(4).
    \38\ 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.
    \39\ https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/Version_1-0_Inpatient_Psychiatric_Facility_Medication_Continuation_Public.zip.
---------------------------------------------------------------------------

    Comment: Several commenters recommended that CMS not adopt the 
Medication Continuation Following Inpatient Discharge (NQF #3205) 
measure because these commenters believe prescription fills do not 
actually reflect medication adherence.

[[Page 38464]]

    Response: While we agree with commenters that it is possible that 
patients may fill prescriptions and then not take the medication, or 
take it incorrectly, we believe that the measure is a good indicator of 
patient adherence to medication regimens. The NQF Standing Committee 
for Behavioral Health evaluated the potential for patients to fill 
their prescriptions but not be adherent to the medication regimen 
during their review of the measure and found that most studies related 
to adverse events for medication non-compliance used the filling of a 
prescription as a proxy for medication adherence,\40\ which aligns with 
this measure's methodology.
---------------------------------------------------------------------------

    \40\ http://www.qualityforum.org/Projects/a-b/Behavioral_Health_2016-2017/Draft_Report_for_Comment.asp.
---------------------------------------------------------------------------

    Comment: One commenter recommended that CMS not adopt this measure 
because facilities cannot internally track performance on this measure 
and therefore cannot identify performance gaps that require 
interventions.
    Response: We believe that this measure will help facilities 
identify performance gaps that require interventions by making this 
data available to facilities. We also note that the American 
Psychiatric Association's (APA's) and Department of Veterans Affairs 
and Department of Defense (VA/DoD) practice guidelines for depressive 
disorder, bipolar disorder, and schizophrenia provide strategies for 
facilities to implement to help patients fill prescriptions prior to 
discharge so that the facility can track whether the prescription has 
been filled.41 42 43 44 45
---------------------------------------------------------------------------

    \41\ 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.
    \42\ 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.
    \43\ 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.
    \44\ 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.
    \45\ 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.
---------------------------------------------------------------------------

    Comment: Several commenters expressed the belief that this measure 
is not appropriate for the inpatient psychiatric setting and suggested 
that this or a similar measure be considered for the outpatient setting 
instead because these commenters believe that outpatient providers have 
more influence on patients' post-discharge care.
    Response: We agree with the commenters that outpatient providers do 
have more influence on a patient's post-discharge care in the long 
term; however this measure is specified to address the short term 
period immediately following discharge from the IPF prior to the 
patient's follow-up with an outpatient provider (which, according to 
data collected through the Follow-Up After Hospitalization for Mental 
Illness (NQF #0576) measure, will be more than 30 days post-discharge 
nearly half of all patients).\46\ Therefore, we do not agree that this 
measure would be more appropriate for the outpatient setting. This 
measure addresses care provided during the discharge planning phase of 
care, which occurs within the IPF to facilitate a safe care transition 
until the patient can be seen by an outpatient provider. We note that 
the period immediately following discharge from a psychiatric hospital 
is a high-risk period for patients, and has been linked to an increased 
risk of adverse outcomes, including suicide.47 48 We believe 
it is vital that patients have continuity of pharmacotherapy consistent 
with the prescriptions provided by their inpatient providers until they 
can develop a long-term care plan with their outpatient providers
---------------------------------------------------------------------------

    \46\ https://www.medicare.gov/hospitalcompare/psych-measures.html.
    \47\ https://www.ncbi.nlm.nih.gov/pubmed/27654151.
    \48\ https://psychnews.psychiatryonline.org/doi/full/10.1176/appi.pn.2017.7a17.
---------------------------------------------------------------------------

