Rule: Medicare: Long-Term Care Hospitals Prospective Payment System (2008 RY) Annual Payment Rate Updates and Policy Changes

Friday,
May 11, 2007
Part II
Department of
Health and Human
Services
Centers for Medicare & Medicaid Services
42 CFR Parts 412 and 413

Medicare Program; Prospective Payment
System for Long-Term Care Hospitals RY
2008: Annual Payment Rate Updates, and
Policy Changes; and Hospital Direct and
Indirect Graduate Medical Education
Policy Changes; Final Rule
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26870 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations
DEPARTMENT OF HEALTH AND Miechal Lefkowitz, (410) 786–5316 b. Geographic Classifications/Labor Market
HUMAN SERVICES (Graduate Medical Education Area Definitions
payments). c. Labor-Related Share
Centers for Medicare & Medicaid Linda McKenna, (410) 786–4537 d. Wage Index Data
2. Adjustment for Cost-of-Living in Alaska
Services (Payment adjustments, interrupted and Hawaii
stay, and transition period). 3. Adjustment for High-Cost Outliers
42 CFR Part 412 and 413 Renate Rockwell, (410) 786–4645 (HCOs)
(Graduate Medical Education a. Background
[CMS–1529–F] payments). b. Cost-to-charge ratios (CCRs)
Elizabeth Truong, (410) 786–6005 c. Establishment of the Fixed-Loss Amount
RIN 0938–AO30 (Federal rate update, budget d. Reconciliation of Outlier Payments
neutrality, other adjustments, and Upon Cost Report Settlement
Medicare Program; Prospective e. Application of Outlier Policy to Short-
Payment System for Long-Term Care calculation of the payment rates).
Stay Outlier (SSO) Cases
Michael Treitel, (410) 786–4552 (High
Hospitals RY 2008: Annual Payment 4. Other Payment Adjustments
cost outliers and cost-to-charge 5. Budget Neutrality (BN) Offset to Account
Rate Updates, and Policy Changes;
ratios). for the Transition Methodology
and Hospital Direct and Indirect
Graduate Medical Education Policy Table of Contents 6. One-time Prospective Adjustment to the
Standard Federal Rate
Changes I. Background V. Other Policy Changes for the 2008 LTCH
AGENCY: Centers for Medicare & A. Legislative and Regulatory Authority PPS Rate Year
Medicaid Services (CMS), HHS. B. Criteria for Classification as a LTCH A. Short-Stay Outlier (SSO) Cases
1. Classification as a LTCH 1. Background
ACTION: Final Rule. 2. Hospitals Excluded from the LTCH PPS 2. Additional Discussion of the SSO
C. Transition Period for Implementation of Payment Formula (Includes Technical
SUMMARY: This final rule updates the the LTCH PPS Correction)
annual payment rates for the Medicare D. Limitation on Charges to Beneficiaries 3. Determination of Cost-to-Charge Ratios
prospective payment system (PPS) for E. Administrative Simplification (CCRs)
inpatient hospital services provided by Compliance Act (ASCA) and Health 4. Reconciliation of SSO Cases
long-term care hospitals (LTCHs). The Insurance Portability and Accountability B. Expansion of Special Payment
final payment amounts and factors used Act (HIPAA) Compliance Provisions for LTCH Hospitals within
to determine the updated Federal rates II. Summary of the Provisions of the Final Hospitals (HwHs) and LTCH Satellites:
that are described in this final rule were Rule Expansion of the 25 Percent Rule to
A. Summary of Major Contents of this Certain Situations Not Currently Covered
determined based on the LTCH PPS rate Final Rule Under Existing § 412.534
year July 1, 2007 through June 30, 2008. B. Responses to Comments VI. Computing the Adjusted Federal
The annual update of the long-term care III. Long-Term Care Diagnosis-Related Group Prospective Payments for the 2008 LTCH
diagnosis-related group (LTC–DRG) (LTC–DRG) Classifications and Relative PPS Rate Year
classifications and relative weights Weights VII. Transition Period
remains linked to the annual A. Background VIII. Payments to New LTCHs
adjustments of the acute care hospital B. Patient Classifications into DRGs IX. Method of Payment
inpatient diagnosis-related group C. Organization of DRGs X. Monitoring
system, and continue to be effective D. Update of LTC–DRGs XI. MedPAC Recommendations: The RTI
1. Background Contract
each October 1. The final outlier 2. Method for Updating the LTC–DRG XII. Graduate Medical Education (GME)
threshold for July 1, 2007, through June Relative Weights A. GME Background
30, 2008, is derived from the LTCH PPS 3. Budget Neutrality (BN) Requirement for B. Resident Training in Nonhospital
rate year calculations. We are also the Annual LTC–DRG Update Settings
finalizing policy changes which include E. ICD–9–CM Coding System 1. Background
revisions to the GME and IME policies. 1. Uniform Hospital Discharge Data Set 2. Moratorium on Disallowances of
In addition, we are adding a technical (UHDDS) Definitions Allopathic or Osteopathic Family
amendment correcting the regulations 2. Maintenance of the ICD–9–CM Coding Practice Residents Training Time in
text at § 412.22. System Nonhospital Settings, and Questions and
3. Coding Rules and Use of ICD–9–CM Answers (Qs&As) on CMS Web site
EFFECTIVE DATE: These regulations are Codes in LTCHs (Section 713 of the MMA and § 413.78)
effective on July 1, 2007. IV. Changes to the LTCH PPS Payment Rates 3. Requirements for Written Agreements
FOR FURTHER INFORMATION CONTACT: for the 2008 LTCH PPS Rate Year for Residency Training in Nonhospital
Tzvi Hefter, (410) 786–4487 (General A. Overview of the Development of the Settings (§ 413.78(e))
information). Payment Rates 4. Modification of the Definition of ‘‘All or
B. LTCH PPS Market Basket Substantially All of the Costs for the
Judy Richter, (410) 786–2590 (General 1. Overview of the RPL Market Basket Training Program in the Nonhospital
information, payment adjustments for 2. Market Basket Estimate for the 2008 Setting’’
special cases, and onsite discharges LTCH PPS Rate Year 5. Implementation of a 90 Percent Cost
and readmissions, interrupted stays, C. Standard Federal Rate for the 2008 Threshold
co-located providers, and short-stay LTCH PPS Rate Year C. Other Issues to be Considered
outliers). 1. Background D. Summary of Final Provisions
Michele Hudson, (410) 786–5490 2. Update to the Standard Federal Rate for XIII. Technical Amendment
(Calculation of the payment rates, the 2008 LTCH PPS Rate Year XIV. Collection of Information Requirements
LTC–DRGs, relative weights and case- 3. Standard Federal Rate for the 2008 XV. Regulatory Impact Analysis
LTCH PPS Rate Year A. Introduction
mix index, market basket, wage index, D. Calculation of LTCH Prospective 1. Executive Order 12866
budget neutrality, and other payment Payments for the 2008 LTCH PPS Rate 2. Regulatory Flexibility Act (RFA)
adjustments). Year 3. Impact on Rural Hospitals
Ann Fagan, (410) 786–5662 (Patient 1. Adjustment for Area Wage Levels 4. Unfunded Mandates
classification system). a. Background 5. Federalism
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26871
6. Alternatives Considered DRGs Diagnosis-related groups RIA Regulatory impact analysis

B. Anticipated Effects of Payment Rate FI Fiscal intermediary RPL Rehabilitation psychiatric long-
Changes FMC Family Medicine Center term care (hospital)
1. Budgetary Impact FTE Full-time equivalent RTI Research Triangle Institute,
2. Impact on Providers FY Federal fiscal year
3. Calculation of Prospective Payments
International
GME Graduate medical education RY Rate year (begins July 1 and ends
4. Results
5. Effects on the Medicare Program
HCO High-cost outlier June 30)
C. Impact of Other Policy Changes HCRIS Hospital cost report SIC Standard industrial code
1. Effects of Policy Expansion of the information system SNF Skilled nursing facility
Special Payment Provisions for LTCH HHA Home health agency SSO Short-stay outlier
HwHs and LTCH Satellites to Certain HHS (Department of) Health and TEFRA Tax Equity and Fiscal
Situations Not Presently Covered by Human Services Responsibility Act of 1982 (Pub. L.
Existing § 412.534 for Subclause (I) HIPAA Health Insurance Portability 97–248)
LTCHs and Accountability Act (Pub. L. 104– TEP Technical expert panel
2. Effects of Policy Change Relating to 191) UHDDS Uniform hospital discharge
Payment for Direct Graduate Medical HIPC Health Information Policy
Education (GME) data set
Council
D. Accounting Statement I. Background
HwHs Hospitals within hospitals
Addendum: Tables
ICD–9–CM International Classification A. Legislative and Regulatory Authority
Acronyms of Diseases, Ninth Revision, Clinical
Modification (codes) Section 123 of the Medicare,
Because of the many terms to which Medicaid, and SCHIP [State Children’s
we refer by acronym in this final rule, IME Indirect medical education
I–O Input-Output Health Insurance Program] Balanced
we are listing the acronyms used and Budget Refinement Act of 1999 (BBRA)
IPF Inpatient psychiatric facility
their corresponding terms in (Pub. L. 106–113) as amended by
IPPS [Acute Care Hospital] Inpatient
alphabetical order below: section 307(b) of the Medicare,
Prospective Payment System
AAMC Association of American IRF Inpatient rehabilitation facility Medicaid, and SCHIP Benefits
Medical Colleges LOS Length of stay Improvement and Protection Act of
AFMAA Academic Family Medicine LTC–DRG Long-term care diagnosis- 2000 (BIPA) (Pub. L. 106–554) provides
Advocacy Alliance related group for payment for both the operating and
AHA American Hospital Association LTCH Long-term care hospital capital-related costs of hospital
AHIMA American Health Information MCE Medicare code editor inpatient stays in long-term care
Management Association MDC Major diagnostic categories hospitals (LTCHs) under Medicare Part
ALOS Average length of stay MedPAC Medicare Payment Advisory A based on prospectively set rates. The
ALTHA Acute Long Term Hospital Commission Medicare prospective payment system
Association MedPAR Medicare provider analysis
AMGA American Medical Group (PPS) for LTCHs applies to hospitals
and review described in section 1886(d)(1)(B)(iv) of
Association MMA Medicare Prescription Drug,
AMPRA American Medical Peer the Social Security Act (the Act),
Improvement, and Modernization Act effective for cost reporting periods
Review Association of 2003 (Pub. L. 108–173)
AOA American Osteopathic beginning on or after October 1, 2002.
MSA Metropolitan statistical area Section 1886(d)(1)(B)(iv)(I) of the Act
Association NAICS North American Industrial
APR All patient refined defines a LTCH as ‘‘a hospital which has
Classification System an average inpatient length of stay (as
ASCA Administrative Simplification NALTH National Association of Long
Compliance Act of 2002 (Pub. L. 107– determined by the Secretary) of greater
Term Hospitals than 25 days.’’ Section
105) NCHS National Center for Health
BBA Balanced Budget Act of 1997 1886(d)(1)(B)(iv)(II) of the Act also
Statistics provides an alternative definition of
(Pub. L. 105–33) OACT [CMS’] Office of the Actuary
BBRA Medicare, Medicaid, and SCHIP LTCHs: Specifically, a hospital that first
OBRA 86 Omnibus Budget
[State Children’s Health Insurance received payment under section 1886(d)
Reconciliation Act of 1986 (Pub. L.
Program] Balanced Budget of the Act in 1986 and has an average
99–509)
Refinement Act of 1999 (Pub. L. 106– inpatient length of stay (LOS) (as
OMB Office of Management and
113) determined by the Secretary of Health
Budget
BIPA Medicare, Medicaid, and SCHIP OPM U.S. Office of Personnel and Human Services (the Secretary)) of
[State Children’s Health Insurance Management greater than 20 days and has 80 percent
Program] Benefits Improvement and O.R. Operating room or more of its annual Medicare inpatient
Protection Act of 2000 (Pub. L. 106– OSCAR Online Survey Certification discharges with a principal diagnosis
554) and Reporting (System) that reflects a finding of neoplastic
BN Budget neutrality OTN One-Time Notification disease in the 12-month cost reporting
CBSA Core-based statistical area PIP Periodic interim payment period ending in fiscal year (FY) 1997.
CCR Cost-to-charge ratio PLI Professional liability insurance Section 123 of the BBRA requires the
C&M Coordination and maintenance PMSA Primary metropolitan statistical PPS for LTCHs to be a ‘‘per discharge’’
CMI Case-mix index area system with a diagnosis-related group
CMS Centers for Medicare & Medicaid PPI Producer Price Indexes (DRG) based patient classification
Services PPS Prospective payment system system that reflects the differences in
COLA Cost of living adjustment PRA Per resident amount patient resources and costs in LTCHs. It
CS Consolidated severity-adjusted PSF Provider specific file also requires that the ‘‘per discharge’’
CY Calendar year QIO Quality Improvement system maintain budget neutrality (BN).
DSH Disproportionate share of low- Organization (formerly Peer Review We believe the statutory mandate for BN
income patients organization (PRO)) applies only to the first year of the
implementation of the LTCH PPS such payment rates, additional payments, established under the 3-day or less
that estimated payments in the first year and the BN requirements mandated by interruption of stay policy. Finally, we
of the PPS were projected to equal section 123 of the BBRA. The same final clarified the policy at § 412.534(c) for
payments that would have been paid for rule that established regulations for the adjusting the LTCH PPS payment so that
operating and capital-related costs of LTCH PPS under 42 CFR part 412, the LTCH PPS payment is equivalent to
LTCHs had this new payment system subpart O, also contained LTCH what would otherwise be payable under
not been enacted. provisions related to covered inpatient § 412.1(a).
Section 307(b)(1) of the BIPA, among services, limitation on charges to
other things, mandates that the beneficiaries, medical review B. Criteria for Classification as a LTCH
Secretary shall examine, and may requirements, furnishing of inpatient 1. Classification as a LTCH
provide for, adjustments to payments hospital services directly or under Under the existing regulations at
under the LTCH PPS, including arrangement, and reporting and § 412.23(e)(1) and (e)(2)(i), which
adjustments to DRG weights, area wage recordkeeping requirements. We refer implement section 1886(d)(1)(B)(iv)(I) of
adjustments, geographic reclassification, readers to the August 30, 2002 final rule
the Act, to qualify to be paid under the
outliers, updates, and a disproportionate for a comprehensive discussion of the
LTCH PPS, a hospital must have a
share adjustment. research and data that supported the
In the August 30, 2002 Federal provider agreement with Medicare and
establishment of the LTCH PPS (67 FR
Register, we issued a final rule that must have an average Medicare
55954).
implemented the LTCH PPS authorized In the June 6, 2003 Federal Register, inpatient LOS of greater than 25 days.
under BBRA and BIPA (67 FR 55954). we published a final rule that set forth Alternatively, § 412.23(e)(2)(ii) states
This system uses information from the FY 2004 annual update of the that for cost reporting periods beginning
LTCH patient records to classify payment rates for the Medicare PPS for on or after August 5, 1997, a hospital
patients into distinct long-term care inpatient hospital services furnished by that was first excluded from the PPS in
diagnosis-related groups (LTC–DRGs) LTCHs (68 FR 34122). It also changed 1986 and can demonstrate that at least
based on clinical characteristics and the annual period for which the 80 percent of its annual Medicare
expected resource needs. Payments are payment rates are effective. The annual inpatient discharges in the 12-month
calculated for each LTC–DRG and updated rates are now effective from cost reporting period ending in FY 1997
provisions are made for appropriate July 1 through June 30 instead of from have a principal diagnosis that reflects
payment adjustments. Payment rates October 1 through September 30. We a finding of neoplastic disease must
under the LTCH PPS are updated refer to the July through June time have an average inpatient LOS for all
annually and published in the Federal period as a ‘‘long-term care hospital rate patients, including both Medicare and
Register. year’’ (LTCH PPS rate year). In addition, non-Medicare inpatients, of greater than
The LTCH PPS replaced the we changed the publication schedule for 20 days.
reasonable cost-based payment system the annual update to allow for an Section 412.23(e)(3) provides that,
under the Tax Equity and Fiscal effective date of July 1. The payment subject to the provisions of paragraphs
Responsibility Act of 1982 (TEFRA) amounts and factors used to determine (e)(3)(ii) through (e)(3)(iv) of this
(Pub. L. 97–248) for payments for the annual update of the LTCH PPS section, the average Medicare inpatient
inpatient services provided by a LTCH Federal rate is based on a LTCH PPS LOS, specified under § 412.23(e)(2)(i) is
with a cost reporting period beginning rate year. While the LTCH payment rate calculated by dividing the total number
on or after October 1, 2002. (The update is effective July 1, the annual of covered and noncovered days of stay
regulations implementing the TEFRA update of the LTC–DRG classifications for Medicare inpatients (less leave or
reasonable cost-based payment and relative weights are linked to the pass days) by the number of total
provisions are located at 42 CFR part annual adjustments of the acute care Medicare discharges for the hospital’s
413.) With the implementation of the hospital inpatient DRGs and are most recent complete cost reporting
PPS for acute care hospitals authorized effective each October 1. period. Section 412.23 also provides
by the Social Security Amendments of In the Prospective Payment System that subject to the provisions of
1983 (Pub. L. 98–21), which added for Long-Term Care Hospitals RY 2007: paragraphs (e)(3)(ii) through (e)(3)(iv) of
section 1886(d) to the Act, certain Annual Payment Rate Updates, Policy this section, the average inpatient LOS
hospitals, including LTCHs, were Changes, and Clarifications final rule specified under § 412.23(e)(2)(ii) is
excluded from the PPS for acute care (71 FR 27798) (hereinafter referred to as calculated by dividing the total number
hospitals and were paid their reasonable the RY 2007 LTCH PPS final rule), we of days for all patients, including both
costs for inpatient services subject to a set forth the 2007 LTCH PPS rate year Medicare and non-Medicare inpatients
per discharge limitation or target annual update of the payment rates for (less leave or pass days) by the number
amount under the TEFRA system. For the Medicare PPS for inpatient hospital of total discharges for the hospital’s
each cost reporting period, a hospital- services provided by LTCHs. We also most recent complete cost reporting
specific ceiling on payments was adopted the ‘‘Rehabilitation, period.
determined by multiplying the Psychiatric, Long-Term Care (RPL)’’ In the RY 2005 LTCH PPS final rule
hospital’s updated target amount by the market basket under the LTCH PPS in (69 FR 25674), we specified the
number of total current year Medicare place of the excluded hospital with procedure for calculating a hospital’s
discharges. (Generally, in this document capital market basket. In addition, we inpatient average length of stay (ALOS)
when we refer to discharges, the intent implemented a zero percent update to for purposes of classification as a LTCH.
is to describe Medicare discharges.) The the LTCH PPS Federal rate for RY 2007. That is, if a patient’s stay includes days
August 30, 2002 final rule further We also revised the existing payment of care furnished during two or more
details the payment policy under the adjustment for short stay outlier (SSO) separate consecutive cost reporting
TEFRA system (67 FR 55954). cases by reducing part of the current periods, the total days of a patient’s stay
In the August 30, 2002 final rule, we payment formula and adding a fourth would be reported in the cost reporting
also presented an in-depth discussion of component to that payment formula. In period during which the patient is
the LTCH PPS, including the patient addition, we sunsetted the surgical DRG discharged (69 FR 25705). Therefore, we
classification system, relative weights, exception to the payment policy revised § 412.23(e)(3)(ii) to specify that,
effective for cost reporting periods § 412.23(e)(2)(ii) is calculated by D. Limitation on Charges to

beginning on or after July 1, 2004, in dividing the total number of days for all Beneficiaries
calculating a hospital’s ALOS, if the patients, including both Medicare and In the August 30, 2002 final rule, we
days of an inpatient stay involve days of non-Medicare inpatients (less leave or presented an in-depth discussion of
care furnished during two or more pass days) by the number of total beneficiary liability under the LTCH
separate consecutive cost reporting discharges for the hospital’s most recent PPS (67 FR 55974 through 55975). In the
periods, the total number of days of the complete cost reporting period. As we RY 2005 LTCH PPS final rule (69 FR
stay are considered to have occurred in discussed in the FY 2004 IPPS final 25676), we clarified that the discussion
the cost reporting period during which rule, we are unable to capture the of beneficiary liability in the August 30,
the inpatient was discharged. necessary data from our present cost 2002 final rule was not meant to
Fiscal intermediaries (FIs) verify that reporting forms (68 FR 45464). establish rates or payments for, or define
LTCHs meet the ALOS requirements. Therefore, we have notified FIs and Medicare-eligible expenses. Under
We note that the inpatient days of a LTCHs that until the cost reporting § 412.507, if the Medicare payment to
patient who is admitted to a LTCH forms are revised, for purposes of
without any remaining Medicare days of the LTCH is the full LTC–DRG payment
calculating the ALOS, we will be relying amount, as consistent with other
coverage, regardless of the fact that the upon census data extracted from
patient is a Medicare beneficiary, will established hospital prospective
Medicare Provider Analysis and Review payment systems, a LTCH may not bill
not be included in the above (MedPAR) files that reflect each LTCH’s
calculation. Because Medicare would a Medicare beneficiary for more than the
cost reporting period (68 FR 45464). deductible and coinsurance amounts as
not be paying for any of the patient’s Requirements for hospitals seeking
treatment, data on the patient’s stay specified under § 409.82, § 409.83, and
classification as LTCHs that have § 409.87 and for items and services as
would not be included in the Medicare
undergone a change in ownership, as specified under § 489.30(a). However,
claims processing systems. As described
described in § 489.18, are set forth in under the LTCH PPS, Medicare will
in § 409.61, in order for both covered
§ 412.23(e)(3)(iv). only pay for days for which the
and noncovered days of a LTCH
hospitalization to be included, a patient beneficiary has coverage until the SSO
2. Hospitals Excluded From the LTCH
admitted to the LTCH must have at least threshold is exceeded. (See section
PPS
one remaining benefit day (68 FR V.A.1.a. of this preamble.) Therefore, if
34123). The following hospitals are paid the Medicare payment was for a SSO
The FI’s determination of whether or under special payment provisions, as case (§ 412.529) that was less than the
not a hospital qualifies as an LTCH is described in § 412.22(c) and, therefore, full LTC–DRG payment amount because
based on the hospital’s discharge data are not subject to the LTCH PPS rules: the beneficiary had insufficient
from the hospital’s most recent remaining Medicare days, the LTCH
• Veterans Administration hospitals.
complete cost reporting period as could also charge the beneficiary for
specified in § 412.23(e)(3) and is • Hospitals that are reimbursed under services delivered on those uncovered
effective at the start of the hospital’s State cost control systems approved days (§ 412.507).
next cost reporting period as specified under 42 CFR part 403.
E. Administrative Simplification
in § 412.22(d). However, if the hospital • Hospitals that are reimbursed in Compliance Act (ASCA) and Health
does not meet the ALOS requirement as accordance with demonstration projects Insurance Portability and
specified in § 412.23(e)(2)(i) and (ii), the authorized under section 402(a) of the Accountability Act (HIPAA) Compliance
hospital may provide the FI with data Social Security Amendments of 1967
indicating a change in the ALOS by the (Pub. L. 90–248) (42 U.S.C. 1395b–1) or Claims submitted to Medicare must
same method for the period of at least section 222(a) of the Social Security comply with both the Administrative
5 months of the immediately preceding Amendments of 1972 (Pub. L. 92–603) Simplification Compliance Act (ASCA)
6-month period (69 FR 25676). Our (42 U.S.C. 1395b–1 (note)) (Statewide (Pub. L. 107–105), and Health Insurance
interpretation of § 412.23(e)(3) was to all-payer systems, subject to the rate-of- Portability and Accountability Act
allow hospitals to submit data using a increase test at section 1814(b) of the (HIPAA) (Pub. L. 104–191). Section 3 of
period of at least 5 months of the most Act). the ASCA requires that the Medicare
recent data from the immediately Program deny payment under Part A or
• Nonparticipating hospitals Part B for any expenses incurred for
preceding 6-month period.
As we stated in the FY 2004 Inpatient furnishing emergency services to items or services ‘‘for which a claim is
Prospective Payment System (IPPS) Medicare beneficiaries. submitted other than in an electronic
final rule, published in the August 1, C. Transition Period for Implementation form specified by the Secretary.’’
2003 Federal Register, prior to the of the LTCH PPS Section 1862(h) of the Act (as added by
implementation of the LTCH PPS, we section 3(a) of the ASCA) provides that
did rely on data from the most recently In the August 30, 2002 final rule (67 the Secretary shall waive such denial in
submitted cost report for purposes of FR 55954), we provided for a 5-year two specific types of cases and may also
calculating the ALOS (68 FR 45464). transition period. During this 5-year waive such denial ‘‘in such unusual
The calculation to determine whether transition period, a LTCH’s total cases as the Secretary finds appropriate’’
an acute care hospital qualifies for payment under the PPS was based on an (68 FR 48805). Section 3 of the ASCA
LTCH status was based on total days increasing percentage of the Federal rate operates in the context of the ASCA
and discharges for LTCH inpatients. with a corresponding decrease in the provisions of HIPAA, which include,
However, with the implementation of percentage of the LTCH PPS payment among other provisions, the transactions
the LTCH PPS, for the ALOS specified that is based on reasonable cost and code sets standards requirements
under § 412.23(e)(2)(i), we revised concepts. However, effective for cost codified as 45 CFR parts 160 and 162,
§ 412.23(e)(3)(i) to only count total days reporting periods beginning on or after subparts A and I through R (generally
and discharges for Medicare inpatients October 1, 2006, total LTCH PPS known as the Transactions Rule). The
(67 FR 55970 through 55974). In payments are based on 100 percent of Transactions Rule requires covered
addition, the ALOS specified under the Federal rate. entities, including covered health care
providers, to conduct the covered In section V.B. of this preamble, we B. Responses to Comments
electronic transactions according to the discuss the expansion of the present 25
We received 270 comments on the RY
applicable transactions and code sets percent admission policy at § 412.534(c)
2007 LTCH PPS proposed rule.
standards. to those certain situations not already
Comments and responses follow the
affected by the existing policy.
II. Summary of the Provisions of the appropriate policy section in this rule.
Previously, this policy only applied to
Final Rule The following is a comment we received
co-located LTCHs and LTCH satellites
regarding the schedule of the LTCH PPS
A. Major Contents of This Final Rule whose percentage of discharges
update.
In this final rule, we are setting forth exceeded the 25 percent threshold (or
the applicable percentage). This is Comment: One commenter urged
the annual update to the payment rates CMS to consolidate the July 1 update of
for the Medicare LTCH PPS, as well as, extended to include an adjusted
payment to LTCH discharges that were the LTCH PPS rates and the October 1
other policy changes. The following is a development of the LTC–DRG weights
summary of the major areas that we admitted from referring hospitals not co-
located with the LTCH or the satellite of into one publication cycle, a step which
have addressed in this final rule. the commenter states would be very
In section III. of this preamble, we a LTCH where those discharges exceed
the 25 percent (or applicable beneficial for the LTCH industry.
discuss the LTCH PPS patient Response: We appreciate the
classification and the relative weights percentage) threshold. The final policy
also applies to grandfathered LTCHs commenter’s suggestion and we will
which remain linked to the annual evaluate whether such a consolidation
adjustments of the acute care hospital and satellite facilities of LTCHs that
have Medicare discharges that were is a workable alternative to our present
inpatient DRG system, and are based on schedule.
the annual revisions to the International admitted from a hospital co-located
Classification of Diseases, Ninth with the LTCH or satellite facility of the III. Long-Term Care Diagnosis-Related
Revision, Clinical Modification (ICD–9– grandfathered LTCH. Group (LTC–DRG) Classifications and
CM) codes effective each October 1. In section X. of this preamble, we will Relative Weights
Also, in section III. of this preamble, discuss our on-going monitoring
protocols under the LTCH PPS. A. Background
we have established a BN requirement
for the annual update of the LTC–DRG In section XI. of this preamble, we Section 123 of the BBRA requires that
classifications and relative weights to discuss the recommendations made by the Secretary implement a PPS for
reflect changes in relative LTCH the Research Triangle Institute, LTCHs (that is, a per discharge system
resource use. This requirement ensures International’s (RTI) evaluation of the with a DRG-based patient classification
that estimated aggregate LTCH PPS feasibility of adopting recommendations system reflecting the differences in
payments will not decrease or increase made in the June 2004 Medicare patient resource use and costs). Section
as a result of the annual update to the Payment Advisory Commission 307(b)(1) of the BIPA modified the
LTC–DRG classifications and relative (MedPAC) Report. requirements of section 123 of the BBRA
weights based on the most recent In section XII. of this preamble, we by requiring that the Secretary examine
available data. In this section, we also discuss our revisions to redefine the ‘‘the feasibility and the impact of basing
summarize the proposed severity statutory term ‘‘all or substantially all of payment under such a system [the
adjusted MS–LTC–DRGs and the the costs for the training program in the LTCH PPS] on the use of existing (or
development of the proposed relative nonhospital setting.’’ The statute refined) hospital DRGs that have been
weights for FY 2008 presented in the FY requires that hospitals must pay ‘‘all or modified to account for different
2008 IPPS proposed rule. substantially all’’ of the costs for a resource use of LTCH patients, as well
As discussed in section IV.C. of this training program in a nonhospital as the use of the most recently available
preamble, we are implementing a 0.71 setting in order to count FTE residents hospital discharge data.’’
percent update to the LTCH PPS Federal training in the nonhospital setting for In accordance with section 123 of the
rate for the 2008 LTCH PPS rate year Medicare graduate medical education BBRA as amended by section 307(b)(1)
based on an adjustment to account for (GME) payment purposes. We are of the BIPA and § 412.515, we use
changes in coding practices. Also in revising § 413.75(b) to introduce a new information derived from LTCH PPS
section IV. of this preamble, we discuss definition of ‘‘all or substantially all of patient records to classify these cases
the prospective payment rate for RY the costs for the training program in the into distinct LTC–DRGs based on
2008, and in section VI., we discuss the nonhospital setting’’ to mean, at least 90 clinical characteristics and estimated
applicable adjustments to the payment percent of the total of the costs of the resource needs. The LTC–DRGs used as
rates, including the revisions to the residents’ salaries and fringe benefits the patient classification component of
wage index, the labor-related share, the (including travel and lodging where the LTCH PPS correspond to the
cost-of-living adjustment (COLA) applicable) and the portion of the cost hospital inpatient DRGs in the IPPS. (As
factors, and the outlier threshold, for the of teaching physicians’ salaries discussed in greater detail below in this
2008 LTCH PPS rate year. attributable to nonpatient care direct section, in the FY 2008 IPPS proposed
In section V.A. of this preamble, we GME activities. In addition, we are rule, we have proposed to adopt the
discuss our change to the current revising § 412.105(f)(1)(ii)(C) for IME severity-weighted patient classification
payment formula for certain SSO cases. and § 413.78 to reflect this new system, the proposed MS–LTC–DRGs,
That is, those cases with a LOS that is definition of ‘‘all or substantially all’’ of for the LTCH PPS beginning in FY 2008,
less than or equal to one standard the GME costs in a nonhospital setting, which is the same patient classification
deviation of the ALOS of an IPPS effective for cost reporting periods system proposed for use under the IPPS
discharge that was grouped into the beginning on or after July 1, 2007. for FY 2008.) We assign an appropriate
same DRG. However, in situations In section XV. of this preamble, we weight to the LTC–DRGs to account for
where the SSO cases would exceed the analyze the impact of the changes the difference in resource use by
IPPS discharge that was grouped in the presented in this final rule on Medicare patients exhibiting the case complexity
same DRG, payment would continue to expenditures, Medicare-participating and multiple medical problems
be paid under the existing formula. LTCHs, and Medicare beneficiaries. characteristic of LTCHs.
In a departure from the IPPS, we use entities must comply with the information within a specified
low volume LTC–DRGs (less than 25 applicable requirements of subparts A timeframe as specified in § 412.513(c).
LTCH cases) in determining the LTC– and I through R of part 162. Among The GROUPER software is used both
DRG weights, since LTCHs do not other requirements, those provisions to classify past cases to measure relative
typically treat the full range of direct covered entities to use the ASC hospital resource consumption to
diagnoses as do acute care hospitals. To X12N 837 Health Care Claim: establish the DRG weights and to
manage the large number of low volume Institutional, Volumes 1 and 2, version classify current cases for purposes of
DRGs (all DRGs with fewer than 25 4010, and the applicable standard determining payment. The records for
cases), we group low volume DRGs into medical data code sets for the all Medicare hospital inpatient
5 quintiles based on average charge per institutional health care claim or discharges are maintained in the
discharge. (A listing of the current equivalent encounter information MedPAR file. The data in this file are
composition of low volume quintiles transaction (see 45 CFR 162.1002 and 45 used to evaluate possible DRG
used in determining the FY 2007 LTC– CFR 162.1102). classification changes and to recalibrate
DRG relative weights appears in the FY Medicare FIs/MACs enter the clinical the DRG weights during our annual
2007 IPPS final rule (71 FR 47974 and demographic information into their update under both the IPPS (§ 412.60(e))
through 47978). A listing of the claims processing systems and subject and the LTCH PPS (§ 412.517). As
proposed composition of low volume this information to a series of automated discussed in greater detail in sections
quintiles used in determining the screening processes called the Medicare III.D. and E. of this preamble, with the
proposed FY 2008 MS–LTC–DRG Code Editor (MCE). These screens are implementation of section 503(a) of the
relative weights appears in the FY 2008 designed to identify cases that require Medicare Prescription Drug,
IPPS proposed rule.) We also account further review before assignment into a Improvement, and Modernization Act of
for adjustments to payments for cases in DRG can be made. During this process, 2003 (MMA) (Pub. L. 108–173), there is
which the stay at the LTCH is less than the following types of cases, among the possibility that one feature of the
or equal to five-sixths of the geometric others, are selected for further GROUPER software program may be
ALOS and classify these cases as SSO development: updated twice during a Federal FY
cases. (A detailed discussion of the • Cases that are improperly coded. (October 1 and April 1) as required by
application of the Lewin Group model (For example, diagnoses are shown that the statute for the IPPS (69 FR 48954
that was used to develop the LTC–DRGs are inappropriate, given the sex of the through 48957). Specifically, as we
appears in the August 30, 2002 LTCH patient. Code 68.6, Radical abdominal discussed in the FY 2007 IPPS final
PPS final rule (67 FR 55978).) hysterectomy, would be an rule, diagnosis and procedure codes for
inappropriate code for a male.) new medical technology may be created
B. Patient Classifications Into DRGs • Cases including surgical procedures and added to existing CMS DRGs in the
Generally, under the LTCH PPS, a not covered under Medicare. (For middle of the Federal FY on April 1 (71
Medicare payment is made at a example, organ transplant in a non- FR 47959 and 47971). However, this
predetermined specific rate for each approved transplant center.) policy change will have no effect on the
• Cases requiring more information. LTC–DRG relative weights during the
discharge; that payment varies by the
(For example, ICD–9–CM codes are FY, which will continue to be updated
LTC–DRG to which a beneficiary’s stay
required to be entered at their highest only once a year on October 1, nor will
is assigned. Consistent with our
level of specificity. There are valid 3- there be any impact on Medicare
historical practice of having LTC–DRGs
digit, 4-digit, and 5-digit codes. That is, payments under the LTCH PPS during
correspond to the DRGs applicable
code 262, Other severe protein-calorie the FY as a result of this policy. The use
under the IPPS, we will continue to
malnutrition, contains all appropriate of the ICD–9–CM code set is also
model the LTCH–DRGs after their
digits, but if it is reported with either compliant with the current
predecessor CMS DRGs. In addition, we
fewer or more than 3 digits, the claim requirements of the Transactions and
are proposing to use the FY 2008
will be rejected by the MCE as invalid.) Code Sets Standards regulations at 45
GROUPER Version 25.0 to be effective After screening through the MCE,
for discharges occurring on or after CFR parts 160 and 162, published in
each claim will be classified into the accordance with HIPAA.
October 1, 2007 through September 30, appropriate LTC–DRG by the Medicare
2008. In the IPPS proposed rule, we
LTCH GROUPER software. As indicated proposed to create and implement MS–
Cases are classified into LTC–DRGs
in the August 30, 2002 LTCH PPS final DRGs for FY 2008; that is, the proposed
for payment based on the following six
rule, the Medicare GROUPER software, MS–DRGs would be effective beginning
data elements:
which is used under the LTCH PPS, is with discharges on or after October 1,
(1) Principal diagnosis.
(2) Up to eight additional diagnoses. specialized computer software, and is 2007 through September 30, 2008. The
(3) Up to six procedures performed. the same GROUPER software program proposed MS–DRGs are a severity-based
(4) Age. used under the IPPS. The GROUPER system of DRGs in which all existing
(5) Sex. software was developed as a means of CMS DRGs were refined to better
(6) Discharge status of the patient. classifying each case into a DRG on the recognize severity of illness among
As indicated in the August 30, 2002 basis of diagnosis and procedure codes patients. The details of this proposal can
LTCH PPS final rule, upon the discharge and other demographic information be reviewed online at http://
of the patient from a LTCH, the LTCH (age, sex, and discharge status). www.cms.hhs.gov/AcuteInpatientPPS/
must assign appropriate diagnosis and Following the LTC–DRG assignment, downloads/CMS-1533-P.pdf.
procedure codes from the most current the Medicare FI/MAC determines the Under the broad authority of section
version of the International prospective payment by using the 123(a) of the BBRA as modified by
Classification of Diseases, Ninth Medicare PRICER program, which section 307(b) of the BIPA, we intend to
Revision, Clinical Modification (ICD–9– accounts for hospital-specific model the proposed MS–LTC–DRGs on
CM). HIPAA Transactions and Code adjustments. Under the LTCH PPS, we the corresponding CMS DRGs as
Sets Standards regulations at 45 CFR provide an opportunity for the LTCH to described in the FY 2008 IPPS proposed
parts 160 and 162 require that no later review the LTC–DRG assignments made rule if this DRG system is implemented
than October 16, 2003, all covered by the FI and to submit additional for the IPPS in FY 2008. In addition, as
stated above in this section, we intend proposed two-level subdivisions consist LTC–DRGs used under the LTCH PPS
to use the FY 2008 GROUPER Version of one of the following subdivisions: for FY 2007.
25.0, effective for discharges occurring • With CC/MCC. In the FY 2008 IPPS proposed rule,
on or after October 1, 2007 through • Without CC/MCC. we presented the changes to the
September 30, 2008 for the LTCH PPS In this type of subdivision, cases with proposed MS–DRG patient classification
if the IPPS system is implemented for at least one code that is on the CC or system for FY 2008. In that rule, we
FY 2008. MCC list are assigned to the ‘‘with CC/ proposed the IPPS GROUPER Version
To elaborate, if the proposed MS– MCC’’ DRG. Cases without a CC or an 25.0 for FY 2008 to process LTCH PPS
DRGs are adopted for use by the IPPS, MCC are assigned to the ‘‘without CC/ claims for LTCH discharges occurring
the LTC–DRGs will use the same MCC’’ DRG. from October 1, 2007 through
structure as the proposed MS–DRGs, The other type of proposed two-level September 30, 2008. As noted above in
and will be referred to as the MS–LTC– subdivision is as follows: this section and as we also discussed in
DRGs. Cases will continue to be • With MCC. the FY 2007 IPPS final rule, in its March
classified into MS–LTC–DRGs using the • Without MCC. 1, 2005 Report to Congress on Medicare
six data elements listed above, and will In this type of subdivision, cases with Payment Policy (page 64) and in
be subject to review by the MCE as they at least one code that is on the MCC list Recommendation 1 of the 2005 Report
have in the past. After screening are assigned to the ‘‘with MCC’’ DRG. to Congress on Physician-Owned
through the MCE, claims will be Cases that do not have an MCC are Specialty Hospitals, MedPAC
classified into the appropriate MS–LTC– assigned to the ‘‘without MCC’’ DRG. recommended that CMS, among other
DRG by the LTCH PPS GROUPER This type of subdivision could include things, refine the current DRGs under
software. Following the MS–LTC–DRG cases with a CC code, but no MCC. the IPPS to more fully capture
assignment, the Medicare FI/MAC differences in severity of illness among
We note that CCs are defined by
determines the appropriate payment patients.
certain secondary diagnoses not related
using the Medicare PRICER program.
to, or not inherently a part of, the D. Update of LTC–DRGs
C. Organization of DRGs disease process identified by the
principal diagnosis. (For example, the 1. Background
The DRGs are organized into 25 major
diagnostic categories (MDCs), most of GROUPER software would not recognize We propose to modify the existing
which are based on a particular organ a code from the 800.0x series, Skull LTC–DRGs so that they reflect the
system of the body; the remainder fracture, as a CC when combined with changes made to the CMS DRGs under
involve multiple organ systems (such as principal diagnosis 850.4, Concussion the proposed IPPS notice. As discussed
MDC 22, Burns). Accordingly, the with prolonged loss of consciousness, in greater detail in the FY 2008 IPPS
principal diagnosis determines MDC without return to preexisting conscious proposed rule, under the LTCH PPS,
assignment. Within most MDCs, cases level.) In addition, we note that the relative weights for each proposed MS–
are then divided into surgical DRGs and presence of additional diagnoses does LTC–DRG are a primary element used to
medical DRGs. Surgical DRGs are not automatically generate a CC, as not account for the variations in cost per
assigned based on a surgical hierarchy all MS–DRGs or MS–LTC–DRGs discharge and resource utilization
that orders operating room (O.R.) recognize comorbid or complicating among the payment groups (that is,
procedures or groups of O.R. procedures conditions in their definition. (For proposed MS–LTC–DRGs). To ensure
by resource intensity. The GROUPER example, proposed MS–DRG 069, that Medicare patients classified to each
software program does not recognize all Transient Ischemia (formerly CMS DRG proposed MS–LTC–DRG have access to
ICD–9–CM procedure codes as 524, Transient Ischemia), is based solely an appropriate level of services and to
procedures that affect DRG assignment, on the principal diagnosis, without encourage efficiency, each year based on
that is, procedures which are not consideration of additional diagnoses the best available data, we calculate a
surgical (for example, EKG), or minor for DRG determination.) relative weight for each proposed MS–
surgical procedures (for example, 86.11, As discussed in greater detail in the LTC–DRG that represents the resources
Biopsy of skin and subcutaneous tissue). FY 2007 IPPS final rule (71 FR 47898 needed by an average inpatient LTCH
The medical DRGs are generally through 47912 and 47973), in its March case in that proposed MS–LTC–DRG.
differentiated on the basis of diagnosis. 2005 Report to Congress, ‘‘Physician- For example, cases in a proposed MS–
Both medical and surgical DRGs may be Owned Specialty Hospitals,’’ MedPAC LTC–DRG with a relative weight of 2
further differentiated based on age, sex, recommended that the Secretary will, on average, cost twice as much as
discharge status, and presence or improve payment accuracy in the cases in a proposed MS–LTC–DRG with
absence of complications or hospital IPPS by, among other things, a relative weight of 1. Under § 412.517,
comorbidities (CC). The proposed MS– ‘‘refining the current DRGs to more fully the proposed MS–LTC–DRG
DRGs, as defined in the FY 2008 IPPS capture differences in severity of illness classifications and weighting factors
proposed rule, and the MS–LTC–DRGs among patients.’’ (Recommendation 1, (that is, relative weights) are adjusted
contain base DRGs that have been p. 93.) As we discussed in that same annually to reflect changes in factors
subdivided into one, two, or three final rule (71 FR 47973), we did not affecting the relative use of LTCH
severity levels. The most severe level adopt a new severity-adjusted patient resources, including treatment patterns,
has at least one code that is a major CC, classification system under the IPPS, for technology and number of discharges.
referred to as ‘‘with MCC’’. The next FY 2007, but we did refine the CMS For FY 2008, the proposed MS–LTC–
lower severity level contains cases with DRG patient classification system for DRG classifications and relative weights
at least one CC, referred to as ‘‘with Version 24.0 of the GROUPER software were updated based on LTCH data from
CC’’. Those DRGs without an MCC or a to improve the CMS DRG system’s the FY 2005 MedPAR file, which
CC are referred to as ‘‘without CC/ recognition of severity of illness for FY contained hospital bills data from the
MCC’’. When data did not support the 2007. The updates to the CMS DRG December 2006 update. The proposed
creation of three severity levels, the base patient classification system used under MS–LTC–DRG patient classification
DRG was divided into either two levels the IPPS for FY 2007 (GROUPER system is based upon 745 MS–DRGs
or the base was not subdivided. The Version 24.0), were also applied to the that formed the structure of the FY 2008
LTCH PPS GROUPER program. The FY At the September 2006 ICD–9–CM example, in cases of zero volume and/
2008 proposed MS–LTC–DRGs C&M Committee meeting, there were no or nonmonotonicity, as discussed
continues to include two ‘‘error DRGs.’’ requests for an April 1, 2007 below), the basic methodology for
As in the IPPS, we included two error implementation of ICD–9–CM codes, developing the proposed FY 2008 MS–
DRGs in which cases that cannot be and therefore, the next update to the LTC–DRG relative weights presented in
assigned to valid DRGs will be grouped. ICD–9–CM coding system will not occur the FY 2008 IPPS proposed rule
These two proposed error MS–LTC– until October 1, 2007 (FY 2008). continued to be determined in
DRGs are MS–LTC–DRG 999 (Principal Presently, as there were no coding accordance with the general
Diagnosis Invalid as a Discharge changes suggested for an April 1, 2007 methodology established in the August
Diagnosis) and MS–LTC–DRG 998 update, the ICD–9–CM coding set 30, 2002 LTCH PPS final rule (67 FR
(Ungroupable). The other 743 proposed implemented on October 1, 2006, will 55989 through 55991), which is
MS–LTC–DRGs are the same MS–DRGs continue through September 30, 2007 discussed below. Therefore, in the
used in the IPPS GROUPER program for (FY 2007). As discussed above in this discussion below, the term ‘‘LTC–
FY 2008 (Version 25.0). section, the next update to the proposed DRGs’’ will be used in descriptions of
For FY 2008, as discussed in greater MS–LTC–DRGs and relative weights for the basic methodology established at the
detail in the FY 2008 IPPS proposed proposed FY 2008 will be presented in beginning of the LTCH PPS that will
rule, we proposed to adopt the MS– the FY 2008 IPPS proposed rule. remain unchanged if we adopt the
LTC–DRGs for the LTCH PPS for RY Furthermore, we will notify LTCHs of proposed MS–LTC–DRGs. The use of
2008. (Additional information on the any revisions to the GROUPER software the term ‘‘MS–LTC–DRGs’’ in the
proposed MS–LTC–DRG classifications used under the IPPS and LTCH PPS that following discussion will indicate a
and proposed MS–LTC–DRG relative would be implemented April 1, 2008. discussion of specifics aspects of our
weights can be found in the FY 2008 As noted previously in this section, in proposed adoption of the severity-
IPPS proposed rule.) the FY 2007 IPPS final rule (71 FR weighted patient classification system
In the past, the annual update to the 47973), we established the use of for FY 2008 as presented in the FY 2008
CMS DRGs was based on the annual Version 24.0 of the CMS GROUPER, IPPS proposed rule.)
revisions to the ICD–9–CM codes and which is used under the IPPS for FY Under the LTCH PPS, relative weights
was effective each October 1. The ICD– 2007, to classify cases for LTCH PPS for each LTC–DRG are a primary
9–CM coding update process was discharges that would occur on or after element used to account for the
revised as discussed in greater detail in October 1, 2006 and on or before variations in cost per discharge and
the FY 2005 IPPS final rule (69 FR September 30, 2007. resource utilization among the payment
48953 through 48957). Specifically, groups as described in § 412.515. To
section 503(a) of the MMA includes a 2. Method for Updating the LTC–DRG ensure that Medicare patients who are
requirement for updating diagnosis and Relative Weights classified to each LTC–DRG have access
procedure codes twice a year instead of As discussed in the August 30, 2002 to services and to encourage efficiency,
the current process of annual updates LTCH PPS final rule that implemented we calculate a relative weight for each
on October 1 of each year. This the LTCH PPS, under the LTCH PPS, LTC–DRG that represents the resources
requirement is included as part of the each LTCH will receive a payment that needed by an average inpatient LTCH
amendments to the Act relating to represents an appropriate amount for case in that LTC–DRG. For example,
recognition of new medical technology the efficient delivery of care to Medicare cases in a LTC–DRG with a relative
under the IPPS. (For additional patients (67 FR 55984). The system must weight of 2 will, on average, cost twice
information on this provision, including be able to account adequately for each as much as cases in a LTC–DRG with a
its implementation and its impact on LTCH’s case-mix to ensure both a fair weight of 1.
the LTCH PPS, refer to the FY 2005 IPPS distribution of Medicare payments and As we discussed in the FY 2007 IPPS
final rule (69 FR 48953 through 48957), access to care for those Medicare final rule, the LTC–DRG relative weights
the RY 2006 LTCH PPS final rule (70 FR patients whose care is more costly. effective under the LTCH PPS for FY
24172 through 24177), and the RY 2008 Therefore, in § 412.523(c), we adjust the 2007 were calculated using the March
LTCH PPS proposed rule (72 FR 4783 standard Federal PPS rate by the LTC– 2006 update of FY 2005 MedPAR data
through 4784).) DRG relative weights in determining and Version 24.0 of the GROUPER
As discussed in the RY 2008 proposed payment to LTCHs for each case. As we software (71 FR 47973). We use total
rule (72 FR 4784), in implementing have noted above, we are proposing to days and total charges in the calculation
section 503(a) of the MMA, there will adopt the MS–LTC–DRGs for the LTCH of the LTC–DRG relative weights.
only be an April 1 update if diagnosis PPS for FY 2008. However, as discussed LTCHs often specialize in certain
and procedure codes are requested and in the FY 2008 IPPS proposed rule, this areas, such as ventilator-dependent
approved. We note that any new codes proposed change in the patient patients and rehabilitation or wound
created for April 1 implementation will classification system does not affect the care. Some case types (DRGs) may be
be limited to those diagnosis and basic principles of the development of treated, to a large extent, in hospitals
procedure code revisions primarily relative weights under a DRG-based that have (from a perspective of charges)
needed to describe new technologies PPS. For purposes of clarity, in the relatively high (or low) charges.
and medical services. However, we general discussion below in which we Distribution of cases with relatively
reiterate that the process of discussing describe the basic methodology of the high (or low) charges in specific LTC–
updates to the ICD–9–CM has been an patient classification system in use DRGs has the potential to
open process through the ICD–9–CM since the start of the LTCH PPS, we use inappropriately distort the measure of
Coordination and Maintenance (C&M) the acronym ‘‘MS–LTC–DRG’’ to specify average charges. To account for the fact
Committee since 1995. Requestors will the proposed DRG patient classification that cases may not be randomly
be given the opportunity to present the system to be used by the LTCH PPS in distributed across LTCHs, we use a
merits for a new code and make a clear FY 2008. Although the proposed hospital-specific relative value method
and convincing case for the need to adoption of the MS–LTC–DRGs would to calculate relative weights. We believe
update ICD–9–CM codes through an result in some modifications of existing this method removes this hospital-
April 1 update. procedures for assigning weights (for specific source of bias in measuring
average charges. Specifically, we reduce would have been classified to those weights, geometric ALOS, and five-
the impact of the variation in charges DRGs were treated in LTCHs during FY sixths of the geometric ALOS that we
across providers on any particular LTC– 2005, and therefore, no charge data were will continue to use for the period of
DRG relative weight by converting each reported for those DRGs. Thus, in the July 1, 2007 through September 30,
LTCH’s charge for a case to a relative process of determining the relative 2007. (This table is the same as Table 11
value based on that LTCH’s average weights of LTC–DRGs, we were unable of the Addendum to the FY 2007 IPPS
charge. (See the FY 2007 IPPS final rule to determine weights for these 183 LTC– final rule.) The next update to the ICD–
for further information on the DRGs using the method described in 9–CM coding system will be presented
application of the hospital-specific this section of the preamble. However, in the FY 2008 IPPS proposed rule
relative value methodology under the since patients with a number of the (since there will be no April 1, 2007
LTCH PPS (71 FR 47974 through diagnoses under these LTC–DRGs may updates to the ICD–9–CM coding
47975).) be treated at LTCHs beginning in FY system).
To account for LTC–DRGs with low 2007, we assigned relative weights to In addition, the proposed DRGs and
volume (that is, with fewer than 25 each of the 183 ‘‘no volume’’ LTC–DRGs GROUPER for FY 2008 that would be
LTCH cases), we grouped those low based on clinical similarity and relative effective October 1, 2007, will be
volume LTC–DRGs into 1 of 5 categories costliness to one of the remaining 355 presented in the IPPS FY 2008 proposed
(quintiles) based on average charges, for (538–183 = 355) LTC–DRGs for which rule. Below we provide a summary of
the purposes of determining relative we were able to determine relative the development of the proposed LTC–
weights. For FY 2007 based on the FY weights, based on the FY 2005 claims DRG relative weights for FY 2008
2005 MedPAR data, we identified 180 data. (A list of the current no-volume presented in that same proposed rule.
LTC–DRGs that contained between 1 LTC–DRGs and further explanation of To calculate the proposed MS–LTC–
and 24 cases. This list of low volume their FY 2007 relative weight DRG relative weights for FY 2008 in the
LTC–DRGs was then divided into 1 of assignment can be found in the FY 2007 FY 2008 IPPS proposed rule, we
the 5 low volume quintiles, each IPPS final rule (71 FR 47980 through obtained total Medicare allowable
containing 36 LTC–DRGs (180/5 = 36). 47984).) charges from FY 2006 Medicare LTCH
Each of the low volume LTC–DRGs Furthermore, for FY 2007, we bill data from the December 2006
grouped to a specific quintile received established LTC–DRG relative weights update of the MedPAR file, which are
the same relative weight and ALOS of 0.0000 for heart, kidney, liver/ the best available data at this time, and
using the formula applied to the regular intestinal, lung, simultaneous pancreas/ we used the proposed Version 25.0 of
LTC–DRGs (25 or more cases). (See the kidney, and pancreas transplants (LTC– the CMS GROUPER used under the IPPS
FY 2007 IPPS final rule for further DRGs 103, 302, 480, 495, 512 and 513, (as discussed in section II.B. of the
explanation of the development and respectively) because presently no preamble of that proposed rule) to
composition of each of the 5 low LTCH meets the applicable classify cases. To calculate the final
volume quintiles for FY 2007 and their requirements to perform Medicare MS–LTC–DRG relative weights for FY
composition (71 FR 47975 through covered transplant procedures. 2008, we proposed that, if more recent
47978).) However, if in the future, a LTCH seeks data are available (for example, data
After grouping the cases in the to meet such requirements as a from the March 2007 update of the
appropriate LTC–DRG, we calculated Medicare-approved transplant center to MedPAR file), we would use those data
the relative weights by first removing perform Medicare-covered transplant and the finalized Version 25.0 of the
statistical outliers and cases with a LOS procedures, we believe that the CMS GROUPER used under the IPPS.
of 7 days or less. Next, we adjusted the application and approval procedure We continued to use total days and total
number of cases remaining in each would allow sufficient time for us to charges in the calculation of the
LTC–DRG for the effect of SSO cases propose appropriate weights for the proposed MS–LTC–DRG relative
under § 412.529. The short-stay adjusted LTC–DRGs affected. At the present time, weights. We also continued to use the
discharges and corresponding charges we included these 6 transplant LTC– hospital-specific relative value
were used to calculate ‘‘relative adjusted DRGs in the GROUPER software methodology, described above, for
weights’’ in each LTC–DRG using the program for administrative purposes. As determining the proposed MS–LTC–
hospital-specific relative value method. the LTCH PPS uses the same GROUPER DRG relative weights for FY 2008.
We also adjusted the LTC–DRG relative software program for LTCHs as is used As noted above in this section,
weights to account for under the IPPS, removing these DRGs although the proposed adoption of the
nonmonotonically increasing relative would be administratively burdensome. MS–LTC–DRGs would result in some
weights. That is, we made an As we noted previously in this modifications of existing procedures
adjustment if cases classified to the section, there were no new ICD–9–CM discussed above for assigning relative
LTC–DRG ‘‘with CCs’’ of a ‘‘with CC’’/ code requests for an April 1, 2007 weights under the current system (as
‘‘without CC’’ pair had a lower average update. Therefore, Version 24.0 of the discussed in detail below), the basic
charge than the corresponding LTC– DRG GROUPER software established in methodology for developing the
DRG ‘‘without CCs’’ by assigning the the FY 2007 IPPS final rule will proposed FY 2008 MS–LTC–DRG
same weight to both LTC–DRGs in the continue to be effective until October 1, relative weights in the FY 2008 IPPS
‘‘with CC’’/‘‘without CC’’ pair. (See the 2007. Moreover, the LTC–DRGs and proposed rule continue to be
FY 2007 IPPS final rule for further relative weights for FY 2007 established determined in accordance with the
details on the steps for calculating the in Table 11 of that same IPPS final rule general methodology established in the
LTC–DRG relative weights (71 FR 47978 (71 FR 48321 through 48331) will August 30, 2002 LTCH PPS final rule
through 47984).) continue to be effective until October 1, (67 FR 55989 through 55991)
In addition, of the 538 LTC–DRGs in 2007, (just as they would have been summarized above. With the
the LTCH PPS for FY 2007, based on even if there had been any new ICD–9– implementation of the LTCH PPS for FY
LTCH cases in the FY 2005 MedPAR CM code requests for an April 1, 2007 2003, we established a procedure to
files, we identified 183 LTC–DRGs for update). Accordingly, Table 3 in the address setting relative weights for
which there were no LTCH cases in the Addendum to this final rule lists the LTC–DRG ‘‘pairs’’ that were
database. That is, no patients who LTC–DRGs and their respective relative differentiated on the presence or
absence of CCs (71 FR 47979). As higher average charges. Therefore, in the account the low-volume proposed MS–
discussed in the FY 2008 IPPS proposed three severity levels of the base MS– LTC–DRGs as described above, before
rule, our proposal to adopt a severity- LTC–DRG, relative weights should the proposed FY 2008 MS–LTC–DRG
based patient classification system for increase with severity, from lowest to relative weights can be determined.
the LTCH PPS, the MS–LTC–DRGs highest. If the relative weights do not After grouping the cases to the
described above, required us to adapt increase (that is, if based on the relative appropriate proposed MS–LTC–DRG,
our existing approach for setting relative weight calculation using the most recent we proposed to calculate the proposed
weights for the severity levels within a LTCH claims data, a proposed MS– relative weights for FY 2008 by first
specific base DRG. We are also proposed LTC–DRG with MCC would have a removing statistical outliers and cases
to modify our existing methodology for lower relative weight than one with CC, with a LOS of 7 days or less and to
maintaining monotonicity when setting or the DRG without CC/MCC would adjust the number of cases in each
relative weights for the proposed MS– have a higher relative weight than either proposed MS–LTC–DRG for the effect of
LTC–DRGs. of the others), there is a problem with SSO cases under § 412.529. The short-
As under the existing procedure, monotonicity. stay adjusted discharges and
under the proposed MS–LTC–DRGs, for As discussed above in this section, to
corresponding charges are used to
purposes of the annual setting of the account for LTC–DRGs with low volume
calculate ‘‘relative adjusted weights’’ in
relative weights, there continue to be (that is, with fewer than 25 LTCH cases),
three different categories of DRGs based we group those ‘‘low-volume LTC– each proposed MS–LTC–DRG using the
on volume of cases within specific LTC– DRGs’’ (that is, DRGs that contained HSRV method described above.
DRGs. LTC–DRGs with at least 25 cases between 1 and 24 cases annually) into Next we proposed to determine
are each assigned a relative weight; low- one of five categories (quintiles) based relative weights for the no-volume
volume proposed MS–LTC–DRGs (that on average charges, for the purposes of proposed MS–LTC–DRGs. As discussed
is, proposed MS–LTC–DRGs that determining relative weights. As in the FY 2008 IPPS proposed rule, of
contain between 1 and 24 cases discussed in the FY 2008 IPPS proposed the 745 proposed MS–LTC–DRGs for FY
annually) are grouped into quintiles rule, we proposed to continue to employ 2008, we identified 124 proposed MS–
(described below) and assigned the this treatment of low-volume proposed LTC–DRGs for which there were no
weight of the quintile. Cases with no- MS–LTC–DRGs with a modification to LTCH cases in the database. That is, no
volume proposed MS–LTC–DRGs (that combine proposed MS–LTC–DRGs for patients who would have been classified
is, no cases in the database were the purpose of computing a relative to those proposed MS–LTC–DRGs were
assigned to those proposed MS–LTC– weight in cases where necessary to treated in LTCHs during FY 2006, and
DRGs) are cross-walked to other maintain monotonicity in determining therefore, no charge data were reported
proposed MS–LTC–DRGs based on the the proposed FY 2008 MS–LTC–DRG for those proposed MS–LTC–DRGs.
clinical similarities and assigned the relative weights using the best available Thus, in the process of determining the
weight of the quintile that is closest to LTCH data. In that proposed rule, using proposed MS–LTC–DRG relative
the relative weight of the cross-walked LTCH cases from the December 2006 weights, we are unable to determine
proposed MS–LTC–DRG. (For in-depth update of the FY 2006 MedPAR file, we weights for these 124 proposed MS–
discussions of our proposals regarding identified 307 proposed MS–LTC–DRGs LTC–DRGs using the methodology
proposed relative weight setting for low- that contained between 1 and 24 cases. described above. However, because
volume MS–LTC–DRGs and for no- This list of proposed MS–LTC–DRGs patients with a number of the diagnoses
volume MS–LTC–DRGs, see the FY was then divided into one of the 5 low- under these proposed MS–LTC–DRGs
2008 IPPS proposed rule.) volume quintiles, each containing a may be treated at LTCHs beginning in
As noted above, for FY 2008, we are minimum of 61 proposed MS–LTC– FY 2008, we are proposing to assign
proposing to adopt the MS–DRGs for DRGs (307/5 = 61, with a remainder of relative weights to each of the 124 no-
use in both the LTCH PPS and the IPPS. 2 proposed MS–LTC–DRGs). Consistent
volume proposed MS–LTC–DRGs based
While the LTCH PPS and the IPPS use with our current methodology, we are
the same patient classification system, on clinical similarity and relative
proposing to make an assignment to a
the methodology that is used to set the costliness to one of the remaining 621
specific low-volume quintile by sorting
DRG weights for use in each payment (745–124 = 621) proposed MS–LTC–
the low-volume proposed MS–LTC–
system differs because the overall DRGs for which we are able to
DRGs in ascending order by average
volume of cases in the LTCH PPS is charge. (See the FY 2008 IPPS proposed determine proposed relative weights,
much less than in the IPPS. As a general rule for further explanation of the based on FY 2006 LTCH claims data. In
rule, as described in the FY 2008 IPPS development and composition of each general, we determined proposed
proposed rule, we are proposing to set of the 5 low volume quintiles for FY relative weights for the 124 proposed
the weights for the proposed MS–LTC– 2007 and their proposed composition.) MS–LTC–DRGs with no LTCH cases in
DRGs using the following steps: (1) If an As we noted previously, although the the FY 2006 MedPAR file used in this
MS–LTC–DRG has at least 25 cases, it is proposed adoption of the MS–LTC– proposed rule by cross-walking these
assigned its own relative weight; (2) if DRGs would result in some proposed MS–LTC–DRGs to other
an MS–LTC–DRGs has between 1 and modifications of existing procedures for proposed MS–LTC–DRGs and then
24 cases, it is assigned to a quintile to assigning relative weights, the proposed grouping them to the appropriate
which we will assign a relative weight; FY 2008 MS–LTC–DRG relative weights proposed low-volume quintile. (A list of
and (3) if an MS–LTC–DRG has no presented in Table 11 of the FY 2008 the proposed no-volume MS–LTC–DRGs
cases, it is cross-walked to another DRG IPPS proposed rule are based on the and further explanation of their
based upon clinical similarities and methodology established in the August proposed FY 2008 relative weight
assigned the appropriate relative weight. 30, 2002 LTCH PPS final rule (67 FR assignment can be found in the FY 2008
Theoretically, as with the existing LTC– 55989 through 55991). In summary, as IPPS proposed rule.) We also adjusted
DRG system, cases under the proposed described in greater detail in that same the proposed MS–LTC–DRG relative
MS–LTC–DRG system that are more proposed rule, LTCH cases would be weights to account for
severe require greater expenditure of grouped to the appropriate proposed nonmonotonically increasing relative
medical care resources and will result in MS–LTC–DRG, while taking into weights, including any no volume
proposed MS–LTC–DRGs, where the previous year’s LTC–DRG relative recalibration of the LTC–DRG relative
applicable, as described above. weights (71 FR 47991). When we weights is to reflect any variation in
Furthermore, for FY 2008 we proposed changes to the LTC–DRGs for coding practices and charges from the
proposed to establish proposed MS– FY 2007 in the FY 2007 IPPS proposed previous year and to help ensure that
LTC–DRG relative weights of 0.0000 for rule, we estimated that those proposed the LTC–DRG relative weights in the
the following transplant proposed MS– changes to the LTC–DRG classifications upcoming fiscal year will result in
LTC–DRGs: Heart transplant or implant and relative weights would result in appropriate and accurate payments to
of heart assist system w MCC (proposed about an estimated 1.4 percent decrease LTCHs for the resources they expend to
MS–LTC–DRG 1); Heart transplant or in estimated aggregate LTCH PPS treat their Medicare patients. (71 FR
implant of heart assist system w/o MCC payments (71 FR 24413). As we 47984 through 47989)
(proposed MS–LTC–DRG 2); Liver discussed in the FY 2007 IPPS final rule We also reminded the commenters
transplant w MCC or intestinal (71 FR 47991), several commenters, that under the IPPS, there is a statutory
transplant (proposed MS–LTC–DRG 5); including MedPAC, urged us to requirement that the annual DRG
Liver transplant w/o MCC (proposed establish a BN requirement for the reclassification and recalibration
MS–LTC–DRG 6); Lung transplant annual reclassification and recalibration changes be made in a manner that
(proposed MS–LTC–DRG 7); of the LTC–DRGs so that, in future assures that the estimated aggregate
Simultaneous pancreas/kidney years, the LTCH PPS could avoid an payments are neither greater than nor
transplant (proposed MS–LTC–DRG 8); estimated decrease in estimated less than the estimated aggregate
and Pancreas transplant (proposed MS– aggregate payments, such as the payments that would have been made
LTC–DRG 10). As explained in the FY estimated 1.4 percent decrease that without the changes, but there is no
2008 IPPS proposed rule, this is because resulted from the proposed update to corresponding statutory requirement
Medicare will only cover these the LTC–DRGs and relative weights for under the LTCH PPS. However, we
procedures if they are performed at a FY 2007. In response to previous noted that, given the considerable
hospital that has been certified for the proposed annual updates to the LTC– discretion granted to the Secretary
specific procedures by Medicare and DRG relative weights, we also received under section 123 of the BBRA and
presently no LTCH has been so certified. comments recommending that a BN section 307(b) of the BIPA of 2000 to
If in the future a LTCH applies for adjustment be applied in determining develop the LTCH PPS, it is possible
certification as a Medicare-approved the LTC–DRG relative weights to that, at some point, the Secretary would
transplant center, we believe that the mitigate LTCH PPS payment consider using this broad authority to
application and approval procedure fluctuations. (See the FY 2005 IPPS final establish a BN policy for the annual
would allow sufficient time for us to rule (69 FR 48999 through 49000), and update of the LTC–DRG classifications
determine appropriate weights for the the FY 2006 IPPS final rule (70 FR and relative weights. We further stated
proposed MS–LTC–DRGs affected. At 47333 through 47334).) that if we find that it would be
the present time, we would only include appropriate to propose making the
these seven proposed transplant MS– In response to those comments, we updates to the LTC–DRGs and relative
LTC–DRGs in the GROUPER program explained that we understood the weights in a budget neutral manner, the
for administrative purposes only. commenters’ concern with the estimated public would have the opportunity to
Because we use the same GROUPER decrease in payments under LTCH PPS submit comments on any proposed
program for LTCHs as is used under the based upon the changes in the LTC– change during the rulemaking process.
IPPS, removing these proposed MS– DRGs and relative weights proposed for As we discussed in the RY 2007
LTC–DRGs would be administratively FY 2007. However, as we discussed in LTCH PPS proposed rule (72 FR 4784
burdensome. (See the FY 2008 IPPS the FY 2007 IPPS final rule, we did not through 4786), a LTCH’s case-mix index
proposed rule for further details on the postpone the proposed FY 2007 (CMI) is defined as its case weighted
steps for calculating the proposed MS– reclassification and recalibration of the average LTC–DRG relative weight for all
LTC–DRG relative weights for FY 2008.) LTC–DRGs, nor did we implement those its discharges in a given period. Changes
changes in a budget neutral manner. We in CMI consist of two components:
3. Budget Neutrality (BN) Requirement noted several reasons for the annual ‘‘real’’ CMI changes and ‘‘apparent’’ CMI
for the Annual LTC–DRG Update fluctuations in LTC–DRG relative changes. Real CMI increase is defined as
As noted above in this section, weights that have resulted in both the increase in the average LTC–DRG
currently under § 412.517, the LTC– estimated increases and decreases in relative weights resulting from the
DRG classifications and relative weights estimated aggregate LTCH PPS hospital’s treatment of more resource
are adjusted annually to reflect changes payments in the 4 years since the intensive patients. Apparent CMI
in factors affecting the relative use of implementation of the LTCH PPS in FY increase is defined as the increase in
LTCH resources, such as treatment 2003. Specifically, we reiterated our CMI due to changes in coding practices.
patterns, technology and number of belief that several factors have affected The computed (or observed) CMI
discharges. Currently, there are no the changes to the LTC–DRG relative increase is defined as real CMI increase
statutory or regulatory requirements that weights over the past 4 years, including (due to an increase in patient severity)
the annual update to the LTC–DRG actual improvements in coding so that plus the increase due to changes in
classifications and relative weights be cases are appropriately assigned to coding practices (including better
done in a budget neutral manner. LTC–DRGs. We also explained that documentation of the medical record by
Historically, since the initial historically we recalibrated the LTC– physicians and more complete coding of
implementation of the LTCH PPS in FY DRG relative weights each year based on the medical record by coders). If LTCH
2003, we have updated the LTC–DRG the most recent available LTCH claims patients have more costly impairments,
relative weights each year without a BN data, which reflect current LTCH patient lower functional status, or increased
adjustment based on the most recent mix and coding practices, and comorbidities, and thus require more
available LTCH claims data, which appropriately reflects more or less resources in the LTCH, we consider this
reflect current LTCH patient mix and resource use than the previous year’s a real change in case-mix. Conversely, if
coding practices, and appropriately LTC–DRG relative weights. The LTCH patients have the same
reflected more or less resource use than intended purpose of the annual impairments, functional status, and
comorbidities but are coded differently established were estimated to result in in payment rates, including the LTC–
resulting in higher payment, we a decrease in aggregate LTCH PPS DRGs, should reflect such costs.
consider this an apparent change in payments of 4.2 percent (as compared to Furthermore, in that same proposed
case-mix. We believe that changes in the estimated 1.3 percent decrease in rule, we explained that a LTCH CMI
payment rates, including the LTC–DRG aggregate LTCH PPS payments based on analysis based on the most recent
relative weights, should accurately the FY 2005 LTCH claims data used to available LTCH claims data, which is
reflect changes in LTCHs’ true cost of determine the FY 2007 LTC–DRG discussed in section IV.C. of this
treating patients (real CMI increase), and relative weights). Because the estimated preamble, also supports our belief that
should not be influenced by changes in decrease in aggregate LTCH PPS observed CMI increase is primarily due
coding practices (apparent CMI payments due to the update to the LTC– to changes in real CMI (that is, increased
increase). DRG relative weights based on more patient severity) rather than apparent
As stated above in this section, recent (FY 2005) LTCH claims data was CMI (that is, changes in coding
apparent CMI increase results from significantly lower (1.3 percent practices). Specifically, this CMI
cases being grouped to a LTC–DRG with estimated based on the LTC–DRG analysis indicates that changes in LTCH
a higher weight than it would be changes for FY 2007) than it was based coding practices, which resulted in
without such changes in coding on FY 2004 LTCH claims data (4.2 fluctuations in the LTC–DRG relative
practices. As we discussed in the FY percent estimated based on the LTC– weights in the past, appear to be
2007 IPPS final rule (71 FR 48343 DRG changes for FY 2006), we believe stabilizing as LTCHs have become more
through 48344), in discussing the that, as LTCHs have become more familiar with a DRG-based system.
impact of the changes to the LTC–DRG familiar with the ICD–9–CM coding Specifically, this LTCH CMI analysis
classifications and relative weights principles and guidelines used under a shows that the overall observed change
established for FY 2007 that were DRG-based system, annual changes in in LTCH CMI from FY 2003 compared
estimated to result in an aggregate LTCH CMI are approaching the point to FY 2004 was an increase of
decrease in LTCH PPS payments of where the observed CMI increase is approximately 6.75 percent while the
approximately 1.3 percent, we primarily due to changes in real CMI overall observed change in LTCH CMI
explained that changes in coding (that is, increased patient severity) from FY 2004 compared to FY 2005 was
practices (rather than patient severity) rather than apparent CMI (that is, an increase of approximately 3.49
primarily resulted in fluctuations in the changes in coding practices). In other percent, which is only about half of the
LTC–DRG relative weights in the past. words, because we have observed that, LTCH CMI growth measured from the
Specifically, based on an analysis of FY over time as LTCHs have gained more prior period (that is, the 6.75 percent
2005 LTCH claims data, we continued experience with ICD–9–CM coding, from FY 2003 to FY 2004). Furthermore,
to observe that the average LTC–DRG estimated changes in LTCH PPS preliminary analysis of FY 2006 LTCH
relative weight decreases due to an payments due to recalibration of the claims data, which reflects over 3 full
increase of relatively lower charge cases LTC–DRG relative weights based on years of experience under the LTCH PPS
being assigned to LTC–DRGs with more recent claims data (for example, for most LTCHs, showed an even
higher relative weights in the prior year. the FY 2007 LTC–DRG relative weights smaller overall observed CMI increase of
Contributing to this increase in these calculated from FY 2005 LTCH claims about 1.9 percent from FY 2005
relatively lower charge cases being data as compared to the FY 2006 LTC– compared to FY 2006. Again, the
assigned to LTC–DRGs with higher DRG relative weights calculated from
observed CMI increase from FY 2005 to
relative weights in the prior year are FY 2006 is only about half of the LTCH
FY 2004 LTCH claims data) have
improvements in coding practices, CMI growth measured from the prior
diminished over time. That is, we have
which are typical when moving from a period (that is, the 3.49 percent from FY
estimated smaller fluctuations in
reasonable cost-based payment system 2004 to FY 2005). Because this LTCH
aggregate LTCH PPS payments as a
to a PPS. The impact of including cases CMI analysis shows that observed CMI
result of the annual recalibration of the
with relatively lower charges into LTC– is declining, we believe that LTCH
LTC–DRG relative weights based on
DRGs that had a relatively higher coding practices have stabilized such
more recent LTCH claims data generated
relative weight in the previous version that changes in LTCH CMI are now
after the implementation of the LTCH
of the GROUPER software is a decrease primarily due to changes in real CMI
PPS (for example, the 1.3 percent
in the average relative weight for those (that is, increased patient severity)
LTC–DRGs in the updated version of the estimated decrease in aggregate LTCH rather than apparent CMI (that is,
GROUPER software. PPS payments for FY 2007 based on FY changes in coding practices). In other
We noted in the RY 2008 LTCH PPS 2004 LTCH claims data as compared to words, because we believe that the
proposed rule (72 FR 4785) that this the 4.2 percent estimated decrease in observed annual CMI increase is
same phenomenon of relatively lower aggregate LTCH PPS payments for FY primarily ‘‘real’’ and not ‘‘apparent,’’ it
charge cases being assigned to LTC– 2007 based on FY 2005 LTCH claims is no longer necessary to update the
DRGs with higher relative weights in the data). LTC–DRGs in a non-budget neutral
prior year was also observed when we For these reasons, as discussed in the manner (as discussed in greater detail
analyzed the LTCH claims data from FY RY 2008 LTCH PPS proposed rule (72 below in this section). As stated above
2003 and FY 2004 to update the LTC– FR 4785), we believe that LTCH coding in this section, we believe that changes
DRG relative weights for FY 2005 and practices have stabilized such that the in payment rates, including the LTC–
FY 2006, respectively (see the FY 2005 most recent available LTCH claims data DRG relative weights, should accurately
IPPS final rule (69 FR 48999) and the FY now primarily reflect changes in the reflect changes in LTCHs’ true cost of
2006 IPPS final rule (70 FR 47701 resources used by the average LTCH treating patients (real CMI increase) and
through 47702).) However, this patient in a particular LTC–DRG (and should not be influenced by changes in
phenomenon was more notable based not changes in coding practices). Thus, coding practices (apparent CMI
on the FY 2004 LTCH claims data that we believe that the most recent available increase).
were used to update the LTC–DRG data (as described below in this section) In light of these facts, in order to
relative weights for FY 2006, where the mainly reflect the true costs of treating mitigate estimated fluctuations in
changes to the LTC–DRG weights LTCH patients, and we believe changes estimated aggregate LTCH PPS
payments, as urged by past commenters, we believe that the resulting LTC–DRG LTC–DRG classifications and relative
we stated in the RY 2008 proposed rule relative weights appropriately reflected weights based on the most recent
(72 FR 4785) that we had given further more or less resource use than the available data to reflect changes in
consideration to the issue of previous year’s LTC–DRG relative relative LTCH resource use; however,
establishing a BN requirement for weights, and that the estimated the LTC–DRG relative weights would be
annual LTC–DRG reclassification and aggregate payment changes were uniformly adjusted to ensure that
recalibration. Therefore, in that appropriate given that the LTCH claims estimated aggregate payments under the
proposed rule, under the broad data used to determine those LTC–DRG LTCH PPS would not be affected (that
authority conferred upon the Secretary relative weights reflected changes in is, decreased or increased).
under section 123 of the BBRA as coding practices, as well as changes in In this final rule, under the broad
amended by section 307(b) of the BIPA actual resource use. Historically, we authority conferred upon the Secretary
to develop the LTCH PPS, we proposed have not updated the LTC–DRGs in a under section 123 of the BBRA as
that, beginning with the LTC–DRG budget neutral manner because we amended by section 307(b) of the BIPA
update for FY 2008, the annual update believed that past fluctuations in the to develop the LTCH PPS, beginning
to the LTC–DRG classifications and LTC–DRG relative weights were with the LTC–DRG update for FY 2008
relative weights would be done in a primarily due to changes in LTCH (discussed in greater detail below), the
budget neutral manner such that coding practices, which included both annual update to the LTC–DRG
estimated aggregate LTCH PPS ‘‘real’’ and ‘‘apparent’’ changes in classifications and relative weights will
payments would be unaffected, that is, LTCHs’ case-mix (as discussed above in be done in a budget neutral manner
would be neither greater than nor less this section). We believe that changes in such that estimated aggregate LTCH PPS
than the estimated aggregate LTCH PPS the LTCH PPS payment rates, including payments will be unaffected, that is,
payments that would have been made the LTC–DRG relative weights, should will be neither greater than nor less than
without the LTC–DRG classification and accurately reflect changes in LTCHs’ the estimated aggregate LTCH PPS
relative weight changes. Accordingly, true cost of treating patients (real CMI payments that would have been made
we proposed to revise § 412.517 to increase), and should not be influenced without the LTC–DRG classification and
specify that annual changes to the LTC– by changes in coding practices relative weight changes. Accordingly,
DRG classifications and the (apparent CMI increase). Therefore, in we are revising § 412.517 to specify that
recalibration of the LTC–DRG relative the past we did not update the LTC– annual changes to the LTC–DRG
weights would be made in a budget DRGs in a budget neutral manner so that classifications and the recalibration of
neutral manner such that estimated ‘‘apparent’’ CMI changes were not the LTC–DRG relative weights are made
aggregate LTCH PPS payments are not permanently built into the LTCH PPS in a budget neutral manner such that
affected. payment rates. estimated aggregate LTCH PPS
Comment: Numerous commenters, Because LTCH 2006 claims data does payments are not affected.
including MedPAC, supported our not appear to significantly reflect As discussed above, we believe that
proposal to recalibrate the LTC–DRGs changes in LTCH coding practices in the most recent available LTCH claims
annually in a budget neutral manner. response to the implementation of the data reflects the intensity of resource
Some commenters also recommended LTCH PPS (as explained above in this use of the treatment of Medicare
that we should monitor the recalibration section), we believe that it may be patients based on current LTCH coding
so that any reweighting of the LTC– appropriate to update the LTC–DRGs so and treatment practices. Accordingly,
DRGs is conducted in a manner that that estimated aggregate LTCH PPS we believe that annually updating the
does not result in a redistribution of payments would neither increase or LTC–DRG relative weights using the
payments from high acuity DRGs to decrease since we believe that changes most recent available LTCH claims data
lower acuity DRGs, pending in the LTC–DRG classifications and reflects more or less resource use than
implementation of revised certification relative weights should accurately the previous year’s LTC–DRG relative
criteria designed to screen out LTCH reflect changes in LTCHs’ resource use weights based on the current LTCH
inappropriate patients. (that is, true cost of treating patients) practices. Therefore, we believe that any
Response: We appreciate the and should not be influenced by redistribution in payments as a result of
commenters’ support of our proposed changes in coding practices, and that the annual recalibration of the LTC–
BN requirement for the annual LTC– the most recent such LTCH claims data DRG relative weights based on this
DRG update. As discussed in the RY primarily reflects changes in the updated LTCH claims data
2008 LTCH PPS proposed rule (72 FR resources needed by an average LTCH appropriately reflects LTCH resource
4785 through 4786), we explained that case in a particular LTC–DRG (and not use in the treatment of their Medicare
we believe that it would be appropriate changes in coding practices). patients. While we will continue to
to update the LTC–DRG classifications Thus, we now believe it would be monitor LTCH data, including any
and relative weights in a budget neutral reasonable and appropriate to update redistribution of payments upon the
manner at this time for the reasons the LTC–DRGs in a budget neutral annual update of the LTC DRGs, for the
discussed below. As noted above in this manner, beginning in FY 2008, so that reasons discussed above, we are not
section, the relative weight for each estimated aggregate payments under the adopting the commenters’ suggestion to
LTC–DRG represents the resources LTCH PPS would be unaffected (that is, establish a requirement that the annual
needed by an average inpatient LTCH estimated aggregate LTCH PPS recalibration of the relative weights be
case in that LTC–DRG, such that LTCH payments would not be greater than or done in a manner that would adjust for
cases in a LTC–DRG with a relative less than they would have been without redistribution of payments from high
weight of 2 will, on average, cost twice the proposed LTC–DRG classification acuity LTC–DRGs to lower acuity LTC–
as much as cases in a LTC–DRG with a and relative weight changes) by any DRGs.
relative weight of 1. changes resulting from the annual As we explained in the RY 2008
In the past when we recalibrated the reclassification and recalibration of the LTCH PPS proposed rule (72 FR 4786),
LTC–DRG relative weights each year LTC–DRGs. Updating the LTC–DRGs in we intend to update the LTC–DRG
without a BN adjustment based on the a budget neutral manner would result in classifications and relative weights for
most recent available LTCH claims data, an annual update to the individual FY 2008 based on the best available data
at the time to allow for changes in weights) to the proposed MS–LTC–DRG apply the proposed GROUPER (Version
factors affecting hospital resource use, relative weights to ensure that estimated 25.0). We next calculated payments
including but not limited to, practice aggregate LTCH PPS payments are not using the same claims data (FY 2006)
patterns and new technology. This will influenced by changes in the with the current GROUPER (Version
be done in a budget neutral manner, composition of case types or changes 24.0). The ratio of the estimated average
such that estimated aggregate payments made to the classification system. That payment under the current GROUPER
under the LTCH PPS would neither is, the normalization adjustment is and the proposed GROUPER was
decrease or increase as a result of the intended to ensure that the recalibration calculated as the proposed BN factor.
changes due to the annual of the proposed MS–LTC–DRG relative Then each of the proposed normalized
reclassification and recalibration of the weights (that is, the process itself) relative weights was multiplied by the
LTC–DRGs. Because we will continue to neither increases nor decreases total proposed BN factor to determine the
use the most recent available LTCH estimated payments. To calculate the proposed budget neutral relative weight
data, the updated LTC–DRG relative normalization factor, we proposed to for each proposed MS–LTC–DRG.
weights will continue to reflect changes use the most recent available claims Accordingly, based on the most recent
in LTCH resource use (as is the case data (FY 2006) and apply the proposed available data, we proposed to apply a
under the current (non-budget neutral) GROUPER (Version 25.0) to calculate BN factor of 1.003924 to the relative
LTC–DRG update methodology). Thus, the proposed MS–LTC–DRG relative weights after normalizing. To calculate
for example, if the most recent LTCH weights. (We also proposed to use the the proposed MS–LTC–DRG relative
claims data showed that the resource most recent available claims data in the weights for FY 2008, we obtained total
use for hypothetical LTC–DRG ‘‘ABC’’ is analysis for this final rule.) These Medicare allowable charges from FY
double the resource use for hypothetical weights were determined such that the 2006 Medicare LTCH bill data from the
LTC–DRG ‘‘XYZ,’’ then the value of the average CMI value is 1.0. Then, we December 2006 update of the MedPAR
relative weight for LTC–DRG ‘‘ABC’’ proposed to group the same claims data file, which are the best available data at
would be about twice the value of (FY 2006) using the current GROUPER that time. We also proposed that if more
relative weight for LTC–DRG ‘‘XYZ.’’ (Version 24.0) and current LTC–DRG current data become available prior to
In addition to accounting for changes relative weights. The average CMI was publication of the final rule, we will use
in relative resource use, to include a BN calculated for the claims data using the those data to determine the budget
requirement for the annual update to the current GROUPER and relative weights. neutrality factor. The proposed FY 2008
LTC–DRGs, the updated LTC–DRG Finally, the ratio of the average CMI of MS–LTC–DRG relative weights are
relative weights will need to be the claims data set under the current presented in Table 11 in the Addendum
uniformly adjusted to ensure that GROUPER and the proposed GROUPER of the FY 2008 IPPS proposed rule,
estimated aggregate LTCH PPS was calculated as the proposed which reflect the budget neutral
payments will not be affected. That is, normalization factor. adjustment described above.
a BN factor will need to be computed to For FY 2008, based on the latest
ensure that the LTC–DRG available data, the proposed In the recently issued FY 2008 IPPS
reclassification and recalibration normalization factor is estimated as proposed rule, we proposed significant
process, by itself, neither increases nor 1.020302, which was applied to each refinements to the DRGs used under
decreases estimated aggregate LTCH proposed MS–LTC–DRG relative weight. both the IPPS and LTCH PPS to better
PPS payments. (We also stated that if more current data recognize severity of illness among
As discussed in the FY 2008 IPPS become available prior to publication of patients. The proposed refinements
proposed rule, to accomplish BN when the final rule, we will use those data to would be effective October 1, 2007. The
annually updating the LTC–DRG determine the normalization factor.) proposed new MS–DRG and MS–LTC–
classifications and relative weights That is, each proposed MS–LTC–DRG DRG systems present opportunities to
under revised § 412.517, we proposed to relative weight was multiplied by acute care hospitals and LTCHs,
use a method that is similar to the 1.020302 in the first step of the BN respectively, to improve documentation
methodology used under the IPPS. process. and coding to receive higher payments
(Information on the IPPS DRG BN We are also proposed to ensure that without a real increase in patient
adjustment can be found in the FY 2007 estimated aggregate LTCH PPS severity of illness. The Office of the
IPPS final rule (71 FR 47970).) As noted payments (based on the most recent Actuary estimates an adjustment of
above, we proposed to adopt the MS– available LTCH claims data) after ¥2.4 percent to the IPPS rates for each
LTC–DRGs for the LTCH PPS for FY recalibration (the proposed relative of FY 2008 and FY 2009 will be
2008. Therefore, in the discussion that weights) would be equal to estimated necessary to account for the anticipated
follows, we will refer to the aggregate LTCH PPS payments (for the improvements in coding and
development of the proposed budget same most recent available LTCH claims documentation. In the FY 2008 IPPS
neutrality factor in terms of the data) before recalibration (the existing proposed rule, we proposed to apply
proposed MS–LTC–DRG severity- relative weights). Therefore, we this ¥2.4 percent adjustment for case
weighted patient classification system. proposed to calculate the BN adjustment mix increase in FY 2008 and in FY 2009
Specifically, after recalibrating the factor by simulating estimated payments in both the IPPS and LTCH PPS systems
proposed MS–LTC–DRG relative under both sets of GROUPERs and to address the proposed change to the
weights, as we do under our existing relative weights. We proposed to refined severity DRGs. It should be
methodology (as described in detail in simulate total estimated payments noted that this adjustment is not related
the FY 2007 IPPS final rule (71 FR under the current payment policies (RY to the finalized budget neutrality
47978 through 47981)), as described in 2007) using the most recent available adjustment included in this LTCH final
greater detail in the FY 2008 IPPS claims data (FY 2006) and using the rule and discussed above. The budget
proposed rule, we would calculate and proposed GROUPER (Version 25.0), and neutrality adjustment in this rule is an
apply a normalization factor (which will normalized relative weights. Then, we annual requirement that is needed to
be published annually in the IPPS proposed to simulate estimated assure that annual recalibration of the
proposed and final rules when we payments using the most recent DRG weights based on the most recent
update the LTC–DRGs and relative available claims data (FY 2006) and available claims data, results in no
changes (increase or decrease) in as a standard for the development of the The agenda and dates of the meetings
estimated payments that stem from CMS–DRGs: can be accessed on our Web site at
updating the DRG weights, while the • Diagnoses are defined to include all http://www.cms.hhs.gov/ICD9Provider
proposed ¥2.4 percent adjustment for diagnoses that affect the current hospital DiagnosticCodes.
FYs 2008 and 2009 is tied solely to the stay. As discussed previously in this
proposed change to the MS–LTC–DRGs. • Principal diagnosis is defined as the section, for the IPPS, section 503(a) of
Accordingly, each of the proposed MS– condition established after study to be the MMA includes a requirement for
LTC–DRG relative weights in Table 11 chiefly responsible for occasioning the updating diagnosis and procedure codes
of the Addendum to the FY 2008 IPPS admission of the patient to the hospital twice a year instead of annual updates
proposed rule reflects this proposed for care. on October 1 of each year. This
adjustment. That is, each proposed MS– • Other diagnoses (also called requirement will improve the
LTC–DRG relative weight was secondary diagnoses or additional recognition of new technologies under
multiplied by a factor of 0.976 to diagnoses) are defined as all conditions the IPPS by accounting for them in the
account for changes in coding or that coexist at the time of admission, GROUPER software at an earlier date.
classification of discharges resulting that develop subsequently, or that affect Because this statutory requirement
from the proposed adoption of the new the treatment received or the LOS or could have a significant impact on
patient classification system. This both. Diagnoses that relate to an earlier health care providers, coding staff,
proposed adjustment is consistent with episode of care that have no bearing on publishers, system maintainers, and
the proposed adjustment applied to the the current hospital stay are excluded. software systems, among others, we
proposed IPPS rates for FYs 2008 and • All procedures performed will be solicited comments on our proposed
2009 to eliminate the effect of changes reported. This includes those that are provisions to implement this
in coding or classification of discharges surgical in nature, carry a procedural requirement as part of the FY 2005 IPPS
that do not reflect real change in case- risk, carry an anesthetic risk, or require proposed rule (69 FR 28220 through
mix because we believe that adoption of specialized training. 28221). We responded to comments and
We provide LTCHs with a 60-day published our new policy regarding the
the proposed MS–LTC–DRGs would
window after the date of the notice of updating of diagnosis and procedure
create a risk of increased aggregate
the initial LTC–DRG or proposed MS– codes (currently the ICD–9–CM) in the
levels of payment as a result of
LTC–DRG assignment to request review FY 2005 IPPS final rule (69 FR 48953
increased documentation and coding.
of that assignment of the discharge to an through 48957). In addition, we
E. ICD–9–CM Coding System LTC–DRG or MS–LTC–DRG. Additional established a policy for the possibility of
information may be provided by the an April 1 ICD–9–CM diagnosis and
1. Uniform Hospital Discharge Data Set LTCH to the FI as part of that review. procedure code update in the RY 2006
(UHDDS) Definitions LTCH PPS final rule (70 FR 24176) since
2. Maintenance of the ICD–9–CM
Because the assignment of a case to a Coding System LTCH systems would be expected to
particular LTC-DRG or the proposed recognize and report those new codes
The ICD–9–CM C&M Committee is a through the channels described in this
MS–LTC–DRG will help determine the Federal interdepartmental committee,
amount that will be paid for the case, it section even though no DRG additions
co-chaired by the National Center for or deletions or changes to relative
is important that the coding is accurate. Health Statistics (NCHS) and CMS,
Classifications and terminology used in weights will occur prior to the usual
which is charged with maintaining and October 1 update. (For more detailed
the LTCH PPS are consistent with the updating the ICD–9–CM system. The
ICD–9–CM coding scheme and the information on the affect of the statutory
C&M Committee is jointly responsible mandates directed at the IPPS as
UHDDS, as recommended to the for approving coding changes, and
Secretary by the National Committee on amended by section 503(a) of the MMA,
developing errata, addenda, and other refer to the FY 2005 IPPS final rule (69
Vital and Health Statistics (‘‘Uniform modifications to the ICD–9–CM to
Hospital Discharge Data: Minimum Data FR 48954 through 48957) and the RY
reflect newly developed procedures and 2007 LTCH PPS final rule (71 FR 27806
Set, National Center for Health Statistics technologies and newly identified
(NCHS), April 1980’’) and as revised in through 27808)).
diseases. The C&M Committee is also Current addendum and code title
1984 by the Health Information Policy responsible for promoting the use of information is published on the CMS
Council (HIPC) of the Department of Federal and non-Federal educational Web site at: http://www.cms.hhs.gov/
Health and Human Services (HHS). programs and other communication ICD9ProviderDiagnosticCodes/
We note that the ICD–9–CM coding techniques with a view toward 04_addendum.asp. Summary tables
terminology and the definitions of standardizing coding applications and showing new, revised, and deleted code
principal and other diagnoses of the upgrading the quality of the titles are also posted on the CMS Web
UHDDS are consistent with the classification system. site at http://www.cms.hhs.gov/
requirements of the HIPAA The NCHS has lead responsibility for ICD9ProviderDiagnosticCodes/
Administrative Simplification Act of the ICD–9–CM diagnosis codes included 07_summarytables.asp. Information on
1996 (45 CFR part 162). Furthermore, in the Tabular List and Alphabetic ICD–9–CM diagnosis codes can be
the UHDDS was used as a standard for Index for Diseases, while CMS has the found at http://www.cms.hhs.gov/
the development of policies and lead responsibility for the ICD–9–CM ICD9ProviderDiagnosticCodes/.
programs related to hospital discharge procedure codes included in the Information on new, revised, and
statistics by both governmental and Tabular List and Alphabetic Index for deleted ICD–9–CM codes is also
nongovernmental sectors for over 30 Procedures. The C&M Committee available in the American Hospital
years. In addition, the following encourages participation by health- Association (AHA) publication, the
definitions (as described in the 1984 related organizations in this process and Coding Clinic for ICD–9–CM. AHA also
Revision of the UHDDS, approved by holds public meetings for discussion of distributes information to publishers
the Secretary for use starting January educational issues and proposed coding and software vendors. We also send
1986) are requirements of the ICD–9– changes twice a year at the CMS Central copies of all ICD–9–CM coding changes
CM coding system, and have been used Office located in Baltimore, Maryland. to our contractors for use in updating
their systems and providing education consistent, complete documentation in to receive payment based on 100
to providers. In addition, of particular the medical record cannot be percent of the Federal rate, as specified
note to LTCHs are the invalid diagnosis overemphasized. Without this in § 412.533. New LTCHs (as defined at
codes (Table 6C) and the invalid documentation, the application of all § 412.23(e)(4)) are paid based on 100
procedure codes (Table 6D) located in coding guidelines is a difficult, if not percent of the Federal rate, with no
the annual proposed and final rules for impossible task’’ (Coding Clinic for ICD– phase-in transition payments.
the IPPS. Claims with invalid codes are 9–CM, Fourth Quarter 2002, page 115).
not processed by the Medicare claims To improve medical record The basic methodology for
processing system. documentation, LTCHs should be aware determining LTCH PPS Federal
that if the patient is being admitted for prospective payment rates is set forth at
3. Coding Rules and Use of ICD–9–CM § 412.515 through § 412.532. In this
continuation of treatment of an acute or
Codes in LTCHs section, we discuss the factors that will
chronic condition, guidelines at Section
We continue to urge LTCHs to focus I.B.10 of the Coding Clinic for ICD–9– be used to update the LTCH PPS
on improved coding practices. CM, Fourth Quarter 2002 (page 129) are standard Federal rate for the 2008 LTCH
Inappropriate coding of cases can applicable for the selection of principal PPS rate year that will be effective for
adversely affect the uniformity of cases diagnosis. To clarify coding advice LTCH discharges occurring on or after
in each LTC–DRG or proposed MS– issued in the August 30, 2002 LTCH July 1, 2007 through June 30, 2008.
LTC–DRG and produce inappropriate PPS final rule (67 FR 55979), at When we implemented the LTCH PPS
weighting factors at the annual Guideline I.B.12, Late Effects, we state in the August 30, 2002 LTCH PPS final
recalibration. Because of concerns that a late effect is considered to be the rule (67 FR 56029 through 56031), we
raised by LTCHs concerning correct residual effect (condition produced) computed the LTCH PPS standard
coding, we have asked the AHA to after the acute phase of an illness or Federal payment rate for FY 2003 by
provide additional clarification and injury has terminated (Coding Clinic for updating the latest available (FY 1998 or
instruction on proper coding in the ICD–9–CM, Fourth Quarter 2002, page
LTCH setting. The AHA will provide FY 1999) Medicare inpatient operating
129). Regarding whether a LTCH should and capital cost data, using the
this instruction via their established report the ICD–9–CM code(s) for an
process of addressing questions through excluded hospital market basket.
unresolved acute condition instead of
their publication, the Coding Clinic for the code(s) for late effects of Section 123(a)(1) of the BBRA
ICD–9–CM. Written questions or rehabilitation, we emphasize that each requires that the PPS developed for
requests for clarification may be case must be evaluated on its unique LTCHs be budget neutral for the initial
addressed to the Central Office on ICD– circumstances and coded appropriately. year of implementation. Therefore, in
9–CM, American Hospital Association, Depending on the documentation in the calculating the standard Federal rate
One North Franklin, Chicago, IL 60606. medical record, either a code reflecting under § 412.523(d)(2), we set total
A form for question(s) is available for the acute condition or rehabilitation estimated LTCH PPS payments equal to
download and can be mailed on AHA’s could be appropriate in a LTCH. estimated payments that would have
Web site at: www.ahacentraloffice.org. Since implementation of the LTCH been made under the reasonable cost-
In addition, current coding guidelines PPS, our Medicare FIs have conducted based payment methodology had the
are available at the NCHS Web site: training and provided assistance to PPS for LTCHs not been implemented.
http://www.cdc.gov/nchs/datawh/ LTCHs in correct coding. We have also
ftpserv/ftpicd9/ftpicd9.htm#conv. Section 307(a) of the BIPA specified that
issued manuals containing procedures, the increases to the hospital-specific
In conjunction with the cooperating
as well as coding instructions to LTCHs target amounts and the cap on the target
parties (AHA, the American Health
and FIs. We will continue to conduct amounts for LTCHs for FY 2002
Information Management Association
training and provide guidance on an ‘‘as provided for by section 307(a)(1) of the
(AHIMA), and NCHS), we reviewed
needed’’ basis. We also refer readers to BIPA shall not be considered in the
actual medical records and continue to
the detailed discussion on correct development and implementation of the
emphasize the importance of the quality
of the documentation under the LTCH coding practices in the August 30, 2002 LTCH PPS.
PPS. Based on the LTCH claims data LTCH PPS final rule (67 FR 55981
through 55983). Additional coding Furthermore, as specified at
analysis described above in section § 412.523(d)(1), the standard Federal
III.D.2. of this preamble, we fully instructions and examples will be
published in the Coding Clinic for ICD– rate is reduced by an adjustment factor
believe that with some experience under
9–CM. to account for the estimated proportion
a PPS, the quality of the documentation
of outlier payments under the LTCH
and coding of LTCHs has improved, as IV. Changes to the LTCH PPS Payment
it did for the IPPS. However, because of PPS to total estimated LTCH PPS
Rates for the 2008 LTCH PPS Rate Year
the need for proper coding by LTCHs, payments (8 percent). For further details
the cooperating parties will assist their A. Overview of the Development of the on the development of the FY 2003
members with continued improvement Payment Rates standard Federal rate, see the August 30,
in documentation and coding issues for The LTCH PPS was effective 2002 LTCH PPS final rule (67 FR 56027
the LTCHs through specific questions beginning with a LTCH’s first cost through 56037), and for subsequent
and coding guidelines. The importance reporting period beginning on or after updates to the LTCH PPS Federal rate,
of consistent and complete October 1, 2002. Effective with that cost refer to the following final rules: RY
documentation is emphasized in the reporting period, LTCHs are paid, 2004 LTCH PPS final rule (68 FR 34134
revised ICD–9–CM Official Guidelines during a 5-year transition period, a total through 34140), RY 2005 LTCH PPS
for Coding and Reporting: ‘‘A joint effort LTCH prospective payment that is final rule (69 FR 25682 through 25684),
between the attending physician and comprised of an increasing proportion RY 2006 LTCH PPS final rule (70 FR
coder is essential to achieve complete of the LTCH PPS Federal rate and a 24179 through 24180), and RY 2007
and accurate documentation, code decreasing proportion based on LTCH PPS final rule (71 FR 27819
assignment, and reporting of diagnoses reasonable cost-based principles, unless through 27827).
and procedures. The importance of the hospital makes a one-time election
B. LTCH PPS Market Basket reports because these are the most from changes in coding practices rather
recent, relatively complete cost data for than an increase in patient severity.
1. Overview of the RPL Market Basket
inpatient rehabilitation facilities (IRFs),
Historically, the Medicare program C. Standard Federal Rate for the 2008
inpatient psychiatric facilities (IPF), and
has used a market basket to account for LTCH PPS Rate Year
LTCHs.
price increases of the services furnished The RPL market basket is determined 1. Background
by providers. The market basket used based on the operating and capital costs At § 412.523(c)(3)(ii), for LTCH PPS
for the LTCH PPS includes both of IRFs, IPFs and LTCHs. Since all IRFs rate years beginning RY 2004 through
operating and capital-related costs of are now paid under the IRF PPS Federal RY 2006, we updated the standard
LTCHs because the LTCH PPS uses a payment rate, nearly all LTCHs are paid Federal rate to adjust for the most recent
single payment rate for both operating 100 percent of the Federal rate under
and capital-related costs. The estimate of the projected increases in
the LTCH PPS, and most IPFs are prices for LTCH inpatient hospital
development of the LTCH PPS standard transitioning to payment based on 100
Federal rate, using the excluded services. We established the policy of
percent of the Federal per diem annually updating the standard Federal
hospital with capital market basket, is payment amount under the IPF PPS
discussed in further detail in the August rate by the increase factor described in
(payments to IPFs will be based the RY 2004 LTCH PPS final rule (68 FR
30, 2002 LTCH PPS final rule (67 FR exclusively on 100 percent of the
56027 through 56033). 34138) because at that time we believed
Federal rate for cost reporting periods that was the most appropriate method
In the August 30, 2002 final rule (67
beginning on or after January 1, 2008), for updating the LTCH PPS standard
FR 56016 through 56017 and 56030),
the RPL market basket reflects changes Federal rate annually for years after FY
which implemented the LTCH PPS, we
in the operating and capital costs for 2003. When we moved the date of the
established the use of the excluded
these hospitals. As we explained in that annual update of the LTCH PPS from
hospital with capital market basket as
same final rule, we believe a market October 1 to July 1 in the RY 2004 LTCH
the LTCH PPS market basket. The
excluded hospital with capital market basket based on the data of IRFs, IPFs PPS final rule (68 FR 34138), we revised
basket was also used to update the and LTCHs is appropriate to use under § 412.523(c)(3) to specify that for LTCH
limits on LTCHs’ operating costs for the LTCH PPS since it is the best PPS rate years beginning on or after July
inflation under the TEFRA reasonable available data that reflects the cost 1, 2003, the annual update to the
cost-based payment system. We structures of LTCHs. standard Federal rate for the LTCH PPS
explained that we believe the use of the For further details on the would be equal to the previous rate
excluded hospital with capital market development of the RPL market basket, year’s Federal rate updated by the most
basket to update LTCHs’ costs for including the methodology for recent estimate of increases in the
inflation was appropriate because the determining the operating and capital appropriate market basket of goods and
excluded hospital market basket (with a portions of the RPL market basket, see services included in covered inpatient
capital component) measures price the RY 2007 LTCH PPS final rule (71 FR LTCH services. We believed that was
increases of the services furnished by 27810 through 27817). the most appropriate method for
excluded hospitals, including LTCHs. 2. Market Basket Estimate for the 2008 updating the LTCH PPS standard
For further details on the development LTCH PPS Rate Year Federal rate annually for years after RY
of the excluded hospital with capital 2004. In the RY 2007 LTCH PPS final
market basket, see the RY 2004 LTCH Consistent with our historical rule (71 FR 27818), we established at
PPS final rule (68 FR 34134 through practice, we estimate market basket § 412.523(c)(3)(iii) that the update to the
34137). increase based on Global Insight’s standard Federal rate for the 2007 LTCH
In the RY 2007 LTCH PPS final rule forecast using the most recent available PPS rate year is zero percent. As
(71 FR 27810), we noted that based on data. The most recent estimate of the discussed in that same final rule, we
our research, we did not develop a RPL market basket for July 1, 2007 explained that rather than solely using
market basket specific to LTCH services. through June 30, 2008 (the 2008 LTCH the most recent estimate of the LTCH
We are still unable to create a separate PPS rate year), based on Global Insight’s PPS market basket as the basis of the
market basket specifically for LTCHs 1st quarter 2007 forecast with history update factor for the Federal rate for RY
due to the small number of facilities and through the 4th quarter of 2006, is 3.2 2007, we believed it was appropriate to
the limited amount of data that is percent. Global Insight, Inc. is a adjust the rate to account for the
reported (for instance, only nationally recognized economic and changes in coding practices (rather than
approximately 15 percent of LTCHs financial forecasting firm that contracts patient severity) as indicated by our
reported contract labor cost data for with CMS to forecast changes in the ongoing monitoring activities.
2002). In that same final rule, under the components of the market baskets. Accordingly, we established the
broad authority conferred upon the Consistent with our historical practice LTCH PPS standard Federal rate,
Secretary by section 123 of the BBRA as of using market basket estimates based effective from July 1, 2006 through June
amended by section 307(b) of the BIPA, on the most recent available data, we are 30, 2007 (the 2007 LTCH PPS rate year),
we adopted the ‘‘Rehabilitation, finalizing 3.2 percent as the estimate of at $38,086.04 (71 FR 27818).
Psychiatric and Long-Term Care (RPL) the RPL market basket for the 2008 Additionally, in the RY 2007 LTCH PPS
market basket’’ as the appropriate LTCH PPS rate year. proposed rule (71 FR 4742 through
market basket of goods and services As discussed in greater detail in this 4747), we provided a description of a
under the LTCH PPS for discharges section, for the 2008 LTCH PPS rate preliminary model of an update
occurring on or after July 1, 2006. year, we are updating the standard framework under the LTCH PPS. We
Specifically, beginning with the 2007 Federal rate by 0.71 percent. The update received few comments on that update
LTCH PPS rate year, for the LTCH PPS, reflects an adjustment based on the most framework preliminary model. As
we adopted the use of the RPL market recent market basket estimate (currently discussed in the RY 2007 LTCH PPS
basket based on FY 2002 cost report 3.2 percent) and an adjustment to final rule (71 FR 27818 through 27819
data as it was the best available data. We account for the increase in case-mix in and 27902 through 27906), although we
choose to use the FY 2002 Medicare cost the prior period (FY 2005) that resulted did not propose to adopt an analytical
update framework, we continued to monitoring activities. Specifically, from available LTCH claims data and found
solicit comments on the framework our CMI analysis, we calculated the the observed CMI increase between FY
based on the preliminary model, using observed CMI increase between FY 2003 2004 and FY 2005 to be 3.49 percent.
the best available data and concepts, and FY 2004 (6.75 percent) and We believe that there is still some
and we may propose to adopt a determined that a significant portion of component of apparent CMI increase
framework at some time in the future. the 6.75 percent increase in CMI within the observed CMI increase of
While we did not receive any comments between FY 2003 and FY 2004 is due to 3.49 percent that is due to coding
regarding the update framework during changes in coding practices, which we practices rather than the treatment of
the public comment period for the RY define as ‘‘apparent’’ increase in case- more resource intensive patients (real
2008 LTCH PPS proposed rule, we mix, rather than the treatment of more CMI increase). Therefore, we believe it
continue to be interested in comments resource intensive patients. We also is appropriate to apply an adjustment to
and suggestions on the preliminary noted that the large observed increase in the market basket update for RY 2008 to
model of an update framework under LTCH case-mix was not accompanied by account for the apparent CMI increase
the LTCH PPS that was present in a corresponding increase in Medicare for a subsequent prior period (that is,
Appendix A of the RY 2007 LTCH PPS costs. Finally, we noted in the RY 2007 CMI increase due to changes in coding
final rule (71 FR 27902 through 27906). LTCH PPS final rule (71 FR 27826 practices during FY 2005).
In the discussion that follows, we through 27827) that although the most Comment: Many commenters urged
explain how we developed the standard recent update of the market basket us to provide the full market basket
Federal rate for the 2008 LTCH PPS rate discussed in that final rule is 0.2 update rather than finalize the proposed
year. Specifically, we explain our percent lower than the estimate of the update factor of 0.71 percent. Several
rationale, which is based on our ongoing market basket discussed in the RY 2007 commenters maintained that market
monitoring activities, for implementing LTCH PPS proposed rule, we believed basket is a measure of the expected
an annual update to the standard that finalizing a zero percent update to increase in price inputs for the
Federal rate for RY 2008 that reflects an the Federal rate for RY 2007 was upcoming year that raise the cost of
adjustment for the most recent market appropriate for several reasons. resources used in providing care to
basket estimate and an adjustment to First, we did not believe that there Medicare patients. Furthermore, some
account for the increase in case-mix in was a significant difference between the commenters believed that an increase of
a prior period (FY 2005) that resulted most recent estimates of the market less than the market basket would not
from changes in coding practices rather basket for RY 2007 (3.4 percent) and the account for the costs of goods and
than an increase in patient severity. estimate used in the RY 2007 LTCH PPS services required to deliver LTCH
proposed rule (3.6 percent). services and will result in rates below
2. Update to the Standard Federal Rate
Furthermore, there could be some the cost of care.
for the 2008 LTCH PPS Rate Year
minimal variation in how much of the
Under § 412.523(c)(3)(ii), for RY 2004 Response: As we have discussed
observed case-mix increase represents
through RY 2006, the annual update to previously in the RY 2007 final rule (71
real case-mix changes. Finally, because
the LTCH PPS standard Federal rate was the proposed update for RY 2007 at FR 27798), as well as throughout this
equal to the most recent estimate of § 412.523(c)(3)(iii) explicitly specified section of the preamble of this final rule,
increases in the prices of an appropriate that the RY 2007 standard Federal rate while we continue to believe that an
market basket of goods and services would be the previous LTCH PPS rate update to the 2008 LTCH PPS rate year
included in covered inpatient LTCH year updated by an update factor of zero should be based on the most recent
services. As noted above in this section, percent, we believe some commenters estimate of the LTCH PPS market
in the RY 2007 LTCH PPS final rule, may not have been aware that the final basket, we also believe it appropriate
under the broad authority conferred update for RY 2007 could have been that the rate be adjusted by an
upon the Secretary by section 123 of the different than (that is, greater than or adjustment to account for changes in
BBRA as amended by section 307(b) of less than) zero percent. Thus, we coding practices. In essence, we
BIPA to include appropriate believed that the best approach was to updated the standard Federal rate for
adjustments in the establishment of the adopt an update factor of zero percent the 2008 LTCH PPS rate year by a factor
LTCH PPS, for discharges occurring on in the final rule for RY 2007, which (+3.2 percent) for the full market basket
or after July 1, 2006 and on or before reflected both the market basket in addition to applying a factor (¥2.49
June 30, 2007 (RY 2007), we specified estimate and an adjustment to account percent) to eliminate the effect of coding
at § 412.523(c)(3)(iii) that the standard for the increase in case-mix in a prior or classification changes that do not
Federal rate from the previous year period (FY 2004) that resulted from reflect real changes in LTCHs’ case-mix
would be updated by a factor of zero changes in coding practices rather than during FY 2005. This adjustment is
percent. That is, the standard Federal an increase in patient severity. In that necessary in order to account for
rate for the 2007 LTCH PPS rate year same final rule (71 FR 27821), we stated payments that were made based on
remained the same as the standard that the revision to § 412.523(c)(3) only improved coding (rather than increased
Federal rate in effect during the 2006 addressed an update to the LTCH PPS patient severity) in a prior year.
LTCH PPS rate year (July 1, 2005 Federal rate for the 2007 LTCH PPS rate We note that MedPAC had
through June 30, 2006) (that is, year (§ 412.523(c)(3)(iii)), and that we recommended a zero percent update for
$38,086.04). would propose future revisions to RY 2008 (March 2007 MedPAC Report
As discussed in greater detail in the § 412.523(c)(3) to address future to Congress, MedPAC Payment Policy,
RY 2007 LTCH PPS final rule (71 FR proposed updates to the LTCH PPS Recommendation 3D, p. 221) and that
27819 through 27827), the update to the Federal rates in future rate years based the proposed update factor of 0.71
standard Federal rate for RY 2007 was on an analysis of the most recent percent is higher than what MedPAC
determined based on the estimate of the available LTCH data. had believed appropriate at the time.
LTCH PPS market basket and an In determining the update to the Therefore, we disagree with the
analysis of LTCH case-mix, in standard Federal rate for the 2008 LTCH comment that an increase of less than
conjunction with a review of LTCHs’ PPS rate year, we again performed a the market basket would not account for
margins and our ongoing LTCH CMI analysis using the most recent the costs of goods and services required
to deliver LTCH services and will result estimation of the ‘‘apparent’’ increase in FY 2005 (the first and second full years
in rates below the cost of care. case-mix derived from FY 2004 and FY of the LTCH PPS, respectively). We
Comment: Several commenters noted 2005 claims should be applied to the believe that as the LTCH PPS matured
that in addition to case mix, other market basket increase in RY 2008.’’ and LTCHs have become more familiar
elements that would affect the price of Furthermore, some commenters with the DRG-based payment system, it
inputs include wages, drugs, products, believed the proposed update factor of is more appropriate to utilize the
and supplies; therefore, the commenters 0.71 percent is not based on verifiable estimate of real case-mix increase (1.0
question our use of ‘‘case-mix as or relevant data. percent to 1.4 percent) based on the
determinative of an appropriate market Response: Section 123 of the BBRA as RAND study that is typically found in
basket increase.’’ A commenter also amended by section 307(b) of the BIPA acute care hospitals under the IPPS.
noted that ‘‘the market basket update is conferred upon the Secretary broad Furthermore, an analysis of the most
a prospective measure of price inflation, discretion to determine the standard recent available LTCH claims data (FY
and CMS provides no data suggesting rate and make appropriate adjustments 2005 LTCH claims data from the March
that prices will not increase by 3.2 to the system. We note that while 2006 update of the MedPAR files) show
percent over RY 2008. CMS also does § 412.523(c)(3) specifies the update to a steady decrease in the observed CMI
not provide any data showing that the standard rate for each year since FY from year to year since FY 2003 (the
prices from 2004 to 2005 and from 2005 2003, the regulations do not specifically observed CMI change between FY 2003
to 2006 (years included in the agency’s require that the Secretary automatically and FY 2004 is 6.75 percent, between
case-mix analysis) increased less than apply a market basket increase to FY 2004 and FY 2005 is 3.49 percent,
the market basket update amount for prospective years. On the contrary, the and between FY 2005 and FY 2006 is
those years.’’ Consequently, the regulations are to be updated each year estimated to be 1.9 percent), which
commenter believed that we have not to reflect any update to the standard rate suggests that both apparent and real
explained adequately how case mix as a result of rulemaking. Furthermore, components of CMI are decreasing as
changes are related to the market basket we consistently use the most recent the LTCH PPS matures. Given the
to warrant a reduction in the full market available data to determine the estimated 1.9 percent observed CMI
basket. appropriate update factor. Accordingly, increase for FY 2006, it appears that it
Response: We believe these for this final rule we used the most is inappropriate to assume a constant
commenters misunderstood our recent available data, including the most annual real case mix of 2.75 percent.
approach in applying the findings from recent estimate of the RPL market basket Therefore, for periods beyond the first
our case mix analysis. First, we do not for July 1, 2007 through June 30, 2008, full year of the LTCH PPS, we believe
disagree that the estimated market based on Global Insight’s 1st quarter it is no longer appropriate to use such
basket is a prediction of the increase in 2007 forecast with history through the a generous estimate of real CMI. (Many
the costs of goods and services in the 4th quarter of 2006, and the case-mix LTCHs have cost reporting periods
coming year. Accordingly, we have data from FY 2004 compared to FY beginning in August and thus were not
based the update to the standard Federal 2005, to establish the 0.71 percent paid under the LTCH PPS until August
rate each year since RY 2004 on the update factor. 2003. For those hospitals, the first full
most recent estimate of the market As discussed in detail in the RY 2007 year of the LTCH PPS was during FY
basket. For RY 2004 through RY 2006, LTCH PPS final rule (71 FR 27819 2004.) While the well-established ‘‘real’’
the annual update to the LTCH PPS through 27827), in determining the case-mix parameters based on the RAND
standard Federal rate was equal to the update to the LTCH PPS Federal rate for study are based on IPPS data, we believe
most recent estimate of the market RY 2007, we used 2.75 percent as the they are appropriate to apply under the
basket. Beginning in RY 2007, our proxy for ‘‘real’’ CMI change during RY LTCH PPS for the reasons explained
monitoring activities and CMI analysis 2004. We noted in that same final rule below in this section. In the RY 2008
determined that a significant portion of (71 FR 27822) that we were aware of a LTCH PPS proposed rule, we solicited
the observed increase in CMI between well-established RAND Corporation comments on other data sources that
FY 2003 and FY 2004 is due to changes (RAND) study [‘‘Has DRG Creep Crept could be used to determine a proxy for
in coding practices, rather than the Up? Decomposing the Case-Mix Index real LTCH PPS case-mix change other
treatment of more resource intensive Change Between 1987 and 1988’’ by G. than the 1.0 to 1.4 percent per year case-
patients. Accordingly, we updated the M. Carter, J. P. Newhouse, and D. A. mix parameters based on the RAND
standard Federal rate for RY 2007 based Relles, R–4098–HCFA/ProPAC (1991)]. study. Although we did not receive any
both on the full estimate of market Based upon such study, we determined comments suggesting alternative data
basket and an adjustment to account for that real case-mix change for IPPS sources that could be used to determine
the excessive payments that were made hospitals was a fairly steady 1.0 and 1.4 a proxy for real LTCH PPS case-mix
based on improved coding (rather than percent per year. We also noted that in change, we did receive comments
increased patient severity) in a prior updating IPPS rates, we have pertaining to using 1.0 as the proxy for
period (between FY 2003 and FY 2004) consistently assumed that real case-mix real case mix.
which consequently resulted in a zero change was between 1.0 to 1.4 percent As we have discussed numerous
percent update. This approach was per year, which is a more conservative times in previous LTCH PPS proposed
replicated for RY 2008 which resulted estimate of real case-mix increase than and final rules, acute care hospitals paid
in a net update to the rate for RY 2008 the 2.75 percent used in determining the under the IPPS and LTCHs paid under
of 0.71 percent. update to the Federal rate for RY 2007 the LTCH PPS have much in common.
Comment: Some commenters believed (71 FR 27822). For further information Hospitals paid under both systems are
there is no regulatory basis for CMS to on the update to the Federal rate for RY required to meet the same certification
adjust the market basket update to 2007, see the RY 2007 final rule (71 FR criteria set forth in section 1861(e) of the
account for apparent case-mix increase 27819 through 27827). Act to participate as a hospital in the
in a previous year. Specifically, a For this final rule, the CMI analysis Medicare program. LTCHs are certified
commenter wrote, ‘‘Other than the performed in determining the Federal as acute care hospitals but are classified
availability of data, CMS provides no rate update for RY 2008 is based on the as LTCHs for payment purposes solely
logical explanation as to why an observed CMI increase from FY 2004 to because such hospitals generally have
an inpatient ALOS of greater than 25 percent factor to project real case mix amended by section 307(b) of the BIPA
days (as set forth in section for both, the IPPS and the LTCH PPS. to include appropriate adjustments,
1886(d)(1)(B)(iv)(I) of the Act). Comment: Some commenters believed including updates, in the establishment
Furthermore, the LTCH PPS uses the we proposed to use the more of the LTCH PPS, we are revising
same patient classification system that conservative estimate of real case-mix § 412.523(c)(3), to specify that, for
is used under the IPPS, and several increase (1.0 percent) rather than the discharges occurring on or after July 1,
LTCH PPS payment policies, such as the upper bound based on the RAND study 2007 and on or before June 30, 2008, the
area wage adjustment (§ 412.525(c)), (1.4 percent) without sufficient standard Federal rate from the previous
COLA for Alaska and Hawaii justification. However, commenters year will be updated by 0.71 percent,
(§ 412.525(b)), and high cost outlier agreed that we requested comments on which is based on the most recent
(HCO) policy (§ 412.525(a)) are modeled other data sources that could be used to market basket estimate (3.2 percent)
after the similar IPPS policies. determine a proxy for real LTCH PPS adjusted by the apparent CMI (2.49
Therefore, we believe it is appropriate case-mix changes. While we did not percent) due to changes in coding
to utilize the estimate of real CMI receive any comments providing practice rather than an increase in
increase based on the RAND study of alternative data sources to determine patient severity. As explained above in
1.0 percent as the proxy for the portion real case-mix increase, several this section, the update factor for RY
of the observed 3.49 percent CMI commenters suggested that the best 2008 is based on the most recent
increase from FY 2004 to FY 2005 that proxy for real case-mix increase is the estimate of the LTCH PPS market basket
represents real CMI changes for use in observed case-mix increase adjusted to offset by an adjustment to account for
determining the proposed RY 2008 eliminate any provider with atypical changes in case-mix in prior periods
Federal rate update. We are using the case mix changes. due to changes in coding practices
more conservative 1.0 percent (rather Response: We continue to believe that rather than increased patient severity.
than the 1.4 percent) as a proxy for real using the more conservative 1.0 percent We note that the update factor of 0.71
CMI increase because it is consistent (rather than the 1.4 percent) as a proxy percent is higher than the zero percent
with what is used under the IPPS and for real CMI increase is appropriate update recommended by the MedPAC
we believe the similarities between because it is consistent with what is for RY 2008 (MedPAC Public Meeting,
LTCHs and acute care hospitals are used under the IPPS and we believe the January 9, 2007, Meeting Transcript pp.
significant as we explained previously. similarities between LTCHs and acute 225–226). In the RY 2008 LTCH PPS
(For a more detailed discussion on the care hospitals are significant as we proposed rule, we solicited comments
1.0 percent for real CMI increase explained previously. on a possible zero percent update to the
utilized in the IPPS, see the FY 2007 As we discussed in greater detail in standard Federal rate for RY 2008.
IPPS final rule (71 FR 48156 through the RY 2007 LTCH PPS final rule (71 FR While most commenters recommended
48158), and the FY 1994 IPPS proposed 27819 through 27827), while we a full market basket update, we did
rule (58 FR 30444).) Accordingly, since continue to believe that an update to the receive some comments noting that in
the observed CMI change for FY 2005 is LTCH PPS Federal rate year should be light of MedPAC’s recommendation of a
estimated at 3.49 percent (based on the based on the most recent estimate of the zero percent update, the commenters
most recent available LTCH case-mix LTCH PPS market basket, we believe it were pleased that we did not propose to
data from FY 2004 compared to FY appropriate that the rate be offset by an implement a zero percent update and
2005), accounting for the real CMI adjustment to account for changes in the commenters supported our proposal
change of 1.0 percent, we believe that coding practices that do not reflect of a 0.71 percent update.
2.49 percent (3.49–1.0 = 2.49) of that increased patient severity. Such an Furthermore, since we are using the
increase reflects CMI increase that is adjustment protects the integrity of the most recent estimates of the market
due to changes in coding practices Medicare Trust Funds by ensuring that basket and CMI increase in the prior
(rather than patient severity). the LTCH PPS payment rates better period (FY 2005) for calculating the
Comment: Some commenters reflect the true costs of treating LTCH update factor to the LTCH PPS Federal
disagreed with our estimate of real case patients (71 FR 27798 through 27820). rate, we noted in the proposed rule that
mix increase which is based on a study Therefore, in determining the RY 2008 at the time the analysis must be
of acute care hospitals conducted by update to the LTCH PPS Federal rate, performed for the final rule, we would
RAND using claims data from 1987 to we believe it is appropriate to apply an consider comments received on this
1988. The commenters did not believe adjustment to eliminate the effect of proposed rule and would also use the
the old data from acute care hospitals is coding or classification changes in a most recent estimates available at that
relevant to LTCHs. prior period (FY 2005) that do not time, if appropriate, which may be
Response: As we have discussed reflect real changes in LTCHs’ case-mix. different from the data used in the
numerous times in previous LTCH PPS Specifically, the case-mix adjustment in proposed rule. Therefore, we explained
proposed and final rules, as well as in determining the RY 2008 Federal rate is that the proposed update factor applied
the previous section of this preamble, meant to reduce current payments to to the standard Federal rate may change
we continue to believe that acute care account for the increase in payments in in the final rule.
hospitals paid under the IPPS and FY 2005 that resulted from the CMI At this time, the most recent estimate
LTCHs paid under the LTCH PPS have increase that was attributable to the of the LTCH PPS market basket remains
much in common. Hospitals paid under apparent case-mix increase in that year. at 3.2 percent, and based on FY 2005
both systems are required to meet the As was the case when we determined LTCH claims data from the March 2006
same certification criteria set forth in the RY 2007 update factor, this update of the MedPAR files, the most
section 1861(e) of the Act to participate adjustment would be necessary to recent estimate of apparent CMI
as a hospital in the Medicare program. account for payments that were made increase in the prior period (FY 2005),
The commenters did not provide any based on improved coding (rather than that is, case-mix increase due to changes
alternative data sources to determine increased patient severity) in prior in coding practices, also remains at 2.49
real case mix for LTCHs. Accordingly, years. Therefore, in this final rule, under percent. Additionally, since we did not
we continue to believe that it is the broad authority conferred upon the receive any comments suggesting
appropriate to utilize the same 1.0 Secretary by section 123 of the BBRA as alternative data sources to use in
determining a proxy for real case mix we have observed that LTCHs adapt to 3. Standard Federal Rate for the 2008
and for the reasons stated previously, our regulatory changes by modifying LTCH PPS Rate Year
we are continuing to use 1.0 percent as their business model to maximize In the RY 2007 LTCH PPS final rule
the proxy for the real case mix. profitability while operating under the (71 FR 27827), we established a
Therefore, the RY 2008 update factor to new changes. For example, when we standard Federal rate of $38,086.04 for
the LTCH PPS Federal rate will be 0.71 implemented the 25 percent (or the 2007 LTCH PPS rate year that was
percent (3.2¥2.49 = 0.71), which applicable percentage) threshold based on the best available data and
reflects the adjustment to the most payment adjustment in FY 2005 for co- policies established in that final rule. In
recent market basket estimate and located LTCHs and satellites, we are this final rule, under the broad authority
accounts for the increase in case-mix in
aware that LTCHs shifted emphasis conferred upon the Secretary by section
the prior period that resulted from
from developing co-located facilities to 123 of the BBRA as amended by section
changes in coding practices rather than
developing freestanding LTCHs. With 307(b) of the BIPA, consistent with the
an increase in patient severity.
the proposed expansion of the 25 proposed rule, we are applying an
Accordingly, under the same broad
percent (or applicable percentage) annual update to the standard Federal
authority conferred upon the Secretary
threshold payment adjustment to apply rate for RY 2008 that reflects an
under the BBRA and the BIPA
to LTCH or satellite patients that were adjustment for the most recent market
referenced above in this section, we are
admitted from referring hospitals not co- basket estimate and an adjustment to
specifying under § 412.523(c)(3)(iv),
located with the LTCH or the satellite of account for the increase in case-mix in
that, for discharges occurring on or after
July 1, 2007 and on or before June 30, a LTCH, we anticipate that LTCHs could a prior period (FY 2005) that resulted
2008, the standard Federal rate from the adapt by increasing the number of from changes in coding practices rather
previous year would be updated by 0.71 admissions of patients that are HCOs than an increase in patient severity.
percent, determined based on an Therefore, based on the update factor for
from referring hospitals (exempt from
adjustment to the most recent estimate RY 2008 of 0.71 percent, the standard
the 25 percent rule). In addition, since
of the market basket to account for case- Federal rate for RY 2008 will be
LTCHs on average get 20 percent of their $38,356.45. Since the standard Federal
mix increase in the prior period (FY discharges from sources other than
2005) that is due to changes in coding rate for the 2008 LTCH PPS rate year has
acute care hospitals, it will be possible already been adjusted for differences in
practices rather than patient severity. for LTCHs to adapt by admitting more
Comment: Numerous commenters case-mix, wages, COLAs, and HCO
of those types of patients, thus making payments, we are not making any
stated that we have made changes to the
it easier for a LTCH to stay within the additional adjustments in the standard
LTCH PPS in the last several years that
applicable threshold. We have also been Federal rate for these factors.
have slowed the growth in the number
of new LTCHs and has controlled informed by members of the LTCH
industry that in places where there are D. Calculation of LTCH Prospective
margins. The commenters believe that Payments for the 2008 LTCH PPS Rate
the cumulative effect of these payment multiple acute care hospitals, the
Year
changes, including the reweighting of LTCHs will be able to plan their
the DRGs in October 2005 and October discharges to assure that they do not The basic methodology for
2006, the adoption of the original 25 exceed the threshold. determining prospective payment rates
percent rule, the adjustments to the SSO for LTCH inpatient operating and
Consequently, while the commenters
policy, and a zero percent update for RY capital-related costs is set forth in
have conducted margins analyses based
2007, has been to bring LTCH margins § 412.515 through § 412.532. In
on current LTCH behaviors and assert accordance with § 412.515, we assign
close to zero. With the addition of the that our changes may result in negative
proposed payment changes for RY 2008, appropriate weighting factors to each
margins, we do not believe this will LTC–DRG to reflect the estimated
the commenters believe that payment to prove to be the case. Indeed,
LTCHs will be inadequate. Using our relative cost of hospital resources used
commenters made similar allegations in for discharges within that group as
impact analysis table from the proposed
their objection to the changes for RY compared to discharges classified
rule and MedPAC’s estimated margins
for FY 2007 as a base for comparison, 2007, and predicted that we would see within other groups. The amount of the
two commenters attempted to estimate many LTCHs put out of business due to prospective payment is based on the
LTCHs’ margins for RY 2008. The our drastically-changed policies. In standard Federal rate, established under
commenters asserted that, according to actuality, we did not see a drastic § 412.523, and adjusted for the LTC–
their analyses, estimated margins for RY reduction in either the number of DRG relative weights, differences in area
2008 could be as low as ¥3.7 percent LTCHs or the overall number of LTCH wage levels, COLA in Alaska and
to ¥5.7 percent. Numerous commenters cases. Furthermore, reports in trade Hawaii, HCOs, and other special
expressed concern that the combined journals suggest that certain members of payment provisions (SSOs under
effect of changes to the LTCH PPS (from the LTCH industry believe they are well § 412.529 and interrupted stays under
the last 2 years, as well as the proposed situated to expand in the future. § 412.531).
changes for RY 2008) would reduce Similarly, we believe LTCHs have the In accordance with § 412.533, during
reimbursement below the estimates of ability to screen patients coming to a the 5-year transition period, which is
costs. Furthermore, one commenter LTCH to assure that they are truly LTC currently in its final year for LTCH cost
wrote, ‘‘A fundamental premise of the patients. However, in the case of the reporting periods beginning on or after
Medicare program and its payment revised SSO policy, we believe that a October 1, 2006 (FY 2007), a total LTCH
systems is that Medicare should not payment, for those patients that have a PPS payment was based on the
knowingly reimburse providers and applicable transition blend percentage
LOS comparable to an IPPS patient for
suppliers below the cost of care.’’ of the adjusted Federal rate and a
that DRG (that is, the IPPS comparable
Response: We acknowledge that the percentage based on reasonable cost
changes to the payment system threshold) at a level comparable to the principles, unless the LTCH made a
implemented in the last several years IPPS payment, is an appropriate one-time election to receive payment
have affected the LTCH industry. In fact, payment. based on 100 percent of the Federal rate.
In the final year of the 5-year transition TABLE 1—Continued is defined at § 412.64(b)(1)(ii)(A) and
period, which began with LTCH cost (B). In general, an urban area is defined
reporting periods beginning on or after Cost reporting periods Phase-in percentage as a Metropolitan Statistical Area (MSA)
October 1, 2006, as specified at beginning on or after of the full wage index as defined by the OMB. (In addition, a
§ 412.533, a total LTCH PPS payment is few counties located outside of MSAs
October 1, 2006 ........ 5/5ths (100 percent).
based on 100 percent of the Federal rate. are considered urban as specified at
An LTCH defined as ‘‘new’’ under For example, for cost reporting § 412.64(b)(1)(ii)(B).) Under
§ 412.23(e)(4) is paid based on 100 periods beginning on or after October 1, § 412.64(b)(1)(ii)(C), a rural area is
percent of the Federal rate with no 2005 and on or before September 30, defined as any area outside of an urban
blended transition payments as area.
2006 (FY 2006), the applicable LTCH
specified in § 412.533(d). As discussed We note that these are the same
wage index value is four-fifths of the
in the August 30, 2002 LTCH PPS final CBSA-based designations implemented
applicable full LTCH PPS wage index for acute care inpatient hospitals under
rule (67 FR 56038), the applicable value. The wage index adjustment will
transition blends are set forth in the IPPS at § 412.64(b) effective October
be completely phased-in beginning with 1, 2004 (69 FR 49026 through 49034).
§ 412.533(a). cost reporting periods beginning in FY
Accordingly, for cost reporting For further discussion of the labor
2007, that is, for cost reporting periods market area (geographic classification)
periods that began during FY 2006 (that beginning on or after October 1, 2006,
is, on or after October 1, 2005 and on definitions used under the LTCH PPS,
the applicable LTCH wage index value see the 2006 LTCH PPS rate year final
or before September 30, 2006), blended will be the full (five-fifths) LTCH PPS
payments under the transition rule (70 FR 24182 through 24191).
wage index value. Therefore, the
methodology were based on 20 percent majority of LTCHs are currently c. Labor-Related Share
of the LTCH’s rate based on reasonable receiving either the four-fifths or full
cost principles and 80 percent of the In the August 30, 2002 LTCH PPS
(five-fifths) LTCH PPS wage index final rule (67 FR 56016), we established
adjusted LTCH PPS Federal rate. For value. As we established in the August
cost reporting periods beginning on or a labor-related share of 72.885 percent
30, 2002 LTCH PPS final rule (67 FR based on the relative importance of the
after October 1, 2006 (FY 2007), 56018), the applicable full LTCH PPS
Medicare payment to LTCHs are labor-related share of operating costs
wage index value is calculated from (wages and salaries, employee benefits,
determined entirely (100 percent) under acute-care hospital inpatient wage index
the LTCH PPS Federal rate. professional fees, postal services, and all
data without taking into account other labor-intensive services) and
1. Adjustment for Area Wage Levels geographic reclassification under capital costs of the excluded hospital
a. Background sections 1886(d)(8) and (d)(10) of the with capital market basket based on FY
Act. 1992 data.
Under the authority of section 123 of As we discussed in LTCH PPS final
the BBRA as amended by section 307(b) b. Geographic Classifications/Labor
rules subsequent to the FY 2003 LTCH
of the BIPA, we established an Market Area Definitions
PPS final rule in which we established
adjustment to the LTCH PPS Federal As discussed in the August 30, 2002 the original LTCH PPS labor-related
rate to account for differences in LTCH LTCH PPS final rule, which share (68 FR 34142, 69 FR 25685
area wage levels at § 412.525(c). The implemented the LTCH PPS (67 FR through 25686, and 70 FR 24182), once
labor-related share of the LTCH PPS 56015 through 56019), in establishing our research into the labor-related share
Federal rate, currently estimated by the an adjustment for area wage levels methodology was complete, we would
FY 2002-based RPL market basket (as under § 412.525(c), the labor-related update the IPPS and excluded hospital
discussed in greater detail in section portion of a LTCH’s Federal prospective labor-related shares based on that
IV.D.1.c. of this preamble), is adjusted to payment is adjusted by using an research and the best available data if
account for geographic differences in appropriate wage index based on the necessary. Accordingly, we conducted
area wage levels by applying the labor market area in which the LTCH is analysis of our labor share methodology,
applicable LTCH PPS wage index. The located. In the 2006 LTCH PPS rate year which was completed prior to the
applicable LTCH PPS wage index is final rule (70 FR 24184 through 24185), development of the RY 2007 LTCH PPS
computed using wage data from in § 412.525(c), we revised the labor proposed and final rules. In the RY 2007
inpatient acute care hospitals without market area definitions used under the LTCH PPS final rule (71 FR 27829), we
regard to reclassification under sections LTCH PPS effective for discharges updated the LTCH PPS labor-related
1886(d)(8) or 1886(d)(10) of the Act. occurring on or after July 1, 2005 based share based on the FY 2002-based RPL
Furthermore, as we discussed in the on the Office of Management and market basket (discussed in section
August 30, 2002 LTCH PPS final rule Budget’s (OMB’s) Core Based Statistical IV.B. of this preamble) because we
(67 FR 56015), we established a 5-year Area (CBSA) designations based on believe that this market basket was
transition to the full wage adjustment. 2000 Census data because we believe developed based on the best available
The applicable wage index phase-in that those new labor market area data that reflect the cost structures of
percentages are based on the start of an definitions will ensure that the LTCH LTCHs.
LTCH’s cost reporting period as shown PPS wage index adjustment most Consistent with our historical
in Table 1. appropriately accounts for and reflects practice, the labor-related share
the relative hospital wage levels in the currently used under the LTCH PPS is
TABLE 1 geographic area of the hospital as determined by identifying the national
compared to the national average average proportion of operating costs
Cost reporting periods Phase-in percentage hospital wage level. As set forth in and capital costs that are related to,
beginning on or after of the full wage index § 412.525(c)(2), a LTCH’s wage index is influenced by, or vary with the local
October 1, 2002 ........ 1/5th (20 percent). determined based on the location of the labor market. Specifically, in the RY
October 1, 2003 ........ 2/5ths (40 percent). LTCH in an urban or rural area as 2007 LTCH PPS final rule (71 FR 27829
October 1, 2004 ........ 3/5ths (60 percent). defined in § 412.64(b)(1)(ii)(A) through through 27832), we revised the LTCH
October 1, 2005 ........ 4/5ths (80 percent). (C). An urban area under the LTCH PPS PPS labor-related share from 72.885
percent (as established in the August 30, share of the RPL market basket (used for 2008 LTCH PPS rate year for
2002 final rule (67 FR 56016) based on under the LTCH PPS), we would use operating costs (wages and salaries,
the FY 1997-based excluded hospital such data for determining the labor- employee benefits, professional fees,
with capital market basket) to 75.665 related share for the 2008 LTCH PPS and labor-intensive services) is 71.767,
percent based on the relative rate year in the final rule. As discussed as shown in Table 2. The portion of
importance of the labor-related share of above in section IV.B.2. of this capital that is influenced by the local
operating costs (wages and salaries, preamble, we now have data from the labor market is still estimated to be 46
employee benefits, professional fees, 1st quarter of 2007 (with history through percent, which is the same percentage
and all other labor-intensive services) the 4th quarter of 2006). Therefore, in used when we established the current
and capital costs of the proposed RPL this final rule, for RY 2008, we are using labor-related share in the RY 2007 LTCH
market basket based on FY 2002 data the FY 2002-based RPL market basket PPS final rule. Since, based on the most
from the first quarter of 2006. costs based on data from the 1st quarter recent available data, the relative
In the RY 2008 LTCH PPS proposed of 2007 to determine the labor-related importance for capital is 8.742 percent
rule (72 FR 4794), under the broad share for the LTCH PPS effective for of the FY 2002-based RPL market basket
authority conferred upon the Secretary discharges occurring on or after July 1, for the 2008 LTCH PPS rate year, we are
by section 123 of the BBRA as amended 2007, as this is the most recent available multiplying the estimated portion of
by section 307(b) of the BIPA, consistent data. The labor-related share for the capital influenced by the local labor
with our historical practice of 2008 LTCH PPS rate year will continue market (46 percent) by the relative
determining the labor-related share by to be the sum of the relative importance importance for capital (8.742 percent) to
identifying the national average of each labor-related cost category, and determine the labor-related share of
proportion of operating costs and capital will reflect the different rates of price capital for the 2008 LTCH PPS rate year.
costs that are related to, influenced by, change for these cost categories between The result is 4.021 percent (0.46 × 8.742
or varies with the local labor market, the base year (FY 2002) and the 2008 percent), which we add to the 71.767
and consistent with our historical LTCH PPS rate year. Accordingly, under percent for the operating cost amount to
practice of using the best data available, the broad authority conferred upon the determine the total labor-related share
we proposed to update the LTCH PPS
Secretary by section 123 of the BBRA as for the 2008 LTCH PPS rate year. Thus,
labor-related share from 75.665 percent
amended by section 307(b) of the BIPA, based on the latest available data, we are
to 75.511 percent based on the relative
consistent with our historical practice of establishing a labor-related share of
importance of the labor-related share of
determining the labor-related share by 75.788 percent (71.767 percent + 4.021
operating costs (wages and salaries,
identifying the national average percent) under the LTCH PPS for the
employee benefits, professional fees,
proportion of operating costs and capital 2008 LTCH PPS rate year. As noted
and all other labor-intensive services)
costs that are related to, influenced by, above in this section, this labor-related
and capital costs of the FY 2002-based
or varies with the local labor market, we share is determined using the same
RPL market basket from the 3rd quarter
are revising the LTCH PPS labor-related methodology as employed in calculating
of 2006. The labor-related share is the
sum of the relative importance of wages share from 75.665 percent to 75.788 the current LTCH labor-related share (71
and salaries, fringe benefits, percent based on the relative FR 27830) and the labor-related shares
professional fees, labor-intensive importance of the labor-related share of used under the IRF PPS and IPF PPS,
services, and a portion of the capital operating costs (wages and salaries, which also use the RPL market basket.
share from an appropriate market employee benefits, professional fees, Table 2 shows the 2007 LTCH PPS
basket. We received no comments on and all other labor-intensive services) rate year relative importance labor-
our proposal to update the LTCH PPS and capital costs of the FY 2002-based related share of the FY 2002-based RPL
labor-related share. RPL market basket from the 1st quarter market basket (established in the RY
Consistent with our historical practice of 2007, as discussed below and shown 2007 LTCH PPS final rule) and the 2008
of using the best data available, we also below in Table 2. LTCH PPS rate year relative importance
proposed that if more recent data were Based on the most recent available labor-related share of the FY 2002-based
available to determine the labor-related data, the sum of the relative importance RPL market basket.
TABLE 2.—RY 2007 LABOR-RELATED SHARE RELATIVE IMPORTANCE AND RY 2008 LABOR-RELATED SHARE RELATIVE
IMPORTANCE OF THE FY 2002-BASED RPL MARKET BASKET
RY 2007 RY 2008
Cost category relative relative
importance* importance
Wages and Salaries ................................................................................................................................................ 52.506 52.588

Employee Benefits ................................................................................................................................................... 14.042 14.127
Professional fees ..................................................................................................................................................... 2.886 2.907
All other labor intensive services ............................................................................................................................. 2.152 2.145
Subtotal ............................................................................................................................................................. 71.586 71.767

Labor share of capital costs .................................................................................................................................... 4.079 4.021
Total Labor-related share ................................................................................................................................. 75.665 75.788

* As established in the RY 2007 LTCH PPS final rule (71 FR 27830).

** Other labor intensive services includes landscaping services, services to buildings, detective and protective services, repair services, laundry
services, advertising, auto parking and repairs, physical fitness facilities, and other government enterprises.
d. Wage Index Data they both compete in the same labor fifths) applicable LTCH wage index
In the RY 2007 LTCH PPS final rule markets, and, therefore, experience value.
(71 FR 27830 through 27831), we similar wage-related costs. These data Because the phase-in of the wage
established LTCH PPS wage index are the same FY 2003 acute care index does not coincide with the LTCH
values for the 2007 LTCH PPS rate year hospital inpatient wage data that were PPS rate year (July 1st through June
calculated from the same data used to compute the FY 2007 wage 30th), most LTCHs will experience a
(generated in cost reporting periods indices currently used under the IPPS, change in the wage index phase-in
beginning during FY 2002) used to skilled nursing facility (SNF) PPS and percentages during the LTCH PPS rate
compute the FY 2006 acute care home health agency (HHA) PPS. The year. For example, during the 2008
hospital inpatient wage index data LTCH wage index values that would be LTCH PPS rate year, for a LTCH with a
applicable for discharges occurring on September 1st fiscal year, the four-fifths
without taking into account geographic
or after July 1, 2007 through June 30, wage index will be applicable for the
reclassification under sections
2008, are shown in Table 1 (for urban first 2 months of the 2007 LTCH PPS
1886(d)(8) and (d)(10) of the Act
areas) and Table 2 (for rural areas) in rate year (July 1, 2007 through August
because that was the best available data
Addendum A to the RY 2008 proposed 31, 2007) and the full (five-fifths) wage
at that time. The LTCH wage index
rule (72 FR 4849 through 4872). index will be applicable for the next 10
values applicable for discharges
We received no comments on the months of the 2008 LTCH PPS rate year
occurring on or after July 1, 2006
proposed LTCH wage index values that (September 1, 2007 through June 30,
through June 30, 2007 are shown in
would be applicable for discharges 2008). For the remainder of such a
Table 1 (for urban areas) and Table 2
occurring on or after July 1, 2007 LTCH’s FY 2006 cost reporting periods,
(for rural areas) in the Addendum to the which coincides with the first 2 months
RY 2007 LTCH PPS final rule (71 FR through June 30, 2008. Therefore, in this
final rule, under the broad authority of RY 2008, the applicable wage index
27906 through 27930). Acute care value would be four-fifths of the full FY
hospital inpatient wage index data are conferred upon the Secretary by section
123 of the BBRA as amended by section 2007 acute-care hospital inpatient wage
also used to establish the wage index index data, without taking into account
adjustment used in the IRF PPS, HHA 307(b) of BIPA to determine appropriate
adjustments under the LTCH PPS, for geographic reclassification under
PPS, and SNF PPS. As we discussed in sections 1886(d)(8) and (d)(10) of the
the August 30, 2002 LTCH PPS final the 2008 LTCH PPS rate year, we are
using the same data (generated in cost Act (as shown in Tables 1 and 2 in the
rule (67 FR 56019), since hospitals that Addendum to this final rule). Beginning
are excluded from the IPPS are not reporting periods beginning during FY
with this LTCH’s FY 2007 cost reporting
required to provide wage-related 2003) used to compute the FY 2007
period that will begin during RY 2008,
information on the Medicare cost report acute care hospital inpatient wage index
the applicable wage index value would
and because we would need to establish data without taking into account
be the full (five-fifths) FY 2007 acute
instructions for the collection of this geographic reclassification under
care hospital inpatient wage index data,
LTCH data to establish a geographic sections 1886(d)(8) and (d)(10) of the
without taking into account geographic
reclassification adjustment under the Act to determine the applicable wage
reclassification under sections
LTCH PPS, the wage adjustment index values under the LTCH PPS
1886(d)(8) and (d)(10) of the Act (as
established under the LTCH PPS is because these data (FY 2003) are the
shown in Tables 1 and 2 in the
based on a LTCH’s actual location most recent complete data. We are Addendum to this final rule). We note
without regard to the urban or rural continuing to use IPPS wage data as a that since there are no longer any
designation of any related or affiliated proxy to determine the LTCH wage LTCHs in their cost reporting periods
provider. index values for the 2008 LTCH PPS that began during FY 2003 through FY
In the RY 2008 proposed rule (72 FR rate year for the reasons stated in the RY 2005 (the first three years of the 5–year
4795–4796), under the broad authority 2008 proposed rule (as noted above). wage index phase-in), we are no longer
conferred upon the Secretary by section The LTCH wage index values that will showing the 1⁄5th, 2⁄5ths and 3⁄5ths wage
123 of the BBRA as amended by section be applicable for discharges occurring index values in Tables 1 and 2 in the
307(b) of BIPA to determine appropriate on or after July 1, 2007 through June 30, Addendum to this final rule.
adjustments under the LTCH PPS, for 2008, are shown in Table 1 (for urban
the 2008 LTCH PPS rate year, we areas) and Table 2 (for rural areas) in the 2. Adjustment for Cost-of-Living in
proposed to use the same data Addendum to this final rule. Alaska and Hawaii
(generated in cost reporting periods As discussed in section IV.D.1.a. of In the August 30, 2002 final rule (67
beginning during FY 2003) used to this preamble, the applicable wage FR 56022), we established, under
compute the FY 2007 acute care index phase-in percentages are based on § 412.525(b), a COLA for LTCHs located
hospital inpatient wage index data the start of a LTCH’s cost reporting in Alaska and Hawaii to account for the
without taking into account geographic period beginning on or after October 1st higher costs incurred in those States. In
reclassification under sections of each year during the 5-year transition the RY 2007 LTCH PPS final rule (71 FR
1886(d)(8) and (d)(10) of the Act to period. Thus, cost reporting periods 27832), for the 2007 LTCH PPS rate
determine the applicable wage index beginning on or after October 1, 2005 year, we established a COLA to
values under the LTCH PPS because and before October 1, 2006 (FY 2006), payments for LTCHs located in Alaska
these data (FY 2003) are the most recent the labor-related portion of the standard and Hawaii by multiplying the standard
complete data. We proposed to continue Federal rate is adjusted by four-fifths of Federal payment rate by the appropriate
to use IPPS wage data as a proxy to the applicable LTCH wage index value. factor listed in Table 8 of that same final
determine the LTCH wage index values The wage index adjustment will be rule.
for the 2008 LTCH PPS rate year completely phased-in beginning with Similarly, in the RY 2008 proposed
because both LTCHs and acute-care cost reporting periods beginning in FY rule (72 FR 4796), under the broad
hospitals are required to meet the same 2007. That is, for cost reporting periods authority conferred upon the Secretary
certification criteria set forth in section beginning on or after October 1, 2006, by section 123 of the BBRA as amended
1861(e) of the Act to participate as a the labor-related portion of the standard by section 307(b) of BIPA to determine
hospital in the Medicare program and Federal rate is adjusted by the full (five- appropriate adjustments under the
LTCH PPS, for the 2008 LTCH PPS rate TABLE 3.—COST-OF-LIVING ADJUST- allowable covered charge. In accordance
year we proposed to apply a COLA to MENT FACTORS FOR ALASKA AND with § 412.525(a)(3), we pay outlier
payments to LTCHs located in Alaska HAWAII HOSPITALS FOR THE 2008 cases 80 percent of the difference
and Hawaii by multiplying the proposed LTCH PPS RATE YEAR—Continued between the estimated cost of the
standard Federal payment rate by the patient case and the outlier threshold
factors listed in Table 3 of that proposed City of Fairbanks and 80-kilo- (the sum of the adjusted Federal
rule because those were the most recent meter (50-mile) radius by prospective payment for the LTC–DRG
available data at that time. Those factors road .................................... 1.24 and the fixed-loss amount).
were obtained from the U.S. Office of City of Juneau and 80-kilo- Under the LTCH PPS, we determine a
meter (50-mile) radius by fixed-loss amount, that is, the maximum
Personnel Management (OPM) and are
road .................................... 1.24 loss that a LTCH can incur under the
currently used under the IPPS. In All other areas of Alaska ....... 1.25
addition, we proposed that if OPM Hawaii:
LTCH PPS for a case with unusually
released revised COLA factors before Honolulu County .................... 1.25 high costs before the LTCH will receive
March 1, 2007, we would use them for Hawaii County ....................... 1.165 any additional payments. We calculate
the development of the payments for the Kauai County ......................... 1.2325 the fixed-loss amount by estimating
2008 LTCH rate year and publish them Maui County .......................... 1.2375 aggregate payments with and without an
in the LTCH PPS final rule. Kalawao County .................... 1.2375 outlier policy. The fixed-loss amount
We received no comments on our will result in estimated total outlier
proposed COLA factors for LTCHs 3. Adjustment for High-Cost Outliers payments being projected to be equal to
located in Alaska and Hawaii for RY (HCOs) 8 percent of projected total LTCH PPS
2008. However, we note that OPM a. Background payments. Currently, MedPAR claims
released revised COLA factors for data and CCRs based on data from the
Under the broad authority conferred most recent provider specific file (PSF)
certain areas in Alaska prior to March 1, upon the Secretary by section 123 of the (or to the applicable Statewide average
2007. Specifically, OPM released BBRA as amended by section 307(b) of
revised COLA factors for the city of CCR if a LTCH’s CCR data are faulty or
BIPA, in the regulations at § 412.525(a), unavailable) are used to establish a
Anchorage and 80-kilometer (50-mile) we established an adjustment for
radius by road, the city of Fairbanks and fixed-loss threshold amount under the
additional payments for outlier cases LTCH PPS.
80-kilometer (50-mile) radius by road, that have extraordinarily high costs
and the city of Juneau and 80-kilometer relative to the costs of most discharges. b. Cost-to-Charge Ratios (CCRs)
(50-mile) radius by road. The COLA Providing additional payments for In determining outlier payments, we
factors for all other areas of Alaska were outliers strongly improves the accuracy calculate the estimated cost of the case
not revised from their current values. of the LTCH PPS in determining by multiplying the LTCH’s overall CCR
(We note that currently there are no resource costs at the patient and by the Medicare allowable charges for
LTCHs located in Alaska.) hospital level. These additional the case. As we discussed in greater
Therefore, in this final rule were are payments reduce the financial losses detail in the June 9, 2003 IPPS HCO
adopting the revised COLA factors for that would otherwise be incurred when final rule (68 FR 34506 through 34516),
those areas in Alaska, along with the treating patients who require more because the LTCH PPS HCO policy at
proposed COLA factors for the other costly care and, therefore, reduce the § 412.525 is modeled after the IPPS
areas of Alaska and Hawaii, for use incentives to underserve these patients. outlier policy, we believed that it and
under the LTCH PPS in RY 2008. We We set the outlier threshold before the the SSO policy at § 412.529 are
note that the revised COLA factors for beginning of the applicable rate year so susceptible to the same payment
certain areas of Alaska have been that total estimated outlier payments are vulnerabilities that became evident
proposed for use under the IPPS for FY projected to equal 8 percent of total under the IPPS and, therefore, merited
2008, as discussed in the FY 2008 IPPS estimated payments under the LTCH revision. Thus, we revised the HCO
proposed rule. PPS. Outlier payments under the LTCH policy at § 412.525(a) and the SSO
In this final rule, under the broad PPS are determined consistent with the policy at § 412.529 in that same final
authority conferred upon the Secretary IPPS outlier policy. rule for the determination of LTCHs’
by section 123 of the BBRA as amended Under § 412.525(a), we make outlier CCRs and the reconciliation of outlier
by section 307(b) of BIPA to determine payments for any discharges if the payments.
appropriate adjustments under the estimated cost of a case exceeds the Under the LTCH PPS, a single
LTCH PPS, for the 2008 LTCH PPS rate adjusted LTCH PPS payment for the prospective payment per discharge is
year we are applying a COLA to LTC–DRG plus a fixed-loss amount. The made for both inpatient operating and
payments to LTCHs located in Alaska fixed-loss amount is the amount used to capital-related costs, and, therefore, we
and Hawaii by multiplying the standard limit the loss that a hospital will incur compute a single ‘‘overall’’ or ‘‘total’’
Federal payment rate by the factors under the outlier policy for a case with CCR for LTCHs based on the sum of
listed below in Table 3 because these unusually high costs. This results in their operating and capital costs (as
are currently the most recent available Medicare and the LTCH sharing described in Chapter 3, section 150.24,
data from OPM (as noted above). financial risk in the treatment of of the Medicare Claims Processing
extraordinarily costly cases. Under the Manual (CMS Pub. 100–4)) as compared
TABLE 3.—COST-OF-LIVING ADJUST- LTCH PPS HCO policy, the LTCH’s loss to total charges. Specifically, a LTCH’s
MENT FACTORS FOR ALASKA AND is limited to the fixed-loss amount and CCR is calculated by dividing a LTCH’s
HAWAII HOSPITALS FOR THE 2008 a fixed percentage of costs above the total Medicare costs (that is, the sum of
LTCH PPS RATE YEAR outlier threshold (LTCH DRG payment its operating and capital inpatient
plus the fixed-loss amount) determined routine and ancillary costs) by its total
Alaska: by the marginal cost factor. We calculate Medicare charges (that is, the sum of its
City of Anchorage and 80-kil- the estimated cost of a case by operating and capital inpatient routine
ometer (50-mile) radius by multiplying the overall hospital cost-to- and ancillary charges). (Instructions
road .................................... 1.24 charge ratio (CCR) by the Medicare regarding the changes established in the
June 9, 2003 IPPS HCO final rule for corresponding national geometric mean ‘‘total’’ (operating and capital) CCRs
both LTCHs and IPPS hospitals can be total CCR (established and published used under the LTCH PPS will continue
found in Transmittal A–03–058 (Change annually by CMS). (The fiscal to be published annually in the IPPS
Request 2785; July 3, 2003).) intermediary (FI) may use a Statewide proposed and final rules, and the public
As a result of the changes established average CCR if, among other things, a should continue to consult the annual
in the June 9, 2003 IPPS HCO final rule, LTCH’s CCR is in excess of the LTCH IPPS proposed and final rules for
as we discussed in the RY 2007 LTCH CCR ceiling.) The LTCH total CCR changes to the applicable Statewide
PPS final rule (71 FR 27832 through ceiling is determined based on IPPS average total CCRs that would be
27833) and the FY 2007 IPPS final rule CCR data, by first calculating the ‘‘total’’ effective for discharges occurring on or
(71 FR 48119 through 48121), a LTCH (that is, operating and capital) IPPS CCR after October 1 each year. Accordingly,
is assigned the applicable Statewide for each hospital and then determining in the FY 2007 IPPS final rule (71 FR
average CCR if, among other things, a the average ‘‘total’’ IPPS CCR for all 48122), the FY 2007 LTCH PPS
LTCH’s CCR is found to be in excess of IPPS hospitals. (Our rationale for using Statewide average total CCRs for urban
the applicable maximum CCR threshold IPPS hospital data is discussed in the and rural hospitals, effective for
(that is, the LTCH CCR ceiling). As we FY 2007 IPPS final rule (71 FR 48117) discharges occurring on or after October
explained in the FY 2007 IPPS final rule and reiterated below in this section.) 1, 2006, were presented in Table 8C of
(71 FR 48117), CCRs above this The LTCH CCR ceiling is then the Addendum of that final rule (71 FR
threshold are most likely due to faulty established at 3 standard deviations 48303.) (We note that the proposed FY
data reporting or entry, and, therefore, from the corresponding national 2007 LTCH PPS Statewide average total
these CCRs should not be used to geometric mean total CCR. (For further CCRs for urban and rural hospitals, that
identify and make payments for outlier detail on our methodology for annually would be effective for discharges
cases. Such data are clearly errors and determining the LTCH CCR ceiling, refer occurring on or after October 1, 2007,
should not be relied upon. Thus, under to the FY 2007 IPPS final rule (71 FR were presented in Table 8C of the FY
our established policy, if a LTCH’s CCR 48117 through 48119).) We also 2008 IPPS proposed rule.)
is above the applicable ceiling, the established that the LTCH ‘‘total’’ CCR As we explained in the FY 2007 IPPS
applicable LTCH PPS Statewide average ceiling used under the LTCH PPS will final rule (71 FR 48117), we continue to
CCR is assigned to the LTCH instead of continue to be published annually in believe it is appropriate to use IPPS
the CCR computed from its most recent the IPPS proposed and final rules, and operating and capital CCRs to compute
(settled or tentatively settled) cost report the public should continue to consult the LTCH total CCR ceiling and the
data. the annual IPPS proposed and final Statewide average CCRs because LTCHs’
Under § 412.525(a)(4)(ii), for rules for changes to the LTCH total CCR cost and charge structures are similar to
discharges occurring on or after August ceiling that would be effective for that of IPPS acute-care hospitals. For
8, 2003, and before October 1, 2006, we instance, LTCHs are certified as acute
discharges occurring on or after October
determined the applicable LTCH PPS care hospitals, as set forth in section
1 each year. Accordingly, in the FY
Statewide average CCRs using the 1861(e) of the Act to participate as a
2007 IPPS final rule (71 FR 48119), we
‘‘combined’’ IPPS operating and capital hospital in the Medicare program, and
established a FY 2007 LTCH PPS total
Statewide average CCRs (that is, adding these hospitals, in general, are paid as
CCR ceiling of 1.321, effective for
the separate IPPS operating and capital LTCHs only because their Medicare
discharges occurring on or after October
CCRs together to determine the LTCH ALOS is greater than 25 days as
1, 2006. (We note that the proposed FY
PPS Statewide average CCRs). Also, specified in § 412.23(e). Furthermore,
2008 LTCH PPS total CCR ceiling, that
under § 412.525(a)(4)(ii), for discharges prior to qualifying as a LTCH under
would be effective for discharges
occurring on or after August 8, 2003, § 412.23(e)(2)(i), a hospital generally is
and before October 1, 2006, if a LTCH’s occurring on or after October 1, 2007,
paid as an acute-care hospital under the
CCR is above the applicable was presented in the FY 2008 IPPS
IPPS during the period in which it
‘‘combined’’ IPPS operating and capital proposed rule.)
demonstrates that it has an ALOS of
ceiling (that is, adding the separate IPPS In addition, under the broad authority greater than 25 days. In addition, since
operating and capital CCR ceiling of section 123 of the BBRA and section there are less than 400 LTCHs, which
together), the applicable Statewide 307(b)(1) of BIPA, we revised our are unevenly geographically distributed
average CCR may be assigned to the methodology to determine the Statewide throughout the United States, there may
LTCH. average CCRs under not be sufficient LTCH CCR data to
As we explained in the FY 2007 IPPS § 412.525(a)(4)(iv)(C) for use under the determine an appropriate LTCH PPS
final rule (71 FR 48117 through 48121), LTCH PPS in a manner similar to the CCR ceiling using LTCH data.
we revised our methodology for way we compute the ‘‘total’’ CCR ceiling In the FY 2007 IPPS final rule, in
determining the annual CCR ceiling and using IPPS CCR data (71 FR 48120). addition to revising our methodology for
Statewide average CCRs under the Specifically, under this revised determining the annual CCR ceiling and
LTCH PPS because we believe that those methodology we first calculate the total Statewide average CCRs under the
changes are consistent with the LTCH (that is, operating and capital) CCR for LTCH PPS for discharges occurring on
PPS single payment rate for inpatient each IPPS hospital. We then calculate or after October 1, 2006, under the broad
operating and capital costs. Therefore, the weighted average ‘‘total’’ CCR for all authority of section 123 of the BBRA
under the broad authority of section 123 IPPS hospitals in the rural areas of the and section 307(b)(1) of BIPA, we
of the BBRA and section 307(b)(1) of State and the weighted average ‘‘total’’ revised § 412.525(a)(4)(iv) for discharges
BIPA, in that same final rule, we revised CCR for all IPPS hospitals in the urban occurring on or after October 1, 2006, to
our methodology used to determine the areas of the State. (For further detail on codify in 42 CFR part 412, subpart O the
LTCH CCR ceiling. For discharges our methodology for annually remaining LTCH PPS outlier policy
occurring on or after October 1, 2006, determining the LTCH urban and rural changes that were established in the
we established that the LTCH CCR Statewide average CCRs, refer to the FY June 9, 2003 IPPS HCO final rule (68 FR
ceiling specified under 2007 IPPS final rule (71 FR 48119 34506 through 34513), including
§ 412.525(a)(4)(iv)(C)(2) is calculated as through 48121).) We also established modifications and editorial
three standard deviations above the that the applicable Statewide average clarifications to those existing policies
established in that final rule. We made BBRA and section 307(b)(1) of BIPA, we total estimated outlier payments are
these revisions because we believe that revised § 412.525(a)(3) to change the projected to equal 8 percent of total
they more precisely describe the plural reference from cost-to-charge estimated payments under the LTCH
application of those policies as they ‘‘ratios’’ to the singular reference to a PPS. To determine the fixed-loss
relate to the determination of LTCH cost-to-charge ‘‘ratio’’ in that final rule. amount, we estimate outlier payments
CCRs because these changes are For a complete discussion on all these and total LTCH PPS payments for each
consistent with the changes to the revisions to our methodology for case using claims data from the
calculation of the LTCH CCR ceiling. determining a LTCH’s CCR, refer to the MedPAR files. Specifically, to
Specifically, in the FY 2007 IPPS final FY 2007 IPPS final rule (71 FR 48119 determine the outlier payment for each
rule (71 FR 48119), under the broad through 48121). We note that in that case, we estimate the cost of the case by
authority of section 123 of the BBRA same FY 2007 IPPS final rule, we made multiplying the Medicare covered
and section 307(b)(1) of BIPA, we similar revisions to the SSO policy at charges from the claim by the LTCH’s
established under the LTCH PPS HCO § 412.529(c)(3), as discussed in V.A.1.b. hospital specific CCR. Under
policy at § 412.525(a)(4)(iv)(C) that the of the preamble of this proposed rule. § 412.525(a)(3), if the estimated cost of
FI may use a Statewide average CCR, Comment: A commenter asked that the case exceeds the outlier threshold
which is established annually by CMS, we consider making an exception to the (the sum of the adjusted Federal
if it is unable to determine an accurate outlier payment reconciliation prospective payment for the LTC–DRG
CCR for a LTCH in one of the following requirements for the affected hospitals and the fixed-loss amount), we pay an
three circumstances: (1) New LTCHs by Hurricane Katrina because they outlier payment equal to 80 percent of
that have not yet submitted their first would have experienced an aberrant the difference between the estimated
Medicare cost report (for this purpose, change in their CCR during the first and cost of the case and the outlier threshold
consistent with current policy, a new second cost reporting periods that began (the sum of the adjusted Federal
LTCH would be defined as an entity that on or after August 29, 2005. prospective payment for the LTC–DRG
has not accepted assignment of an Response: In order for a hospital to and the fixed-loss amount).
existing hospital’s provider agreement meet the requirements of outlier In the RY 2007 LTCH PPS final rule
in accordance with § 489.18); (2) LTCHs reconciliation, a 10 percentage point (71 FR 27838), in calculating the fixed-
whose CCR is in excess of the LTCH change in a LTCHs CCRs from the time loss amount that would result in
CCR ceiling; and (3) other LTCHs for of payment to the time of cost report estimated outlier payments projected to
whom data with which to calculate a settlement is required in addition to be equal to 8 percent of total estimated
CCR are not available (for example, SSO and HCO payment being greater payments for the 2007 LTCH PPS rate
missing or faulty data). (Other sources of then $500,000 for the cost reporting year, we used claims data from the
data that the FI may consider in period being settled. Without further December 2005 update of the FY 2005
determining a LTCH’s CCR included explanation from the commenter, it is MedPAR files and CCRs from the
data from a different cost reporting not clear what type of aberrant changes December 2005 update of the PSF, as
period for the LTCH, data from the cost to the CCR the commenter is referring. that was the best available data at that
reporting period preceding the period in Changes to costs or charges can either time. We believe that CCRs from the
which the hospital began to be paid as result in reducing or increasing a CCR PSF are the best available CCR data for
a LTCH (that is, the period of at least 6 in any given cost reporting period. determining estimated LTCH PPS
months that it was paid as a short-term Based on the events of Katrina, we payments for a given LTCH PPS rate
acute care hospital), or data from other would anticipate an increase in costs year because they are the most recently
comparable LTCHs, such as LTCHs in and a reduction in total charges as available CCRs actually used to make
the same chain or in the same region.) effected hospitals probably experienced LTCH PPS payments.
Additionally, in the FY 2007 IPPS fewer discharges in the period after As we also discussed in the RY 2007
final rule (71 FR 48121), we established Katrina. These types of changes would LTCH PPS rate year final rule (71 FR
under § 412.525(a)(4)(iv)(B) and increase a hospital’s CCR, and therefore, 27838), we calculated a single fixed-loss
§ 412.529(c)(3)(iv)(B) that, for discharges a hospital would not owe CMS amount for the 2007 LTCH PPS rate year
occurring on or after October 1, 2006, additional funds if a hospital met the based on the version 23.0 of the
the CCR applied at the time a claim is criteria for reconciliation. We also note GROUPER, which was the version in
processed will be based on either the that even if a unique circumstance arose effect as of the beginning of the LTCH
most recently settled cost report or the as a result of Hurricane Katrina and PPS rate year (that is, July 1, 2006 for
most recent tentatively settled cost resulted in a situation where a hospital the 2007 LTCH PPS rate year). In
report, whichever is from the latest cost would be required to pay CMS as a addition, we applied the outlier policy
reporting period. Under the broad result of a reconciliation, we believe the under § 412.525(a) in determining the
authority of section 123 of the BBRA existing regulation may allow us to fixed-loss amount for the 2007 LTCH
and section 307(b)(1) of BIPA, in that consider the unique needs of this PPS rate year; that is, we assigned the
same final rule, we also established at hospital, and no changes to the existing applicable Statewide average CCR only
§ 412.525(a)(4)(iv)(A) that, for regulations at § 412.525(a)(4)(ii), to LTCHs whose CCRs exceeded the
discharges occurring on or after October § 412.525(a)(4)(iv)(D), § 412.529(c)(3)(ii), ceiling (and not when they fell below
1, 2006, we may specify an alternative or § 412.529(c)(3)(iv)(E). the floor). Accordingly, we used the FY
to the CCR computed under 2006 LTCH PPS CCR ceiling of 1.423 (71
§ 412.525(a)(4)(iv)(B) (that is, computed c. Establishment of the Fixed-Loss FR 27838). As noted in that same final
from the most recently settled cost Amount rule, in determining the fixed-loss
report or the most recent tentatively When we implemented the LTCH amount for the 2007 LTCH PPS rate year
settled cost report, whichever is later), PPS, as discussed in the August 30, using the CCRs from the PSF, there were
or a hospital may also request that the 2002 LTCH PPS final rule (67 FR 56022 no LTCHs with missing CCRs or with
FI use a different (higher or lower) CCR through 56026), under the broad CCRs in excess of the current ceiling
based on substantial evidence presented authority of section 123 of the BBRA as and, therefore, there was no need for us
by the hospital. In addition, under the amended by section 307(b) of BIPA, we to independently assign the applicable
broad authority of section 123 of the established a fixed-loss amount so that Statewide average CCR to any LTCHs in
determining the fixed-loss amount for determining the proposed fixed-loss proposed change in the fixed-loss
the 2007 LTCH PPS rate year (as this amount for the 2008 LTCH PPS rate year amount is primarily due to the projected
may have already been done by the FI using the CCRs from the June 2006 decrease in estimated aggregate LTCH
in the PSF in accordance with the update of the PSF, there was no need for PPS payments that is expected to result
established policy). us to independently assign the from the approach discussed for the
Accordingly, in 2007 LTCH PPS rate applicable Statewide average CCR to SSO policy under § 412.529, in
year final rule (71 FR 27838), we any LTCHs (as this may have already conjunction with the proposed changes
established a fixed-loss amount of been done by the FI in the PSF in to the area wage adjustment and the
$14,887 for the 2007 LTCH PPS rate accordance with our established policy). proposed changes to the LTC–DRG
year. Thus, we pay an outlier case 80 Accordingly, based on the data and relative weights for FY 2007. In that
percent of the difference between the policies described in the RY 2008 LTCH same proposed rule, we also explained
estimated cost of the case and the PPS proposed rule, we proposed to that we believe that an increase in the
outlier threshold (the sum of the apply a fixed-loss amount of $18,774 for fixed-loss amount is appropriate and
adjusted Federal LTCH PPS payment for the 2008 LTCH PPS rate year. Thus, we necessary to maintain the requirement
the LTC–DRG and the fixed-loss amount proposed to pay an outlier case 80 that estimated outlier payments would
of $14,887). percent of the difference between the be projected to be equal to 8 percent of
In the RY 2008 LTCH PPS proposed estimated cost of the case and the estimated total LTCH PPS payments, as
rule (72 FR 4798 through 4799), for the proposed outlier threshold (the sum of required under § 412.525(a), because of
2008 LTCH PPS rate year, we used the the adjusted proposed Federal LTCH the estimated decrease in aggregate
March 2006 update of the FY 2005 payment for the LTC–DRG and the LTCH PPS payments for the 2008 LTCH
MedPAR claims data to determine a proposed fixed-loss amount of $18,774). PPS rate year. Based on the regression
fixed-loss amount that would result in In the RY 2008 LTCH PPS proposed analysis that was performed when we
estimated outlier payments projected to rule (72 FR 4799 through 4800), we implemented the LTCH PPS, we
be equal to 8 percent of total estimated noted that the fixed-loss amount for the established the outlier target at 8
payments, based on the policies 2008 LTCH PPS rate year is higher than percent of estimated total LTCH PPS
described in that proposed rule, because the current fixed-loss amount of payments to allow us to achieve a
those data are the most recent complete $14,887. We also discussed that we balance between the ‘‘conflicting
LTCH data available. Consistent with were not proposing to adjust the considerations of the need to protect
our historical practice of using the best existing 8 percent outlier target or 80 hospitals with costly cases, while
data available, we also proposed that if percent marginal cost factor under the maintaining incentives to improve
more recent LTCH claims data become current LTCH PPS HCO policy at that overall efficiency’’ (67 FR 56024). That
available, we would to use it for time. However, we explained that we regression analysis also showed that
determining the fixed-loss amount for continue to be interested in any
additional increments of outlier
the 2008 LTCH PPS rate year in the final comments that would support revisiting
payments over 8 percent (that is, raising
rule. In addition, we determined the the analysis that was used to establish
the outlier target to a larger percentage
proposed fixed-loss amount based on the existing 8 percent outlier target and
than 8 percent) would reduce financial
the version of the GROUPER that would the existing 80 percent marginal cost
risk, but by successively smaller
be in effect as of the beginning of the factor, using the most recent available
amounts. Outlier payments are budget
2008 LTCH PPS rate year (July 1, 2007), data to evaluate whether any changes to
neutral, and therefore, outlier payments
that is, Version 24.0 of the GROUPER the current HCO policy should be made,
are funded by prospectively reducing
(as established in the FY 2007 IPPS final and therefore, may result in less of an
the non-outlier PPS payment rates by
rule (71 FR 47973)). increase in the fixed-loss amount for RY
In the RY 2008 LTCH PPS proposed 2008. projected total outlier payments. The
rule (72 FR 4799), we proposed to use Comment: While we received no higher the outlier target, the greater the
CCRs from the June 2006 update of the comments in support of revisiting the (prospective) reduction to the base
PSF for determining the proposed fixed- analysis that was used to establish the payment would need to be applied to
loss amount for the 2008 LTCH PPS rate existing 8 percent outlier target and the the Federal rate to maintain budget
year as they are currently the most existing 80 percent marginal cost factor, neutrality.
recent complete available data. using the most recent available data, to Maintaining the fixed-loss amount at
Consistent with our historical practice evaluate whether any changes to the the current level would result in HCO
of using the best data available, we also current HCO policy should be made, payments that exceed the current
proposed that if more recent CCR data some commenters expressed concern regulatory requirement that estimated
are available, we would use it for over the impact of raising the fixed-loss outlier payments would be projected to
determining the fixed-loss amount for threshold for HCOs to $18,774, an equal 8 percent of estimated total LTCH
the 2008 LTCH PPS rate year in the final increase of $3,887 over the RY 2007 PPS payments. In fact, our analysis
rule. As we discussed in that same threshold. According to one shows that if we were to keep the fixed-
proposed rule, in determining the commenter’s analysis, the proposed loss amount at the current amount of
proposed fixed-loss amount for the 2008 fixed-loss threshold would mean that 26 $14,887, we project that estimated
LTCH PPS rate year, we used the percent of cases would no longer meet outlier payments would be over 10
current FY 2007 applicable LTCH the HCO threshold for receiving percent of total estimated LTCH PPS
‘‘total’’ CCR ceiling of 1.321 and LTCH additional payments. Specifically, a payments in RY 2008. As noted above,
Statewide average ‘‘total’’ CCRs commenter wrote, ‘‘reducing access to the results of our regression analysis
established under our revised HCO payments for this many cases is concluded that an outlier target in
methodology in the FY 2007 IPPS final not warranted.’’ excess of 8 percent would not allow us
rule (71 FR 48118 and 48121) such that Response: As we explained in the RY to achieve our stated goal of the HCO
the current applicable Statewide average 2008 LTCH PPS proposed rule (72 FR policy of balancing the need to protect
CCR would be assigned if, among other 4799), in addition to being based on the hospitals with costly cases, while
things, a LTCH’s CCR exceeded the most recent available LTCH data to providing an incentive for hospitals to
current ceiling (1.321). We noted that in estimate the cost of each LTCH case, the operate efficiently.
We also note that we received no patients and ensure the efficient payments projected to be equal to 8
comments in support of revisiting the delivery of services. Accordingly, we percent of total estimated payments,
regression analysis to evaluate whether did not propose to adjust the existing 8 based on the policies described in this
current LTCH data would support a percent outlier target or 80 percent final rule, because these data are the
change in the current HCO policy, such marginal cost factor under the LTCH most recent complete LTCH data
as increasing (or decreasing) the outlier PPS HCO policy at this time. We also available. Furthermore, as noted
target. While we understand the noted that the proposed fixed-loss previously, we determined the fixed-
commenter’s concern that raising the amount of $18,774 is lower than the FY loss amount based on the version of the
fixed-loss threshold would mean that 2003 fixed-loss amount of $24,450 (67 GROUPER that would be in effect as of
fewer cases would qualify to receive FR 56023) and the 2004 LTCH PPS rate the beginning of the 2008 LTCH PPS
additional payments for extraordinarily year fixed-loss amount of $19,590 (68 rate year (July 1, 2007), that is, Version
high cost, as discussed above, we would FR 34144), and only slightly higher than 24.0 of the GROUPER (as established in
have to reduce the standard Federal rate the 2005 LTCH PPS rate year fixed-loss the FY 2007 IPPS final rule (71 FR
to account for the additional estimated amount of $17,864 (69 FR 25688), all of 47973)).
outlier payments that exceed the current which were in effect during the time In addition, as we proposed and
8 percent outlier target since outlier period that we estimate positive consistent with our historical practice of
payments are budget neutral. This Medicare margins (as discussed in the using the best data available (as noted
would reduce payments to all LTCH RY 2007 LTCH PPS final rule (71 FR above), we used CCRs from the
cases, not just those that would receive 27820 through 27825)). December 2006 update of the PSF for
a HCO payment based on the amount of In conclusion, for the reasons determining the fixed-loss amount for
the current fixed-loss threshold, which discussed above in this section, we the 2008 LTCH PPS rate year as they are
could result in inappropriately low continue to believe a marginal cost currently the most recent complete
payment amounts for typical LTCH factor of 80 percent and an outlier target available data. As we discussed above in
cases (as shown by our analysis of of 8 percent best identifies LTCH this section, we revised our
payment-to-cost ratios when we patients that are truly unusually costly methodology for our annual
developed the existing HCO policy cases. Furthermore, we still believe that determination of the applicable LTCH
when we implemented the LTCH PPS such a policy appropriately addresses CCR ceiling and applicable Statewide
(67 FR 56022 through 56027)). LTCH HCO cases that are significantly average CCRs in determining a LTCH’s
In the RY 2008 LTCH PPS proposed more expensive than non-outlier cases, CCR effective for discharges occurring
rule (72 FR 4799 through 4800) as an which is consistent with our intent of on or after October 1, 2006 in the FY
alternative to the proposal to raise the the LTCH HCO policy as stated when 2007 IPPS final rule (71 FR 48117
fixed-loss amount, we discussed we implemented the LTCH PPS. through 48122). Accordingly, as
adjusting the marginal cost factor (that Therefore, we are not making any proposed, in determining the fixed-loss
is, the percentage that Medicare will pay changes to the marginal cost factor or amount for the 2008 LTCH PPS rate
of the estimated cost of a case that outlier target in that final rule. year, we used the current FY 2007
exceeds the sum of the adjusted Federal Consequently, in order to maintain that applicable LTCH ‘‘total’’ CCR ceiling of
prospective payment for the LTC–DRG estimated outlier payments are 1.321 and LTCH Statewide average
and the fixed-loss amount for LTCH PPS projected to be equal to 8 percent of ‘‘total’’ CCRs established under our
outlier cases as specified in estimated total LTCH PPS payments, as revised methodology in the FY 2007
§ 412.525(a)(3)), which is currently required under § 412.525(a), under the IPPS final rule (71 FR 48118 and 48121)
equal to 80 percent, as a means of broad authority of section 123(a)(1) of such that the current applicable
ensuring that estimated outlier the BBRA and section 307(b)(1) of BIPA, Statewide average CCR would be
payments would be projected to equal 8 we are establishing a fixed-loss amount assigned if, among other things, a
percent of estimated total LTCH PPS of $22,954 based on the best available LTCH’s CCR exceeded the current
payments. We explained that when we LTCH data and the policies presented in ceiling (1.321). We note that in
initially established the 80 percent this final rule (as described in greater determining the fixed-loss amount for
marginal cost factor, our analysis of detail below). For the reasons discussed the 2008 LTCH PPS rate year using the
payment-to-cost ratios for HCO cases above, we believe a fixed-loss amount of CCRs from the December 2006 update of
showed that a marginal cost factor of 80 $22,954 would appropriately identify the PSF, there was no need for us to
percent appropriately addresses outlier unusually costly LTCH cases while independently assign the applicable
cases that are significantly more maintaining the integrity of the LTCH Statewide average CCR to any LTCHs (as
expensive than nonoutlier cases, while PPS. We note that, as discussed in the this may have already been done by the
simultaneously maintaining the RY 2008 proposed rule (72 FR 4800), we FI in the PSF in accordance with our
integrity of the LTCH PPS (67 FR 56022 intend to revisit a budget neutral policy established policy). (Currently, the
through 56027). change in the outlier policy (among applicable FY 2007 LTCH Statewide
In that same proposed rule, we also other things), which would affect future average CCRs can be found in Table 8C
discussed that although proposing to LTCH PPS payment rates, after the of the FY 2007 IPPS final rule (71 FR
raise the fixed-loss amount from conclusion of the 5-year transition 48303).)
$14,887 to $18,774 would increase the period when we expect to have several Accordingly, based on the data and
amount of the ‘‘loss’’ that a LTCH must years of data generated after the policies described in this final rule, we
incur under the LTCH PPS for a case implementation of the LTCH PPS. are applying a fixed-loss amount of
with unusually high costs before the In this final rule, as we proposed and $22,954 for the 2008 LTCH PPS rate
LTCH would receive any additional consistent with our historical practice of year. Thus, we will pay an outlier case
Medicare payments, we continue to using the best data available (as noted 80 percent of the difference between the
believe that the existing 8 percent above), for the 2008 LTCH PPS rate year, estimated cost of the case and the
outlier target and 80 percent marginal we used the December 2006 update of outlier threshold (the sum of the
cost factor continue to adequately the FY 2006 MedPAR claims data to adjusted Federal LTCH payment for the
maintain the LTCHs’ share of the determine a fixed-loss amount that LTC–DRG and the fixed-loss amount of
financial risk in treating the most costly would result in estimated outlier $22,954). As discussed above, the fixed-
loss amount for the 2008 LTCH PPS rate December 2006 update of the FY 2006 charges incurred in the period during
year is higher than the current fixed-loss MedPAR claims data and the CCRs from which the discharge occurs. In that
amount of $14,887. In addition to being the December 2006 update of the PSF. same final rule, we also established that,
based on the most recent available Our analysis of the data showed that, in for discharges occurring on or after
LTCH data to estimate the cost of each general, the average cost per case has August 8, 2003, at the time of any
LTCH case (as discussed in detail below increased in the FY 2006 claim data as reconciliation, outlier payments may be
in this section), this change in the fixed- compared to the FY 2005 claims data, adjusted to account for the time value of
loss amount is due to the projected which if we had kept the fixed-loss any underpayments or overpayments
decrease in estimated aggregate LTCH amount at $18,778 would have caused based upon a widely available index to
PPS payments that is expected to result the HCO target to exceed 8 percent. In be established in advance by the
from the revision to the SSO policy fact, our analysis shows that if we were Secretary and will be applied from the
under § 412.529 (discussed in greater to keep the proposed fixed-loss amount midpoint of the cost reporting period to
detail in section V.A.2. of this of $18,774, we project that estimated the date of reconciliation. (Additional
preamble), in conjunction with the outlier payments would be over 10 information on the administration of the
changes to the area wage adjustment percent of total estimated LTCH PPS reconciliation process under the IPPS is
(discussed in greater detail in section payments in RY 2008. As discussed at provided in CMS Program Transmittal
IV.D.1. of this preamble) and the length above, when we implemented the 707 (October 12, 2005; Change Request
changes to the LTC–DRG relative LTCH PPS, under the HCO policy we 3966). We note that we are currently
weights for FY 2007 (as discussed in the established the outlier target at 8 developing additional instructions on
FY 2007 IPPS final rule (71 FR 47971 percent of estimated total LTCH PPS the administration of the reconciliation
through 47994)). Specifically, as payments to allow us to achieve a process under the LTCH PPS that would
discussed in greater detail in the impact balance between the need to protect be similar to the IPPS reconciliation
analysis presented in section XV.B.4. of hospitals with costly cases, while process.)
this final rule, we are projecting that the providing an incentive for hospitals to In the FY 2007 IPPS final rule (71 FR
changes presented in this final rule will operate efficiently, and an outlier target 48121 through 48122), for discharges
result in an estimated 3.8 percent in excess of 8 percent would not allow occurring on or after October 1, 2006,
decrease in estimated payments per us to achieve this goal. In fact, our we codified into the LTCH PPS section
discharge in RY 2008 as compared to RY analysis shows that if we were to keep of the regulations (42 CFR part 412,
2007, on average, for all LTCHs. While the proposed fixed-loss amount of subpart O) the provisions governing the
we are projecting that the 0.71 percent $18,774, we project that estimated determination of LTCHs’ CCRs,
update to the Federal rate (discussed in outlier payments would be over 10 including modifications and editorial
section IV.C. of this preamble) will percent of total estimated LTCH PPS clarifications to our existing
result in an increase in estimated payments in RY 2008. As discussed at methodology for determining the annual
payments per discharge in RY 2008 as length above in this section, when we LTCH CCR ceiling and applicable
compared to RY 2007, this increase will implemented the LTCH PPS, under the Statewide average CCRs under the
be offset by the projected decrease in HCO policy we established the outlier LTCH PPS. (We note that we also made
estimated payments per discharge from target at 8 percent of estimated total the same changes under the SSO policy
RY 2007 to RY 2008 of 0.9 percent due LTCH PPS payments to allow us to at § 412.529(c)(3), as discussed in
to the revision to the SSO policy and a achieve a balance between the need to section V.A.1.c. of this preamble).
projected decrease in estimated protect hospitals with costly cases, In the FY 2007 IPPS final rule (71 FR
payments per discharge from RY 2007 to while providing an incentive for 48122), under the broad authority of
RY 2008 of 1.0 percent due to the hospitals to operate efficiently, and an section 123 of the BBRA and section
changes to the area wage adjustment outlier target in excess of 8 percent 307(b)(1) of BIPA, we revised
(including the progression of the would not allow us to achieve this goal. § 412.525(a)(4)(iv)(D) through (E), for
established phase-in of that adjustment). Consequently, the fixed-loss amount is discharges occurring on or after October
We also project an estimated 2.5 percent increased to maintain the HCO target at 1, 2006, to codify in subpart O of 42
decrease in estimated payments per 8 percent. Furthermore, although in the CFR part 412 the provisions discussed
discharge from RY 2007 to RY 2008 due past we have found LTCHs’ CCRs have concerning the reconciliation of LTCH
to the changes in the fixed-loss amount been relatively stable, in establishing PPS outlier payments, including
resulting from the use of more recent the fixed-loss amount for RY 2008, we editorial clarifications discussed in
LTCH data to estimate the cost of each noticed that the CCRs used to estimate greater detail in this section, that would
LTCH case. cost per case are more volatile in recent more precisely describe the application
We also note that the final fixed-loss years. This causes us concern, and of those policies. Specifically, at
amount for RY 2008 of $22,954 is higher therefore, we intend to monitor LTCHs’ § 412.525(a)(4)(iv)(D), we specified that
than the proposed fixed-loss amount for CCRs in the future. As specified at for discharges occurring on or after
RY 2008 of $18,778. This change in the § 412.525(a)(4)(iv)(D), HCO payments October 1, 2006, any reconciliation of
fixed-loss amount is primarily due to are subject to the outlier reconciliation outlier payments will be based on the
the updated LTCH data (that is, LTCH process described below in this section. CCR calculated based on a ratio of costs-
claims data and CCR data) used in to-charges computed from the relevant
determining the fixed-loss amount. That d. Reconciliation of Outlier Payments cost report and charge data determined
is, to determine the proposed fixed-loss Upon Cost Report Settlement at the time the cost report coinciding
amount for RY 2008, we used claims In the June 9, 2003 HCO final rule (68 with the discharge is settled. In
data from the March 2006 update of the FR 34508 through 34512), we addition, at § 412.525(a)(4)(iv)(E), we
FY 2005 MedPAR file and CCRs from established our policy for LTCHs that specified that for discharges occurring
the July 2006 update of the PSF, as that provided that effective for LTCH PPS on or after October 1, 2006, at the time
was the best available data at that time. discharges occurring on or after August of any reconciliation, outlier payments
However, to determine the fixed-loss 8, 2003, any reconciliation of outlier may be adjusted to account for the time
amount for RY 2008 in this final rule, payments will be based upon the actual value of any underpayments or
the most recent available data are the CCR computed from the costs and overpayments. We also specified that
such an adjustment will be based upon for adjustments to reflect variations in evaluation of the possibility of making
a widely available index to be the necessary costs of treatment among a one-time prospective adjustment to
established in advance by the Secretary LTCHs. Thus, in the August 30, 2002 the LTCH PPS rates provided for at
and will be applied from the midpoint LTCH PPS final rule (67 FR 56014 § 412.523(d)(3) after the conclusion of
of the cost reporting period to the date through 56027), we discussed our the 5-year transition to 100 percent of
of reconciliation. We made these extensive data analysis and rationale for the Federal rate under the LTCH PPS.
additional revisions to § 412.525(a)(4) not implementing an adjustment for
5. Budget Neutrality (BN) Offset To
because we believe that these changes geographic reclassification, rural
Account for the Transition Methodology
are more consistent with the LTCH PPS location, treating a disproportionate
single payment rate for inpatient share of low-income patients (DSH), or Under § 412.533, we implemented a
operating and capital costs (as discussed indirect medical education (IME) costs. 5-year transition, during which a LTCH
in greater detail previously), and In that same final rule, we stated that we is paid a total LTCH PPS payment that
because we believe it is more would collect data and reevaluate the is comprised of an increasing percentage
appropriate and administratively appropriateness of these adjustments in of the LTCH PPS Federal prospective
simpler to include all of the regulatory the future once more LTCH data become payment rate and a decreasing
provisions concerning the available after the LTCH PPS is percentage of its payments based on the
determination of LTCH PPS outlier implemented. reasonable cost-based payment
payments applicable under the LTCH As we discussed in the RY 2007 principles for each discharge.
PPS regulations in subpart O of 42 CFR LTCH PPS final rule (71 FR 27839), we Furthermore, we allow a LTCH (other
part 412 of the CFR. now believe that after the completion of than those defined as ‘‘new’’ under
Comment: One commenter requested the 5-year transition, sufficient new data § 412.23(e)(4)) to elect to be paid based
that we clarify how we interpret the 10 that will have been generated while on 100 percent of the standard Federal
percentage point criterion of the SSO LTCHs are subject to the LTCH PPS may rate in lieu of the blended methodology.
and HCO reconciliation policy. be available for a comprehensive The standard Federal rate was
Response: We did not propose any reevaluation of payment adjustments determined as if all LTCHs will be paid
changes to the current reconciliation such as geographic reclassification, rural based on 100 percent of the standard
policy. Therefore, we do not believe this location, DSH, and IME. The end of the Federal rate. As stated earlier, we
final rule is the appropriate vehicle to 5-year transition occurs with cost provided for a 5-year transition period
address this comment. As we have reporting periods beginning on or after that allows LTCHs to receive LTCH PPS
stated, we intend to issue subregulatory October 1, 2007. Therefore, in the RY payments in which a component
guidance on LTCH reconciliation that 2008 LTCH PPPS proposed rule (72 FR incorporates reasonable cost principles.
would be similar to the IPPS 4801), we did not propose to make any To maintain BN for FY 2003 as required
reconciliation process and would adjustments for geographic by section 123(a)(1) of the BBRA during
address the commenters question at that reclassification, rural location, DSH, or the 5-year transition period, we reduce
time. IME. However, we noted that we will all LTCH Medicare payments (whether
continue to collect and interpret new a LTCH elects payment based on 100
e. Application of Outlier Policy to percent of the Federal rate or whether a
data as they become available in the
Short-Stay Outlier (SSO) Cases LTCH is being paid under the transition
future to determine if these data support
As we discussed in the August 30, proposing any additional payment blend methodology) to account for the
2002 final rule (67 FR 56026), under adjustments. We also reiterated our cost of the applicable transition period
some rare circumstances, a LTCH belief that it is appropriate to wait for methodology in a given LTCH PPS rate
discharge could qualify as a SSO case the conclusion of the 5-year transition to year.
(as defined under § 412.529 and 100 percent of the Federal rate under Specifically, during the LTCH PPS
discussed in section V.A.1.a. of this the LTCH PPS, to maximize the rate years governed under the 5-year
preamble) and also as a HCO case. In availability of data that are reflective of transition policy at § 412.533(a), we
this scenario, a patient could be LTCH behavior in response to the reduce all LTCH Medicare payments
hospitalized for less than five-sixths of implementation of the LTCH PPS to be during the 5-year transition by a factor
the geometric ALOS for the specific used to conduct a comprehensive that is equal to 1 minus the ratio of the
LTC–DRG, and yet incur extraordinarily evaluation of the potential payment estimated TEFRA reasonable cost-based
high treatment costs. If the costs adjustment policies (such as rural payments that would be made if the
exceeded the outlier threshold (that is, location, DSH and IME) in conjunction LTCH PPS was not implemented, to the
the SSO payment plus the fixed-loss with our evaluation of the possibility of projected total Medicare program PPS
amount), the discharge would be making a one-time prospective payments (that is, payments made under
eligible for payment as a HCO. Thus, for adjustment to the LTCH PPS rates the transition methodology and the
a SSO case in the 2008 LTCH PPS rate provided for at § 412.523(d)(3). option to elect payment based on 100
year, the HCO payment will be 80 Therefore, in this final rule, we are percent of the Federal rate).
percent of the difference between the not making any adjustments for In the RY 2007 LTCH PPS final rule
estimated cost of the case and the geographic reclassification, rural (71 FR 27841), based on the best
outlier threshold (the sum of the fixed- location, DSH, or IME under the LTCH available data at that time, we projected
loss amount of $22,954 and the amount PPS for RY 2008. As noted above, we that approximately 98 percent of LTCHs
paid under the SSO policy). will continue to collect and interpret will be paid based on 100 percent of the
new data as they become available in standard Federal rate rather than receive
4. Other Payment Adjustments the future to determine if these data payment under the transition blend
As indicated earlier, we have broad support proposing any additional methodology for the 2006 LTCH PPS
authority under section 123(a)(1) of the payment adjustments. We plan to rate year. Using the same methodology
BBRA as amended by section 307(b) of conduct a comprehensive evaluation of described in the August 30, 2002 LTCH
BIPA to determine appropriate the potential payment adjustment PPS final rule (67 FR 56034), this
adjustments under the LTCH PPS, policies (such as rural location, DSH projection, which used updated data
including whether (and how) to provide and IME) in conjunction with our and inflation factors, was based on our
estimate that either: (1) A LTCH has 2008 LTCH PPS proposed rule (72 FR percent of the Federal rate, since some
already elected payment based on 100 4802), based on the most recent LTCHs may still be paid under the 4th
percent of the Federal rate prior to the available data at that time from the July year of the transition blend
start of the 2007 LTCH PPS rate year 2006 update of the PSF, we continue to methodology, specified at § 412.533, for
(July 1, 2006); or (2) a LTCH would estimate that nearly all (over 98 percent) the first 3 months of RY 2008) in RY
receive higher payments based on 100 LTCHs are currently being paid based 2008.
percent of the 2007 LTCH PPS rate year on 100 percent of the Federal rate 6. One-Time Prospective Adjustment to
standard Federal rate compared to the (rather than the transition blend the Standard Federal Rate.
payments it would receive under the methodology). Even for those few
transition blend methodology. remaining LTCHs paid under the As we discussed in the August 30,
Similarly, we projected that the transition blend methodology set forth 2002 LTCH PPS final rule (67 FR
remaining 2 percent of LTCHs would at § 412.533(a), the majority of their 56036), consistent with the statutory
choose to be paid based on the LTCH PPS payments are now based on requirement for BN in section 123(a)(1)
applicable transition blend methodology at least 80 percent of the Federal rate of the BBRA, we estimated aggregate
(as set forth under § 412.533(a)) because and 20 percent of the reasonable cost payments under the LTCH PPS for FY
they would receive higher payments amount (for cost reporting periods 2003 to be equal to the estimated
than if they were paid based on 100 beginning during FY 2006) since there aggregate payments that would be made
percent of the 2007 LTCH PPS rate year are no longer any LTCHs in their cost if the LTCH PPS were not implemented.
standard Federal rate. reporting periods that began during FY Our methodology for estimating
2003 through FY 2005 (the first three payments for purposes of the BN
Also in the RY 2007 LTCH PPS final calculations used the best available data
rule (71 FR 24202), based on the best years of the 5-year transition period).
Therefore, in that same proposed rule, at the time and necessarily reflected
available data at that time and policy assumptions. As the LTCH PPS
revisions described in that same rule, we explained that we continue to
believe that there would be no progresses, we are monitoring payment
we projected that in absence of a data and will evaluate the ultimate
transition BN offset, the full effect of the measurable estimated cost to the
Medicare program due to the transition accuracy of the assumptions used in the
final full year of the transition period BN calculations (for example, inflation
(including the election option) as period methodology (including the
option to elect payment based on 100 factors, intensity of services provided,
compared to payments as if all LTCHs or behavioral response to the
would be paid based on 100 percent of percent of the Federal rate) in RY 2008.
implementation of the LTCH PPS)
the Federal rate would result in a Accordingly, we did not propose a
described in the August 30, 2002 LTCH
negligible cost to the Medicare program transition BN offset to all LTCH PPS
PPS final rule (67 FR 56027 through
(that is, less than $1 million in RY payments for discharges occurring on or
56037). To the extent these assumptions
2007). Because the $1 million in after July 1, 2007 through June 30, 2008,
significantly differ from actual
estimated costs to the Medicare program to account for the estimated cost of the
experience, the aggregate amount of
was such a small percentage of the transition period methodology
actual payments may turn out to be
estimated total LTCH payments for RY (including the option to elect payment
significantly higher or lower than the
2007 (over $5 billion), the formula that based on 100 percent of the Federal rate,
estimates on which the BN calculations
we use to establish the BN offset since some LTCHs may still be paid were based.
resulted in a factor, which we reduce all under the 4th year of the transition Section 123(a)(1) of the BBRA as
Medicare payments by to account for blend methodology, specified at amended by section 307(b) of BIPA
the additional costs of the transition § 412.533, for the first 3 months of RY provides broad authority to the
methodology of zero (due to rounding). 2008) in RY 2008. Secretary in developing the LTCH PPS,
Therefore, we established a zero percent We received no comments on this including the authority for establishing
transition period BN offset to all LTCH proposal, and based on the most recent appropriate adjustments. Under this
PPS payments for discharge occurring available data from the December 2006 broad authority to make appropriate
on or after July 1, 2006 through June 30, update of the PSF, we continue to adjustments, as implemented in the
2007, to account for the estimated cost estimate that nearly all (over 98 percent) existing § 412.523(d)(3) (as revised in
of the transition period methodology LTCHs are currently being paid based the RY 2007 LTCH PPS final rule), we
(including the option to elect payment on 100 percent of the Federal rate have provided for the possibility of
based on 100 percent of the Federal rate) (rather than the transition blend making a one-time prospective
in RY 2007. Furthermore, in that same methodology). Therefore, we continue adjustment to the LTCH PPS rates by
final rule (71 FR 27841), we explained to believe that there would be no July 1, 2008, so that the effect of any
that we are no longer projecting a small measurable estimated cost to the significant difference between actual
cost for the 2008 LTCH PPS rate year Medicare program due to the transition payments and estimated payments for
(July 1, 2007 through June 30, 2008) period methodology (including the the first year of the LTCH PPS would
even though some LTCHs will have a option to elect payment based on 100 not be perpetuated in the LTCH PPS
cost reporting period for the 5th year of percent of the Federal rate) in RY 2008. rates for future years.
the transition period which will be Accordingly, in this final rule, based on In the RY 2007 LTCH PPS final rule
concluding in the first 3 months of the updated data and using the same (71 FR 27842), based on the best
2008 LTCH PPS rate year. This is methodology established in the August available data at that time, we estimated
because, based on the most available 30, 2002 final rule (67 FR 56034), we are that total Medicare program payments
data, we are projecting that the vast not implementing a transition BN offset for LTCH services over the next 5 LTCH
majority of LTCHs would have made the to all LTCH PPS payments for PPS rate years would be $5.27 billion
election to be paid based on 100 percent discharges occurring on or after July 1, for the 2007 LTCH PPS rate year; $5.43
of the Federal rate rather than the 2007 through June 30, 2008, to account billion for the 2008 LTCH PPS rate year;
transition blend which would result in for the estimated cost of the transition $5.63 billion for the 2009 LTCH PPS
a negligible cost to the Medicare period methodology (including the rate year; $5.86 billion for the 2010
program. In fact, as discussed in the RY option to elect payment based on 100 LTCH PPS rate year; and $6.13 billion
for the 2011 LTCH PPS rate year. In the and 1.1 percent in the 2012 LTCH PPS conduct a comprehensive reevaluation
RY 2008 LTCH PPS proposed rule (72 rate year. of our BN calculations. Therefore, in
FR 4802 through 4803), based on the In the August 30, 2002 LTCH PPS that same final rule, we did not
best available data at that time, we final rule implementing the LTCH PPS implement a one-time adjustment under
estimated that total Medicare program (67 FR 55954), we set forth the § 412.523(d)(3) so that the effect of any
payments for LTCH services over the implementing regulations, based upon significant difference between actual
next 5 LTCH PPS rate years would be the broad authority granted to the payments and estimated payments for
$4.65 billion for the 2008 LTCH PPS Secretary, under section 123 of the the 1st year of the LTCH PPS would not
rate year; $4.84 billion for the 2009 BBRA as amended by section 307(b) of be perpetuated in the PPS rates for
LTCH PPS rate year; $5.02 billion for the BIPA. Section 123(a)(1) of the BBRA future years. However, we stated that we
the 2010 LTCH PPS rate year; $5.24 required that the system ‘‘maintain will continue to collect and interpret
billion for the 2011 LTCH PPS rate year; budget neutrality’’ for FY 2003, that is, new data as it becomes available in the
and $5.48 billion for the 2012 LTCH that estimated aggregate payments future to determine if this adjustment
PPS rate year. under the LTCH PPS would be projected should be proposed. Therefore, in the
In this final rule, consistent with the to be equal to the estimated aggregate RY 2007 LTCH PPS final rule (71 FR
methodology established in the August payments that would be made if the 27842), we revised § 412.523(d)(3) by
30, 2002 final rule (67 FR 56036), based LTCH PPS would not be implemented changing the original October 1, 2006
on the most recent available data, we for FY 2003. The methodology for deadline (established in the August 30,
estimate that total Medicare program determining the LTCH PPS standard 2002 final rule that implemented the
payments for LTCH services for the next Federal rate for FY 2003 that would LTCH PPS) to July 1, 2008, to postpone
5 LTCH PPS rate years would be as ‘‘maintain budget neutrality’’ is the requirement due to the time lag in
shown in Table 4. described in considerable detail in the the availability of Medicare data upon
August 30, 2002 final rule (67 FR 56027 which this adjustment would be based.
TABLE 4 through 56037). As we discussed in that As we discussed in the RY 2007
same final rule, our methodology for LTCH PPS final rule (71 FR 27843
Estimated payments estimating payments for the purposes of through 27844), we now believe that
LTCH PPS rate year ($ in billions) BN calculations used the best available after the conclusion of the 5-year
2008 .......................... $4.65
data and necessarily reflects transition period, sufficient new data
2009 .......................... 4.85 assumptions in estimating aggregate will be generated by the LTCH PPS for
2010 .......................... 5.04 payments that would be made if the a comprehensive reevaluation of our FY
2011 .......................... 5.25 LTCH PPS was not implemented. We 2003 BN calculations. Specifically, we
2012 .......................... 5.50 also stated our intentions to monitor explained that the final year of the 5-
LTCH PPS payment data to evaluate the year transition to LTCH PPS payments
In accordance with the methodology ultimate accuracy of the assumptions based on 100 percent of the Federal rate
established in the August 30, 2002 used in the BN calculations (for for all LTCHs will begin for cost
LTCH PPS final rule (67 FR 56037), example, inflation factors, intensity of reporting periods beginning on or after
these estimates are based on the most services provided, or behavioral October 1, 2006 (FY 2007), and end with
recent available data, including the response to the implementation of the cost reporting periods beginning before
projection that nearly all LTCHs will be LTCH PPS). To the extent that those October 1, 2007 (FY 2008). After the
paid based on 100 percent of the LTCH assumptions significantly differ from conclusion of the 5-year transition
PPS standard Federal rate during the actual experience, the estimated period (October 1, 2007), we expect to
majority of RY 2008 (in accordance with aggregate amount of actual payments have between 3 and 4 years (FY 2003
the transition blend percentages set during FY 2003 may result in through FY 2006) of LTCH data
forth at § 412.533(a)). These estimates significantly higher or lower estimated generated since the implementation of
are also based on our estimate of LTCH payments than the estimates upon the LTCH PPS. We note that there is a
PPS rate year payments to LTCHs using which the BN calculations were based. lag time between the submission of
CMS’s Office of the Actuary’s (OACT) In that same final rule, the Secretary claims data and cost report data, and the
most recent estimate of the RPL market exercised his broad authority in availability of that data in the MedPAR
basket of 3.2 percent for the 2008 LTCH establishing the LTCH PPS and files and HCRIS, respectively. Based on
PPS rate year, 3.2 percent for the 2009 provided for the possibility of a one- a comprehensive analysis of that data,
LTCH PPS rate year, 2.8 percent for the time prospective adjustment to the we may then propose to make a one-
2010 LTCH PPS rate year, 3.1 percent LTCH PPS rates by October 1, 2006, in time prospective adjustment to the
for the 2011 LTCH PPS rate year, and § 412.523(d)(3) (this deadline was LTCH PPS rates as provided for in
3.2 percent for the 2012 LTCH PPS rate revised to July 1, 2008, in the RY 2007 § 412.523(d)(3). As also explained in
year. (We note that OACT develops its LTCH PPS final rule). The purpose of that same final rule, we believe that
spending projections based on existing that provision was to prevent any postponing the deadline of the possible
policy. Therefore, changes that have not significant difference between actual one-time prospective adjustment to the
yet been implemented are not reflected payments and estimated payments for LTCH PPS rates provided for in
in the spending projections shown in the 1st year of the LTCH PPS, when we § 412.523(d)(3) to July 1, 2008, would
this section.) We also considered established the budget neutral Federal result in the availability of additional
OACT’s most recent projections of rate as required by the statute (discussed data generated under the LTCH PPS
changes in Medicare beneficiary previously), from being perpetuated in and, therefore, our decisions regarding a
enrollment that estimate a change in the PPS rates for future years. possible adjustment would be based on
Medicare fee-for-service beneficiary As we discussed in the RY 2007 more complete and up-to-date data. This
enrollment of ¥0.1 percent in the 2008 LTCH PPS final rule (71 FR 27842 data would be reflective of LTCH
LTCH PPS rate year, 0.7 percent in the through 27844), because the LTCH PPS behavior in response to the
2009 LTCH PPS rate year, 0.3 percent in was only recently implemented, implementation of the LTCH PPS.
the 2010 LTCH PPS rate year, 0.6 sufficient new data had not been Evaluating the appropriateness of the
percent in the 2011 LTCH PPS rate year, generated that would enable us to possible one-time prospective
adjustment will entail a thorough by LTCHs for cost reporting periods during the first year of the LTCH PPS.
review of the actual Medicare costs beginning during FY 2003. As discussed in greater detail above,
incurred by LTCHs during the first year As we discussed in the RY 2008 given the lag time required for typical
of the LTCH PPS, that is, for LTCH cost LTCH PPS proposed rule (72 FR 4804), cost report settlement and the lag time
reporting periods beginning on or after we continue to believe that collecting in data availability, after the conclusion
October 1, 2002 through September 30, and evaluating new data as it becomes of the 5-year transition period (October
2003. When we established the FY 2003 available will allow us to have the best 1, 2007), we expect to have between 3
standard Federal rate to be budget data from the first year of the LTCH PPS and 4 years (FY 2003 through FY 2006)
neutral, we used the most recent LTCH upon which to base an adjustment such of LTCH data generated since the
cost data available at that time, and as this. As we explained in the RY 2007 implementation of the LTCH PPS.
trended that data forward to estimate LTCH PPS final rule (71 FR 27844), Specifically, we expect that we will be
what Medicare would have paid to there are many LTCHs with cost in possession of the most reliable cost
LTCHs under the TEFRA payment reporting periods from September 1 report data, indicating the actual costs
through August 30 which first became of the Medicare program of the LTCH
system if the PPS were not implemented
subject to the LTCH PPS on September PPS during the year in which we
(67 FR 56033). Our methodology for
1, 2003. Given the lag time required for established the standard Federal base
estimating payments for the purposes of
typical cost report settlement involving payment rate by July 2007, and any
BN calculations, utilized the best submission, desk review, and in some
available data and necessarily reflected proposed adjustment under
cases an audit, which can take § 412.523(d)(3), if finalized could then
assumptions in estimating aggregate approximately 2 additional years to
payments that would have been made be implemented on July 1, 2008.
complete (and we expect to audit a
had the LTCH PPS not been We recognize that there have been
number of LTCH cost reports for the
implemented. (The methodology for many changes to the payment rates and
purpose of this analysis), we explained
determining the LTCH PPS standard policies under the LTCH PPS since its
that the October 1, 2006 deadline
Federal rate for FY 2003 that would implementation over 5 years ago. Many
established § 412.523(d)(3) was no
‘‘maintain budget neutrality’’ is of these changes have been
longer reasonable or realistic. In fact, we
described in considerable detail in the implemented as a result of our on-going
believe that for cost reports for
August 30, 2002 LTCH PPS final rule monitoring of LTCH data and changes in
providers on August 2004 fiscal year
(67 FR 56027 through 56037).) In that LTCHs’ behavior in response to the
ending date, we would be in possession
same final rule (67 FR 56036), we also of the most reliable cost report data, implementation of the LTCH PPS. As
stated our intentions to monitor LTCH indicating the actual costs of the discussed above, the purpose of the one-
PPS data to evaluate the ultimate Medicare program of the LTCH PPS time adjustment under § 412.523(d)(3) is
accuracy of the assumptions used in the during the year in which we established to prevent any significant difference
BN calculations (for example, inflation the Federal payment rate by July 2007. between actual payments and estimated
factors, intensity of services provided, Any proposed adjustment under payments from the first year of the
or behavioral response to the § 412.523(d)(3), if finalized could then LTCH PPS, when we established the
implementation of the LTCH PPS). To be implemented on July 1, 2008. budget neutral Federal rate as required
the extent that those assumptions Therefore, in the RY 2008 LTCH PPS by the statute, from being perpetuated in
significantly differed from actual proposed rule, we did not propose to the PPS rates for future years. As
experience, the aggregate amount of make a one-time adjustment under discussed above, our methodology for
actual payments during FY 2003 could § 412.523(d)(3) since we believe that we estimating payments for the purposes of
be significantly higher or lower than the still do not have sufficient new data to BN calculations when the LTCH PPS
estimates upon which the BN enable us to conduct a comprehensive was implemented used the best
reevaluation of our FY 2003 BN available data and necessarily reflects
calculations were based.
calculations (as discussed in greater assumptions in estimating aggregate
At the outset of the LTCH PPS, we payments that would be made if the
detail above in this section).
provided for the possibility of a one- Comment: We received a few LTCH PPS was not implemented. To the
time prospective adjustment at comments in support of waiting another extent that those assumptions
§ 412.523(d)(3). Among other things, we year (that is, until RY 2009) to make the significantly differ from actual
wanted the opportunity to adjust the one-time BN adjustment to benefit from experience, the aggregate amount of
LTCH PPS Federal payment rate once the availability of better data. However, actual payments may result in
data were available that reflected the some other commenters noted that significantly higher or lower payments
actual cost-based payments that would considering all of the payment than the estimates upon which the BN
have been made under the Medicare adjustments we have made to the LTCH calculations were based. Therefore, we
program during FY 2003 if the LTCH PPS since it was implemented on established in regulations at
PPS had not been implemented, rather October 1, 2002, there is no need for a § 412.523(d)(3) the possibility of a one-
than perpetuate any significant one-time BN adjustment to ensure that time prospective adjustment to the
difference between actual payments and aggregate payments under the LTCH LTCH PPS rates to prevent any
estimated payments in the 1st year of PPS would equal approximately the significant difference between actual
the LTCH PPS used in determining the amount that would have been paid to payments and estimated payments from
Federal rate into future years. Therefore, LTCHs under TEFRA had the LTCH PPS being perpetuated in the LTCH PPS
in the RY 2007 LTCH PPS final rule, we not been implemented. rates for future years (as described in
revised § 412.523(d)(3) to postpone the Response: We agree with the greater detail above in this section).
adjustment until July 1, 2008, because commenters that any one-time Among the changes that have been
by that time, given the lag time typically adjustment under § 412.523(d)(3) should made to the LTCH PPS since its
involved in the entire cost report be based on the most complete and up- implementation include updates to the
settlement procedure, we believe we to-date data available for a standard Federal rate as set forth under
will be able to utilize the most accurate comprehensive analysis of the actual § 412.523(c)(3). We note that we will
data reflecting the actual costs incurred Medicare costs incurred by LTCHs take into consideration such changes
when we evaluate the most recent did not receive a full course of a LTCH- would not exceed the estimated costs
complete available data for the purposes level of treatment in such a short period incurred for that case, we would be
of determining whether to propose a of time and the full LTC–DRG payment removing what we believed could be a
one-time prospective adjustment to the would generally not be appropriate. financial incentive to admit and treat
LTCH PPS rates under § 412.523(d)(3) in Payment-to-cost ratio analyses indicated SSO cases that the then existing policy
the RY 2009 proposed rule. that if LTCHs received a full LTC–DRG had established for LTCHs. We did not
For the reasons discussed in this payment for those cases, they would change the payment option of 120
section, we believe that we still do not have been significantly ‘‘overpaid’’ for percent of the per diem for a specific
have sufficient new data to enable us to the resources they have actually LTC–DRG multiplied by the covered
conduct a comprehensive reevaluation expended in treating those patients (67 LOS for that case because as described
of our FY 2003 BN calculations. FR 55995 through 56000). in detail in the FY 2003 final rule LTCH
Accordingly, in this final rule, we are Furthermore, in establishing the SSO PPS, when we first established the SSO
not making a one-time adjustment under policy, we stated that we believed that policy, we found that by adjusting the
§ 412.523(d)(3) at this time. providing a reduced payment for SSO per discharge payment by paying at 120
cases would discourage hospitals from percent of the per diem LTC–DRG
V. Other Policy Changes for the 2008
admitting these patients. We also payment, once a stay reaches five-sixths
LTCH PPS Rate Year
believed that the policy did not severely of the geometric average LOS for the
A. Short Stay Outlier (SSO) Cases penalize providers that, in good faith, LTC–DRG, the full LTC–DRG payment
had admitted a patient and provided will have been made (67 FR 55999). We
1. Background
some services before realizing that the continue to believe that this specific
In the Prospective Payment System beneficiary could receive more methodology, which results in a gradual
for LTCHs: Implementation and FY appropriate treatment at another site of increase in payment as the LOS
2003 Rates final rule (67 FR 55954, care. As we explained in the FY 2003 increases without producing a
August 30, 2002) (hereinafter referred to LTCH PPS final rule, establishing a SSO significant payment ‘‘cliff’’ at any one
as the FY 2003 LTCH PPS final rule), payment for these types of cases point, provides a reasonable payment
under § 412.529, we established a addresses the incentives inherent in a option under the SSO policy.
special payment policy for SSO cases, discharge-based PPS for LTCHs for However, an analysis of the FY 2004
that is cases with a covered LOS that is treating patients with a short LOS (67 MedPAR data indicated that even under
less than or equal to five-sixths of the FR 55995 through 56000). the existing SSO policy, LTCHs were
geometric average LOS for each LTC– admitting short stay patients that we
DRG. When we established the SSO 2. Additional Discussion of the SSO
believe could have continued treatment
policy, we explained in the FY 2003 Payment Formula
at the acute care hospitals (paid for
LTCH PPS final rule that ‘‘[a] short-stay In the FY 2003 LTCH PPS final rule, under the IPPS) but could have been
outlier case may occur when a when we first presented our rationale actually being prematurely discharged
beneficiary receives less than the full for establishing the SSO policy, we had to LTCHs. Therefore, in the RY 2007
course of treatment at the LTCH before proposed an adjustment to ensure LTCH PPS final rule, we added a fourth
being discharged.’’ (67 FR 55995) Also appropriate payment for cases that we payment option. This fourth payment
in the FY 2003 LTCH PPS final rule, we believed may have been transferred alternative, a blend of an LTCH PPS
stated that when we first described the from an acute hospital prematurely. amount that is comparable to the IPPS
policy, in the Prospective Payment Even if a patient was an appropriate per diem payment amount, and 120
System for LTCHs: Implementation and admission to the LTCH, we also percent of the LTC–DRG per diem
FY 2003 Rates proposed rule (67 FR believed that a short stay case at a LTCH payment amount, as described below in
55995, March 27, 2002), ‘‘* * * we most likely did not receive a full course this section, reflects our belief that as
based the proposed policy on the belief of medical treatment during the short the length of a SSO stay increases, the
that many of these patients could have stay and that a full LTC–DRG payment case begins to resemble a more ‘‘typical’’
been treated more appropriately in an would therefore, be inappropriate (67 LTCH stay and, therefore, it is
acute hospital subject to the acute care FR 55995 through 56000). appropriate that incrementally, payment
hospital inpatient prospective payment In keeping with these concerns, and should be based more on what would
system’’. Therefore, under the LTCH based on an evaluation of data from otherwise be payable under the LTCH
PPS, we implemented a special payment more than 3 years of the LTCH PPS, PPS and less on the IPPS-comparable
adjustment for SSO cases. Under the which revealed that a large percentage amount. (Specifics of calculating the
original SSO policy, for LTCH PPS of SSOs had a covered LOS of 14 days IPPS-comparable amount are set forth in
discharges with a covered LOS of up to or less, we revised our payment policy considerable detail in the RY 2007
and including five-sixths the geometric for SSO cases in the RY 2007 LTCH PPS LTCH PPS final rule (71 FR 27852
average LOS for the LTC–DRG, we final rule for subclause (I) LTCHs (71 FR through 27853).
adjusted the per discharge payment 27845 through 27870). We noted at the outset of the LTCH
under the LTCH PPS by the least of 120 Consistent with the Secretary’s broad PPS for FY 2003, that the LTCH
percent of the estimated cost of the case, authority ‘‘to provide for appropriate standard rate was calibrated based on
120 percent of the LTC–DRG specific adjustments to the long-term hospital LTCH resources expended in treating a
per diem amount multiplied by the payment system * * *’’ established patient population requiring long stays.
covered LOS of that discharge, or the under section 123 of the BBRA as Therefore, in establishing the SSO
full LTC–DRG payment 67 FR 55995 amended by section 307(b)(1) of BIPA, policy at the beginning of the LTCH
through 56000). for RY 2007, we reduced the cost-based PPS, we determined that it was
As noted previously, generally LTCHs option of the SSO policy adjustment to appropriate that we not pay a full LTC–
are defined by statute as having an 100 percent of the estimated costs of the DRG payment for a patient stay not
ALOS of greater than 25 days. We stated case for discharges occurring on or after requiring those resources (67 FR 55995
that we believed that the SSO payment July 1, 2006. We believed that by through 56000). Our revision of the
adjustment results in more appropriate reducing the Medicare payment to a payment formula for SSOs for RY 2007
payments, since these cases most likely LTCH for a specific SSO case so that it reflected our belief that where a case
met our definition of a SSO at which they were grouped. Of these statisticians to measure the variation in
§ 412.529(a), as the covered LOS cases, 20 percent had stays of less than a data set.) We believe that it is
increased, the case began to more 8 days. Since payments under the LTCH appropriate to compare the covered LOS
closely resemble a characteristic LTCH PPS were based on the resources of a LTCH case grouped to a particular
case (and less like a short term acute necessary for treatment requiring long LTC–DRG to the ALOS plus one
care hospital case). Therefore, it was term hospital-level stays, beginning standard deviation for the
appropriate to base an increasing with the start of the LTCH PPS, we corresponding DRG under the IPPS. At
percentage of payment for SSOs on the established the SSO policy, to provide one standard deviation, we have
LTC–DRG payment amount and a appropriate payment for stays that were identified approximately 68 percent of
decreasing percentage of the LTCH PPS significantly shorter than the ALOS for the IPPS cases within that DRG that
payment amount based upon the IPPS- each specific LTC–DRG. were discharged from acute care
comparable amount. The original SSO policy focused on hospitals and paid for under the IPPS.
We continue to believe that in our concerns that a SSO patient would Using the statistical test of one standard
defining a LTCH as a hospital with an generally receive less than the full deviation of the ALOS for each DRG
inpatient ALOS of greater than 25 days course of treatment at the LTCH before under the IPPS, identifies the majority
in section 1886(d)(1)(B)(iv)(I) of the Act, being discharged and a full LTC–DRG of IPPS discharges in any DRG.
that the Congress was focusing on LOS payment would not be appropriate (67 We believe that the 42 percent of
as the essential characteristic of this FR 55943, 55995 through 55996). As we LTCH SSO cases in the RY 2005
provider category. Furthermore, we noted in the RY 2007 LTCH PPS final MedPAR files with lengths of stay that
believe that the statutory change rule, when we revised the SSO policy are equal to or less than the IPPS ALOS
requiring the establishment of the LTCH based on our analysis of the nearly 3 plus one standard deviation for the
PPS emphasized that the payment years of data since we designed the same DRGs under the IPPS appear to be
system should reflect the different LTCH PPS, we believed that our SSO comparable to typical stays at acute care
resource use related to inpatient policy should reflect our conviction that hospitals.
hospital services provided by hospitals many SSO patients could otherwise Although LTCHs are certified by
specified by section 1886(d)(1)(B)(iv) of have continued to receive appropriate Medicare as acute care hospitals, we
the Act, that is, by LTCHs (71 FR care in the acute care hospital from believe that the Congress intended for
27865). Specifically, we believe that the which they were admitted. Had these the higher LTCH PPS payments to be
language of the statute indicates that the patients not been discharged from the made to LTCHs that treat patients
Congress believed that LTCHs treat or acute care hospital, the additional days requiring prolonged hospital-level care.
should be treating patients with of treatment would have continued to Payments under the LTCH PPS, in
different medical needs which results in have been paid for under the IPPS (71 compliance with the statutory
those patients having a significantly FR 27845 through 27865). mandates, have been calibrated based
longer LOS than those acute care Section 123 of the BBRA, as amended on ‘‘the different resource use’’ of
hospital patients that we pay for under by section 307(b) of the BIPA, confers LTCHs. We believe that we are
the IPPS. broad authority on the Secretary to ‘‘overpaying,’’ under the LTCH PPS, for
In section 4422 of the BBA of 1997, implement a PPS for LTCHs, including those SSO cases in LTCHs with covered
which required that the Secretary provisions for appropriate adjustments lengths of stay that are equal to or less
develop a legislative proposal for the to the payment system. This broad than the typical IPPS ALOS (that is, a
establishment of a PPS for LTCHs, the authority gives the Secretary flexibility LOS that is less than or equal to the
Congress specified that the system to fashion a LTCH PPS based on both average IPPS LOS plus one standard
‘‘shall include an adequate patient original policies, as well as concepts deviation for the same DRG under the
classification system that reflects the borrowed from other payment systems IPPS).
differences in patient resource use and that are adapted, where appropriate to We further believe that in excluding
costs among such hospitals.’’ Section the LTCH context. In the RY 2007 LTCH LTCHs from being paid under the IPPS,
123 of the BBRA of 1999, which PPS final rule, we formulated a payment the Congress also recognized several
required implementation of a PPS for adjustment under the LTCH PPS that we types of hospital-level providers that
LTCHs for cost reporting periods believed would result in an appropriate offered a different type of treatment than
beginning on or after October 1, 2002, payment adjustment for those inpatient could reasonably be paid for under the
specified, among other things, that the stays that we believe are not IPPS. Specifically, in the FY 2002 LTCH
system be a per discharge payment characteristic of LTCHs but could more PPS final rule, we reviewed the history
system, based on diagnosis-related appropriately be treated in another of LTCHs as hospitals excluded from the
groups (DRGs), and ‘‘reflects the setting. IPPS. At that time we quoted the
differences in patient resource use and Subsequent to the RY 2007 LTCH PPS legislative history of the 1983 Social
costs’’ of LTCH patients. Section 307(b) final rule, we have performed additional Security Amendments which stated,
of the BIPA of 2000 required the analysis of more recent data FY 2005 with regard to LTCHs, that the ‘‘DRG
Secretary ‘‘to examine the feasibility MedPAR data, and have determined that system was developed for short-term
and the impact of basing payment under 42 percent of LTCH SSO discharges, or acute care general hospitals and as
such a system on the use of existing (or approximately 19,750 cases, had lengths currently constructed does not
refined) hospital DRGs that have been of stay that were less than or equal to adequately account for special
modified to account for different the average LOS plus one standard circumstances of diagnoses requiring
resource use of LTCH patients.’’ deviation of an IPPS discharge that is long stays’’ (Report of the Committee on
When we developed the LTCH PPS the same DRG as the LTC–DRG to which Ways and Means, U.S. House of
for FY 2003, the most recently available the case was assigned. (One standard Representatives, to Accompany HR
MedPAR data (generally, for FYs 1998 deviation is a statistical test which 1900, H.R. Rept. No. 98025, at 141
and 1999) revealed that 52 percent of measures the certainty of the average of (1983) (67 FR 55957)). Therefore, from
the Medicare patients at LTCHs a set of measurements for the purpose the very outset of the IPPS, the Congress
nationwide had a LOS of less than two- of data analysis. The standard deviation distinguished LTCHs from short term
thirds of the ALOS for the LTC–DRG to is the quantity commonly used by acute care hospitals by patients’ lengths
of stay. The PPS for LTCHs that we even under the blend payment option of psychiatric units of section 1886(d)
implemented in FY 2003, complied the SSO policy that we established for hospitals (that is, acute care hospitals
with the statutory mandate, cited above RY 2007, a percentage of the payment paid for under the IPPS) but not LTCH
in this section, that payments under the for those short stay patients at LTCHs units.)
LTCH PPS be calibrated based on ‘‘the may be based on a payment rate that As we stated in the RY 2007 LTCH
different resource use’’ of these long- was calculated to reflect the ‘‘different PPS final rule, ‘‘* * * an analysis of the
stay LTCH patients. Consequently, as resource use’’ at LTCHs as compared to CY 2004 MedPAR files revealed that for
we stated in the RY 2007 LTCH PPS payment based on DRGs at acute care specified DRGs for acute care cases
final rule, we believe that ‘‘LTCHs that hospitals paid for under the IPPS. We following ICU/CCU days, there were
admit SSO patients with lengths of stay believe that based on this analysis under significantly fewer ‘recuperative’ days
more typical of an acute care hospital the existing SSO policy for short stay (nearly 50 percent) for acute care outlier
may be, in fact, behaving like acute care patients where the patient’s LOS is less patients that were discharged from the
hospitals’’ (71 FR 27847), and we also than or equal to the average LOS plus acute care hospital and then admitted to
believe that it is reasonable for one standard deviation for the same a LTCH than for those patients that were
payments under the LTCH PPS for such DRG at an acute care hospital, paid for discharged from the acute care hospital
cases to reflect this behavior. under the IPPS, our blended payment and not subsequently admitted to a
MedPAR data indicate that for the methodology could result in an LTCH. For example, under the IPPS for
approximately 350 LTCHs in existence excessive payment. DRG 475 (Respiratory system diagnosis
during FY 2005 that discharged Our data further indicates that with ventilator support) and DRG 483
approximately 130,000 cases, 46,600 typically LTCHs admit approximately (Trach with mechanical vent 96+ hours
discharges were SSO patients. During 80 percent of their patients from acute or PDX except face, mouth and neck
that same period, the approximately care hospitals where their urgent diagnosis), the number of ‘recuperative’
3,600 acute care hospitals throughout conditions have been diagnosed, days were considerably shorter at the
the United States discharged treated, and stabilized. We believe that acute care hospital if there was a
approximately 12.7 million Medicare when these patients are admitted to a discharge at the acute care hospital
beneficiaries. At the approximately LTCH for an extremely short stay, the followed by an admission to a LTCH.’’
3,600 acute care hospitals, treatment for LTCH appears to be serving as a step- (71 FR 27857) The data in Table 5 is
Medicare patients is paid for under the down unit of the acute care hospital (71 consistent with our belief that many
IPPS, including those cases with a LOS FR 27857 through 27858). (Section LTCHs appear to be admitting some
that is the same as the LOS for SSO 1886(d)(1)(B) of the Act, provides for the SSO patients that could have received
treated at a LTCH. However at a LTCH, establishment of rehabilitation and the care at the acute care hospital.
TABLE 5.—HCO LOS, ICU/CCU LOS, AND POST-ICU/CCU LOS FOR SELECTED INPATIENT DRGS BY POST-DISCHARGE
STATUS
[Live discharges only]
Outlier Post ICU/

DRG Cases LOS ICU/CCU CCU days
days
475 (no LTCH) ............................................................................................................................. 3,887 32.5 20.5 12