    Comment: One commenter expressed concern that because this 
measure's patient population has Medicare Parts A, B, and D coverage, 
these patients do not experience the same barriers to access 
experienced by patients without similar health insurance coverage and 
therefore the measure may not provide meaningful data.
    Response: We agree that the patients included in the measure may 
not experience the same barriers to access to medications that some 
other patients encounter because they have insurance and low-income 
Medicare patients qualify for additional support to help pay for 
medications. However, as previously noted, in the measure technical 
report,\49\ the claims data used for analysis and testing of this 
measure demonstrated ample opportunity for improvement in medication 
continuation rates for patients with Medicare Parts A, B, and D, with 
median medication continuation rates of 79% and a variation of 21 
percentage points between the 10th and 90th percentile facilities. 
Further, considering that the Medicare population may have lower 
barriers to access, we would expect to see higher medication 
continuation rates and less variation in performance across facilities.
---------------------------------------------------------------------------

    \49\ https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/Version_1-0_Inpatient_Psychiatric_Facility_Medication_Continuation_Public.zip.
---------------------------------------------------------------------------

    In addition, we note that while the measure denominator includes 
only patients with Medicare Parts A, B, and D, all patients can benefit 
from the evidence-based interventions that facilities may implement to 
improve medication adherence.
    Comment: One commenter requested clarification of how CMS will 
assess prescription refills for patients who do not have Part D.
    Response: We note that the denominator of this measure is 
restricted to patients who have Medicare Parts A, B, and D coverage. 
Therefore, we will not assess prescription refills for patients who do 
not have Part D coverage because they are not in the measure's patient 
population.
    Comment: One commenter expressed concern that the measure will not 
capture medication continuity for patients who filled 90-day supplies 
prior to admission.
    Response: During measure testing, we found that the number of 
patients who filled a 90-day prescription in the 90 days prior to 
admission was small. Specifically, 5.5 percent of those with major 
depressive disorder had a 90-day prescription at some point in the 90 
days prior to admission, 2.8 percent of those with bipolar disorder had 
such a prescription, and 1.2 percent of those with schizophrenia had 
such a prescription. Furthermore, we believe that medications are often 
adjusted during the inpatient stay, and patients may need to fill a new 
prescription following discharge even if they have medications at home. 
Therefore, we believe that the patient population with appropriate 
pharmacotherapy due to 90-day prescriptions prior to admission is very 
small and does not necessitate any changes to the measure 
specifications.
    Comment: One commenter expressed concern that 2 days prior to 
discharge is too brief a period and recommended expanding the period to 
5 days prior to discharge.
    Response: When we developed and tested this measure, we found that 
most

[[Page 38465]]

outpatient medications filled during the inpatient stay are filled one 
day prior to discharge.\50\ In consulting with clinical experts, we 
found that discharge planning, including filling prescriptions, could 
start as early as two days prior to discharge. These experts 
unanimously agreed to extend the follow-up period to include two days 
prior to discharge.\51\ Because most medications filled during the stay 
are filled one day prior to discharge and discharge planning typically 
starts two days prior to discharge we believe that this measure period 
is appropriate.
---------------------------------------------------------------------------

    \50\ https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/Version_1-0_Inpatient_Psychiatric_Facility_Medication_Continuation_Public.zip.
    \51\ Ibid.
---------------------------------------------------------------------------

    Comment: Several commenters requested clarification of whether the 
data would be publicly reported annually or every two years because the 
measure has a two year performance period. These commenters further 
expressed concern that if data is reported annually the data may 
misrepresent facilities with recent improvement.
    Response: The IPFQR Program publicly displays all measure data 
annually (78 FR 50897 through 50898 and 81 FR 57248 through 57249). For 
this measure we will post the data annually using a two-year 
performance period, similar to our reporting of the Thirty-Day All-
Cause Unplanned Readmission Following Psychiatric Hospitalization in an 
Inpatient Psychiatric Facility (NQF #2860) measure. As an example, for 
both measures the intended performance period for FY 2021 reporting is 
July 1, 2017 through June 30, 2019. For FY 2022 reporting the 
performance period is July 1, 2018 through June 30, 2020. We note that 
these periods do overlap; however we believe that facilities with 
recent improvement will be distinguishable because their scores will 
show year-over-year improvement.
    Comment: One commenter expressed concern that facilities without 
outpatient pharmacies may be at a performance disadvantage because they 
cannot ensure that patients fill prescriptions prior to discharge.
    Response: We believe that many of the interventions to improve 
performance on this measure (for example, patient education at 
discharge, therapeutic alliance, text message reminders, etc.) are 
applicable to all facilities, regardless of whether they have an 
outpatient pharmacy on premises. Furthermore, we note that the practice 
guidelines for these conditions provide strategies for facilities to 
implement to help patients fill prescriptions prior to discharge so 
that the facility can track whether the prescription has been 
filled.52 53 54 55 56
---------------------------------------------------------------------------