475 (with LTCH) .......................................................................................................................... 515 29.6 22.6 7
483 (no LTCH) ............................................................................................................................. 3,257 73.6 53.6 20
483 (with LTCH) .......................................................................................................................... 2,353 45.7 41 4.7
In our analysis of what we believe are the average LOS plus one standard determined under § 412.529(d)(3); or an
excessive payments under the existing deviation for the same DRG under the LTCH PPS amount comparable to the
LTCH PPS for the shortest SSOs, we IPPS, the LTCH SSO case would be IPPS per diem amount as defined at
focused on those SSO cases where a within the ‘‘IPPS comparable § 412.529(d)(4), not to exceed the full
LTCH patient’s covered LOS at the threshold.’’ In the RY 2008 LTCH PPS IPPS comparable amount.
LTCH is less than or equal to the ALOS proposed rule, we stated that an
We noted that the RTI Report
plus one standard deviation for the alternative payment option would be
discussed in Section XI. of the RY 2008
same DRG at acute care hospitals (the appropriate for such a case. We
indicated that we were considering the LTCH PPS proposed rule (72 FR 4818)
‘‘IPPS comparable threshold’’) and
distinguishing between those SSO cases following approach: in cases where the included an RTI recommendation that
with lengths of stay that are less than or covered LOS was equal to or less than ‘‘* * * for LTCH cases whose LOS is
equal to the ‘‘IPPS comparable the ‘‘IPPS comparable threshold’’ within 1 standard deviation of the IPPS
threshold’’ from those that exceed that (defined above in this section) of the average LOS, LTCHs should be paid the
threshold. same DRG under the IPPS, the SSO IPPS rate. When this occurs, it suggests
For the purposes of this discussion, payment methodology could be revised that LTCH is providing general acute
whether the LTCH SSO case is within so that payment would be based upon care for these patients. This will allow
the ‘‘IPPS comparable threshold’’ is the least of 100 percent of estimated LTCHs to treat these cases but be paid
determined by comparing the covered costs of the case as determined under on an equitable basis with other acute
LOS of that SSO case which has been § 412.529(d)(2); 120 percent of the LTC– hospitals since the shorter length stay
assigned to a particular LTC–DRG to the DRG per diem multiplied by the covered would suggest general acute treatment is
ALOS for the same DRG under the IPPS. LOS of the case as determined under being provided.’’ (Recommendation 11,
For example, if the covered LOS of the § 412.529(d)(1); the Federal prospective p. 139) (We also included the Executive
LTCH SSO case is equal to or less than payment for the LTC–DRG as Summary of the RTI Report as
Addendum B in the RY 2008 LTCH PPS proposed rule (72 FR 4807), we Comment: A number of commenters
proposed rule (72 FR 4884).) indicated that exempting subsection (II) stated that the IPPS-comparable option
Under the approach that we discussed LTCHs under this approach is that we discussed for payment under
in the RY 2008 LTCH PPS proposed consistent with positions regarding the the SSO policy would be a violation of
rule, SSO cases with covered lengths of application of SSO policies to subclause the express will of the Congress in
stay exceeding the ‘‘IPPS comparable (II) LTCHs. For example, in RY 2004, we establishing the category of hospitals
threshold’’ would continue to be paid provided a distinctive phase-in formula that were excluded from the IPPS under
under the existing SSO payment policy for subclause (II) LTCHs (§ 412.529(e)), section 1886(d)(1)(B) of the Act. In
at § 412.529(c)(2) which is the least of: and in the RY 2007 LTCH PPS final addition, these commenters stated that
100 percent of the estimate cost of the rule, we did not apply SSO policy under that provision the Congress
case as determined under § 412.529 revisions for subclause (I) LTCHs acknowledged that these excluded
(d)(2); 120 percent of the per diem of the (§ 412.529(c)(2)) to subclause (II) LTCHs hospitals (that is, LTCHs, IRFs, IPFs,
LTC–DRG multiplied by the covered ((68 FR 34122, 34147 through 34148) childrens hospitals, and cancer
LOS of the case as determined under (71 FR 27798, 27863)). hospitals) could not reasonably be paid
§ 412.529(d)(1); the Federal prospective To encourage a thorough and accurate under a PPS system that had been
payment for the LTC–DRG as evaluation of this approach, we designed to pay for treatment in acute
determined under § 412.529(d)(3); or a included a column in Table 3 of care hospitals. Further, these
blend of the 120 percent of the LTC– Addendum A of the RY 2008 LTCH PPS commenters stated that the approach we
DRG specific per diem amount and an proposed rule (72 FR 4872 through discussed would violate the intent of
amount comparable to the IPPS per 4884), which set forth the IPPS- the Congress (that is, as expressed in the
diem amount as set forth in § 412.529 comparable threshold for each LTC– BBRA of 1999 and the BIPA of 2000) to
(c)(2)(iv). (The methodology for the DRG. We noted that to determine the establish a unique PPS that is specific
calculation of these amounts is specified ‘‘IPPS Comparable Threshold’’ for some to LTCHs.
at § 412.529(d).) DRGs it was sometimes necessary to Some of these commenters claimed
However, for the shortest SSO cases supplement IPPS hospital statistical that the proposed IPPS-comparable
(that is, if the LTCH patient’s covered option to the SSO payment policy
data due to a low volume of IPPS cases
LOS is less than or equal to the ‘‘IPPS- would be forbidden under the statute
grouped to those DRGs. In addition,
comparable threshold’’), the IPPS because such a payment option would
although IPPS hospital statistical data
comparable per diem amount, capped at ignore the ‘‘differences in patient
for the six transplant DRGs (103, 302,
the full IPPS comparable amount that is resource use and cost’’ at LTCHs. Some
480, 495, 512 and 513) and two error
used under the blend option of the commenters criticized our use of the
DRGs (469 and 470) may be available,
current SSO policy, could be the fourth phrase ‘‘a payment otherwise
we noted that we could assign a value
payment option in the SSO payment comparable to what would have been
of zero for the ‘‘IPPS Comparable
formula, replacing the blend option in paid under the IPPS’’ as a disingenuous
Threshold’’ for these LTC–DRGs. This
the adjusted LTCH PPS payment attempt to ‘‘side-step’’ the Congressional
formula at existing § 412.529(c)(2)(iv). approach was consistent with our on-
mandate that the LTCHs not be paid
We indicated that we believed this going policy under the LTCH PPS to
based on the acute care IPPS. Generally,
approach to be appropriate because it assign a value of 0.0000 to the relative
commenters expressed the view that, if
would continue to ensure that the LTCH weights for these LTC–DRGs, as
we adopted the approach described in
PPS payments are appropriate for all discussed in section III.D of this final
the RY 2008 LTCH PPS proposed rule,
cases; including those with a LOS that rule.
we would be violating the statutory
resemble cases typically treated at acute As we detailed in this discussion, we intent that LTCHs be excluded from the
care hospitals. are concerned as to whether it is IPPS in adopting the proposed IPPS-
However, we also indicated that, in appropriate to pay cases that have a comparable payment adjustment under
considering this policy direction, we covered LOS in the LTCH that is less the revised SSO policy.
did not believe that this approach for than or equal to the IPPS ALOS plus one Some commenters specifically cited
SSOs would be appropriate for the standard deviation for the same DRG the Court’s two-prong test for validity of
specific situation of a subsection (II) more than would be paid under the a regulation established under Chevron
LTCH (that is, a LTCH meeting the IPPS for a similar case. In the RY 2008 U.S.A., Inc. v. Natural Resources
definition specified in section LTCH PPS proposed rule, we solicited Defense Counsel, Inc. 467 U.S. 837,
1886(d)(1)(B)(iv)(II) of the Act). We have comments on the approach described 842–843 (1984), and asserted that the
addressed the uniqueness of this type of above, as well as suggestions as to policy we discussed would fail to pass
LTCH in several notices ((62 FR 45966, alternative ways in which to address our that test. Under the ruling, the Court
46016, and 46026), (67 FR 55954 and concerns. asks whether the Congress addressed, in
55974), (68 FR 34147 through 34148) We received many comments on the clear language, the issue in question
(71 FR 27863)). We believe that possible revision to the SSO policy that and, if the answer is affirmative, the
subclause (II) LTCHs operate under a we discussed in the proposed rule. The effect is given to the ‘‘unambiguously
unique Congressional mandate which, commenters expressed the views of expressed intent of the Congress.’’ If the
as set forth in section trade associations representing LTCHs, ‘‘statute is silent or ambiguous with
1886(d)(1)(B)(iv)(II) of the Act, both for-profit and not-for-profit LTCH respect to the specific issue,’’ the
circumscribes such a LTCHs’ admission groups, medical corporations that Agency’s interpretation is allowed to
policies to the extent that it is being include LTCHs, State medical societies, stand as long as it is based on a
identified as a LTCH in order to provide a Chamber of Commerce, legislators, permissible construction of the statute.’’
a particular type of service (for which physicians and other hospital staff, and Id. at 843. Deference to the Agency’s
the ALOS is greater than 20 days) to a several interested citizens. In general, interpretation is ‘‘only appropriate
particular population (at least 80 commenters did not support the policy when the agency has exercised its own
percent have a principal diagnosis of approach that we discussed and the judgment’’ and is not based upon an
neoplastic disease) (68 FR 34147). payment effects that would result for erroneous view of the statute.
Therefore, in the RY 2008 LTCH PPS LTCHs if the policy were adopted. Commenters asserted that the adoption
of the revised SSO policy that we direction given to the Secretary by the and ‘‘proposed policy.’’ We believe that
discussed would clearly violate the Congress in the BBRA. The Congress commenters clearly understood both the
statutory requirement to pay LTCHs specifically provided for the adoption of substance of the possible revised policy,
under a PPS separate and distinct from appropriate adjustments to the LTCH and the fact that we might adopt the
the IPPS. PPS. revised policy in the final rule after
Response: We disagree with Comment: Several commenters review of the comments.
commenters’ contention that the LTCH similarly objected that adopting the Comment: Several commenters stated
PPS SSO policy that we described in the policy we discussed in the proposed that adopting the policy discussed in
RY 2008 LTCH PPS proposed rule, rule would constitute a violation of the the RY 2008 LTCH PPS proposed rule
based on an IPPS comparable payment Administrative Procedures Act (APA). would be premature, since the existing
amount, constitutes payment under the Specifically, these commenters objected SSO policy only became fully effective
IPPS. Rather, the policy that we that our discussion of the policy failed on October 1, 2006. Specifically, the
discussed adapts methodologies and to satisfy the APA’s requirement that a commenters believe that there has not
approximate payment amounts from the notice of proposed rulemaking include been sufficient time to evaluate the
IPPS to specific cases under the LTCH ‘‘the terms or substance of the proposed impact and effectiveness of the policy
PPS. We have adapted many different rule’’ because we did not provide change adopted last year to provide for
features originally developed under the ‘‘specific regulatory language to a blend of unadjusted LTCH payment
IPPS for use in the LTCH PPS, including implement’’ the policy. Commenters rates and IPPS-comparable LTCH PPS
the DRG structure, wage index contended that, in the absence of this payment rates as one of the formulas for
adjustments (and wage index values), specific regulatory language, interested determining payment of SSOs. Some
outlier payments, and many others. We parties are ‘‘improperly limited in the commenters stated that, as a result of
believe that none of these adaptations degree to which they are able to last year’s change, LTCHs no longer
constitute establishment of payment participate in the rulemaking process,’’ have an incentive to knowingly admit
under the IPPS for LTCH hospitals. even if CMS receives comments on the these kinds of patients.
In addition, section 123 of the BBRA, policy discussed. Response: While we understand the
as amended by section 307(b)(1) of the Response: We do not agree that concerns of the commenters, we believe
BIPA, confers broad discretionary adopting the policy approach discussed that it is not premature to implement
authority on the Secretary to develop in the proposed rule, in this final rule, this revision to the SSO policy. We have
and implement a PPS for LTCHs, would constitute a violation of the APA. been studying these cases intensively
specifically mandating a few specific Specifically, we believe that we have since the implementation of the LTCH
features of the new system including ‘‘a complied with all the applicable PPS (which was fully effective for cost
per discharge prospective payment requirements in 5 U.S.C. 553. Among reporting periods on or after October 1,
system’’ that includes an ‘‘adequate the requirements of section 553, the 2002, contrary to the implications of
payment classification system’’ based on notice shall include the terms or some commenters) and remain
diagnosis-related groups (DRGS) that substance of the proposed rule, or a concerned that, in a considerable
reflects the differences in patient description of the subjects or issues number of cases, LTCHs may be
resource use and costs, and shall involved. Our comprehensive receiving higher payment than is
maintain budget neutrality.’’ Section discussion in the proposed rule set forth warranted for cases that are also treated
307(b)(1) of the BIPA further provides the substance of the final SSO policy we with similar lengths of stay at IPPS
that the Secretary ‘‘may provide for are adopting in this final rule and hospitals. We have a responsibility to
appropriate adjustments to the long- provided a complete description of the ensure that Medicare trust fund is
term hospital payment system, subject and issues involved. Therefore, appropriately spent, and therefore, we
including * * * outliers * * * ’’ We we believe we satisfied this and all do not believe that we should delay
believe that these statutory provisions other applicable APA requirements. Our adoption of a provision to preserve the
provide broad authority and allow the discussion of the policy in the RY 2008 program’s resources. However, if the
Secretary great flexibility to fashion a LTCH PPS proposed rule that we are commenters are indeed correct that last
LTCH PPS based on both original adopting in this final rule was detailed year’s policy change removed any
policies, as well as concepts borrowed and specific, and even detailed the incentive to admit these kinds of SSO
from other payment systems that are impact the change would have on patients, the actual effect of the policy
adapted, where appropriate, to the payments to LTCHs, despite the absence that we are now adopting may be
LTCH context. In the instant case, the of regulatory language. We received 270 relatively small and we believe that it is
SSO policy that we discussed in the RY comments on the RY 2008 LTCH PPS the CMS’s responsibility to conserve the
2008 LTCH PPS proposed rule utilizes proposed rule. As is evident in our Medicare program’s resources to the
principles from the IPPS payment detailed discussion of these comments, maximum extent that is appropriate.
methodology and builds upon those commenters were able to provide Therefore, we are finalizing the policy
concepts to create a LTCH PPS payment complex, specific, and pertinent in this final rule.
adjustment that results in an discussion of ‘‘the terms or substance’’ Comment: Several commenters
appropriate payment for those inpatient and ‘‘description of the subjects and supported our goal of analyzing the role
stays that we believe do not necessarily issues involved’’ of the policy that we of LTCHs as one of several treatment
belong in LTCHs but could be treated in discussed. settings among post-acute providers for
another setting. In this final rule, we are It may be worth noting that, despite Medicare beneficiaries. However, they
adopting the approach we discussed to the absence of proposed, formal urged us not to finalize the SSO policy
supplement our existing SSO policy. regulatory text, a number of commenters that we discussed in the proposed rule
Therefore, we disagree with commenters (including some who raised this that would include the alternative
that the Secretary is acting in objection) referred to the revised SSO payment option for an SSO payment
contradiction of the statute and policy that we discussed in the comparable to the IPPS payment
inconsistently with the Chevron proposed rule with terms such as amount. These commenters believe that
doctrine. On the contrary, we believe ‘‘proposal,’’ ‘‘proposed change,’’ finalizing this policy would result in
that this policy is consistent with the ‘‘proposed SSO payment methodology,’’ drastic payment reductions and
consequential losses to the LTCHs. Comment: We received numerous while these patients may meet
These commenters noted that our comments that praised the quality care continued stay criteria, we believe many
discussion related to serious issues given to Medicare beneficiaries by the could be cared for in a less acute
about the proper place for LTCHs along LTCHs in their areas and commenters setting.’’
the continuum of care for Medicare urged us not to make significant cuts in Response: We understand the serious
beneficiaries. The commenters urged us Medicare payments which they fear concerns expressed by the commenters
not to address these issues through would result in reduced services. The and, although we are finalizing the SSO
payment mechanisms, but to arrive at commenters asserted that the revision of policy revisions as were discussed in
‘‘clinically-based’’ answers to these the payment adjustment for SSO the RY 2008 LTCH PPS proposed rule,
issues. Commenters also recommended patients as discussed in the RY 2008 we want to assure the commenters that
that we wait until Research Triangle LTCH PPS proposed rule will be we are aware of their concerns. We
Institute (RTI) completes the next phase detrimental to the industry as costs of agree that if a Medicare beneficiary is
of its work, which includes a review of providing care will exceed payment. appropriately referred, and admitted, to
proposed and existing criteria to restrict Further, the commenters stated that one of the approximately 400 LTCHs in
admission to LTCHs to medically underpayment to LTCHs will cause the United States for a complex medical
complex cases. patients with complex medical condition, the beneficiary could receive
Response: The commenters are correct conditions to lose access to appropriate excellent medical care from a highly-
that the issue involves the role of LTCHs care and increase costs to acute care trained and committed professional
hospitals which will be forced to staff. However, we do not believe that
in the continuum of beneficiary care. As
continue caring for these sicker patients. the revisions to the SSO policy that we
a provider category, LTCHs were created
The commenters believed that the are finalizing will result in LTCHs going
by section 1886(d)(1)(B)(iv)(I) of the Act
proposed revisions to the SSO payment out of business or that significant
and defined by the statute as ‘‘a hospital
policy would have a profound impact services would have to be curtailed with
which has an average inpatient length of
on the entire health care system of their dire consequences for beneficiaries, staff
stay (as determined by the Secretary) of
communities since their LTCHs are a or the local medical care system. As
greater than 25 days.’’ (Subclause (II)
critical component of the State health noted elsewhere, our data indicates the
LTCHs, discussed below in these
care delivery system. They stated that aggregate margins for LTCHs were 7.8
responses, which were established
since LTCHs offer specialized services percent for FY 2003 and 12.7 percent for
under the BBA of 1997, qualify as 2004. When we proposed the RY 2007
not available elsewhere, severe cutbacks
LTCHs under highly specific change to the SSO policy, commenters
for LTCHs could resonate throughout
requirements.) As a ‘‘prudent purchaser also warned that the policy would result
the entire health care system.
of care,’’ we believe that we have the One commenter noted that CMS made in the closure of LTCHs with disastrous
mandate to pay appropriately for the a statement that it does not expect any effects on the health care delivery
hospital-level services provided to changes in quality of care or access to system in those areas of the country.
Medicare beneficiaries. The RTI study, services for Medicare beneficiaries However, after implementing the
as discussed in section XI. of the under the LTCH PPS based on proposed proposed changes, we have not
preamble to this final rule, represents a rule policies. However, one of the observed any significant reduction in
highly significant step in evaluating the commenters stated that a decrease in the number of available LTCH beds in
clinical role for LTCHs. In addition to payments will have pervasive effects on the country. On the contrary, we
the RTI study, there is considerable LTCHs. Moreover, the commenter stated continue to observe that LTCHs are
attention being focused by CMS on that the impact of changes in our opening new LTCHs. Therefore, we
issues of substitution of services among payments to LTCHs because of the believe that even with decreased
provider types, and the potential for the proposed SSO policy revisions will not Medicare payments for SSO patients,
development of a uniform assessment only affect services offered to ‘‘the most such as we are envisioning based on this
tool across post-acute providers. As RTI vulnerable patients,’’ but also will have finalized payment policy and detailed
evaluates the feasibility of identifying an impact on the staff of the LTCHs. in the Impact (see section XV. to this
clinically-based criteria for LTCH Several of the commenters specified that final rule), we believe that LTCHs will
patients, we are concerned that patients they envision that acute care hospitals generally be able to continue delivering
with the same general medical profile as will be overtaxed and incur additional high quality medical care to their
the same types of patients that costs without being able to provide ICU patients. However, we continue to
constitute some SSO cases in the LTCH beds for patients requiring short-term believe that acute care hospitals should
setting are also being treated at acute acute care services. They also stated that not be discharging patients to LTCHs
care hospitals, often as HCO cases. the acute care hospitals in their without having provided a full episode
Therefore, we are finalizing this specific communities may not be able to meet of care and we also continue to have
revision to the SSO policy, as discussed patient needs for those needing LTCH concerns about LTCHs admitting those
in the RY 2008 LTCH PPS proposed services. relatively short stay patients who could
rule, because we are concerned about One commenter cited the experience otherwise be treated in acute care
the significant number of very short stay of a local faith-based, not-for-profit hospitals.
patients currently receiving treatment at LTCH system that admits only very high Comment: Many commenters stated
LTCHs. These are patients with a LOS acuity, long-term patients and realizes that our proposed IPPS-comparable
that is comparable to the LOS for many exceptional quality, outcomes, and cost payment option under the SSO policy
patients (under the same DRG) treated effectiveness. But other LTCHs within could discourage physicians from
in acute care hospitals and paid under the industry admit low acuity patients. discharging patients from acute care
the IPPS. LTCHs in actuality are also The commenter stated, ‘‘* * * many hospitals and admitting them to LTCHs.
acute care hospitals, they are a provider LTCH providers seek to admit Thus, they charged that we were
type that is distinguished solely by its chronically ill ‘slow-recovery’ patients establishing a system in which clinical
focus on long-stay hospital-level care as as a primary target population. These judgment is trumped by determinations
compared to patients paid under the patients have little difficulty meeting based solely on payment. The
IPPS. the 25-day LTCH ALOS criteria, and commenters further stated that since
physicians discharge patients to LTCHs acute care hospital for many patients, at exemplified at acute care IPPS hospitals,
because it is in the patients’ best a far higher cost, which it is possible to as well as at LTCHs.
interests, we would be substituting our do as long as the LTCH continues to Comment: Several commenters
judgment for a physician, setting a very maintain an ALOS of 25 days for claimed that even for what we would
dangerous precedent. The commenters purposes of qualifying for payments term ‘‘appropriate’’ admissions, our
also noted that there is available data under the LTCH. Moreover, we do not proposed payment option under the
supporting the medical determination believe that the payment policy option SSO policy that could generate an IPPS-
that physicians are discharging patients that we are finalizing for SSO discharges comparable payment will erect barriers
to the LTCH setting because the will deter physicians from delivering to the use of LTCHs. One commenter
patient’s needs are better served in the appropriate care to beneficiaries or from asserted that typical LTCH patients
LTCH setting than in an acute care making appropriate referrals in the (described by the commenter as elderly
hospital setting. interests of their patients to LTCHs. patients with persistent multiple-system
Response: Our objective for the Furthermore, LTCHs remain free to failures who are de-conditioned and
revised SSO policy discussed in the RY accept these patients. In finalizing this protocol-resistant) respond impressively
2008 LTCH PPS proposed is to preclude payment policy, we are seeking to to the aggressive blending of therapeutic
LTCHs and physicians from taking remove any financial incentive that interventions, interdisciplinary teams,
advantage of a system that significantly could encourage a LTCH to admit a and medical intervention that is not
‘‘overpays’’ (that is, relative to what patient from an acute care hospital prior otherwise available in the community or
would be paid for the same DRG under to that patient having received a full tertiary hospital setting. The commenter
the IPPS) for patients that do not require episode of care at the acute care stated that from ‘‘a case rate
the extensive resources that such high hospital. reimbursement perspective,’’ grouping
payments are intended to support. As Comment: Several commenters cited a such a ‘‘treatment-resistant’’ population
discussed subsequently in this final study centered at Barlow Respiratory with the rest of the general acute care
rule, we recognize that some SSO cases Hospital that charted the course of population is highly inappropriate.
are unavoidable due to death or an ventilator weaning treatment for 1419 Some commenters asserted that even
unexpected clinical improvement and medically unstable patients at 23 LTCHs when adjusted for HCOs, acute care
early discharge. However, we have from March 2002 through February hospitals are not designed or intended
noted that in a community where both 2003. The study reported that more than to provide service to long-term care-type
acute care and LTCH beds are available, 50 percent of this group of patients were
patients. The commenters emphasized
patients are routinely transferred from that acute care hospitals are not
weaned from the ventilators and
the acute care hospital to the LTCH for designed to provide extended care
showed improvement, both
the remainder of care because the LTCH services, unlike LTCHs, with their
neurologically and functionally. The
resource is available. specially-trained expert staff and
As we discuss below in this section, commenters asserted that this study
clinicians and multi-disciplinary
we further compared MedPAR data on exemplifies the excellent level of care
approaches. One commenter noted that
acute care hospitals regarding their LOS for such patients at LTCHs.
LTCHs are like acute care hospitals but
during CY 2003 to their LOS during CY Response: We agree with the must sustain a high level of care for
2005 in markets where LTCHs opened commenters that the results of the longer periods.
in CY 2004. We compared 304,650 acute ‘‘Barlow’’ study indicate a significant Response: We disagree with the
care cases in CY 2004 to 316,816 cases rate of very positive outcomes for the contention that acute care hospitals are
in CY 2005. In CY 2003, there were very sick LTCH patients who were not capable of providing extended
7,586 outliers, and in CY 2005, there included in the study. In the late 1990s, hospital level care services such as the
were 5,858. The percentage of outliers we sponsored a ventilator care provided in LTCHs. Although there
in the acute care hospitals decreased demonstration study which included, may be communities with LTCHs where
from 2.5 percent to 1.8 percent and the among other acute care settings the the acute care hospitals may have
numbers of patients that were admitted Mayo Clinic and Temple University functionally ‘‘restricted’’ their services
to LTCHs in those communities Hospital that also reported impressive because of the presence of these LTCHs,
increased from 2,128 in CY 2003 to results. Furthermore, we understand as well as because of the financial
6,597 in CY 2005. Furthermore, the that the results of the Barlow study were advantages and clinical niche that they
percentage of acute care hospital used for the establishment of national have sought to fill, acute care hospitals
discharges to LTCHs increased from 0.7 ventilator-weaning protocols issued by are equipped to provide services to the
percent in CY 2003 to 2.1 percent in CY the National Institutes of Health (NIH) same population, and the IPPS under
2005. The percentage decline in total and utilized by all acute care hospitals. which they are paid, is calibrated based
outliers between the CY 2003 and CY We also understand that input from the on the resources needed to treat those
2005 was ¥25.7 percent. The increase Temple University program continues to patients. Moreover, because there are
in LTCH discharges from CY 2003 to CY be critical in formulating national over 3,500 acute care hospitals and
2005 was 198.1 percent. standards. We believe that these approximately only 400 LTCHs, which
We are concerned that this trend has programs established a level of are not distributed uniformly
increased exponentially because it excellence that should be emulated by throughout the U.S. (for example, few
provides an acceptable disposition of all hospital-level facilities that treat are located in California), currently
the patient for the physician, and ventilator-dependent patients, including many acute care hospitals are providing
because it is an expeditious means of acute care hospitals, LTCHs, and IRFs. care for the vast majority of Medicare
lowering the acute hospital’s LOS and Accordingly, we believe it is not simply beneficiaries requiring the type of care
costs. We understand that the the fact that the patient is treated at a described by the these commenters. Our
multidisciplinary approach for certain LTCH that is critical to predicting FY 2005 MedPAR files indicate that 20
complex patients (for example, positive results. Rather, it is the type of percent of cases treated at acute care
ventilator weaning) is appropriate. clinical intervention that is furnished to hospitals nationwide have lengths of
However, we are very concerned that the patient at the hospital. In many stay between 7 and 14 days (that is,
the LTCH is assuming the role of the cases that intervention is currently 2,386,057 out of a total of 11,855,205
cases). Additionally, 5.2 percent of proposed that LTCHs absorb payment LTCHs. We recognize that a LTCH
acute care hospital cases (617,219) or rates that bear no relationship to the admission could be a medically-
have LOS greater than 14 days. In those costs of furnishing patient care at the complex admission (an appropriate
acute care hospitals, we believe that LTCH level. LTCH admission) with a relatively long
during these longer periods those Furthermore, based on claims LOS and still be considered an SSO
patients are receiving the same high analysis, using the APR–DRGs, the case. We also acknowledge that, in some
level of care in an acute care hospital medical complexity and mortality rates cases, LTCH admissions could also have
paid under the IPPS as they would of SSO patients, as measured by the SOI qualified as HCOs at the referring acute
receive as patients at a LTCH. and ‘‘risk of mortality’’ (ROM) standards care hospital. However, we still have
Comment: Several commenters are very similar to that of the LTCH concerns that patients in LTC–DRGs
claimed that we based our proposed ‘‘inlier’’ patient population. The with significantly shorter stays than the
revision of the SSO policy that could commenters further presented ALOS for that particular DRG might
have resulted in an IPPS-comparable comparisons between these measures have been unnecessarily admitted to the
payment for a particular SSO case, on for SSO patients and for patients with LTCH rather than receiving their care at
the incorrect assumption that ‘‘short the same DRGs in acute care hospitals, an acute care hospital. In addition, we
stay’’ LTCH patients are clinically indicating that 52 percent of all patients are adjusting the LTCH PPS to
similar to short term acute care hospital admitted to LTCHs were in the highest appropriately pay for those SSO stays
patients. They stated that the SSO APR–DRG ROM categories, whereas that have a LOS that is comparable to
thresholds (5⁄6 of the geometric ALOS for only 24 percent of acute care patients the LOS for that DRG under the IPPS
each LTC–DRG) were never intended to are in those same categories, resulting in and consume far less than a full array
be a measure of the appropriateness of a total percentage of APR–DRGs 3 and of services in the LTCH for the
a LTCH admission, but rather, were 4 at LTCHs among the SSO population particular LTC–DRG.
mathematically-derived from the per that is approximately double that of We believe this policy is appropriate
diem payment amounts, which were acute care hospitals. The commenters since our data indicates a correlation
based on a methodology that would noted that higher patient acuity between the LOS at an acute care
produce a payment-to-cost ratio for SSO correlates to higher utilization of facility hospital for a patient following
cases close to one. Furthermore, a resources, and hence, higher costs, treatment at the highest level of
commenter stated the presence of a SSO which argues against our proposed intensity (ICU or CCU), that is, the
patient does not indicate a premature policy that would significantly lower number of ‘‘recuperative’’ days, and
discharge from an acute care hospital, reimbursements for SSO cases. Several whether or not the patient was admitted
and cited that 11 percent of the patients commenters also provided a comparison to a LTCH upon discharge from the
had previously qualified as HCOs at the of case mix indices (CMI) for LTCH SSO acute care hospital. An analysis of the
referring acute care hospital. cases and cases at acute care hospitals. CY 2004 MedPAR files revealed that for
Additionally, the commenters The commenters asserted that SSOs at the specified DRGs for acute care cases
asserted that we are mistaken in our LTCHs have a relative CMI that parallels following ICU/CCU days, there were
claim that LTCHs can foresee the LOS the CMI of LTCH ‘‘inlier’’ cases at significantly fewer ‘‘recuperative’’ days
for patients admitted to LTCHs or LTCHs and which is 72 percent higher for acute care HCO patients that were
predict likely deaths, where in actuality, than the comparable CMI at acute care discharged and admitted to a LTCH than
upon admission, there is generally no hospitals. for those patients that were discharged
substantial clinical difference between Response: We understand that not directly from the acute care hospital.
long stay and ‘‘short stay’’ patients. every SSO patient can be so identified For example, for acute care cases in
Commenters found it to be incongruous at the time of admission to a LTCH. DRGs 475 (Respiratory system diagnosis
that a patient in LTC–DRG 475 Further, we recognize that many with ventilator support) and DRG 483
(Respiratory System Diagnosis with patients who will eventually be defined (Trach with mechanical vent 96+ hours
Ventilator Support) would still be an as SSO patients because their LTCH stay or PDX except face, mouth and neck
SSO patient (for example, 28 days for is equal to or less than 5⁄6 of the diagnosis), the number of
LTC–DRG 475) and could be geometric ALOS for their particular ‘‘recuperative’’ days were considerably
hospitalized in a LTCH for greater than LTC–DRG, may, upon admission, shorter at the acute care hospital if there
25 days (the definition of a LTCH). A present the same severity of illness and was a discharge followed by an
case such as this could be appropriately risk of mortality as ‘‘inlier’’ LTCH admission to a LTCH. We believe that
treated in a LTCH. The commenters patients. As we discuss subsequently in this data confirms MedPAC’s assertion
noted that physicians cannot and this final rule, we selected the threshold in the June 2004 Report to Congress that
should not be asked to predict the LOS of one standard deviation above the ‘‘patients who use LTCHs have shorter
or the likely death of severely ill average LOS of an IPPS discharge as an acute hospital lengths of stay than
patients. appropriate measure to select the subset similar patients’’ (p. 125).
Commenters further asserted that we of SSO cases that are typically treated in Furthermore, we agree that some SSO
have made an erroneous assumption acute care hospitals. We agree that the patients become so by virtue of death or
that LOS equates to ‘‘severity of illness’’ general SSO threshold (5⁄6 of the a faster than expected recovery and
(SOI) and is a proxy for the geometric ALOS for each LTC–DRG) early discharge, and that in certain
appropriateness of an admission. was never meant to be a measure of the LTC–DRGs, the SSO threshold still
However, the commenters assert that appropriateness of a LTCH admission, requires a relatively long hospital stay
this is not the case. They outlined but rather, was mathematically-derived (for example, DRG 475, Respiratory
another incorrect belief in the proposed from the per diem payment amounts. System Diagnosis with Ventilator
rule that LTCHs function like acute care We believe this enabled us to arrive at Support). However, in the absence of
hospitals when they have patients for a reasonable payment policy at the better admission criteria, we are
the same LOS. On the contrary, the outset of the LTCH PPS for cases that concerned that LTCHs are admitting
commenters asserted that SSO patients had lengths of stay significantly shorter some SSO patients that could have
are being admitted because they look than those patients fitting the typical received their full care at the acute care
just like ‘‘inliers,’’ and we have profile of those who are treated at hospital or SNF-level facility.
We disagree with comparisons made ensures that payments to the LTCH are proposals are based on faulty
by some commenters concerning the not greater than the program would pay assumptions, insufficient data, and a
SOI and ROM of LTCH SSO patients to in a different setting of care, where these fundamental lack of understanding of
those of acute care patients based on patients can also be successfully treated. the valuable care LTCHs provide.
similar lengths of stay and case-mix At the outset of the LTCH PPS, we Moreover, the commenters asserted that
indices. Generally, LTCH patients that established the SSO payment LTCH patients are just not the same type
had been previously hospitalized in an adjustment to address this distinction of patients as acute patients; they
acute care hospital received the which we continue to believe is a valid believe that our proposed policies
diagnostic work up and major and reasonable consideration for indicate that we are unaware of the
interventional treatment during that Medicare payments to LTCHs (67 FR distinction between acute care patients
initial stay. Assuming that the patient 55995, August 30, 2002). and patients at LTCHs. They further
continued to need hospital-level care Comment: Many commenters asked stated that they did not believe that the
after being somewhat stabilized and was that we not finalize the proposed SSO public was able to submit meaningful
discharged to a LTCH, the discharge to policy revisions, stating that the SSO comments to our proposed policies
a LTCH could have been determined as payment option that could pay the because of our data flaws, our biases,
clinically appropriate. The clinical LTCH based on an amount comparable and the resulting policies that we
status of this patient at this point cannot to what would otherwise have been paid proposed.
be reasonably compared to a typical under the IPPS was not based on solid Response: As we have stated
patient who is treated in the acute care data analysis and supportable previously, we are aware that the vast
hospital and who is grouped to the same majority of LTCH patients are admitted
conclusions. In fact, a number of
following treatment at acute care
DRG. This is the case because the commenters asserted that the proposed
hospitals. The patient’s stay at the acute
original patient has already been treated policy was not based on data but rather
care hospital generated a Medicare
at that initial level and has required on ‘‘erroneous and unsubstantiated
payment under the IPPS, and the
additional hospital-level care either by assumptions’’ that all SSO patients are
subsequent admission to a LTCH, an
remaining at the acute care hospital, inappropriately admitted to LTCHs and
acute care hospital with an ALOS of
which would be paid for under the IPPS inappropriately discharged from acute
greater than 25 days, will generate an
(perhaps as a HCO), or by being care hospitals. The commenters noted
additional Medicare payment. To
admitted to a LTCH where the stay that, because of the way in which the
protect the Medicare Trust Fund from
could either be a SSO or an ‘‘inlier.’’ policy was formulated, the percentage of what may be inappropriate and
The only valid comparison of the SOIs LTCH cases that are paid under the SSO unnecessary payments, and to ensure
and ROMs of two such patients in the payment policy was a function of the that the program is not paying twice for
context of the commenter’s concerns SSO threshold and the dispersion of the same episode of care, we believe it
would be to contrast the SOI and ROMs cases above and below the ALOS for the is essential that we evaluate those cases
of the patient at the LTCH with the LTC–DRGs. That is, statistically, the that are admitted for an unusually short
patient who, following the same initial SSO definition at 5⁄6 of the geometric stay following an initial treatment at
intervention at the acute care hospital, ALOS would necessarily produce another acute care hospital to acute care
continued treatment at the acute care approximately 37 percent of cases as hospitals that specialize in long-stay
hospital. In addition, it is not SSOs. Therefore, under the commenters care, since that second stay will
appropriate to compare the average CMI belief that given the regulatory 5⁄6 generate another Medicare payment. In
at acute care hospitals to the average definition of SSOs, which we had not MedPAC’s June 2004 Report to the
CMI at LTCHs. The acute care hospital proposed to change, the percentage of Congress, the Commission stated that,
CMI is affected by a broad range of SSO cases was not amenable to change ‘‘* * * Living near a LTCH increases a
cases, so that the only appropriate just based upon LTCHs admission beneficiary’s probability of using such a
comparison is between DRGs in acute policies. One commenter noted that for facility. For example, living in a market
care settings and DRGs in LTCHs, which a significant number of patients to fall area with a LTCH quadruples the
is the approach we have adopted in the below 5⁄6 ALOS for a LTC–DRG is probability of LTCH use. Being
revised SSO policy we are finalizing in expected in a LTCH. Additionally, hospitalized in an acute hospital with a
this final rule. In regions of the country commenters noted that a case may LTCH located within the hospital also
where LTCHs are scarce, acute care qualify as a SSO because the patient has quadruples the probability that a
hospitals treat the same cases that are run out of covered days, regardless of beneficiary will use a long-term care
treated in LTCHs where those facilities the actual LOS in the LTCH and that in hospital’’ (page 125).
are available. In those areas, acute care establishing our policy for qualifying as Although we acknowledge that our
hospitals do indeed treat the most a LTCH (that is, meeting the average establishment of the 5⁄6th of the
severe cases, and the calibration of the greater than 25-day LOS for a particular geometric ALOS threshold, from a
DRG weights takes into account the cost reporting period), we have statistical standpoint, will result in
resource requirements for such cases. In recognized the ‘‘appropriateness’’ of approximately 37 percent of LTCH cases
the light of this fact, we do not believe including ‘‘total’’ rather than just being defined as SSOs, we are extremely
that it is necessary or appropriate to pay ‘‘covered’’ days of a stay, since concerned with the number of cases that
LTCHs more for cases that can be regardless of the payer, if the patient is are being treated in LTCHs that fall
successfully treated in acute care still receiving hospital-level care, the considerably below the geometric ALOS
hospitals. We understand that the facility is functioning like a LTCH. For for any given LTC–DRG. In fact, as
option that we are finalizing, paying for this reason, these commenters urged us stated previously, in the commenters’
some SSO stays based on the IPPS- to remove such cases from the specific suggestions for how to
comparable amount, will result in calculations we used to develop a SSO reasonably and fairly pay SSOs, the
significant payment reductions to payment policy. Some commenters commenters themselves drew a
LTCHs for some SSO cases. However, expressed concerns about the reliability distinction between those cases that fall
we still believe that this modification to of the data that underlay our policy within the definition of a SSO but are
the SSO policy is appropriate since it proposals and asserted that our more in keeping with the LOS generally
associated with a LTCH (for example, a Under § 412.507(b), Medicare will pay continue to be governed by the SSO
case assigned to LTC–DRG 482 with for inpatient care delivered only on policy finalized in this rule.
SSO threshold of 32.1 days, would still those days that the beneficiary has Comment: One commenter expressed
be paid as a SSO if the patient was coverage until the LOS exceeds the SSO concern that the SSO policy would
treated in the LTCH for 25 days) and threshold and becomes an inlier stay. penalize LTCH providers in a situation
those cases that many commenters Therefore, since the inception of the where a patient developed a new or
referred to as ‘‘very short stay outliers LTCH PPS, we established the unexpected complication during his or
(VSSO)’’ or ‘‘very short stay discharges distinction between ‘‘covered days’’ and her LTCH stay and required treatment
(VSSD).’’ In our revised SSO policy, the ‘‘total days’’ of a LTCH stay. At the that can only be provided by the
payment formula particularly takes into point when a patient’s benefits exhaust, referring acute care hospital.
account our very strong belief that the patient is ‘‘discharged for payment Response: The situation to which the
LTCHs are acute care hospitals that purposes’’ and even though the patient commenter is referring is possible and
specialize in treating patients requiring may continue to be hospitalized at the may result in a sudden discharge from
‘‘long-stay’’ hospital-level care. LTCH, Medicare will pay only for the a LTCH and a readmission to the acute
The LTCH PPS has been designed and covered days, with the patient (or the care hospital. In such a case, if the total
calibrated to pay specifically for that patient’s secondary insurance) being covered length of stay at the LTCH is
type of care. Since the inception of the less than 5⁄6 of the LOS for the LTC–DRG
responsible for the remaining days’
LTCH PPS, when we established the to which the case is assigned, payment
LTCH costs. For example, even though
SSO adjustment (67 FR 5594 through would be made under the SSO policy.
a patient could have been treated in an
55995, August 30, 2002) at § 412.529, Consequentially, the additional
LTCH for 40 days, if upon admission,
we have provided that if a LTCH treats payment option that we are finalizing
the patient only had 20 covered days
patients not requiring a long stay for could also be applicable if the covered
remaining, for Medicare payment LOS at the LTCH fell within the IPPS-
that DRG, Medicare pays the LTCH purposes, the stay could qualify as a comparable threshold prior to discharge.
based on the applicable payment SSO, unless the 20 covered days Such payment would be appropriate
adjustment option. Furthermore, as we exceeded the 5⁄6th threshold for the because the patient would have received
revise the payment options in this final LTC–DRG to which the case was less than a full episode of care at the
rule for the SSO policy, we continue to grouped, at which point, the stay would LTCH prior to being discharged back to
believe that such a payment adjustment become an inlier stay and a full LTC– the acute care hospital. We note that
is reasonable for all short stay patients, DRG payment would be generated. should the patient subsequently be
including those that die shortly after Several commenters urged us to remove discharged from the acute and
their admission to the LTCH. The FY SSO cases occurring as a result of such readmitted to the LTCH to continue
2004 MedPAR data indicates that 43 lapses of Medicare coverage from our treatment begun before the acute
percent of all patients that die in LTCHs revised SSO policy but based on our episode, Medicare payment to the LTCH
are deaths that occur within the first 14 data analysis, we will not be excluding would be governed under our
days of the stay, with 35 percent of SSO benefit exhausted cases from the policy. interrupted stay policy at § 412.531. We
deaths occurring within the first 7 days According to FY 2005 MedPAR data, would also note that this stay could also
following admission. As we have since these cases constitute only 3.31 percent be subject to adjustment under the SSO
the inception of the LTCH PPS, we of SSO cases. It has been our policy policy (including the payment option
continue to believe that Medicare since the beginning of the LTCH PPS to that we are finalizing) depending upon
payments for those death cases count those stays during which benefits the total covered length of stay (both
occurring within the SSO threshold are exhausted as SSOs if the covered prior to and following the acute
should be determined under the SSO portion of the stay is less than 5⁄6th of episode).
policy since the length of the patient’s the geometric ALOS for the DRG. In this Comment: Many commenters stated
treatment in the LTCH did not utilize way, we appropriately determine that their objections to the policy
the full measure of hospital resources payment based on the part A-covered discussed in the proposed rule extended
for which the full LTC–DRG payment stay. At the same time, we continue to the existing SSO payment policy with
was calibrated. counting the total days of the stay for which they have expressed
Conversely, MedPAR data indicate purposes of qualification as a LTCH, disagreement in the past. Several of
that of all SSO cases, approximately 60 because that calculation is intended to these commenters asserted that the
percent of the discharges are 14 days or reflect the length of care provided to current SSO threshold (5⁄6 of the
less and also that acute care hospitals Medicare beneficiaries. However, our geometric ALOS for each LTC–DRG) is
treat a significant percentage of patients policy of including total days for not statistically justifiable. These
for longer than the 5-day ALOS. (In Medicare patients to identify hospitals commenters recommended that, if we
acute care hospitals, paid under the qualifying (or continuing to qualify) as are going to employ LOS as the only
IPPS, over 20 percent, in the aggregate, LTCHs indicates our recognition that criterion for determining SSOs, we
of patients that are treated have a LOS conceivably, a beneficiary may be should logically select a threshold that
of between 14 and 7 days.) Therefore, as appropriately treated in a LTCH for better identifies cases that are dissimilar
described below, we believe that the example, for 40 days; and yet because to the median or average, such as the
SSO policy that we are finalizing under the beneficiary had only 5 remaining 5th percentile through 10th percentile.
the LTCH PPS provides a fair and benefit days, would be reported in our Response: We believe that the policy
reasonable payment, in light of our claims data as a 5-day SSO case. We we are adopting in this final rule is a
stated concerns that the short-term may revisit this issue in the future and, consistent extension of the principles
hospital-level care that LTCHs provide at that time, would solicit comments to that we have employed in developing
for many SSO cases may be substituting that end. However, at present, since a the SSO payment policy. In this
for care that could otherwise be very small percentage of SSO cases are rulemaking cycle, we have not
delivered at acute care hospitals and for caused by beneficiaries exhausting introduced any discussion or proposals
which at best, Medicare would benefits, the ‘‘short’’ SSO cases concerning the existing SSO threshold,
otherwise pay under the IPPS. discussed above in this section, will and therefore, we are not implementing
the commenters’ recommendation that payment under the SSO methodology, certified as acute care hospitals and
we establish a dramatically-revised and a subset of those cases will be paid acute care hospitals paid under the IPPS
threshold level. However, we did specifically under the formula that we are throughout the country treating
provide an exhaustive discussion of the are adopting in this final rule for certain beneficiaries requiring hospital-level
reasons for adopting this threshold in cases: For SSO cases with a length of care lengths of stay comparable to those
the FY 2003 LTCH PPS final rule (67 FR stay less than ALOS plus one standard that are typical of LTCHs. We disagree
55995), which included statistical deviation of the IPPS DRG, payment with commenters who imply that there
analysis, various simulations, will be no greater than the IPPS is a clear distinction between the
regressions, and consideration of comparable amount that we have patients that are appropriate for
various options. defined. These results are appropriate successful treatment at LTCHs and
Comment: Several commenters stated because the respective thresholds serve patients that are appropriately and
that the objective of the SSO policy that different purposes. The 25-day successfully treated at acute care
we discussed in the RY 2008 LTCH PPS threshold defines an ALOS established hospitals. Across the United States, the
proposed rule is to establish a de facto by the statute to define a LTCH. The nearly 3,600 acute care hospitals that
exclusionary policy, prohibiting the respective outlier thresholds (the basic discharge approximately 12.7 million
admission of these patients to LTCHs by SSO threshold of 5⁄6 of the geometric Medicare beneficiaries treat the full
means of a payment mechanism rather LTC–DRG ALOS, and the threshold that
than careful clinical review. range of medical issues that the
we are now adopting to identify every
Response: We disagree that we are commenters identify as LTCH cases. We
SSOs) serve to identify subsets of LTCH
establishing an exclusionary policy. On do not question that many LTCHs have
cases for appropriate payment
the basis of analysis that we presented treatment, based on comparisons to highly regarded reputations for their
in the RY 2008 LTCH PPS proposed rule relevantly similar cases. We have success in treating respiratory and
and previously in this final rule, we explained the basis for adopting the ventilator cases (MS–LTC–DRGs 207
believe that many of these cases may SSO threshold in the FY 2003 LTCH and 208). However, as detailed in the
represent ‘‘premature and inappropriate PPS final rule (67 FR 55995). The RTI report, the 2004 MedPAR files
discharge from the acute care hospital threshold that we are adopting in this indicate that where LTCHs treated
and inappropriate admission to the final rule, the geometric ALOS plus one 13,394 cases assigned to DRG 475 in
LTCH’’ (72 FR 4840). The intent of this standard deviation of the IPPS DRG, 2004, acute care hospitals treated 18,727
policy is to establish an appropriate selects a subset of SSOs that are similar Medicare patients with an additional
payment level for this class of cases. to cases successfully treated in short- 7,072 HCOs in DRG 475. For DRG 88,
Hospitals remain free to accept these stay acute care hospitals. Since these Chronic obstructive pulmonary disease
patients. As we stated in the RY 2008 cases have received a course of (COPD), LTCHs treated 4,894 cases
LTCH PPS proposed rule, * * * a short treatment similar to the typical course of where acute care hospitals treated
stay case at a LTCH most likely did not treatment in an IPPS hospital, we are 37,523 cases. Data on other common
receive a full course of medical limiting payment for them to an amount DRGs treated in LTCHs as compared to
treatment during the short stay no greater than the comparable payment the same DRGs treated in acute care
and* * * a full LTC–DRG payment under the IPPS. hospitals reflect a similar pattern,
would therefore, be inappropriate’’ (72 Comment: Several commenters stated particularly among the DRGs that could
FR 4804). that we had not presented any fall into the broad category of
Comment: Several commenters conclusive financial or clinical evidence ‘‘medically complex’’ patients, which
objected that the policy we discussed to support the policy discussed in the are the majority of LTCH patients (Table
could apply to cases whose length of RY 2008 LTCH PPS proposed rule, but 3–2, RTI report, p. 35. We understand
stay exceeds 25 days, the ALOS that we instead rely merely on that MedPAC and RTI have noted that
required for a hospital to qualify as an statements such as: ‘‘many LTCHs many LTCHs deliver a high level of care
LTCH. Commenters indicated that at appear to be admitting some SSO to very sick Medicare beneficiaries, with
least 9 IPPS DRGs have an ALOS plus patients that could have received the fine doctors, exemplary nursing care,
one standard deviation that is greater care at the acute care hospital.’’ (72 FR
than 25 days, and at least 26 other IPPS and top-notch rehabilitation therapists,
4806) (Emphasis supplied by
DRGs have an ALOS plus one standard but we also know that many acute care
commenter.) Furthermore, a commenter
deviation that exceed 20 days. hospitals throughout the nation are
stated that our own expert consultant,
Commenters contended that cases treating the same patients and similarly
RTI, had failed to find evidence
exceeding the 25-day threshold for conclusively illustrating that the typical delivering excellent care, especially
qualifying as an LTCH should not be LTCH SSO patient could be treated as where there are few LTCHs. We also
considered short stay cases. effectively in an acute care hospital. know that some LTCHs specialize in a
Response: We do not believe that it is Some of these commenters also particular subset of patients and achieve
inappropriate for individual cases that maintained that, contrary to our a noteworthy success in their treatment
exceed the ALOS threshold for LTCH suggestions, the care received by (for example, of patients requiring
status to be considered SSOs. In fact, we patients at LTCHs is often unique and ventilator weaning or wound care).
have treated some such cases as SSOs not available at acute care hospitals. However, similar patients are also
since the establishment of the SSO Commenters cited physicians who were receiving care in acute care hospitals.
policy. For a number of LTC–DRGs, the consulted on the clinical aspects of Therefore, we cannot agree with
SSO threshold, 5⁄6 of the geometric transfer from an acute care hospital to commenters implying that acute care
ALOS, significantly exceeds 25 days. a LTCH. These physicians provided hospitals are incapable of competently
These include DRGs 498, 499, 520, and numerous explanations and scenarios treating Medicare beneficiaries that
others. Similarly, a number of IPPS detailing how LTCHs provide different happen to fall within the DRGs that
DRGs have an ALOS plus one standard kinds of services even if the DRG for a LTCH identify as their specialties and
deviation that is greater than 25 days. case is nominally the same. that any patients falling into such
As a result, many cases with lengths of Response: As we have discussed categories would receive ‘‘substandard’’
stay shorter than 25 days receive elsewhere in this final rule, LTCHs are care at an acute care hospital.
Comment: Several commenters stated be costlier than cases with shorter stays, more the course of treatment in acute
that our proposed policy should not we do not believe that it would be care hospitals. It is therefore appropriate
apply to cases that were HCOs at an appropriate for the program to pay an to limit the payment for such cases
acute care hospital prior to transfer to a LTCH an unadjusted LTCH PPS accordingly. We would also like to note
LTCH. Since such cases received the payment for case with such an that where a LTCH is finding that nearly
full complement of services at the acute abbreviated stay that it did not receive half of its patients are discharged due to
care hospital, and the acute care the full course of treatment particularly death, if in fact many of these patients
hospital actually incurred significant when we would pay a much lower are SSO cases, the LTCH may need to
losses before receiving an outlier amount in to an acute care hospital for consider whether those patients were
payment from the Medicare program, it a similar course of treatment. too fragile to be transferred from the
cannot be stated that any discharge and Comment: Several commenters urged acute care hospital to the LTCH.
transfer to a LTCH was premature and us not to apply the policy we discussed Transfer trauma is a serious issue that
inappropriate. to cases in which patients die in the must be considered whenever a hospital
Response: We agree that, in such hospital. These commenters noted that considers transferring a patient to
cases, the transfer to a LTCH is unlikely physicians and hospitals are not able to another facility.
to be premature and inappropriate. In predict which patients will die With respect to the recommendation
fact, typically, HCO cases in the acute subsequent to admission to an LTCH. In that we take outlier payments into
care setting represent a full course of addition, many of these patients are account when determining the
high cost, requiring significant medical equivalent IPPS payment amount in the
treatment in that setting. However, as
resources in the last days of life. One SSO payment methodology, under
our discussion in the RY 2008 LTCH
LTCH commenter determined that about existing LTCH PPS policy, a SSO case
PPS proposed rule indicates, this is not
50 percent of its extreme SSOs were that meets the criteria for a LTCH PPS
the only, or even the primary, factor that
discharged due to death. The HCO payment at § 412.525(a)(1) (that is,
deserves consideration in determining
commenter notes that it may not be if the estimated costs of the case exceed
an appropriate SSO payment level.
appropriate for these cases to receive a the adjusted LTC–DRG SSO payment
Regardless of whether a case had
full LTCH payment, but that it is equally plus the fixed loss amount) would
reached outlier status in an acute care
unfair for CMS to assume ‘‘sinister receive an additional payment under the
hospital prior to transfer to a LTCH, the
intent’’ and to financially penalize LTCH PPS HCO policy at § 412.525(a)
course of treatment at the LTCH could LTCHs operating in good faith. Some (67 FR 56026, August 30, 2002). For
more closely resemble the normal commenters emphasized generally that purposes of HCOs under the proposed
course of treatment at an acute care adoption of the revised SSO policy that SSO policy, we would continue to use
hospital than the normal course of we discussed would be unfair to LTCHs a fixed-loss amount calculated under
treatment for cases at a LTCH. We stated because they cannot predict in advance § 412.525(a), and not a fixed-loss
in the RY 2008 LTCH PPS proposed rule who will become SSO cases. There are amount based on § 412.80(a). Medicare
that cases ‘‘with lengths of stay that are several reasons why a patient could would pay the LTCH 80 percent of the
equal to or less than the IPPS ALOS become an SSO including the patient costs of the case that exceed the sum of
plus one standard deviation for the dying or leaving against medical advice. the applicable option of the least of the
same DRGs under the IPPS appear to be Many of these commenters noted that if four proposed payment options,
comparable to typical stays at acute care this policy is adopted, LTCHs will only described above, and the fixed-loss
hospitals’’ and ‘‘LTCHs that admit SSO receive, at best, costs for SSO cases. amount determined under § 412.525(a).
patients with lengths of stay more Other commenters recommended that, if Comment: Several commenters stated
typical of an acute care hospital may be, we adopt this policy, it should that the payment reductions associated
in fact, behaving like acute care incorporate outlier payments when with the very short SSO policy
hospitals’’ (72 FR 4806 citing 71 FR determining an equivalent IPPS discussed in the RY 2008 LTCH PPS
27847). For purposes of the SSO policy payment amount in the SSO payment proposed rule violate the principles of
discussed in the RY 2008 LTCH PPS methodology. a PPS in which some cases are expected
proposed rule, the issue is primarily the Response: We certainly acknowledge to cost less than others.
course of treatment actually received at that hospitals and physicians are not Response: We disagree that these
the LTCH, rather than the course of able to predict with certainty at policies violate the principles of
treatment at the acute care hospital prior admission which patients will die averaging found in a PPS. As we stated
to transfer to a LTCH. Of course, one during an inpatient stay in a LTCH, or in the RY 2007 LTCH PPS final rule,
reason the course of treatment at a whether a patient will leave against ‘‘* * *we believe it is very important to
LTCH may resemble the normal course medical advice. However, the issue with evaluate the adjustment in light of the
of treatment at an acute care hospital regard to these cases, as with the cases fact that in a PPS there are numerous
may be that an acute care hospital has discussed in the previous comment, is principles that we try to balance
prematurely and inappropriately that ‘‘lengths of stay that are equal to or simultaneously when making policy
transferred a patient to a LTCH. less than the IPPS ALOS plus one decisions. Among these principles are
However, in cases where a patient has standard deviation for the same DRGs appropriate payment, predictability,
received a high level of treatment at an under the IPPS appear to be comparable averaging, beneficiary access to
acute care hospital, including levels of to typical stays at acute care hospitals.’’ appropriate care, and equity so that
treatment that qualify for outlier The point is not to penalize LTCHs, but while the averaging principle is an
payments, a subsequent stay in an LTCH rather, to pay appropriately for cases important one in PPSs, it is not the only
may still ‘‘be comparable to typical stays that receive less than the full course of principle that guides our policy
at acute care hospitals.’’ (72 FR 4806) In treatment at a LTCH. Even when a decisions. For example, in the case of
these cases, since we believe the patient dies in a LTCH, whether SSOs and HCOs, we must determine
Congress excluded LTCHs from the IPPS unexpectedly or not, cases with lengths how to appropriately to pay for aberrant
because cases with longer lengths of of stay more typical of an acute care cases that are much shorter (that is,
stay (as compared to acute care hospital are not receiving the full course SSOs) and much costlier (that is, HCOs)
hospitals paid under the IPPS) tend to of treatment in a LTCH, and resemble when compared to typical cases in the
relevant LTC–DRG. In the case of short 2003 LTCH PPS final rule, but will hospital-level care but are still serving
stays, if we failed to adjust the payment reiterate that the IPPS post-acute patients with compromised health, we
to reflect that the case did not receive transfer provision was created to believe that a decision to transport a
the full resources of a typical LTCH stay address cases in which the transferring SNF patient to a hospital would
for the particular DRG, the PPS would acute hospital provides less than the full generally be made because the patient
be greatly ‘‘overpaying’’ for the stay, spectrum of care for the qualified DRG appears to the medical professionals at
could serve as an incentive to game the and to avoid providing an incentive for the SNF to be in need of a higher level
system, and would also waste valuable a hospital to transfer a patient to another of medical treatment or care than is
Medicare Trust Fund dollars. Similarly, hospital early in the patient’s stay to available at the SNF. (In fact, such
in the case of HCOs, if we did not adjust minimize costs while still receiving the patients would typically be admitted to
the payment to reflect the extraordinary full DRG payment. The post-acute the acute care hospital rather than to a
high costs that LTCH was incurring for transfer policy only addresses the LTCH.) However, both an acute care
treating a particular patient when appropriate level of payments for the hospital and a LTCH offer acute
compared to a typical case in the course of treatment received in an acute hospital-level care. As discussed
respective LTC–DRG, we would be care hospital. It does not address the previously in this final rule, we are very
‘‘underpaying’’ significantly for the appropriate level of payments at the concerned about the treatment of a
case. We have stated that providing facility to which the patients are then short-stay patient who could reasonably
additional money for HCOs strongly transferred. and effectively continue to be treated in
improves the accuracy of the payment We note that the post-acute care an acute care hospital and paid for
system as well as reduces the incentive transfer policy only affects DRGs that under the IPPS, being admitted
to under serve these patients. Since we meet the criteria at § 412.4. Although we unnecessarily to a LTCH, which
do not pay SSOs or HCOs an amount expect the post-acute transfer policy to specializes in treating patients requiring
paid to ‘‘inliers’/cases that have length have some impact on the discharge long-term hospital-level care and paid
of stays or costs commensurate with behavior of acute care hospitals because for under a PPS which has been
other cases in the respective but instead of the reduced payments that they will calibrated based upon the high resource
make payment adjustments to reflect the receive for qualified discharges, the use associated with long patient stays.
unique circumstances of these cases, the post-acute transfer policy does not Furthermore, admission of such a
averaging principle is less heavily necessarily affect the issues being patient could also result in an
emphasized under these circumstances addressed by the SSO policy change. unnecessary and inappropriate LTCH
to achieve equity, appropriate payments Both the IPPS post-acute transfer policy hospitalization, which would also result
that accurately reflect resource costs at and the revised SSO policy being in a second Medicare payment under
the patient and hospital level, and finalized in this rule are designed to the LTCH PPS for what was essentially,
beneficiary access to medical care.’’ ensure that Medicare payments are one episode of care.
We believe that, given that LTCHs are appropriate given the types of treatment Comment: Several commenters
defined as acute care hospitals that have provided in each setting; we note that in believe that we are incorrect that LTCHs
an average inpatient LOS of greater than the instance of an acute transfer (that is could be admitting patients not
25 days, the payment policies under the subject to the post-acute transfer policy) requiring long stays, noting that LTCHs
LTCH PPS appropriately reflect the to an LTCH that discharges the patient actually have a disincentive to admit
averaging principle. That is, where some as an SSO, neither the acute nor the short stay patients because LTCH
cases, within the ‘‘inlier’’ range will LTCH facility provided the full episode certification status can be at risk if the
have generated relatively lower costs, of care to the patient and it would not hospital does not maintain an ALOS of
other cases will generate higher costs be appropriate to pay either facility a more than 25 days.
and Medicare will pay a LTCH the same full DRG payment. We believe that the Response: Under the TEFRA system,
for both less and more costly cases. The revised payment formula for SSO all inpatient days (whether covered by
SSO policy, along with the HCO policy patients that we are finalizing will Medicare or not) were included in the
addresses payments for cases that fall appropriately pay LTCHs for delivering LOS computation, and the mathematical
outside of the normal types of averaging services to patients who do not determination was based upon the
in the inlier range in the PPS and otherwise require the lengths of stay number of patient days, during the cost
ensures that payment for SSO cases is that are characteristic of LTCHs. The reporting period when they occurred,
not greatly in excess of the resources SSO policy will address payments to divided by discharges occurring during
required to treat those cases. (71 FR LTCHs for patients discharged from the that same period of time (67 FR 55954,
27866 through 27867) acute care hospital even after the IPPS 55971). With the establishment of the
Comment: Some commenters asked geometric ALOS, who are subsequently per discharge LTCH PPS, we restricted
that we comment on why the IPPS post- discharged from the LTCH as a short the patient count for purposes of
acute transfer policy does not SSO. qualifying as a LTCH solely to Medicare
appropriately adjust for payment when Comment: Two commenters suggested patients (67 FR 55971), and we
transferred cases ultimately become that rather than challenging the cases implemented the policy of ‘days
SSO discharges in the LTCH setting. that are admitted from acute care following the discharges,’ under which,
Another commenter suggested that, we hospitals, we should be more concerned if a patient’s stay crosses two cost
provide policies under the acute IPPS about inappropriate admittances from reporting periods, the total days of that
side to address inappropriate, or early nonhospital settings such as SNFs or stay (both covered and non-covered
discharges and asked that post-acute elsewhere. days) would be included in the
transfer rules, readmission rules and Response: After analyzing recent data, computation during the cost-reporting
DRGs for acute care hospitals should be we note that approximately 80 percent period that the discharge occurred (69
used to minimize the issue instead of of the patients admitted to the LTCHs FR 25706).
penalizing LTCHs. come from the short term acute care LTCH cost report data reveal that the
Response: We note that we addressed hospitals and only 20 percent are general ALOS of most LTCHs varies
the effect of the post-acute transfer admitted from other nonhospital only slightly. Generally, LTCHs
policy on SSOs previously in the RY settings. Since SNFs do not offer maintain an ALOS that is just over 25
days, meeting the statutory definition of Comment: Some commenters time interpreted ‘‘a facility of a different
a LTCH, that is, having an ALOS of contended that the concerns behind the type’’ in section 1154(a)(1)(C) of the Act
greater than 25 days. Furthermore, we possible revision to the SSO policy to mean that QIOs must distinguish
understand that LTCHs closely monitor could be more appropriately addressed between them.
their yearly ALOS and that one by establishing patient criteria and QIO In a memorandum issued to the
extremely long-stay case can review of medical necessity for Regional Offices, Chief Executive
mathematically offset for a number of admissions, as has been recommended Officers, and all QIOs, from the Director
short-stay cases. After studying the by MedPAC and RTI. of the Quality Improvement Group of
hospital-specific data, we believe that Response: Under our QIO program, the CMS Office of Clinical Standards on
this is indeed the case for many LTCHs. QIOs review services to determine October 28, 2004, among other matters,
We also believe that the payment policy whether services are reasonable and the following policy was further
that has been utilized since the start of medically-necessary, whether the clarified:
the LTCH PPS for FY 2003 has not quality of services meets professionally-
recognized standards, and whether Note: there are different provider types that
operated as a financial disincentive for may offer the same level of intensity of
the admission of patients who will not services in an inpatient hospital or other
inpatient care. QIOs do not specify which
ultimately require long-stay hospital- inpatient health care facility could, provider type should be used when the level
level care. In fact, we note that MedPAR consistent with the provision of of intensity is the same. For example, a
data show approximately 27,000 SSO appropriate medical care, be effectively patient requires an acute level of care that
cases with a LOS of 14 days or less. This provided more economically on an could be delivered in a short—term acute
indicates that even with over 20 percent outpatient basis or in an inpatient care PPS hospital, a long-term care hospital
of their discharges having such a short facility of a different type. We have not or an acute rehabilitation hospital. The QIO
historically interpreted any of these determines what intensity of care is
ALOS, LTCHs have maintained their
areas of review to involve appropriate (that is, the patient requires an
greater than 25-day statutory ALOS. acute level of care) but would not specify as
Therefore, we believe that it is both determinations of which kind of acute
a matter of admission necessity which
possible for a LTCH to maintain its care facility would be appropriate, and
provider type the patient should be admitted
designation and also admit many very QIOs do not regard short term acute care to. If the QIO determines that there is a
short stay cases. hospitals and LTCHs as facilities ‘‘of a quality of care concern implicated, that issue
Comment: Several commenters different type.’’ A QIO uses criteria, should be addressed through the quality
based on typical patterns of practice. review process.
maintained that the SSO policy we
The QIOs also consult with (a)
discussed would have unintended effect Under current contracts, QIOs review
physician(s) and practitioner(s) actively
of lengthening patients stay. Some of LTCH cases under the following
engaged in practice in that State and to
these commenters specifically noted circumstances: When a claim is selected
the extent possible, in the same
that this effect could be the result of a for purposes of determining or lowering
specialty, when making the
payment ‘‘cliff’’ where payments rise the payment error rate; if there is a QIO-
determination that care was or was not
abruptly once the threshold for the identified need to perform additional
medically-necessary. Although a QIO
application of this policy (the ALOS of review based on their contractual
review can detect whether or not the
the IPPS DRG plus one standard responsibilities; if there is an immediate
patient requires an acute level of care or
deviation) is reached. The commenters whether care in a SNF would have been appeal of certain beneficiary notices; as
believe that the proposed rule appropriate, since both acute care a result of the referral of a case or cases;
introduced ‘‘backwards’’ incentives hospitals and LTCHs are certified as or when there is a beneficiary complaint
associated with the old ‘‘cost-based’’ acute care hospitals, QIOs do not make or other quality of care concern.
system. Policies will result in the distinction between whether a Since one of the recommendations
encouraging a profit for longer stays, patient should be hospitalized at an made by MedPAC in their June 2004
which could raise costs to the Medicare acute care hospital or at a LTCH, so long Report to Congress was for an increased
program. as the patient requires an acute level of role for the QIOs in monitoring criteria
Response: We acknowledge that there care. to assure that LTCHs are treating
could be such a cliff effect in some cases QIOs are authorized by statute to appropriate patients, researchers from
as a result of the policy that we are determine whether, in case such RTI have been in contact with several
adopting. However, we believe that the services and items are proposed to be QIOs nationwide in order to evaluate
merits of adopting this limitation on provided in a hospital or other health their role. However, involving QIOs in
outlier payments in certain cases care facility on an inpatient basis, such the on-going determination of the
outweighs the risks of some possible, services and items could, consistent appropriateness of admissions,
unintended consequences. We will with the provision of appropriate continuing stay or discharge for a
monitor experience under the new medical care, be effectively provided significant proportion of LTCH patients
policy to detect whether there is an more economically on an outpatient was never envisioned when the QIO
inappropriate increase in lengths of stay basis or in an inpatient health care program was established. There will not
that are slightly greater than the ALOS facility of a different type as specified in be a reassignment of Medicare funds to
plus one standard deviation of the section 1154(a)(1)(C) of the Act. QIOs from the LTCH PPS. However, we
comparable IPPS DRGs. As part of our Therefore, QIOs have authority to are currently developing the next
program integrity responsibilities, we determine the appropriate hospital-level Quality Improvement Organization
may ask the FIs to review the medical setting in the face of objective criteria. Scope of Work. These comments will be
necessity of the last few days of a LTCH But there is no objective criteria considered in that process.
stay that just exceeds the threshold, and distinguishing between settings where After consideration of the numerous
if some days are determined not to be acute care is delivered. Since the statute comments submitted on this issue, we
‘‘medically necessary,’’ then if the states ‘‘a facility of a different type,’’ and are finalizing the policy that we
remaining days result in a LOS lower because short term acute care hospitals discussed in the proposed rule. That is,
than the threshold, the stay may be paid and LTCHs are very similar and provide in SSO cases where the covered LOS is
at the IPPS comparable rate. the same level of care, we have at no equal to or less than the ‘‘IPPS
comparable threshold’’ (defined above annually by CMS). (As discussed in in the FY 2007 IPPS final rule (71 FR
in this section) of the same DRG under greater detail in this section, the fiscal 48122), the FY 2007 LTCH PPS
the IPPS, the SSO payment intermediary (FI) may use a Statewide Statewide average total CCRs for urban
methodology will be based upon the average CCR if, among other things, a and rural hospitals, effective for
least of the following: 100 Percent of LTCH’s CCR is in excess of the LTCH discharges occurring on or after October
estimated costs of the case as CCR ceiling.) The LTCH total CCR 1, 2006, were presented in Table 8C of
determined under § 412.529(d)(2); 120 ceiling is determined based on IPPS the Addendum of that final rule (71 FR
percent of the LTC–DRG per diem CCR data, by first calculating the ‘‘total’’ 48303).
multiplied by the covered LOS of the (that is, operating and capital) IPPS CCR Additionally, in the FY 2007 IPPS
case as determined under for each IPPS hospital and then final rule (71 FR 48119), under the
§ 412.529(d)(1); the Federal prospective determining the average ‘‘total’’ IPPS broad authority of section 123 of the
payment for the LTC–DRG as CCR for all hospitals. The LTCH CCR BBRA and section 307(b)(1) of BIPA, we
determined under § 412.529(d)(3); or an ceiling is then established at 3 standard established under the LTCH PPS SSO
LTCH PPS amount comparable to the deviations from the corresponding policy at § 412.529(c)(3)(iv)(C) that the
IPPS per diem. national geometric mean total CCR. (For FI may use a Statewide average CCR,
Technical Correction further detail on our methodology for which is established annually by CMS,
annually determining the LTCH CCR if it is unable to determine an accurate
We are making a technical correction ceiling, refer to the FY 2007 IPPS final CCR for a LTCH in one of the following
to existing § 412.529(a) which would rule (71 FR 48117 through 48119).) We three circumstances: (1) New LTCHs
add the term ‘‘covered’’ immediately also established that the LTCH ‘‘total’’ that have not yet submitted their first
before the phrase ‘‘length of stay’’ in the CCR ceiling used under the LTCH PPS Medicare cost report (for this purpose,
initial definition of a SSO case. This will continue to be published annually a new LTCH would be defined as an
technical correction is not a substantive in the IPPS proposed and final rules, entity that has not accepted assignment
policy change but rather corrects the and the public should continue to of an existing hospital’s provider
regulatory definition of a SSO case so consult the annual IPPS proposed and agreement in accordance with § 489.18);
that it is consistent with policy final rules for changes to the LTCH total (2) LTCHs whose CCR is in excess of the
determinations that we have made since CCR ceiling that would be effective for LTCH CCR ceiling; and (3) other LTCHs
the FY 2003 implementation of the discharges occurring on or after October for whom data with which to calculate
LTCH PPS. We would note that utilizing 1 each year. Accordingly, in the FY
only Medicare covered days for a CCR are not available (for example,
2007 IPPS final rule (71 FR 48119), we missing or faulty data). Other sources of
payment purposes has been our policy
established a FY 2007 LTCH total CCR data that the FI may consider in
from the outset of the LTCH PPS, as is
ceiling of 1.321, effective for discharges determining a LTCH’s CCR included
specified at § 412.503 where we defined
occurring on or after October 1, 2006. data from a different cost reporting
‘‘discharge’’ for purposes of payment, as
‘‘* * * when the patient stops receiving In addition, under the broad authority period for the LTCH, data from the cost
Medicare-covered long-term care of section 123 of the BBRA and section reporting period preceding the period in
services * * *.’’ Furthermore, in 307(b)(1) of BIPA, for discharges on or which the hospital began to be paid as
subsequent revisions of our SSO policy, after October 1, 2006, we revised our a LTCH (that is, the period of at least 6
we included the term ‘‘covered’’ at methodology to determine the Statewide months that it was paid as a short-term
§ 412.529(c)(2)(iv)(A), § 412.529(d)(1) average CCRs under acute care hospital), or data from other
and § 412.529(d)(4)(i)(B). We are making § 412.529(c)(3)(iv)(C) for use under the comparable LTCHs, such as LTCHs in
this technical correction to conform all LTCH PPS in a manner similar to the the same chain or in the same region.
references at § 412.529 to our existing way we compute the ‘‘total’’ LTCH CCR Furthermore, in the FY 2007 IPPS
policy regarding a SSO discharge which ceiling using IPPS CCR data (71 FR final rule (71 FR 48121), we established
is determined based on the number of 48120). Specifically, under this revised under § 412.529(c)(3)(iv)(B) that, for
‘‘covered’’ days in the patient stay. methodology, we first calculate the total discharges occurring on or after October
(that is, operating and capital) CCR for 1, 2006, the CCR applied at the time a
3. Determination of Cost-to-Charge each IPPS hospital. We would then claim is processed will be based on
Ratios (CCRs) calculate a weighted average ‘‘total’’ either the most recently settled cost
In the FY 2007 IPPS final rule (71 FR CCR for all IPPS hospitals in the rural report or the most recent tentatively
48117 through 48121), similar to the areas of the State and weighted average settled cost report, whichever is from
revisions to the HCO policy as ‘‘total’’ CCR for all IPPS hospitals in the the latest cost reporting period. Under
discussed in IV.D.3.d. of the preamble of urban areas of the State. (For further the broad authority of section 123 of the
this final rule, we revised our detail on our methodology for annually BBRA and section 307(b)(1) of BIPA, in
methodology for determining the annual determining the LTCH urban and rural that same final rule, we also established
CCR ceiling and Statewide average CCRs Statewide average CCRs, refer to the FY at § 412.529(c)(3)(iv)(A) that, for
under the LTCH PPS because we believe 2007 IPPS final rule (71 FR 48119 discharges occurring on or after October
that those changes are more consistent through 48121).) We also established 1, 2006, we may specify an alternative
with the LTCH PPS single payment rate that the applicable Statewide average to the CCR computed under
for inpatient operating and capital costs. ‘‘total’’ (operating and capital) CCRs § 412.529(c)(3)(iv)(B) (that is, computed
Under the broad authority of section 123 used under the LTCH PPS will continue from the most recently settled cost
of the BBRA and section 307(b)(1) of to be published annually in the IPPS report or the most recent tentatively
BIPA, for discharges occurring on or proposed and final rules, and the public settled cost report, whichever is later),
after October 1, 2006, the LTCH CCR should continue to consult the annual or a hospital may also request that the
ceiling specified under IPPS proposed and final rules for FI use a different (higher or lower) CCR
§ 412.529(c)(3)(iv)(C)(2) is calculated as changes to the applicable Statewide based on substantial evidence presented
three standard deviations above the average total CCRs that would be by the hospital. A complete discussion
corresponding national geometric mean effective for discharges occurring on or of these revisions to our methodology
total CCR (established and published after October 1 each year. Accordingly, for determining a LTCH’s CCR is
discussed in the FY 2007 IPPS final rule reconciliation process and would care hospitals for the base year. This is
(71 FR 48119 through 48121). address the commenter’s question. premised on the assumption that, on
average, both high-cost and low-cost
4. Reconciliation of SSO Cases B. Expansion of Special Payment
patients are treated at hospitals.
In the FY 2007 IPPS final rule (71 FR Provisions for LTCH Hospitals Within
Although Medicare may pay a hospital
48121 through 48122), under the broad Hospitals (HwHs) and LTCH Satellites:
less than was expended by the hospital
authority of section 123 of the BBRA Expansion of the 25 Percent Rule to
for a particular costly case, the hospital
and section 307(b)(1) of BIPA, we Certain Situations Not Currently
could also receive more than it
revised § 412.529(c)(3)(iv) (D) through Covered Under Existing § 412.534
expended for other, less costly cases.
(E), for discharges occurring on or after In the FY 2005 IPPS final rule, we However, an acute care hospital that
October 1, 2006, to codify in subpart O established the special payment consistently discharges higher cost
of 42 CFR part 412 the provisions provisions at § 412.534 for LTCHs that patients to a post-acute care setting for
concerning the reconciliation of LTCH are HwHs and for satellites of LTCHs the purpose of lowering its costs,
PPS outlier payments, including that are co-located with host hospitals. undercuts the foundation of the IPPS
editorial clarifications discussed in In developing that policy, we were DRG payment system which is based on
greater detail below in this section, that particularly concerned with patient averages, as noted above. Because the
would more precisely describe the shifting between the host acute care course of acute treatment had not been
application of those policies. hospitals and the co-located LTCH HwH completed, the hospital inappropriately
Specifically, at § 412.529(c)(3)(iv)(D), or satellite for financial rather than for would have incurred lower costs under
similar to our current policy, we medical reasons, a scenario that we the IPPS. It did not incur additional
specified that for discharges occurring believed was encouraged by physical costs for what would have been the
on or after October 1, 2006, any proximity, and that resulted in remainder of the patient’s stay at the
reconciliation of outlier payments will inappropriate increased cost to the IPPS acute care hospital. We were
be based on the CCR calculated based Medicare program (69 FR 49191). We concerned that once that patient was
on a ratio of costs to charges computed specified that the payment adjustment discharged from the IPPS acute care
from the relevant cost report and charge for co-located LTCHs at § 412.534 was hospital, the patient, still under active
data determined at the time the cost also applicable to host hospitals other treatment for the same condition, would
report coinciding with the discharge is than acute care hospitals that served as be admitted to a LTCH, thereby
settled. In addition, at hosts to LTCH HwHs or satellites of generating a second admission and
§ 412.529(c)(3)(iv)(E), we specified that LTCHs since we had similar concerns to Medicare payment that often would not
for discharges occurring on or after those stated above regarding patient have taken place but for the availability
October 1, 2006, at the time of any shifting between such hosts and their of the LTCH (59 FR 45389 through
reconciliation, outlier payments may be co-located LTCHs. However, the vast 45393).
adjusted to account for the time value of majority of host hospitals continue to be With the growth of satellites of
any underpayments or overpayments. acute care hospitals (69 FR 49198). excluded hospitals, another category of
Such an adjustment will be based upon In the FY 2005 IPPS final rule, we co-located facilities, we established
a widely available index to be quoted the FY 1995 IPPS final rule ‘‘separateness and control’’ policies
established in advance by the Secretary where we first discussed our concern applicable to satellites, which we
and will be applied from the midpoint that LTCH HwHs were, in effect, defined at § 412.22(h) as ‘‘a part of a
of the cost reporting period to the date operating as step-down units of acute hospital that provides inpatient services
of reconciliation. We made these care hospitals. We explained that this in a building also used by another
additional revisions to § 412.529(c)(3) was inconsistent with the statutory hospital or in one or more entire
because we believe that these changes framework and that such a configuration buildings located on the same campus
would be more consistent with the could lead to Medicare making one as buildings used by another hospital.’’
LTCH PPS single payment rate, and payment to the acute care hospital and In the FY 2003 IPPS final rule at
because we believe it would be more another under LTCH PPS for what was § 412.22(h), we finalized additional
appropriate and administratively essentially one episode of care (69 FR regulations governing the satellites of
simpler to include all of the regulatory 49191 through 49192, and 59 FR 45389). hospitals (64 FR 41532 through 41535
provisions concerning the When we first established the and 67 FR 50105 through 50106).
determination of LTCH PPS outlier separateness and control criteria for As detailed in the FY 2005 proposed
payments applicable under the LTCH LTCH HwHs at § 412.22(e) in the FY and final rules for the IPPS (69 FR
PPS regulations at subpart O of 42 CFR 1995 IPPS final rule, our main objective 28323 through 28327, 69 FR 49191
part 412. (For a complete discussion on was to address the shifting of costly, through 49214), with the explosive
the revisions made to the SSO long-stay patients from the host to the growth in the number of LTCH HwHs
reconciliation policy, refer to the FY on-site LTCH, resulting in two hospital and concomitant cost to the Medicare
2007 IPPS final rule (71 FR 48121 stays which would result in a financial program, we reevaluated the
through 48122).) windfall for both providers. We sought effectiveness of existing policies
Comment: One commenter requested to protect the integrity of the IPPS by regarding HwHs. (OSCAR data showed
that we clarify how we interpret the 10 ensuring that those costly, long-stay that there were 105 LTCHs in 1993 of
percentage point criterion of the SSO patients who could reasonably continue which 10 were HwHs. By October 2005,
and HCO reconciliation policy. treatment in an acute care hospital there were 373 LTCHs of the majority
Response: We did not propose any would not be unnecessarily discharged which were HwHs.) We considered
changes to the current reconciliation to an onsite LTCH, a behavior that whether our regulations sufficiently
policy. Therefore, we do not believe this would undermine the Medicare IPPS protected the Medicare program from
final rule is the appropriate vehicle to DRG payment system for acute care the problems that we envisioned in the
address this comment. As we have hospitals. We explained that the Federal FY 1995 IPPS final rule. We also
stated, we intend to issue subregulatory standardized payment amount for the questioned the effectiveness of the
guidance on LTCH reconciliation that IPPS was based on the average cost of ‘‘performance of basic hospital
would be similar to the IPPS an acute care patient across all acute functions’’ aspect of the ‘‘separateness
and control’’ requirements alone LTCH satellites of 25 percent (or an LTCH satellite that were admitted from
because we were aware that some co- applicable percentage) for LTCH the urban single or MSA dominant host
located providers had been establishing discharges who were admitted from hospital, did not exceed the percentage
complex arrangements among corporate their host hospitals. of the total Medicare discharges in the
affiliates, and had obtained services Section 412.534, Special payment MSA in which the hospital is located
from those affiliates, masking true provisions for long-term care hospitals that were discharged from the host
corporate identities, and therein, within hospitals and satellites of long- hospital, for the cost reporting period
diluting or impairing the effectiveness term care hospitals, provides that if a for which the adjustment would be
of the separateness criteria in LTCH HwH or LTCH satellite’s made, but in no case is the percentage
determining whether both hospitals discharges that were admitted from its less than 25 percent or more than 50
were interrelated. While technically host hospital exceed 25 percent (or the percent. In addition, in determining the
remaining within the parameters of the applicable percentage) of its total percentage of patients admitted to the
rule, these arrangements intermingled Medicare discharges for the LTCH HwH LTCH from the urban single or MSA
corporate interests so that the corporate or LTCH satellite’s cost reporting dominant host hospital, any patients
distinctness was lost, thus side-stepping period, an adjusted payment would be that had been Medicare outliers at the
the intent of our regulations. (Although made at the lesser of the otherwise host and then transferred to the LTCH
we have had similar concerns regarding payable amount under the LTCH PPS or HwH or LTCH satellite would be
patient movement between host the amount payable under the LTCH considered as if they were admitted to
hospitals and their satellites, there had PPS that would be equivalent to what the LTCH from a non-host hospital.
never been any ‘‘performance of basic Medicare would otherwise pay under (When we refer to ‘‘the 25 percent (or
hospital functions’’ criteria established the IPPS. In determining whether a applicable percentage)’’ patient
in § 412.22(h) because satellites are part hospital met the 25 percent (or threshold throughout this final rule, the
of another hospital, and therefore, share applicable percentage) criterion, ‘‘applicable percentage’’ refers to these
a Medicare provider number with ‘‘the patients transferred from the host special adjustments that we have
hospital of which they are a part’’ thus hospital that had already qualified for provided for the special circumstances
making it administratively burdensome outlier payments at the host would not of rural, urban-single, or MSA-dominant
to distinguish between the inpatient count as a discharge that had been LTCHs or to the percentage associated
operating costs of the main hospital and admitted from the host. (We commonly with the transition policy, discussed
its satellite(s).) refer to this throughout the preamble below in this section.)
In the FY 2005 IPPS final rule, and regulations text as the discharge not When implementing this policy, we
following serious consideration of the being counted towards the applicable also provided for a 4-year transition for
public comments that we received on threshold.) existing LTCH HwHs or LTCH satellites
our proposed policy revisions for LTCH It is important to note that if the that met the applicable criteria outlined
HwHs and satellites (69 FR 28323 hospital exceeds its threshold, LTCH in the regulations to allow these LTCHs
through 28327) and further evaluation discharges admitted from the host a reasonable period during which hosts
of the issues, regulatory changes were before the LTCH exceeds the 25 percent and co-located LTCH HwH or LTCH
finalized for HwH separateness and threshold would be paid an otherwise satellites and specific ‘‘LTCHs under
control policies at § 412.22(e) and a new unadjusted payment under the LTCH formation’’ would be able to adapt to the
payment adjustment was established for PPS. requirements of the new policy. For cost
LTCH HwHs and satellites of LTCHs, at We also finalized additional reporting periods beginning on or after
§ 412.534. (We wish to note that the adjustments to the 25 percent policy for October 1, 2004, through September 30,
term ‘‘satellite facility’’ in this section specific circumstances. For an LTCH 2005, these transitioned hospitals were
refers to satellites of excluded hospitals, HwH or LTCH satellite located in a rural to be grandfathered, with the first year
in particular, LTCHs, and does not area, there is no payment adjustment as a ‘‘hold harmless’’ year. However,
include satellites of excluded units at applied under § 412.534 if no more than even for facilities that were being
§ 412.25.) 50 percent, rather than 25 percent, of phased-in to the full payment
Specifically, in the FY 2005 IPPS final the Medicare patients discharged from adjustment, in the first cost reporting
rule (69 FR 49091 through 49214), the LTCH or satellite were admitted period, the hold harmless year, the
effective for cost reporting periods from the host. In addition, in percentage of discharges admitted from
beginning on or after October 1, 2004, determining the percentage of patients the host hospital to the LTCH could not
for LTCHs we eliminated the admitted from the host, any patients exceed the percentage of discharges
performance of basic hospital functions that had been Medicare outliers at the admitted from the host hospital to the
test under § 412.22(e)(5)(i), the 15 host and then discharged to the rural LTCH HwH or LTCH satellite in its FY
percent test under existing LTCH HwH or LTCH satellite would be 2004 cost reporting period. (For the
§ 412.22(e)(5)(ii), and the 75 percent of considered as if they were admitted to purposes of § 412.534, the hospital’s
admissions from other than the host the LTCH or satellite from a non-host cost reporting period during FY 2004,
criteria at § 412.22(e)(5)(iii). A LTCH hospital. In addition, in the case of a the last cost reporting period prior to the
that met administrative separateness LTCH or LTCH satellite facility that was implementation of § 412.534, is the
and control requirements at co-located with the only other hospital ‘‘base period’’ for purposes of
§ 412.22(e)(1)(i) through (e)(1)(iv), under in the MSA or with an MSA-dominant establishing the gradual phase-in of the
our finalized policy, satisfied the LTCH hospital, as defined at § 412.534(e)(4), a full payment threshold adjustment (69
HwH requirements. (As noted above in payment threshold was established that FR 49196).)
this section, the performance of basic we believed responded to ‘‘the unique After the first grandfathered cost
hospital functions test does not exist for needs of these communities’’ (69 FR reporting period, these LTCH HwHs and
satellites; therefore, we did not similarly 49207). Under § 412.534(e)(2), we do not LTCH satellite facilities were required to
revise § 412.22(h).) However, we adjust payments to those LTCH HwHs meet a percentage transition over the 3-
established a new payment adjustment or LTCH satellite facilities as long as the year period beginning in FY 2006. For
at § 412.534 based upon annual percentage of Medicare patients cost reporting periods beginning on or
threshold criteria for LTCH HwHs or discharged from the LTCH HwH or after October 1, 2005, but before October
1, 2006, the percentage of Medicare admission to another provider, referrals’ (69 FR 49202). Despite the
discharges that may be admitted from specifically a LTCH, for which an commenters’ assertions, we do not
the host with no adjustment may not additional Medicare payment would be believe that either common ownership
exceed the lesser of the percentage of generated. However, the payment or co-location are the only
their discharges admitted from their adjustment at § 412.534 is not applied to circumstances under which financial
host during its FY 2004 cost reporting the transferring hospital but rather, to incentives exist for acute care hospitals
period or 75 percent. For cost reporting discharges from the co-located LTCH to to prematurely discharge Medicare
periods beginning on or after October 1, which the presumably prematurely patients to LTCHs for additional
2006 but before October 1, 2007, the discharged patient has been admitted. treatment during the same episode of
percentage of Medicare discharges that Moreover, although the referring patient care. In fact, we are aware of the
may be admitted from the host with no hospital under the post-acute transfer existence of ‘‘arrangements’’ between
adjustment may not exceed the lesser of policy must be an acute care hospital, Medicare acute and post-acute hospital-
the percentage of its Medicare for the purposes of the payment level providers that may not have any
discharges admitted from its host during adjustment at § 412.534, any hospital is ties of ownership or governance relating
its FY 2004 cost reporting period or 50 a potential host if it is co-located with to patient shifting that appear to be
percent, and finally, 25 percent (or other a LTCH HwH or LTCH satellite. based on mutual financial gain rather
applicable percentage) beginning with When we proposed the 25 percent (or than on significant medical benefits for
cost reporting periods beginning on or applicable percentage) payment the patient. This could be the case if an
after October 1, 2007. Additionally, the adjustment for co-located LTCHs in the acute care hospital discharges a
25 percent policy for co-located LTCHs FY 2005 IPPS proposed rule, MedPAC Medicare beneficiary who continues to
is currently implemented in a location- expressed concern that the 25 percent require hospital-level care primarily to
specific manner. That is, the patient threshold policy would have a preclude that patient’s case from
computation of the percentage of LTCH significant impact and could possibly reaching outlier status at the acute care
HwH or LTCH satellite discharges lead to an inequitable situation for co- hospital, to an LTCH for additional
admitted from a host is based solely on located LTCHs, as compared to treatment. Under this scenario,
the admissions from the physically co- freestanding LTCHs. Among their Medicare would pay the acute care
located host and not from other concerns were the following: hospital under the IPPS for the
campuses or remote locations which Freestanding LTCHs also have strong beneficiary’s care but the hospital
may share a common Medicare provider relationships with acute care hospitals, would be able to avoid both losing the
number with the host. and that where on average LTCH HwHs ‘‘fixed loss’’ amount and absorbing 20
Although the payment adjustment at receive 61 percent of their patients from percent of the remaining costs for the
§ 412.534 focused on LTCH HwHs and their hosts, on average freestanding outlier patient’s care, as established
satellites of LTCHs and its host LTCHs receive 42 percent of their under the IPPS outlier policy at subpart
hospitals, the relationship between a patients from their primary referring F of part 412. Medicare would also be
receiving provider and any referring hospital; a 25 percent rule that only responsible for a payment, to the LTCH,