    \52\ 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.
    \53\ 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.
    \54\ 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.
    \55\ 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.
    \56\ 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.
---------------------------------------------------------------------------

    Comment: One commenter requested that CMS provide guidance on what 
medications are considered evidence-based medications for these 
conditions.
    Response: The measure technical report available at https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/Version_1-0_Inpatient_Psychiatric_Facility_Medication_Continuation_Public.zip has 
a detailed list of medications for each condition. As part of routine 
measure maintenance, we will evaluate and update this list on a 
recurrent basis.
    Final Rule Action: After consideration of the public comments, we 
are finalizing as proposed the adoption of the Medication Continuation 
Following Inpatient Psychiatric Discharge (NQF #3205) measure for the 
FY 2021 payment determination and subsequent years.
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 final rule, we 
are adopting one additional measure for the FY 2021 payment 
determination and subsequent years which, brings the total to 14, as 
shown in table 18.
BILLING CODE 4120-01-P

[[Page 38466]]

[GRAPHIC] [TIFF OMITTED] TR06AU19.015

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 the FY 
2020 IPF PPS proposed rule, we sought public comments on possible new 
measures or new measure topics. We welcomed all comments but expressed 
particular interest 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.

[[Page 38467]]

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 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 \57\ to assess patient experience of care. This is more 
than the portion of facilities using any other survey.
---------------------------------------------------------------------------

    \57\ For more information about the HCAHPS survey, please see 
https://www.ahrq.gov/cahps/surveys-guidance/hospital/about/adult_hp_survey.html.
---------------------------------------------------------------------------

    We sought 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 sought 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.
    Comment: Many commenters supported future adoption of a patient 
experience of care survey. Several of these commenters expressed 
concern about the potential adoption of the HCAHPS survey for this 
patient population, specifically noting that this survey does not 
include some of the unique aspects of inpatient psychiatric care 
including group therapy, non-physician providers, and involuntary 
admissions. Some commenters observed that while most IPFs use a patient 
experience of care survey, there is not one survey used predominantly 
across settings and recommended that CMS partner with providers to 
either develop a minimally burdensome survey or to establish a core set 
of questions that should be included, therefore allowing provider 
flexibility to ask additional questions. These commenters believe that 
a custom developed survey would better address the needs of the patient 
population and would be preferable for providers than having to switch 
from a setting specific survey to a survey not designed for this 
setting. One commenter recommended that adoption of a patient 
experience of care measure should be done incrementally through a 
voluntary data collection period to ensure feasibility of collection 
prior to mandatory data submission. Several commenters also noted that 
the HCAHPS survey modalities (phone or mail post-discharge) may limit 
participation and recommended additional survey modalities for this 
potentially more transient patient population. One commenter expressed 
concern that a patient experience of care measure could be 
misinterpreted as the current state of care when the data has been 
collected in the past.
    Response: We thank these commenters for their input and will 
consider these suggestions and concerns as we seek to develop or select 
an appropriate patient experience of care survey for the IPF setting.
b. Other Future Measures
    In the FY 2020 IPF PPS proposed rule, we also sought feedback and 
suggestions for future measures and topics for the IPFQR Program that 
align with CMS's Meaningful Measures Framework (FY 2019 IPF PPS final 
rule, 83 FR 38590 through 38591).
    Comment: One commenter recommended that CMS collaborate with 
providers to identify measure concepts and develop measures appropriate 
to the setting. Several commenters provided recommendations for future 
measure considerations; specifically measures that assess:
     Facility use of a standardized assessment of patient 
outcomes between admission and discharge;
     Family and caregiver engagement;
     Clinical improvement outcomes;
     Patient empowerment;
     Safety planning for patients with suicidal ideation;
     Discharge and transitions of care;
     Access to care; and
     Inpatient assaults and violence.
    Response: We thank these commenters for their suggestions and will 
consider these concepts as we continue to develop a measure set that 
meets the specific needs of IPFs and inpatient psychiatric patients and 
their families.