hospital has been an issue of concern for applied to LTCH HwHs and not to under the LTCH PPS upon the patient’s
the Medicare program, even in the freestanding LTCHs could be discharge from the LTCH. Accordingly,
absence of co-location. Under section inequitable; and if this policy approach we believe that additional regulation in
1886(d)(5)(J) of the Act, added by applied the adjustment only to HwHs this area is both necessary and
section 4407 of the BBA of 1997, the and satellites it could be circumvented
appropriate to protect the Medicare
Congress provided for a post-acute by an increase in the number of
Trust Fund when generating two
transfer policy which addressed certain freestanding LTCHs instead of LTCH
payments under two different payment
patient discharges from acute care HwHs (69 FR 49211).
In the RY 2007 LTCH PPS final rule, systems for what was essentially one
hospitals that subsequently received
we also stated that according to a episode of beneficiary care.
additional treatment delivered by a
second Medicare provider. We believe commenter, the data indicated ‘‘* * * When we finalized the payment
that the Congress enacted this that it is common practice for LTCHs adjustment at § 412.534, which focused
legislation to discourage acute care * * * to admit patients from a single- solely on co-located LTCHs, that is,
hospitals from prematurely discharging source acute care hospitals’’ and that LTCH HwHs and satellites of LTCHs,
patients to another treatment setting in 71.2 percent of freestanding LTCHs and as we subsequently noted in the RY
order to increase Medicare payment. admit more than 25 percent of their 2007 LTCH PPS final rule, we took
The Congress’ enactment of the patients from a single source acute-care considerable note of these comments
legislation authorizing the post-acute hospital (71 FR 27878). and we have continued since that time
transfer policy is indicative of its Additionally, in comments received to monitor the relationships between
serious concerns about patient shifting on the FY 2005 IPPS proposed rule to referring hospitals and LTCHs (71 FR
between acute and post-acute providers. preclude common ownership of a host 27878). Specifically, at that time we also
In the case of the post-acute transfer and a HwH (which was not finalized), analyzed patient claims data from the
policy, described above in this section, two commenters asserted that the FY 2004 MedPAR files for acute care
we focused on overpayment, under the financial incentive to accept patients who are admitted to
IPPS, to the transferring hospital when inappropriate patients from an acute freestanding LTCHs. We have analyzed
a patient is prematurely discharged to care hospital could exist only when the the discharge and LOS information from
another provider during the same acute care hospital and the LTCH were this data to evaluate whether there was
episode of illness. commonly owned and when there was a significant difference in patient
The payment adjustment for co- common governance, a situation that shifting behavior between co-located
located LTCHs at § 412.534 was based ‘‘can exist even without co-location, that LTCHs and their host acute care
on concerns similar to those underlying is, a freestanding LTCH, exempt from hospitals and those freestanding LTCHs
the post-acute transfer policy at § 412.4, the requirements of § 412.22(e) could be that admit a majority of their patients
that is, an inappropriately truncated owned and governed by the hospital from particular referring acute care
hospitalization at a host facility and an from which it receives the majority of its hospitals. (As stated previously, for the
purposes of the payment adjustment at freestanding LTCH. Even though we § 413.65(a)(2) which specifies that a
existing § 412.534, any inpatient finalized the percentage threshold campus is ‘‘the physical area
hospital-level provider is a potential payment adjustment only for co-located immediately adjacent to the provider’s
host if it is co-located with a LTCH LTCH HwHs and satellites at that time, main buildings, other areas and
HwH or LTCH satellite (69 FR 49198). we believed that this data indicates structures that are not strictly
Similarly, freestanding LTCHs also considerable similarity between the contiguous to the main buildings but are
admit patients from sources other than patient-shifting behavior at acute care located within 250 yards of the main
acute care hospitals. However, our data hospitals with co-located LTCHs and buildings, and any other areas
reveals that approximately 80 percent of acute care hospitals with LTCHs with determined on an individual basis, by
all LTCH admissions are from acute care which they are not co-located. We the CMS regional office, to be part of the
hospitals. Therefore, our data analysis would have expected the LOS at the provider’s campus.’’ We have become
discussed below in this section, focuses acute care hospital that discharged aware of certain LTCH companies that
on the relationship between a referring patients to non-co-located LTCHs to be have both established new LTCHs and
acute care hospitals and LTCHs.) longer. are considering relocating existing
We also analyzed more recent data on Furthermore, as noted above in this HwHs or LTCH satellites so that they are
relationships between LTCHs and acute section, we have concentrated on the at least 300 yards from the acute care
care hospitals from which they received relationships between acute care hospital, thus side-stepping the intent of
a significant percentage of referrals. The hospitals and non-co-located LTCHs in existing § 412.534. We believe that
RY 2005 MedPAR files indicate that this discussion, because approximately extending the existing payment policy
only 73 of the then 200 freestanding 80 percent of Medicare patients in will also address the type of ‘‘gaming,’’
LTCHs admitted 25 percent or less of LTCHs are admitted from acute care described above in this section.
their Medicare discharges from an hospitals. However, we believe that the We first noted in the RY 2006 LTCH
individual acute care hospital; for 82 of same concerns, articulated above, would PPS final rule (71 FR 27878) our
those freestanding LTCHs, the also exist when the patient source is not concern that in many cases that the line
percentage was between 25 and 50 an acute care hospital. There could still of ‘‘functional separateness’’ between
percent; for 33 it was between 50 and 75 be a financial incentive on the part of freestanding LTCHs and their major
percent, and for 6 percent of those the referring hospital (for example, an referral sources appears to have been
freestanding LTCHs it was between 75 IRF, to prematurely discharge a erased. We believe that our analysis of
and 100 percent of their Medicare beneficiary to a LTCH for additional patient movement between these
discharges that were admitted from one post-acute treatment in order to avoid facilities supports these concerns.
acute care hospital. Thus, the data absorbing high treatment costs under Therefore, under the broad authority
indicates that for over 60 percent of all the IRF outlier policy at § 412.624(e)(5)) conferred on the Secretary by section
freestanding LTCHs, over 25 percent of that would result in two Medicare 123 of the BBRA, as amended by section
their discharges were for patients payments, one to the initial provider 307(b) of the BIPA to implement a
admitted from an individual acute care and the other under the LTCH PPS for, prospective payment system for LTCHs,
hospital. what is actually, a single episode of including authority to provide for
Generally, the data reveals minimal beneficiary care. (We recognize that a appropriate adjustments to the payment
differences for cases grouped to the patient could experience a medical system, we proposed the extension of
same DRG between the ALOS at the crisis while an inpatient at an IRF, but the payment adjustment at § 412.534,
acute care hospital prior to an typically, the most appropriate setting presently applicable to co-located
admission to a co-located LTCH and the for such urgent care would be a general subclause (I) LTCHs, to all subclause (I)
ALOS at a referring acute hospital prior acute care hospital, rather than a LTCH.) LTCHs (section 1886(d)(1)(B)(iv)(I) of
to admission to a freestanding LTCH. We believe that this data gives further the Act), as explained below in this
For example, when we finalized the 25 credence to concerns articulated by section. (For the purposes of the
percent threshold payment adjustment MedPAC and the assertions made by the discussion of this policy, a ‘‘subclause
for co-located LTCHs at § 412.534, we Lewin Group in their comments on our (I) LTCH’’ is also intended to include
evaluated data from CY 2004 MedPAR FY 2005 IPPS proposed rule regarding satellites of these LTCHs. Our proposal
files regarding LTC–DRG 475, the ‘‘strong relationships’’ for referral regarding subclause (II) LTCHs, that is
Respiratory System Diagnosis with purposes that exist between many acute those LTCHs that meet the definition at
Ventilator Support, for both LTCH care hospitals and freestanding LTCHs. section 1886(d)(1)(B)(iv)(II) of the Act, is
HwHs with more than 25 percent of Although, our decade-old concerns, discussed below in this section.)
their discharges admitted from their about LTCHs functioning as long-stay or Specifically, at § 412.536, we proposed
host hospital and freestanding LTCHs step-down ‘‘units’’ of acute care regulations that govern payments under
with more than 25 percent of their hospitals, focused on co-located LTCHs the LTCH PPS for LTCH and LTCH
discharges admitted from an individual (HwHs and LTCH satellites), we believe satellite Medicare discharges admitted
referring hospital. The ALOS for that this data indicates that many from referring hospitals not co-located
patients stays that have not reached freestanding LTCHs may also be serving with the LTCH or the satellite of a
outlier status at the host prior to being the same purpose as those that are co- LTCH.
discharged to the co-located LTCH was located, that is, as functional step-down The proposed policy provisions of the
12.7 days and for freestanding LTCHs, units of their primary referring acute 25 percent (or applicable percentage)
the average LOS at their individual care hospital. payment adjustment apply to any
referring hospital was 12.9 days. We are also concerned about other subclause (I) LTCH or LTCH satellite
Similarly, for LTC–DRG 416, attempts to evade our regulations at regardless of the physical proximity to
Septicemia, the ALOS at the host acute § 412.534. In implementing the HwH the hospital from which it is accepting
care hospital was 9.8 days prior to regulations at § 412.22(e) and the admissions. In order to apply this policy
admission to the co-located LTCH and satellite regulations at § 412.22(h), we at all subclause (I) LTCHs and LTCH
the prior ALOS at the individual have consistently utilized the definition satellites, we proposed to additionally
referring acute care hospital was 9.6 of ‘‘campus’’ that was established in the revise existing § 412.534 to include a
days prior to admission to the provider-based regulations at new provision at § 412.534(h) that
would extend the 25 percent (or HwHs and LTCH satellites in the (or applicable percentage) for cost
applicable percentage) payment proposed 25 percent (or applicable reporting periods beginning on or after
threshold to those grandfathered co- percentage) threshold policy would not October 1, 2004, we opted to implement
located subclause (I) LTCH HwHs and effect their ability to continue to be on a ‘‘location-specific’’ basis rather
LTCH satellites at § 412.22(f) and ‘‘grandfathered’’ and excluded from the than based on Medicare provider
§ 412.22(h)(3)(i), respectively, for IPPS. Moreover, as noted above, the 25 numbers. That is, we applied the
Medicare discharges that had been percent (or the applicable percentage) percentage threshold payment
admitted from the grandfathered LTCH threshold policy governing discharges adjustment only to discharges from a
or LTCH satellite facility’s host for cost from subclause (I) LTCHs that had been specific location of a LTCH HwH or
reporting periods beginning on or after admitted from any individual referring LTCH satellite that was admitted from
July 1, 2007. (We address the issue of hospital not co-located with the LTCH the host hospital with which they share
satellites of subclause (II) LTCHs below or the satellite of a LTCH, at § 412.536, a building or campus. However, since
in this section.) We proposed adding would also apply in determining implementing this policy, we have been
§ 412.536 that applies a comparable payments under the LTCH PPS for contacted by numerous representatives
payment adjustment governing Medicare discharges from LTCH HwHs of LTCH chains whose questions appear
Medicare discharges from subclause (I) and LTCH satellites, including to indicate that the site-specific
LTCHs and LTCH satellites that were grandfathered HwHs and LTCH implementation of the threshold
admitted from referring hospitals not co- satellites, that had been admitted from percentage had resulted in patient-
located with the LTCH or the satellite of referring hospitals not co-located with shifting between hospital locations that
a LTCH. the LTCH or the satellite of a LTCH (that shared a Medicare provider number and
The proposed payment adjustment at is, referring hospitals other than their even between separately owned LTCHs
§ 412.536 applies to those Medicare hosts). (for their mutual advantage) that side-
discharges from co-located subclause (I) Under the policies applicable to stepped the intent of our policy.
LTCHs (HwHs and LTCH satellite grandfathered subclause (I) LTCH HwHs Specifically, we offer the following
facilities) that have been admitted from and LTCH satellites, we proposed to pay example of a situation that was
hospitals other than those with which an adjusted amount for those discharged occurring: a host hospital at Location A
they are co-located. We believe that this Medicare patients that were admitted was discharging patients to a LTCH
policy addresses our concerns with from their co-located host, under HwH or satellite at Location B while the
LTCHs and LTCH satellites that in many § 412.534(h) or from any other referring host hospital at Location B discharged
cases appear to be functioning like step- hospital under § 412.536, in excess of patients to the LTCH HwH or satellite at
down units of acute care hospitals. the applicable percentage threshold. Location A.
Furthermore, we believe it is The grandfathered LTCHs and LTCH
appropriate that the same analytical We also proposed that for those co-
satellite facility’s Medicare discharges
standards and payment policies be located LTCHs already subject to the 25
that reached outlier status at the host, at
applied by Medicare to all subclause (I) percent (or applicable percentage)
§ 412.534(h), or at the referring hospital
LTCHs. Therefore, we proposed payment adjustment at existing
not co-located with the LTCH or the
amending existing § 412.534 to include § 412.534, the policy expansion at
satellite of a LTCH, at § 412.536, would
subclause (I) grandfathered LTCH HwHs § 412.536 would apply to payments
not count towards the applicable
and LTCH satellite facilities, as well as under the LTCH PPS for patients
threshold.
using the same thresholds applicable to We believed that since we proposed discharged from co-located LTCHs
co-located LTCH HwHs and LTCH expanding the 25 percent policy to all (HwHs and satellites) that were
satellite facilities for subclause (I) subclause (I) LTCHs and LTCH satellite admitted from referral sources other
LTCHs and LTCH satellite facilities that facilities it was appropriate to include than their host hospital(s).
admit Medicare patients from referring LTCH HwHs and LTCH satellites Therefore, under the proposed policy,
hospitals not co-located with the LTCH grandfathered respectively under for cost reporting periods beginning on
or the satellite of a LTCH, under § 412.22(f) and § 412.22(h)(3)(i). We or after July 1, 2007, a subclause (I)
§ 412.536. proposed that the provisions at LTCH or LTCH satellite that discharges
Specifically under the proposed § 412.534(h) would apply for Medicare more than 25 percent (or applicable
policy, for cost reporting periods discharges from grandfathered LTCH percentage) of Medicare patients
beginning on or after July 1, 2007, as we and LTCH satellite facilities admitted admitted from any individual referring
specified in revised § 412.534(h), this from co-located hospitals and the hospital not co-located with the LTCH
proposed payment adjustment would provisions at § 412.536 would apply for or the satellite of a LTCH. (that had not
have included those subclause (I) LTCH discharges admitted from the referring already reached outlier status, as
HwHs and satellites that had been hospital not co-located with the LTCH discussed above) would be subject to
‘‘grandfathered’’ under § 412.22(f) and or the satellite of a LTCH. As we noted the payment adjustment at § 412.536 for
§ 412.22(h)(3)(i), respectively, and that in our RY 2007 LTCH PPS final rule Medicare discharges from that hospital
are presently exempted from the regarding grandfathered HwHs, ‘‘[W]e in excess of the applicable threshold.
existing payment adjustment for co- do not believe that it is reasonable to Furthermore, we believe that with the
located LTCHs. As noted previously, assume that by creating a limited application of our proposed policy at
both grandfathered HwHs at § 412.22(f) exception for these hospitals, the § 412.536 to Medicare discharges from
and satellite facilities at § 412.22(h)(3)(i) Congress was immunizing these subclause (I) LTCH HwHs and LTCH
would be permitted to retain their facilities from any further regulation by satellites that were admitted from any
exclusions from the IPPS despite not the Secretary as to their growth and individual referring hospital not co-
meeting ‘‘separateness and control’’ financial impact on the Medicare located with the LTCH or the satellite of
policies with regard to their program. We do not believe the a LTCH., we are closing the ‘‘location-
relationships with their host hospitals, Congress was establishing a separate specific loophole’’ established by the
as long as they continued to comply class of providers’’ (71 FR 48109). implementation of § 412.534. The
with applicable Medicare requirements. As noted in the proposed rule, when change would affect all LTCHs or LTCH
This inclusion of grandfathered LTCH we implemented the existing 25 percent satellite Medicare discharges that were
admitted from hospitals that are located required long-stay hospitalizations at commenter questioned the legitimacy of
on a different campus. subclause (I) LTCHs defined by section the comment process.
We proposed that the payment 1886(d)(1)(B)(iv)(I) of the Act; however, Response: We disagree with the
adjustment at § 412.534(h) for we did not change the formula for commenter that the inclusion of
grandfathered LTCH HwHs and LTCH calculating the ALOS for a LTCH anticipated savings from the LTCH PPS
satellite facilities, discussed above in governed by section 1886(d)(1)(B)(iv)(II) in the President’s Budget invalidates the
this section, would track the applicable of the Act, implemented at legitimacy of notice and comment
provisions of the existing payment § 412.23(e)(2)(ii), for a ‘‘subclause (II)’’ rulemaking. Projections for
adjustment at § 412.534. Therefore, we LTCH. We believed that in establishing expenditures and savings are a
proposed, at § 412.534(h), for cost a ‘‘subclause (II)’’ LTCH, the Congress necessary and expected step in the
reporting periods beginning on or after provided an exception to the general budgetary process for the Federal
July 1, 2007, the provisions of § 412.534 definition of LTCHs under subclause (I). Government. The budget only
will also apply to grandfathered We had no reason to believe that the represents the President’s expectations
subclause (I) LTCH HwHs and LTCH change in methodology for determining or projections of what may happen in
satellite facilities. Accordingly, under the average inpatient LOS would better the future. It may make assumptions as
revised § 412.534, if the percentage of identify the hospitals that the Congress to policies that have been proposed (or
the grandfathered LTCH or LTCH intended to exclude under subclause (II) are being evaluated for this purpose) as
satellite’s discharged Medicare inpatient (67 FR 55974). Similarly, when we a representation of will happen. But at
population that were admitted from its established the existing 25 percent or most, the Budget should not be viewed
co-located host exceeds the applicable applicable percentage payment as a final blueprint because the
percentage of the LTCH’s Medicare adjustment at § 412.534, we determined Administration cannot anticipate policy
discharges for that cost reporting period, that its application to subclause (II) modifications in response to public
an adjusted payment will be made for LTCHs was inappropriate because the comments. We fully consider all
those discharges that were admitted designation of a subclause (II) LTCH comments received during the comment
from that hospital beyond the applicable was not solely dependent upon period and modify proposed policies in
percent threshold, at the lesser of the Medicare discharges (69 FR 49205). response to public comment.
otherwise payable amount under 42 Therefore, we are not applying the Furthermore, we would urge the
CFR part 412, subpart O or the amount expansion of the 25 percent policy at commenter to review the last several
payable under subpart O that would be § 412.536 and amended § 412.534 to years of LTCH PPS and IPPS proposed
equivalent to what Medicare would LTCHs and LTCH satellite facilities and final rules and focus on the
otherwise pay under the rules at subpart defined under section differences between the policies that we
A, § 412.1(a). (The specifics of this 1886(d)(1)(B)(iv)(II) of the Act. The proposed and those that we finalized
payment formula are explained in existing and amended payment (for example, the interrupted stay policy
considerable detail in the RY 2007 threshold adjustments at § 412.534 and (67 FR 13416, 13455 through 13462, and
LTCH PPS final rule (71 FR 27879).) at § 412.536 for subclause (I) LTCHs and 67 FR 55954, 56003 through 56006);
Furthermore, as with our initial LTCH satellites are based solely on qualifications for LTCH HwH status (69
payment adjustment at § 412.534, we percentages of LTCH Medicare FR 23306, 28323 through 28327, and 69
proposed additional adjustments for discharges. As stated above in this FR 48916, 49191 through 49214); and
LTCHs and LTCH satellites that would section, we continue to believe that
revisions in the grandfathering of HwHs
be affected by the new regulations and and satellites (71 FR 23996, 24124
since we include both Medicare and
that are located in rural areas, or that through 24126 and 71 FR 47870, 48106
non-Medicare discharges in our
admit Medicare patients from urban through 48117)) in order to more clearly
calculations for defining a subclause (II)
single or MSA-dominant referring appreciate the impact that comments
LTCH at § 412.23(e)(2)(ii) that applying
hospitals (discussed below). have on the development of our final
We did not propose extending the a payment adjustment that is based
policies.
payment adjustment in § 412.534(h) and solely on Medicare discharges may not Comment: Several commenters
§ 412.536 to those LTCHs and LTCH be appropriate. Furthermore, consistent questioned our authority in proposing a
satellite facilities that we refer to as with our policy not to include satellites payment adjustment for LTCHs that is
subclause (II) LTCHs and LTCH of subclause (II) LTCHs which were based on an IPPS payment. These
satellites, established by section specifically grandfathered at commenters assert that the Congress
1886(d)(1)(B)(iv)(II) of the Act. The § 412.22(h)(3)(ii) in § 412.536, we have excluded LTCHs from the IPPS in 1983
policy for subclause (I) LTCHs and excluded subclause (II) LTCH satellites and enacted legislation that mandated a
LTCH satellites would be based on a in the application of the 25 percent separate PPS for LTCHs that specifically
calculation of the percentage of payment adjustment for co-located required that payments to LTCHs
Medicare discharges that a LTCH admits grandfathered LTCHs at § 412.534(h). should reflect the resource use and costs
from an individual hospital during a We received 270 comments on the RY of treating LTCH patients. The
cost reporting period as compared to the 2008 LTCH PPS proposed rule. Several commenters believe we are violating the
LTCH’s total Medicare discharges of these comments pertained to the statutory requirement that payments to
during that cost reporting period. extension of the expansion of the 25 LTCHs be on a per discharge basis ‘‘that
Because of a significant policy percent rule to certain situations not reflects the reasonable and necessary
distinction that we made at the start of currently covered under existing cost of providing services in a hospital
the LTCH PPS for FY 2003, at this time § 412.534. The following is a summary having an average LOS of greater than
we do not believe that this policy of these comments and our responses. 25 days.’’ The commenters assert that a
should be applied to subclause (II) Comment: One commenter expressed payment ‘‘equivalent to’’ or
LTCHs and LTCH satellite facilities. concern about the President’s budget ‘‘comparable to’’ payments under the
With the implementation of the LTCH that has submitted to the Congress the IPPS are actually payments under the
PPS, we revised the § 412.23(e)(2)(i) and savings to be affected by this proposed IPPS, violating Congressional intent.
(e)(3)(i) to calculate the ALOS based rule are already ‘‘scored’’ and claimed Several commenters acknowledge our
solely on Medicare patients who as savings. In light of this, the belief that the IPPS-equivalent is not a
payment under the IPPS but the ‘‘thrust utilizes, in large part, principles from Inc., 467 U.S. 837, 842–843 (1984).
of the rationale’’ for imposing the rule the IPPS payment methodology and Under the ruling, the Court asks
is that these cases still belong in the builds upon those concepts to create a whether the Congress addressed, in
acute care hospital and payment should LTCH PPS payment adjustment that clear language, the issue in question
mirror payment under the IPPS. One results in an appropriate payment under and, if the answer is affirmative, the
commenter stated that the Congress the LTCH PPS for those inpatient stays effect is given to the ‘‘unambiguously
‘‘established LTCHs as a distinct and that we believe could be more expressed intent of Congress.’’ If the
separate level of care.’’ appropriately treated in another setting. ‘‘statute is silent or ambiguous with
Several commenters believe we are We disagree with commenters that respect to the specific issue,’’ ‘‘the
violating section 1801 of the Act our proposed expansion of the 25 Agency’s interpretation is allowed to
(‘‘Nothing in this title shall be construed percent policy that provides for a stand as long as it is based on a
to authorize any Federal Officer or payment based on an ‘‘IPPS comparable permissible construction of the statute.’’
employee to exercise supervision or payment amount’’ is a payment under Id. at 843. Deference to the Agency’s
control over the practice of medicine or the IPPS. We want to emphasize that interpretation is ‘‘only appropriate
the manner in which medical services such a payment is not an IPPS payment, when the agency has exercised its own
are provided’’) and section 1802(a) of but rather, given the fact that these judgment’’ and is not based upon an
the Act (‘‘Any individual entitled to patients are comparable to patients erroneous view of the law. Id.
insurance benefits under [Medicare] treated in acute care hospitals and that Response: We disagree that we have
* * * may obtain health services from the statute precludes the existence of imposed criteria that would restrict
any institution, agency, or person LTCH units, it is an appropriate admissions through payment reductions
qualified to participate * * * [in the payment adjustment under the LTCH to LTCHs that have no relationship to
Medicare program] if such institution, PPS that is equivalent to a payment that the referring acute care hospitals. The
agency, or person undertakes to provide would be derived from the IPPS payment adjustment we are
him such services’’). These commenters payment methodology. Moreover, the implementing is not the equivalent to
stated that we have no authority to pay authority extended to the Secretary by setting ‘‘admissions criteria’’ for
for services provided at a LTCH under the BIPA included the discretion to treatment at a LTCH. An LTCH may
the IPPS. Statutory authority for the ‘‘provide for appropriate adjustments to admit as many hospital-level patients as
establishment of the LTCH PPS the long-term hospital payment it can safely treat and from whatever
indicates the Congress believed that system.’’ Our final policy is one such source(s) it chooses. However, we
LTCH care is more costly than acute adjustment made within the authority believe that LTCHs that discharge
because it requires the Secretary ‘‘to conferred under the statute. From the greater than the applicable percentage of
account for different resource use of inception of the LTCH PPS for FY 2003, patients admitted from a particular
LTCH patients.’’ The commenters we have interpreted the above cited source that had not reached high cost
believe that the policies in the RY 2008 statutory provision to authorize the outlier status, may be understood to be
LTCH PPS proposed rule would strip establishment of payment adjustment functioning similarly to a co-located
away the special status given by the policies including short stay outliers LTCH (HwH or satellite), and therefore,
Congress to LTCHs, thus undermining (§ 412.529), interrupted stays more like a step-down unit of the acute
the purpose of the LTCH PPS because a (§ 412.531), and discharges from LTCHs. care hospital. Under such a
significant portion of payments would We also believe that the authority circumstance, we believe that the
be reimbursed under the IPPS. extended to the Secretary by the BIPA Medicare program would be generating
Response: Following further data and includes the discretion to develop a a second payment under the LTCH PPS
policy analysis, we believe that the payment adjustment based upon for a single episode of care for patient
policies that we are finalizing in this establishing a percentage threshold for who, had not completed his or her
rule fairly address circumstances that LTCH discharges that we believe are episode of care and, is discharged to a
we have become aware of as the LTCH comparable to discharges from acute LTCH for the remaining portion of the
PPS matures. We do not believe that we care hospitals under circumstances original episode of care. Thus, we
violated Congressional intent in either where we believe that a full episode of believe that it is appropriate to adjust
the BBRA of 1999 or the BIPA of 2000 care has not been delivered at the the payment to be made to the LTCH
in establishing a payment adjustment referring hospital and that the LTCH is under the LTCH PPS.
under the LTCH PPS that addresses our functioning like a step-down unit of the Section 123 of the BBRA, as amended
concerns about paying for a substantial referring hospital. by section 307 (b) of the BIPA, confers
number of short stay patients, We believe that further refining the 25 upon the Secretary tremendous
particularly those with extremely short percent policy actually captures discretion in creating the LTCH PPS. We
stays, under a payment system designed Congressional intent since it addresses believe that the expansion of the 25
to treat long stay patients. the situation of a LTCH which by all percent policy is in accordance with the
As indicated previously, section 123 appearances is serving as a unit of authority granted to the Secretary under
of the BBRA, as amended by section another hospital. 123 of the BBRA as amended by section
307(b)(1) of the BIPA, confers broad Comment: Some commenters 307 of the BIPA to make adjustments
discretionary authority on the Secretary maintain that we have no authority to under the LTCH PPS and is consistent
to implement a PPS for LTCHs, restrict admissions through payment with the statute which precludes the
including providing for appropriate reductions to LTCHs that have no establishment of LTCH units at section
adjustments to the payment system. relationship to the referring acute care 1886(d)(1)(B) of the Act and is also
This broad authority gives the Secretary hospitals. One commenter stated that in consistent with the Secretary’s authority
great flexibility to fashion a LTCH PPS proposing the extension of the 25 under sections 1102 and 1871 of the
based on both original policies, as well percent policy to non-co-located LTCHs, Act. Therefore, we disagree with
as concepts borrowed from other we have violated the Court’s two-prong commenters that the Secretary is acting
payment systems that are adapted, test for validity of a regulation in contradiction of the statute and
where appropriate, to the LTCH context. established under Chevron U.S.A., Inc. inconsistently with the Chevron
In the instant case, our finalized policy v. Natural Resources Defense Counsel, doctrine.
As a result of our monitoring efforts, CMS statements that it [would] not admit from their co-located host. (We
we have become increasingly aware that apply the HwH requirements to are also providing for conforming
the intent of our existing payment [grandfathered LTCHs]’’ and requested changes to § 412.534(a), (c)(1), (c)(2),
adjustment policy at § 412.534 aimed at that we continue to exempt (d)(1), and (e)(1) to include
combating LTCHs functioning as long- grandfathered LTCHs from the proposed grandfathered HwHs and satellites, in
stay ‘‘units’’ of the referring hospitals is 25 percent rule. The commenter noted existing provisions.) Furthermore, under
being circumvented by creative patient- that since grandfathered LTCH HwHs new § 412.536, Medicare discharges
shifting and admission practices, in were exempt from the original 25 from grandfathered LTCH HwHs and
addition to, a spiked increase in the percent policy that had been codified at satellites that were admitted from
number of freestanding LTCHs. We have § 412.22(e)(5)(iii) and since § 412.534 is referring hospitals not co-located with
been monitoring the patient shifting based on that requirement, we should the LTCH or the satellite of a LTCH that
patterns of LTCHs and referring continue to exempt grandfathered LTCH exceed the applicable threshold, will be
hospitals that are not co-located with HwHs from this policy. One commenter subject to the payment adjustment
one another and have detected behavior noted that grandfathered LTCH HwHs described in detail above in this section.
that is not significantly different from were protected against being paid under (Elsewhere in these responses, we
that of co-located LTCHs and their host the IPPS even though they did not discuss the 3-year transition period to
hospitals. Therefore, we do not believe comply with the ‘‘separateness and the full threshold adjustment that we
that co-location is a prerequisite to control’’ regulations but if they are are also providing for all LTCHs and
inappropriate patient-shifting between required to comply with the 25 percent LTCH satellites including grandfathered
an acute care hospital and a LTCH. threshold payment adjustment, the LTCHs and satellites affected under
We believe that the danger of LTCHs ‘‘result will be the same’’ because the § 412.536.)
functioning as ‘‘units’’ appears to be grandfathered LTCH HwH would be We disagree with commenters who
occurring not only in LTCH HwHs and paid under the IPPS. Another stated that we are ‘‘evading Congress’
LTCH satellites, but also with commenter cited that LTCH HwHs are mandate, and contradicting regulatory
freestanding LTCHs, and that in many precluded from growing under our statements that we have formerly
cases, these non-co-located LTCHs and regulations, and therefore, they should made.’’ Section 4417(a) of the BBA of
their referral sources may be functioning be exempted from the 25 percent policy. 1997 amended 1886(d)(1)(B) of the Act
in ways that appear to have erased the One commenter agreed that HwH, to provide that ‘‘[a] hospital that was
line of ‘‘functional separateness’’ freestanding, and grandfathered LTCHs classified by the Secretary on or before
between these LTCHs and their referring should be subject to the extension of the September 30, 1995 as a hospital
acute care hospitals. If patient-shifting 25 percent threshold rule, but believes described in clause (iv) [a LTCH] shall
between the referring hospital and a that the threshold should be 35 percent continue to be so classified
LTCH exceeds a specific threshold prior for this group of LTCHs instead of 25 notwithstanding that it is located in the
to the patient reaching outlier status at percent because it would still allow same building as or on the same campus
the referring hospital (that is, prior to CMS to achieve its stated goal and as another hospital.’’ We believe this
receiving a full episode of care) the would also be more realistic for LTCH provision was intended to prevent
LTCH appears to be functioning as a de providers that operate in small urban grandfathered LTCHs that were unable
facto step down unit of the acute care markets which are very similar to rural to satisfy our HwH regulations from
hospital, a configuration not permitted areas.
losing their LTCH status. By finalizing
by section 1886(d)(1)(B) of the Act, the 25 percent (or applicable
which authorizes rehabilitation and Response: We appreciate those percentage) payment threshold policy to
psychiatric units but not LTCH units of commenters who endorsed our include grandfathered LTCHs HwHs, in
acute care hospitals. We believe that if inclusion of grandfathered LTCH HwHs no way are we countermanding their
the patient is in effect, being treated in in the 25 percent threshold payment exemption from the separateness and
a ‘‘unit’’ of the acute care hospital, it is adjustment. (We would also note that control regulations at § 412.22(e).
reasonable to revise the payment satellites of LTCHs at § 412.22(h)(4) will LTCHs that exceed the applicable
methodology and take this into account. also be affected by the policy change.) threshold do not lose their LTCH status.
Comment: We received several The payment adjustment that we are Rather, the new policy only affects the
comments supporting our inclusion of finalizing, will affect all subpart (I) payment level for all LTCHs that exceed
grandfathered LTCH HwHs in the 25 LTCHs, including those LTCHs and the threshold. We further believe that
percent threshold payment adjustment. LTCH HwHs and satellites that were including grandfathered LTCH HwHs
These commenters stated that such already regulated under § 412.534 for (and satellites) within the scope of the
inclusion would ‘‘level the playing discharges that had been admitted from percentage payment threshold that we
field’’ among LTCHs. A number of their co-located hosts. It addresses our have established to ensure that
commenters disagreed with applying concern regarding Medicare patients Medicare is not generating two full
the 25 percent threshold payment who are discharged from referring payments one under the IPPS and
adjustment for co-located LTCH HwHs hospitals prior to the delivery of a full another under the LTCH PPS for one
and satellites. Other commenters urged episode of care, to LTCHs. In keeping episode of care, is well within the
us to ‘‘continue the grandfathering with our fiduciary responsibility to authority of section 123 of the BBRA, as
exemption.’’ Several commenters stated protect the Medicare program against amended by section 307(b)(1) of the
that including grandfathered LTCH duplicative and inappropriate BIPA, which confers broad discretionary
HwHs with other LTCHs ‘‘evades the payments, we are finalizing the authority on the Secretary to develop
Congressional mandate for proposed policy at § 412.534(h) under and implement a PPS for LTCHs and
grandfathering’’ and also contradicts which all subclause (I) LTCHs, further provides that the Secretary ‘‘may
regulatory statements that we have including grandfathered LTCH HwHs provide for appropriate adjustments to
made since the start of the LTCH PPS. and satellites, will be subject to the 25 the long-term hospital payment
One commenter stated that percent (or applicable percentage) system.’’
grandfathered LTCHs HwHs have threshold payment adjustment with We do not believe that it is reasonable
‘‘operated in reasonable reliance on regard to Medicare discharges that they to assume that by creating a limited
exception for these hospitals that the critical difference between them. grandfathered HwHs to maintain their
Congress intended to immunize these Because the effect of section LTCH status but in no way intended for
facilities from any further regulation by 1886(d)(1)(B) is that grandfathered this group of LTCHs to receive an
the Secretary as to their growth and LTCH HwHs may continue to be exclusion from payment policies
financial impact on the Medicare classified as LTCHs even if they fail to applicable to freestanding LTCHs.
program. ‘‘We do not believe Congress meet with the ‘‘separateness and We further disagree with the
was establishing a separate class of control’’ requirements that we had commenters that since grandfathered
providers’’ (71 FR 48109). established at § 412.22(e), among which LTCH HwHs (and satellites) are
Grandfathered LTCHs and LTCH was the 75/25 test as one of the three precluded from ‘‘growth’’ under our
satellite facilities are paid under the options for indicating independent existing regulations, that they should
LTCH PPS and the revised payment ‘‘performance of basic hospital not be subject to the 25 percent (or
adjustment under § 412.534 and new functions’’ between the host and the applicable percentage) payment
§ 412.536 is merely another feature of LTCH HwHs, grandfathered HwHs adjustment. We have allowed
the LTCH PPS. continued to be excluded from the IPPS grandfathered LTCH HwHs and
One commenter believes we despite their unquestioned satellites to modernize their facilities as
contradicted our own statements by organizational and functional linkage to necessary and appropriate even if
including a partial quote from the FY their host hospitals. A non- modernization required an increase in
2007 IPPS final rule about grandfathered grandfathered LTCH HwH that was not square footage. Specifically, in the FY
LTCH HwHs’ ‘‘reasonable reliance’’ on in compliance with the separateness 2007 IPPS final rule, we revisited
the fact that we would not apply the and control requirements would have previous policies that limited
HwH requirements. In that final rule, we lost its IPPS exclusion. Therefore, since grandfathered LTCH HwHs (and
explained that ‘‘[t]he purposes of our loss of IPPS-excluded status is not a satellite facilities, including satellite
grandfathering certain existing HwHs feature of the payment adjustments that units) from changing the ‘‘terms and
and satellites was to reflect reliance we are finalizing at revised § 412.534 conditions’’ under which they operated
interests and settled expectations that and § 412.536, we would disagree with at the time of their grandfathering and
existed on the part of these facilities at the commenter that the ‘‘result will be we revised § 412.22((f)(3) (and
the time the separateness and control the same because the grandfathered § 412.22(h)(4) for satellites), and
requirements were created’’ (71 FR LTCH HwH would be paid under the finalized a policy which would allow
48107). We believe this statement is IPPS.’’ Under § 412.534(h), which makes them to increase or decrease their
consistent with our belief that including grandfathered LTCH HwHs (and LTCH square footage or decrease their number
grandfathered HwHs in the extension of satellites) subject to revised § 412.534(h) of beds without risking their
the 25 percent (or applicable and to § 412.536, for cost reporting grandfathered status. In that same final
percentage) payment threshold policy periods beginning on or after July 1, rule, we revised this policy for all
does not violate the Congress’ intent. 2007, there is no risk of losing IPPS- HwHs, satellites, and satellite units of
The expansion of the 25 percent policy excluded status. Grandfathered LTCHs all excluded hospitals, not only LTCHs,
will not affect the ‘‘reliance interests would continue to be paid under the because we were persuaded by
and settled expectations’’ of LTCH PPS, albeit, an adjusted payment comments received on our FY 2007
grandfathered HwHs (and also on LTCH amount, even if they exceed the IPPS proposed rule (71 FR 23996) that
satellites) since they will continue to be applicable percentage threshold under these facilities needed to be able to
exempt from meeting the separateness our finalized policy. expand in order to modernize (for
and control requirements that are As with all other subclause (I) LTCHs, example, to accommodate new medical
required by non-grandfathered co- Medicare payments to grandfathered equipment, record requirements, and
located LTCHs. Moreover, the concerns LTCH HwHs (and satellites) for new Federal, State, and local safety
that we hold regarding premature discharges in excess of the applicable requirements). However, we did not
patient shifting from host hospitals or threshold that were admitted from an allow grandfathered facilities to increase
referring hospitals to LTCHs and the individual referring hospital will be their number of beds because we
consequences of such patterns for based on a payment under the LTCH believed that all grandfathered co-
Medicare payment purpose, may even PPS at the lesser of the otherwise located facilities already held a
be more relevant with regards to unadjusted amount under the LTCH significant advantage over such facilities
grandfathered LTCH HwHs because PPS or a payment equivalent to what that were not grandfathered, because
since they are exempted from the would otherwise have been paid under they were not required to comply with
separateness and control policies they the IPPS. As with all LTCHs and LTCH separateness and control rules.
may even more closely resemble step- satellites that are subject to this Therefore, we believed that not only
down units of their host hospitals. payment policy, discharges that exceed would allowing them to increase their
Several commenters noted that the 25 the applicable threshold that had bed count convey an additional unfair
percent threshold payment adjustment reached outlier status at the referring (or advantage to these facilities, but also
originated as one of the three options host) hospital, will not be subject to the that such an increase would lead to
(the 75/25 test) with which HwHs could payment adjustment and will therefore additional costs for the Medicare
comply to meet the separateness and be eligible for otherwise unadjusted program (71 FR 48106 through 48115).
control requirements at (then) payment under subpart O. We similarly believe that continued
§ 412.22(e)(v)(C). They stated that since Since we are applying the 25 percent exemption of grandfathered LTCH
grandfathered LTCH HwHs were policy even to freestanding LTCHs, it HwHs and satellites from the payment
exempted from this requirement when it would be inconceivable to treat threshold adjustment to which all other
was a ‘‘certification issue,’’ or ‘‘control grandfathered HwHs as being in a subclause (I) LTCHs are subject is both
requirement,’’ these facilities should unique class that exempts them from the fair and appropriate, and in the words
similarly be exempted from the policy policy while applying the policy to of our commenter, helps to ‘‘level the
when it is a payment adjustment. We LTCHs that are totally separate from the playing field’’ among LTCHs.
note that even though the percentages in referring hospital. We believe that the Regarding the commenter’s suggestion
these policies are the same, there is a Congress intended to allow that even as we extend the 25 percent
threshold payment adjustment to all and control and would be less subject to original proposal and will provide for a
LTCHs including grandfathered HwHs, manipulation. 3-year phase-in of the final payment
we should raise the threshold to 35 Response: We have expressed our threshold adjustment at § 412.536 and
percent as a more reasonable goal, concerns regarding patient-shifting revised § 412.534. Specifically, in this
particularly for small urban and rural between host hospitals and co-located final rule, we have established a 3-year
areas, we would call the commenter’s LTCHs (HwHs and satellites) since we transition period under § 412.536 for
attention to the 3-year transition to the originally established the separateness LTCHs that will be governed by the
full threshold adjustment that we are and control requirements at § 412.22(e) expansion of the 25 percent threshold
providing (described in greater detail in for FY 2005 (59 FR 45389 through policy for LTCH discharges admitted
the next response) which establishes a 45393). Upon finalizing the 25 percent from referring hospitals not co-located
75 percent threshold but not to exceed (or applicable percentage) threshold with the LTCH or the satellite of a LTCH
the percentage in the base year at policy for co-located LTCHs for FY and also for those grandfathered co-
§ 412.536(f)(1) for all impacted LTCHs 2005, we received comments indicating located LTCHs that we included under
and LTCH satellites for cost reporting that we should be aware of similar this policy at revised § 412.534(h).
periods beginning on or after July 1, patient shifting patterns between non- Under the policy that we are
2007, through June 30, 2008 and a 50 co-located LTCHs and their primary finalizing for cost reporting periods
percent but not to exceed the percentage referring hospitals (69 FR 49211). beginning on or after July 1, 2007 and
in the base year threshold for all Specifically, MedPAC noted that before July 1, 2008, the threshold will be
impacted LTCHs and LTCH satellites for ‘‘freestanding LTCHs also have strong no less than the lesser of 75 percent or
cost reporting periods beginning on or relationships with acute care hospitals, the percentage that the LTCH or LTCH
after July 1, 2008, through June 30, and that where on average LTCH HwHs satellite discharged from the referring
2009. For cost reporting periods receive 61 percent of their patients from hospital during its RY 2005 cost
beginning on or after July 1, 2009, the their hosts, freestanding LTCHs receive reporting period. For cost reporting
threshold will be 25 percent (or the 42 percent from their a primary referring periods on or after July 1, 2008 and
applicable percentage.) We have hospital * * * [that] there are some before July 1, 2009, the threshold will be
responded to comments regarding single risks in our proposed 25 percent policy; no less than the lesser of 50 percent or
urban and rural LTCHs elsewhere in (a) the 25 percent rule that only applies the percentage that the LTCH or LTCH
these responses. We believe that to LTCH HwHs and not to freestanding satellite discharged from the referring
establishing this policy will result in LTCHs and may therefore be hospital, during its RY 2005 cost
hospitalized patients who continue to inequitable; (b) it does not ensure that reporting period. For cost reporting
need acute care hospital treatment to patients go to the most appropriate post- periods beginning on or after July 1,
not be shifted to another acute care acute setting; (c) this approach may be 2009, all LTCHs and LTCH satellites
hospital setting before the end of a full circumvented by an increase in the under § 412.536 and grandfathered
episode of care, but rather to complete number of freestanding LTCHs instead LTCHs and LTCH satellites under
appropriate treatment at the referring of LTCH HwH.’’ As we stated in the FY § 412.534 will be subject to the
hospital. 2005 IPPS final rule, we believe that applicable percentage threshold. (We
‘‘MedPAC shares our concern that the note that for cost reporting periods
Comment: Several commenters LTCH payment system creates an beginning on or after October 1, 2007,
contend that the relationship between a incentive for unbundling of the IPPS in non-grandfathered co-located subclause
referring hospital and a freestanding addition to overpayment for the care (I) LTCHs, under § 412.534, are fully
LTCH should not be subject to the same provided by LTCHs and that this phased-in to the full 25 percent (or
regulatory standards as should a co- concern is great, particularly, in the case applicable percentage threshold) for
located LTCH and its host hospital. of a LTCH HwH * * * ’’ (69 FR 49211). discharges admitted from their co-
Furthermore, the commenters assert that We also provided an in-depth located hosts. However, payments for
when we finalized the 25 percent discussion of our growing concerns in LTCH discharges admitted from
payment threshold for co-located the RY 2007 LTCH PPS final rule (71 FR referring hospitals not co-located with
hospitals, we provided a 4–year phase- 27874 through 27881). As we have the LTCH or the satellite of a LTCH, are
in to the full 25 percent (or applicable stated, when we evaluate patient governed under § 412.536.)
percentage) threshold but in our discharges from a host or a referring Furthermore, under our finalized
proposed rule, we have not proposed hospital (typically, an acute care policy, grandfathered LTCH HwHs and
any such phase-in for those LTCHs who hospital) and admission to a LTCH, we satellites, under § 412.534(h) and
would be affected under the proposed are particularly concerned that the acute § 412.536 will now be subject to the 3-
policy at proposed § 412.536. The care hospital has not provided a full year transition that we are finalizing
commenters request that if we finalized episode of care for a patient who under this new policy for all their
the proposed extension of the 25 continues to need hospitalization, but discharges, both admitted from their co-
percent payment adjustment to non-co- instead, is discharging this patient to located host and from referring hospitals
located LTCHs and LTCH satellites, that another acute care hospital, one that is not co-located with the LTCH or the
we provide a similar transition period to paid under the LTCH PPS. satellite of a LTCH hospital.
allow LTCHs the opportunity to adapt to Consequently, two Medicare claims are We believe that a 3-year transition is
the full impact of the policy. In submitted; one from the acute care sufficient time for those affected LTCHs
addition, commenters requested that we hospital and the other for payment to adapt to this payment adjustment.
also provide for implementation on a under the LTCH PPS for what was Since the implementation of the existing
site-specific basis, as we had under the essentially one episode of care. payment adjustment for co-located
existing § 412.534 provision rather than In this final rule, while we continue LTCHs at § 412.534 for FY 2005, we
based on admissions to the provider in to believe that the expansion of the 25 have clearly articulated our continuing
its entirety. One commenter stated that percent payment threshold policy for at concerns about patient-shifting between
for purposes of implementation, using a § 412.536 and revised § 412.534 are non-co-located LTCHs and referring
provider number definition on the appropriate, in response to the hospitals (69 FR 49213, 71 FR 27878
LTCH side would be simpler to track commenters, we have revisited our through 27879). Therefore, we believe
that we have provided ample notice to the extension of the 25 percent (or the satellites are governed by § 412.536
the LTCH industry of potential applicable percentage) threshold policy regarding discharges that they admitted
impending regulation in this area and that we are finalizing, at revised from any other referral source (that is,
that therefore we believe that the § 412.534(h) and § 412.536, and we are other than its co-located host hospital)
industry had time to adjust its behavior. providing for a 3-year transition period. and would be subject to the 3-year
We have also seen articles in trade Accordingly, for cost reporting periods transition beginning with cost reporting
association newsletters over the past beginning on or after July 1, 2007, and periods beginning on or after July 1,
several years indicating that the LTCH before July 1, 2008, the percentage 2007.
industry was well aware of our focus on threshold applied would be no less than We also believe that it is important
this issue. However, in response to the lesser of 75 percent of the total that we note that the 3-year transition to
comments, we have adopted a 3-year number of Medicare discharges that the full 25 percent threshold payment
transition policy that we believe will were admitted from all referring adjustment will coincide with our
provide additional time for LTCHs to hospitals not co-located with the LTCH continuing work on the MedPAC
adjust to the new regulations. or the satellite of a LTCH during that recommendations to attempt to develop
However, we also want to reiterate, cost reporting period or the percentage facility and patient level criteria for
that just as we provided under of Medicare discharges that had been LTCHs. We hope that the LTCH
§ 412.534, the payment adjustment admitted to the LTCH or LTCH satellite industry will work closely with CMS to
specified at § 412.536 will not be from that referring hospital during the pursue this endeavor during the
applied to discharges (admitted to long-term care hospital’s or satellite’s transition period.
LTCHs or LTCH satellites from referring Comment: Several commenters
RY 2005 cost reporting period. Although
hospitals not co-located with the LTCH maintained that we did not present
we proposed to use FY 2005 as the base convincing data-based evidence in the
or the satellite of a LTCH) that reached
year for this group of LTCHs in the RY RY 2008 LTCH PPS proposed rule and
HCO status at the referring hospital
2008 LTCH PPS proposed rule (72 FR that in the absence of meaningful data
prior to admission to the LTCH or LTCH
4815), we will use RY 2005 rather than no meaningful comments can be made.
satellite.
Regarding implementation of the new FY 2005 as the base year since we have Several commenters questioned why we
payment adjustments, we will be revised the transition period under are seeking to expand the 25 percent
implementing the percentage threshold § 412.536 to be effective and applicable threshold policy to non-co-located
at § 412.536 on the provider as a whole for cost reporting periods on a rate year LTCHs when we have not yet evaluated
for multi-campus referring sources and cycle (That is, beginning on or after July data from the FY 2005 implementation
also for multi-campus LTCHs or LTCH 1. We originally chose 2005 because of the same payment adjustment for co-
satellites in contrast to our location- when we published our proposed rule, located LTCHs and LTCH satellites.
specific implementation of the 25 FY 2005 was our most recent full year Some commenters included data
percent payment adjustment for co- of MedPAR data. For cost reporting analyses that they believe refutes the
located LTCHs under § 412.534. We periods beginning on or after July 1, policies that we proposed in the RY
agree with the commenter that location- 2008 and before July 1, 2009, the 2008 LTCH PPS proposed rule. The
specific implementation was consistent percentage threshold applied would be commenters urged CMS to review the
with our policy goals in addressing no less than the lesser of 50 percent of most current hard data from LTCHs and
patient movement between co-located the total number of Medicare discharges to base all policy formulations on the
LTCHs and LTCH satellites and their that were admitted from all referring conclusions that can reasonably be
hosts. However, we believe that our hospitals not co-located with the LTCH drawn from such data. Several
goals regarding LTCH discharges or the satellite of a LTCH during that commenters contended that we
admitted from referring hospitals not co- cost reporting period or the percentage proposed policy based on anecdotes
located with the LTCH or the satellite of of Medicare discharges that had been rather than on hard data and that we
a LTCH are more logically served by admitted to the LTCH or LTCH satellite have accused the LTCH industry based
basing implementation on the provider from that referring hospital during the on this anecdotal evidence. The
as a whole (that is, based on discharge long-term care hospital’s or satellite’s commenters requested that we provide
data for the entire provider under its RY 2005 cost reporting period. For cost data, rather than anecdotal evidence of
provider number). Discharges from a co- reporting periods beginning on or after the purported ‘‘gaming’’ that we believe
located LTCH or LTCH satellite that July 1, 2009, the threshold will be 25 is occurring between the acute hospitals
were admitted from remote locations of percent (or the applicable percentage.) A and LTCHs. The commenters further
the host hospital not co-located with the 3-year transition period is applicable for contended that the research produced
LTCH or the satellite of a LTCH would all subclause (I) LTCHs and LTCH by RTI should be the foundation of
also be held to the expanded 25 percent satellites governed under § 412.536 and future CMS rulemaking.
policy by aggregating the discharges to grandfathered LTCHs and LTCH Commenters also maintained that
from those locations and determining if satellites now subject to the threshold rather than continuing to increase, the
they exceeded the applicable threshold. under § 412.534. For co-located LTCHs absolute number of LTCHs has
Patients that are admitted from the (that is, LTCH HwHs and LTCH decreased by one during 2006, and
hospital that is co-located with the satellites) it is important to note that therefore, we should not continue to be
LTCH or LTCH satellite facility will under existing § 412.534(g)(4), for cost concerned about industry growth.
continue to be governed by the location- reporting periods beginning on or after Response: We disagree with the
specific implementation of § 412.534. October 1, 2007, LTCH HwHs and LTCH commenters’ assertions regarding both
We have revised our proposed policy satellites being phased-in to the full our analyses and provision of the best
regarding transitioning to the full 25 adjustment would enter year 4 and be available data evidence for the policies
percent threshold adjustment and under would be required to meet the 25 that we proposed and that this lack
our finalized policy, for all subclause (I) percent (or applicable percentage) resulted in LTCH stakeholders being
co-located HwHs and satellites, threshold regarding their percentage of unable to submit ‘‘meaningful
including grandfathered subclause (I) discharges from their co-located hosts. comments.’’ In fact, we received 270
LTCH HwHs and LTCH satellites under However, these LTCH HwHs or LTCH comments in response to the RY 2008
LTCH PPS proposed rule (some of prior acute stay (8 percent compared to were admitted to the LTCH following
which were very lengthy). We believe 12 percent for non-LTCH admissions). what appears to be a truncated stay at
that the concerns expressed in these The ALOS in the acute hospital [prior the acute care hospital.
comments, which we present in to discharge to the LTCH] tended to be In response to the comments that
appropriate sections of this final rule by longer for the LTCH admissions, suggested that our extension of the 25
topic, are indicative that meaningful averaging 13.5 days compared to only percent payment threshold policy was
comments were made. In determining 11 days for the other acute admissions.’’ premature since as yet, we had no data
our final policy, we are fully aware of (p. 51) This statement indicates that on the impact of the 25 percent policy
the serious attention that our those patients that were admitted to the on co-located LTCHs, because the policy
commenters invested in their policy LTCH before achieving outlier status at is not yet fully phased-in, we reiterate
recommendations, as well as in the the acute care hospital were ‘‘sicker’’ that regulating inappropriate patient
challenges that they have articulated than other patients in those DRGs, shifting to LTCH HwHs and satellites
presented. Moreover, regarding which is logical since they continued to from their co-located hosts does not
assertions that we have not provided need acute hospital-level treatment. negate the need to address the same
data that indicates our policy rationale, (Elsewhere in these responses, we issue between LTCHs and referring
we note that in December 2006 we respond, in greater detail, to comments hospitals with which they are not co-
posted the RTI report in its entirety on that we received that challenge our located. We remain concerned about
the CMS Web site at http:// benchmark assumption that reaching LTCHs with a pattern of patients who
www.cms.hhs.gov/ outlier status signifies the delivery of a need acute hospital-level care after
LongTermCareHospitalPPS/ full episode of care. To briefly having received treatment for which
02a_RTIReports.asp#TopOfPage. This summarize, it is our belief that a patient Medicare has paid under the IPPS that
report contains detailed data analyses at an acute care hospital who still is in are immediately admitted for additional
which were the bases of RTI’s findings need of acute hospital-level care upon hospital-level treatment to other acute
and significantly impacted our discharge from that setting, may not care hospitals (LTCHs) for another
decisions to propose specific policies. have completed the treatment for which Medicare payment under the LTCH PPS.
With regard to the data analyses that the Medicare is paying) and is using the In response to commenters who found
some commenters submitted LTCH as a unit to treat those patients.
fault with our attention to anecdotal
challenging the correlation that we In particular, we suggest that
information regarding the behavior of
proffered, between the discharges to commenters revisit Table 3–7 in the RTI
LTCHs and fewer high cost outlier cases Report which indicates that while most some LTCHs, we note that
at referring acute care hospitals we patients constituting LTCH admissions determinations are based on our policy
would assert that our data analyses were previously hospitalized, only a on a variety of factors, including
(described below) support this theory. small proportion of those in the acute information from our FIs, questions and
An analysis of our MedPAR data from hospital generated an outlier payment comments from LTCH consultants and
acute care hospitals regarding their LOS (less than 20 percent) except for the attorneys, LTCH advertisements in both
during CY 2003 to their LOS during CY DRG 452: Complications of Treatment print media and the internet that
2005 in markets where LTCHs opened with CC (21.3 percent) and DRG 204: provided us with irrefutable information
in CY 2004. Our data analysis focused Disorders of the Pancreas Except about LTCH behavior. We believe that it
on acute care hospitals that had been Malignancy (26.2 percent). About one- is our fiduciary responsibility to guard
the source of at least 25 percent of the fourth of the top 50 LTCH conditions the Medicare Trust Fund from
LTCH discharges. (Our data indicated had 15 to 20 percent of their admissions inappropriate and unnecessary
that these communities already had qualifying for an acute outlier payment expenditures. Therefore, we believe that
some LTCHs at the time when these before being admitted to the LTCH. any and all information regarding the
additional LTCHs opened.) We These included many of the medically LTCH industry is pertinent to our
compared 304,650 acute care cases in complex conditions such as: DRG 475: responsibility to be proactive in the
CY 2004 to 316,816 cases in CY 2005. Ventilator Support 16.9 percent); DRG regulatory process. For example, we are
In CY 2003, there were 7,586 outliers 316: Renal Failure (19.3 percent); DRG aware of a growing trend by some
and in CY 2005, there were 5,858. The 076: Other Respiratory System OR LTCHs to establish ‘‘units dedicated to
percentage of outliers in the acute care Procedures with CC (19.2 percent); DRG mental health,’’ identified as a ‘‘Mental
hospitals decreased from 2.5 percent to 188: Other Digestive System (19.5 Health Unit’’ or ‘‘Medical-Behavioral
1.8 percent and the numbers of patients percent); DRG 483: Tracheostomy (17.8 Unit.’’ Assuming that the LTCH
that were admitted to LTCHs in those percent); DRG 461: OR Procedures (17.8 organization is cognizant of the
communities increased from 2,128 in percent); DRG 331: Other Kidney and preclusion against the establishment of
CY 2003 to 6,597 in CY 2005. Urinary Tract Diagnoses with CC (17.1 excluded units (for example, psychiatric
Furthermore, the percentage of acute percent); and DRG 440: Wound or rehabilitation) in a hospital that is
care hospital discharges to LTCHs Debridements for Injuries (19.4 percent). excluded from the IPPS (see
increased from 0.7 percent in CY 2003 Still, the majority of LTCH admissions § 412.25((a)(1)(ii)) establishment of such
to 2.1 percent in CY 2005. The were admitted before reaching outlier titular ‘‘units’’ would be reimbursed by
percentage decline in total outliers status in the acute hospital’’ (p. 48). Medicare under the LTCH PPS. Clearly
between the CY 2003 and CY 2005 was We believe that the above data patients in any acute care hospital
¥25.7 percent. The increase in LTCH supports our extension of the 25 percent setting (and LTCHs are acute care
discharges from CY 2003 to CY 2005 threshold payment adjustment which hospitals) may need psychiatric
was 198.1 percent. distinguishes between patients in need intervention, but given our regulations
We would also quote section 3.3 ‘‘the of further acute level care who were governing excluded psychiatric units at
RTI report which summarizes its admitted to a LTCH or satellite after § 412.27 and the specific COPs for
detailed data analyses (which are receiving a full episode of care at the psychiatric facilities at § 482.62, we are
included in the Report) by noting that referring acute (that is, they reached very interested in LTCHs that are
LTCH admissions were less likely to outlier status at that hospital) and those advertising mental health care as a
have had an outlier payment during the needing further acute treatment that primary patient service.
Regarding the comments that note an concluded that ‘‘Patients undergoing should be limited only to those
absolute decrease in the number of prolonged ventilation have high situations where the same DRGs were
LTCHs that were established in FY hospital and 6-month mortality rates, assigned to both the acute care stay and
2006, we note that we are well aware of and 6-month outcomes are not the LTCH stay.
continuing growth in the LTCH significantly different for those Response: Our data analysis of the
industry, which in some part, takes the transferred to long-term acute care 2005 MedPAR files indicates that,
form of large LTCH companies facilities * * *. Acute care hospitals generally, when a patient is admitted to
purchasing existing LTCHs and can reduce the amount of a LTCH immediately upon discharge
expanding the facilities, as well as the uncompensated care by earlier transfer from an acute care hospital, Medicare is
shifting landscape of the LTCH industry of appropriate patients to a long-term paying for treatment under different
brought about by continuing corporate acute care facility.’’ (Seneff MG, Wagner DRGs for each submitted claim.
mergers. (Our information in this regard D, Thompson D, Honeycutt, C, Silver However, we disagree with the
comes to us from FIs, corporate press MR, Department of Anesthesiology and commenters’ assertions that there are
releases from LTCHs, newsletters from Critical Care Medicine, The George clear distinctions between ‘‘episodes of
LTCH trade associations, corporate Web Washington University Medical Center). care’’ for a patient who is originally
sites, and investment newsletters. For Lastly, we note that we believe that treated at an acute care hospital and
example, one Web newsletter the policies that we are finalizing in this eventually admitted to a LTCH, whether
announced, ‘‘Private Equity Firms final rule are built on solid data or not the same DRG is assigned to each
Target Long-Term Acute Care analysis, reasonable interpretation of stay. Patients being cared for in both the
Hospitals.’’ The article continued, ‘‘Two information that has come to our acute care hospital and LTCH settings
operators of long-term acute care attention from the TEPs and the LTCH are very ill, complicated patients with
hospitals, or LTACS, agreed to be industry, and our obligation to propose multiple comorbidities, and typically
bought by private equity firms, but for proactive policy initiatives for the long- there is not one clear or distinctive
very different reasons. Two notable term benefit of the Medicare program. principle diagnosis that is the cause of
deals were announced this month Comment: Several commenters the patient’s failure to get well, but
targeting companies that manage long- offered data indicating that patients rather a constellation of problems that
term acute care hospitals, or LTACs. In admitted to LTCHs following an acute necessitate further treatment. Nor will
both cases, leveraged buyout firms care hospital stay are generally grouped one ‘‘magic’’ intervention or procedure
initiated transactions to buy out into a different DRG at the LTCH from necessarily cure the patient’s problems.
operators of multiple LTACs. The the one to which they were grouped in DRG assignment is based on software
rationale for each, however, is different, the acute care hospital. The commenter that attempts to group patients
reflecting different business plans and used the example of ventilator according to individual principal
different stages in the growth cycles of dependent patients, who typically fall diagnoses and surgical procedures, but
the two companies.’’ into a tracheostomy DRG (561/562) the clinical reality is that, especially in
With respect to the commenter’s upon discharge from the acute care the case of complex patients with
suggestion that we have alluded to hospital but fall under the respiratory multiple medical problems, DRG
gaming of the Medicare program by the failure DRG (475) upon discharge from assignment can be a limited way of
LTCH industry and that we have the LTCH, suggesting that therefore the defining or characterizing the nature of
provided no substantiation for these two episodes of care are distinct and a particular episode of care for a given
beliefs, we would note that we have separate. The commenters also claimed patient.
participated in meetings, conference that even those patients with the same The example of respiratory failure
calls, correspondence, evaluated DRG in each setting do not constitute a that the commenter provides is
currently-used patient criteria, arranged single episode of care because of the especially illustrative of this point. A
site visits with LTCHs (and other nature of the institutions and the patient who suffers from respiratory
providers that treat ‘‘long-term care differences between them. Therefore, failure in the acute care hospital, if it
hospital-type’’ patients), and the commenters asserted, there can be does not resolve, will eventually require
participated in the Technical Expert no actual claim that there is double a tracheostomy, which will then group
Panel (TEP) that was held in January payment for the same services for LTCH the patient to the tracheostomy DRG.
2007. While we have met and worked patients coming from IPPS hospitals. In The tracheostomy itself is a procedure
with highly skilled physicians and focusing on the appropriate lengths of that is usually done on a semi-elective
administrators of a number of LTCHs stay at acute care hospitals preceding a basis when it becomes apparent that the
and we are aware that many LTCHs LTCH admission, many commenters patient will require prolonged
provide high quality services to their quoted the RTI study that notes that, mechanical ventilation. If that patient
patients, we are contemporaneously ‘‘Understanding whether acute hospitals subsequently is admitted to an LTCH,
aware of activity by the LTCHs that are already paid for these services or that discharge will necessarily group to
appear to be directed towards both whether LTCHs are providing the respiratory failure DRG, because the
evading the intent of Medicare policy specialized services not available in the tracheostomy has already been
and also maximizing Medicare acute hospitals is poorly understood’’ performed during the acute care
payments. (p. 55). The commenters believe that a hospitalization. However, the clinical
We are also aware that the dynamic of CMS contractor has contradicted characteristics of the patient and the
patient shifting from acute care statements that we made. Therefore, the type of care that is required, have not
hospitals to LTCHs are well understood commenters state that the extension of materially changed, and the LTCH stay
throughout the health care industry. In the 25 percent threshold payment can hardly be viewed as a separate or
the February 28, 2000 issue of Critical adjustment to discharges of patients unique clinical episode from the
Care Medicine, an abstract of an article admitted from referring hospital not co- immediately preceding acute care
entitled, ‘‘The impact of long-term located with the LTCH or the satellite of hospital stay. From a clinical
acute-care facilities on the outcome and a LTCH should not be finalized. Several perspective, in the absence of a sharp
cost of care for patients undergoing commenters suggested that if we did line of distinction, or a consistent
prolonged mechanical ventilation’’ finalize this payment adjustment, it characterization, of exactly which
patient is appropriate for admission to country have evaluated existing Response: We appreciate each of the
the LTCH, as well as when that patient instruments (that is, Interqual, or recommendations made by the
should be transferred from the acute MassPRO) and although there appears to commenters as to alternatives to
care hospital setting to the LTCH be no difficulty in defining a ‘‘hospital- extending the 25 percent threshold
setting, we have difficulty level long-term care type patient’’ there payment adjustment policy to all
understanding when, for example, the has been considerable difficulty in subclause (I) LTCHs effective July 1,
patient with respiratory failure stops determining the assignment of such 2007. We have considered the
being appropriately cared for in the patients to particular provider settings commenters concerns as we noted
acute care hospital and paid for under (acute versus LTCH) for purposes of earlier, we are finalizing the payment
the IPPS and begins to require care in Medicare payment policy. adjustment policy but (as describe
the LTCH. Recognizing that both Accordingly, we are finalizing the elsewhere in these responses), we have
settings provide acute hospital level extension of the 25 percent (or provided for a 3-year transition period
care, and also noting that in areas where applicable percentage) threshold policy for all LTCHs and LTCH satellites that
LTCHs are not available this level of so that the payment adjustment applies will be affected by these changes.
care is provided exclusively in the acute to all subclause (I) LTCHs. We believe Commenters suggested that we exempt
care hospital until the time of discharge it is our responsibility to protect the currently existing and ‘‘under
to a nonacute setting, it is therefore Medicare Trust Fund from making development’’ LTCHs from the policy
appropriate to expand the 25 percent excessive payments for a single episode because it would require a substantial
policy to all instances in which a of care. change in the way that these facilities
referring hospital is discharging so Comment: Many commenters currently operate. In response to the
many patients to the LTCH or satellite suggested alternatives to specific aspects commenter’s question regarding ‘‘under
that it appears to have created a virtual of the proposed expansion of the development’’ LTCHs, we are applying
unit of the referring hospital at the proposed 25 percent threshold payment the transition to these hospitals as
LTCH or LTCH satellite. adjustment in the event that we decided applicable, once they become LTCHs
To those commenters who quoted a to finalize it. A number of commenters (for example, if a hospital has its first
sentence (out of context) from the RTI suggested that we grandfather existing cost reporting period as a LTCH
report, we note that a thorough reading ‘‘freestanding’’ LTCHs from compliance beginning on July 1, 2008, it will be
of that page indicates that RTI’s purpose with the policy because of the subject to the 50 percent threshold.) We
does not contradict, but rather significant shift in operation that our are aware that these new regulations
reinforces the above stated concerns. policy would mean to their on-going will impact on admission policies at
RTI’s full intent may be best understood operations. Similarly, these commenters LTCHs (as well as discharge practices at
from the following paragraphs, which also suggested grandfathering those acute care hospitals for patients that
includes the quoted sentence: LTCHs that were already under continue to need hospital-level care) but
‘‘Examining the acute length of stay development (that is, hospitals that such changes are our stated purpose in
differences was also useful for understanding were in their 5 of 6 month qualification establishing the original 25 percent
the relative role of general acute and LTCHs period for LTCH designation as set forth threshold payment adjustment policy
in treating these severely ill populations. The in § 412.23(e)(3)). Several commenters for co-located LTCHs at § 412.534 and it
multivariate work showed that LTCH users further suggested that we set a 50 continues to be our goal for all LTCHs
have a shorter acute inpatient length of stay.
percent threshold for all existing LTCHs and satellites as we finalize § 412.536.
Understanding whether acute hospitals are
already paid for these services or whether and those under development and apply We believe that it is essential that
LTCHs are providing specialized services not a 25 percent threshold for new LTCHs LTCHs reevaluate their existing
available in the acute hospital is poorly beginning on July 1, 2007. Other practices for admittances from referring
understood. commenters asked us to set the hospitals. As specified elsewhere in
Better measures of acuity are needed to percentage threshold permanently at 50 these responses, our data indicates that
gauge the differences in medical or percent for non-co-located LTCHs in referring hospitals, primarily acute care
functional impairments between patients light of our ‘‘lesser policy concerns’’ hospitals, are discharging patients to
using LTCHs and those using other settings. than we have with LTCH HwHs and LTCHs for continued acute level care
Additional work in Phase 3 of this project
satellites. Several commenters urged us when many of these patients could
will examine the discharge transitions for
acute hospital discharges in areas that lack to set the threshold for LTCHs in continue to be treated in the acute care
LTCHs. Using propensity score methods to ‘‘underserved areas’’ at 75 percent hospital. This is particularly true in
match patients on diagnosis, severity, and because of the disparate impact that cases where patient care falls into the
additional factors, as well as control for could be anticipated from implementing broad category of ‘‘medically complex.’’
differences in the availability of services will this policy. Commenters suggested that We believe that Medicare should not be
be important for understanding the potential we establish a 50 percent threshold for generating two full payments, one under
overlap between acute and LTCH urban LTCHs and a 75 threshold for the IPPS and one under the LTCH PPS
admissions.’’ (p. 55) rural or market dominant LTCHs. We for what is essentially one episode of
Therefore, we continue to believe that also were requested to apply care. Although we have had historic
clinical insight offers a significant ‘‘temporary, limited’’ expansion of the concerns with patient-shifting between
challenge to the commenters’ assertions threshold while patient and facility co-located hospitals, we also believe
regarding the alleged existence of some level characteristics are being developed that it is appropriate to apply the 25
‘‘bright line’’ which clearly indicates and implemented for LTCHs over a 3- percent (or applicable percentage)
when it is no longer appropriate for a year period with the following threshold payment adjustment to those
patient to continue treatment in an percentage thresholds: year 1–75 LTCHs and LTCH satellites that had
acute care hospital. Particularly in the percent; year 2–62.5 percent; year 3–50 previously been unaffected by
case of patients whose conditions fall percent. According to the commenter, § 412.534, but have similar behavior
into the broad category of ‘‘medically this policy would sunset after year 3 patterns as co-located HwHs and
complex,’’ clinicians from different and be replaced by facility and patient satellites. (We have responded to
provider settings from throughout the criteria. concerns about rural, single urban, and
MSA dominant LTCHs elsewhere in appropriate by the treating physician; or screening tool to identify appropriate
these responses.) We would once again rather, it adjusts the payment admission candidates; the InterQual is
remind commenters that the payment methodology that is applied to the just one model of such a tool that
adjustment is only applicable for LTCH for discharges that exceed the LTCHs may choose to use if they
Medicare discharges in excess of the applicable threshold. Also, as we noted determine that those standards
applicable threshold from an individual in the RY 2007 LTCH PPS proposed sufficiently identify appropriate patients
referring hospital for cases that have not rule, the payment policy linked to the for their facility. However, we note that
reached outlier status at the referring 25 percent rule helps to remove the the choice of which screening tool an
hospital. We believe that an appropriate perverse incentive that may exist LTCH chooses to use should have no
and judicious admission policy, on the between acute care hospital and LTCH bearing on the percentage of patients
part each LTCH, could still enable it to facilities to evade § 412.534 and to being admitted from a particular
admit a specific subset of patients from prevent both the acute and LTCH from referring hospital because even under
a referring hospital, prior to the patients’ receiving two full Medicare payments the expansion of the 25 percent policy,
reaching outlier status, and prior to for what is essentially one episode of it is assumed that all LTCH admissions
exceeding the applicable threshold. care. Furthermore, this policy also helps are hospital-level patients. As explained
Therefore, even though we continue our to ensure that appropriate transfers from previously in this section, the expansion
work with RTI in Phase 3 of their acute to LTCH facilities are occurring of the 25 percent policy is intended to
project to see if we can identify based on medical considerations, rather address the situation of an LTCH or
appropriate patient and facility-level than on the basis of maximizing satellite that is treating hospital-level
criteria for LTCHs, we do not see the Medicare payments. We believe that the patients since it has exceeded the
development of those criteria and the preexisting relationship between LTCHs applicable threshold for discharging
development of those regulations as and their referring hospitals can be patients that were admitted from any
contradictory aspects of our fiduciary utilized to maximize quality patient care individual referring hospital and is
responsibility for the Medicare program. while also making it feasible for LTCHs serving as a unit of the referring
We further believe that it may be to comply with the 25 percent policy. hospital. Therefore, we are not
appropriate to establish policies under With respect to the commenter’s exempting LTCHs in ‘‘certificate of
the LTCH PPS that guard the Medicare concern that the 25 percent policy need’’ States from the 25 percent policy,
Trust Fund from duplicative payments would result in transfers to SNFs when but again note that they, along with all
for one episode of patient care even if LTCH care would be more appropriate, other affected LTCH and LTCH satellites
we are able to develop criteria that we note that since we are only dealing will be given a 3-year transition period
identify LTCHs and LTCH-appropriate with patients who require hospital level with respect to implementation of this
patients. of care, it would not be appropriate for policy.
Comment: Several commenters physicians to transfer these patients to Comment: One commenter supported
expressed concern that the proposed a SNF. However, we do note that it may the proposed 25 percent rule and
expansion of the 25 percent policy be appropriate for a subset of LTCH believes that the SSO provision should
would have a negative impact on patients, after their condition has not apply to subclause II and satellite
Medicare beneficiary access to care, stabilized to be transferred to a lower LTCHs.
physician choice and authority, and on level of care, such as a SNF. Response: We are finalizing our
families of patients who would benefit Comment: One commenter noted that proposal to exempt subclause II and
from LTCH care. Specifically, the Michigan is a ‘‘certificate of need’’ State satellite LTCHs from both the 25 percent
commenters noted that LTCHs would be and that the number of LTCH beds is rule expansion and the SSO policy that
‘‘forced to use a flat 25 percent for each determined and approved by the State. we are finalizing in this rule.
referring hospital, thereby limiting The commenter further noted that Comment: One commenter stated that
access for Medicare beneficiaries to the Michigan FIs require that Michigan implementation of the 25 percent rule
level of care deemed most appropriate LTCHs use InterQual admissions would result in the following: (1) The
by their physician.’’ Another commenter standards and recommends that we loss of local LTCH services in all areas
stated that the implementation of the 25 exempt States who have programs except large metropolitan areas; (2)
percent rule would force acute care similar to the ‘‘certificate of need’’ Patients having to endure long
hospitals to keep patients beyond the because they already adhere to ambulance rides to access LTCH care
period for which is medically- InterQual admissions standards, and and possibly being driven past LTCHs
appropriate because LTCHs would not therefore, are only treating appropriate with available beds; (3) Families having
be able to accept patients once they met ‘‘LTCH’’ patients. to drive longer distances to visit their
the 25 percent threshold and that Response: With respect to some loved ones who may be in LTCHs for
overcrowding of acute hospital beds LTCHs using InterQual criteria as the extended periods of time; and (4) Some
would be the result of the 25 percent standard for admitting a patient, we companies, who have already invested
policy. Another commenter stated that note that as we stated in the RY 2007 in building new LTCHs, possibly being
this policy may result in some patients LTCH PPS final rule, InterQual faced with bankruptcy because of the
being transferred to skilled nursing standards focus on the distinction reduced payment associated with the 25
facilities (SNFs) instead of LTCHs, even between acute care and sub-acute care, percent rule.
in cases in which LTCH care would be that is, SNF-level of care, and Response: We disagree with the
more appropriate. determinations of ‘‘medical necessity’’ commenter and we do not expect that
Response: We do not believe that the or ‘‘inappropriate admission’’ are based the 25 percent policy will result in a
25 percent policy is unnecessarily only on whether the patient should be loss of local LTCH services (in all but
‘‘burdensome’’ or ‘‘onerous’’ to LTCHs hospitalized, rather than on whether the large metropolitan areas). Instead, we
for several reasons. The 25 percent hospitalization should occur at an LTCH expect that clinical appropriateness will
policy does not preclude the transfer of or at a general acute care hospital’’ (71 continue to be used as the standard for
any patients from short term acute care FR 27869). Furthermore, we recognize LTCH admissions. Since we do not
hospitals to LTCHs when such transfer and assume that all LTCHs should be believe that access to LTCH services
is deemed medically necessary and using some form of clinical assessment will be negatively affected by this rule,
we do not believe that beneficiaries will Comment: Several commenters stated payment, which has been developed
need to endure long ambulance rides to that the payment reductions associated based upon averaging principles.
reach an LTCH, nor will families of with the proposed 25 percent rule Comment: Some commenters said that
Medicare beneficiaries have to drive expansion and the proposed ‘‘very SSO’’ the proposed 25 percent rule would be
long distances to visit their loved ones. policy violate the principles of a PPS in duplicative of the payment adjustment
We also remind the commenter that which some cases are expected to cost made under the IPPS post-acute transfer
LTCHs will continue to be paid full less than others. policy. One commenter noted that
LTC-DRG payments as long as the 25 Response: We disagree that these ‘‘* * * 85 percent of DRGs applicable to
percent threshold is not exceeded by policies violate the principles of short-term acute care hospital
any one referral source. In addition, any averaging found in a PPS. We note that discharges to LTCHs are subject to [the
patients that reach HCO status prior to a fundamental premise of the PPS post-acute transfer] policy.’’ Another
being transferred to the LTCH would not system is that where the costs of some commenter asked CMS to comment on
count towards the 25 percent policy. cases may exceed their payment, the why the IPPS post-acute transfer policy
With regard to the commenter’s concern opposite is also likely to happen (that is does not appropriately adjust for
about companies being faced with a that the costs of some cases will be payment when cases transferred from
financial loss in light of the 25 percent lower than their payment). As we stated the acute care hospital ultimately
policy expansion, we note that we in last year’s LTCH PPS final rule, become SSO discharges in the LTCH
continue to believe that the LTCH ‘‘* * * while some types of cases are setting.
industry can adapt their admission Another commenter suggested that we
always expensive for a hospital to treat,
practices to assure that payments will provide policies under the acute IPPS to
others are, in general, less costly, so it
not be reduced, except in rare address inappropriate or early
is assumed that hospitals under a DRG- discharges and requested that we use
circumstances. The LTCHs would do based system, therefore, can typically
this by targeting those patients at post-acute transfer rules, re-admission
exercise some influence over their case- rules, and DRGs for acute care hospitals
referring hospitals that had reached mix and their services to achieve fiscal
outlier status. to address the issue of inappropriate
stability’’ (71 FR 27863). The principles transfers instead of penalizing LTCHs.
Comment: Some commenters of a PPS begin to break down when Response: As we have discussed in
expressed concern that the proposed 25 there are extreme outliers that are not the previous LTCH final rules, the IPPS
percent rule would override physician consistent with the averages calculated, post-acute transfer lessens the incentive
authority and limit physician choice in especially when the extreme outliers for an IPPS hospital to transfer a patient
deciding the most appropriate level of constitute a disproportionate amount of to another hospital early in the patient’s
care for his or her patients. cases. Additionally, we are attempting stay to minimize its costs while still
Response: We disagree that this policy to maintain appropriate payment receiving the full DRG payment from
overrides physician authority and weights for the DRGs by adjusting the Medicare. Although the post-acute care
choice. Rather we believe that this LTC–DRG weights for SSO cases. (For a transfer policy only affects DRGs that
policy appropriately adjusts payments full description of this process, see 71 meet the criteria specified under
to LTCHs so that the payments reflect FR 47978 through 47985). We note that § 412.4, we continue to monitor trends
the amount of care that is actually the effect of this adjustment allows the in post-acute transfers. In addition, we
provided in the LTCH setting. LTC–DRGs to be recalibrated at a weight may make additional DRGs subject to
Furthermore, this policy does not that is truly representative of average the IPPS post-acute transfer policy if the
require a change in physician clinical cases instead of at a weight that is data demonstrate that it is appropriate
decision-making; rather, it simply seeks skewed towards shorter than average to do so. Although we expect the post-
to remove any financial incentive that (and presumably, less costly) cases. We acute transfer policy to have an impact
could encourage an LTCH to admit a also believe that applying the 25 percent on the discharge behavior of acute care
patient from an acute care hospital prior (or applicable percentage) threshold hospitals because of the reduced
to that patient receiving a full episode payment adjustment to discharges from payments that they will receive for
of care at the acute care hospital. LTCHs that were admitted from any qualified discharges, the post-acute
Additionally, we would expect that referring hospital is not a contradiction transfer policy does not necessarily
physicians would continue to use their of the averaging principle intrinsic to affect the issues being addressed by the
clinical expertise in assessing the level PPSs. In fact, one of our rationales for SSO policy change. Both, the IPPS post-
and type of care that is most appropriate establishing the percentage threshold acute transfer policy and the proposed
for their patients and that the payment adjustment is to preserve the RY 2008 SSO policy, help to ensure that
physicians’ clinical standards would not integrity of the averaging principle Medicare payments are appropriate
be affected by hospital payment under the IPPS because of our concern given the types of treatment provided in
policies. regarding premature discharges of each setting.
We do not expect that the payment patients still requiring acute hospital- We believe that the revised payment
policies implemented in this final rule level care to another acute care provider formula for SSO patients that we are
will deter physicians from making (and generating another Medicare finalizing will appropriately pay LTCHs
referrals to LTCHs when it is clinically payment) prior to that case reaching for delivering services to patients who
appropriate to do so. We also believe outlier status. Moreover, if LTCHs adjust do not otherwise require the lengths of
that appropriate clinical care, not their procedures so that patients beyond stay that are characteristic of LTCHs.
payment, should drive physicians’ the applicable threshold that are The SSO policy will address payments
decisions with respect to patients’ discharged from referring acute care to LTCHs for patients discharged from
length of stay and level of care. hospitals prior to their LTCH admission the acute care hospital even after the
Additionally, we note that physicians’ have received a full episode of care at geometric ALOS.
clinical decisions do not negate the fact the discharging acute (that is, they reach With respect to the comment about
that payments should be aligned with outlier status), Medicare payment for the 25 percent policy being duplicative
the care and resource utilization given LTCH discharges will be based on the of the IPPS post-acute transfer
in each provider setting. otherwise unadjusted LTCH PPS provision, we would note that the post
acute transfer policy focuses on a acute care hospitals because patients are hospital to which they were originally
truncated length of stay at an acute care much sicker than at acute care hospitals. admitted. As we have detailed
hospital that will be paid for under the Several commenters included data that previously in this preamble, in the FY
IPPS, prior to the case reaching the indicated that they would sustain 2005 IPPS final rule (69 FR 48916) we
geometric mean LOS for that DRG as substantial financial losses under this finalized a payment adjustment for co-
specified in § 412.4(c) and (f). The policy. located LTCHs (that is, HwHs and
policy that we are finalizing focuses on Response: We disagree with the satellites at § 412.534), which provides
determining the appropriate payment to commenters who asserted that under that if a LTCH’s or satellite’s discharges
the LTCH, where the patient who has § 412.536 and also the revised § 412.534 admitted from its host hospital exceed
already been treated at the acute care we have proposed to pay all LTCHs 25 percent (or the applicable
hospital (up to the geometric mean LOS) ‘‘under the IPPS’’ for discharges in percentage) of its discharges for the
has been ‘‘transferred’’ to the LTCH care excess of 25 percent or the applicable LTCH HwHs or satellite’s cost reporting
prior to receiving full treatment at the percentage) from an individual referring period, an adjusted payment will be
‘‘transferring’’ hospital. We believe such hospital. As we have noted elsewhere in made at the lesser of the otherwise full
a stay is a continuation of the patient’s these responses, if a Medicare payment under the LTCH PPS and an
original stay at the first hospital, and beneficiary is treated at an acute care adjusted amount under the LTCH PPS
therefore, that Medicare should pay for hospital and continues to need further that would be equivalent to what
such care based on a LTCH PPS acute hospital-level care, the patient Medicare would otherwise pay under
payment adjusted to what would could remain at the acute care hospital. the IPPS. In determining whether a
otherwise be equivalent to what would A discharge from the acute care hospital hospital meets this percent test, patients
have been paid under the IPPS. and admission to a LTCH (which is also transferred from the host hospital that
Comment: Some commenters wrote in certified as an acute care hospital) could have already qualified for outlier
support of extending the comment be appropriately seen as an extension of payments at the host would not count
period from 60 days to 6 months to the stay at the discharging acute care as part of the host 25 percent (or the
allow commenters additional time to hospital and as such, should not require applicable percentage) and the payment
collaborate for the good of the industry. Medicare to pay for ‘‘different resource for those patients would also not be
Response: We do not believe that a 6- use’’. We further disagree with the subject to the adjustment. Those
month comment period is warranted or commenters who call the extension of patients would be eligible for an
necessary. Consistent with section 1871 the 25 percent threshold a ‘‘payment unadjusted payment under the LTCH
of the Act, we provide for a 60-day penalty for freestanding LTCHs for PPS. (Discharges admitted from the host
comment period. This deadline is every patient over a 25 percent before the LTCH crosses the 25 percent
necessary in order to implement and threshold who comes from any single (or the applicable percentage) threshold
establish policy changes and payment acute care hospital’’ and the commenter would also be paid without the
updates under the LTCH PPS for an that stated that ‘‘an LTCH could not adjustment under the LTCH PPS (69 FR
effective date of July 1. have more than 25 percent of its 49213). MedPAC submitted a comment
We received 270 comments during the patients referred from any one general that addressed its concerns with the 25
comment period and we believe that hospital.’’ As we have noted elsewhere percent threshold policy for co-located
both the number and the nature of the in these responses, the 25 percent LTCHs in the FY 2005 IPPS final rule.
comments received demonstrate that the threshold is not a patient quota system. Specifically, the Commission noted
comment period was sufficient for By virtue of the fact that more than 25 that ‘‘freestanding LTCHs also have
commenters to submit relevant and percent of the LTCH’s discharges had strong relationships with acute care
meaningful comments. been admitted from an individual hospitals, and that where on average
Comment: We received many referring hospital, it is apparent that the LTCH HwHs receive 61 percent of their
comments that challenged the IPPS- LTCH has an ongoing, working patients from their hosts, freestanding
equivalent payment adjustment that we relationship with the referring hospital. LTCHs receive 42 percent from their
proposed to extend to LTCHs and LTCH This policy should lead LTCHs to primary referring hospital * * * [that]
satellites for Medicare discharges in carefully determine which patients there are some risks in our proposed 25
excess of the 25 percent (or applicable should be admitted from the referring percent policy; (a) the 25 percent rule
percentage) threshold that had been hospital. A patient who is hospitalized that only applies to LTCH HwHs and
admitted from referring hospital not co- in an acute care hospital continues to not to freestanding LTCHs and may
located with the LTCH or the satellite of require acute hospital-level care, therefore be inequitable; (b) it does not
a LTCH. generally should not be discharged ensure that patients go to the most
One commenter maintained that we before the referring hospital has appropriate post-acute setting; (c) this
have determined a payment penalty for provided the patient with a full episode approach may be circumvented by an
freestanding LTCHs for every patient of care. As discussed elsewhere in these increase in the number of freestanding
over a 25 percent threshold requiring responses, we believe that a patient stay LTCHs instead of LTCH HwH.’’ As we
long term care who is admitted from any that reaches the HCO threshold at an stated in the FY 2005 IPPS final rule,
single acute care hospital referral acute care hospital would be considered ‘‘MedPAC shares our concern that the
source. Another commenter stated that to have received a complete episode of LTCH payment system creates an
an LTCH could not have more than 25 care and for such a patient who has incentive for unbundling of the IPPS in
percent of its patients referred from any received a full episode of care at an addition to overpayment for the care
one general hospital. Many commenters acute care hospital, should that patient provided by LTCHs and that this
claimed that our proposal to pay ‘‘under require further acute level care at a concern is great, particularly, in the case
the IPPS’’ for LTCH cases ignores data LTCH, Medicare will make an of a LTCH HwH * * *’’ (69 FR 49211).
indicating that LTCHs sustain higher unadjusted additional payment to the In establishing the concept of
costs than IPPS hospitals in treating LTCH. ‘‘functional separateness,’’ in the FY
Medicare inpatients that are grouped to Our concern is that many patients that 1995 IPPS final rule, we were
the same DRG. The commenters stated are admitted to LTCHs could have identifying a broader phenomenon than
that costs are higher than they are at completed this care at the referring just the relationship between a host
acute care hospital and a LTCH HwH or a focus on building freestanding LTCHs, losses if we implemented the extension
satellite of a LTCH. We also reviewed which we believe may imply a response of the 25 percent threshold policy. We
MedPAC’s comment (discussed to the payment adjustment for co- believe that our finalized policy will
previously in this section) on non-co- located LTCHs established under result in a behavioral change for LTCHs,
located LTCH referral patterns and § 412.534.’’ At that time, we noted data and LTCHs will take steps to assure that
noted that despite the fact that we analyses from FY 2004 and FY 2005 no more than 25 percent (or the
limited the payment adjustment MedPAR files of sole-source (for applicable percentage) of the hospital’s
established in FY 2005 to LTCH HwHs example, one hospital referring to one discharges are patients that had not
and satellites, ‘‘* * * [w]e took LTCH) relationships between acute care already reached outlier status at the
considerable note of these comments hospitals and non-co-located LTCHs referring hospital, to assure that all
and the specific information that they and we stated that we believed that the Medicare payments to LTCHs will be
included’’ (59 FR 45391). danger of LTCHs functioning as ‘‘units’’ made, without adjustment under this
We further stated that ‘‘* * * [s]ince appears to be occurring not only in policy.
the October 1, 2004 implementation of LTCH HwHs and LTCH satellites but In response to the commenters that
the payment adjustment for LTCH also with freestanding LTCHs (71 FR asserted LTCH patients are much sicker
HwHs and satellites of LTCHs at 27877 through 27879). than acute care patients, we note that it
§ 412.534, through our LTCH PPS We stated that, in many cases, these is our understanding from our own data
monitoring initiative (see section X. of non-co-located LTCHs and their sole analyses, as well as work done by RTI
this preamble), we have become aware referral source may be functioning in that costs at LTCHs on a per diem basis
that the growth in the LTCH universe is ways that appear to have erased the line are lower than costs for the same DRG
now occurring through the development of ‘‘functional separateness’’ between at acute care hospitals. For example, RTI
of freestanding LTCHs’’ and that these LTCHs and their referring acute performed an analysis of the 2005
[r]eviews of public documents posted at care hospitals ((71 FR 27877 through MedPAR files and determined the per
the corporate Web site and analysis of 27879, 59 FR 45391). diem payment for the 20 most common
the expected consequences of the policy Many commenters noted that they LTC–DRGs treated in LTCHs as outlined
at other investor-oriented sites describe would experience considerable financial in Table 6.
TABLE 6.—AVERAGE PAYMENT PER DAY FOR THE TOP 20 DRGS ON LTCH ADMISSIONS, LTCH VERSUS ACUTE, 2005
MEDPAR
LTCH Acute
Top 20 LTCH DRGs Average Average Average Average

Average Average
length of payment length of payment
payment payment
stay per day stay per day
475: Respiratory System Diagnosis With Ventilator Support .................. $58,828 37.6 $1,815 $21,696 10.4 $4,187
271: Skin Ulcers ....................................................................................... 26,652 28.8 1,009 5,525 6.6 1,298
087: Pulmonary Edema & Respiratory Failure ........................................ 36,552 26.6 1,498 7,211 6.3 1,893
079: Respiratory Infections & Inflammations Age >17 w CC .................. 26,545 23.7 1,235 8,654 8.0 1,690
088: Chronic Obstructive Pulmonary Disease ......................................... 20,822 19.4 1,156 4,441 4.8 1,369
089: Simple Pneumonia & Pleurisy Age >17 w CC ................................ 22,356 20.8 1,167 5,189 5.5 1,355
249: Aftercare, Musculoskeletal System & Connective Tissue ............... 21,601 25.2 914 3,816 3.9 1,701
416: Septicemia Age >17 ........................................................................ 25,962 23.5 1,189 9,309 7.4 2,192
466: Aftercare w/o History of Malignancy as Secondary Diagnosis ....... 20,962 22.3 1,018 4,637 4.7 1,919
012: Degenerative Nervous System Disorders ....................................... 23,804 27.3 976 4,651 5.3 1,298
462: Rehabilitation ................................................................................... 19,149 22.6 903 9,621 9.3 1,125
263: Skin Graft &/or Debrid for Skin Ulcer or Cellulitis w CC ................. 41,006 42.0 1,054 11,929 10.3 1,930
127: Heart Failure & Shock ..................................................................... 21,252 20.8 1,088 5,425 5.0 1,641
316: Renal Failure ................................................................................... 25,420 23.3 1,190 7,114 6.1 1,936
418: Postoperative & Post-Traumatic Infections ..................................... 25,766 25.6 1,090 6,348 6.0 1,633
430: Psychoses ........................................................................................ 15,019 27.0 651 3,955 7.6 869
238: Osteomyelitis ................................................................................... 27,639 30.4 973 7,934 7.7 1,584
277: Cellulitis Age >17 w CC .................................................................. 20,005 21.7 980 4,464 5.3 1,182
144: Other Circulatory System Diagnoses w CC .................................... 22,990 22.3 1,112 7,282 5.7 2,290
320: Kidney & Urinary Tract Infections Age >17 w CC .......................... 21,491 22.5 1,027 4,369 4.9 1,266
Source: \\rtimas04\hser\Project\08686\006 IPPS\001 LTCH\common\jpotelle\programs\gage030.log.
Furthermore, LTCHs utilize such care resources found in short term acute a LTCH. According to these
information regarding their lower costs care hospitals, which are typically the commenters, in section 123(a)(1) of the
for treating patients in their advertising. most costly to a patient.’’ BBRA, the Congress specified that the
We refer commenters to the following Comment: Many commenters payment policies under the LTCH PPS
question and answer from the Internet challenged the basis of the proposed should ‘‘reflect differences in patient
site of a large LTCH chain: The payment adjustment that would result if resource use and cost.’’ These
question: ‘‘How can a long term acute we finalized our proposed expansion of commenters asserted that payment
care hospital be less expensive than a the 25 percent (or applicable adjustments under the LTCH PPS
short term acute care hospital?’’ The percentage) payment threshold to LTCH should not be based upon referral
answer: ‘‘Patients transferred to a long and LTCH satellite discharges that were sources but rather on the ‘‘costs of
term acute care hospital are medically admitted from referring hospitals not co- treatment’’ and ‘‘costs of care’’ at
stable and do not require the critical located with the LTCH or the satellite of LTCHs.
Response: There is considerable In response to the commenters who classification system * * * based on
precedent regarding our concerns with maintained that the BBRA mandates diagnosis-related groups (DRGS) that
the financial implications to the that payment under the LTCH PPS is to reflects the differences in patient
Medicare Trust Fund from patient- reflect the ‘‘differences in patient resource use and costs, and shall
shifting between acute and post acute resource use and costs’’ at LTCHs, we maintain budget neutrality.’’ Section
settings that could result in two note that in general, with respect to the 307 of the BIPA further provides that
Medicare payments, one to the acute development of the LTCH PPS, section the Secretary ‘‘may provide for
care hospital and another under the 123(a)(1) of the BBRA requires, among appropriate adjustments to the long-
LTCH PPS for one episode of care. As other things, that the Secretary shall term hospital payment system* * *’’
noted elsewhere in these responses, this develop a PPS and that this PPS shall As discussed previously, we are
concern was first addressed by the include an adequate classification finalizing the expansion of the 25
Congress in establishing the post-acute system that reflects the difference in percent (or applicable percentage)
transfer policy at section 1886(d)(5)(J) of resource use and costs. Section 307(b)(1) payment adjustment (after the 3-year
the Act, which we subsequently of the BIPA provides a modification of transition period described elsewhere in
implemented at § 412.4. Furthermore, in requirements with respect to the this section) originally established for
the FY 1995 IPPS final rule, we implementation of the PPS. It provides co-located LTCHs and satellites with
addressed the financial consequences to that the Secretary * * * shall examine regards to patients admitted to the
the Medicare program of the patient- the feasibility and the impact of basing LTCH from a co-located hospital at
shifting that was occurring between payments under such a system on the § 412.534 to govern the relationship
acute care hospitals and co-located sue of existing (or refined) hospital between any referring hospital and an
LTCHs. At that time, we noted that the diagnosis-related groups (DRGs) that LTCH or LTCH satellite not co-located
‘‘effect of this process is to extend the have been modified to account for with that referring hospital. We believe
[LTCH] exclusion to what is for all different resource use of long term care that even in the absence of co-location,
practical purposes a [LTCH] unit’’ (59 hospital patients. The Secretary shall the same level of scrutiny must be
FR 45389). examine and may provide for applied to patient-shifting between
appropriate adjustments to the long-
We further stated that paying the co- acute care hospitals paid for under the
term care hospital payment system,
located LTCH as a hospital excluded IPPS and LTCHs to assure that Medicare
including adjustments to DRG weights,
from the IPPS ‘‘may not be appropriate’’ is not paying under the IPPS and then
area wage adjustments, geographic
under these circumstances because generating another unadjusted payment
reclassification, outliers, update, and a
‘‘[e]xclusion of long-term care units under the LTCH PPS for one episode of
disproportionate share adjustment
could inadvertently encourage hospitals care. As discussed elsewhere in these
* * *. We believe that our payment
to try to abuse the prospective payment responses, an LTCH is certified as an
system fully satisfies these
systems, by diverting all long-stay cases acute care hospital and we believe that
requirements.
to the excluded unit, leaving only the If a patient needing additional appropriate and responsible payment
shorter, less costly cases to be paid for hospital-level acute care is discharged to policy under the Medicare program
under the prospective payment systems’ another acute care hospital prior to dictates that if a patient at an acute care
(59 FR 45389). Therefore, in accordance completing a full episode of care at the hospital paid under the IPPS continues
with sections 1102 and 1871 of the Act first hospital, we believe that there is a to need treatment at an acute care
which ‘‘confer authority on the strong presumption that the second hospital-level, that patient should
Secretary to establish rules and hospital (the LTCH) is behaving like a remain where he or she is presently
regulations as may be necessary to step-down unit of the first acute care being treated until a full episode of care
administer the Medicare program’’ (59 hospital and Medicare will be has been delivered prior to being
FR 45390), we established separateness generating two payments, one under the discharged to a LTCH for a different
and control criteria at then IPPS and another under the LTCH PPS episode of care. We continue to believe
§ 412.23(e)(3)(i) which a co-located for one episode of care. that our formulating a payment
LTCH would have to meet to be paid as Therefore, we are finalizing our adjustment for treatment at a second
a hospital excluded from the IPPS. We extension of the 25 percent (or acute care hospital (which is in fact just
believed at that time that ‘‘the extent to applicable percentage) threshold paid as a LTCH) is both appropriate and
which a facility accepts patients from payment adjustment (after the 3-year necessary for Medicare to be a prudent
outside sources can be an important transition period described elsewhere in purchaser of medical care for its
indicator of its status as a separate this section) for discharges admitted beneficiaries. As described above, under
facility’’ (59 FR 45392). Therefore, at from referring hospital not co-located this payment adjustment, which we are
that time, among other indications of with the LTCH or the satellite of a LTCH finalizing at § 412.536 and at revised
separateness, we adopted a ‘‘75 percent at § 412.536 and grandfathered LTCHs § 412.534, during a cost reporting
referral standard’’ which required that and satellites at § 412.534(h) under the period, if an LTCH exceeds the 25
no more than 25 percent of the LTCHs authority of sections 123(a) of the BBRA percent threshold of Medicare
discharges be admitted from its host to of 1999 as amended by section 307(b) of discharges from any referring hospital
be paid as a hospital excluded from the the BIPA of 2000 which authorize the (or the applicable adjustment if the
IPPS. Accordingly, the source of an Secretary to make adjustments under referral source is rural, MSA-dominant,
LTCH’s patients as one potential the LTCH PPS to LTCH hospitals. or single urban) and the patient did not
variable since FY 2005 as to whether or In addition, section 123 of the BBRA, achieve outlier status at the referring
not a LTCH receives Medicare payment as amended by section 307(b)(1) of the hospital prior to being discharged to the
under the payment system for hospitals BIPA, confers broad discretionary LTCH, Medicare will make a payment
excluded from the IPPS, has been a authority on the Secretary to develop adjustment for those discharges under
basis for determining whether or not a and implement a PPS for LTCHs, Subpart O for cases beyond the
LTCH was an independent hospital or specifically mandating only ‘‘a per threshold, based upon the lesser of the
functioning as a unit of an acute care discharge prospective payment system’’ otherwise unadjusted payment or an
hospital. that includes an ‘‘adequate payment adjusted LTCH PPS payment that is
equivalent to the amount that would hospital, like a LTCH until the full With regard to the comments on
otherwise be paid under the IPPS. episode of treatment has been delivered. patients discharged from acute care
Comment: Many commenters claimed Accordingly, where an LTCH has hospitals that are admitted to other post-
that the proposed extension of the 25 exceeded the applicable threshold and acute providers such as an IRF or a SNF,
percent payment threshold is a has thus demonstrated that it is in we would note that there is a distinction
consequence of our ‘‘incorrect essence serving as a unit of the referring in the type of care provided at these
assertion’’ that admission to an LTCH is hospital, it is appropriate to adjust the settings and at an LTCH. An IRF
only legitimate if the patient reaches otherwise payable LTCH PPS payment. provides a specialized post-acute
HCO status at an acute care hospital We understand that some LTCHs service, that is, rehabilitation, for
prior to being discharged for admittance specialize in areas such as ventilator specific medical conditions. A SNF does
to a LTCH for additional treatment. The care and weaning or wound care and not even provide hospital-level care.
commenters believe that under this that some of these facilities are highly Since an LTCH is certified as an acute
policy the only way that a patient can respected across all provider settings. care hospital and in fact can provide the
receive a full episode of care at an acute However, these same types of patients same type of care as an acute care
is by reaching HCO status. Several are being treated by acute care hospitals hospital that is paid under the IPPS, it
commenters quoted data which stated nationally with similar results. is necessary to address the possibility of
that the percentage of discharges from Furthermore, the largest percentage of an LTCH acting as an a unit of an acute
acute care hospitals which received full LTCH patients nationwide would care hospital and to differentiate
Medicare payment is generally close to typically fall into the general category of between acute care patients being
the percentage of discharges that were ‘‘medically complex.’’ Nationwide, treated at an (short-term) acute care
admitted to LTCHs that also received a ‘‘medically complex’’ patients are hospital and those being treated at a
full payment at the acute. The certainly being successfully treated by LTCH.
commenters believe that this suggests acute care hospitals. We have thus far We see no correlation between the
that a full episode of care is being been unable to discover or establish a fact that the commenter has identified a
provided to all of these patients. ‘‘bright line’’ for purposes of common percentage number and their
demarcating an appropriate discharge conclusion that this proves that LTCH
Another commenter stated that it is
from the referring hospital and then patients had received a full episode of
‘‘grossly inappropriate’’ for CMS to use
admission for appropriate and necessary care. The fact that nearly 90 percent of
outlier status as a statistical standard for
treatment at an LTCH, paid for under LTCH patients had come to the LTCH
whether a hospital has furnished a ‘‘full
the LTCH PPS. However, since patients without achieving outlier status at the
‘‘episode of care in a case. Several
who fit the ‘‘LTCH profile’’ are often acute hospital, which had certainly been
commenters requested that if we object
HCO patients at acute care hospitals providing acute level care to the patient
to two payments for a LTCH patient
(particularly in areas where there is not prior to their admission to the LTCH,
(that is, one to the referring IPPS
high LTCH penetration), to determine if indicates that for these ‘‘medically
hospital and another for payment under a hospital has exceeded its threshold we complex’’ cases, the acute care hospital
the LTCH PPS) we should address the believe that it is both functional and may be routinely looking to discharge
fact that two payments would be reasonable to use reaching outlier status those patients to the LTCH, prior to
generated if the patient was admitted to at an acute care hospital to determine their reaching outlier status and thus
any post-acute provider such as an IRF the delivery of a full episode of care. not receiving a full episode of care at the
or a SNF. (RTI report, p. 32–48) acute care hospital.
Response: The ultimate goal of our In response to the commenters who Comment: Several commenters
development of payment policy under noted the comparability of the questioned whether the extension of the
the LTCH PPS is to assure appropriate percentage of all discharges from an 25 percent payment threshold would
and cost-effective payments under the acute care hospital that had either apply to those patients who had been
Medicare program for services provided reached or not reached outlier status (78 admitted to an LTCH from some other
by LTCHs. We have informed the LTCH percent) with the percentage of acute provider setting than an acute care
community in several forums, including care hospital patients who were hospital, such as a IRF or a SNF?
notices, that although we were not subsequently admitted to LTCHs Response: The extension of the 25
challenging the high level of care following their discharge from the acute percent threshold policy to discharges
delivered at many LTCHs, it was care hospital who had either reached or admitted from referring hospitals not co-
manifestly unclear how we could not reached outlier status (also 78 located with the LTCH or the satellite of
identify the point during an acute care percent), stating that this proved that a LTCH at § 412.536 is based on the
hospitalization when a patient would both had received a ‘‘full episode of policy that we finalized for co-located
cease to be appropriately placed in that care,’’ we do not agree with this LTCHs at § 412.534 for FY 2005 in the
setting such that admission to and conclusion. Furthermore, the IPPS final rule (69 FR 48916). As we
further treatment in a LTCH would commenters data is based on a universe have stated above, we believe that many
constitute a reasonable and fiscally of total discharges from acute care of the concerns that we expressed in our
responsible standard of care. Our data hospitals which is approximately 13 analysis of co-located LTCHs, regarding
reveals that approximately 80 percent of million discharges. The universe of the financially-advantageous but
LTCH patients are admitted following discharges from acute care hospitals to clinically unnecessary shifting of
care at an acute care hospital, where LTCHs is less than 1 percent of those patients from acute care hospitals to
Medicare would have would have paid discharges (approximately 112,000). LTCHs, is also an issue when the LTCH
for their care under the IPPS. We Since the LTCHs are admitting such a is not co-located with the referring
maintain that if a hospitalized patient small percentage of acute care hospitals’ hospital. Therefore, although the vast
continues to need acute-level care that total cases, it is likely that LTCHs are majority of host/LTCH HwH or LTCH
such a patient could remain in the acute targeting a specific subset of these satellite arrangements are between acute
care hospital for the purpose of patients that would have reached outlier care hospitals and LTCHs, we specified
receiving this care and not be status, if not for the presence of the in the FY 2005 final IPPS rule that
discharged to another acute care level LTCH. under § 412.22(e), any inpatient
hospital-level provider could serve as a patient could experience a medical payment adjustments for certain
host to an excluded hospital. Therefore, crisis while an inpatient at an IRF, we admissions is well within the existing
the policy adjustment that we were would reiterate that typically, the most regulatory framework. Furthermore, the
finalizing based upon the percentage of appropriate setting for such urgent care basis for the policy that we are
patients from one hospital that upon would be a general acute care hospital, finalizing at this time, is an extension of
discharge became inpatients at a co- rather than a LTCH. The policy that we a policy that has been in effect since FY
located LTCH, at § 412.534, was also are finalizing would not be applicable to 2005, when we established the 25
applicable when the host hospital was a patient admitted to a LTCH from a percent (or applicable percentage)
not an acute care hospital (69 FR SNF since a SNF does not deliver payment threshold policy for co-located
49198). hospital-level care and therefore LTCHs at § 412.534. At that time, we
Furthermore, we stated that applying duplication or substitution of services stated that we were ‘‘* * * providing an
the option of a discharge payment based by a LTCH is not a relevant issue. adjustment to the payment under the
upon the lesser of the otherwise Comment: One commenter believes LTCH PPS in accordance with the broad
unadjusted payment amount under that the extension of the 25 percent authority conferred on the Secretary by
Subpart O or payment under the LTCH threshold payment adjustment deprives the Congress in section 123(a) of the
PPS based upon an IPPS-equivalent Medicare beneficiaries of their right to BBRA of 2000 amended by section
amount was appropriate when the host receive medically-necessary services in 307(b) of the BIPA of 2001 to include
hospital was an IRF, because ‘‘[w]e a LTCH. Therefore, if we finalize the ‘‘appropriate adjustments’’ in the
believe that it is appropriate to pay the extension of the 25 percent threshold establishment of a PPS for LTCHs’ (69
LTCH HwH or LTCH satellite that is co- policy, we are violating beneficiary FR 49204). We continue to believe that
located with an IRF or IPF and exceeds rights and we should provide a notice there is a clear distinction between
the applicable threshold at the IPPS of non-coverage to beneficiaries medical decision-making and payment
equivalent rate and not a LTCH PPS rate regarding this issue. Furthermore, the policy, particularly * * * when the
that would be equivalent to the amount commenter reminded us that patient is a Medicare beneficiary and
otherwise paid under the IRF or IPF PPS beneficiaries would also be entitled to the medically necessary services are
rate, since the HwH and the satellite appeal such a notification to the QIO covered by Medicare’’ (69 FR 49204).
LTCH are, as we explained earlier in operating in their State. The commenter LTCHs, for example, are required to
this section, facilities that in many ways stated that the patient whose case would meet the greater than 25-day ALOS
are comparable to an acute care cause the LTCH to exceed the 25 requirement to retain designation as a
hospital’’ (72 FR 4811; 71 FR 4704 percent threshold referred from a LTCH; therefore, LTCHs will factor in
through 4719). particular referring hospital (that is, the that on-going requirement when making
We are finalizing the extension of the patient who would represent 26 specific patient admission decisions
25 percent threshold payment percent) and all those that follow, are during a cost reporting period. The need
adjustment to discharges from referring entitled to such a notice. The to comply with various compliance
hospitals not co-located with the LTCH commenter also provides a lengthy percentage requirements for treating
or the satellite of a LTCH because we discussion of the statutes, regulations, certain conditions in order to qualify for
believe that our concerns that patient and case law that underlay beneficiary IRF designation, under § 412.23(b), also
stays are being inappropriately appeal rights. impacts which patients are admitted to
truncated at host hospitals resulting in Response: We would emphasize that IRFs during a cost reporting period. In
admissions to LTCH HwHs or satellites we are finalizing a policy in this these two examples, hospitals currently
also occur between LTCHs and LTCH regulation regarding the payment evaluate admissions during a cost
satellites receiving patients from threshold that Medicare is establishing reporting period because a hospital’s
referring hospitals not on the same to avoid generating two payments, one noncompliance with Medicare
campus. As noted elsewhere in this to the initial referring hospital and requirements regarding LOS and
section, we have concentrated on the another under the LTCH PPS, for a percentage of patients meeting the
relationships between referring acute single episode of care delivered to a requirements at § 412.23(b)(2),
care hospitals and non-co-located beneficiary. We are not depriving respectively, could risk its designation
LTCHs in this discussion, because Medicare beneficiaries of their rights to as a hospital that is excluded from the
approximately 80 percent of Medicare receive treatment at a LTCH, but rather, IPPS. Therefore, we believe that the
patients in LTCHs are admitted from we have established a payment circumstance of a LTCH determining
acute care hospitals. However, we adjustment for such treatment under which, and under what circumstances,
believe that the same concerns, particular conditions. patients should be admitted is an
articulated above, would also exist Since the inception of the Medicare already established feature in the LTCH
when the patient source is not an acute program in 1966, policies have been admission process and should be based
care hospital. As we noted in the RY established to determine what the on medical criteria and not based on the
2008 LTCH PPS proposed rule, ‘‘[t]here Federal government believes is profitability of treating a specific
could still be a financial incentive on appropriate payment to hospitals for the patient.
the part of the referring hospital (for delivery of medical services to Furthermore, the issuance of a
example, an IRF, to prematurely beneficiaries. Hospitals that elect to Hospital-Issued Notices of Noncoverage
discharge a beneficiary to a LTCH for participate in the Medicare program are (HINNs) by the Medicare program is not
additional post-acute treatment in order required to comply with the policies applicable to the above described
to avoid absorbing high treatment costs established by the program, including circumstance. Specifically, a LTCH’s
under the IRF outlier policy at the establishment of payment rates and decision not to admit a specific patient
§ 412.624(e)(5)) that would result in two payment adjustments. Therefore, we do is not a decision by the Medicare
Medicare payments, one to the initial not believe that issuing an adjustment program to not cover the service. Rather,
provider and the other for payment that could impact on a hospital’s it is a determination by the LTCH of the
under the LTCH PPS for a single Medicare payments is a radical or type of service or patient that the facility
episode of beneficiary care’’ (72 FR unique act. The establishment of a has a level of expertise in treating. (We
4812). Although we recognize that a payment policy that may result in specify the conditions under which the
Medicare program is required to issue a for patients who require an entire noted that many LTCHs deliver a high
HINN on the CMS Web site at http:// multidisciplinary team. The level of care to very sick Medicare
www.cms.hhs.gov/BNI/ commenters emphasized that LTCHs beneficiaries, with fine doctors,
05_HINNs.asp#TopOfPage.) use a ‘‘* * * team approach towards exemplary nursing care, and top-notch
In response to the commenter’s belief healing the patient versus stabilizing an rehabilitation therapists, but we also
that a beneficiary who is not admitted acute episode.’’ They also asserted that know that many acute care hospitals
to a LTCH because of the payment LTCHs and acute care hospitals do not throughout the nation are treating the
policy that we are finalizing should treat identical conditions and patients same types of patients and similarly
appeal the determination to the QIO who are forced to remain in an acute delivering excellent care. In addition,
operating in his or her State, we would care setting could receive ‘‘sub-standard we are aware that some LTCHs
state that the decision to admit a patient care’’ with the result being poorer health specialize in a particular subset of
is made by the hospital. Specifically, outcomes, longer stays, and even higher patients and achieve noteworthy
section 1802(a) of the Act stipulates that costs. The commenter believes that success in their treatment of, for
‘‘Any individual entitled to insurance patients who are medically unstable, not example, ventilator-weaning or wound
benefits under this title may obtain progressing, or have failed ventilator- care; however, similar patients are also
health services from any institution, weaning can often benefit from a receiving care in acute care hospitals
agency, or person qualified to multidisciplinary program that LTCHs with similar results. Therefore, we
participate under this title, if such specialize in. In fact, some commenters disagree that acute care hospitals are
institution, agency or person undertakes point to a level of care that is found incapable of competently treating
to provide him such services (emphasis nowhere else in the medical care Medicare beneficiaries that happen to
added). We emphatically reiterate that continuum but by staff with expertise fall within the DRGs that LTCHs
we are not preventing the admission of and experience unique to LTCHs. identify as their specialties and that any
patients to a LTCH; rather, we are patients falling into such categories
Response: In response to the
establishing a methodology for would receive ‘‘substandard’’ care at an
commenters, we would first state the
determining what are fair and acute care hospital.
following axiom of hospital policy in
reasonable payments based on the type
the Medicare program: LTCHs, while Commenters also stated that the
of patient treated by the LTCH.
being unique based on maintaining an Congress established the distinction
Moreover, it is our expectation that
average LOS in excess of 25 days, are between acute care hospitals and LTCHs
extending the 25 percent (or applicable
percentage) payment threshold policy to certified as acute care hospitals and by excluding LTCHs from the IPPS in
discharges from referring hospitals not provide hospital-level services to 1983. In the FY 2003 LTCH PPS final
co-located with the LTCH or the satellite patients. Acute care hospitals paid rule (67 FR 55954), which presented the
of a LTCH will result in LTCHs focusing under the IPPS are throughout the initial payment policies that we
their mission with respect to referrals country treating patients requiring established for the LTCH PPS, we
from acute care hospitals, and on hospital-level care often with lengths of briefly reviewed the history of the
treating patients that had a complete stay comparable to those that are typical development of the distinction between
episode of care at the referring hospital, of LTCHs. We believe the commenters hospitals that were to be paid under the
before being admitted to the LTCH. are attempting to establish a clear IPPS and those that would be excluded,
Comment: Many commenters stated distinction between the patients that are among which were a small group of
that there were major differences appropriate for treatment at LTCHs and hospitals that were called LTCHs. In
between the patients treated at LTCHs patients that are appropriately treated at that rule, we stated that ‘‘[t]he Congress
and at those referred to as ‘‘short-term’’ acute care hospitals. Across the United excluded these hospitals from the acute
acute care hospitals. They also listed the States, the over 3,700 acute care care hospital inpatient prospective
significant distinctions between the hospitals that discharge approximately payment system because they typically
levels of care delivered by these two 13 million Medicare beneficiaries treat treated cases that involved stays that
types of hospitals. These commenters the full range of medical issues were, on average, longer or more costly
asserted that acute care hospitals paid including those that the commenters than would be predicted by the DRG
under the IPPS are ‘‘just not capable’’ of identify as LTCH cases. We do not system.’’ The legislative history of the
delivering the level of care required by question that many LTCHs have highly 1983 Social Security Amendments
typical LTCH patients. The commenters regarded reputations for their success in stated that, ‘‘the DRG system was
noted that MedPAC, RTI, and even CMS treating respiratory and ventilator cases developed for short-term acute care
have stated that LTCHs effectively treat (DRG 475), but, as detailed in the RTI general hospitals and as currently
very sick patients. One commenter report, the 2004 MedPAR files indicate constructed does not adequately take
stated that there was ‘‘evidence that that where LTCHs treated 13,394 cases into account special circumstances of
patients who would become subject to assigned to DRG 475, acute care diagnoses requiring long stays. (Report
the 25 percent rule are different from hospitals treated 18,727 Medicare of the Committee on Ways and Means,
patients in short term acute care patients with an additional 7,072 HCOs, U.S. House of Representatives, to
hospitals, and therefore, there is no in DRG 475. For DRG 88, chronic Accompany HR 1900, H.R. Rept. No.
empirical basis whatsoever for CMS’ obstructive pulmonary disease (COPD), 98–25, at 141 (1983)) Therefore, these
assumption that LTCHs systematically LTCHs treated 4,894 cases where acute hospitals could be systemically
engage in substitution of service.’’ care hospitals treated 37,523 cases. Data underpaid if the same DRG system were
According to commenters, LTCHs have on other common DRGs treated in applied to them (67 FR 55957).
specialized care that is not available in LTCHs as compared to the same DRG Following enactment of the Social
acute care hospitals since the treatment treated in acute care hospitals reflect a Security Amendments of 1983, we
model is entirely different. The similar pattern, particularly among the implemented the acute care hospital
commenters maintained that acute care DRGs that could fall into the broad inpatient prospective payment system
hospitals ‘‘* * * are diagnosis based category of ‘‘medically complex’’ on October 1, 1983, including the initial
where LTCHs provide specialized patients. (Table 3–2, RTI report, p. 35) publication in the Federal Register of
programs of whole-patients recovery’’ We understand that MedPAC and RTI the rules and regulations for the hospital
inpatient prospective payment system— licenses beds in this facility as chronic are ‘‘just not capable’’ of delivering the
the September 1, 1983 interim final disease hospital beds, though the level of care required by typical LTCH
rule’’ (48 FR 39752, 67 FR 55957). administrator conceded that these beds patients; that acute care hospitals ‘‘are
The 33 LTCHs in existence at the start are virtually indistinguishable from the diagnosis based where LTCHs provide
of the IPPS in 1983 (that were included SNF and ICF level Medicaid beds specialized programs of whole-patients
on the HCFA exclusion list) were * * *’’ (p. 3–56). The Report identified recovery;’’ that acute care hospitals do
described in 1987, in a presentation an additional 25 hospitals that fit the not treat identical conditions and that
letter to President George H.W. Bush profile of LTCHs, most of which were patients who are forced to remain in an
from then-Secretary Otis R. Bowen, included in a 1983 AHA Annual acute care setting could receive ‘‘sub-
M.D., that preceded a Report to Survey. ‘‘Lastly, there were 25 hospitals standard care with the result being
Congress produced by Health that were not on the exclusion list, but poorer health outcomes, longer stays,
Economics Research, Inc. on the have either self-identified to the HA as and even higher costs.’’ We do not
‘‘Developing a Prospective Payment chronic care hospitals or have chronic believe that the evidence detailed above
System for Excluded Hospitals,’’ care beds. Seven of these had mostly indicates that in excluding LTCHs from
(Department of Health and Human acute care beds and a short average LOS, the IPPS and explaining this act by the
Services, Health Care Financing such that they would not qualify for the above-quoted rationale in 1983, that it
Administration, Office of Research and HCFA exclusion. The remaining 18 all was the Congress’ intention to declare
Demonstration, HCFA Pub. No. 03262), had average length of stays greater than that henceforth, certain patients could
the Secretary notes that ‘‘Long-term 60 days and 11 had average length of only reasonably be treated in LTCHs
Hospitals are a heterogeneous set of stays greater than 100 days. Though and that treatment at an acute care
institutions located on the Eastern several of these were institutions with hospitals for such patients would be
Seaboard, whose mission is the just chronic care beds, most also had a ‘‘sub-standard.’’ Rather, we believe that
treatment of patients who are seriously disproportionate number of nursing the Congress was attempting to describe
or terminally ill with multiple diseases. home beds. Possibly, those 18 hospitals the provider landscape as it existed at
In other regions of the country, these could qualify for an exclusion at some that time and that in so doing, there was
same patients would be treated in future point’’ (p. 3–57). ‘‘These hospitals a small group of facilities that did not
hospitals or skilled nursing facilities are themselves a diverse, rather ‘‘cleanly’’ fit into any other category,
* * *’’ anomalous class. As suspected, they having ‘‘grown up in the interstices of
As discussed in the 1984 Report to have grown up in the interstices of acute, rehabilitation, and nursing home
Congress, CMS (formerly HCFA) listed acute, rehabilitation, and nursing home care.’’ Report to Congress on the
61 hospitals on the ‘‘HCFA exclusion care. Their diversity results from the ‘‘Developing a Prospective Payment
list’’ throughout the United States. fact that the role they fill varies with System for Excluded Hospitals,’’ HCFA
(Medicare OSCAR files reveal that 31 of individual State regulatory and Pub. No. 03262) (p. 3–59).
these original facilities are still in financing policies, as well as the Since that time, there have been
existence in 2007.) The Report states surrounding configuration of acute, changes in the LTCH universe, with
that ‘‘[t]here were 33 hospitals that both rehabilitation, and nursing home beds’’ over 58 percent of the nearly 400 LTCHs
identified themselves as chronic care (p. 3–59). being run for-profit (the majority by
hospitals * * * [that] are most We quote this report because we several large chains); approximately 33
representative of those primarily believe that it is vital to understand percent run not for profit, and only 8.3
providing chronic-disease hospital what the Congress was describing when percent now run by a government
services. Perhaps of most interest is the it excluded 33 LTCHs (in the HCFA list) instrumentality. Accordingly, we
very long average LOS of patients in from the IPPS, ‘‘* * * because the DRG believe that the policy we proposed is
these institutions. With one exception, system was developed for short-term appropriate to deal with present
all average length of stays are over 60 acute care general hospitals and as payment issues that the Medicare
days and, with three exceptions, all are currently constructed does not program is facing under the LTCH PPS.
over 100 days. There is probably no adequately take into account special Commenters further asserted that
clear differentiation between certain circumstances of diagnoses requiring acute care hospitals do not and even can
types of rehabilitative facilities and long stays’’ and therefore, these not deal with the medical conditions in
LTCHs. The differentiation does seem hospitals could be systemically which LTCH specialize. Even though
clearer in the case of psychiatric and underpaid if the same DRG system were the LTCH universe has grown to nearly
children’s hospitals, though because applied to them (67 FR 55957). We do 400, they continue to not be evenly
these eight psychiatric and three not believe that the Congress was geographically dispersed and therefore,
children’s hospitals had average lengths identifying the LTCHs in existence in by far, most very sick Medicare
of stay greater than 25 days, they were 1983, described above, as facilities inpatients nationwide are treated in
placed under the long-term category of expected to deliver care at a level of acute care hospitals. In FY 2005, there
exclusions. The 28 remaining hospitals medical sophistication equivalent to or were 130,000 LTCH discharges and 12.7
on the HCFA exclusion list are even surpassing that of a typical acute million discharges from acute care
characterized by a mixture of bed types. care hospital. hospitals. A brief review of several
Many have a large percentage of In 1983, there were 33 LTCHs (plus major LTCH Web sites contained the
psychiatric beds and some a large another 25 from the AHA list); in 1993, following list of conditions in which
percentage of rehabilitation beds. Some there were 105; in 2003, there were 318; they specialize:
of those hospitals are institutions with and in 2007, there are nearly 400 • Chronic cardiac disorders;
a large number of nursing home beds. LTCHs. We do not doubt that the nature • Neuuromuscular/neurovascular
For example, one hospital examined and level of the care delivered by most diseases
houses a small number of acute care LTCHs has changed markedly since • Methicillin-resistant staph aureus
beds available for patients routinely 1983 but we believe that it is both (MRSA)
cared for in SNF and intermediate care highly inaccurate and misleading to • Complex orthopedic conditions
facility (ICF)-level beds. The acute care state, as some of our commenters have, • Wound care complications
beds are exempted under PPS. The State that ‘‘ ‘short term’ acute care hospitals • Multi-system organ failure
• Immuno-suppressed conditions transfers that may not create clear risks with the 25 percent threshold.
• Respiratory failure for patients, but nevertheless, increase Therefore, we are establishing a 75
• Dysphagia management costs in the health care system because percent threshold for RY 2008 and a 50
• Post-operative complications they are undertaken for financial rather percent threshold for RY 2009. The
• Multiple intravenous therapies than medical reasons. Therefore, even threshold will be reduced to 25 percent
• Chemotherapy though we reviewed this discussion beginning with RY 2010. Furthermore,
• Pre- and post-operative organ carefully, we made no changes to our for hospitals in rural areas or those
transplant care proposals based on it. admitting patients from a single hospital
• Chronic nutritional problems Comment: Some commenters MSA effective with RY 2008, the
• Total parenteral nutrition (TPN) highlighted the current medical care threshold will be 75 percent for RY 2008
issues’ situation in New Orleans noting that the and will remain at 50 percent for
• Intensive hemodynamic monitoring city is still trying to recover from subsequent rate years. In addition, for
• Renal dialysis Hurricane Katrina. The commenters LTCHs admitting patients from MSA-
• Telemetry believed that the proposed changes dominant hospitals, effective with RY
• EKG testing would result in the closure of LTCHs 2009 the threshold will be adjusted
• Diagnostic bronchoscopy and and this would cause hardships on the based on the referring hospital’s
endoscopy limited number of physicians practicing percentage of Medicare patients
• Speech-language pathology in the area. The commenters requested discharged in the MSA, and will be not
• Surgery support that affected hospitals should be granted less than 25 percent and not more than
• Nutritional therapy a time limited exemption from these 50 percent.
• Radiology services rules for up to 5 years. Comment: Many commenters
• Laboratory services Response: We are certainly aware of requested that we clarify how they
• Respiratory therapy the current state of medical care in would be able to comply with the
• Physical therapy Louisiana in general, and specifically in requirements of the 25 percent
• Occupational therapy the New Orleans area. We have worked threshold payment adjustment policy if
• Pharmacy and continue to work closely with State it was finalized. In the particular
• Social services officials and the hospitals in Louisiana situation of a MSA-dominant or urban
Furthermore, the list of services noted to address issues that are important to single hospital, where the threshold
above, are also hardly unique to the helping the State rebuild its medical depends upon the percentage of
LTCH setting. care infrastructure. As stated previously referring hospital discharges in that
Comment: One commenter cited in response to commenters who claimed MSA, it was requested that we clarify
several provisions of Federal and State that these revisions would cause LTCHs which year of data would applicable.
statutes that generally refer to patient to close, we believe that these changes Response: In establishing this
transfers, services furnished to a are necessary to assure that the payment provision, originally for co-
hospital’s patients by others under Medicare program is making located LTCHs for FY 2005, we
arrangements made by the hospital with appropriate payments to these hospitals consulted with Medicare’s FIs and we
them, or a hospital’s responsibility to in the specific situations addressed by were assured that LTCHs will be able to
have services available to meet the these policies. In the case of the obtain the information that they need in
needs of patients it accepts for expansion of the 25 percent policy to order to comply with this policy from
treatment. For example, the commenter apply to LTCHs and satellites that the referring hospital from which they
cites the provision of the Emergency exceed the threshold on discharges that would be admitting patients.
Medical Treatment and Active Labor were admitted from a referring hospital Further, we understand that typically,
Act (EMTALA) (specifically, section not co-located with the LTCH or LTCH acute care hospitals have the GROUPER
1867(g) of the Act) that requires satellite, since a LTCH is certified as an software which enables them to
hospitals with specialized capabilities acute care hospital, we believe it is determine the most likely DRG
to accept appropriate transfers of appropriate to pay the LTCH under the assignment for their patients and
unstabilized individuals protected by LTCH PPS a rate that is comparable to additionally, programs that track the
EMTALA. The commenter also referred the rate paid under the IPPS, where it costs being incurred by their patients on
to Florida, Texas, and Illinois legislation is demonstrating behavior that indicates a daily basis. Therefore, they are with a
authorizing arranged-for services and that it is serving as a ‘‘unit’’ of the high degree of accuracy, able to predict
referral and transfer agreements, and referring hospital. Similarly, the revised when a particular case crosses the
The Joint Commission (formerly SSO policy also provides for payments outlier threshold. To facilitate such
JCAHO) guidance directing their to the LTCH for those SSO cases that practices by hospitals, we have
surveyors to look closely at transfers. have a LOS that is comparable to the provided PRICER software for Medicare
However, no specific comment was LOS of a typical IPPS patient in the PPSs available for download on the
made. same DRG, under the LTCH PPS at an CMS Web site. We understand that
Response: We do not believe this adjusted rate that is comparable to the hospitals, including LTCHs, generally
discussion in any way calls into IPPS rate. We do not believe these also purchase GROUPER software to
question the need for the provisions policies will cause widespread closure track DRG assignments.
relating to the policies we have of LTCHs nationally or in Louisiana. Therefore, it is our expectation that
proposed. Though the provisions cited We also note that while in general the LTCHs and their referring hospitals will
do include references to transfers, they threshold under the expansion of the 25 build on their existing working
do not spell out conditions under which percent policy as finalized in this rule relationship (since this policy applies to
they are acceptable or otherwise will ultimately be 25 percent, in situations where over 25 percent of a
establish specific standards to ensure response to comments requesting that LTCH’s patients were admitted from an
that transfers and services under we transition the implementation of this individual hospital) and will find it in
arrangements do not jeopardize patient policy, as discussed earlier we are their mutual interests to share necessary
health and safety. More importantly, providing for a 3-year transition to allow information. We would also expect
they do not address the key issue of hospitals additional time to comply LTCHs to monitor their admissions and
discharges from their referring hospitals, periodic interim payments and the final the SSO policy revision, we responded
a process in which they would typically amounts due, as determined by the FI. to comments in the SSOs section of this
engage as a component of sound Such reconciliations are both necessary final rule.
business practice. and expected. There are numerous In summary, we are finalizing a new
In response to the comment provisions affecting LTCHs that could provision at § 412.534(h) that effective
questioning the determination of the result in subsequent redetermination of with discharges occurring during cost
applicable MSA-dominant or urban- the payment amounts. For example, reporting periods beginning on or after
single percentage for purposes of LTCH involvement of a QIO review of a DRG July 1, 2007, would apply the policies
calculations, we agree that it would be assignment which may result in a established under existing § 412.534 to
inappropriate for this percentage to be change in DRGs as specified in grandfathered subclause (I) LTCH HwHs
based on data occurring during a cost § 412.513(c), as well as any of the and LTCH satellites for Medicare
reporting period. Therefore, we would reconsiderations and appeals provided discharges that were admitted from their
note that our policy is to base the for under subparts G, I, J, or R of Part co-located host hospitals. We are also
percentage on the latest available 405. Moreover, since the start of the applying those policies for Medicare
discharge data that is available prior to LTCH PPS, our regulations on special discharges admitted from referring
the beginning of the LTCH’s current payment provisions for patients who are hospitals not co-located with the LTCH
fiscal year. We are revising proposed transferred to onsite providers and or the satellite of a LTCH to all
§ 412.536(d)(2) to reflect this policy. readmitted to a LTCH at § 412.532, subclause (I) LTCHs and LTCH satellites
Furthermore, in response to this specified a 5 percent threshold for at § 412.536, generally tracking
comment, at this time, we are also LTCH readmittances of patients that had § 412.534, where applicable. For
revising the regulation text as it applies been discharged to an onsite acute care example, in determining whether a
to co-located LTCHs. Specifically, at hospital. Payments under this policy hospital meets the 25 percent criterion,
§ 412.534(e)(2) where we describe the would be reconciled following cost Medicare discharges that have already
determination of the percentage report settlement. Finally, the 25 qualified for outlier payments at the
threshold for MSA-dominant hosts for percent threshold for co-located LTCHs, referring hospital would not be included
LTCH HwHs and LTCH satellites, we which could result in a redetermination in the count of Medicare discharges
deleting the phrase, ‘‘for the cost of the payment amount if the threshold admitted from the referring hospital.
reporting period for which the is exceeded, has been in effect since FY (We are entitling § 412.536, Special
adjustment was made’’. 2005. Payment Provisions for LTCHs and
Comment: One commenter stated that Therefore, we do not believe that the Satellites of LTCHs that Discharged
implementing the 25 percent threshold principle of PPS issued by the Medicare Medicare Patients Admitted From a
payment adjustment policy, under program is inconsistent with the Hospital Not Located in the Same
which Medicare payments would be extension of the 25 percent payment Building or on the Same Campus as the
reconciled, would ‘‘violate a adjustment threshold under the LTCH LTCH or Satellite of the LTCH.)
fundamental rule of PPSs that payments PPS. We are also finalizing adjustments to
will be prospectively set and known in Comment: Several commenters stated the 25 percent policy at § 412.536 for
advance by the providers.’’ This that both of our policy proposals, the specific circumstances consistent with
commenter also stated that the extension of the 25 percent threshold the policy for co-located hospitals under
finalizing this regulation would ‘‘in a policy adjustment and the revision of § 412.534. At § 412.536(c) for Medicare
very real sense, would convert the the SSO policy, are effectively discharges from subclause (I) LTCHs or
LTCH PPS into a retroactive system of establishing ‘‘admission criteria’’ which LTCH satellites located in rural areas,
recovery and settlement with related usurp the exclusive role of QIOs in the Medicare discharges in excess of 50
disputes where CMS would be called Medicare program. percent, rather that 25 percent of the
upon to produce patient records from Response: We reiterate that with the LTCH’s total Medicare discharges for a
hospitals that refer cases to LTCHs as finalization of the extension of the 25 cost reporting period from an individual
well as individual patient coding and percent threshold policy adjustment and referring hospital not co-located with
referral hospital financial information to the SSO policy, we have not established the LTCH or the satellite of the LTCH
support recovery claims.’’ ‘‘admissions criteria’’ for LTCHs. Rather, would be subject to the payment
Response: In response to these in keeping with our fiduciary adjustment specified at § 412.536(c). In
concerns, we would note that the cost responsibility to oversee Medicare addition, in the case of a rural subclause
report settlement process (governed by expenditures, we have established (I) LTCH or LTCH satellite facility, in
Subpart B of Part 413) is a standard payment policies that provide for determining the percentage of Medicare
feature of all Medicare PPSs. For appropriate Medicare payments for discharges admitted from the referring
example, under the IPPS, a hospital beneficiary care. We describe each of hospital, any patients that had been
DRG payment may be subject to the the policies in detail in this preamble. Medicare outliers at the referring
DSH or IME adjustments. The DSH They are distinct policies but they both hospital and then discharged to the
adjustment is based on the percentage of focus on our goal of determining LTCH or LTCH satellite are not counted
Medicaid patients discharged by the payment for Medicare services delivered towards the threshold percentage (as
hospital during the fiscal year, while the in LTCHs, under particular described above).
IME adjustment is based on the number circumstances that we believe should In § 412.536, we are also providing
of residents trained by the hospital not significantly exceed payment for that if the referring hospital not co-
during the fiscal year. Both factors are similar services otherwise delivered in located with the LTCH or satellite of the
subject to change based on final acute care hospitals. LTCH is the only other hospital in the
settlement of the hospital’s cost report. Because the comments that we MSA or is an MSA-dominant hospital as
The procedures that we have received regarding the QIO’s role and defined at § 412.536(e)(4), we are
established for this process envision a the implementation of the expansion of allowing the subclause (I) LTCH or
reconciliation between hospitals and the the 25 percent threshold policy were LTCH satellite facility a threshold
Medicare program based on claims fundamentally the same comments percentage equal to the non-co-located
submission, special interim payments or submitted regarding the QIOs role and referring hospital’s percentage of total
Medicare discharges for hospitals in the LTCH satellites will be subject to the 25 Federal rate of $38,086.04 for the 2007
MSA. Consistent with our policy at percent (or applicable percentage) LTCH PPS rate year. In this final rule,
existing § 412.534(e), we are applying a threshold payment adjustment for as was proposed, based on the best
floor of 25 percent and a ceiling of 50 discharges during a cost reporting available data and the policies described
percent to this threshold for these period that were admitted from any in this final rule, the standard Federal
hospitals. As with the existing policy for referring hospital. In determining the rate for the 2008 LTCH PPS rate year
co-located LTCHs, we believe that this percentage of Medicare discharges will be $38,356.45 as discussed in
adjusted payment threshold responds to admitted from the referring hospital, section IV.C.3. of this preamble. We
‘‘the unique needs of these patients who reached HCO status at the illustrate the methodology that will be
communities’’ (69 FR 49207). Similar to referring hospital before being admitted used to adjust the Federal prospective
the existing provisions at § 412.534, in to the LTCH or LTCH satellite will not payments for the 2008 LTCH PPS rate
determining the percentage of Medicare count towards the applicable threshold, year in the following examples:
discharges admitted to the LTCH or as discussed above. A similar phase is
provided for the expansion at § 412.534 Example
LTCH satellite facility from the urban
single or MSA dominant hospital, any to grandfathered subclause (I) LTCH During the 2008 LTCH PPS rate year,
patients that had been Medicare outliers HwHs and LTCH satellites. a Medicare patient is in a LTCH located
at the referring hospital before being Finally, we believe that these in Chicago, Illinois (CBSA 16974). This
admitted to the LTCH or LTCH satellite payment adjustments address policy LTCH is in the final year of the wage
would not count towards the applicable concerns that are consistent with those index phase-in, thus, the full (that is,
threshold, as discussed above. that we originally expressed when we five-fifths) wage index values are
implemented the payment adjustment applicable. The full LTCH PPS wage
The payment adjustment at § 412.536
for LTCHs discharging patients that index value for CBSA 16974 is 1.0751
will be phased-in over 3 years for all were admitted from co-located
LTCH discharges affected by the (see Table 1 in the Addendum to this
hospitals. final rule). The Medicare patient is
policies that we are finalizing beginning We also believe that it is important,
for cost reporting periods beginning on classified into LTC–DRG 9 (Spinal
once again, to note that the 3-year
or after July 1, 2007. Under the phase in, Disorders and Injuries), which has a
transition to the full 25 percent
the percentage threshold will be the current relative weight of 1.0424 (see
threshold payment adjustment will
greater of the applicable threshold as Table 3 of the Addendum to this final
coincide with our continuing work on
specified at 412.536(b),(c), and (d) or the rule).
the MedPAC recommendations to
following percentages: For cost attempt to develop facility and patient To calculate the LTCH’s total adjusted
reporting periods beginning on or after level criteria for LTCHs. We hope that Federal prospective payment for this
July 1, 2007 and before July 1, 2008, the LTCH industry will work closely Medicare patient, we compute the wage-
under the policy that we are finalizing with CMS to pursue this endeavor adjusted Federal prospective payment
at § 412.536, the percentage of Medicare during the transition period. amount by multiplying the unadjusted
discharges that may be admitted from a standard Federal rate ($38,356.45) by
referring hospital not co-located with VI. Computing the Adjusted Federal the labor-related share (75.788 percent)
the LTCH or the satellite of a LTCH with Prospective Payments for the 2008 and the wage index value (1.0751). This
no payment adjustment is the lesser of LTCH PPS Rate Year wage-adjusted amount is then added to
the percentage of Medicare discharges In accordance with § 412.525 and as the nonlabor-related portion of the
admitted from the referring hospital discussed in section IV.C. of this final unadjusted standard Federal rate
during its RY 2005 cost reporting period rule, the standard Federal rate is (24.212 percent; adjusted for cost of
or 75 percent. For cost reporting periods adjusted to account for differences in living, if applicable) to determine the
beginning on or after July 1, 2008 and area wages by multiplying the labor- adjusted Federal rate, which is then
before July 1, 2009, under the policy related share of the standard Federal multiplied by the LTC–DRG relative
that we are finalizing at § 412.536, the rate by the appropriate LTCH PPS wage weight (1.0424) to calculate the total
percentage of Medicare discharges that index (as shown in Tables 1 and 2 of the adjusted Federal prospective payment
may be admitted from the referring Addendum to this final rule). The for the 2008 LTCH PPS rate year
hospital not co-located with the LTCH standard Federal rate is also adjusted to ($42,258.45). (As discussed in section
or the satellite of a LTCH, with no account for the higher costs of hospitals IV.C.5. of this preamble, for the 2008
payment adjustment, is the lesser of the in Alaska and Hawaii by multiplying LTCH PPS rate year, we are no longer
percentage of Medicare discharges the nonlabor-related share of the applying a transition period BN offset
admitted from the referring hospital standard Federal rate by the appropriate (to account for the costs of the transition
during its RY 2005 cost reporting period cost-of-living factor (shown in Table 3 methodology) in determining the total
or 50 percent. For cost reporting periods in section IV.D.2 of this preamble). In adjusted Federal prospective payment.)
beginning on or after July 1, 2009 (RY the RY 2007 LTCH PPS final rule (71 FR Table 7 illustrates the components of
2010), all subclause (I) LTCHs and 27827), we established a standard the calculations in this example.
TABLE 7
Unadjusted Standard Federal Prospective Payment Rate ............................................................................................................... $38,356.45