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 did not propose 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 
the FY 2020 IPF PPS proposed rule, we did not propose 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 will be no additional data submission requirements for 
the FY 2021 payment determination and subsequent years. Therefore, in 
the FY 2020 IPF PPS proposed rule, we did not propose any changes to 
our previously finalized data submission policies.

[[Page 38468]]

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 the FY 
2020 IPF PPS proposed rule, we did not propose 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 the FY 
2020 IPF PPS proposed rule, we did not propose 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 the FY 2020 IPF PPS proposed rule, we did not 
propose 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 the FY 2020 
IPF PPS proposed rule, we did not propose any changes to these 
policies.

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 the FY 2020 IPF PPS proposed rule, we did not propose 
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 the FY 2020 IPF PPS proposed rule, we did 
not propose any changes to these policies.

VI. Collection of Information Requirements

    The FY 2020 IPF PPS proposed rule did 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 did it contain any proposals that would have imposed 
any new or revised burden within the context of the PRA of 1995 (44 
U.S.C. 3501 et seq.). However, we did 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. These 
adjustments 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 finalizing one new measure 
(Medication Continuation Following Inpatient Psychiatric Discharge (NQF 
#3205)) that impacts the FY 2021 payment determination and subsequent 
years. The finalized measure is 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 final measure does not impact any of the cost report's data 
fields or burden estimates as all worksheets and lines remain 
unchanged. Similarly, this final rule does 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 \58\ 
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.
---------------------------------------------------------------------------

    \58\ 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.\59\ In 
response, we proposed 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.
---------------------------------------------------------------------------

    \59\ https://www.bls.gov/ooh/healthcare/medical-records-and-health-information-technicians.htm.
---------------------------------------------------------------------------

    We also proposed 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 proposed 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).
BILLING CODE 4120-01-P

[[Page 38469]]

[GRAPHIC] [TIFF OMITTED] TR06AU19.016


[[Page 38470]]


[GRAPHIC] [TIFF OMITTED] TR06AU19.017


[[Page 38471]]


[GRAPHIC] [TIFF OMITTED] TR06AU19.018

[GRAPHIC] [TIFF OMITTED] TR06AU19.019


[[Page 38472]]


[GRAPHIC] [TIFF OMITTED] TR06AU19.020


[[Page 38473]]


[GRAPHIC] [TIFF OMITTED] TR06AU19.021


[[Page 38474]]


[GRAPHIC] [TIFF OMITTED] TR06AU19.022


[[Page 38475]]


[GRAPHIC] [TIFF OMITTED] TR06AU19.023

[GRAPHIC] [TIFF OMITTED] TR06AU19.024


[[Page 38476]]


[GRAPHIC] [TIFF OMITTED] TR06AU19.025

BILLING CODE 4120-01-C
    As mentioned at the beginning of this section, 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 the FY 2020 IPF PPS proposed rule. The adjusted 
burden figures will be submitted to OMB for approval under control 
number 0938-1171 (CMS-10432) as a non-substantive change.
    We did not receive any public comments on our proposed burden 
estimates.

C. Submission of PRA-Related Comments

    We invited 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.
    We did not receive any public comments on our proposed burden 
estimates.

VII. Regulatory Impact Statement

A. Statement of Need

    This rule finalizes 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 are finalizing our proposal to apply the 2016-based IPF market 
basket increase of 2.9 percent, less the productivity adjustment of 0.4 
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 final total FY 
2020 payment rate update of 1.75 percent. In this final rule, we 
revised and rebased the IPF market basket to reflect a 2016 base year. 
We also aligned 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 updated the IPF labor-related share and the IPF wage 
index including adoption of a new OMB designation. Finally, we updated 
the IPFQR Program for the FY 2021 payment determination and subsequent 
years.

B. Overall Impact

    We have examined the impacts of this final 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,

[[Page 38477]]

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 final rule is not economically significant under Executive 
Order 12866, within the meaning of section 3(f)(1) of the Executive 
Order. However, OMB has determined that the actions are significant 
within the meaning of section 3(f)(4) of the Executive Order. 
Therefore, OMB has reviewed this final rule, and the Departments have 
provided the following assessment of their impact.
    We estimate that the total impact of these changes for FY 2020 
payments compared to FY 2019 payments will be a net increase of 
approximately $65 million. This reflects an $75 million increase from 
the update to the payment rates (+$125 million from the second quarter 
2019 IGI forecast of the 2016-based IPF market basket of 2.9 percent, -
$15 million for the productivity adjustment of 0.4 percentage point, 
and -$35 million for the ``other adjustment'' of 0.75 percentage 
point), as well as a $10 million decrease as a result of the update to 
the outlier threshold amount. Outlier payments are estimated to change 
from 2.23 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 final 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 final rule, we are updating 
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 final rule will be due to the 
market basket update for FY 2020 of 2.9 percent (see section III.A.4 of 
this final rule) less the productivity adjustment of 0.4 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 $65 
million in payments to IPF providers. This reflects an estimated $75 
million increase from the update to the payment rates and a $10 million 
decrease due to the update to the outlier threshold amount to set total 
estimated outlier payments at 2.0 percent of total estimated payments 
in FY 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 final 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 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 final rule on all IPFs is to increase estimated Medicare 
payments by approximately 1.5 percent. As a result, since the estimated 
impact of this final rule is a net increase in revenue across almost 
all categories of IPFs, the Secretary has determined that this final 
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 
VII.C.1 of this final rule, the rates and policies set forth in this 
final rule will not have an adverse impact on the rural hospitals based 
on the data of the 255 rural excluded psychiatric units and 66 rural 
psychiatric hospitals in our database of 1,581 IPFs for which data were 
available. Therefore, the Secretary has determined that this final 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 final 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 final rule that imposes 
substantial direct requirement costs on state and local governments, 
preempts state law, or otherwise has Federalism implications. This 
final 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 final rule, we compare estimated payments under the 
IPF PPS rates and factors for FY 2020 versus those under

[[Page 38478]]

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 final 
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 second quarter 2019 forecast of the market basket 
update (see section III.A.4 of this final 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 update to the outlier fixed dollar loss threshold 
amount.
     The FY 2020 IPF wage index and the FY 2020 labor-related 
share.
     The market basket update for FY 2020 of 2.9 percent less 
the productivity adjustment of 0.4 percentage point in accordance with 
section 1886(s)(2)(A)(i) of the Act and further reduced by the ``other 
adjustment'' of 0.75 percentage point in accordance with sections 
1886(s)(2)(A)(ii) and 1886(s)(3)(E) of the Act, for a payment rate 
update of 1.75 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 final rule.
BILLING CODE 4120-01-P

[[Page 38479]]

[GRAPHIC] [TIFF OMITTED] TR06AU19.026


[[Page 38480]]


[GRAPHIC] [TIFF OMITTED] TR06AU19.027

BILLING CODE 4120-01-C
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 1,581 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 
2.23 percent in FY 2019. Thus, we are adjusting the outlier threshold 
amount in this final 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 0.23 
percent decrease in payments because the outlier portion of total 
payments is expected to decrease from approximately 2.23 percent to 2.0 
percent.
    The overall impact of this outlier adjustment update (as shown in 
column

[[Page 38481]]