Labor-Related Share ......................................................................................................................................................................... × 0.75788
Labor-Related Portion of the Federal Rate ....................................................................................................................................... = $29,069.59
Full Wage Index (CBSA 16974) ........................................................................................................................................................ × 1.0751
Wage-Adjusted Labor Share of Federal Rate ................................................................................................................................... = $31,252.71

Nonlabor-Related Portion of the Federal Rate ($38,356.45 × 0.24212) ........................................................................................... + $ 9,286.86
Adjusted Federal Rate Amount ......................................................................................................................................................... = $40,539.57
LTC–DRG 9 Relative Weight ............................................................................................................................................................ × 1.0424
TABLE 7—Continued
Total Adjusted Federal Prospective Payment * ................................................................................................................................. = $42,258.45
* We are no longer applying a transition period BN offset to account for the costs of the transition methodology in determining the total ad-
justed Federal prospective payment for RY 2008.)
VII. Transition Period § 412.533(c), we allowed a LTCH (other LTC–DRG is used to determine the
To provide a stable fiscal base for than new LTCHs defined at Federal prospective payment that the
§ 412.23(e)(4)), which was subject to a LTCH will receive for the Medicare-
LTCHs, under § 412.533, we
blended rate, to elect payment based on covered Part A services the LTCH
implemented a 5-year transition period
100 percent of the Federal rate at the furnished during the Medicare patient’s
whereby a LTCH (except those defined
start of any of its cost reporting periods stay. Under § 412.541(a), the payment is
as ‘‘new’’ under § 412.23(e)(4)) received
during the 5-year transition period. based on the submission of the
a LTCH PPS payment consisting of a
Once a LTCH elected to be paid based discharge bill. The discharge bill also
portion based on reasonable cost-based
on 100 percent of the Federal rate, it provides data to allow for reclassifying
reimbursement principles under the
could not revert back to the transition the stay from payment at the full LTC–
TEFRA system and a portion based on
blend. DRG rate to payment for a case as a SSO
the Federal prospective payment rate
(under § 412.529) or as an interrupted
(unless the LTCH elected payment VIII. Payments to New LTCHs stay (under § 412.531), or to determine
based on 100 percent of the Federal Under § 412.23(e)(4), for purposes of if the case will qualify for a HCO
rate). As discussed in the August 30, Medicare payment under the LTCH PPS, payment (under § 412.525(a)).
2002 final rule (67 FR 56038), we we define a new LTCH as a provider of Accordingly, the ICD–9–CM codes
believed that a 5-year phase-in provided inpatient hospital services that meets and other information used to determine
LTCHs time to adjust their operations the qualifying criteria for LTCHs, set if an adjustment to the full LTC–DRG
and capital financing to the LTCH PPS, forth in § 412.23(e)(1) and (e)(2), and payment is necessary (for example, LOS
which is based on prospectively under present or previous ownership (or or interrupted stay status) are recorded
determined Federal payment rates. both), has its first cost reporting period by the LTCH on the Medicare patient’s
Furthermore, we believed that the 5- as a LTCH beginning on or after October discharge bill and submitted to the
year phase-in under the LTCH PPS also 1, 2002. As we discussed in the August Medicare FI for processing. The
allowed LTCH personnel to develop 30, 2002 final rule (67 FR 56040), this payment represents payment in full,
proficiency with the LTC–DRG coding definition of new LTCHs should not be under § 412.521(b), for inpatient
system, which will result in confused with those LTCHs first paid operating and capital-related costs, but
improvement in the quality of the data under the TEFRA payment system for not for the costs of an approved medical
used for generating our annual discharges occurring on or after October education program, bad debts, blood
determination of relative weights and 1, 1997, described in section clotting factors, anesthesia services by
payment rates. 1886(b)(7)(A) of the Act, as added by hospital-employed nonphysician
Under § 412.533, the 5-year transition section 4416 of the Balanced Budget Act anesthetists or the costs of photocopying
period for all hospitals subject to the of 1997 (BBA) (Pub. L. 105–33). and mailing medical records requested
LTCH PPS began with the hospital’s Under § 412.533(d), new LTCHs, as by a Quality Improvement Organization
first cost reporting period beginning on defined in § 412.23(e)(4), will be paid (QIO), which are costs paid outside the
or after October 1, 2002 and extends based on 100 percent of the standard LTCH PPS.
through the hospital’s last cost reporting Federal rate. As we discussed in the As under the previous reasonable
period beginning before October 1, August 30, 2002 final rule (67 FR cost-based payment system, under
2007. During the 5-year transition 56040), the transition period was § 412.541(b), a LTCH may elect to be
period, a LTCH’s total PPS payment intended to provide existing LTCHs paid using the periodic interim payment
under the LTCH PPS was based on two time to adjust to payment under the new (PIP) method described in § 413.64(h)
payment percentages—one based on system. Since these new LTCHs with and may be eligible to receive
reasonable cost-based principles and the their first cost reporting periods as accelerated payments as described in
other based on the standard Federal LTCHs beginning on or after October 1, § 413.64(g).
prospective payment rate. The 2002, would not have received payment For those LTCHs that are being paid
percentage of the LTCH PPS payment under reasonable cost-based under the transition methodology set
based on the LTCH PPS Federal rate reimbursement for the delivery of LTCH forth at § 412.533, for cost reporting
increased by 20 percentage points each services prior to the effective date of the periods that began on or after October 1,
year, while the reasonable portion of the LTCH PPS, we did not believe that those 2002, and before October 1, 2006, the
LTCH PPS payment based on cost-based new LTCHs required a transition period PIP amount is based on the transition
principles decreased by 20 percentage in order to make adjustments to their blend. For those LTCHs that are paid
points each year, for the next 4 fiscal operations and capital financing, as will based on 100 percent of the standard
years. For cost reporting periods LTCHs that have been paid under the Federal rate, the PIP amount is based on
beginning on or after October 1, 2006, reasonable cost-based methodology. the estimated prospective payment for
Medicare payment to LTCHs will be the year rather than on the estimated
determined entirely under the Federal IX. Method of Payment reasonable cost-based reimbursement.
rate. Under § 412.513, a Medicare LTCH We exclude HCO payments that are paid
In implementing the LTCH PPS, one patient is classified into a LTC–DRG upon submission of a discharge bill
of our goals was to transition hospitals based on the principal diagnosis, up to from the PIP amounts. In addition, Part
to prospective payments based on 100 eight additional (secondary) diagnoses, A costs that are not paid for under the
percent of the adjusted Federal and up to six procedures performed LTCH PPS, including Medicare costs of
prospective payment rate as soon as during the stay, as well as age, sex, and an approved medical education
appropriate. Therefore, under discharge status of the patient. The program, bad debts, blood clotting
factors, anesthesia services by hospital- (generally, an acute care hospital), a stated that these policies do not achieve
employed nonphysician anesthetists configuration that is not permitted in CMS’ goal of identifying inappropriate
and the costs of photocopying and section 1886(d)(1)(B) of the Act. (The LTCH admissions.
mailing medical records requested by a statute specifically allows only for IRF The commenters urged us to establish
QIO, are subject to the interim payment and IPF units in acute care hospitals, patient and facility-level criteria for
provisions as specified in § 412.541(c). but not for LTCH units.) As a result of LTCHs to better define the appropriate
Under § 412.541(d), LTCHs with our data monitoring and analysis, which patient setting and medical conditions
unusually long lengths of stay that are is detailed in section V.B. of this final required for admission. A number of the
not receiving payment under the PIP rule, we are expanding the existing commenters further stated that LTCHs
method may bill on an interim basis (60 payment adjustment at § 412.534 and admit patients only after applying an
days after an admission and at intervals we developed new § 412.536 to apply to objective and rigorous set of admissions
of at least 60 days after the date of the certain situations not currently covered screening criteria and Medicare QIOs
first interim bill) and this should by the existing policy for LTCHs co- conduct post-admission reviews of
include any HCO payment determined located with other hospitals. LTCH patients to ensure that admissions
as of the last day for which the services As we discussed in the RY 2004 are medically-necessary. These
have been billed. LTCH PPS final rule (68 FR 34157), the commenters further stated that at our
Medicare Payment Advisory direction, QIOs have been reviewing a
X. Monitoring
Commission (MedPAC) endorsed our sample of LTCH cases for admission
In the August 30, 2002 final rule (67 monitoring activity as a primary aspect appropriateness and that these reviews
FR 56014), we described an on-going of the design of the LTCH PPS. ‘‘clearly’’ show an immaterial number of
monitoring component to the new LTCH Furthermore, the Commission pursued LTCH claims denied as the result of QIO
PPS. Specifically, we discussed on- an independent research initiative that reviews. Therefore, the commenters
going analysis of the various policies led to a section in MedPAC’s June 2004 maintained that QIO review data does
that we believe would provide equitable Report to Congress entitled ‘‘Defining not support our assumption that cases
payment for stays that reflect less than long-term care hospitals’’. This study were inappropriately admitted to
the full course of treatment and reduce included recommendations that we LTCHs, but rather, QIOs are
the incentives for inappropriate develop facility and patient criteria for overwhelmingly finding that LTCH
admissions, transfers, or premature LTCH admission and treatment and that patients have appropriately been
discharges of patients that are present in we require a review by QIOs to evaluate admitted and treated in LTCHs.
a discharge-based PPS. As a result of our whether LTCH admissions meet criteria Response: We reiterate that QIO
data analysis, we have revisited a for medical necessity once the review of Medicare cases, either based
number of our original and even pre- recommended facility and patient upon the national sample or resulting
LTCH PPS policies in order to address criteria are established (70 FR 24209). In from specific appeals, presently
what we believe are behaviors by certain response to the recommendation in determine, among other things, whether
LTCHs that lead to inappropriate MedPAC’s June 2004 Report, we a patient required hospital-level care.
Medicare payments. In recent Federal awarded a contract to Research Triangle The QIO reviews presently do not
Register publications, we have proposed Institute, International (RTI), on distinguish between acute care settings,
and subsequently finalized revisions to September 27, 2004, to conduct a such as acute care hospitals paid under
the interruption of stay policy in the RY thorough examination of the feasibility the IPPS or acute care hospitals paid
2005 LTCH PPS final rule (69 FR of implementing MedPAC’s under the LTCH PPS. Therefore,
25692), and we established a payment recommendations. although the QIO review process, as
adjustment for LTCH HwHs and RTI has completed its examination of presently constituted, is a vital
satellites in the FY 2005 IPPS final rule the feasibility of implementing component of the Medicare program,
(69 FR 49191 through 49214). In section MedPAC’s recommendations in the June the role played by the QIOs does not, at
V.A.2., we revisited the payment 2004 Report to Congress, and as this time, provide a medium through
adjustment methodology established for discussed in section XI. of the preamble which we can determine appropriate
SSOs (71 FR 27845) as a consequence of to this final rule. Both Phases I and II payment policy for acute care hospital
recent data analysis and are finalizing a are posted on the CMS Web site (as patients who are admitted to an LTCH.
policy which revises one of the existing noted below). We also reproduced the However, regarding the commenters’
four alternatives under the existing SSO Executive Summary of the report in statement that the proposed rule did not
payment methodology for certain SSO Addendum B of the RY 2008 LTCH PPS target cases that are likely the result of
cases to an amount under the LTCH PPS proposed rule (72 FR 4884 through inappropriate admission and that data
that is comparable to an amount that 4886). At that time, we noted, ‘‘[t]his available to CMS clearly showed an
would otherwise be paid under the material is being reproduced as received immaterial number of LTCH claims
IPPS. from the contractors and does not denied as the result of QIO review of a
As we discuss in section X. of this represent out position or policy’’ (72 FR sample of LTCH cases, we would share
final rule, our monitoring of discharges 48181). the results of an LTCH review from FY
between acute care hospitals and LTCHs We are continuing to pursue our on- 2005. In that review, QIOs reviewed a
reveals that a significant number of going program, existing QIO monitoring statistically valid, representative
LTCHs that are ‘‘freestanding’’, that is, and studies described in the RY 2006 national sample of 1,392 LTCH claims
not co-located with other hospital-level LTCH PPS final rule (70 FR 24211), and annually for the past few years. These
providers (as defined in § 412.22(e) and our considerations of expanding the samples were utilized for calculation of
§ 412.22(h)), admit their patients from QIO role in the LTCH PPS. national payment error rates and the
one specific acute care hospital. When Comment: We received several letters sampling method has been determined
we established the payment adjustment from various Congressional delegations to be statistically sound by external
for LTCH HwHs and satellites of LTCHs that were critical of the proposed audit. While the overall numbers of
at § 412.534, we stated our concern that revision to the SSO policy and the admission denials is low due to the
these on-site LTCHs could be extension of the 25 percent threshold sample size, statistically-based
functioning as units of their host payment adjustments. The commenters projections have revealed issues relative
to inappropriate admissions, especially (NALTH), the Acute Long Term facility-level criteria for LTCHs and
admissions with short length of stays. Hospital Association (ALTHA), the believe that we have contracted with
For discharges occurring during FY AHA, and the American Medical Peer RTI to continue moving in that direction
2005, 7.9 percent of the admissions Review Association (AMPRA), as well as they begin Phase 3 of their project.
were found to be inappropriate as several of the larger LTCH chains. The reports on Phase I and Phase II of
accounting for a projected overpayment The final report submitted by RTI RTI’s work are posted on the CMS Web
of $215,073,309 annually; this summarizes these efforts and makes site. We believe that their analyses of
admission denial rate is higher than the numerous recommendations to CMS LTCHs and other provider categories
4.7 percent found for acute care regarding LTCHs. that treat LTCH-type patients provide
hospitals paid under the IPPS during As noted above, the reports on both the foundation for any future
the same time period. Of note, 72.7 Phase I and Phase II of RTI’s research development of patient level criteria.
percent of admission denials for LTCH have been posted on our Web site at We understand MedPAC’s preference
discharges occurred in claims with a http://www.cms.hhs.gov/ for patient criteria as opposed to
LOS of 25 days or less. LongTermCareHospitalPPS/ payment adjustments for the purpose of
The commenters further asserted that 02a_RTIReports.asp#TopOfPage. Please determining appropriate patients for
QIO data does not support our note that this report does not represent treatment at a LTCH. However, we
assumption that cases were our position or policy. We are currently would note that even with the
inappropriately admitted to LTCHs as a evaluating RTI’s recommendations development of patient criteria, it
result of LTCHs acting as extension sites regarding the feasibility of developing continues to be our statutory
or units of other acute care hospitals or patient and facility level criteria from responsibility, under the BBA and
patients receiving less than a full several standpoints. Most significantly, BBRA to provide for appropriate
episode of care at the acute care we have been concerned that several of adjustments and to establish regulations
hospital. However, an internal analysis RTI’s recommendations may require as may be necessary to effectively
of LOS for FY 2005 LTCH discharges statutory changes. Furthermore, even administer the Medicare program by
has revealed that over 50 percent of among those recommendations for way of implementing appropriate
stays were 25 days or less in length and action that would be accomplished on a payment policies and payment
many of those have an LOS comparable regulatory level, there are many adjustments. Therefore, even though we
to an IPPS LOS for that DRG. significant issues that require further continue our work with RTI in Phase 3
analysis. RTI is proceeding with Phase of their project to see if we can identify
XI. MedPAC Recommendations: The
III of their project and as during Phases appropriate patient and facility-level
RTI Contract
I and II, we have consistently criteria for LTCHs, we do not see the
With the recommendations of encouraged meaningful contact between development of those criteria as
MedPAC’s June 2004 Report to Congress RTI and industry stakeholders contradictory aspects to efforts we have
as a point of departure, RTI evaluated throughout this research phase of the undertaken while performing our
the feasibility of developing patient and contract. fiduciary responsibility for the Medicare
facility level characteristics for LTCHs Comment: We received a comment program. We further believe that it may
to identify and distinguish the role of from MedPAC that urged us to continue be appropriate to continue to maintain
these hospitals as a Medicare provider. working towards the development of such policies under the LTCH PPS that
RTI completed this project in two patient and facility criteria as the best guard the Medicare Trust Fund from
phases. In Phase I, RTI prepared a way to determine appropriate LTCH duplicative payments for what is one
background report summarizing existing patients particularly in light of the RTI episode of patient care, even if we are
information regarding LTCHs’ current report which included able to develop and adopt facility and
role in the Medicare system: their recommendations similar to those patient criteria for LTCHs and LTCH
history as Medicare participating originally suggested by MedPAC in its patients.
providers; the types of patients they June 1994 Report to Congress. The In the following comment and
treat; the criteria QIOs currently use to Commission noted that approaches response, we discuss our evaluation of
review appropriateness of care in these other than criteria, such as the 25 existing patient criteria currently in use
settings; and the types of regulations percent rule, ‘‘may be administratively by LTCHs, including one that was
they face as Medicare participating less complex but are more arbitrary and developed by one of the LTCH
providers. This work reviewed prior increase the risk for unintended associations.
analyses of these issues and included consequences.’’ The Commission further The Commission’s support for the
discussions with MedPAC, other suggested that we evaluate patient adoption of severity-rated DRGs for use
researchers, CMS, the QIOs, and the criteria currently in use by LTCHs and in acute care hospitals paid for under
hospital associations. continue to work with LTCH the IPPS is discussed in the FY 2008
In Phase II, RTI collected additional associations that have developed IPPS proposed rule. As discussed in that
information on tools currently used by criteria. The commenter also reiterated proposed rule, we have also proposed
the QIOs and the industry to assess the Commission’s support for severity- adopting the same severity-based DRGs
patient appropriateness for admission; rated DRGs for use in the IPPS hospitals for the LTCH PPS.
analyzed claims to understand and noted that their adoption could Finally, regarding an increasing role
differences between hospital patients reduce necessity for referrals to LTCHs. for QIOs in the LTCH PPS, we are
with outlier stays in non-LTCHs and The Commission also endorsed a larger currently developing the next Quality
those treated in LTCHs; and visited role for QIOs in the oversight of Improvement Organization Scope of
different types of hospitals to observe determinations of medical necessity, as Work. These comments will be
first-hand how LTCH patients differ well as in monitoring compliance with considered in that process.
from those in other settings and how patient and facility level criteria. Comment: Many commenters took
this pattern varies in different parts of Response: We thank the Commission issue with the payment adjustments that
the country. RTI worked with different for its thoughtful response to our we proposed in the RY 2007 LTCH PPS
associations, including the National proposed rule. We are mindful of the proposed rule that would revise the
Association of Long Term Hospitals importance of identifying patient and existing SSO policy and extend the
scope of the 25 percent threshold after meeting all of the above and hospital administrators
payment adjustment. The commenters requirements, however, we would note representing, in addition to LTCHs,
suggested that rather than issuing that while the MedPAC acute care hospitals, IRFs, and SNFs,
further regulations that do not recommendations were originally convened by RTI, all participants agreed
reasonably address our most significant published in June 2004, we were able to that LTCHs specialize in treating the
concerns with LTCHs, that we should award the contract to RTI to evaluate types of patients they admit, noting that
instead focus on developing LTCH MedPAC’s recommendations by the having a high volume of these patients
patient criteria as was suggested by start of FY 2005 (October 2004). is one of the reasons for their successful
MedPAC in 2004 and discussed in the We have included an update of RTI’s outcomes. However, it was also noted
RTI report. Several commenters further progress in each notice since that time, that these services are also provided in
contended that we have been ‘‘ignoring and we believe that an objective general acute care hospitals, particularly
MedPAC and RTI recommendations.’’ evaluation of the Phase I and II reports in ICU step-down units. So, while
One commenter stated, ‘‘In 3 years, CMS presently on the CMS Web site at LTCHs may specialize in a select group
has not implemented MedPAC http://www.cms.hhs.gov/ of patients (the more intensively ill),
recommendations.’’ Many commenters LongTermCareHospitalPPS/02a_ they are not the only providers to
questioned why we have not adopted RTIReports.asp#TopOfPage indicates successfully provide these treatments.
existing patient criteria instruments that steady progress but also demonstrates The TEP reached consensus that volume
are currently used by LTCHs, such as the thoughtful analysis resulting from was important for successful treatment
Interqual or the system developed by RTI’s high level of professionalism in of the complicated cases, regardless of
MassPRO and the National Association pursuit of our goal. site of care. TEP participants continue to
of Long Term Hospitals (NALTH). RTI’s work over the past 2.5 years has be involved in providing feedback to
Response: In responses to comments resulted in an extensive and careful RTI and another TEP is being planned
in the sections of this final rule that analysis of the Medicare populations based upon the earlier meeting and
address the SSO policy and the served by LTCHs, a comparison of these participant responses.
extension of the 25 percent (or populations with those treated in other We continue to contract with RTI to
applicable percentage) threshold acute settings, including IPPS, IRFs, and work on these issues and RTI is
payment adjustment to LTCH and Inpatient Psychiatric populations, as presently involved into the next phase
satellite discharges that were admitted well as those treated in less intensive (phase III) of their project which will
from non-co-located hospitals, we settings such as SNFs. This work include the refinement of patient
specifically address our rationale for included analysis of Medicare data to specific comparisons of total episode
issuing both of these provisions. compare patient characteristics and treatment in areas with and without
However, aside from objections to our provider costs for certain types of LTCHs. Furthermore, RTI is also
policies, it also appears as if the patients; regulatory requirements participating in the CMS-wide effort to
commenters are combining the governing program conditions of better identify patient-level differences
production of patient and facility level participation for these different types of across the various levels of care.
criteria by RTI with the end of further facilities; interviews with private sector
payment adjustments under the LTCH developers of level of care XII. Payment for Direct Graduate
PPS by CMS. Notwithstanding the determinations; and site visits and Medical Education (GME)
future development of appropriate interviews with physicians and A. GME Background
patient and facility level criteria for hospitals treating these typical and
LTCHs, it will continue to be our frequently overlapping populations. Section 1886(h) of the Act, as added
statutory responsibility under sections The results suggested that, while there by section 9202 of the Consolidated
1102 and 1871 of the Act to establish are distinctive populations with very Omnibus Budget Reconciliation Act
regulations as may be necessary to long acute care needs, there are also (COBRA) of 1985 (Pub. L. 99–272) and
adjust LTCH payments appropriately many patients whose LOS at the LTCH implemented in regulations at existing
and to effectively administer the may trigger a short stay outlier payment, § 413.75 through § 413.83, establishes a
Medicare program. suggesting their LOS was not consistent methodology for determining payments
Furthermore, we strongly disagree with an LTCH level of care need as to hospitals for the direct costs of
with statements by the above defined by longer term acute level approved graduate medical education
commenters that we have ‘‘ignored’’ the hospital care. While existing patient (GME) programs. Section 1886(h)(2) of
MedPAC recommendations, as well as criteria such as Interqual are useful for the Act, as added by COBRA, sets forth
those recently resulting from RTI’s final distinguishing between the need for a payment methodology for direct GME
report. In awarding contracts, as a hospital-level treatment and a less costs involving the determination of a
Federal Agency, we are required to intensive level, such as SNF care, RTI’s hospital-specific, base-period per
follow the protocols of the Federal analysis has determined that, in fact, the resident amount (PRA) that is calculated
contracting process that are governed by private sector criteria failed to by dividing a hospital’s allowable costs
the Office of Federal Procurement distinguish between patients at LTCHs of GME for a base period by its number
Policy (OFPP) and Health and Human and patients at acute care hospitals. The of residents in the base period. The base
Services Acquisition Regulation criteria proposed by the National period is, for most hospitals, the
(HHSAR) (5 U.S.C. 301 and section Association for Long Term Hospitals hospital’s cost reporting period
205(c) of the Federal Property and (NALTH) also had this shortcoming. beginning in FY 1984 (that is, the period
Administrative Services Act of 1949 as While they identified the intensive beginning October 1, 1983, through
amended (40 U.S.C. 486(c)) and acute care patient, they failed to identify September 30, 1984). Generally, for cost
regulations as follows: The Federal differences between their admissions’ reporting periods beginning on or after
Acquisition Regulation (48 CFR Ch. 1); clinical characteristics and those treated July 1, 1985, Medicare direct GME
FAR Supplements (48 CRFR Chs. 2–53); in a general acute care hospital step- payments are calculated by multiplying
Labor (29 CFR, 41 CFR Ch. 50, Small down unit. the hospital’s PRA by the weighted
Business Administration (SBA) 13 CFR, At a recent Technical Expert Panel number of full-time equivalent (FTE)
and OMB Circular No. A–130. Even (TEP) comprised of physicians, nurses, residents working in all areas of the
hospital (and nonhospital sites, when of the hospital (referred to as must meet to include the time spent by
applicable), and by the hospital’s ‘‘nonprovider’’ or ‘‘nonhospital sites’’) residents training in a nonhospital site
Medicare percentage of total inpatient under certain conditions. Section in its FTE count for portions of cost
days. In addition, as specified in section 1886(h)(4)(E) of the Act requires that the reporting periods occurring on or after
1886(h)(2)(D)(ii) of the Act, for cost Secretary’s rules concerning January 1, 1999 for purposes of both
reporting periods beginning between computation of FTE residents for direct GME and IME payments. Section
October 1, 1993, through September 30, purposes of direct GME payments 413.75(b) redefined ‘‘all or substantially
1995, each hospital-specific PRA for the ‘‘provide that only time spent in all of the costs for the training program
previous cost reporting period is not activities relating to patient care shall be in the nonhospital setting’’ as the
updated for inflation for any FTE counted and that all the time so spent residents’ salaries and fringe benefits
residents who are not either a primary by a resident under an approved (including travel and lodging where
care or an obstetrics and gynecology medical residency training program applicable), and the portion of the cost
resident. As a result, hospitals that shall be counted towards the of teaching physicians’ salaries and
trained primary care, and obstetrics and determination of full-time equivalency, fringe benefits attributable to direct
gynecology residents, as well as without regard to the setting in which GME. Section 413.78(e) provides that, in
nonprimary care residents in FY 1994 or the activities are performed, if the order for a hospital to be permitted to
FY 1995 have two separate PRAs: one hospital incurs all, or substantially all, count FTE residents training in a
for primary care, and obstetrics and of the costs for the training program in nonhospital setting, a written agreement
gynecology residents; and one for that setting.’’ (Section 1886(h)(4)(E) of must be in place between the hospital
nonprimary care residents. the Act, as added by section 9314 of the and the nonhospital site providing that
The Medicare, Medicaid, and SCHIP Omnibus Budget Reconciliation Act of the hospital will incur the costs of the
[State Children’s Health Insurance 1986 (Pub. L. 99–509) (OBRA 86).) resident’s salary and fringe benefits
Program] Balanced Budget Refinement Regulations regarding the treatment of while the resident is training in the
Act of 1999 (Pub. L. 106–113) (BBRA) time spent by residents training in nonhospital site. The hospital must also
amended section 1886(h)(2) of the Act nonhospital sites for purposes of direct provide reasonable compensation to the
to establish a methodology for the use nonhospital site for supervisory
GME payments were first implemented
of a national average PRA in computing teaching activities, and the written
in the September 29, 1989 final rule (54
direct GME payments for cost reporting agreement must specify that
FR 40286). In regulations adopted in
periods beginning on or after October 1, compensation amount.
that same rule at § 413.86(f)(3) (now
2000, and on or before September 30, § 413.78(c)), we stated that a hospital 2. Moratorium on Disallowances of
2005. The BBRA established a ‘‘floor’’ may count the time residents spend in Allopathic or Osteopathic Family
for hospital-specific PRAs that is equal nonprovider settings for purposes of Practice Residents Training Time in
to 70 percent of the locality-adjusted direct GME payment if the residents Nonhospital Settings, and Questions
national average PRA. In addition, the spend their time in patient care and Answers (Qs&As) on CMS Web Site
BBRA established a ‘‘ceiling’’ that activities and there is a written (Section 713 of the MMA and § 413.78)
limited the annual inflation update to a agreement between the hospital and the In order for the hospital to incur ‘‘all
hospital-specific PRA if the hospital’s nonprovider entity stating that the or substantially all’’ of the costs in
PRA exceeded 140 percent of the hospital will incur all or substantially accordance with the regulations, the
locality-adjusted national average PRA. all of the costs of the program. The actual cost of the time spent by teaching
Section 511 of the Benefits regulations at that time defined ‘‘all or physicians in supervising residents in
Improvement and Protection Act of substantially all’’ of the costs to include the nonhospital setting must be
2000 (Pub. L. 106–554) (BIPA) increased the residents’ compensation for the time compensated by the hospital. The
the floor established by the BBRA to spent at the nonprovider setting. Before amount of supervisory GME costs is
equal 85 percent of the locality-adjusted October 1, 1997, for IME payment dependent upon the teaching
national average PRA. For purposes of purposes, hospitals were not permitted physician’s salary and the percentage of
calculating direct GME payments, each to count the time residents spent time that he or she devotes to activities
hospital-specific PRA is compared to training in nonhospital settings. Section related to the residency program at the
the floor and the ceiling to determine 4621(b)(2) of the BBA revised section nonhospital site. (We note that the
whether a hospital-specific PRA should 1886(d)(5)(B) of the Act to allow teaching physician’s involvement in the
be revised. providers to count time residents spend provision of patient care is not
Section 1886(h)(4)(F) of the Act training in nonprovider sites for IME considered attributable to direct GME.)
established limits on the number of purposes, effective for discharges As long as there are supervisory GME
allopathic and osteopathic residents that occurring on or after October 1, 1997. costs associated with the nonhospital
a hospital may count for purposes of Specifically, section 1886(d)(5)(B)(iv) of training, the hospital must reimburse
calculating direct GME payments. For the Act was amended to provide that the nonhospital setting for those costs to
most hospitals, the limits are the ‘‘all the time spent by an intern or count FTE resident time spent in the
number of allopathic and osteopathic resident in patient care activities under nonhospital site for purposes of IME
FTE residents training in the hospital’s an approved medical residency program and direct GME payments.
most recent cost reporting period ending at an entity in a nonhospital setting Many hospitals have entered into
on or before December 31, 1996. shall be counted towards the written agreements with nonhospital
B. Residents Training in Nonhospital determination of full-time equivalency sites that state that the teaching
Settings if the hospital incurs all, or substantially physician is ‘‘volunteering’’ his or her
all, of the costs for the training program time in the nonhospital site, and,
1. Background in that setting.’’ In the July 31, 1998 therefore, the hospital is not providing
For purposes of direct GME payments, final rule (63 FR 41004 through 41005) any compensation to the teaching
since July 1, 1987, the statute allows at § 412.105(f)(1)(ii)(C) and § 413.78(d) physician. Other hospitals have paid
hospitals to count the time residents (formerly designated § 413.86(f)(4)), we only a nominal amount of compensation
spend training in sites that are not part specified the requirements a hospital for the supervisory teaching physicians’
time in the nonhospital setting. Because acceptable for the teaching physician to substantially all’’ of the costs of the
§ 413.78(d) requires that the hospital ‘‘volunteer’’ his or her time supervising training program in the nonhospital
must incur ‘‘all or substantially all’’ of residents at the nonhospital site, we setting by the end of the third month
the direct GME costs, including those stated that ‘‘* * *’the relevant question following the month in which the
costs associated with the teaching is not whether volunteerism is training occurs.
physician, regardless of whether the permissible, but whether there is a cost
4. Modification of the Definition of ‘‘All
written agreement states that the to the nonhospital site for supervising
or Substantially All of the Costs for the
teaching physician is ‘‘volunteering,’’ the resident training. If there is a cost,
Training Program in the Nonhospital
we have required that the hospital pay the hospital must reimburse the
Setting’’
these costs to count FTE residents nonhospital site for those costs.’’ We
training in the nonhospital site, as long further stated that we believe in We have met numerous times with
as these teaching physician costs exist. situations where the teaching physician industry representatives with the goal of
Section 713 of the MMA imposed a 1- receives a predetermined compensation developing a proposal which would
year moratorium relating to certain amount for his or her time at the respond to the concerns expressed by
nonhospital site teaching physician nonhospital site that does not vary with the teaching hospital community about
costs for the period from January 1, the number of patients he or she treats, the administrative burden associated
2004, through December 31, 2004. there is a cost for the teaching physician with determining and documenting that
During this 1-year period, we were time spent in nonpatient care direct hospitals are paying for ‘‘all or
required to allow hospitals to count FTE GME activities. In contrast, if the substantially all’’ of the costs for the
allopathic or osteopathic family practice physician’s compensation at the training in the nonhospital setting.
residents training in nonhospital nonhospital site is based solely on his Some industry representatives recently
settings for IME and direct GME or her billings, there is no cost for suggested that we could ease
payment purposes without regard to the teaching physician time spent in administrative burdens by modifying
financial arrangement between the nonpatient care direct GME activities. the requirements hospitals must satisfy
hospital and the teaching physician Accordingly, the statute continues to to meet the statutory requirement to
practicing in the nonhospital setting to require that a hospital must pay ‘‘all or incur ‘‘all or substantially all’’ of the
which the resident was assigned. substantially all’’ the costs of training costs by allowing a teaching physician
We instructed our contractors residents at the nonhospital site to to attest that at least 90 percent of the
(formerly called ‘‘fiscal intermediaries’’ count FTE residents training at that site, teaching physician’s GME time is spent
or ‘‘FIs’’) regarding the effect of section including teaching physician costs, as in patient care activities. However, we
713 of the MMA in the One-Time long as those costs exist. explained in response that the statutory
Notification (OTN), ‘‘Changes to the FY test is tied to whether the hospital has
2004 Graduate Medical Education 3. Requirements for Written Agreements incurred ‘‘all or substantially all’’ of the
(GME) Payments as Required by the for Residency Training in Nonhospital costs of the training at that site, not to
Medicare Modernization Act of 2003 Settings (§ 413.78(e)) how the teaching physician’s GME time
(MMA)’’ (CR 3071, Transmittal 61, In implementing section 1886(h)(4)(E) is spent. Therefore, we do not believe
issued on March 12, 2004). Generally, of the Act, to assist contractors in the attestation proposed by the industry
we stated in the OTN that, when settling determining whether a hospital incurred adequately addresses the statutory
prior year cost reports during this 1-year ‘‘all or substantially all’’ of the costs of requirement that the hospital incur ‘‘all
period, or for family practice residents the program in the nonhospital setting, or substantially all’’ of the costs of the
actually training in nonhospital settings we required in § 413.78(c) and (d) training program at that site. We
during this 1-year period, contractors (formerly § 413.86(f)(3) and (4)) that continue to believe that any Medicare
should allow hospitals to count there must be a written agreement policy approach to allowing hospitals to
allopathic and osteopathic family between the hospital and the count FTE residents training in
practice residents training in a nonhospital site stating that the hospital nonhospital settings for IME and direct
nonhospital setting for direct GME and will incur ‘‘all or substantially all’’ of GME payment purposes must be
IME payment purposes without regard the costs of training in the nonhospital consistent with the statutory
to the financial arrangement between setting. We later specified at requirement that hospitals incur ‘‘all, or
the hospital and the nonhospital site § 413.78(d)(2) that the written agreement substantially all’’ of the costs of a
pertaining to the teaching physicians’ must indicate the amount of training program in a nonhospital
costs associated with the residency compensation provided by the hospital setting. The statute is clearly concerned
program. For further information on this to the nonhospital site for supervisory about the cost to the nonhospital site,
provision and for a summary of teaching activities. and we believe the statute has set a
comments and responses related to this In an effort to respond to concerns priority to move resources, in terms of
provision, please refer to the FY 2005 expressed by hospitals about the both residents and funding, out into
IPPS final rule (69 FR 49176). administrative burden associated with community settings. Therefore, where
Furthermore, in response to questions meeting the written agreement there is a cost to the nonhospital setting
and concerns raised by the industry and requirements, in the FY 2005 IPPS final for training residents, we believe that
Medicare contractors as to how to rule (69 FR 49179), at § 413.78(e), we the Medicare program is obligated to
determine the costs associated with revised our regulations to allow ensure that the nonhospital settings
residency training at the nonhospital hospitals to choose to either enter into receive the funding they are entitled to
setting, as well as how and when to pay a written agreement with the receive from hospitals under the statute.
the nonhospital setting for these costs, nonhospital site before the hospital may Accordingly, we continue to believe
we posted Qs&As on the CMS Web site begin to count residents training at the that our current definition of ‘‘all or
on April 8, 2005 at http:// nonhospital site, or to pay concurrently substantially all’’ of the costs, which is
www.cms.hhs.gov/AcuteInpatientPPS/ for the cost of training at the based on the costs of the training
Downloads/nonhospQA.pdf. In the nonhospital setting. That is, in the program at the nonhospital site, is true
Qs&As, in response to the question of absence of a written agreement, to the intent of the statute. However, to
whether there are situations where it is hospitals are required to pay ‘‘all or address the industry’s concerns related
to burdensome documentation defining ‘‘all or substantially all of the substantially all’’ of the costs of the
requirements, we are establishing an costs for the training program in the program at the nonhospital site (and are
alternative methodology that hospitals nonhospital setting’’ under § 413.75(b) therefore permitted to count the FTE
may choose to use in determining and (prospectively for cost reporting periods residents training at the nonhospital site
paying for the teaching physician costs beginning on or after July 1, 2007) to for IME and direct GME Medicare
attributable to direct GME in the mean at least 90 percent of the total of payment purposes) if the hospital incurs
nonhospital sites. As we explain below the costs of the residents’ salaries and at least 90 percent of the costs of
in this section, we are revising the fringe benefits (including travel and training at that site. Under this revised
current definition of ‘‘all or lodging where applicable) and the policy, a hospital would not have to
substantially all’’ of the costs to require portion of the cost of teaching demonstrate that it has incurred the
hospitals to incur a percentage of the physicians’ salaries attributable to direct costs of the teaching physician’s time if
costs of the training program at the GME. We believe this standard is it has otherwise incurred at least 90
nonhospital site. This revision also consistent with the statute, in that percent of the nonhospital site training
generally incorporates the industry hospitals would still be required to costs by paying the residents’ salaries
representatives’ concept of a 90 percent incur ‘‘all or substantially all’’ of the and fringe benefits (including travel and
threshold, but does not specifically costs of training programs in lodging where applicable) during the
relate it to the percentage of time spent nonhospital settings, and we would time spent training at the site. However,
by the teaching physician on nonpatient expect this standard to further if the residents’ salaries and fringe
care direct GME activities, as suggested encourage hospitals to shift training to benefits (including travel and lodging
by industry representatives. nonhospital settings as intended by the where applicable) account for less than
Furthermore, as explained in more statute. Under this revised definition of 90 percent of the costs of training at the
detail below in this section, in ‘‘all or substantially all’’ of the costs for nonhospital site, the hospital would
determining whether a hospital has met the training program in the nonhospital have to compensate the nonhospital site
the 90 percent cost threshold, we are setting, we will create a 90 percent for its teaching physician costs so that
allowing hospitals to use certain threshold that hospitals must meet to the hospital is incurring at least 90
shortcuts or proxies in the place of count FTE resident time spent training percent of the training program costs at
actual cost data specific to each teaching at the nonhospital setting for IME and the nonhospital site. If the hospital does
physician at each nonhospital site. direct GME payment purposes. not meet the 90 percent threshold by
However, hospitals would always still Additionally, under the new definition, only paying for the cost of the residents’
have the option of calculating the actual hospitals will only have to incur a salaries and fringe benefits (including
teaching physician costs and the 90 minimum of 90 percent of the costs of travel and lodging where applicable),
percent threshold using actual cost data the program at a nonhospital site to the hospital would have to meet the
specific to all, or some of their count FTE resident time spent training threshold by incurring some portion of
applicable teaching physicians. That is, at the site. Furthermore, as is the case the teaching physicians’ salaries that is
even if a hospital chooses to calculate with the current definition of ‘‘all or attributable to direct GME.
the direct GME costs of a program using substantially all,’’ the new definition
will not include overhead costs. As previously stated in the Qs&As on
actual teaching physician time and cost the CMS Web site on April 8, 2005 at
data (as under existing regulations) We solicited comments on our
proposed effective date for purposes of http://www.cms.hhs.gov/Acute
rather than using the proxies, under this InpatientPPS/Downloads/
both direct GME and IME as to whether
revision, a hospital will only be nonhospQA.pdf (Answer #4), we
our proposal should be effective
required to pay at least 90 percent of the believe there are typically no costs for
immediately for portions of cost
total of the residents’ salaries and fringe teaching physician time if the
reporting periods occurring on or after
benefits (including travel and lodging physician’s compensation at the
July 1, 2007, or alternatively, for cost
where applicable) and the portion of the nonhospital site is based solely and
reporting periods beginning on or after
teaching physicians’ costs attributable to directly on the number of patients
July 1, 2007. Although an effective date
direct GME for a program at the treated and for which he or she bills,
of ‘‘portions of cost reporting periods
nonhospital site. That is, a hospital which is the case with a solo
occurring on or after July 1, 2007,’’
would no longer be required to pay 100 provides a more immediate response to practitioner. When the solo practitioner
percent of the residents’ salaries and concerns raised by teaching hospitals, is not treating patients, he or she is not
fringe benefits (including travel and we had concerns that establishing new receiving payment for any other duties
lodging where applicable), plus the policies in the middle of hospitals’ cost at the nonhospital site. Therefore, in
portion of the teaching physicians’ costs reporting periods may present some this instance, there is no cost to the
attributable to direct GME at the logistical challenges, both from an nonhospital site for the teaching
nonhospital site. Instead, a hospital will implementation and an audit physician’s time. Thus the hospital has
be required to pay for 90 percent of the perspective. Therefore, we proposed to incur only 90 percent of intern and
GME costs of a training program in a that the new definition of ‘‘all or resident salaries to meet the new
nonhospital site, and will have a choice substantially all’’ of the costs would be regulatory requirements. However, in
between two approaches for calculating effective for both direct GME and IME the case of a group practice or clinic
teaching physician’s costs. for cost reporting periods beginning on setting, the physician often receives a
Currently, ‘‘all or substantially all of or after July 1, 2007. predetermined payment amount, such
the costs for the training program in the As we explained, rather than adopt as a salary, for his or her work at the
nonhospital setting’’ is defined at the industry’s suggested standard of 90 nonhospital site. This predetermined
§ 413.75(b) as the residents’ salaries and percent of the teaching physicians’ time payment amount reflects all of his or her
fringe benefits (including travel and spent in patient care activities, which responsibilities at the nonhospital site,
lodging where applicable) and the we do not believe would be sufficiently including treating patients, training
portion of the cost of teaching true to the requirements of the statute, residents, and other administrative
physicians’ salaries and fringe benefits as a compromise, we would accept that activities (as applicable), and he or she
attributable to direct GME. We are hospitals have incurred ‘‘all or may receive that predetermined
payment from the nonhospital site as a program transmittal A–98–44 from periods beginning on or after July 1,
regardless of how many patients he or December 1998 stated that whatever 2007. As we stated in the proposed rule,
she actually treats. The predetermined reasonable amount was agreed upon by we are concerned that establishing new
amount implicitly also compensates the the nonhospital site and the hospital, policies in the middle of hospitals’ cost
physician for supervising residents. A that amount would be accepted as reporting periods would present
portion of this implicit compensation is reflecting the costs of the nonhospital burdensome technical and
the cost attributable to teaching site. administrative difficulties, both from an
activities. Under current regulations, in Response: Although some may have implementation and an audit
order to count the residents training at read our previous guidance to suggest perspective. In addition, we do not
that site, the hospital must pay the that the amount of payment for teaching believe that we have the authority to
nonhospital site this amount. However, physician costs in the nonhospital follow the commenters’ suggestions to
there may be instances in a group setting could be decided based solely implement this provision retroactively.
practice, where a teaching physician is upon negotiations between the hospital Section 1871(e)(1)(A) of the Act
not receiving a form of predetermined and nonhospital site that has not been generally prohibits the Secretary from
compensation for his or her work at the our policy. As we indicated in the making retroactive substantive changes
nonhospital site. For example, several Qs&As posted on the CMS Web in policy unless retroactive application
physicians may work in the same office site on April 8, 2005 at http:// of the change is necessary to comply
and share overhead expenses such as www.cms.hhs.gov/AcuteInpatientPPS/ with statutory requirements, or failure
electricity and rent, but there is no Downloads/nonhospQA.pdf, to the to apply the change retroactively would
sharing of revenues from patient care extent that there is a cost associated be contrary to the public interest. Only
activities. Rather, the physicians operate with teaching physicians for the in very rare cases do we apply a rule
as solo practitioners and are not residency training program at the retroactively (for example, in the wake
compensated according to some nonhospital site, according to statute of Hurricanes Katrina and Rita in 2005
predetermined arrangement. In cases and regulations, the hospital must pay where a retroactive change was clearly
such as these, we assume that the ‘‘all or substantially all’’ of the cost. in the public interest). In those
teaching physician is functioning as a Comment: Several commenters instances, we believed that the failure to
solo practitioner and that teaching requested a return to the definition of apply regulatory changes retroactively
physician costs for GME training at the ‘‘all or substantially all’’ that was in would be contrary to the public interest
nonhospital site are zero. Accordingly, place prior to 1999, which did not because hospitals affected by the
the revised policy being adopted in this include costs associated with teaching hurricanes could otherwise face
final rule would more likely be physicians in the nonhospital site. One dramatic financial hardship, which
applicable to members of group commenter specifically stated that would threaten the stability of GME
practices (or physicians in other reversing the unintended consequences
programs in the emergency area. In
arrangements) where the teaching of the previous definition change was
contrast, we do not believe that there is
physician receives a salary or other form difficult and, likewise, ‘‘Once in place,
a compelling argument that
of predetermined compensation for his the costs of reversing this new rule and
demonstrates a degree of public interest
or her work at the nonhospital site. definition would be similarly difficult.’’
Response: As explained earlier, we that would justify applying this
However, we note that under the revised proposed policy revision retroactively.
policy, in the case of solo practitioners, believe that our current definition of
hospitals must continue to pay for at ‘‘all or substantially all of the costs for Comment: Several commenters stated
least 90 percent of the total cost of the the training program in the nonhospital that they do not believe the proposed
residents’ salaries and fringe benefits, setting,’’ which includes the GME policy revision actually addresses the
including travel and lodging where portion of the teaching physicians’ real concern that the hospital industry
applicable. salary, is most consistent with the has with our current policy. These
Comment: We received several statutory language and legislative intent. commenters believe the central issue is
comments noting the commenters’ Therefore, we are not returning to the supervisory physician volunteerism in
appreciation of the efforts CMS has pre-1999 definition of that term. nonhospital settings. The commenters
devoted towards the issue of residency Comment: We received many stated that volunteerism is historically
training at nonhospital sites and the comments regarding the effective date endemic to physician education, and
belief that the proposed rule is a good for our proposed policy revision. Some therefore, hospitals should not need to
first step in further improving the commenters believe that the policy pay the costs of the supervisory
regulations regarding residency training revision should be effective for portions physician when a physician is willing to
at nonhospital sites. The commenters of cost reporting periods occurring on or volunteer as a supervisor. One
believe that by not requiring hospitals to after July 1, 2007 while others believe commenter stated, ‘‘We urge CMS in the
pay for 100 percent of the costs of that the policy revision should be final rule to issue a clear policy
training at the nonhospital site and by effective for cost reporting periods statement that volunteer status of
allowing the use of proxies, the beginning on or after July 1, 2007. One faculty will be determined by the
proposed rule may provide for commenter asked that hospitals be able hospital and nonhospital site and that
considerable administrative relief. to apply the new method to any years even physicians in group practices who
Response: We appreciate the where residents were disallowed. Other are compensated a predetermined
commenters’ support of the proposed commenters requested that the proposed amount not based on patient billings
rule. We agree with the commenters and policy revision be effective retroactively may still be volunteering their teaching
believe that the final rule will provide to previous cost reporting periods. services.’’ The commenter further stated
significant administrative relief and Response: We solicited comments that there is no cost for supervising
support the training of residents at concerning the effective date of the residents in group practices since the
nonhospital sites. proposed policy revisions. After physicians are making the same amount
Comment: Several commenters carefully considering these comments, per year regardless of whether or not the
maintained that the FY 1998 IPPS final we have decided to finalize this policy teaching physicians are supervising
rule (63 FR 40986 July 31, 1998), as well revision to be effective for cost reporting residents. Some commenters believe
that since physicians are ‘‘exempt’’ from GME costs that would need to be threshold of 70 percent was more
wage and hourly rules under labor law, incurred by the hospital. appropriate because it was more
there is no reason why the physician Comment: Generally, commenters reflective of the reimbursement amounts
and the physician’s employer could not were pleased that CMS is moving away hospitals receive from the government.
agree that the physician’s teaching from the requirement that hospitals A request was also made that the
responsibilities are undertaken need to pay 100 percent of the costs of threshold be reduced to 80 or 85
voluntarily by the physician, do not training at nonhospital sites in order to percent.
lessen the physician’s duties to the comply with the statutory mandate of Response: The statute requires
employer, and involve time besides the incurring ‘‘all or substantially all’’ of the hospitals to pay for ‘‘all or substantially
time that is necessary for the physician costs. However, many commenters feel all,’’ not just ‘‘substantially all,’’ of the
to meet fully his or her responsibilities that the threshold for ‘‘all or cost of the training program in the
to the employer. The commenters noted substantially all’’ should be further nonhospital setting. We believe that in
that the rules applicable to Federal reduced beyond 90 percent. using the term ‘‘all or substantially all,’’
government employers recognize that Commenters stated that the threshold Congress’ intention was that hospitals
volunteer time, even in the course of should be reduced to 75 percent in pay close to 100 percent of the
usual business hours, is not accordance with our interpretation of nonhospital site GME training program
compensated by the Federal government ‘‘substantially all’’ under the ‘‘Stark’’ costs (otherwise the ‘‘all’’ would add no
(http://www.opm.gov/oca/leave/html/ provisions. One commenter stated that meaning). As we described in the
volunteer2.asp). proposed rule, prior to proposing to
in addressing the ‘‘Stark’’ provisions,
revise the definition of ‘‘all or
Response: According to the statute, a ‘‘CMS requires ‘substantially all of the
substantially all’’ to mean at least 90
hospital is required to incur ‘‘all or patient care services of the physicians
percent of the total of the costs of the
substantially all’’ of the costs for a who are members of a group (that is, at
residents’ salaries and fringe benefits
training program at the nonhospital least 75 percent of the total patient care
(and travel and lodging if applicable)
setting in order to count the FTE services of the group practice members)
and supervisory teaching costs
residents training in the nonhospital must be furnished through the group
associated with direct GME, we had
setting for GME payment. There is no * * *’ ’’ In reference to whether these
received a suggestion from industry
reference in statute to other labor laws provisions conflict with the
representatives that hospitals should be
that might apply to physicians. requirements under Stark, one considered by CMS to meet the statutory
Accordingly, our proposal only commenter asked CMS to ‘‘Please mandate to pay ‘‘all or substantially all’’
addresses the issue of determining costs confirm in your commentary that a of the costs if the teaching physician can
of training programs in nonhospital reasonable attempt to comply with the attest that he or she is spending at least
settings. With regards to supervisory requirements to pay for the costs at 90 percent of his or her GME time in
physician time, we address the issue of nonhospital sites, whether it be under nonpatient care direct GME activities at
the costs to the nonhospital site for the written agreement standard or under the nonhospital site. Since the issue is
supervising the resident training. Our the concurrent payment standard, using the cost associated with that teaching
policy has been that if there is a cost, proxies or real costs, is considered by time, we did not agree with this
the hospital must reimburse the CMS to be in compliance with Stark suggestion. However, we continue to
nonhospital site for those costs. If there law.’’ The commenter further stated that believe that a standard of 90 percent of
are no costs, then no payment for if the action taken in the the total costs is an appropriate
supervisory physician time is required. aforementioned sentence is not in full interpretation of ‘‘all or substantially
Typically, there is a cost for teaching compliance with Stark law, CMS should all.’’ In response to whether a
physician time. For example, there is a make an exception under Stark for reasonable attempt to comply with the
cost to the nonhospital site when the payments to nonhospital sites where the regulations for residency training at
physician receives a predetermined payments are made to referring nonhospital sites is considered to be in
compensation amount for his or her physicians. Another commenter stated compliance with the Stark law, we
time at the nonhospital site that does that ‘‘* * * none of the key believe that provided that the rate paid
not vary with the number of patients he organizations involved in this issue to the supervising physician is fair
or she treats. In contrast, there is have recommended such a [90 percent] market value for the supervisory duties,
typically no cost for teaching physician standard. To be fair, the community did the arrangement should not be
time if the physician’s compensation at raise the question of preceptors attesting inconsistent with the Stark law. Since
the nonhospital site is based solely and to 90 percent of their time being spent both the use of proxies and actual data
directly on the number of patients with residents in patient care * * * but would be consistent with fair market
treated and for which he or she bills. we are unaware of any stakeholder value, we believe that this final policy
The most obvious example of this group that has recommended conforms with the Stark law.
situation would be a solo practitioner ‘substantially all’ be defined as 90 Comment: One commenter believes
that serves at a nonhospital site. We percent of costs in the nonhospital that we clearly stated in the proposed
note that the hospital is required to setting.’’ Other commenters requested regulations at § 413.75(b)(2),
compensate the nonhospital site for the that the threshold should be reduced to § 413.78(f)(2) and § 413.78(f)(3)(ii) that a
costs of the teaching physicians’ time 75 percent because, as one commenter hospital only has to incur 90 percent of
spent in activities in connection with an stated, ‘‘Courts have also defined teaching costs. The commenter also
approved residency training program ‘substantially all’ as being 75 percent or believes that, although not restated in
other than the supervision of residents greater in the context of corporate and proposed regulations, the 90 percent
while furnishing billable patient care securities law.’’ Another commenter threshold also applies to the
services. That is, only the costs requested that the threshold be reduced requirements in § 413.78(f)(3)(i).
associated with teaching time spent in to 60 or 70 percent because such a Response: We agree with the
activities within the scope of the GME number would provide for increased commenter that the 90 percent
program, but not in billable patient care flexibility at the local level, while threshold also applies to
activities, would be considered direct another commenter believed that a § 413.78(f)(3)(i).
Comment: Many commenters stated activities at a nonhospital site, then may choose to use, instead of actual
that members of a group practice should there is a cost associated with those costs, to calculate teaching physician
be able to attest that they are activities. If teaching physicians that are costs in nonhospital sites. Using this
volunteering and be viewed in the same members of a group practice can alternative methodology, to facilitate a
manner as CMS views solo document that their circumstances are less burdensome way for a hospital to
practitioners. Commenters also stated similar to solo practitioners in that they calculate the teaching physician costs
that it is more common for residents to receive no predetermined salary and associated with GME training at the
train in group practice settings than receive income solely from the patients nonhospital site, we are allowing
with solo practitioners. One commenter they treat and the services for which hospitals to use 3 hours per week as a
stated business agreements vary among they bill, the hospital may supply this presumptive standard number of hours
group practices and that, documentation to the Medicare that a teaching physician spends in
‘‘Compensation is based on patient contractor during audit. nonpatient care direct GME activities at
volume and, in effect, each physician is 5. Implementation of a 90 Percent Cost a particular nonhospital site. To
a solo practitioner.’’ Another commenter Threshold determine the percentage of the average
stated that for its specific nonhospital salary associated with the 3 hours the
site, there is no additional payment In revising the definition of ‘‘all or
teaching physician is presumed to
made to a physician who teaches, nor is substantially all’’ of the costs of the
spend in nonpatient care direct GME
salary removed from a physician who program at a nonhospital site, and in
activities, a hospital would divide 3
does not teach. One commenter stated establishing a 90 percent threshold,
hours by the number of hours the
that although the commenter believes there are several variables that are
important in the methodology for nonhospital site is open each week.
the proposed rule should not apply to Next, the hospital would multiply this
solo practitioners, the commenter also determining the minimum amount of
training program costs that a hospital percentage of time spent in nonpatient
believes that our logic is incorrect in care direct GME activities by the
determining why there are typically no must pay in order to count FTE
residents training in a nonhospital site. national average salary of that teaching
teaching physician costs associated with physician’s specialty to calculate the
solo practitioners and group These variables are: teaching
physicians’ salaries, residents’ salaries cost of the teaching physician’s direct
practitioners that function as solo GME time. The cost of the teaching
practitioners. The commenter stated, and fringe benefits (including travel and
lodging where applicable), the number physician’s direct GME time would then
‘‘The fact that the physicians’ be added to the costs of the salaries and
of hours per week that the teaching
compensation is derived solely from fringe benefits (including travel and
physician spends in direct GME (not
patient care revenues is not definitive in lodging expenses, where applicable) of
billable patient care) activities in the
and of itself. Rather it demonstrates that the FTE resident(s) rotating in that
nonhospital site, and the number of
the physician received no compensation program to that nonhospital site to
hours that a nonhospital site is open
for supervisory activities.’’ The determine the GME costs for that
each week. To provide the reader with
commenter further noted that, ‘‘At a program at that site. (If FTE resident(s)
a context for the new methodology, we
minimum, group practices should be are not rotating to a particular
will first explain the methodology
permitted to rebut the ‘implicit’ nonhospital site throughout a whole
briefly, provide two examples, and then
compensation presumption by proceed to an in-depth discussion of year, then the national average salary of
demonstrating that no portion of each variable (see section XII.B.5.b. of the teaching physician would be
physicians’ salaries is linked to resident the preamble of this final rule). prorated accordingly. The cost of the
supervision.’’ Another commenter residents’ salaries and fringe benefits
stated that teaching hospitals and a. Methodology (including travel and lodging where
nonhospital sites are in the best position One of the primary complaints voiced applicable) would already be reflective
to determine if there are any costs for by the hospital industry over the past of an FTE count). The hospital must pay
training residents at the nonhospital several years is that our policy requiring at least 90 percent of these total GME
site, and if so, how the costs should be hospitals to determine the portion of the costs for the program at that nonhospital
compensated. The commenter stated teaching physician cost attributable to site to count the resident(s) training
that residents gain clinical experience direct GME in the nonhospital site there for direct GME and IME purposes.
while training at nonhospital sites. results in an untenable documentation If the hospital is already paying all, or
Therefore, the costs associated with burden since many physicians are even a portion of the residents’ salaries
their training are de minimus and if the reluctant to disclose their salary and fringe benefits (including travel and
group practice decides collectively that information to the hospitals. One lodging where applicable), and if the
it is volunteering as a practice, it should solution to this problem suggested by amount that the hospital is paying for
be able to do so. the hospital industry is to use national the residents’ salaries and fringe
Response: As we have previously average physician salary information as benefits (including travel and lodging
stated in the April 8, 2005 Qs&As and a proxy for teaching physician-specific where applicable) is equal to at least 90
in the RY 2008 LTCH PPS proposed rule salaries in the determination of the total percent of the GME costs at the
‘‘* * * the relevant question is not cost of the program at a nonhospital site. nonhospital site (that is, the 90 percent
whether volunteerism is permissible, In addition, since the cost of the threshold), then the hospital would be
but whether there is a cost to the teaching physician time that the considered to be incurring ‘‘all or
nonhospital site for supervising the hospital must incur is based on the substantially all’’ of the costs, and need
resident training. If there is a cost, the amount of time the teaching physician not incur an additional amount for
hospital must reimburse the nonhospital spends in nonpatient care direct GME teaching physician compensation to be
site for those costs.’’ Therefore, if a activities, the hospital industry has been permitted to include the FTE residents
teaching physician in a group practice is concerned that determining this GME training in the nonhospital site in its
receiving a predetermined salary for his time could require burdensome time FTE count for purposes of direct GME
or her activities, and included in his or studies. Therefore, we are adopting an and IME payments. However, if the
her activities are supervisory GME alternative methodology that hospitals costs of the residents’ salaries and fringe
benefits (including travel and lodging teaching physician’s time, the hospital may lodging where applicable); the number
where applicable) does not equal at least make the following calculation: $120,000 × of hours per week that the teaching
90 percent of the GME costs of the 0.05 = $6,000. This teaching physician’s cost physician spends in nonpatient care
is added to the resident’s salary and fringe
training program at the nonhospital site, GME activities in a nonhospital site; and
benefits to calculate the cost of the training
then the hospital must incur an at the nonhospital site in the following the number of hours that a nonhospital
additional amount for teaching manner: $6,000 [cost of one teaching site is open each week.
physician costs based on the national physician] + $60,000 [actual cost of the FTE (1) National Average Physician Salary
average salary information until it is residents’ salary & fringe benefits] = $66,000. Data by Specialty
incurring at least 90 percent of the GME To meet the new definition of ‘‘all or
costs for that nonhospital site program. substantially all,’’ the hospital would be One of the foremost objections voiced
That is, under the alternative definition required to pay at least 90 percent of the by the hospital industry to our current
of ‘‘all or substantially all’’ of the costs, costs of the training program at the policy is the documentation burden
nonhospital site, which in this example associated with requesting salary
a hospital is required to incur at least 90
equals $59,400 (that is, 0.90 × $66,000). Since information from individual teaching
percent of the total GME costs for a in this case the cost of one FTE resident’s
particular program at a particular physicians in nonhospital sites.
salary and fringe benefits is $60,000, the
nonhospital site. The GME costs of a hospital could reach the 90 percent cost Hospitals believe that many teaching
particular program at a particular threshold by simply incurring the resident’s physicians in nonhospital sites are
nonhospital site consist of FTE salary and fringe benefits during training at reluctant to disclose their personal
residents’ salaries and fringe benefits the nonhospital site. salary information, yet this disclosure is
(including travel and lodging costs Example 2: Assume one teaching physician necessary to enable the hospital to
where applicable), and the portion of is supervising one FTE resident in a determine and pay the nonhospital site
nonhospital site for an entire residency year. for the actual costs of the GME program
teaching physician compensation The national average published salary
(which may be based on national in accordance with our current
amount for that teaching physician’s
average survey data) attributable to specialty is $200,000, and she works in a
regulations. One suggestion mentioned
direct GME. As will be explained in clinic that is open 40 hours per week. Using by the hospital industry as an
more detail below in this section, the the standard of 3 hours spent in nonpatient alternative to obtaining individual
hospital always has the option of care direct GME activities per week, the teaching physician-specific salary
documenting the actual teaching teaching physician spends 7.5 percent of her information is to allow hospitals to use
physician’s cost using actual time or time in GME activities (that is, 3/40 = 0.075 national average salary survey data by
or 7.5 percent). To determine the cost of the specialty. We understand that there are
salary information to pay at least 90 teaching physician’s time, the hospital may
percent of the total of the costs of the a number of organizations that conduct
make the following calculation: $200,000 × annual national surveys on physician
program at the nonhospital site. In 0.075 = $15,000. This teaching physician’s
summary, the formula for determining compensation. We proposed to allow
cost is added to the resident’s salary and
the 90 percent threshold, or the fringe benefits to calculate the cost of the hospitals to use physician compensation
minimum amount that a hospital must training at the nonhospital site in the survey data as a proxy to determine the
pay for the GME costs of a particular following manner: $15,000 [cost of one teaching physician costs associated with
program at a particular nonhospital teaching physician] + $60,000 [actual cost of GME in a program at a particular
site is: the FTE residents’ salary and fringe benefits] nonhospital site. For example, one such
= $75,000. To meet the new definition of ‘‘all national organization that collects data
0.90 × [(sum of each FTE resident’s or substantially all,’’ the hospital would be on physician compensation that we are
salary + fringe benefits (including travel required to incur at least 90 percent of the considering using is the American
and lodging where applicable)) plus the costs of the training at the nonhospital site, Medical Group Association (AMGA).
portion of the teaching physician’s which in this example equals $67,500 (that
AMGA’s 2006 Medical Group
compensation attributable to nonpatient is, 0.90 × $75,000). Since in this case the cost
of one FTE resident’s salary and fringe Compensation and Financial Survey
care direct GME activities.] was performed under contract by RSM
The portion of the teaching benefits is $60,000, the hospital has not met
the 90 percent threshold by only incurring McGladrey. Founded in 1950, AMGA
physician’s compensation attributable to the resident’s salary and fringe benefits. The (formerly the American Association of
nonpatient care direct GME activities hospital would have to incur at least an Medical Clinics) is a trade association
may be calculated as follows: additional $7,500 of the cost (that is, $67,500 which dedicates itself to making the
(3/number of hours nonhospital site is ¥ $60,000) to reach the 90 percent threshold ‘‘* * * multi-specialty medical group
open per week) × (national average to be permitted to count the FTE resident for model the preferred delivery system for
salary for each teaching physician*) IME and direct GME purposes. Alternatively, patient-centered, affordable, quality
the hospital could document the actual
* The number of teaching physicians medical care in America,’’ and
included in this formula is subject to a 1:1 teaching physician cost using time or salary
information specific to that teaching represents 283 medical groups that
resident to teaching physician limit, as include an average of 272 physicians.
explained below in this section. physician at that site, and use that amount
to calculate 90 percent of the actual training AMGA’s use of the term ‘‘medical
The following are two examples of the program costs. group’’ is based on the American
alternative methodology: Medical Association’s definition of
b. Explanation of Variables ‘‘group practice,’’ which is defined as a
Example 1: Assume one teaching physician
is supervising one FTE resident in a In the following section, we discuss group that ‘‘includes the provision of
nonhospital site for one residency year. The each variable in the methodology for health care services by three or more
national average published salary amount for determining the cost that a hospital physicians who are formally organized
that teaching physician’s specialty is must incur to count FTE residents as a legal entity governed by physicians
$120,000, and he works in a clinic that is training in nonhospital sites, and in which business, clinical, and
open 60 hours per week. Using the standard explain our rationale for employing administrative facilities, records and
of 3 hours spent in nonpatient care direct
GME activities per week, the teaching each of these variables. As stated personnel are shared and the practice
physician spends 5 percent of his time in previously, the variables are: teaching goals, objectives, and values are
GME activities (that is, 3/60 = 0.05 or 5 physicians’ salaries; residents’ salaries commonly defined. Income from
percent). To determine the cost of the and fringe benefits (including travel and medical services provided by the group
is treated as receipts of the group and is are not members of AMGA. To give cost of teaching physicians’ time
distributed according to some readers an idea of the average attributable to GME, we would make the
prearranged plan.’’ AMGA has been compensation amounts in the survey, salary information for all specialties
performing surveys like the 2006 we have randomly selected 10 accessible to hospitals on our Web site
Medical Group Compensation and specialties included in the 2006 survey and would provide it in a manner
Financial Survey since 1986. The 2006 and listed their compensation similar to Table 8.
survey was sent to over 2,600 medical information in Table 8. If we adopt the
groups, including medical groups that AMGA survey for use to determine the
TABLE 8.—PHYSICIAN SALARY INFORMATION

Mean salary Median salary
*Specialty (in dollars) (in dollars)
Cardiology ................................................................................................................................................................ 411,916 363,081