3 of Table 25), across all hospital groups, is to decrease total 
estimated payments to IPFs by 0.23 percent. The largest decrease in 
payments is estimated to be -0.78 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 (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 final 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 76.9 
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 2.08 percent for Pacific IPFs, and the largest decrease 
in payments to be 0.83 percent for New England IPFs.
    Finally, column 5 compares our estimates of the total final changes 
reflected in this final rule for FY 2020 to the estimates for FY 2019 
(without these changes). The average estimated increase for all IPFs is 
approximately 1.5 percent. This estimated net increase includes the 
effects of the 2016-based market basket update of 2.9 percent reduced 
by the productivity adjustment of 0.4 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 0.23 percent decrease in estimated IPF outlier 
payments as a percent of total payments from the final 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 1.54 percent in urban 
areas and 1.34 percent in rural areas. Overall, IPFs are estimated to 
experience a net increase in payments as a result of the updates in 
this final rule. The largest payment increase is estimated at 3.49 
percent for IPFs in the Pacific region.
    Comment: One commenter wrote that the proposed 1.7 percent 
estimated total IPF update was not sufficient to cover the costs of 
medical inflation and the growing demand for IPF services. This 
commenter was concerned that the update could negatively impact the 
financial viability of IPFs and jeopardize access.
    Response: Total IPF payments were estimated to increase by 1.7 
percent in the FY 2020 IPF PPS proposed rule. This 1.7 percent increase 
is a combination of the effects of the proposed market basket update 
for FY 2020 and the proposed update to the outlier threshold.
    The final FY 2020 estimated increase in payments is based on a more 
recent estimate of the final 2016-based IPF market basket percentage 
increase of 2.9 percent, a more recent estimate of the MFP adjustment 
of 0.4 percentage point, less the 0.75 percentage point reduction (in 
accordance with sections 1886(s)(2)(A)(ii) and 1886(s)(3)(E) of the 
Act) and impact of the outlier threshold, for a total payment update of 
1.75 percent.
    The 2.9 percentage increase of the IPF market basket represents the 
FY 2020 projected increase in prices of the relative inputs used to 
furnish IPF services to Medicare beneficiaries. The forecasted prices 
of the individual inputs are based on IGI's most recent 2nd quarter 
2019 forecast of the price proxies in the market basket. IGI is a 
nationally recognized economic and financial forecasting firm that has 
received multiple awards for their macroeconomic forecast accuracy of 
major economic indicators. CMS uses IGI's price forecasts in all of the 
FFS market baskets used for payment updates and has used the forecasts 
produced by this company for many years. In this FY 2020 final rule, we 
are also updating the cost weights for the IPF market basket, from 2012 
to 2016, which captures changes in relative costs due to quantity and 
intensity. We therefore believe that the IPF market basket represents 
an appropriate measure of input price inflation that is expected to be 
realized by IPFs in FY 2020.
    As stated, the Act mandates that the market basket update (which 
accounts for input price inflation) be adjusted for multifactor 
productivity and a 0.75 percentage point legislatively required 
adjustment. CMS does not have the authority to alter these payment 
adjustments, but we note that under the current law at 1886(s)(3)(E), 
FY 2020 is the last year that the 0.75 percentage point ``other'' 
adjustment will be made.
    Estimated IPF payments are also reduced by 0.23 percent as a result 
of the update to the outlier threshold. Based on an updated analysis of 
the most recent IPF claims data for this final rule we now estimate 
that IPF outlier payments as a percentage of total estimated payments 
will be approximately 2.23 percent in FY 2019. Since this percentage 
exceeds our established 2 percent IPF outlier policy we are adjusting 
the outlier threshold amount to set total estimated outlier payments 
equal to 2 percent of total estimated payments in FY 2020. The 
estimated change in total IPF payments for FY 2020 includes an 
approximate 0.23 percent decrease in payments because the estimated 
outlier portion of total payments is estimated to decrease from 2.23 
percent to 2 percent.
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 final 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 III.B. of this final 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 finalizing provisions that impact the FY 2021 payment 
determination and subsequent years. We refer readers to section VI. of 
this final rule for details discussing information collection 
requirements for the IPFQR Program. We will closely monitor the effects 
of this quality reporting program on IPFs and help facilitate 
successful reporting outcomes through ongoing