Dermatology ............................................................................................................................................................. 336,531 306,935
Family Medicine ....................................................................................................................................................... 187,891 178,366
Gynecology and Obstetrics ..................................................................................................................................... 286,418 271,273
Internal Medicine ..................................................................................................................................................... 192,264 183,840
Ophthalmology ......................................................................................................................................................... 307,044 281,112
Pediatrics & Adolescent: General ............................................................................................................................ 191,122 182,186
Physical Medicine and Rehabilitation ...................................................................................................................... 208,442 207,004
Diagnostic Radiology: Non-Interventional ............................................................................................................... 415,521 400,000
General Surgery ...................................................................................................................................................... 331,970 310,736
* This information was obtained from the 2006 Medical Group Compensation and Financial Survey published by the American Medical Group
Association (AMGA). For further information, visit AMGA’s Web site at http://www.amga.org/.
We solicited comments as to whether available to the public at no cost. (We RCEs have been relied upon by CMS
we should use the mean or median understand that a number of these and its predecessor, the Health Care
compensation amounts for purposes of surveys are proprietary.) In addition, we Financing Administration, for nearly 24
determining the teaching physicians’ solicited comments as to how to make years as its measure of the
cost. In addition, although we recognize the survey data available in the most reasonableness of physician
that there are generally geographic efficient possible manner. compensation and, thus, those amounts
variations in salary amounts within Regardless of the survey source that should be used in this regulation as
each specialty (and, although not we ultimately use, we proposed that well.’’ Furthermore, many commenters
included in Table 8, AMGA does hospitals would use the most recent stated that if we choose to use AMGA
provide some detail of salaries by survey data available as of the beginning data as its teaching physician salary
geographic area), we proposed to use the of the hospital’s particular cost proxy source, we would be requiring the
single national average or median salary reporting year. For example— use of data with values that
amount for each specialty, rather than • If residents are rotating to a ‘‘substantially exceed’’ what it considers
consider geographic variations, because particular nonhospital site to receive to be reasonable under the RCEs. Some
we want to simplify and streamline the training in family practice in a commenters view use of AMGA data,
methodology for determining the GME hospital’s cost reporting year beginning which produces physician salary
costs in nonhospital sites as much as January 1, 2008, then the hospital would amounts which are higher than RCEs as
possible. We also solicited comments use the family practice average salary being ‘‘arbitrary and capricious.’’
about whether AMGA’s salary from the most recently issued survey (in Several commenters stated that if we
information should be used, and if not, the case of AMGA, 2007) as the salary choose not to use RCEs, we should use
which other physician compensation cost of that teaching physician, even data from the AAMC’s Faculty Salary
survey (or possible mix of surveys) though that teaching physician may in Survey, which has an excellent response
would be more appropriate for this fact earn more or less than that national rate, can be made accessible to the
purpose, and whether we should average salary amount. public, and includes a ‘‘broad range of
consider additional factors such as • If the teaching physician is a specialties’’ and as reported by one
geographic variation in physician neurologist providing residents with commenter, the AAMC’s 2005–2006
salaries within each specialty. We noted neurology training in a nonhospital site survey report ‘‘* * * includes data
that we believe it is important for the in a hospital’s cost reporting year provided by all 125 accredited
organization providing specialty- beginning July 1, 2007, then the hospital allopathic medical schools in the United
specific physician compensation would use the neurology average salary States.’’
information for this purpose to be one from the most recently issued survey (in In addressing whether hospitals
that is nationally recognized as an the case of AMGA, 2006, since AMGA’s should be able to use mean or median
authoritative source. Additionally, we surveys are typically released in August) physician salary amounts in
believe the data should contain as the salary cost of that teaching determining the proxy for teaching
compensation amounts for the fullest physician. physician supervisory costs, several
range possible of specialties and Comment: Numerous commenters commenters requested that median
subspecialties, and should be issued suggested that in determining the proxy salaries be used since medians are not
annually so that hospitals will always amount for teaching physician affected by outlier data. Another
have the most current data to use in supervisory costs, hospitals should be commenter stated that since the salary
determining the teaching physician able to use CMS’s reasonable amounts in AMGA’s survey are not
costs in nonhospital sites. In addition, compensation equivalents (RCEs). One adjusted by the geographic area wage
we would prefer a survey that is commenter, specifically stated ‘‘The index, median physician salary amounts
should be used. One commenter stated use the mean or median salary point as income data for all physicians’’ (68 FR
that mean salary amounts should be the proxy for physician salary amounts. 45459). The goal in using the physician
used because using the mean salary In response to the commenters’ salary proxy to determine supervisory
would account for both range and suggestions that the proxy not be based teaching physician costs, for purposes of
frequency, while using the median on the AMGA data but rather be based determining whether a hospital has met
would only account for frequency. on salary data used to establish the statutory requirement to pay ‘‘all or
Another commenter stated that for Medicare’s reasonable compensation substantially all’’ of the costs of the
situations in which there is no salary equivalent (RCE) limits, we disagree training at the nonhospital site, is to
information available for a certain with the commenters that the RCE limits allow the hospital to use a figure that
subspecialty, we should consult with would be an appropriate measure in the reflects the physician’s actual salary
the AMA or AOA and encourage context of nonhospital site GME training without having the administrative
national data survey groups to start programs. Although RCEs are burden of determining the physician’s
tracking data for these subspecialties. appropriate as they are currently used in actual salary. Since the RCEs only exist
Some commenters suggested that conjunction with other Medicare for nine physician specialties, it would
when available, hospitals should be able payment policies, we do not believe be frequently necessary to use the
to use physician salary data that they are appropriate for use in ‘‘Total’’ category when salary
accounts for geographic variations determining a proxy for supervisory information for a specific specialty is
including variations between rural and teaching physician costs in nonhospital not available. This would be contrary to
urban areas, while other commenters sites. Currently, RCEs are only applied our goal of using a proxy which reflects
were opposed to using data that in the determination of reasonable costs the actual amount. For the reasons cited
accounted for geographic adjustments of physician compensation in the few above in this section, we do not believe
because of the potential for added remaining types of facilities paid on a RCEs are the most appropriate source of
complexity. One commenter stated that reasonable cost basis, the vast majority physician salary data to use in the
hospitals should be allowed ‘‘* * * to of which are not teaching hospitals. context of policies regarding
use a comprehensive source of locality RCEs are not applied to the costs of any supervisory teaching physician salaries
adjusted physician compensation physician compensation in teaching in nonhospital settings; and therefore,
information as a proxy for actual hospitals that are paid under the IPPS. we will not use them as proxies for
compensation in determining non- Thus, we do not believe RCE limits supervisory teaching physician costs.
hospital training costs.’’ Another would represent an appropriate proxy to In response to the request that we use
commenter stated that if we do not account for supervisory GME teaching the AAMC’s Faculty Salary Survey to
allow hospitals to account for physician costs in nonhospital settings. establish proxies for supervisory
geographic variations, we would be In addition, we note that under the RCE teaching physician costs, we question
requiring that hospitals rely on national limits, exceptions are made for the appropriateness of using the
salary data which is inaccurate and providers, such as small or rural AAMC’s data in the determination of a
make it necessary for hospitals to collect hospitals, that may have difficulty proxy since we note that several salary
their own hospital-specific data. One recruiting or retaining physicians at the amounts in the AAMC data are close in
commenter stated that since the goal of prescribed RCE level. As stated in the value to that of the RCE amounts which,
proxies was to simplify the process, August 1, 2003 Federal Register (68 FR as we explained earlier, may not fully
there should not be more than one 45459) ‘‘* * * if a provider is able to reflect total physician compensation
national salary amount for each demonstrate to the intermediary its amounts. As we explained above, we
specialty. Another commenter stated, inability to recruit or maintain believe AMGA’s survey data are
that within specialties, the commenter physicians at a compensation level extremely comprehensive and by
‘‘* * * has not identified significant allowable under the RCE limits * * * making the necessary information
regional variations, and any large the intermediary may grant an exception available on our Web site, AMGA data
variation that might exist would be to the RCE limits established under would be easily accessible to the public.
accounted for by simply using the these rules.’’ Since it may be difficult to Therefore, we are finalizing our policy
median.’’ Lastly, a commenter stated recruit and retain physicians in rural to use survey data published by AMGA
that in states such as Utah, using a nonhospital sites, we believe the use of as a proxy for physician compensation
national salary proxy amount would not RCEs as a proxy for the cost of teaching in nonhospital settings, and thus, in
account for the fact that physicians’ physician time in rural nonhospital sites determining supervisory teaching
wages are lower than in other parts of could underestimate those costs since physician costs. However, we will
the country and, therefore, if Utah used they are generally lower than market continue to monitor the various survey
the national salary proxy it would be levels, or the AMGA salary amounts. options and consider whether other data
paying more than 90 percent of the total The updated RCEs published in the sources are appropriate for this purpose.
costs of training residents at the August 1, 2003 Federal Register (68 FR Since some members of the teaching
nonhospital site. 45459), only include nine specialties. hospital community have claimed that
Response: In the RY 2008 LTCH PPS We do not believe the RCEs would collection of actual data is burdensome,
proposed rule, we solicited comments provide the best representation of we are seeking, through the use of
on what specific survey should be used specialties for purposes of establishing proxies, to make the calculation of
as a proxy source in determining proxies for supervisory teaching supervisory teaching physician costs for
supervisory teaching physician costs. physician costs in nonhospital settings. GME training at the nonhospital site as
We also requested comments on In the August 1, 2003 Federal Register, straightforward as possible. Therefore,
whether we should consider geographic we also stated, ‘‘If no specialty category we believe that for each available
adjustments and whether we should use is appropriate (for example, in specialty, only one national physician
a mean or median salary amount. We determining the reasonable cost for an salary amount should be used. Further,
appreciate the commenters’ suggestions emergency room physician), the we agree with many commenters that
regarding what survey data should be intermediary will use the reasonable this physician salary amount should not
used and whether we should use data compensation equivalent level for the be adjusted for geographic variation
adjusted for geographic variations, or ‘Total’ category, which is based on because doing so would add an
additional layer of complexity. In cases Response: We appreciate the data on our Web site, we are not
where no subspecialty salary amount is commenter’s innovative suggestion to imposing any additional cost on GME
available in the AMGA data, hospitals use ‘‘blended’’ salary amounts in training that occurs at nonhospital sites.
should use the physician salary amount determining a proxy for supervisory Since AMGA’s survey data will be
for the closest less-specialized form of teaching physician costs. However, in posted free of charge, we do not believe
that specialty. For example, as we choosing a proxy for national physician there will be any costs associated with
proposed in the RY 2008 LTCH PPS salaries, in order to determine the accessing the necessary data.
proposed rule (72 FR 4824), ‘‘* * * if teaching physician cost at the We disagree with the commenter
residents are receiving training from a nonhospital site, we believe the proxy regarding the level of physician salary
forensic pathologist, and the national should be as close to the actual salary representation in AMGA’s survey.
average salary for the subspecialty of amount as possible. Therefore, we AMGA’s survey includes a range of
forensic pathology is not included in the believe it is most appropriate for physician specialty salaries. In fact,
physician compensation survey, then hospitals to use the published AMGA because of the broad range of specialties
the hospital should instead use the specialty salary amounts in determining included in the survey we believe
national average salary for the specialty the supervisory teaching physician costs AMGA’s survey data are particularly
of pathology to determine the cost of at the nonhospital site. In response to appropriate for use to establish a proxy
that teaching physician.’’ We also agree the commenter’s request that we for teaching physician salaries and well-
with the commenters’ suggestion that maintain the option for hospitals to use suited to meet our goal to use salary
median salary amounts should be used actual physician salary information, we information that reflects physicians’
as the proxy physician salary amount note that the proposal was to add a actual salaries.
since median salary amounts would not proxy calculation as an alternative to Comment: One commenter asked
be influenced by outlier data. Therefore, hospitals documenting that they have whether a provider could use an
we are finalizing the policy to require paid the actual teaching physician costs alternative survey similar to AMGA if it
hospitals that choose to use the proxy at the nonhospital site. Hospitals always can demonstrate that the survey was
method to calculate supervisory have the option of using actual data compiled in a similar manner. Another
teaching physician costs to use AMGA’s instead of any of the proxies. We also commenter stated that in determining
median physician salary amount for the note that under our revised policy, the proxy salary amounts to be used, we
required specialty. hospitals that use actual data are should ‘‘* * * consider the approach
required to only pay 90 percent of the used by the Department of Veterans
Comment: One commenter stated that
total of the costs of the residents’ Affairs in setting salaries for its
CMS should use average compensation
salaries and fringe benefits (including physicians, notably by employing
figures for dental faculty based on
travel and lodging where applicable) multiple surveys of physician
specialty and regional variation. The
and the portion of the cost of the compensation.’’
commenter stated that the commenter Response: In response to the
would be happy to work with CMS to teaching physicians’ salaries attributable
to nonpatient care direct GME activities. commenters’ question of whether a
develop compensation figures for dental survey similar to AMGA’s could be used
Comment: Several commenters
programs. as a proxy source or a combination of
questioned the potential availability of
Response: While we appreciate the AMGA’s survey data and requested that surveys, in establishing the proxy, we
point raised by the commenter that the it be made available on our Web site. are allowing a hospital to base its
AMGA data does not apply to dental One commenter stated that AMGA determination on either AMGA survey
faculty, at this point we are unaware of charges a fee to access its data and if we data or actual physician salary amounts.
a comparable data source for dental are requiring hospitals to use AMGA However, as previously mentioned, we
faculty salaries. We will work with the data, the data, as well as information on will continue to consider the
commenter to determine whether we AMGA’s methodology should be made appropriateness of using other options
can develop proxy salary amounts for available without cost to the public on for sources of physician salary data.
supervisory dentists. CMS’ Web site. The commenter stated
Comment: One commenter suggested Determining Teaching Physicians’ Cost
‘‘* * * because the AMGA survey and
that for added administrative simplicity its methods are not freely available, In determining the teaching
in determining proxies, hospitals should providers may not easily be able to physicians’ cost, the specialty of the
be able to use ‘‘* * * two ‘blended’ analyze and concur with AMGA’s teaching physician is the relevant
supervising physician salary amounts— methodology or the amounts set forth in criterion, not the specialty of the
‘one for primary care and one for non- Table 8 * * *’’ One commenter noted residents that the teaching physician is
primary care * * *.’’ These ‘‘blended’’ that since there is a fee to access AMGA training in the nonhospital site.
salary amounts would be determined data, using that data or other similar Generally, we believe the specialty of
using the published data source. The data (which requires a fee) would be the teaching physician will be self-
commenter stated that to determine inappropriate because we would be evident, and the hospital can easily
which salaries should be included in imposing additional costs on GME. The locate the national average salary
the blends, a periodic survey could be commenter further noted (referring to information for that teaching
taken to determine the composition of AMGA’s data), ‘‘It is not clear how physician’s specialty on the survey (for
teaching physicians at each nonhospital representative of all practicing example, if family practice residents are
site. Another commenter stated, ‘‘We physicians these respondents are.’’ rotating to a dermatology practice to
would also like to recommend that the Response: We will make available any receive training in dermatology, then
CMS maintain as part of the final rule, physician specialty salary survey data the national average salary for
the provision that allows providers to that is needed to compute teaching dermatologists would be used from the
use actual teaching physician salaries physician supervisory costs available survey). However, it is possible that the
for the calculation of the recommended free of charge on our Web site. teaching physician is highly specialized
cost threshold instead of the national Additionally, we will consider posting and the average compensation for his or
average physician salary data by information on the AMGA’s survey her subspecialty is not listed in the
specialty.’’ methodology. By posting the AMGA survey we decide to use. In such a case,
we proposed that the hospital should used to determine the teaching average salary amount for Specialty X
use the immediately less-specialized physician’s cost, regardless of the should be used to determine the
form of that specialty applicable to that specific board certification that the teaching physician’s cost. If the answer
teaching physician (or the hospital may teaching physician has actually is, ‘‘to receive training in Y,’’ then the
use the physician’s actual salary received. In general, the hospital, with national average salary amount for
information). For example, if residents assistance from the GME Program Specialty Y should be used to determine
are receiving training from a forensic Director as necessary, should be able to the teaching physician’s cost, regardless
pathologist, and the national average document for the Medicare contractor of the specific board certification that
salary for the subspecialty of forensic the specialty in which the residents are the teaching physician has actually
pathology is not included in the receiving training at the nonhospital received. We believe the teaching
physician compensation survey, then site, and the national average physician physician supervisory cost should
we proposed that the hospital should compensation amount for that specialty reflect the value of the training received
instead use the national average salary used in paying ‘‘all or substantially all’’ as it relates to the training the resident
for the specialty of pathology to of the costs, as defined in this final rule. is receiving. Therefore, we are not
determine the cost of that teaching Comment: A commenter stated that adopting the commenter’s suggestion to
physician. We believe this is the the specialty of the resident and not of use the physician salary of the specialty
simplest method of assigning a national the teaching physician should be used program of the resident regardless of the
average physician compensation in determining the specific salary proxy. specifics of the training received.
amount in the instance where the The commenter provided the example
that a cardiologist will teach an internal Multiple Teaching Physicians and
teaching physician’s actual subspecialty Residents: 1:1 Resident to Teaching
is not included in the survey. However, medicine resident what he or she is
required to know regarding heart Physician Ratio
we solicited comments as to whether it
is possible or appropriate to use survey disease and the cardiovascular system We understand that it is not unusual
data from other sources in the event that as an internist and not a cardiologist. for several residents in the same
data is not available from the particular The commenter further requested that program to rotate to a particular
survey source. we ‘‘* * * clearly state that proxy nonhospital site at the same time, and
salaries for subspecialty physicians be supervised by one teaching
In addition, although it may not be a physician, or for residents to be
originally trained in the specialty of the
common occurrence, it is possible that residents they are teaching be set to the supervised by several teaching
residents could be receiving training in salary of specialists in the residents’ physicians during their time at that
a nonhospital site from a teaching field regardless of the certification status nonhospital site. In determining the
physician that is board certified in more of the faculty person.’’ total costs of the training program at the
than one specialty, but the residents are Response: In response to the nonhospital site, it is necessary to
only receiving training in one of the commenter’s request that the specialty consider all of the residents’ salaries
specialties in which the physician is of the resident be used in determining and fringe benefits (including travel and
board certified. In this case, we the supervisory teaching physician cost, lodging where applicable), and the
proposed that the national average we stated in the proposed rule * * * teaching physicians’ national average
salary that should be used to determine that the national average salary that salaries. However, to maintain
the teaching physician’s cost should be should be used to determine the administrative simplicity, we are
the one for the specialty in which the teaching physician’s cost should be the allowing hospitals to apply a maximum
teaching physician is training the one for the specialty in which the of a 1:1 resident-to-teaching physician
residents. For example, if residents are teaching physician is training the ratio ‘‘limit’’ in determining the total
being supervised by a cardiologist who residents.’’ For example, if a resident GME costs applicable to a program at a
is board certified in internal medicine happens to be supervised by a physician nonhospital site. For example, if at the
and cardiology, but the residents are who is board certified in internal nonhospital site there are two teaching
training with him or her specifically to medicine and cardiology, but the physicians and one FTE resident, the
learn internal medicine, then we resident is training with him or her hospital may determine 90 percent of
proposed that the hospital should use specifically to learn general internal the total costs of the program using a 1:1
the national average salary for internal medicine, then we proposed that the resident-to-teaching physician ratio, not
medicine, and not cardiology, to hospital should use the national average a 1:2 resident-to-teaching physician
determine the teaching cost of that salary for internal medicine, and not ratio. The 90 percent threshold would
physician. That is, in instances where cardiology, to determine the teaching be based on the total cost of the one FTE
the residents are receiving training at a cost of that physician. However, if the resident (salary and fringe benefits, and
nonhospital site from a teaching internal medicine resident is at the travel and lodging where applicable)
physician that is board certified in more nonhospital site to receive cardiology and one teaching physician (national
than one specialty, and it is unclear training as part of his or her 3-year average salary for the specialty
which specialty to use for purposes of internal medicine program, the salary multiplied by the percentage of time
assigning a national average salary to for cardiologists should be used. In spent in nonpatient care direct GME
that physician, we proposed that the instances where the residents are activities). Similarly, if a hospital
question for the hospital to ask is, why receiving training at a nonhospital site rotated 3 FTE residents in the same
are the residents training with that from a teaching physician that is board program to a particular nonhospital site
physician? If the answer is, ‘‘to receive certified in more than one specialty, and with 7 physicians, unless the hospital
training in Specialty X,’’ then the it is unclear which specialty to use for documents otherwise, we would assume
national average salary amount for purposes of assigning a national average that all 7 physicians supervise the
Specialty X should be used to determine salary to that physician, we proposed residents at some point during the
the teaching physician’s cost. If the that the question for the hospital to ask training, but, for purposes of
answer is, ‘‘to receive training in is, why are the residents training with determining the 90 percent threshold,
Specialty Y,’’ then the national average that physician? If the answer is, ‘‘to we assume that there are only 3 FTE
salary amount for Specialty Y should be receive training in X,’’ then the national residents being supervised by 3 teaching
physicians. Accordingly, the 90 percent physician salaries for the training Response: We proposed to adopt the
threshold would be based on the total program at that site ($405,143 × 3 = 1:1 ratio so that there would be an upper
cost of the 3 FTE residents’ salaries and $1,215,429). The hospital would then limit on the number of physicians that
fringe benefits (including travel and multiply $1,215,429 by the percentage are supervising residents in the
lodging where applicable) and 3 of time spent by the teaching physicians nonhospital site. We believe that use of
teaching physicians (national average in nonpatient care direct GME activities a 1:1 ratio greatly reduces the cost a
salaries for the specialties multiplied by (that percentage is 3 hours divided by hospital would have to pay when there
the percentage of time spent in the number of hours the practice is open is actually a higher teaching physician
nonpatient care direct GME activities). during a week) to determine the to resident ratio. For example, if two
(In addition, we note that the 1:1 limit teaching physician GME cost for the teaching physicians were supervising
may be applied to FTE fractions, as training program at that site. This one resident, in the absence of the 1:1
well. That is, if in the preceding teaching physician cost is then added to ratio, the costs for both of those teaching
example, 3.5 FTE residents were being the salaries and fringe benefits physicians would be included for
supervised by 7 physicians, the 90 (including travel and lodging where purposes of making the ‘‘all or
percent threshold would be determined applicable) of the 3 FTE residents to substantially all’’ calculation. Thus,
based on the costs associated with a determine the GME cost of the program hospitals could be required to pay
resident-to-teaching physician ratio of at that practice, and the hospital must significantly more of the physician
3.5:3.5.) ensure that it incurs at least 90 percent salaries if the teaching physician to
In the case of multiple teaching of that GME cost to count the 3 FTE resident ratio is not capped at 1:1. The
physicians, we must also consider that residents training at the nonhospital 1:1 cap does not apply to the number of
a particular nonhospital site may be site. residents (and thus the resident salary
We note that, as we indicated above and fringe benefit calculation).
staffed by physicians in different
in this section, if there are several Therefore, where there is one teaching
specialties. For example, an orthopedics
physicians in a nonhospital site, we physician training three residents, the
practice may include orthopedists and
would assume that they all supervise hospital would calculate teaching
radiologists. In this case, we would still
the residents at some point during the physician costs using one teaching
maintain the 1:1 resident-to-teaching
residents’ training. However, it may be physician salary and all three of the
physician limit, even if the teaching
that in fact only some of the physicians residents’ salary and fringe benefit data.
physicians are in different specialties, actually supervise the residents, while In response to the commenters’ request
unless the hospital can document that other physicians are not involved in the that we advise what type of
the number of physicians actually training program at all. The hospital documentation hospitals need to submit
teaching the residents is less than the may wish to document that only certain to show that only certain teaching
number of FTE residents training at that physicians are involved in the training physicians are supervising residents, the
nonhospital site. Once the number of program (to more accurately represent hospital should have the teaching
teaching physicians is established, the the structure and costs of the training physicians that were not involved in the
hospital would determine the national program in a particular nonhospital training submit documentation at the
average salary for each of those teaching site). Such documentation would end of the rotation or by the end of the
physicians from the national survey increase the number of residents relative applicable academic year (June 30) to
data, and then calculate the average to teaching physicians that is used to indicate that they were not involved,
national salary of the mix of physician calculate the teaching physician costs. either directly, or indirectly, with the
specialties in the practice to be used in That is, using the example above where education of residents in their practice.
computing the 90 percent threshold. For the resident-to-teaching physician limit Alternatively, those physicians involved
example, assume that 3 FTE residents was presumed to be 3:3, since there in the training can be identified in the
are rotating to an orthopedic surgery were actually 3 FTE residents and 7 written agreement, or the hospital may
practice staffed by a total of 7 physicians, if the hospital can document submit contemporaneous
physicians; 4 are orthopedic surgeons, that only 2 physicians supervised the documentation from the GME program
and 3 are diagnostic radiologists. Again, residents (and the other 5 physicians director specifying which physicians
unless the hospital documents were not involved in the GME program were involved in supervising the
otherwise, we would assume that all 7 at all), then the resident-to-teaching residents.
physicians supervise the residents at physician ratio would be 3:2. As a
some point during their rotation to this result, the hospital might be required to (2) Residents’ Salaries and Fringe
practice. First, the hospital would incur less teaching physician costs, if Benefits
access the national average salary for any, to meet the 90 percent threshold. The second variable in our
orthopedic surgeons (assume $400,000), Comment: One commenter stated that methodology for determining the costs
and the national average salaries for in using a 1:1 ratio in determining the of a program at a nonhospital site is the
diagnostic radiologists (assume 90 percent threshold, it is unlikely that salaries and fringe benefits (including
$412,000). Then, the hospital would a hospital will meet the 90 percent travel and lodging where applicable) of
calculate the average salary for these threshold because physician salaries are the FTE residents that are rotating to a
physicians as follows: [($400,000 × 4) + quite a bit higher than resident salaries particular nonhospital site. We
($412,000 × 3)]/7 = $405,143. Next, the and fringe benefits particularly among understand that since the salaries and
1:1 resident-to-teaching physician ratio specialties. Commenters also asked fringe benefits (including travel and
would be applied, such that for what documentation we are requiring to lodging where applicable) of most
purposes of determining the 90 percent show that only certain teaching residents are already paid by hospitals
threshold, there would be 3 FTE physicians at nonhospital sites are (either directly, or by reimbursing
residents and 3 teaching physicians. supervising residents. One commenter another entity such as a medical
Since the 3 teaching physicians are not asked that we confirm that this school), the portion of the actual cost of
in the same specialty, the hospital information should be provided after the residents attributable to training in
would multiply the average salary cost the resident rotation to the nonhospital the nonhospital setting can be easily
of $405,143 by 3 to get the total teaching site has occurred. identified and documented by a
hospital. Therefore, as under existing fringe benefit amount as a means of normally incurred when the resident
regulations, in determining the 90 simplifying the proposed methodology trains at or nearby the hospital, such as
percent threshold for a particular and to provide administrative relief for commuting and living expenses, would
program at a specific nonhospital site, hospitals. not be applicable.
the hospital must use the actual cost of Response: In the RY 2008 LTCH PPS
proposed rule, we stated that we would (3) The Number of Hours Spent in
each FTE resident’s salary and fringe
allow a hospital to use physician Nonpatient Care Direct GME Activities
benefits (including travel and lodging
compensation survey data as a proxy to in a Week and the Number of Hours
where applicable). In addition, the cost
determine the teaching physician costs That the Nonhospital Site is Open in a
of the residents will vary by specialty
associated with a program at a particular Week
and by program year. Furthermore, as
with current policy, the total residents’ nonhospital site. We proposed to allow The third variable used in the
costs will be based on the FTE number the hospital to use a proxy amount determination of the costs of a training
rotating to a particular nonhospital site because hospitals stated that the program at a nonhospital site is the
in a cost reporting period, not the existing regulation was administratively amount of time that the teaching
number of individuals actually training burdensome since many teaching physician(s) spends on direct GME
in a nonhospital site. physicians in nonhospital sites are (nonpatient care) activities in a week.
Comment: Several commenters reluctant to disclose their personal As we first explained in the July 31,
requested that we specify what is salary information. We proposed this 1998 Federal Register (63 FR 40987),
included in resident salaries and fringe policy because teaching physicians in a and more recently in the August 8, 2005
benefits. Several commenters also nonhospital site may not be employed Qs&As posted on the CMS Web site at
requested that we specify that resident or paid by the hospital, and hospitals http://www.cms.hhs.gov/
malpractice insurance is included in indicated they had great difficulty AcuteInpatientPPS/Downloads/
resident fringe benefits. establishing the teaching physicians’ nonhospQA.pdf, determination of the
Response: It is not our intent to cause salaries and the portion of the cost teaching physician costs to the
hospitals to modify their human attributable to the nonpatient care direct nonhospital site is dependent upon the
resources policies regarding residents’ GME activities of the teaching teaching physician’s salary and the
salaries and fringe benefits. Hospitals physicians. percentage of time he or she devotes to
should maintain their definition of In contrast, we believe resident salary activities related to non-billable direct
residents’ salaries and fringe benefits and fringe benefits amounts are more GME activities at the nonhospital site
that was in place prior to the RY 2008 readily available to hospitals since they (such as conferences, practice
LTCH PPS proposed rule. Hospitals ordinarily pay these costs directly. management, lectures, and
should not include resident malpractice Because hospitals have ready access to administrative activities like resident
insurance or other costs in residents’ this data, we believe it is appropriate evaluations). Hospitals and teaching
fringe benefits solely for the purpose of that hospitals use the actual costs of physicians have protested that
increasing the total cost of residents’ resident salaries and fringe benefits for documenting the percentage of time that
salaries and fringe benefits and the calculation of the 90 percent teaching physicians spend on activities
minimizing the portion of teaching threshold, rather than some sort of relating to nonpatient care direct GME
physician costs they have to pay. proxy. activities at the nonhospital site is an
Furthermore, we note that historically, The commenter is correct that to onerous and impractical task. In an
malpractice costs were not to be calculate the actual resident salary and effort to eliminate the documentation
included in the intern and resident cost fringe benefits amounts, hospitals will burden on physicians of keeping track
center on the cost report. Accordingly, have to take into account the actual of the amount of time they spend in
malpractice costs should not be salary and fringe benefits for each FTE nonpatient care direct GME activities in
included as a fringe benefit in the resident that trains in the nonhospital the nonhospital site, rather than require
calculation of the 90 percent threshold. site, which may vary by resident. teaching physicians to estimate the
Comment: One commenter was Comment: Several commenters number of hours per week that they
concerned about our requirement that a inquired about which travel and lodging spend in such activities with or on
hospital must use the actual costs of expenses should be considered as behalf of the residents, we proposed an
each FTE resident’s salary and fringe applicable to direct GME in the alternative option that hospitals may
benefits as one of the variables under nonhospital site. choose to use to determine the
the proposed methodology for Response: Residents’ fringe benefits percentage of the teaching physician’s
determining the minimum amount that (including travel and lodging where time that is spent in nonpatient care
a hospital must pay to count FTE applicable) are considered a part of ‘‘all direct GME activities. This option is an
residents training in a nonhospital site. or substantially all of the costs for the administrative shortcut or a proxy,
The commenter stated that under our training program in the nonhospital rather than continuing to require in all
current policy, a hospital only needs to setting.’’ The only travel and lodging cases that the hospital must document
know in general that it incurred the costs that are applicable are the and pay for the actual costs of a training
costs of residents’ salaries and fringe additional travel and lodging costs that program at a nonhospital site. However,
benefits, but need not know the actual a hospital incurs due to the fact that a a hospital always has the option of
amounts paid; whereas under the resident is training at a nonhospital site. documenting and paying for at least 90
proposed methodology, a hospital For example, if a resident needs to percent of the costs of a program at a
would have the significant travel long distance to another part of nonhospital site using the teaching
administrative burden knowing the the state, and is staying in a hotel for the physician’s actual salary and
precise program year and corresponding duration of the nonhospital site training, information on the time spent in
salary and fringe benefits amount for the costs of the traveling and nonpatient care direct GME activities.
each resident that trains in the accommodations would be costs that the Under the proxy methodology, we
nonhospital setting. The commenter hospital must incur and include in the would apply a presumed standard
suggested that we allow hospitals the determination of the 90 percent number of hours spent by teaching
option of using an average salary plus threshold. However, expenses that are physicians in nonpatient care direct
GME activities in every nonhospital site. the nonhospital site. As previously physician(s) in nonpatient care direct
Specifically, we proposed to use a stated, hospitals always still have the GME activities throughout the year at
standard of 3 hours per week spent in option of calculating teaching physician that site is 3⁄40 = 0.075 or 7.5 percent.
nonpatient care direct GME activities by costs and the 90 percent cost threshold (If FTE residents rotate to that
teaching physicians. The 3 hour using actual data (as under current nonhospital site for only a portion of a
standard would be used in all cases in regulations) specific to the number of year, then the ratio of 3⁄40 would be
the formula for determining the teaching hours the teaching physician spends per further multiplied by the percentage of
physician costs at all nonhospital sites, week on nonpatient care direct GME the year that the FTE residents train
regardless of the specialty of the activities at the nonhospital site. For there. For example, if the FTE residents
residents or the number of teaching example, if a hospital can document only rotate to this nonhospital site for 3
physicians or residents training at that that a teaching physician actually months of the year, then the percentage
nonhospital site. Although some spends 1.5 hours per week on of time that the teaching physician(s)
hospital industry representatives have nonpatient care direct GME activities at spends on nonpatient care direct GME
stated that the amount of time spent by the nonhospital site, then the hospital activities at that site equals (3⁄40 × 0.25
teaching physicians in nonpatient care may use 1.5 hours per week in = 0.019 or 1.9 percent). Similarly, if FTE
direct GME activities in nonhospital calculating the teaching physician cost residents rotate throughout the year to a
sites is ‘‘de minimus,’’ and, therefore, and the 90 percent cost threshold. nonhospital site that is open 50 hours
there is typically little if any teaching We proposed to use the standard of 3 per week, then the percentage of time
cost to the nonhospital site, we believe hours of nonpatient care direct GME spent by the teaching physician(s) in
there is also evidence indicating that in activities per week as the proxy nonpatient care direct GME activities
many cases the teaching physician is regardless of the number of FTE throughout the year is 3⁄50 = 0.06 or 6
spending a significant amount of time residents the teaching physician is percent. We recognize that the teaching
with or on behalf of the residents in supervising because we believe that physician(s) may not spend 100 percent
nonpatient care direct GME activities. when the number of FTE residents at a of his or her time in that nonhospital
We believe the standard of 3 hours of nonhospital site increases, the teaching site. In fact, many teaching physicians
nonpatient care direct GME activities physician time associated with those spend some of their week working in a
per week is a reasonable proxy based on FTE residents in many instances will hospital or other facilities. However, we
data collected from surveys conducted increase by only a small multiple. For believe that deriving the true amount of
by the Association of American Medical example, a teaching physician would time spent by each teaching physician
Colleges (AAMC), the American provide a lecture to the residents in each nonhospital site in nonpatient
Osteopathic Association (AOA), and the together, rather than separately lecturing care GME direct GME activities would
Academic Family Medicine Advocacy each FTE resident who is training at the involve the imposition of another form
Alliance (AFMAA), in addition to nonhospital site. Accordingly, the time of the documentation burden that the
information compiled from our own spent by the teaching physician in hospital industry and teaching
informal surveys of teaching physicians. nonpatient care direct GME activities physicians have found onerous up to
may increase only slightly with each this point. This methodology eliminates
In September 2005, in response to a additional FTE resident being
request by CMS, the AFMAA, AOA, and the need for any time studies and it is
supervised. easy to gather the information needed.
AAMC conducted informal surveys to While we proposed to use the
determine the amount of time spent in standard number of hours spent by We also acknowledge that the
nonpatient care direct GME activities by teaching physician(s) in nonpatient care proposal to use the number of hours that
teaching physicians in nonhospital direct GME activities across all training a particular nonhospital site is open as
sites. In the survey results shared with occurring at all nonhospital sites (that a proxy in the denominator for
CMS by these associations, we received is, 3 hours per week), we are determining the percentage of time
a range of hours for the amount of introducing a fourth variable in the spent by the teaching physician(s) in
teaching physician time spent per week determination of the cost of a training nonpatient care direct GME activities
in nonpatient care direct GME activities program in a nonhospital site that will could, in some extreme instances, result
at the nonhospital site. Such nonpatient vary depending on the specific in an unusually high percentage of
care GME time included time spent by nonhospital site. This fourth variable is teaching time, which, in turn, would
the teaching physician in training the number of hours that a nonhospital result in a determination of unusually
activities when the patient was not site is open each week. Since only a high teaching costs. This is so because,
present and time spent in administrative percentage of the teaching physician’s since 3 hours is a constant in the
activities related to the GME program. salary is attributable to direct GME numerator, the fewer the number of
The surveys showed means ranging activities, and that percentage is based hours the clinic is open (the
from 1.1 to 4.0 hours per week and on time he or she devotes to activities denominator), the greater the calculated
medians of 1.5 to 4.0 hours per week for related to non-billable direct GME percentage of time spent by the teaching
time spent on residency training when activities at the nonhospital site, we are physician in nonpatient care direct GME
patients were not present. The surveys determining this percentage by dividing activities. To use an extreme example, if
also showed means ranging from 1.6 to the standard number of hours spent in a clinic is only open 10 hours a week,
4.7 hours per week and medians of 0 to nonpatient care direct GME activities by then 3⁄10, or 30 percent of the national
2 hours per week for time spent on the number of hours the specific average salary for the teaching
administrative activities related to nonhospital site is open each week. We physician’s specialty would represent
residency training at the nonhospital proposed that the numerator will always the teaching physician’s cost that would
site. Given the range of survey results, be 3 hours, and the denominator will be used to determine 90 percent of the
we believe that 3 hours per week serves vary depending on the nonhospital site. costs of the program at the clinic.
as a reasonable number to use as a For example, if FTE residents rotate However, we believe that, for most
shortcut or a proxy for determining throughout the year to a nonhospital site nonhospital training situations, this
teaching physician time spent in that is open 40 hours per week, then the revision to use the 3 hour standard and
nonpatient care direct GME activities at percentage of time spent by the teaching the number of hours the nonhospital
site is open per week is a reasonable the nonhospital site, then the hospital $182,000. After applying the 1:1
alternative to the current procedures for must pay an additional amount toward resident-to-teaching physician limit,
determining the actual teaching the teaching physician costs until it is there are 3 FTE residents to 3 teaching
physician’s cost because these proxies paying at least 90 percent of the GME physicians (again, absent specific
are easily obtainable, discrete numbers costs for that program. We believe our documentation provided by the
that do not necessitate any time studies. revised policy is relatively simple, easy hospital). Thus, the GME cost of the 3
Nevertheless, we solicited comments on to administer, and eliminates the teaching physicians is calculated as
alternative proxies that might be documentation burdens cited by the follows: ($181,400 × 3) × (3 hours/50
appropriate to use in the place of the industry as being associated with the hours) = $32,652. This teaching
ratio of 3 hours to the number of hours current policy. However, we note again physicians’ cost of $32,652 is added to
a nonhospital site is open per week. We that even under our revised policy, a the residents’ cost of $182,000 to arrive
also note that in the event that this hospital is not precluded from choosing at the total cost of the training program
methodology for calculating teaching to calculate and pay 90 percent of the at the nonhospital site of $214,652. To
physician costs in a particular teaching costs of a program in a meet the definition of ‘‘all or
nonhospital site results in an unrealistic nonhospital site in accordance with the substantially all,’’ the hospital would be
amount, we reiterate that a hospital existing policy requirements. That is, required to pay at least 90 percent of the
always has the option of determining the hospital may still choose to costs of the training program at the
and paying at least 90 percent of the document the actual teaching physician nonhospital site, which in this example
GME costs using actual physician salary cost using actual time and salary equals $193,187 (that is, 0.90 ×
and teaching time information, for all, information from the teaching $214,652). Since in this case the cost of
or some of its training programs physician(s) to determine what the true the 3 FTE residents’ salaries and fringe
occurring in nonhospital settings. In direct GME costs are at that nonhospital benefits is $182,000, the hospital would
fact, a hospital may choose to use a site. Once the hospital calculates the not reach the 90 percent cost threshold
combination of actual information and actual direct GME costs, it would only by simply incurring the costs associated
proxy information for determining the be required to pay at least 90 percent of with the residents. The hospital must
teaching physician cost. For example, a the actual direct GME costs, consistent pay at least an additional $11,187 (that
hospital may choose to use actual with our definition of ‘‘all or is, $193,187¥$182,000) to meet the 90
physician salary information instead of substantially all of the costs for the percent threshold and satisfy the
the national average survey data, but use training program in the nonhospital requirement to pay ‘‘all or substantially
the 3 hour standard and the number of setting.’’ all’’ of the costs of the family practice
hours the nonhospital site is open per The following is an additional program at the FMC.
week to determine the percentage of example of the application of the
methodology: Comment: One commenter, the
time spent on teaching activities, or vice Association of American Medical
Example: For the July 2008 through
versa. Furthermore, we reiterate that Colleges (AAMC), noted that in the
June 2009 academic year, a hospital
under the new definition of ‘‘all or proposed rule, we stated that ‘‘the
with a family practice program sends 3
substantially all,’’ even if a hospital standard of 3 hours of nonpatient care
FTE residents (in different program
chooses to document the teaching GME activities per week is a reasonable
years) to train at the Family Medicine
physician cost using actual teaching proxy based on data collected from
Center (FMC), a nonhospital site. The
physician-specific information, the surveys conducted by the Association of
hospital’s cost reporting period began
hospital need only incur 90 percent of American Medical Colleges (AAMC),
on January 1, 2008. The FMC is staffed
the residents’ salaries and fringe by 5 physicians, all of whom supervise the American Osteopathic Association
benefits (including travel and lodging the residents at some point during the (AOA), and the Academic Family
where applicable), and the portion of year. Four of the physicians are family Medicine Advocacy Alliance (AFMAA),
the teaching physicians’ salaries practitioners, and 1 physician is a in addition to our own informal surveys
attributable to direct GME, and not 100 psychiatrist. The FMC is open for 50 of teaching physicians’’ (72 FR 4826).
percent of those costs. hours per week. To determine the cost The AAMC commented that they would
Under our revised policy, 90 percent of the teaching physicians, the hospital ‘‘like to clarify that the AAMC did not
of the GME costs for a particular refers to the most recent national provide CMS with survey data.’’ The
program at a particular nonhospital site average salary amounts on the national AAMC indicated that we may have been
would be the minimum amount that a survey published prior to January 1, confused on this issue because the
hospital must pay to count the FTE 2008, which is the 2007 survey. Assume surveys were presented to CMS in a
resident(s) training at that site for direct that the national average published meeting in which representatives of the
GME and IME purposes. If the hospital salary amount for family practice is AAMC were in attendance, and they
is already paying the resident’s salaries $180,000, and the national average noted that AAMC staff provided some
and fringe benefits (including travel and published salary amount for psychiatry input to the survey questions. A
lodging where applicable), and if the is $187,000. Since there are multiple commenter said that we were correct to
costs of the resident’s salaries and fringe physicians in different specialties describe the surveys as ‘‘informal’’ (72
benefits are equal to at least 90 percent (absent specific documentation FR 4826), since these surveys were
of the total GME costs at the nonhospital provided by the hospital), the average developed and conducted by AOA and
site (that is, the 90 percent threshold), salary of one FMC physician is AFMAA policy staff who, due to time
then the hospital is paying ‘‘all or calculated as follows: [($180,000 × 4 constraints, did not consult with
substantially all’’ of the costs in family practice physicians) + ($187,000 persons who have expertise in survey
accordance with our definition, and × 1 psychiatrist)]/5 = $181,400. Since development. Another commenter
need not pay an additional amount for the residents are on the payroll of the stated that any data collected by CMS
teaching physician compensation to hospital, the hospital knows that the informally and used as the basis for a
count the FTE residents. However, if the total actual cost of the 3 FTE residents’ regulation should be available to the
hospital is paying less than 90 percent salaries and fringe benefits (including public. A commenter referred to the
of the costs of the training program at travel and lodging, if applicable) is limitations to the data that the AFMAA
noted when it submitted its survey data Response: We regret that we the amount shown in the surveys (since
to CMS, and questioned why CMS inadvertently misattributed the surveys the surveys were conducted prior to the
would use such ‘‘extremely flawed’’ in part to the AAMC. The AAMC is issuance of our clarification regarding
data, when anecdotal evidence suggests correct that we believed they did have didactic activities), we believe this
that any time greater than one hour per a role in conducting the surveys, but might be true. We acknowledge that the
week spent in didactic training is ‘‘way based on their comments, we availability of Medicare GME funding is
out of line with actual circumstances.’’ understand that their role was limited to certainly an important factor in a
Commenters enlisted a professor from providing some input into the survey hospital’s decision to rotate (or not
the Department of Economics at Hunter questions. We acknowledged that the rotate) residents to nonhospital settings.
College in New York, to analyze the surveys conducted by CMS, the However, we also recognize there are
survey data and opine as to whether the AFMAA, and the AOA respectively other significant factors that hospitals
survey responses provide a valid source were informal, and we understood that must consider in making residency
for establishing a national proxy. The persons with expertise in survey rotation decisions, such as the
professor expressed concerns about the development were not necessarily requirements of accrediting
data provided to CMS, stated that the consulted due to time constraints. In organizations (like the ACGME or the
data are extremely limited and light of these considerations, we AOA), and local health ‘‘outreach’’
questionable and should not form the carefully reviewed the analysis of the initiatives. Thus, we are skeptical that
basis of public policy, and suggested surveys provided by the professor from hospitals’ longstanding rotational
that CMS conduct its own rigorous Hunter College. We agree that it is models would shift so dramatically and
study to identify the best proxy. The inappropriate to apply a proxy of 3 in such a short period of time due to
professor’s analysis also recommended hours to one nonhospital site if the clarification of the agency’s policy
that in the meantime, if CMS wishes to residents only rotate to that nonhospital regarding the time that residents spend
make a decision based on the AOA and site for a portion of the week. As we in didactic activities. Further, the
AFMAA survey, a proxy that is better explain further below in response to the commenter is raising a point that can be
supported by the current survey is 2 comments we received about prorating made about any survey which captures
hours. the teaching physician’s cost, in this data as of a certain period of time, and
Some commenters also asked that final rule, we are allowing hospitals to cannot necessarily be used to predict
CMS consider that the surveys were prorate the teaching physician’s costs to future scenarios. However, we may re-
conducted prior to the issuance of the reflect the FTE time spent by the evaluate the use of the 3-hour per week
FY 2007 IPPS final rule in which CMS residents in a program at each standard, possibly in conjunction with a
clarified that time spent in nonpatient nonhospital site. Since we have heard new survey, in the future if appropriate.
care activities in nonhospital sites from the teaching hospital industry that
cannot be counted by a hospital for Comment: Commenters suggested that
it is unlikely that a resident will spend
direct GME and IME purposes. Because since the goal of the proposed rule was
an entire week at the same nonhospital
of this clarification, hospitals may now to reduce administrative burdens,
site, in those cases, the hospital would
be conducting as much of their didactic instead of requiring that hospitals
be applying a prorated proxy, which
activities as possible in the hospital would be less than 3 hours, and may determine the number of hours each
complex. Lastly, the commenters noted even be less than the 2 hours which the nonhospital site is open, we should
that to the extent that a resident may professor from Hunter College indicated consider using a national average proxy
spend only a half a day at a nonhospital could be supported by the survey data. for total physician work hours per week.
site per week, ‘‘the idea that [the] 2 or The suggestion from the professor at A commenter mentioned that there are
3 hours of that time is spent in Hunter College that we conduct a limited, but still apparently reasonable,
nonpatient care activities defies rigorous study is sensible, and we will data that exist on national average
conventional logic.’’ consider it. physician work hours. For example, in
Several commenters suggested that In response to the commenters who its 2006 physician workforce report, the
the 3 hour proxy should be reduced to request that the 3 hour proxy be Health Resources and Services
either 1 or 2 hours. One commenter adjusted according to a resident’s Administration (HRSA) used the
stated that according to the commenter’s program year, we believe that requiring American Medical Association’s (AMA)
survey of 54 physicians, the average a hospital to adjust the proxy for each Socioeconomic Monitoring System
hours per week spent on nonpatient of its residents who are training at a (SMS) from 1998 to estimate work hours
care direct GME activities was 1.45, nonhospital site would add unnecessary by specialty. (The commenter noted that
with a range of 0 to 6 hours. Another complexity. Therefore, we are finalizing this survey has been discontinued due
commenter stated that teaching our policy to use 3 hours in the to response rates that were often too low
physicians spend 1.2 to 1.5 hours a numerator of the teaching physician for individual specialties and practice
week in nonpatient care direct GME cost ratio. We note that if a hospital settings.) The direct patient care hours
activities, while one commenter believes that 3 hours is greater than the reported by HRSA ranged from 47 to 58
mentioned that for family practice, a actual amount of time spent in hours per week. Another study
teaching expectation of 20 minutes per nonpatient care direct GME activities in conducted in 2005 by the AAMC’s
half day would work best. Several a particular nonhospital site, the Center for Workforce Studies of
commenters stated that CMS should hospital always has the option to work physicians over age 50 showed an
adjust the proxy according to a with the teaching physician to provide average of 55 hours worked per week
resident’s program year. For example, an actual amount of teaching time for based on over 9,000 respondents, with
one commenter suggested that the use in calculating the 90 percent cost work hours varying by specialty. For
number of hours spent in nonpatient threshold. instance, pathologists worked an
care direct GME activities per week In response to the comment average of 50 hours weekly on the lower
should be 1 hour for third year requesting that we consider that the range, while cardiologists worked an
residents, 2 hours for second year amount of time currently spent in average of 63 hours a week. Similarly,
residents, and 3 hours for first year nonpatient care direct GME activities in data from the Center for Tracking Health
residents. the nonhospital site could be less than System Change reported an average of
53 hours worked per week based on would like to evaluate thoroughly the a day(s) for a holiday or some other
interviews with about 6,600 physicians alternative data sources that are reason. The hospital may obtain the
in all specialties. The commenter asked available, and the ramifications of using nonhospital site’s posted or advertised
that we adopt 55 hours as the proxy to specialty-specific proxy data. We expect hours of operation as documentation to
use, but suggested that it might be best to investigate this issue, and if support the number of hours used in the
to use specialty-specific proxies, since appropriate, may propose to use denominator of the teaching time proxy.
there is a range of work hours across specialty-specific data for physician Comment: Commenters stated that a
specialties. Another commenter work hours in the future. We are also reasonable and easy way to administer
suggested that physician work hours as not adopting the commenter’s the supervisory teaching physician cost
published in JAMA, 2003 be used in the suggestion to make adjustments to ratio would be to use 2 hours in the
denominator. Alternatively, if we decide recognize the number of hours the numerator, as supported by the
to adopt our proposal regarding the specific teaching physician works each conclusions generated by the professor
clinic hours of operation, then the week as the denominator in the ratio. from Hunter College, and 55 hours in
commenters requested that we confirm We believe the relevant figure for this the denominator, which would result in
that this means the ‘‘posted’’ hours, and purpose is the time the teaching a ‘‘maximum fixed ratio’’ of 3.6 percent.
not the actual hours (for example, the physician spends in the specific Alternatively, if we reject that
hospital need not account for the nonhospital site, not the time the suggestion, the commenters urged CMS
closure of the site due to a holiday). physician works elsewhere. to adopt a ratio ‘‘cap’’. The commenters
Another commenter asked that CMS Furthermore, if we were to allow for noted that we solicited comments on
include a definition of ‘‘hours open’’ in adjustments when the teaching how to address situations in which that
the final rule, and specify what physician spends only a portion of his ratio ‘‘could, in some extreme instances,
documentation would be required. or her time at the nonhospital site as the result in a determination of unusually
Other commenters suggested that commenter recommended, the result high teaching costs’’ in instances where
instead of the clinic hours of operation, might be a physician salary percentage the nonhospital site is open very few
the denominator of the ratio used to that is much higher than the percentage hours per week (72 FR 4827). One
calculate the teaching physician cost that would result from use of the commenter suggested that this ratio
proxy should be the number of hours number of hours the nonhospital site is ‘‘cap’’ should be 5 percent, and would
the teaching physician is working since open in the denominator. For example, prevent any extreme or atypical results
the physician’s salary is relative to the if a teaching physician works a total of in determining the portion of teaching
number of hours worked. One 60 hours per week, spending 30 hours physicians’ salaries attributable to direct
commenter requested that we allow in the hospital and 30 hours in the GME. Another commenter
adjustments as appropriate when the nonhospital site, but the nonhospital recommended that the proxy for
teaching physician spends only a site is open 40 hours a week, then the determining teaching costs be capped at
portion of his or her time at the teaching physician cost ratio (to be 3 percent, which would be the result of
nonhospital site. Yet another applied to the survey-based physician using 2 hours in the numerator (as
commenter stated that the denominator salary proxy) would be 3⁄30, or 10 suggested by the professor from Hunter
should be 51 hours, which is derived percent under the commenter’s College’s analysis), and 60 hours in the
from the CMS data that is the basis for suggestion, and 3⁄40, or 7.5 percent denominator, since 60 hours is the
the RCEs that are currently in use. This amount of time a typical teaching
under our proposal. Accordingly, as we
physician works (in total, in all settings)
commenter noted that if a proxy is being stated in the proposed rule, we believe
per week.
used for both the numerator and that deriving the true amount of time Response: As we explained in
denominator, then there is no need to spent by each teaching physician in response to other comments, we believe
use hours at all. Instead, the formula can each nonhospital site in nonpatient care it is appropriate at this time to finalize
be simplified by using a single direct GME activities would involve the our proposals to use 3 hours in the
percentage proxy of the time the imposition of another form of the numerator and the number of hours the
physician spends teaching. The documentation burden that the hospital nonhospital site is open each week in
commenter thought the formula should industry and teaching physicians have the denominator. However, the
be: found onerous up to this point. commenter is correct that we solicited
Physician compensation proxy using Therefore, we are finalizing our comments on how to address situations
RCEs proposal to use the number of hours a in which that ratio ‘‘could, in some
× Percentage of business days in year nonhospital site is open each week as extreme instances, result in a
when resident is at site the denominator in the ratio for determination of unusually high
× Percentage of presumed training time calculating the teaching physician cost teaching costs’’ in instances where the
[number of proxy hours/51 hours ratio. nonhospital site is open very few hours
based on RCEs] We are also confirming that in per week (72 FR 4827). We believe that
= Physician compensation attributable determining the number of hours a in light of these extreme circumstances,
to training. clinic is open per week, we do not mean the commenters’ suggestion to establish
Response: We appreciate the the actual hours the nonhospital site is a ‘‘cap’’ on the ratio is reasonable. We
commenters’ proposals for alternatives open per week, but instead, we mean are not adopting the commenters’
to use in the denominator of the ratio ‘‘posted’’ or advertised hours. Therefore, suggested cap of 3 percent or 5 percent,
that represents the percentage of time the fact that a nonhospital site might be since both of these caps are based on
the teaching physician spends in closed several days in a year on legal using 2 hours in the numerator. Since
nonpatient care direct GME activities. holidays, for example, would not affect we are finalizing our proposal to use 3
The suggestion to use national average the denominator. That is, if a hours in the numerator, we believe an
proxies for total physician work hours nonhospital site’s posted hours are 9 appropriate cap would be 7.5 percent,
per week is an interesting idea that we a.m. to 5 p.m. from Monday through which would result from using 3 hours
will explore more fully and consider for Friday, then the denominator would be in the numerator and 40 hours in the
future rulemaking. In particular, we 40 hours, even if that site was closed for denominator. We believe it is
appropriate to use 40 hours in the training program, and not to how much were to assume 3 hours of supervisory
denominator because 40 hours is an time the teaching physician spends in teaching physician time for each clinic
established, universally recognized, nonpatient care direct GME activities, during a week, the estimate of teaching
typical work week. However, we may although that time percentage is physician costs would be ‘‘severely
reevaluate this cap in the context of certainly necessary for determining the inflated,’’ and the hospital would be
other possible changes we may consider amount of the cost that the hospital ‘‘paying several times over for training
making to the teaching physician cost must pay. Accordingly, the revised costs incurred during the same time
ratio. Thus, in this final rule, we are policy is consistent with the previous period.’’
instituting a cap of 7.5 percent on the policy in that the hospital must One commenter noted that we
teaching physician cost ratio, such that establish the percentage of time spent by mention the issue of prorating in
a hospital need not employ more than the teaching physician in nonpatient instances where the residents are not
7.5 percent of the teaching physician care direct GME activities in order to rotating to the nonhospital site for a
cost in calculating the amount of determine the cost of the teaching whole year. Specifically, the preamble
payment necessary to meet the 90 physician’s GME time. However, the states, ‘‘If FTE residents are not rotating
percent threshold. However, in adopting revised policy allows for the use of to a particular nonhospital site
this policy, we note that application of proxies in order to make those throughout a whole year, then the
the 7.5 percent cap must always be after calculations. That is, the ratio of 3 hours national average salary of the teaching
a hospital prorates the teaching of nonpatient care direct GME time per physician would be prorated
physician cost to reflect the amount of week to the number of hours that the accordingly. The cost of the residents’
FTE time that the residents are in the nonhospital site is open also represents salaries and fringe benefits (including
particular nonhospital site per year. the percentage of time the teaching travel and lodging where applicable)
Since half-day rotations appear to be a physician spends in nonpatient care would already be reflective of an FTE
common model of nonhospital training, direct GME activities, and when applied count (72 FR 4822).’’ In addition, the
which would already reduce the ratio to the physician’s salary (as established preamble stated in the context of the
well below 7.5 percent, we anticipate using survey data), will result in a proxy teaching physician cost ratio, ‘‘For
that the cap will only be applicable in for the teaching physician cost. As example, if FTE residents rotate
the extreme circumstances we mentioned in the preceding summary of throughout the year to a nonhospital site
mentioned when soliciting comments, comments, commenters requested that that is open 40 hours per week, then the
and which were of concern to the CMS place a cap on the percentage of percentage of time spent by the teaching
commenters. the teaching physician’s time spent in physician(s) in nonpatient care direct
Comment: One commenter referred to nonpatient care direct GME activities, as GME activities throughout the year at
a letter received from CMS in which determined using the ratio. As that site is 3⁄40 = 0.075 or 7.5 percent.
CMS stated that the cost of training a explained above, in this final rule, we If FTE residents rotate to that
resident in a non-hospital setting is are instituting a cap of 7.5 percent on nonhospital site for only a portion of a
based on the ‘‘percentage of time’’ the this teaching physician cost ratio, which year, then the ratio of 3⁄40 would be
teaching physician spends in GME is less than the 10 percent to which this further multiplied by the percentage of
activities. Therefore, the commenter commenter requested that physicians be the year that the FTE residents train
asserted, if the hospital is paying for all allowed to attest. Furthermore, we do there. For example, if the FTE residents
of the costs of the resident, and the not believe it is appropriate to say that only rotate to this nonhospital site for 3
physician can attest that the percentage months of the year, then the percentage
a hospital has met the test of incurring
of time spent in nonpatient care direct of time that the teaching physician(s)
‘‘all or substantially all’’ of the costs
GME activities is only 10 percent or less spends on nonpatient care direct GME
based simply on a physician’s
(that is, the remainder of the costs of the activities at that site equals (3⁄40 × 0.25
attestation that 10 percent or less of his
program), then the test of a hospital = 0.019 or 1.9 percent)’’ (72 FR 4827).
or her time is spent on nonpatient care
incurring ‘‘all or substantially all’’ of the The commenter continued that although
direct GME activities. Again, it is the
costs of training the resident should be the concept of prorating is supported by
cost that is important, not the amount of
met. the preamble, in discussions with CMS
Response: CMS’s policy for the teaching physicians’ time.
staff, it seems that we intended to allow
determining the costs of nonpatient care Comment: We received several prorating ‘‘selectively.’’ The commenter
direct GME activities of the teaching comments relating to the method for stated that their understanding of our
physician is, indeed, based on the computing the teaching physician cost position is that if a resident rotates to a
‘‘percentage of time’’ that the teaching in instances where the residents rotate nonhospital site for several days each
physician spends in such activities. We to multiple nonhospital sites for varying week over a period of time, the
most recently explained this policy periods of time, and whether prorating resident’s salary and fringe benefits
explicitly in the April 2005 Qs&As. In is applicable. The commenters would be prorated, but not the
response to Question 5, we stated explained that typically, nonhospital physician’s salary. The physician’s
‘‘Determination of the teaching rotations consist of partial day rotations, salary would only be prorated if the
physician costs to the nonhospital site which can be either partial days or rotation occurred in a block situation,
is dependent upon the teaching partial weeks, to 3 or 4 different such as 3 months (in the proposed rule
physician’s salary and the percentage of nonhospital sites per week. The example mentioned above).
time he/she devotes to activities related commenters mentioned that continuity The commenter included an
to non-billable direct GME activities at clinics, which are required for internal addendum which contained examples
the nonhospital site.’’ [see http:// medicine residents, are generally to illustrate what they believe to be the
www.cms.hhs.gov/AcuteInpatientPPS/ rotations of one half-day per week to a ‘‘flaws’’ in our position. In the first
Downloads/nonhospQA.pdf] As we specific nonhospital site over the 3-year example, a resident rotates to a
have stated in those Qs&As, and in this internal medicine program. The nonhospital site for 6 consecutive
rule, the statutory test is tied to whether residents may also rotate to other months, and then spends the rest of the
the hospital has paid ‘‘all or nonhospital sites during each week. The year in a hospital. In the second
substantially all’’ of the costs of the commenters asserted that if hospitals example, the resident spends 2.5 days a
week at a nonhospital site throughout motivation was to remove the burden on regardless of whether the rotation
the entire year (an aggregate time of 6 teaching physicians in documenting occurs in a 3-month consecutive block,
months), with the remaining time in a their teaching time, we do not believe it or in increments that equate to 3 months
hospital setting. In the first example, the was unreasonable for us to propose that (or 0.25 FTE) over the course of the
commenter understands that we would 3 hours be used as a ‘‘one size fits all’’ entire training year.
prorate by 0.5 the resident’s stipends proxy. Given further that, as mentioned Comment: Many commenters
and benefits, as well as the physician’s above and explained below, our final recommended that we allow physicians
salary. In the second example, the policy will permit the 3 hour figure to at nonhospital sites to sign attestation
commenter understands that we would vary when residents are not rotating to forms estimating the average time they
only prorate the resident’s stipends and the nonhospital site during the entire spend supervising residents per week.
fringe benefits. The commenter stated year, we believe this policy allows Another commenter said that since the
that the result is that even though ‘‘in sufficient flexibility to recognize the primary reason for residents to rotate
the aggregate’’ the resident spends the circumstances under which most into nonhospital sites is to perform
same amount of time in the nonhospital residency training occurs in nonhospital patient care activities (as opposed to
site, if he or she rotates in increments settings. And finally, we recognize that nonpatient care or didactic activities),
of less than a week, the hospital will proxies, by definition, are not perfect. the amount of time that a supervising
incur more in supervisory costs. Therefore, we note again that hospitals physician spends teaching residents is
Another commenter believed that there always have the option of working with ‘‘typically very low.’’ Therefore, CMS
is no basis for distinguishing between the nonhospital site teaching should accept attestations stating that
these ‘‘half-time’’ rotations, and physician(s) to obtain actual data the only teaching time ‘‘in a resident’s
teaching hospitals should not have to specific to the number of hours the entire nonhospital rotation was for the
incur any additional costs if the sum of teaching physician spends per week on resident evaluation and that it took a
the assignments for the resident on an nonpatient care direct GME activities in half hour or less.’’ One commenter
FTE basis is the same in either case. The calculating the 90 percent threshold (72 asserted that ‘‘it’s a waste of money’’ to
former commenter concluded that as FR 4826). have physicians attest to the amount of
long as both the resident and physician money they earn, and that if CMS is
However, we do believe that the
salaries are prorated to match the length going to make payment mandatory, then
commenters raise a legitimate concern
of time of the rotation, the supervisory a minimum of $60 per hour should be
in that if the 3 hour proxy were to be established. Several commenters asked
cost amount will not be overstated. applied to each nonhospital site, then,
Alternatively, the commenter noted that that we specify the type of actual
in cases where the residents rotate to documentation that is acceptable in the
the three hour presumption could be multiple nonhospital sites each week,
prorated, rather than the physician case where a hospital chooses not to use
the percentage of teaching physician the proxies we specify in this final rule.
salary, as the result would be the same costs for each site would be
either way. (That is, the commenters requested that
considerably overstated. We agree with we specify how they might use local
Response: In responding to these the commenters that if both the resident surveys and sampling techniques to
comments on the issue of prorating, it and physician costs are prorated to obtain actual data to calculate
is important to first understand the match the length of time of the rotation, nonhospital teaching physician costs,
context in which we made the decision the teaching physician cost amount will rather than comprehensive time and
to propose that 3 hours be used as the not be overstated. We are also motion studies). Another commenter
proxy for the amount of time a teaching convinced by the commenters that, for asked whether the teaching physician
physician spends per week in the amount of teaching physician costs, must keep continuous time records or
nonpatient care direct GME activities. there should be no distinction between whether the hospital can use time
As we explained in the proposed rule, part-time rotations that occur in studies. This commenter further stated
we derived the 3 hour figure from consecutive blocks as compared to part- that if time studies are to be used, we
informal surveys conducted by the time rotations that are not consecutive should indicate that they are to ‘‘* * *
AFMAA and the AOA, which over the course of a training year, but be kept in accordance with CMS Pub.
essentially showed ranges of 0 hours to equate to the same amount of time on 15–1, Section 2313.2.’’
4.7 hours for the time that physicians an FTE basis. That is, we agree that just Response: In the cases where a
spend on nonpatient care direct GME as the residents’ salary and fringe hospital wishes to use the actual
activities (72 FR 4826). Although we benefit portion is prorated to reflect the amount of time a particular teaching
acknowledge that the surveys were not actual FTE time spent in a particular physician is spending in nonpatient
rigorous, we believed (and still believe) nonhospital site, the teaching physician care direct GME activities with or on
the survey data warrant the use of 3 cost should also be prorated to reflect behalf of the residents, we do not
hours, and not a lower number, as a that FTE time (that is, either the believe that attestations from the
proxy in determining the costs hospitals physician’s salary would be prorated, or teaching physician without any
must pay in accordance with the statute. the 3 hours would be prorated by the supporting documentation is acceptable.
This is especially so since, as explained FTE percentage; the result would be the Furthermore, if a hospital chooses not to
above, the 3 hour figure is subject to same either way). Accordingly, we are use the proxies specified in this final
prorating based upon the proportion of modifying our proposal to allow for rule, then we believe the hospital
time residents are present in the prorating in this final rule. Thus, in the should use actual data specific to the
nonhospital site. If ‘‘half day’’ rotations example on page 4827 of the proposed teaching physician in the particular
to nonhospital sites are a very common rule quoted by the commenter above, nonhospital site, and not an arbitrary
training model as the commenters where the FTE residents only rotate to amount such as $60 or information from
suggest, then it is reasonable to the nonhospital site for 3 months of the local surveys or broader samples.
conclude that the amount of nonpatient year, the percentage of time that the However, it would be acceptable for the
care direct GME hours reported in the teaching physician(s) spends on physician to provide to the hospital a
survey results reflects this common nonpatient care direct GME activities at signed document specifying, based on
mode of training. Given that our that site would be multiplied by 0.25, actual records kept, the amount of such
time spent with the residents, whether physician compensation should be training in nonhospital sites only if the
this amount is greater than 3 hours, or, made available to the Medicare residents spend their time in patient
as one commenter indicated, a half hour contractor upon request during audit. care activities, and the hospital must
or less. Similar to the documentation Comment: One commenter asked comply with either of the following: (a)
that was historically required of CMS to ‘‘* * * expressly clarify in It must pay all or substantially all of the
hospitals to allocate teaching physician either the text of the regulation or in the costs of the training program in the
costs between Part A and Part B and preamble to the final rule that the nonhospital site by the end of the third
between operating costs and direct alternative proxies will not be used by month following the month in which
medical education costs, if the CMS or fiscal intermediaries as a way to the training in the nonhospital site
physician is supervising residents in the disallow a hospital’s computation and occurred; or (b) it must have a written
nonhospital site throughout the payment using actual teaching time and agreement with the nonhospital site that
academic year, the physician may teaching costs.’’ The commenter states that the hospital will incur the
complete a 2-week time study at two expressed concern ‘‘* * * that the cost of the resident’s salary and fringe
different points during the academic alternative proxies * * * will be used benefits while the resident is training in
year (that is, two separate 2-week time against hospitals as some sort of floor in the nonhospital site and the hospital is
studies). If a physician only supervises analyzing the reasonableness of actual providing reasonable compensation to
residents in the nonhospital site for the costs for those hospitals that choose not the nonhospital site for supervisory
equivalent of a month or less in an to use these alternative proxies.’’ The teaching activities. The written
academic year, then the physician may commenter believes that our proxies agreement must indicate the
would be viewed as a floor or a cap compensation the hospital is providing
complete a 1 week time study. The
when taking into consideration actual to the nonhospital site for supervisory
percentage of time a teaching physician
data. The commenter believes we teaching activities. We proposed to add
spends with or on behalf of the
should affirm that the proxies are an a new § 413.78(f) for cost reporting
residents in nonpatient care direct GME
option we have made available to periods beginning on or after July 1,
activities over the course of the time
providers because of the difficulty of 2007, to reflect the revised definition of
study may then be extrapolated to apply
documenting actual teaching costs at the ‘‘all or substantially all of the costs for
to the rest of the academic year.
nonhospital site. Another commenter the training program in the nonhospital
Accordingly, we are not requiring that
urged CMS ‘‘* * * to make a clear setting.’’ First, if a hospital chooses to
time studies completed by teaching statement to this effect, that is, that the
physicians in nonhospital sites for the make concurrent payments; that is, pay
intent of the parties is the controlling the training costs by the end of the third
purpose of determining the 90 percent factor, and that neither CMS nor its
cost threshold meet the requirements in month following the month in which
contractors will substitute their the training occurred, then the hospital
CMS Pub. 15–1, Section 2313.2. For judgment for [that] of the parties
example, under CMS Pub. 15–1, Section must be able to document for audit
directing the training program.’’ The purposes that the concurrent payments
2313.2.E.2, a minimally-acceptable time commenter noted that in the cases
study must encompass at least 1 full it makes reflect ‘‘all or substantially all’’
where there is a cost, the commenter of the costs, in accordance with the new
week per month of the cost reporting supports the use of a formula to
period, whereas for purposes of definition at § 413.75(b).
calculate faculty costs.
determining the percentage of time the Response: We do not intend to use the Alternatively, if the hospital chooses
teaching physician spends in nonpatient proxies specified in this final rule to to maintain a written agreement with
care direct GME activities in the establish a ‘‘floor’’ or ‘‘cap.’’ Rather, the nonhospital site (which, we note,
nonhospital site, the teaching physician they represent an option that hospitals must be in place before the residents
may complete two separate 2-week time may choose to use in making the begin training at a nonhospital site), the
studies (or a 1 week time study if the calculations to ensure they are incurring new § 413.78(f) would state that the
teaching physician supervises residents ‘‘all or substantially all’’ of the training written agreement must indicate that the
for the equivalent of a month or less costs at the nonhospital site if it is too hospital will incur at least 90 percent of
during the academic year). Since the burdensome for them to collect actual the total of the costs of the resident’s
teaching physician may not know the data. Furthermore, we would like to salary and fringe benefits (including
percentage of time spent on nonpatient emphasize that when there is a cost travel and lodging where applicable)
care direct GME activities at the time associated with the residency training while the resident is training in the
the written agreement between the program at the nonhospital site, nonhospital site and the portion of the
hospital and the nonhospital site is regardless of the ‘‘intent of the parties,’’ cost of the teaching physician’s salary
being entered into (since the written the hospital must either pay the actual attributable to direct GME. The written
agreement must be in place before the cost or the cost as determined using the agreement should specify the total
rotation begins), the written agreement proxies. compensation amount the hospital will
can be made based upon either the 3- incur to meet the 90 percent ‘‘all or
hour per week proxy or an estimated C. Other Issues To Be Considered substantially all’’ threshold, and
percentage (based on the prior year’s Although we are revising the standard whether this amount reflects only
rotations, if applicable), and the used for a hospital to incur ‘‘all or residents’ salaries and fringe benefits
percentage may be modified during the substantially of the costs for the training (including travel and lodging where
academic year if necessary. Further, the program in the nonhospital setting’’ applicable), or reflects an amount for
teaching physician (or the nonhospital such that the hospital is permitted to teaching physician compensation as
site employer) and the hospital should count FTE residents training in well. We believe the written agreement
modify the calculation of the 90 percent nonhospital sites, the other existing should specify the total amount of
cost threshold and the written regulations regarding nonhospital sites nonhospital site training costs the
agreement in order to reflect the actual would still generally apply, but would hospital will incur and specify what
percentage by June 30 of that academic require some modification. Under the costs are included in that amount
year. The source documentation used to existing regulations at § 413.78(e), a because the hospital would need to
determine the amount of teaching hospital is permitted to count residents determine up front the amount it must
pay to meet the 90 percent threshold or proxy-based costs for that teaching program, and the residents rotate to the
and incur ‘‘all or substantially all’’ of physician attributable to nonpatient care same nonhospital site(s), the hospitals
the cost in accordance with our direct GME activities. That is, the cannot share the costs of that program
definition. In addition, the provision of hospital must show that the value of in- at that nonhospital site (for example, by
this information in the written kind compensation is sufficient to meet dividing the FTE residents they wish to
agreement will simplify the audit the 90 percent threshold using the count according to some predetermined
process when the Medicare contractor formula stated above in this section. methodology), as we do not believe this
determines whether the amount paid by We also believe it is important to is consistent with the statutory
the hospital to the nonhospital site review how the written agreement requirement at section 1886(h)(4)(E) of
reflects ‘‘all or substantially all’’ of the requirements apply when a hospital’s the Act which states that the hospital
costs of the program in the nonhospital residents rotate to nonhospital sites incur ‘‘all, or substantially all, of the
site in accordance with the new such as clinics owned by a medical costs for the training program in that
definition at § 413.75(b). We note that school. As we stated in response to setting’’ (emphasis added). Finally, as
regardless of whether a hospital chooses Question 9 on the Qs&As on our Web under current policy, we note that in the
to make concurrent payments to the site at http://www.cms.hhs.gov/ instance where a hospital is sending
nonhospital site, or to have a written AcuteInpatientPPS/Downloads/ residents in several different specialty
agreement, the hospital must nonhospQA.pdf, ‘‘rather than having a programs to train in the same
demonstrate that it is paying for at least written agreement with each clinic, it nonhospital site, and it wishes to count
90 percent of the costs of each program would be appropriate for the hospital to all of those FTE residents for purposes
at each nonhospital site according to the have a written agreement with the of IME and direct GME payment, the
following formula (although actual data medical school, since the medical hospital must be able to document that
may be used in place of the proxies): school owns the clinics. If the residents it is separately meeting the ‘‘all or
0.90 × [(sum of each FTE resident’s substantially all’’ threshold for each
are training in various medical school
salary + fringe benefits (including travel specialty program at that site. (That is,
clinics, the hospital must have written
and lodging where applicable)) plus the the hospital would determine the 90
agreement(s) reflecting the
portion of the teaching physician’s percent threshold in accordance with
compensation arrangements for each
compensation attributable to nonpatient the methodology described above
clinic’’ (emphasis added).
care direct GME activities]. separately for the teaching physicians
The portion of the teaching Unfortunately, we have learned of
numerous situations where a hospital and residents involved in each specialty
physician’s compensation attributable to program, and would apply the resident-
nonpatient care direct GME activities has a single agreement with the medical
school in which the hospital specifies a to-teaching physician ratio limit if
may be calculated as follows: (3/number applicable).
of hours nonhospital site is open per lump sum dollar amount that it is
week) × (national average salary for paying the medical school for GME- Comment: We received several
each teaching physician). related services that the medical school comments on our existing policy as
If there are no teaching costs (because, is providing, but there is no breakout at reiterated in the proposed rule for
for example, the residents are rotating to all as to the specific training costs ‘‘global’’ written agreements, which are
a nonhospital site where the teaching attributable to individual clinics, or to common with academic medical
physician is a solo practitioner), then the specific programs at those clinics. centers. According to the commenters,
the written agreement should indicate Without a breakout of the residents’ global agreements are designed to
that the specified compensation amount salaries and fringe benefits (including provide an administratively simple
reflects only residents’ salaries and travel and lodging where applicable), mechanism for teaching hospitals to
fringe benefits (including travel and and the portion of the teaching compensate the medical school for a
lodging where applicable) because there physicians’ salaries attributable to variety of reasons, one of which may be
are no teaching physician costs (since nonpatient care direct GME activities at for supervisory physician costs—both in
the teaching physician is a solo each nonhospital site, the Medicare the hospital and in clinics owned by the
practitioner). Finally, we note that, as contractor is unable to determine medical school, and for other purposes
under existing regulations, if the whether the hospital has properly paid which may not be specified in detail.
hospital does choose to have a written the costs of each specialty training The commenters believe that to the
agreement with the nonhospital site, the program at each nonhospital site in extent that nonhospital supervisory
hospital must, at a minimum, liquidate accordance with the statutory and costs are included in the global
the costs identified in the written regulatory requirements. Likewise, agreement, a straightforward mechanism
agreement in accordance with the under the new definition of ‘‘all or for documenting the costs should be
regulations at § 413.100(c)(2)(i). substantially all,’’ whether hospitals pay devised, so as not to complicate the
In addition, we note that under for the costs of a program at a process of entering into the agreements,
current policy, a hospital may choose to nonhospital site on a concurrent basis, which are entered into only once a year.
provide non-monetary, in-kind or if they have a written agreement, they One commenter noted that we stated in
compensation rather than provide direct must be able to document how they are the proposed rule that ‘‘global
financial compensation to the paying for ‘‘all or substantially all’’ of agreements with lump sum payment
nonhospital site for supervisory the costs of a particular program at each amounts, either for teaching physician
teaching activities. Under the new nonhospital site. Global agreements costs or for nonhospital training in
definition of ‘‘all or substantially all,’’ a with lump sum payment amounts, general, have not been sufficient under
hospital would still be permitted to either for teaching physician costs or for existing policy and would not be
provide in-kind compensation to the nonhospital training in general, have sufficient under the proposed policy’’
nonhospital site, but, as under current not been sufficient under existing policy (72 FR page 4829). The commenter
policy, the hospital must be able to and would not be sufficient under the argued that if our stated purpose in
document that the value of the in-kind finalized policy. Similarly, as under issuing the proposed rule was to
compensation is at least equivalent current policy, if two (or more) hospitals simplify and relieve administrative
monetarily to the portion of the actual train residents in the same accredited burdens, then the proposed rule has not
achieved its goal ‘‘at all in a large paying for ‘‘all or substantially all’’ of sites for direct GME and IME purposes,
number of instances.’’ A commenter the costs of a particular program at each they must be able to document that they
requested that we should issue an nonhospital site. Global agreements are paying for ‘‘all, or substantially all’’
interim final rule with comment period with lump sum payment amounts, of the training costs for each program at
to solicit additional comments to ensure either for teaching physician costs or for each site. We believe that a written
that global agreements between teaching nonhospital training in general, have agreement reflecting the amounts being
hospitals and medical schools can be not been sufficient under existing policy paid by the hospital for each site is a
used to simplify the administrative and would not be sufficient under the reasonable requirement for in such
complexity of this regulation while proposed policy’’ (72 FR 4829). documentation. Alternatively, we note
addressing the intent of the statute as Accordingly, while it was our intent in that under § 413.78(e) and new
CMS sees it. One commenter suggested the proposed rule, and in this final rule, § 413.78(f), hospitals are not required to
that, at a minimum, hospitals should be to minimize hospitals’ documentation have written agreements with
allowed to make their ‘‘best estimate’’ of burdens for resident training in nonhospital sites but instead may opt to
the number and length of each rotation nonhospital sites, the issues to which pay for the nonhospital training
and modify them throughout the year as we were particularly sympathetic were program costs on a concurrent basis,
necessary. In addition, the commenter those beyond the control of a hospital, although the hospital certainly must
stated that we should allow hospitals to such as a teaching physician who still be able to document that the
use historical nonhospital site rotation refuses to disclose salary information. concurrent payments reflect ‘‘all or
experiences to determine an aggregate Further, our proposals were intended to substantially all’’ of the cost, in
nonhospital supervisory amount that encourage more transparency in those accordance with the current and new
could be referenced in the global arrangements that are pertinent to definition at § 413.75(b). However, given
agreement for the upcoming year. Medicare payments, so as to eliminate that a hospital’s residents may train at
Another commenter asked that CMS the ‘‘deadlock’’ that hospitals and hundreds of nonhospital sites, we do
suggest a standard written agreement Medicare contractors have experienced, understand that it may be difficult for
template for hospitals to use. and to provide for an audit and hospitals to finalize the details of all of
Response: In the preamble to the reimbursement process that is as smooth their written agreements by the start of
proposed rule, we mentioned several and as ‘‘painless’’ as possible. As an academic year. Accordingly, in
existing issues that we believed were indicated by the commenters, these response to the commenters’
important to reiterate and to discuss in global agreements are entered into to suggestions, we are modifying our
the context of our new proposals. One cover a variety of funding issues, and policy with respect to written
such issue was ‘‘global agreements.’’ We are not entered into solely (if at all) for agreements (for cost reporting periods
believed it was necessary to remind the the purpose of meeting Medicare beginning on or after July 1, 2007).
public about the concerns we had with regulations. Thus, these agreements Current policy requires that the written
global agreements, precisely because we often do not provide the level of detail agreement be in place prior to the time
understand that they are quite common that is sufficient to comply with the that the residents begin training in the
among teaching hospitals and related Medicare regulations. Since 1987, when nonhospital site (that is, signed by both
medical schools, but if lacking relevant hospitals were first allowed to count the the hospital and the nonhospital site).
details, are not sufficient in a statutory time that residents spent training in Since residents rotate to various
and regulatory framework that requires nonhospital sites for direct GME nonhospital sites at different points in
a hospital to ‘‘incur all, or substantially purposes, we instituted the written the residency year, a written agreement
all, of the costs for the training program agreement requirement precisely to may or may not have to be in place with
in that setting’’ (that is, for each program provide an administrative tool for use a particular nonhospital site by July 1.
at each nonhospital site as specified in by the Medicare contractors to assist in Rather, the agreement should be in
section 1886(h)(4)(E) of the Act). In the determining whether hospitals incurred place by the day before the rotation is
proposed rule, we explained that global the necessary training costs in scheduled to begin. For example, if a
agreements often do not break out the accordance with the statute and resident is scheduled to rotate to Clinic
specific training costs attributable to regulations. Similarly, that is why we A on July 1, then the written agreement
individual clinics, or to the specific stated in the answer to Question 9 in the between the hospital and Clinic A must
programs at those clinics. ‘‘Without a 2005 Qs&As on the CMS Web site at be in place by June 30 (that is, the day
breakout of the residents’ salaries and http://www.cms.hhs.gov/ before July 1, not the end of the
fringe benefits (including travel and AcuteInpatientPPS/Downloads/ following residency year). However, if
lodging where applicable), and the nonhospQA.pdf that, while it is residents first rotate to Clinic B on
portion of the teaching physicians’ permissible for a hospital to have an December 1, then the written agreement
salaries attributable to nonpatient care agreement with a medical school on between the hospital and Clinic B
direct GME activities at each behalf of the clinics owned by the would have to be in place by November
nonhospital site, the Medicare medical school, in such a case the 30. In response to the commenters’
contractor is unable to determine hospital also must ‘‘have written suggestions, we are changing our policy
whether the hospital has properly paid agreement(s) reflecting the to allow hospitals to modify the 90
the costs of each specialty program at compensation arrangements for each percent threshold calculations in their
each nonhospital site in accordance clinic’’ (emphasis added). Thus, while written agreements by the end of the
with the statutory and regulatory we certainly would like to simplify academic year (that is, June 30) to reflect
requirements. Likewise, under the new matters, we also want to ensure that that the hospital is meeting the
proposed definition of ‘‘all or hospitals receiving payment relating to requirement to incur at least 90 percent
substantially all,’’ whether hospitals pay training occurring in nonhospital of the costs associated with the actual
for the costs of a program at a settings are properly incurring the training program rotations. This policy
nonhospital site on a concurrent basis, training program costs in accordance would work in a fashion similar to our
or if they have a written agreement, they with the statute. If hospitals wish to current policy on Medicare GME
must be able to document how they are count residents training in nonhospital affiliation agreements, but with some
differences. Under § 413.79(f), Medicare school an amount that the medical determine if the hospital properly paid
GME affiliation agreements must be school determined ‘‘in good faith’’ to be ‘‘all or substantially all’’ of the costs.
entered into (and received by the the compensation for ‘‘teaching Comment: One commenter found our
Medicare contractor and CMS) by July 1 services’’ both in the hospital and in proposal to require hospitals to specify
of the applicable residency program nonhospital sites, CMS should consider the total amount the hospital will incur,
year, but hospitals may modify these that the hospital has ‘‘borne the full and to specify what costs are included
agreements by June 30 of that residency costs of teaching services in nonhospital in that amount, as ‘‘quite surprising.’’
year to reflect changes in the rotations sites * * * even where there is no The commenter believes that this
that may not have been anticipated. allocation of those amounts between’’ requirement will complicate the
With respect to nonhospital training, the the training in the hospital and the preparation of the written agreements,
hospital would have the option of using training in the nonhospital sites. and that it is not necessary to specify
either the proxies for teaching physician the cost amount which will be used to
costs as finalized in this final rule, or Response: Although the commenter
does not specifically use the term determine if the hospital meets a certain
actual data for the physician salary and threshold for reimbursement within a
teaching time spent in nonpatient care ‘‘global agreement’’ in his comment, it
appears that the scenario being contract between two parties. The
direct GME activities. If the hospital commenter recognized the need for this
opts to use actual data and not the described has many of the same features
as a global agreement. That is, the information to be available upon audit,
proxies, the hospital may use the prior but strongly encouraged CMS not to
year’s cost amounts as a placeholder hospital pays the medical school a lump
require that the cost information be
upon entering into the written sum for ‘‘teaching services,’’ often
included in the written agreements.
agreement, and must modify the occurring in the hospital and various
Other commenters also recommended
agreements by June 30 of that residency nonhospital sites, but there is no
that the regulation not require that the
year to properly reflect the actual costs allocation as to the teaching costs
details of the computation be included
that the hospital must incur in particular to each program at each
in the written agreement, because the
accordance with the 90 percent nonhospital site. In the proposed rule, scheduled issuance of the final rule is
threshold for ‘‘all or substantially all’’ of and in response to a comment above, we so close to the beginning of the
the costs of the training program in the explained that global agreements do not upcoming academic year (July 1, 2007),
nonhospital setting. In addition, in the break out the specific training costs and also because the actual costs a
event that hospitals send residents to attributable to individual clinics, or to hospital will incur cannot be accurately
unanticipated or originally unscheduled the specific programs at those clinics. determined until after the fact. For
rotations in nonhospital sites, the Without a breakout of the residents’ example, the residents’ travel and
hospitals may make their ‘‘best salaries and fringe benefits (including lodging costs may be higher or lower
estimate’’ by the day before the rotations travel and lodging where applicable), than the amount initially estimated
occur (the hospital may use the prior and the portion of the teaching when the written agreement was made.
year’s rotation experiences as a model), physicians’ salaries attributable to Commenters questioned whether our
and must make modifications by the nonpatient care direct GME activities at
end of the academic year to ensure that proposal to use proxies to reflect the
each nonhospital site, the Medicare time the time the teaching physician
they have properly met the 90 percent contractor is unable to determine
threshold. We are modifying the spends in nonpatient care direct GME
whether the hospital has actually paid activities will actually reduce the
proposed regulations text at the costs of each specialty program at
§ 413.78(f)(3)(ii) to reflect this new documentation burden on hospitals
each nonhospital site, in accordance since hospitals would be required to
policy change with respect to with the statutory and regulatory
modification of the written agreements collect information on, in some cases,
requirements. This scenario differs from hundreds of clinics. One commenter
by June 30 of the applicable academic one described in Question 7 in the April
year. noted that the paperwork burden
2005 Qs&As [see http:// required by the proposed rule is ‘‘still
With respect to the comment
www.cms.hhs.gov/AcuteInpatientPPS/ massive,’’ and disproportionately
requesting that we create a standard
Downloads/nonhospQA.pdf]. In that disadvantages family medicine
template for written agreements, we do
instance, the teaching physician programs and perhaps other primary
not believe a template would
necessarily be helpful, considering that, receives a salary directly from the care programs, threatening rural access
even within one hospital, the rotations hospital for teaching services inside the to care. One commenter stated that
can differ significantly across hospital and in nonhospital sites, rather hospitals which meet the 90 percent
specialties. The formula for determining than the medical school, and when the threshold by incurring the resident
the 90 percent threshold, which is the physician is supervising the residents in salaries and fringe benefits should not
crux of the written agreement, is clearly nonhospital sites, he/she is not be required to state in the written
written in this final rule, and should be receiving any other type of salary agreements that ‘‘* * * the hospital will
followed for all programs. payment from the nonhospital sites. pay all or substantially all of the cost for
Comment: One comment centered on Thus, to the extent that there are resident rotations to the nonhospital
the various arrangements teaching teaching costs in those nonhospital site’’ or ‘‘* * * that the hospital will
hospitals have with affiliated medical sites, the hospital is already paying for incur at least 90 percent of the cost of
schools for training residents both those costs. The situation described in the resident’s salary and fringe benefits
inside and outside the hospital. The the Qs&As is different from the situation (and travel and lodging where
teaching physicians, as medical school outlined by the commenter, in which applicable) while the resident is training
employees, are compensated in a the teaching physician receives a salary in the non hospital site.’’ The
‘‘variety of manners’’ for various types from the medical school covering a commenter provided examples of how
of services, including patient care, variety of activities, and, without a the regulation text should be changed to
administrative duties, research, etc. The determination as to the costs of each conform to the commenter’s suggestion
commenter asked that in the case where training program in each nonhospital and further stated that hospitals which
the hospital is paying the medical site, the Medicare contractor cannot meet the 90 percent threshold by
incurring the resident salaries and fringe hospital is to pay the nonhospital site settings and for Medicare contractors in
benefits should not be required to will complicate the process of the that they will have available more of the
identify the compensation paid to written agreements. The details of the information needed for the audit
residents for their salary and fringe 90 percent cost threshold are the process. Even in the instance where the
benefits. Another commenter stated that essence of the written agreement, and it hospital is paying at least 90 percent of
documentation burdens associated with is appropriate that they be included at the total cost just by paying the
written agreements can be eliminated if the time the written agreement is being residents’ salaries and fringe benefits,
CMS would permit a one time entered into. Considering that we are the Medicare contractor would still
agreement with a ‘‘major affiliated already allowing hospitals to use easily need to know what the total costs are in
partner,’’ and allow for multi-year accessible proxy data, we do not believe order to verify that the residents’
agreements. Finally, one commenter it would be appropriate to allow for portion is, in fact, 90 percent of the total
argued that in light of the limited time additional ‘‘short cuts’’ and imprecision costs. Thus, we are also specifying in
that hospitals would have to enter into in the development of the written the regulations text of this final rule that
written agreements with all of their agreements. Additionally, we do not the written agreement should include
nonhospital sites in accordance with the believe it is advisable to encourage the amount that represents the total cost
policies set forth in the final rule by July hospitals to delay the process of making of the nonhospital site, in addition to
1, CMS should impose a one year the cost calculations necessary to including the amount that represents 90
transition or grace period in which a establish that a hospital meets the 90 percent of the costs.
written agreement can be amended or percent threshold. Allowing hospitals to In instances where residents in more
newly executed at any time prior to June than one specialty program are rotating
delay the process of ironing out the
30, 2008, and still be effective for the to the same nonhospital site, the 90
details of the costs the hospital needs to
applicable portions of the academic year percent threshold must be determined
incur in order to meet the ‘‘all or
starting on July 1, 2007. If CMS does not separately for each program. In the
substantially all’’ requirements could
agree with this request, then the example mentioned by the commenter,
possibly lead to unforeseen
commenter suggested that alternatively, where a nonhospital site is used for
disallowances 2 or more years after the
CMS should allow a 180 day grace internal medicine for 15 hours per week
fact when the applicable cost report is
period through December 31, 2007. and for family practice for 25 hours per
being audited. We believe it is better
Under either scenario, the commenter week, and the nonhospital site is open
that hospitals take the time to compute for 40 hours a week, the teaching time
stated that the grace period would not the correct payment amounts at the
‘‘impact in any way the requirement ratio for internal medicine and family
beginning of (or modified during, as practice respectively would be 3/40. In
that hospitals actually incur 90 percent applicable) the academic year, rather
of the training costs,’’ and would ‘‘still the preamble above (and on page 4825
than scramble to provide the details of the proposed rule), we included an
afford intermediaries with fully during an audit. (Similarly, hospitals
executed written agreements for use example of how the 1:1 resident to
that do not employ written agreements teaching physician ratio would be
during their audits.’’ If CMS does not but instead are paying for training
grant the commenter’s request for a applied in the instance where a
program costs on a concurrent basis also nonhospital site is staffed by physicians
grace period, then the commenter asked need to determine up front what they
that CMS relax the requirement to in different specialties. We stated that
are paying to each nonhospital site to unless the hospital can document that
specify the precise teaching ensure that they pay the proper amount only certain physicians were involved
compensation amount in the written every three months). However, we are in supervising the residents, we would
agreements for at least the next sympathetic to the comment regarding apply the 1:1 ratio to all of the
academic year. The commenter also the limited time in which hospitals have physicians in the nonhospital site.
requested that in general, CMS should to enter into or modify existing Then, an average national salary of the
allow the written agreements to be contracts in accordance with the policy mix of physician specialties in the
executed during or shortly after set forth in this final rule. While we do practice would be computed, and would
rotations or to allow the written not believe a transition or grace period be multiplied by 3/40 for use in the 90
agreements to be more general about the is necessary, in this final rule, as we percent threshold for internal medicine
amounts to be paid. CMS should also stated in response to a comment above, and family practice respectively.
indicate that the ultimate amounts paid we are modifying our policy to allow Lastly, we are requiring that hospitals
can vary from the amounts set forth in modifications of written agreements. have written agreements in place with
the written agreements. Finally, CMS Should hospitals, urban or rural, find it nonhospital sites regardless of the
should provide a clarification or difficult to calculate the exact amounts nonhospital site’s relationship to the
preferably a detailed example to be paid under the 90 percent cost hospital, and we do not believe an
demonstrating how to apply the various threshold at the time they are entering exception is warranted for a ‘‘major
proxies when a hospital sends residents into the agreements, our decision to affiliated partner.’’ While we do not
in two or more specialty programs to the allow modifications to the believe there is anything wrong per se
same nonhospital site. The commenter determination of the 90 percent with one time or multi-year agreements
was unclear how separate computations threshold by June 30 of the applicable with nonhospital sites with which a
should be made when different academic year should provide some hospital has a long-standing rotational
specialty programs operate at the relief. Additionally, we continue to relationship, we question whether such
nonhospital site for a different number believe it is important for the written agreements would properly reflect the
of hours per week (for example, internal agreements to specify the compensation true costs in the 90 percent threshold
medicine for 15 hours per week and amounts provided for resident salaries that must be incurred from year to year,
family practice for 25 hours per week, and fringe benefits because doing so since, as so many commenters have
while the nonhospital site is open for 40 will be useful for hospitals in that they pointed out, rotations to nonhospital
hours a week). will have greater assurance that they are sites can be so dynamic.
Response: We do not believe the meeting requirements to count FTE Comment: Several commenters
specification of the actual amounts the residents training in nonhospital asserted that there is no legal
requirement that an agreement must be are met, we would allow the hospital to regulations at section 413.100(c)(2)(i) in
signed before nonhospital training count the FTE resident time spent either case, and it could be difficult for
under an agreement begins. The training in the nonhospital setting for the hospital to meet those requirements
commenters stated that if the presence purposes of direct GME and IME if it did not initially determine and pay
of an agreement can be established after payments. the actual costs of the program.
the fact by concurrent payments, CMS Comment: One commenter asked if a Moreover, it could be difficult for the
should not deny payment as long as hospital that first chooses one hospital to identify actual costs several
there is an agreement that is ratified by methodology of meeting the 90 percent years after the training occurred,
the signature of all parties at any time threshold (that is, the proxy data or especially since the teaching physician
during the agreement. At a minimum, actual data), could later change to the probably would not have kept records
CMS should recognize the presence of a other methodology to elicit a more on the amount of time spent with the
binding agreement as of the time that all favorable outcome. The commenter residents in nonpatient care direct GME
parties execute the agreement. further inquired as to whether the activities. For example, a hospital
Response: With respect to GME policy hospital would be considered to have initially used actual data to determine
concerning written agreements relating met the 90 percent threshold if it that 90 percent of the total costs of a
to residency training in nonhospital changes its methodology. program in a particular nonhospital site
Response: As we stated previously in
sites, our policy has always been that is $70,000. The hospital identified the
this preamble, we believe that any
the written agreement must be in place costs as being $70,000 in the written
Medicare policy approach to allowing
prior to the time the residents begin agreement and liquidated the costs in a
hospitals to count FTE residents
training at the nonhospital site. A timely fashion in accordance with the
training in nonhospital settings for IME
written agreement signed before the and direct GME payment purposes must
regulations at section 413.100(c)(2)(i)
time the residents begin training at the be consistent with the statutory (that is, within one year after the end of
nonhospital site, stating that the requirement that hospitals incur ‘‘all, or the cost reporting period in which the
hospital will incur the costs of the substantially all’’ of the costs of a liability is incurred). However, during
training program at the nonhospital site, training program in a nonhospital audit, the FI determined that the actual
indicates the hospital’s ongoing setting. Further, we continue to believe costs of the program were $75,000, not
commitment to incur those costs. that the definition of ‘‘all, or $70,000, which means the hospital did
Written agreements that are retroactive substantially all’’ of the costs which not pay 90 percent of the costs of the
to the time the residents began training entails documentation of and payment program. The hospital requests that it be
at the nonhospital site do not for the costs of a training program based allowed to demonstrate that it paid at
demonstrate that there was an ongoing on the actual costs of the program is least 90 percent of the costs of the
commitment by the hospital to incur the truest to the intent of the statute. Yet, as program as calculated based upon the
costs. In fact, we are taking this we explained, the alternative proxies instead, and CMS permits the
opportunity to clarify the regulations methodology, which attempts to address hospital to do so. If the hospital shows
text at § 413.78(f)(3)(ii) to specify that the various administrative difficulties that 90 percent of the cost of the
the written agreement must be in place that could occur in documenting actual program based on the proxies was
between the hospital and the costs and which employs proxies in the $70,000 or less, then it may be
nonhospital site before the training place of actual data, is acceptable as considered to have paid ‘‘all or
begins in that nonhospital site. The well. However, we certainly would not substantially all’’ of the costs of the
commenters suggest that if the presence encourage hospitals to make a practice program. However, if the hospital, as
of an agreement can be established after of using one methodology during the verified by the Medicare contractor,
the fact by concurrent payments, CMS applicable academic year, and demonstrates that 90 percent of the
should not deny payment when an attempting to switch to the other costs using proxies was $73,000, then in
agreement is not in place at the outset methodology during audit to determine either case, the hospital would not have
of the training but is later ratified by the if they met the 90 percent threshold paid ‘‘all or substantially all’’ of the
signature of all parties at any time. under the latter methodology. costs. The hospital would not, in all
However, we note that if the hospital Nevertheless, if for example, during an likelihood, be able to resolve the
can show that it made payments audit, a Medicare contractor determines problem by paying the difference
representing all or substantially all of that a hospital did not pay for the costs ($3,000) at the time of the audit since
the costs of the training program in the of a particular program in accordance the timeframe for liquidating the
nonhospital setting on a concurrent with the 90 percent threshold calculated liabilities may have passed. If the
basis, then under the regulations at using one method, and the hospital reverse situation had occurred, where
section 413.78(e) or (f), a written requests that it be allowed to attempt to the hospital first used proxies, but then
agreement is not needed. This is demonstrate that it properly paid the requested to demonstrate that it would
because these regulations require either costs had the other method been used, meet the 90 percent threshold if actual
a written agreement or concurrent the Medicare contractor should contact data were used, as explained above, we
payments. However, if, for whatever CMS to determine on whether the believe it would be quite difficult for the
reason, the Medicare contractor finds hospital met the regulations under the hospital to be able to successfully
that a written agreement is not in other method. However, we caution identify the actual costs of the program
accordance with CMS policy, if the that, even if CMS does allow a hospital several years after the fact. In any case,
hospital can demonstrate that it paid for the opportunity to demonstrate that it the hospital would not be allowed to
the nonhospital training (and the met the regulations under the other count the FTE residents training in the
payments represent all or substantially method, this may not necessarily nonhospital site unless it ultimately
all of the cost of the training program in provide the escape from an impending demonstrates that it incurred all or
accordance with our regulations) by the disallowance that a hospital is seeking. substantially all of the costs for the
end of the third month following the Payment for ‘‘all or substantially all’’ of training program in the nonhospital site
month in which the training occurred, the costs must be made in a timely in accordance with the definition at
then, assuming the other requirements fashion in accordance with the section 413.75(b) of the regulations (that
is, 90 percent). We would also apply liquidated within one year after the end we note that there may be some cases
this principle in determining whether of that cost reporting period. For where the hospital is not automatically
the hospital actually incurred 90 example, if a hospital has a December paying for the training program costs in
percent of the costs of the training 31, 2007 fiscal year end, costs that the the nonhospital sites it owns, simply
program in a nonhospital site in the hospital incurred for nonhospital because it owns those nonhospital sites.
instance where the amount ultimately training occurring during July 2007 For example, there may be instances
paid by the hospital differs from the through December 2007 must be where a hospital contracts with a third
amount specified in the written liquidated by December 31, 2008. Costs party to provide teaching physicians to
agreement. If the amount paid by the incurred by this hospital for nonhospital supervise its residents in the hospital-
hospital is at least 90 percent of the total training occurring during January 2008 owned nonhospital sites. In such a case,
of the costs of the residents’ salaries and through June 2008 would accrue during the teaching physicians are paid a salary
fringe benefits (and travel and lodging the December 31, 2008 fiscal year end by that third party (for example, they are
where applicable) and the portion of the and must be liquidated by December 31, on the staff of a medical school).
cost of teaching physicians’ salaries 2009. We believe these two options at Therefore, in this case, the written
attributable to nonpatient care direct § 413.78(e) and (f) give hospitals agreement would need to be between
GME activities, then, assuming all other additional flexibility in paying for the the hospital on behalf of the clinics that
requirements are met, the hospital may costs of training occurring in it owns and the third party, and the
count the FTE residents training in the nonhospital settings. Therefore, we are written agreement must specify the total
program at the nonhospital site. not changing the regulations to require cost at the nonhospital site, and the
Comment: A commenter noted that that the liquidation of liabilities be amount the hospital will incur (at least
the requirement that a hospital must consistent in both situations. 90 percent of the total), and must
liquidate the costs identified in the Comment: One commenter asked indicate the portion of the amount the
written agreement in accordance with about our policy for nonhospital sites hospital will incur that reflects
the regulations at section that are owned by a hospital, as residents’ salaries and fringe benefits
413.100(c)(2)(i) only applies in the case articulated in the April 2005 Qs & As (and travel and lodging where
where a hospital enters into a written document. The document (under applicable), and the portion of this
agreement with the nonhospital site, but Answer #8) states that the hospital must amount that reflects teaching physician
does not apply in the instance where a ‘‘actually [pay] the nonhospital site compensation.
hospital chooses to pay the nonhospital through the hospital’s accounts payable Comment: One commenter noted that
site on a concurrent basis. The system. (If the hospital and nonhospital the regulations concerning written
commenter recommended that the site share a single accounting system, agreements at section 413.78(e)(3)(ii)
requirements for liquidation of the hospital could demonstrate payment state that the hospital must provide
liabilities be consistent for both of the nonhospital site training program ‘‘reasonable compensation’’ to the
situations (that is, with or without a costs using journal entries that expense nonhospital site, while the regulations
written agreement). these costs in the hospital’s GME cost concerning concurrent payments have
Response: Under the Medicare center and credit the nonhospital site.)’’ no requirement regarding the
payment rules at § 413.100 concerning The commenter stated that we do not reasonableness of the compensation.
accrued costs, hospitals are required to provide any rationale for this position, The commenter recommended that CMS
liquidate their short-term liabilities which seems to impose an make the regulations for written
within one year after the end of the cost administrative burden on hospitals agreements and concurrent payments
reporting period in which the liability is (requiring the hospital to essentially pay consistent, by either inserting a
incurred. With respect to the payments itself). The commenter urged CMS to requirement for reasonableness of
that hospitals make to nonhospital sites, state in the final rule that these teaching compensation for both circumstances, or
in the August 11, 2004 final rule (69 FR hospitals need not specify the excluding the requirement under both
49179), in an effort to provide more supervisory teaching physician costs in circumstances.
flexibility to hospitals, we gave the written agreement because the Response: The commenter is referring
hospitals the option of either entering teaching hospitals either own the to the regulations at section 413.78(e)(3)
into a written agreement, or paying for nonhospital site or both institutions are pertaining to the requirements for
the costs on a concurrent basis—that is, owned by the same organization. counting residents training in
to pay for the costs of the training that Response: We agree with the nonhospital settings on or after October
occurs during a month by the end of the commenters that the proposal to require 1, 2004. However, we believe the
third month following the month in hospitals to include the details of the 90 commenters point regarding the
which the training in the nonhospital percent cost threshold in the written regulatory requirement for
site occurred. The latter option (that is, agreement might be unnecessarily ‘‘reasonableness’’ of compensation is
concurrent payments) would require burdensome for hospitals that own not a concern under the new regulation.
that payments be made on a more nonhospital sites in which residents are Although the new section 413.78(f),
frequent basis than the timeframe training. While the hospital certainly effective for cost reporting periods
specified at § 413.100(c)(2)(i). must pay for the costs of training (in beginning on or after July 1, 2007, does
Alternatively, if a hospital opts to enter accordance with the 90 percent not specifically refer to reasonableness
into written agreements, since the threshold) occurring in the nonhospital of compensation, it requires that the
hospital would be committing upfront sites that it owns in order to be costs of the training program be
to incur the costs, the longer timeframe permitted to count the time residents determined in accordance with the 90
at § 413.100(c)(2)(i) would apply. spend training there for direct GME and percent threshold. Additionally, we
Consequently, under the written IME purposes, the written agreements note that the reference in the regulation
agreement option, in order for the between the hospital and the at § 413.78(e)(3)(ii) to reasonable
accrued costs to be recognized by nonhospital sites it owns need not compensation was intended as a guide
Medicare in the year of the accrual, the specify the total amount of costs the for the content of the written agreement
costs incurred in a given cost reporting hospital will incur, and what costs are and as a preface to the requirement to
year for nonhospital training must be included in that total amount. However, specify in the written agreement the
amount of compensation the hospital is on its Medicare cost report (for example, that hospitals with multiple nonhospital
providing for supervisory teaching on line 3.05 on Worksheet E–3 Part IV, sites may face a larger task to comply
activities. Given that, and the fact that and on line 3.08 on Worksheet E Part with our regulations than hospitals with
the regulation at § 413.78(e) will not A), a hospital must have proper just a few nonhospital sites, we
apply to cost reporting periods documentation to demonstrate that the continue to believe the statute mandates
beginning on or after July 1, 2007, we FTE residents are valid FTEs that, in the that hospitals are required to pay for
do not believe it is necessary to modify absence of the FTE caps, would ‘‘all or substantially all’’ of the costs of
this section of the regulations. otherwise be permitted to be counted for the training program at the nonhospital
Comment: One commenter believes direct GME and IME payment purposes. site, and that this final policy conforms
that since residency training is the final Therefore, a hospital may only claim with the statutory requirement while
educational step before a resident is residents training at nonhospital sites providing additional administrative
capable of independent practice, on its cost report if the hospital would, flexibility.
residents are students and not in the absence of the FTE caps, be Comment: One commenter noted that
employees, and therefore, CMS should permitted to count those FTE residents in the proposed rule, CMS used the
refer to resident stipends and not for direct GME and IME payment terms ‘‘direct GME activities,’’
resident salaries. purposes, even if those residents would ‘‘nonpatient care activities,’’ as well as
Response: We acknowledge that there be over its caps. We recognize the issues ‘‘activities related to non-billable GME
are multiple terms to refer to the that could arise if hospitals choose not activities’’ in illustrating activities for
compensation a resident receives while to take the required steps under our which it is required that hospitals pay
participating in a residency training regulations to be permitted to count supervisory costs. The commenter urged
program. For our purposes, we have certain FTE residents, and if the CMS to consider including a definition
always referred to the compensation Congress should pass new legislation in the final rule.
received by residents as salary and involving residency caps. However, we Response: We appreciate the
benefits, and will continue to do so even believe it is more likely than not that commenter’s suggestion to define terms
though different terms may be used by new legislation would be based on the such as those included in the above
other organizations and entities. premise that hospitals have properly paragraph. We did not propose to define
Comment: Several commenters complied with the regulations and these terms since we did not believe it
inquired about whether a hospital must reported accurate data on their cost would be necessary to include a
comply with the nonhospital site reports regardless of whether it was to definition in the rule. However, we do
regulations for training residents in a their particular benefit to do so at the believe it is important to be consistent
nonhospital setting with respect to FTE time. Thus, we would encourage in the way we reference those activities
residents that are not counted for hospitals to meet the regulatory for which the hospital is required to
purposes of Medicare IME or direct requirements and report FTE residents incur the costs in the nonhospital site—
GME payments because they are in to the fullest possible extent. that is, nonpatient care direct GME
excess of the hospital’s FTE resident Comment: Several commenters stated activities. While we do not currently
caps. These commenters further that our policy would continue to be specifically define ‘‘nonpatient care
inquired about whether such a hospital administratively burdensome. One direct GME activities’’ in the
could still include the FTEs in excess of commenter stated that for its family regulations, we note that the term
its cap on its cost report even if the medicine program, private physicians ‘‘patient care activities’’ is currently
hospital didn’t comply with the are used as preceptors and in 1 week defined at § 413.75(b) as, ‘‘the care and
regulations for training those FTE residents may work with 10 to 20 treatment of particular patients,
residents in nonhospital settings. The teaching physicians. The commenter including services for which a physician
commenters believe that hospitals states that, ‘‘It would be or other practitioner may bill.’’
should be able to include those administratively impossible to calculate Therefore, the use of the term
residents in their current year FTE all of their supposed teaching costs.’’ ‘‘nonpatient care’’ would denote those
counts on their cost reports based on the Another commenter noted that its activities which do not involve the care
reasoning that, in the event the Congress teaching program relies on 20 to 30 and treatment of specific patients,
makes a legislative change regarding private teaching physicians who including non-billable time. Further, the
FTE resident caps, the cost reports volunteer their time training residents term ‘‘direct GME’’ denotes those
would reflect an accurate count of the in their offices. The commenter stated activities in which the physician
residents that the hospital trained. that due to the flow of patient care, engages because of his/her involvement
Response: The regulations specify without the use of burdensome time in supervising residents in an approved
what a hospital must do to count studies, it would be impossible to GME program. We are also modifying
residents that train at a nonhospital site accurately determine the amount of our proposed definition of ‘‘All or
for purposes of both direct GME and GME teaching time at the nonhospital substantially all of the costs for the
IME. If the hospital fails to meet the site. The commenter requested that we training program in the nonhospital
regulatory requirements at § 412.105(f) work more closely with program setting’’ at § 413.75(b) to specify the
and § 413.78(f), it may not include those directors to formulate a methodology portion of the cost of teaching
residents in its FTE count, regardless of which addresses the true costs of GME. physicians’ salaries attributable to
whether the hospital is otherwise above Response: We believe that use of the ‘‘nonpatient care’’ direct GME
or below its caps. However, a hospital proxies being adopted in this final rule, ‘‘activities.’’ If we find that there are
may choose not to pay for the costs coupled with the 1:1 resident to continuing questions regarding these
relating to the training of residents in a teaching physician ratio, can greatly terms, we will consider proposing
nonhospital setting if it is training FTE reduce the burdens associated with definitions in future rulemaking so that
residents in excess of its caps, and determining teaching physician the proposed definitions can be
therefore, would also not include those supervisory GME costs, even in the included in the normal comment
FTE residents training in nonhospital relatively complex training process.
sites in its FTE count. With respect to arrangements described by the Comment: One commenter
FTE residents that a hospital does count commenters. Although we acknowledge maintained that CMS’ interpretation of
Section 1886(h)(4)(E) of the Act is not Response: Since these comments are applicable), and the portion of the
correct. The commenter believes that out of the scope of this rule, we are not amount that reflects teaching physician
the statutory language does not prohibit responding to them at this time. compensation. Lastly, we are revising
payment to the ‘‘main’’ teaching Comment: Several commenters the regulations text to indicate that the
hospital if it incurs ‘‘all or substantially requested that hospitals have the option amounts specified in the written
all’’ of the costs of the residency training of recalculating their PRA to include agreement may be modified by June 30
in ‘‘small, rural emergency allowable GME costs. of the applicable academic year.
departments’’ since the residents Response: We did not propose any
changes to the existing methodology for XIII. Technical Amendment
‘‘* * * are not serving in more than one
hospital ‘simultaneously.’ ’’ The calculating GME PRAs. Therefore, we In the Revisions to Hospital Inpatient
commenter further notes that few small believe this comment is outside the Prospective Payment Systems—FY 2007
rural hospitals want to assume the scope of our proposed rule, and final rule (71 FR 47870 through 48136),
burden of becoming teaching hospitals, therefore, we are not responding to it in in an amendatory instruction to
therefore, the main teaching hospital this final rule. § 412.22(h)(3), we inadvertently omitted
continues to bear the costs of the D. Summary of Final Provisions the words ‘‘introductory text.’’
resident rotations to the rural emergency Therefore, paragraphs § 412.22(h)(3)(i)
In summary, we are revising and (ii) were removed. We are replacing
departments. The commenter urges
§ 413.75(b) to modify the definition of § 412.22(h)(3)(i) and (ii) in this final
CMS to change its policy with regard to
‘‘all or substantially all of the costs for rule.
‘‘emergency and possibly other hospital-
the training program in the nonhospital
based physicians’’ to allow for payment XIV. Collection of Information
setting’’ to reflect the policies in place
to the ‘‘main’’ teaching hospital for Requirements
between January 1, 1999 and July 1,
resident training time at rural hospitals.
2007, and our policy for cost reporting Under the Paperwork Reduction Act
Response: We did not propose to periods beginning on or after July 1, of 1995, we are required to provide 30-
make any changes to our regulations 2007. We are revising the definition of day notice in the Federal Register and
concerning the counting of FTE ‘‘all or substantially all of the costs for solicit public comment before a
residents training in more than one the training program in the nonhospital collection of information requirement is
hospital. Therefore, we believe the setting’’ to mean: (a) Effective on or after submitted to the Office of Management
comments are out of the scope of this January 1, 1999 and for cost reporting and Budget (OMB) for review and
rule and we will not be responding to periods beginning before July 1, 2007, approval. In order to fairly evaluate
them at this time. the residents’ salaries and fringe whether an information collection
Comment: One commenter stated benefits (including travel and lodging should be approved by OMB, section
‘‘CMS currently insists that the three- where applicable) and the portion of the 3506(c)(2)(A) of the Paperwork
month (90 day) timeframe for payment cost of teaching physicians’ salaries and Reduction Act of 1995 requires that we
be based on a calendar month without fringe benefits attributable to direct solicit comment on the following issues:
regard to programs such as ours that graduate medical education (GME); and • The need for the information
conduct rotations on a 4-week basis (13 (b) effective for cost reporting periods collection and its usefulness in carrying
rotations per year) * * * We believe the beginning on or after July 1, 2007, at out the proper functions of our agency.
written agreement is reasonable but the least 90 percent of the total of the costs • The accuracy of our estimate of the
90 day time frame for payment to the of the residents’ salaries and fringe information collection burden.
non-hospital physician should be benefits (including travel and lodging • The quality, utility, and clarity of
relative to the last day of the block where applicable) and the portion of the the information to be collected.
rotation.’’ cost of teaching physicians’ salaries • Recommendations to minimize the
Response: We did not propose making attributable to nonpatient care direct information collection burden on the
any changes to CMS’ rules regarding GME activities. affected public, including automated
concurrent payment for training at In addition, we are revising collection techniques.
nonhospital sites and, therefore, we § 412.105(f)(1)(ii)(C) for IME and adding We solicited public comments on
believe this comment is outside the § 413.78(f) to reflect the revised each of these issues for the following
scope of our proposed rule and we will requirement to pay ‘‘all or substantially sections of this document that contain
not be responding to it at this time. all’’ of the GME costs in a nonhospital information collection requirements.
site, effective for cost reporting periods
Comment: One commenter asked beginning on or after July 1, 2007. In Section 413.78 Direct GME Payments:
‘‘How is CMS going to ensure this final rule, we are also clarifying the Determination of the Total Number of
responsible and consistent application regulations text at § 413.78(f)(3)(ii) to FTE Residents.
of these lengthy new rules?’’ specify that the written agreement must Section 413.78(f) outlines the
Response: CMS typically will instruct be in place between the hospital and the requirements that must be met for the
its contractors as to the implementation nonhospital site before the training time residents spend in non-provider
of any new regulatory provisions. We begins in that nonhospital site. We are settings to be included in determining
intend to do the same for these also specifying in the regulations text of the number of FTE residents used in the
provisions. We urge any individuals, this final rule that the written agreement computation of a hospital’s resident
including both members of the teaching should include the amount that count. A resident must spend his or her
hospital community and Medicare represents the total cost of the training time in patient care activities; the
contractors, to contact us when they program in the nonhospital site, in hospital must incur substantially all of
have questions regarding application of addition to including the amount that the costs of the training program in a
this rule. the hospital will incur (at least 90 nonhospital setting.
Comment: We received several percent of the cost), and must indicate In addition, § 413.78(f)(3) requires
comments on the IME formula and other the portion of the amount that reflects that a hospital comply with one of the
nonhospital site issues that were not residents’ salaries and fringe benefits two requirements listed in
included in the proposed rule. (and travel and lodging where § 413.78(f)(3)(i) and § 413.78(f)(3)(ii).
Section § 413.78(f)(3)(i) states that a Act of 1995 in accordance with Pub. L. including updated wage index values,
hospital must document that it is paying 99–272. and the best available claims and CCR
for all or substantially all of the costs We will be submitting a copy of this data to estimate the change in payments
associated with the training program in final rule to OMB for its review of the for the 2008 LTCH PPS rate year. Based
a nonhospital setting. The costs must be information collection requirements on the best available data for 377
incurred between the training date and described above. These requirements are LTCHs, we estimate that the expansion
the end of the third month after the not effective until they have been of the existing payment provision for co-
training date. The burden associated approved by OMB. located LTCHs (HwHs and satellites of
with this requirement is the time and XV. Regulatory Impact Analysis LTCHs) at existing § 412.534 to certain
effort associated with documenting and situations not presently covered by
maintaining records of the incurred A. Introduction existing § 412.534 for subclause (I)
costs and subsequent payments made by We have examined the impacts of this LTCHs (as discussed in section V.B. of
a hospital. final rule as required by Executive the preamble of this final rule), in
Section 413.78(f)(3)(ii) states that a Order 12866 (September 1993, conjunction with the update to the
Regulatory Planning and Review), the Federal rate for RY 2008 (discussed in
hospital must have a written agreement
Regulatory Flexibility Act (RFA) section IV.C. of the preamble of this
with the nonhospital site. The
(September 19, 1980, Pub. L. 96–354), final rule), the changes to the area wage
agreement must state that the hospital
section 1102(b) of the Act, the adjustment (discussed in section IV.D.1.
will incur at least 90 percent of the cost
Unfunded Mandates Reform Act of 1995 of the preamble of this final rule), the
of the resident’s salary and fringe
(UMRA) (Pub. L. 104–4), and Executive revision to the SSO policy and the
benefits (and travel and lodging, where
Order 13132. increase in the outlier fixed-loss amount
applicable) while the resident is training
(discussed in section IV.D.3.c. of the
in the nonhospital site and the portion 1. Executive Order 12866 preamble of this final rule) for the 2008
of the cost of the teaching physician’s
Executive Order 12866 (as amended LTCH PPS rate year, will result in a
salary that is attributable to GME. The
by Executive Order 13258, which decrease in estimated payments from
written agreement must also specify the merely assigns responsibility of duties) the 2007 LTCH PPS rate year of
compensation amount the hospital is directs agencies to assess all costs and approximately $156 million (or about
paying the nonhospital site, and benefits of available regulatory 3.8 percent). (An estimate of Medicare
whether this amount reflects only alternatives and, if regulation is program payments for LTCH services for
residents’ salaries and fringe benefits necessary, to select regulatory the next 5 years is shown in section
(and travel and lodging, where approaches that maximize net benefits IV.D.5. of the preamble of this final rule.
applicable), or includes an amount for (including potential economic, The impact of the policy change relating
teaching physician compensation. The environmental, public health and safety to payment for Hospital Direct and
burden associated with this requirement effects, distributive impacts, and Indirect Graduate Medical Education
is the time and effort associated with equity). A regulatory impact analysis Payments (GME) is discussed in section
drafting, signing, and maintaining the (RIA) must be prepared for major rules XV.C.2. of this regulatory impact
written agreement. with economically significant effects analysis.) The estimated impact of the
The requirements listed in ($100 million or more in any one year). provisions presented in this final rule
§ 413.78(f)(3)(i) and § 413.78(f)(3)(ii) are We are using the rates, factors and (as detailed above) for the 377 LTCHs in
exempt from the Paperwork Reduction policies presented in this final rule, our database are in Table 9.
TABLE 9.—ESTIMATED IMPACT OF THE PROVISIONS OF THIS FINAL RULE 1