[[Page 38482]]

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 final 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 final rule, we assume that the total number of 
unique commenters on the most recent IPF proposed rule from FY 2020 (84 
FR 16948) will be the number of reviewers of this final rule. We 
acknowledge that this assumption may understate or overstate the costs 
of reviewing this final rule. It is possible that not all commenters 
reviewed the FY 2020 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 commenters would 
be a fair estimate of the number of reviewers of this final rule. We 
solicited comments on this assumption.
    We also recognize that different types of entities are in many 
cases affected by mutually exclusive sections of this final rule; 
therefore, for the purposes of our estimate, we assume that each 
reviewer reads approximately 50 percent of this final rule.
    Using the May, 2018 mean (average) wage information from the BLS 
for medical and health service managers (Code 11-9111), we estimate 
that the cost of reviewing this final rule is $109.36 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 1.4 hours for 
the staff to review half of this final rule. For each IPF that reviews 
the final rule, the estimated cost is (1.4 hours x $109.36) or $153.10. 
Therefore, we estimate that the total cost of reviewing this final rule 
is $3,674.40 ($153.10 x 24 reviewers).
    We received one comment on our assumption about the number of 
reviewers of the IPF PPS proposed rule.
    Comment: One commenter wrote that CMS should consider the number of 
downloads of the IPF proposed rule in calculating regulatory review 
costs, since many reviewers may read the rule but not submit a comment. 
The commenter also noted that some organizations may download the rule 
once and distribute copies to others to read. This commenter suggested 
that CMS consider the greater of the number of downloads or of the 
number of unique commenters as a fair estimate of the number of 
reviewers. This commenter believes that this method would be a fairer 
assumption of the number of reviewers.
    Response: We appreciate the commenter's input on our methodology. 
We have acknowledged that our method provides an estimate that could 
overstate or understate the costs of reviewing the rule. We do not 
believe this suggested methodology would improve the accuracy of the 
estimate. We do not currently have the ability to track the number of 
times the IPF rule is downloaded, and if we did, to know how many of 
those downloads are by those who are providers or similar stakeholders. 
We also prefer to use a methodology for estimating the number of 
reviewers that is consistent with the methodology that other Medicare 
payment systems use. As such, we will continue to use the number of 
commenters on the most recent proposed rule as the basis for our review 
cost estimate.

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 2016-based IPF PPS market basket update for FY 2020 of 2.9 percent, 
reduced by the statutorily required multifactor productivity adjustment 
of 0.4 percentage point and the ``other adjustment'' of 0.75 percentage 
point, along with the wage index budget neutrality adjustment to update 
the payment rates; finalizing a FY 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 finalizing 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 updates to the IPF wage index and 
payment rates in this final 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 this final rule and based on the data for 
1,581 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............  $65 million.
From Whom to Whom?........................  Federal Government to IPF
                                             Medicare Providers.
------------------------------------------------------------------------

F. Congressional Review Act

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.) the 
Office of Information and Regulatory Affairs designated this rule as 
not a major rule, as defined by 5 U.S.C. 804(2).

G. Regulatory Reform Analysis Under Executive Order 13771

    Executive Order 13771, titled Reducing Regulation and Controlling 
Regulatory Costs, was issued on January 30, 2017 and requires that the 
costs associated with significant new regulations ``shall, to the 
extent permitted by law, be offset by the elimination of existing costs 
associated with at least two prior regulations.'' This final rule is 
not expected to be subject to the requirements of Executive Order 13771 
because it is estimated to result in no more than de minimis costs as 
described previously and thus is not a regulatory action for the 
purposes of E.O. 13771.

H. Conclusion

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

    Dated: July 26, 2019 .
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: July 26, 2019.
Alex M. Azar II,
Secretary, Department of Health and Human Services.
[FR Doc. 2019-16370 Filed 7-30-19; 4:15 pm]
 BILLING CODE 4120-01-P