Estimated
percent change
in estimated ag-
Policy gregate LTCH
PPS payments
(percent)
Payment Rate and Policy Changes:

Changes to the Federal Rate 2 ................................................................................................................................................. 0.6
Changes to the Area Wage Adjustment .................................................................................................................................. ¥1.0
Revision of the SSO Policy ...................................................................................................................................................... ¥0.9
Adjustment of the High Cost Outlier Threshold 3 ..................................................................................................................... ¥2.5
Subtotal 4 ........................................................................................................................................................................... ¥3.8
Expansion of the ‘‘25 Percent’’ Policy 5 ........................................................................................................................................... 0
Total 6 (¥3.8% + 0%) ....................................................................................................................................................... ¥3.8

1 Percent change in estimated aggregate LTCH PPS payments from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate year based on
the best available data for 377 LTCHs.
2 As discussed in greater detail in section XV.B.4. of this regulatory impact analysis, about 34 percent of all LTCH cases are projected to re-
ceive a payment under the existing SSO policy that is based either on the estimated cost of the case or the ‘‘IPPS comparable amount’’ (rather
than the Federal rate). Therefore, the percent change in estimated aggregate LTCH PPS payments due to the changes to the Federal rate, 0.61
percent, is slightly less than the update to the Federal rate of 0.71 percent.
3 This estimated 2.5 percent decrease in estimated payments per discharge from RY 2007 to RY 2008 is due to the changes in the fixed-loss
amount resulting from the use of more recent LTCH data to estimate the cost of each LTCH case.
4 We also note that the estimated percent change for all payment rate and policy changes may not exactly equal the sum of the estimated per-
cent change for the changes to the Federal rate, the changes to the area wage adjustment and the revision of the SSO policy due to the effect
of estimated changes in aggregate HCO payments, as well as other interactive effects that cannot be isolated.
5 Expansion of the existing special payment provision for co-located LTCHs (HwHs and satellites of LTCHs) at existing § 412.534 to certain sit-
uations not presently covered by existing § 412.534 for subclause (I) LTCHs (as discussed in section V.B. of the preamble of this final rule).
6 Total estimated impact of the provisions of this final rule (that is, sum of the estimated impact of the payment rate and policy change, includ-
ing the revision of the SSO policy, and the estimated impact of the expansion of the ‘‘25 percent’’ policy).
Because the combined distributional situations not presently covered by estimated aggregate LTCH PPS
effects and estimated changes to the § 412.534 for subclause (I) LTCHs, is payments, and the expansion of the ‘‘25
Medicare program payments would be discussed in section XV.C. of this percent’’ policy is projected to result in
greater than $100 million, this final rule regulatory impact analysis. neither an increase nor a decrease in
would be considered a major economic As we discuss in detail throughout estimated aggregate LTCH PPS
rule, as defined in this section. We note the preamble of this final rule, based on payments. Thus, while a significant
the $156 million (or 3.8 percent) the most recent available LTCH data, we portion of the approximately 3.8 percent
decrease in estimated aggregate LTCH believe that although the provisions of decrease in estimated aggregate
PPS payments resulting from the this final rule would result in a decrease payments in the 2008 LTCH PPS rate
provisions presented in this final rule in estimated aggregate LTCH PPS year as compared to the 2007 LTCH PPS
does not reflect changes in LTCH payments, we believe the resulting rate year would not be due to the
admissions or case-mix intensity in LTCH PPS payment amounts result in expansion of the special payment
estimated LTCH PPS payments, which appropriate Medicare payments. provisions for co-located LTCHs to
would also affect overall payment However, we believe that although certain situations not presently covered
changes. appropriate, the provisions of this final by existing § 412.534 for subclause (I)
rule could have a significant impact on LTCHs (as discussed in section V.B. of
2. Regulatory Flexibility Act (RFA) some small entities (as defined above in this final rule), this is due to our
The RFA requires agencies to analyze this section). As also discussed in adoption of a 3 year transition to this
options for regulatory relief of small greater detail below in this section, we policy. However, as that policy is fully
entities. For purposes of the RFA, small are unable to determine how significant implemented at 25 percent (or the
entities include small businesses, the impact of some of the provisions of applicable level) there will be a
nonprofit organizations, and small this final rule may be on small entities significant impact in LTCH payments.
governmental jurisdictions. Most since we expect many LTCHs to adjust We predict the 5 year impact of this
hospitals and most other providers and their admission practices in policy to be as shown in Table 10.
suppliers are small entities, either by implementation of these provisions. We
nonprofit status or by having revenues note that LTCHs have been adapting TABLE 10
of $6.5 million to $31.5 million in any their behavior in response to the policy
1 year. For purposes of the RFA, changes we have implemented over the ‘‘25 Percent’’ pol-
proprietary hospitals are small entities if past few years (for example, the annual icy with 3 year
they meet the small business size Rate year transition (ex-
update to the LTC–DRG relative pressed in mil-
standard described above (for further weights, the ‘‘25 percent policy’’ at lions)*
information, see the Small Business existing § 412.534, the revision to the
Administration’s regulation at 70 FR SSO payment formula at existing 2008 .................................. 0
72577, December 6, 2003). Because we § 412.529(c)(2), and the zero percent 2009 .................................. 20
lack data on individual hospital update to the RY 2007 Federal rate). 2010 .................................. 110
receipts, we cannot determine the 2011 .................................. 160
Although those policy changes were
2012 .................................. 170
number of small proprietary LTCHs. projected to result in decreases in Total ........................... 460
Therefore, we assume that all LTCHs are estimated aggregate LTCH PPS
considered small entities for the payments, the growth in the number of * Projected decrease in estimated aggregate
purpose of the analysis that follows. LTCHs has continued (although at a payments in the LTCH PPS rate years for 5
years due to the expansion of the special pay-
Medicare FIs are not considered to be reduced rate). Based on the most recent ment provisions for co-located LTCHs to cer-
small entities. Individuals and States are available OSCAR data, the number of tain situations not presently covered by exist-
not included in the definition of a small LTCHs has increased over 10 percent in ing § 412.534 for subclause (I) LTCHs (as dis-
entity. the past 2 years (from October 1, 2004 cussed in section V.B. of this final rule).
Currently, our database of 377 LTCHs and October 1, 2006). Because we As discussed in greater detail in
includes the data for 83 non-profit acknowledge that many of the affected section XV.C.1. of this regulatory impact
(voluntary ownership control) LTCHs entities are small entities, the analysis analysis, because we believe that this
and 254 proprietary LTCHs. Of the discussed throughout the preamble of policy would discourage inappropriate
remaining 40 LTCHs, 14 LTCHs are this final rule, in conjunction with the patient shifting to LTCHs and would
Government-owned and operated and discussion presented in greater detail encourage all subclause (I) LTCHs to
the ownership type of the other 26 below in this section and throughout the engage in more appropriate admission
LTCHs is unknown (as shown in Table remainder of this regulatory impact policies since, no payment adjustment
11). The impact of the payment rate and analysis, constitutes our initial analysis would be made if the patient has
policy changes for the 2008 LTCH PPS under the RFA. reached HCO status at the co-located
rate year (including the update to the As shown in Table 9, we estimate that host (under the revision to § 412.534) or
Federal rate, changes to the area wage the provisions of this final rule could at the referring hospital (under
adjustment, and the revision of the SSO result in approximately a 3.8 percent (or § 412.536) prior to being admitted for
policy) is discussed in section XV.B.4.c. $156 million) decrease in estimated additional post-acute care at the LTCH
of this regulatory impact analysis. The payments per discharge in the 2008 (as discussed in greater detail in section
impact of other policy changes, such as LTCH PPS rate year, on average, to all V.B. of this final rule) since patients
the effects of the expansion of the LTCHs. Table 9 shows that the payment who achieved HCO status prior to
special payment provisions for LTCH rate and policy changes are projected to admission to the LTCH will not be
HwHs and LTCH satellites to certain result in a 3.8 percent decrease in counted toward the applicable threshold
under § 412.536 or under the revision to 2006 MedPAR claims data and the CCRs compared to the 2008 LTCH PPS rate
§ 412.534 (although the admission from the December 2006 update of the year. Although we are finalizing a 3.8
would still be counted toward the PSF. Our analysis of the FY 2006 claims percent decrease to the Federal rate for
LTCH’s total Medicare discharges). data showed that, in general, the average RY 2008 (as discussed in section IV.C.
Because we expect that such a policy cost per case has increased as compared of this final rule), the projected percent
would reduce the financial incentives to the FY 2005 claims data. If we had decrease in estimated payments per
that may be present currently for certain kept the fixed loss amount at $18,778, discharge from the 2007 LTCH PPS rate
situations not presently covered by it would have caused the estimated year to the 2008 LTCH PPS rate year is
existing § 412.534 to admit patients aggregate high-cost outlier payments to attributable to the changes to the area
prematurely discharged from other exceed the 8 percent regulatory limit. In wage adjustment (discussed in section
hospitals, we believe this policy would fact, our analysis shows that if we were IV.D.1. of this final rule), the revision of
result in fewer admissions to LTCHs to apply the proposed fixed-loss amount the SSO policy discussed in section
before a complete course of patient care of $18,774, we estimate that outlier V.A.2. of this final rule, as well as the
is provided at the non-co-located payments would be over 9 percent of increase to the HCO fixed-loss amount
referring hospital (under § 412.536) or total estimated LTCH PPS payments in (as discussed in section IV.D.3.c. of this
co-located referring hospital (under the RY 2008. Similarly, to determine the final rule). (As discussed in greater
revision to § 412.534). Thus, any change fixed-loss amount for RY 2007 of detail in section XV.B.4., the impact due
in admission practices as a result of this $14,887, we used the December 2005 to the expansion of the ‘‘25 percent
policy would result in less of a decrease update of the FY 2005 MedPAR claims policy’’ to certain situations not
in estimated aggregate LTCH PPS data and the CCRs from the December presently covered by existing § 412.534
payments once this policy is fully 2005 update of the PSF, as that was the for subclause (I) LTCHs is not reflected
implemented at 25 percent (or the best available data at that time. Based on in Table 11. However, as noted above,
applicable level). Thus, the projected the most recent updated claims and CCR the impact of that policy is discussed in
decrease in estimated aggregate LTCH data available to us at the time of this greater detail in section XV.C.1. of this
PPS payments resulting from this policy final rule, we estimate that the current regulatory impact analysis.)
change would only occur if there were fixed-loss amount (RY 2007, $14,887) As the impact analysis in Table 11
no changes in LTCH admission would result in an aggregate outlier shows, estimated changes to the area
practices. Furthermore, we believe that payment amount of 10.3 percent. As wage adjustment from RY 2007 to RY
this policy would result in appropriate discussed in previously of this rule, 2008 (resulting from both established
Medicare payments since, as noted when we implemented the LTCH PPS, policy and changes presented in section
above, we expect that such a policy under the HCO policy we established IV.D.1. of this final rule, as discussed in
would reduce the financial incentives to the aggregate outlier payment amount at greater detail below in this section)
admit patients prematurely discharged 8 percent of estimated total LTCH PPS contribute to the decrease in estimated
from other hospitals and would payments to allow us to achieve a aggregate LTCH PPS payments from the
encourage all LTCHs to engage in more balance between the need to protect 2007 LTCH PPS rate year to the 2008
appropriate admission policies. For hospitals with costly cases while LTCH PPS rate year. As discussed in
these reasons, although we estimate that providing an incentive for hospitals to section IV.D.1. of this final rule, we are
this policy would result in a decrease in operate efficiently. An aggregate outlier updating the wage index values for RY
estimated aggregate LTCH PPS payment amount in excess of 8 percent 2008, in accordance with the
payments beginning in the second year would not allow us to achieve this goal. progression of the existing 5-year phase-
of the transition, we do not believe that Consequently, while increasing the in of the area wage adjustment, based on
such a projected decrease in estimated fixed-loss amount to $22,954 is the most recent available wage data. We
aggregate LTCH PPS payments, although projected to result in a decrease in believe that updating the LTCH PPS
possibly significant, would adversely estimated aggregate LTCH PPS wage index based on the most recent
affect LTCHs’ ability to deliver efficient payments of 2.5 percent, we believe that available wage data would ensure that
care to Medicare beneficiaries nor this is necessary in order to maintain the LTCH PPS wage index adjustment
would there be an adverse affect on the aggregate outlier payment amount at appropriately accounts for and reflects
Medicare beneficiaries’ access to care. the appropriate 8 percent. Furthermore, the relative hospital wage levels in the
Additionally, as shown in Table 9, we hospitals are aware of our longstanding geographic area of the hospital as
project an estimated 2.5 percent policy which limits high-cost outlier compared to the national average
decrease in estimated payments per payments to 8 percent of estimated total hospital wage level. In addition, we are
discharge from RY 2007 to RY 2008 due LTCH PPS payments. For these reasons, increasing the labor-related share from
to the changes in the fixed-loss amount although we estimate that the change in 75.665 percent to 75.788 percent under
resulting from the use of more recent the fixed-cost amount would result in a the LTCH PPS for RY 2008 based on the
LTCH data to estimate the cost of each decrease in estimated aggregate LTCH most recent available data on the
LTCH case. That is, as discussed in PPS payments, we do not believe that relative importance of the labor-related
detail previously in the preamble of this such an impact on estimated aggregate share of operating and capital costs of
final rule, to determine the proposed LTCH PPS payments would adversely the LTCH PPS market basket (also
fixed-loss amount for RY 2008 of affect LTCHs’ ability to deliver efficient discussed in section IV.D.1. of this final
$18,778, we used claims data from the care to Medicare beneficiaries nor rule). We believe that revising the labor-
March 2006 update of the FY 2005 would there be an adverse affect on related share based on the most recent
MedPAR file and CCRs from the July Medicare beneficiaries’ access to care. available data would appropriately
2006 update of the provider specific file The impact analysis of payment rate identify the portion of the LTCH PPS
(PSF), as that was the best available data and policy changes in Table 11 shows Federal rate that is adjusted to account
at that time. However, to determine the that estimated payments per discharge for geographic differences in area wage
fixed-loss amount for RY 2008 in this are expected to decrease approximately levels by applying the applicable LTCH
final rule, the most recent available data 3.8 percent, on average, for all LTCHs PPS wage index value. As discussed in
are the December 2006 update of the FY from the 2007 LTCH PPS rate year as greater detail in section IV.D.1. of this
final rule, we believe that these changes Because we cannot determine to what (as we discuss in greater detail in
to the LTCH PPS area wage adjustment extent LTCHs may have planned for the section V.A.2. of the preamble of this
based on the most recent available wage decrease in estimated aggregate LTCH final rule). Therefore, we believe that in
data and data on the relative importance PPS payments that is due to the existing response to the revision of the SSO
of the labor-related share of the LTCH 5-year phase-in of the area wage policy, LTCHs may reduce the number
PPS market basket, respectively, would adjustment, even though the impact of SSO cases that are ‘‘similar to IPPS
result in appropriate and accurate LTCH may be significant for some LTCHs, we cases’’ that they admit (and most of
PPS payments for the resources used by believe that most LTCHs would not be those patients would continue to receive
LTCHs in a given area. Such updated adversely affected since, as explained treatment at the acute-care hospital). To
data appropriately reflects national above, we believe that the changes to the extent that LTCHs continue to admit
differences in area wage levels and the area wage adjustment (that is, the SSO cases that are ‘‘similar to IPPS
identifies the portion of the Federal rate use of update wage data and the change cases,’’ we believe that this would result
that should be adjusted to account for in the labor-related share), in in an adjusted LTCH PPS payment that
such differences in area wages. conjunction with the continued is appropriate.
We also note that, even though we are progression of the 5-year phase-in of the For these reasons, although we
not making any changes to the existing area wage adjustment, would result in estimate that the revision of the SSO
5-year phase-in of the wage index appropriate LTCH PPS payments in RY policy would result in a decrease in
adjustment that was established when 2008. For these reasons, we believe that estimated aggregate LTCH PPS
the decrease in estimated aggregate payments, we do not believe that such
the LTCH PPS was implemented
LTCH PPS payments resulting from an impact on estimated aggregate LTCH
(August 30, 2002; 67 FR 56018), the
changes to the area wage adjustment, PPS payments, although possibly
continued progression of this phase-in
although possibly significant for some significant, would adversely affect
also contributes to the decrease in
LTCHs, is appropriate and would not LTCHs’ ability to deliver efficient care
estimated aggregate LTCH PPS
adversely affect LTCHs’ ability to to Medicare beneficiaries nor would
payments for RY 2008. That is, since
deliver efficient care to Medicare there be an adverse affect on Medicare
under the established phase-in of the
beneficiaries nor would there be an beneficiaries’ access to care.
wage-index adjustment, LTCHs receive For all of the reasons discussed above
adverse affect on Medicare beneficiaries’
an increasing percentage of the in this section, although we do not
access to care.
applicable full wage index value (which In addition, as also shown in Table expect an estimated incremental
is less than 1.0 for the majority of 11, the revision of the SSO policy decrease of 3.8 percent (approximately
LTCHs), we expect that estimated discussed in section V.A.2. of this final $156 million) in estimated aggregate
aggregate LTCH PPS payments would rule would also contribute to the LTCH PPS payments to have a
decrease from RY 2007 to RY 2008 as a estimated 3.8 percent decrease in significant adverse financial impact on
result of the progression of the existing estimated aggregate LTCH PPS LTCHs, nor do we expect there would
5-year phase-in of the area wage payments in RY 2008, on average, for all be an effect on beneficiaries’ access to
adjustment. Thus, the majority of the 1.0 LTCHs. We believe that the LTCH cases care, we acknowledge that the
percent decrease in estimated payments that appear to be ‘‘similar to’’ the same provisions of this final rule could have
per discharge, on average, for all LTCHs type of cases treated in an acute care a significant impact on some small
(see Table 11) is due to the existing 5- hospital and paid for under the IPPS, as entities. However, we believe that the
year phase-in of the wage index discussed in greater detail in section provisions of this final rule would result
adjustment, and is not due to policy V.A.2. of this final rule, would receive in appropriate LTCH PPS payments in
changes presented in this final rule. an appropriately adjusted LTCH PPS RY 2008. We also note that LTCHs
Because the existing 5-year phase-in of payment to treat such cases. We believe provide some services to (and generate
the area wage adjustment has been a that those SSO cases that are ‘‘similar to revenue from) patients other than
feature of the LTCH PPS since it was IPPS cases’’ most likely do not receive Medicare beneficiaries and the revenue
implemented beginning October 1, a full course of an LTCH-level of to LTCHs from treating those patients is
2002, and since a large majority (over 70 treatment in such a short period of time not affected by this final rule. This
percent) of LTCHs are located in areas since, in general, LTCHs are intended to analysis, in conjunction with the
where historically the wage index value treat longer stay patients. Although we remainder of this section, demonstrates
is less than 1.0, the decrease in project a decrease in estimated aggregate that this final rule is consistent with the
estimated aggregate LTCH PPS LTCH PPS with the revision of the SSO regulatory philosophy and principles
payments resulting from this policy policy, we believe the change would identified in the RFA. We believe the
should be anticipated by LTCHs, and result in appropriate and adequate provisions presented in this final rule
therefore, already accounted for in their Medicare payments for the treatment of would affect payments to LTCHs, and
fiscal planning. In addition, we note Medicare beneficiaries with a LOS that the effects on some LTCHs, although
that, although the portion of the is ‘‘similar to’’ typical IPPS cases. they may be significant, are appropriate.
decrease in estimated aggregate LTCH Furthermore, we believe that, the
PPS payments that is due to the existing revision to the SSO policy would 3. Impact on Rural Hospitals
5-year phase-in of the wage index accomplish our stated goal of removing Section 1102(b) of the Act requires us
adjustment is expected, we believe that the incentive for LTCHs to admit to prepare a regulatory impact analysis
any change in LTCHs’ wage index patients for whom a long-term hospital if a rule may have a significant impact
values under this policy is appropriate stay is not necessary, and therefore, for on the operations of a substantial
since LTCHs will be receiving an whom the LTCH would not be number of small rural hospitals. This
increasing percentage of the applicable providing complete treatment. As noted analysis must conform to the provisions
full wage index value, which, by previously, the vast majority of LTCH of section 604 of the RFA. For purposes
definition, reflects the relative hospital cases, including SSO cases, are admitted of section 1102(b) of the Act, we define
wage levels for the area in which the to the LTCH directly from an acute-care a small rural hospital as a hospital that
LTCH is located as compared to the hospital, and therefore, many SSO cases is located outside of a Metropolitan
national average hospital wage level. may still be in need of acute-level care Statistical Area and has fewer than 100
beds. As shown in Table 11, we are changes to the area wage adjustment locations, as well as the difference
projecting a 6.2 percent decrease in presented in this final rule (that is, the between the provision and availability
estimated payments per discharge for use of update wage data and the change of medical services as compared to
the 2008 LTCH PPS rate year as in the labor-related share) would result urban areas’’ (69 FR 49206). Therefore,
compared to the 2007 LTCH PPS rate in accurate and appropriate LTCH PPS under our policy, we will apply the
year for rural LTCHs as a result of the payments in RY 2008 since they are same rationale to certain situations not
payment rate changes, based on the data based on the most recent available data. presently covered by existing § 412.534
of the 23 rural LTCHs in our database Such updated data appropriately reflect that would occur in subclause (I) LTCHs
of 377 LTCHs for which complete data national differences in area wage levels that are located in rural areas.
were available. and identifies the portion of the Federal Accordingly, rather than a 25 percent
As shown in Table 11, a significant rate that should be adjusted to account threshold (as is being implemented for
portion of the estimated decrease in for such differences in area wages, most urban LTCHs), for rural LTCHs,
estimated LTCH PPS payments in the thereby resulting in accurate and the payment adjustment will only be
2008 LTCH PPS rate year as compared appropriate LTCH PPS payments. applied to those LTCH’s or LTCH
to the 2007 LTCH PPS rate year for Because we cannot determine to what satellite facility’s Medicare discharges
payment rate and policy changes for extent LTCHs may have planned for the that were admitted from a non-co-
rural LTCHs is due to the change in the decrease in estimated aggregate RY 2008 located referring hospital under
area wage adjustment (as discussed in LTCH PPS payments that results from § 412.536 or co-located host under the
greater detail in section V.D.1. of the the existing 5-year phase-in of the area revision to § 412.534 that are in excess
preamble of this final rule). Specifically, wage adjustment, we believe that of 50 percent of the LTCH’s total
although we are not making any changes although the effects of the changes to Medicare discharges for that hospital for
to the existing 5-year phase-in of the the area wage adjustment on some rural any cost reporting period. Under this
wage index adjustment that was LTCHs may be significant, most rural revision, consistent with the existing
established when the LTCH PPS was LTCHs should not be adversely affected policy at § 412.534, no payment
implemented (August 30, 2002; 67 FR because those changes are expected to adjustment will be made if the patient
56018), the continued progression of result in appropriate LTCH PPS has reached HCO status at the referring
this phase-in contributes to the decrease payments in RY 2008. hospital (under § 412.536) or at the co-
in estimated payments to rural LTCHs located host (under the revision to
We also believe that the expansion of
for RY 2008. This is because, under the § 412.534) prior to being admitted for
established phase-in of the wage-index the payment adjustment at existing
§ 412.534 to certain situations not additional post-acute care at the LTCH.
adjustment, LTCHs receive an That is, in calculating the 50 percent
increasing percentage of the applicable presently covered by that policy for
subclause (I) LTCHs may have a threshold (for rural LTCHs), patients
full wage index value (which is less who achieved HCO status prior to
than 1.0 for all of the 23 rural LTCHs significant adverse impact on some rural
LTCHs, although we cannot determine admission to the LTCH will not be
in our database), we expect that counted toward the applicable threshold
estimated payments per discharge for how significant for the reasons
explained below in this section. Even under § 412.536 or under the revision to
rural LTCHs would decrease from RY § 412.534 (although the admission
2007 to RY 2008 as a result of the though this policy, once it is fully
implemented at 25 percent (or the would still be counted toward the
progression of the 5-year phase-in of the LTCH’s total Medicare discharges).
wage index adjustment. Thus, the applicable level), is estimated to reduce
majority of the projected decrease in estimated aggregate LTCH PPS Furthermore, because such a policy
estimated payments per discharge payments and may result in a significant would reduce the financial incentives
shown in Table 11 for rural LTCHs is impact on some rural LTCHs, we also for all LTCHs, including rural LTCHs, to
due to the existing 5-year phase-in of believe that such changes would result admit patients prematurely discharged
the wage index adjustment, and is not in appropriately adjusted LTCH PPS from other hospitals, we believe this
due to policy changes presented in this payments (as explained below in this policy will result in fewer admissions to
final rule. We believe that the decrease section). As discussed in greater detail LTCHs before a complete course of
in estimated aggregate LTCH PPS in section V.B. of this final rule, in patient care is provided at the referring
payments resulting from this existing designing features of the original ‘‘25 hospital. As noted above, any changes
policy should be anticipated by LTCHs, percent policy’’ for co-located LTCHs in admission practices as a result of this
and therefore, already accounted for in (HwHs and LTCH satellites), which we policy will result in less of a decrease
their fiscal planning. In addition, we proposed to extend to certain situations in estimated aggregate LTCH PPS
note that, although the portion of the not presently covered by existing payments based on current admission
decrease in estimated aggregate LTCH § 412.534 for subclause (I) LTCHs, we practices. Thus, the decrease in
PPS payments that is due to this provided special treatment for rural estimated aggregate LTCH PPS
existing policy is expected, we believe hospitals which would increase the payments to rural LTCHs resulting from
that any change in LTCHs’ wage index threshold from 25 percent to 50 percent. this policy change will only occur if
values due to the continued progression When we established the 25 percent (or there were no change in rural LTCH
of the phase-in of the area wage applicable percentage) payment admission practices. It is our intention,
adjustment is appropriate since LTCHs adjustment for co-located LTCHs at under this policy, to discourage LTCHs
will be receiving an increasing existing § 412.534, after which this from serving as ‘‘step-down’’ units after
percentage of the applicable full wage payment adjustment for situations not a patient has been diagnosed and
index value, which, by definition, presently covered by that policy has received initial treatment at another
reflects the relative hospital wage levels been modeled, we noted in response to hospital, a scenario that results in two
for the area in which the LTCH is comments that ‘‘the Congress has Medicare payments (one to the referring
located as compared to the national authorized special treatment for rural hospital and one to the LTCH) for what
average hospital wage level. areas under the Medicare program was essentially one episode of patient
Furthermore, as also explained in because of the particular geographic and care. Rather, it is our intent to encourage
greater detail above, we believe that the demographic challenges in those LTCHs to admit patients who required
additional long-stay hospital-level care to Medicare beneficiaries, nor some rural LTCHs resulting from the
treatment following the provision of a would there be an adverse effect on changes present in this final rule.
full episode of care at the referring Medicare beneficiaries’ access to care. However, a portion of the decrease in
hospital. For those patients, under this In addition, the revision of the SSO rural LTCHs’ estimated payments per
policy Medicare would pay an policy will also contribute to the discharge from RY 2007 to RY 2008
unadjusted amount under the LTCH projected decrease in estimated would be less than what we estimate
PPS. We believe that this policy would payments to rural LTCHs for RY 2008. based on current admission practices (as
result in more appropriate admission About 40 percent of rural LTCHs treat explained above in this section). We
policies by rural LTCHs. Therefore, we a larger than average percentage of SSO also believe (as discussed previously) a
believe that although the effects on cases (in fact, based on FY 2005 data for significant portion of the projected
some rural LTCHs of the expansion of a few rural LTCHs, SSO cases represent decrease in estimated payments per
the payment adjustment at existing over half of their total cases). However, discharge for RY 2008, which is due to
§ 412.534 to certain situations not we are not able to determine whether the established phase-in of the wage
presently covered by that policy for the revision to the SSO policy would index adjustment, and the increased fix-
subclause (I) LTCHs may be significant, result in an adverse financial impact on loss amount in order to maintain the
most rural LTCHs will not be adversely rural LTCHs because we believe that aggregate outlier payment amount of 8
affected because this policy change is most LTCHs (including rural LTCHs) percent, is not a result of a policy
expected to result in changes in would reduce the number of SSO cases change, and may already be accounted
admission practices and appropriate that they admit that are ‘‘similar to IPPS for in LTCHs’ fiscal plans. Therefore,
payments for such cases, as explained cases’’ (as discussed in greater detail although we believe this final rule
above in this section. above). (We note that although we would affect payments to rural LTCHs,
expect most LTCHs (including rural and the effects on some rural LTCHs,
Additionally, according to our
LTCHs) to admit fewer SSO cases under although appropriate, may be
analysis, we project an estimated 2.8
the revision of the SSO policy, most of significant, we are unable to determine
percent decrease in estimated payments
those patients would continue to receive how significantly the changes presented
per discharge to rural LTCHs from RY
treatment at the acute-care hospital from in this final rule, would adversely affect
2007 to RY 2008 due to the changes in
which they are typically discharged rural LTCHs. However, because we
the fixed-loss amount resulting from the
immediately prior to their LTCH (short- expect changes in admission practice
use of more recent LTCH data to stay) admission.) Thus, the projected 6.2 and appropriate payments, (as discussed
estimate the cost of each LTCH case. As percent decrease in estimated payments above), we do not anticipate that the
discussed previously in this impact per discharge shown in Table 11 for provisions of this final rule would affect
analysis regarding small entities, based rural LTCHs represents an average the ability of the vast majority of rural
on the most recent updated claims and maximum reduction in estimated LTCHs to provide cost efficient services
CCR data, we increased the fixed-loss aggregate LTCH PPS payments in RY to Medicare patients nor do we expect
amount in order to maintain an 2008, and since we anticipate that there would be an adverse effect on
aggregate outlier payment amount of 8 LTCHs (including rural LTCHs) would beneficiaries’ access to care. The
percent of estimated total payments. As admit fewer SSO patients for whom analysis presented above, in
discussed previously in this final rule, payments would be affected by the conjunction with the remainder of this
when we implemented the LTCH PPS, revision of the SSO policy, we believe regulatory impact analysis,
under the HCO policy we established that the actual decrease in rural LTCHs’ demonstrates that this final rule is
the aggregate outlier payment amount at payments for RY 2008 would be less consistent with the regulatory
8 percent of estimated total LTCH PPS than the 6.2 percent decrease in philosophy and principles identified in
payments to allow us to achieve a estimated payments for RY 2008 shown section 1102(b) of the Act. (For
balance between the need to protect in Table 11. additional information on the estimated
hospitals with costly cases while Furthermore, to the extent that rural impact of the changes on rural LTCHs
providing an incentive for hospitals to LTCHs would continue to admit SSO presented in this final rule, refer to
operate efficiently. An aggregate outlier cases with a LOS that is ‘‘similar to IPPS section XV.B.4.a. of this regulatory
payment amount in excess of 8 percent cases,’’ we believe the revision of the impact analysis.)
would not allow us to achieve this goal. SSO policy will result in an appropriate
Consequently, while the increase in the adjusted LTCH PPS payment because 4. Unfunded Mandates
fixed-loss amount to $22,954 for RY we believe that many of those SSO cases Section 202 of the Unfunded
2008 is projected to result in a decrease most likely do not receive a full course Mandates Reform Act of 1995 (UMRA)
in estimated aggregate LTCH PPS of a LTCH-level of treatment in such a also requires that agencies assess
payments to rural hospitals by 2.8 short period of time since, in general, anticipated costs and benefits before
percent, we believe that this is LTCHs are intended to treat longer stay issuing any rule whose mandates
necessary in order to maintain the patients. Therefore, although we require spending in any one year of
aggregate outlier payment amount at the estimate the revision to the SSO policy $100 million in 1995 dollars, updated
appropriate 8 percent. Furthermore, could result in a decrease in estimated annually for inflation. That threshold
hospitals are aware of our longstanding aggregate LTCH PPS payment to rural level is currently approximately $120
policy which limits high-cost outlier LTCHs, we do not believe that such an million. This final rule would not
payments to 8 percent of estimated total estimated impact on rural LTCHs’ LTCH mandate any requirements for State,
LTCH PPS payments. For these reasons, PPS payments, even though possibly local, or tribal governments, nor would
although we estimate that the change in significant, would adversely affect most it result in expenditures by the private
the fixed-loss amount would result in a rural LTCHs because the revision would sector of $120 million or more in any 1
decrease in estimated aggregate LTCH be expected to result in changes in year.

PPS payments, we do not believe that admission practices and in appropriate
such an impact on estimated aggregate payments for such cases. 5. Federalism
LTCH PPS payments would adversely For these reasons, we believe that Executive Order 13132 establishes
affect LTCHs’ ability to deliver efficient there may be a significant impact on certain requirements that an agency
must meet when it publishes a final rule standard Federal rate under relative weight), we make adjustments
(and subsequent final rule) that imposes § 412.523(d)(2), we set total estimated for differences in area wage levels,
substantial direct requirement costs on payments for FY 2003 under the LTCH COLA for Alaska and Hawaii, and SSOs.
State and local governments, preempts PPS so that estimated aggregate Furthermore, LTCHs may also receive
State law, or otherwise has Federalism payments under the LTCH PPS are HCO payments for those cases that
implications. estimated to equal the amount that qualify based on the threshold
We have examined this final rule would have been paid if the LTCH PPS established each rate year.
under the criteria set forth in Executive had not been implemented. However, as To understand the impact of the
Order 13132 and have determined that discussed in greater detail in the August changes to the LTCH PPS payment rates
this final rule would not have any 30, 2002 final rule (67 FR 56033 through and payment rate policy changes
significant impact on the rights, roles, 56036), the FY 2003 LTCH PPS standard discussed in sections IV. and V.A. of
and responsibilities of State, local, or Federal rate ($34,956.15) was calculated this final rule on different categories of
tribal governments or preempt State based on all LTCHs being paid 100 LTCHs for the 2008 LTCH PPS rate year,
law, based on the 14 State and local percent of the standard Federal rate in it is necessary to estimate payments per
LTCHs in our database of 377 LTCHs for FY 2003. As discussed in section IV.D.5. discharge under the LTCH PPS rates,
which data were available. of this final rule, during LTCH rate years factors and policies established for RY
6. Alternatives Considered governed by the 5-year transition period 2007 (established in the RY 2007 LTCH
policy set forth at § 412.533(a), we PPS final rule (71 FR 27798 through
In the preamble of this final rule, we applied a BN offset to payments to 27939)) and to estimate payments per
are setting forth the annual update to account for the monetary effect of the discharge that would be made under the
the payment rates for the LTCH PPS, as applicable transition period LTCH PPS rates, factors and policies for
well as proposing other policy changes methodology (including the option to the 2008 LTCH PPS rate year (as
and discussing approaches for other elect payments based on 100 percent of discussed in the preamble of this final
areas of concern. In this preamble, we the Federal rate in lieu of the transition rule). We also evaluated the change in
specify the statutory authority for the blend methodology) in a given LTCH estimated 2007 LTCH PPS rate year
provisions that are presented, identify PPS rate year. Specifically, for FY 2003 payments to estimated 2008 LTCH PPS
those policies when discretion has been and RYs 2004 through 2007, the amount rate year payments (on a per discharge
exercised, and present rationale for our of the transition period BN offset was basis) for each category of LTCHs.
decisions, alternatives that were equal to 1 minus the ratio of the Hospital groups were based on
considered and solicit comments on estimated payments based on 100 characteristics provided in the OSCAR
suggested alternatives from commenters percent of the LTCH PPS Federal rate to data, FY 2002 through FY 2004 cost
(where relevant). the projected total Medicare program report data in HCRIS, and PSF data.
B. Anticipated Effects of Payment Rate payments that would be made under the Hospitals with incomplete
Changes transition methodology and the option characteristics were grouped into the
to elect payment based on 100 percent ‘‘unknown’’ category. Hospital groups
We discuss the impact of the changes of the Federal prospective payment rate. include:
to the payment rates, factors, and other However, as we discuss in greater detail • Location: Large Urban/Other Urban/
payment rate policies presented in the in section IV.D.5. of this final rule, we Rural.
preamble of this final rule in terms of are no longer projecting a small cost for • Participation date.
their estimated fiscal impact on the the 2008 LTCH PPS rate year (July 1, • Ownership control.
Medicare budget and on LTCHs. (We 2007 through June 30, 2008) even • Census region.
note that the impact of other policy though some LTCH’s will have a cost • Bed size.
changes presented in this final rule, reporting period for the 5th year of the To estimate the impacts of the
which do not directly affect the LTCH transition period which will be payment rates and payment rate policy
PPS per discharge payment rates (for concluding in the first 3 months of the changes among the various categories of
example, the expansion of the existing 2008 LTCH PPS rate year. Based on the existing providers, we used LTCH cases
payment provision for co-located LTCHs most recent available data, we are from the FY 2006 MedPAR file to
to certain situations not presently projecting that the vast majority of estimate payments for RY 2007 and to
covered by existing § 412.534 for LTCHs would have made the election to estimate payments for RY 2008 for 377
subclause (I) LTCHs discussed in be paid based on 100 percent of the LTCHs. While currently there are just
section V.B. of this final rule and the Federal rate rather than the transition under 400 LTCHs, the most recent
policy change relating to GME payments blend, which would result in a growth is predominantly in for-profit
discussed in section XII. of this final negligible cost to the Medicare program. LTCHs that provide respiratory and
rule), are not included as part of the Therefore, in this final rule, we did not ventilator-dependent patient care. We
impact analysis shown in Table 11. propose a transition BN offset to all believe that the discharges from the FY
However, the impact of certain other LTCH PPS payments for RY 2008 to 2006 MedPAR data for the 377 LTCHs
policies are discussed separately in account for the estimated cost of the in our database, which includes 254
section XV.C. of this regulatory impact transition period methodology proprietary LTCHs, provide sufficient
analysis. (including the option to elect payment representation in the LTC–DRGs
based on 100 percent of the Federal rate) containing discharges for patients who
1. Budgetary Impact received LTCH care for the most
in RY 2008.
Section 123(a)(1) of the BBRA commonly treated LTCH patients’
requires that the PPS developed for 2. Impact on Providers diagnoses.
LTCHs ‘‘maintain budget neutrality.’’ The basic methodology for As discussed in greater detail in
We believe that the statute’s mandate for determining a per discharge LTCH PPS section VII. of this final rule, under the
budget neutrality (BN) applies only to payment is set forth in § 412.515 5-year transition set forth at
the first year of the implementation of through § 412.525. In addition to the § 412.533(a), a LTCH’s total payment
the LTCH PPS (that is, FY 2003). basic LTC–DRG payment (standard under the LTCH PPS was based on an
Therefore, in calculating the FY 2003 Federal rate multiplied by the LTC–DRG increasing percentage of the Federal rate
with a corresponding decrease in the $38,356.45 (based on the 0.71 percent LTCH PPS wage index values for the
percentage of its LTCH PPS payment update discussed in section IV.C.3. of 2007 LTCH PPS rate year are shown in
based on reasonable cost principles. the preamble to this final rule), the Tables 1 and 2 of the Addendum to the
However, effective for cost reporting outlier fixed-loss amount of $22,954, RY 2007 LTCH PPS final rule (71 FR
periods beginning on or after October 1, and the same FY 2006 LTCH claims 27906 through 27930). We adjusted for
2006, total LTCH PPS payments are data. area wage differences for estimated 2007
based entirely on the Federal rate. LTCH PPS rate year payments using the
3. Calculation of Prospective Payments
Therefore, even though some LTCHs current LTCH PPS labor-related share of
will have a cost reporting period for the To estimate per discharge payments 75.665 percent (71 FR 27830).
4th year of the transition period that under the LTCH PPS, we simulated Similarly, we adjusted for area wage
will be concluding in the first 3 months payments on a case-by-case basis by differences for estimated 2008 LTCH
of the 2008 LTCH PPS rate year, the applying the established (for RY 2007) PPS rate year payments by computing a
portion of those LTCHs’ LTCH PPS and (for RY 2008) adjustments for area weighted average of a LTCH’s applicable
payments that will be based on wage differences (as described in wage index during the period from July
reasonable cost principles during RY section IV.D.1. of the preamble of this 1, 2007, through June 30, 2008, because,
2008 is negligible relative to LTCH PPS final rule), and the COLA for Alaska and although under the established phase-in
payments based on the Federal rate. Hawaii (as described in section IV.D.2. of the wage index adjustment for cost
This is because, as discussed in greater of the preamble of this final rule). As reporting periods beginning on or after
detail in section IV.D.5. of this final discussed above, we also accounted for October 1, 2006, the applicable LTCH
rule, based on the most recent available the existing payment policy for SSOs in wage index value is the full (five-fifths)
data, we are projecting that the vast RY 2007 and the revision of the SSO LTCH PPS wage index value, during RY
majority of LTCHs have already made policy in RY 2008. Additional payments 2008 some providers will still
the election to be paid based on 100 would also be made for HCOs (as experience a change in the wage index
percent of the Federal rate rather than described in section IV.D.3. of this final phase-in percentage during that period.
the transition blend prior to the start of rule). As noted in section IV.D.4. of this For example, during RY 2008, a
their FY 2006 cost reporting period (that final rule, we are not proposing to make provider with a FY 2006 cost reporting
is, the 4th year of the transition period adjustments for rural location, period that began September 1, 2006,
as set forth at § 412.533(a)), and even for geographic reclassification, indirect (and will end on August 31, 2007)
medical education costs, or a DSH would have 2 months (July 2007 and
those few remaining LTCHs paid under
payment for the treatment of low- August 2007) of payments under the
the transition blend methodology set
income patients because sufficient new four-fifths wage index value and 10
forth at § 412.533(a), their total LTCH
data have not been generated that would months (September 2007 through June
PPS payments are now based mostly on
enable us to conduct a comprehensive 2007) of payment under the (full) five-
the Federal rate (since the transition
reevaluation of these payment fifths wage index value. For this
blend percentages for cost reporting
adjustments. provider, we computed a blended wage
periods beginning during FY 2006 are We adjusted for area wage differences
80 percent of the Federal rate and 20 index of 16.7 percent (2 months/12
for estimated 2007 LTCH PPS rate year months) of the four-fifths wage index
percent of the LTCH PPS payment based payments by computing a weighted
on reasonable cost principles). value and 83.3 percent (10 months/12
average of a LTCH’s applicable wage months) of the (full) five-fifths wage
Therefore, in this final rule, we are no index during the period from July 1, index value. The applicable LTCH PPS
longer providing a separate impact table 2006 through June 30, 2007 because wage index values for the 2008 LTCH
reflecting the applicable transition some providers may experience a PPS rate year are shown in Tables 1 and
blend percentages, which required cost change in the wage index phase-in 2 of Addendum A to this final rule. We
data to determine estimated LTCH PPS percentage during that period. For cost adjusted for area wage differences for
payments based on reasonable cost reporting periods beginning on or after estimated 2008 LTCH PPS rate year
principles. Accordingly, the impact October 1, 2005, and before September payments using the LTCH PPS labor-
analyses of the payment rates and 30, 2006 (FY 2006), the labor portion of related share of 75.511 percent (see
payment rate policy changes presented the Federal rate is adjusted by four-fifths section IV.D.1.c. of this final rule).
below reflects estimated LTCH PPS of the applicable LTCH PPS wage index. As noted previously in this final rule,
payments to all LTCHs based solely on For cost reporting periods beginning on under the 5-year transition set forth at
the Federal rate. or after October 1, 2006, and before § 412.533(a), a LTCH’s total payment
These impacts reflect the estimated September 30, 2007 (FY 2007), the labor under the LTCH PPS was based on an
‘‘losses’’ or ‘‘gains’’ among the various portion of the Federal rate is adjusted by increasing percentage of the Federal rate
classifications of LTCHs for the 2007 five-fifths (that is, the full amount) of with a corresponding decrease in the
LTCH PPS rate year (July 1, 2006 the applicable LTCH PPS wage index. percentage of the LTCH PPS payment
through June 30, 2007) compared to the Therefore, during RY 2007, a provider that is based on reasonable cost
2008 LTCH PPS rate year (July 1, 2007 with a cost reporting period that began principles. However, effective for cost
through June 30, 2008) based on the October 1, 2006, would have 3 months reporting periods beginning on or after
payment rates and payment rate policy (July 2006 through September 2006) of October 1, 2006, total LTCH PPS
changes presented in this final rule. payments under the four-fifths wage payments are based solely on the
Prospective payments for the 2007 index value and 9 months (October 2006 Federal rate. Therefore, even though
LTCH rate year were based on the through June 2007) of payment under some LTCHs will have a cost reporting
standard Federal rate of $38,086.04, the the (full) five-fifths wage index value. period for the 4th year of the transition
outlier fixed-loss amount of $14,887, For this provider, we computed a period that will be concluding in the
and the LTCHs’ estimated case-mix blended wage index of 25 percent (3 first 3 months of the 2008 LTCH PPS
based on FY 2006 LTCH claims data. months/12 months) of the four-fifths rate year, the portion of those LTCH PPS
Estimated prospective payments for the wage index value and 75 percent (9 payments that will be based on
2008 LTCH PPS rate year would be months/12 months) of the (full) five- reasonable cost principles during RY
based on the standard Federal rate of fifths wage index value. The applicable 2008 is negligible relative to LTCH PPS
payments based on the Federal rate, and period methodology (including the • The fifth column shows the
therefore, we are no longer estimating option to elect payment based on 100 estimated payment per discharge for the
transition payments as we have done in percent of the Federal rate) in RY 2008 2008 LTCH PPS rate year.
past impact analyses (for example, 71 since we are projecting that such costs • The sixth column shows the
FR 27892). would be negligible. estimated percentage change in
As noted in Table 11, we show the estimated payments per discharge from
Furthermore, in estimating both RY
impact as if all LTCHs would be paid the 2007 LTCH PPS rate year to the 2008
2007 and RY 2008 LTCH PPS payments,
100 percent of the Federal rate since, LTCH PPS rate year for changes to the
we did not apply a transition period BN
based on the most recent available data Federal rate.
offset to payments to account for the and the transition blend percentages set
effect of the 5-year transition • The seventh column shows the
forth at § 412.533(a), nearly all LTCH percentage change in estimated
methodology and election of payment PPS payments would be based on 100
based on 100 percent of the Federal rate payments per discharge from the 2007
percent of the applicable LTCH PPS LTCH PPS rate year to the 2008 LTCH
on Medicare program payments standard Federal rate during the
(established in the August 30, 2002 final PPS rate year for changes to the area
majority of RYs 2007 and 2008. Table 11 wage adjustment at § 412.525(c) (as
rule (67 FR 56034)). This is because, for illustrates the estimated aggregate
RY 2007, we established a 0.0 percent discussed in section IV.D.1. of the
impact of the LTCH PPS among various
BN offset (a BN factor of 1.0) to preamble of this final rule).
classifications of LTCHs.
payments to account for the effect of the • The first column, LTCH • The eighth column shows the
5-year transition methodology and Classification, identifies the type of percent change in estimated payments
election of payment based on 100 LTCH. per discharge from the 2007 LTCH PPS
percent of the Federal rate on Medicare • The second column lists the rate year to the 2008 LTCH PPS rate year
program payments in RY 2007 (71 FR number of LTCHs of each classification for the revision of the SSO policy at
27841). As noted above and discussed type. § 412.529.
in greater detail in section IV.D.5. of this • The third column identifies the • The ninth column shows the
final rule, we are not proposing a number of LTCH cases. estimated percentage change in
transition period BN offset to all LTCH • The fourth column shows the estimated payments per discharge from
PPS payments in RY 2008 to account for estimated payment per discharge for the the 2007 LTCH PPS rate year to the 2008
the estimated cost of the transition 2007 LTCH PPS rate year. LTCH PPS rate year for all changes.
TABLE 11: PROJECTED IMPACT OF PAYMENT RATE AND PAYMENT RATE POLICY CHANGES TO LTCH PPS PAYMENTS
FOR RY 2008*
[Estimated 2007 LTCH PPS Rate Year Payments Compared to Estimated 2008 LTCH PPS Rate Year Payments*]
Percent
Percent Percent
change 3 in
change in change in
estimated Percent
estimated estimated
payments change in
Average RY Average RY payments payments
per dis- payments
2007 LTCH 2008 LTCH per dis- per dis-
Number charge from per dis-
Number of LTCH PPS rate PPS rate charge from charge from
LTCH Classification of RY 2007 to charge from
PPS cases year pay- year pay- RY 2007 to RY 2007 to
LTCHs RY 2008 for RY 2007 to
ment per ment per RY 2008 for RY 2008 for
finalized RV 2008 for
case 1 case 2 finalized finalized
changes to all
changes to changes to
the area changes 6
the Federal the SSO
wage ad-
rate 3 policy 5
justment 4
ALL PROVIDERS 377 129,812 32,948.31 31,690.36 0.6 ¥1 ¥0.9 ¥3.8

By Location:
RURAL .................. 23 5,300 26,996.15 25,311.01 0.7 ¥2.8 ¥0.9 ¥6.2
URBAN ................. 354 124,512 33,201.67 31,961.90 0.6 ¥1 ¥0.9 ¥3.7
LARGE .................. 182 75,064 34,569.39 33,479.26 0.6 ¥0.6 ¥0.9 ¥3.2
OTHER ................. 172 49,448 31,125.41 29,658.50 0.6 ¥1.7 ¥0.9 ¥4.7
By Participation Date:
BEFORE OCT.
1983 .................. 16 6,989 28,710.08 27,984.35 0.6 ¥0.4 ¥0.6 ¥2.5
OCT. 1983–SEPT.
1993 .................. 44 20,751 34,144.47 32,974.16 0.6 ¥0.8 ¥0.9 ¥3.4
OCT. 1993–SEPT.
2002 .................. 203 73,460 32,799.56 31,565.05 0.6 ¥1 ¥0.8 ¥3.8
AFTER OCTOBER
2002 .................. 108 27,949 33,576.33 32,052.78 0.6 ¥1.5 ¥1.1 ¥4.5
UNKNOWN PAR-
TICIPATION
DATE ................. 6 663 30,193.71 29,182.43 0.6 ¥0.7 ¥0.7 ¥3.3
By Ownership Type:
VOLUNTARY ........ 83 25,732 32,158.56 30,868.01 0.6 ¥1.2 ¥1 ¥4
PROPRIETARY .... 254 97,294 33,085.40 31,855.57 0.6 ¥1 ¥0.9 ¥3.7
GOVERNMENT .... 14 2,694 36,386.88 34,739.92 0.6 ¥1.8 ¥0.9 4.5

UNKNOWN OWN-
ERSHIP TYPE .. 23 4,027 32,383.98 30,918.43 0.6 ¥1.4 ¥1 ¥4.5
By Census Region:
NEW ENGLAND ... 16 9,634 27,868.81 27,195.59 0.6 ¥0.3 ¥0.7 ¥2.4
TABLE 11: PROJECTED IMPACT OF PAYMENT RATE AND PAYMENT RATE POLICY CHANGES TO LTCH PPS PAYMENTS
FOR RY 2008*—Continued
[Estimated 2007 LTCH PPS Rate Year Payments Compared to Estimated 2008 LTCH PPS Rate Year Payments*]
Percent
Percent change 3 in
Percent
change in estimated
change in Percent
estimated payments
estimated change in
Average RY Average RY payments per dis-
payments payments
2007 LTCH 2008 LTCH per dis- per dis-
Number charge from per dis-
Number of LTCH PPS rate PPS rate charge from charge from
LTCH Classification of RY 2007 to charge from
PPS cases year pay- year pay- RY 2007 to RY 2007 to
LTCHs RY 2008 for RY 2007 to
ment per ment per RY 2008 for finalized
RY 2008 for RV 2008 for
case 1 case 2 finalized changes to
finalized all
changes to the area
changes to changes 6
the Federal wage ad-
the SSO
rate 3 justment 4
policy 5
MIDDLE ATLAN-
TIC ..................... 30 8,114 33,633.19 32,342.46 0.6 ¥1.1 ¥0.9 ¥3.8
SOUTH ATLANTIC 47 13,402 36,618.12 35,064.93 0.6 ¥1.5 ¥1 ¥4.2
EAST NORTH
CENTRAL .......... 69 19,477 35,727.90 34,565.61 0.6 ¥0.5 ¥0.9 ¥3.3
EAST SOUTH
CENTRAL .......... 28 7,848 33,523.34 31,749.31 0.6 ¥2.3 ¥1 ¥5.3
WEST NORTH
CENTRAL .......... 18 5,337 35,460.12 33,952.08 0.6 ¥1.4 ¥0.9 ¥4.3
WEST SOUTH
CENTRAL .......... 129 50,983 29,548.10 28,136.94 0.6 ¥1.7 ¥0.9 ¥4.8
MOUNTAIN ........... 22 5,768 35,112.45 34,384.29 0.6 0.6 ¥1.1 ¥2.1
PACIFIC ................ 18 9,249 41,923.26 41,407.75 0.6 0.8 ¥0.7 ¥1.2
By Bed Size:
BEDS: 0–24 .......... 32 4,998 30,256.35 28,833.57 0.7 ¥1.4 ¥0.9 ¥4.7
BEDS: 25–49 ........ 196 45,487 33,211.07 31,783.23 0.6 ¥1.4 ¥1 ¥4.3
BEDS: 50–74 ........ 65 24,371 33,228.43 31,986.77 0.6 ¥0.9 ¥0.9 ¥3.7
BEDS: 75–124 ...... 48 22,364 33,612.00 32,369.11 0.6 ¥1 ¥0.8 ¥3.7
BEDS: 125–199 .... 21 17,716 33,261.36 32,056.82 0.6 ¥0.9 ¥0.9 ¥3.6
BEDS: 200 + ......... 15 14,876 31,219.79 30,423.78 0.6 ¥0.2 ¥0.7 ¥2.5
UNKNOWN BED
SIZE .................. 0 0 0.00 0.00 0 0 0 0
* We also note that, as discussed above in section XV.B.4. of this regulatory impact analysis, the 2.2 percent decrease in estimated aggregate
LTCH PPS payments due to the expansion of the special payment provision for co-located LTCHs to certain situations not presently covered by
existing § 412.534 for subclause (I) LTCHs (as discussed in section V.B. of this final rule) is not reflected in this impact table. However, the im-
pact of the expansion of the ‘‘25 percent’’ policy is discussed in greater detail below in section XV.C.1. of this regulatory impact analysis.
1 Estimated average estimated payment per case for the 12-month period of July 1, 2006 through June 30, 2007.
2 Estimated average estimated payment per case for the 12-month period of July 1, 2007 through June 30, 2008.
3 Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate year for the changes
to the Federal rate. (Note, as discussed in section XV.B.4. of this regulatory impact analysis, because about 34 percent of all LTCH cases are
projected to receive a payment under the existing SSO policy that is based either on the estimated cost of the case or the ‘‘IPPS comparable
amount’’ (rather than the Federal rate), the percent change in estimated payments per discharge due to the changes to the Federal rate for most
of the categories of LTCHs, 0.6 percent, is slightly less than the update to the Federal rate of 0.71 percent.)
4 Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate year for changes to
the area wage adjustment policy at § 412.525(c) (as discussed in section V.D.1. of the preamble of this final rule).
5 Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate year for the revision of
the existing SSO policy at § 412.529 (presented in section V.A.1.a. of the preamble of this final rule).
6 Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year (as established in the RY 2007 LTCH PPS final
rule (71 FR 27798 through 27939)) to the 2008 LTCH PPS rate year (as discussed in the preamble of this final rule) for all of the payment rate
and policy provisions presented in the preamble of this final rule. Note, this column, which shows the percent change in estimated payments per
discharge for all changes, may not exactly equal the sum of the percent changes in estimated payments per discharge for changes to the Fed-
eral rate (column 7), for area wage adjustment changes (column 8) and the approach discussed for the SSO policy (column 9) due to the effect
of estimated changes in aggregate HCO payments, as well as other interactive effects that cannot be isolated.
4. Results provision for co-located LTCHs to for all LTCHs from the 2007 LTCH PPS
Based on the most recent available certain situations not presently covered rate year as compared to the 2008 LTCH
data (as described previously for 377 by existing § 412.534 for subclause (I) PPS rate year as a result of the payment
LTCHs), we have prepared the following LTCHs, are not included as part of the rate and policy changes presented in
summary of the impact (as shown in impact analysis shown in Table 11. this final rule. We note that although we
Table 11) of the LTCH PPS payment rate However, the impact of those other are proposing a 0.71 percent increase to
and payment rate policy changes policies are discussed separately in the Federal rate for RY 2008, the impact
presented in this final rule. (As noted section XV.C. of this regulatory impact analysis shown in Table 11 (column 6),
above, the impact of other policy analysis.) only shows a 0.6 percent increase in
changes presented in this final rule, The impact analysis in Table 11 estimated payments per discharge from
which do not directly affect the LTCH shows that estimated payments per RY 2007 to RY 2008, for most categories
PPS per discharge payment rate, such as discharge are expected to decrease of LTCHs, as a result of the changes to
the expansion of the existing payment approximately 3.8 percent, on average, the Federal rate. The reason that this
column shows an estimated 0.6 percent are expected to experience a decrease in LTCH PPS payments, this decrease in
increase rather than an estimated 0.7 estimated payments per discharge as a estimated LTCH PPS payments for RY
percent increase (based on the 0.71 result of the increase in the labor-related 2008 resulting primarily from the
percent update to the Federal rate) is share since a larger portion of the changes to the SSO policy and the
because about 34 percent of all LTCH Federal rate would be adjusted by the changes to the area wage adjustment
cases are projected to receive a payment wage index to account for differences in would require an increase in the HCO
under the existing SSO policy. Under local cost variation (in accordance with fixed-loss amount to maintain estimated
either the existing SSO policy or § 412.525(c)). However, the effect of the outlier payments of no more than 8
revision of the SSO policy discussed in progression of the 5-year phase-in of the percent of the estimated total LTCH PPS
section V.A.2. of this final rule, the wage index adjustment results in a payments (resulting from the payment
majority of SSO cases would receive an relatively more significant decrease in rate and policy changes presented in
adjusted LTCH PPS payment in RY 2008 estimated payments for LTCHs located this rule). Thus, the increase in the
that would be based either on the in areas with a RY 2008 wage index outlier fixed-loss amount also
estimated cost of the case or the ‘‘IPPS value that is less than 1.0, than the contributes to the projected decrease in
comparable amount’’ (that is, either effect on payments due to the increase estimated payments per discharge from
under the ‘‘blend amount’’ at existing in the labor-related share. Consequently, the 2007 LTCH PPS rate year to the 2008
§ 412.529(c)(2)(iv) or the amount the changes to the wage index LTCH PPS rate year. For example, many
discussed in our approach to address adjustment presented in this final rule LTCHs are expected to receive a
our concerns with the existing SSO for LTCHs located in areas with a RY decrease in HCO payments. As a result
policy) rather than a LTCH PPS 2008 wage index value that is less than of the increase to the fixed-loss amount
payment based on the Federal rate. 1.0 are expected to also contribute to the from the 2007 LTCH PPS rate year
Therefore, because over 30 percent of all projected decrease in estimated ($14,887) to the 2008 LTCH PPS rate
LTCH PPS cases would receive a payments per discharge from RY 2007 year ($22,954), fewer cases would
payment that is not based on the Federal as compared to RY 2008. qualify as outlier cases (that is, the
rate, the percent change in estimated In addition, under the revision to the estimated cost of the case exceeds the
payments per discharge due to the SSO policy, those LTCH SSO cases with outlier threshold). Since many LTCHs
changes to the Federal rate for most a covered LOS that is less than or equal are expected to receive fewer outlier
categories of LTCHs shown in Table 11 to the IPPS ALOS plus one standard payments, total estimated payments per
is projected to be slightly less (0.6 deviation for the same DRG would discharge are expected to decrease from
percent) than the 0.71 percent update to receive a lower adjusted LTCH PPS RY 2007 to RY 2008.
the Federal rate. Furthermore, although payment than under the current SSO
policy. We believe that the LTCH cases a. Location
we are proposing a 0.71 percent increase
meeting the criteria stated above are Based on the most recent available
to the Federal rate for RY 2008, the
similar to the same type of cases treated data, the majority of LTCHs are in urban
projected percent decrease in estimated
in an acute care hospital and paid for areas. Approximately 6 percent of the
payments per discharge from the 2007
under the IPPS since one standard LTCHs are identified as being located in
LTCH PPS rate year to the 2008 LTCH
deviation is a statistical test which a rural area, and approximately 4
PPS rate year shown in Table 11 is due
measures the certainty of the average of percent of all LTCH cases are treated in
to changes to the area wage adjustment these rural hospitals. The impact
a set of measurements for the purpose
(discussed in section IV.D.1. of this final analysis presented in Table 11 shows
of this data analysis. Accordingly, we
rule), in conjunction with the revision that the percent decrease in estimated
believe the revision of the SSO policy is
of the SSO policy (discussed in section payments per discharge for the 2007
appropriate, given that many of these
V.A.2. of this final rule) and the increase LTCH PPS rate year compared to the
SSO cases that are ‘‘similar to IPPS
to the HCO fixed-loss amount (as 2008 LTCH PPS rate year for rural
cases’’ most likely do not receive a full
discussed in section IV.D.3.c. of this LTCHs would be 6.2 percent for all
course of a LTCH-level of treatment in
final rule). changes, and would be 3.7 percent for
such a short period of time since, in
Specifically, as we discussed in general, LTCHs are intended to treat urban LTCHs for all changes.
greater detail in section IV.D.1. of the longer stay patients. Furthermore, since The projected percent decrease in
preamble of this final rule, we are by far the majority of SSO cases were estimated payments to rural LTCHs is
updating the wage index values for RY admitted to the LTCH directly from an greater than that for urban LTCHs
2008 in accordance with the progression acute-care hospital, they are likely to because rural LTCHs are expected to
of the 5-year phase-in of the wage index still be in need of acute-level care at the experience a larger decrease in
adjustment. We are also increasing the time of admission to the LTCH. We estimated payments due to the changes
labor-related share from 75.665 percent believe that this may indicate that the to the area wage adjustment because the
to 75.788 percent under the LTCH PPS LTCH admission is a premature and wage index for all rural LTCHs is less
beginning in RY 2008. Because this inappropriate discharge from the acute- than 1.0, as explained above in this
change to the labor-related share would care hospital and an inappropriate section. Furthermore, the wage indices
increase the portion of the Federal rate admission to the LTCH. We believe that of all 23 rural LTCHs in our database
that is adjusted by the wage index to the revision of the SSO policy will have decreased from RY 2007 to RY
account for differences in local cost result in appropriate payments for short- 2008.
variation (in accordance with stay cases treated at LTCHs as discussed Large urban LTCHs are projected to
§ 412.525(c)), LTCHs located in areas in greater detail in section V.A.2. of this experience a 3.2 percent decrease in
with a RY 2008 wage index value that final rule. estimated payments per discharge from
is greater than 1.0 would experience an Furthermore, as we discussed in the 2007 LTCH PPS rate year compared
increase in estimated payments per greater detail in section IV.D.3.c. of the to the 2008 LTCH PPS rate year, while
discharge as a result of the increase in preamble of this final rule, given the other urban LTCHs are projected to
the labor-related share. Conversely, regulatory requirement at § 412.525(a) experience a 4.7 percent decrease in
LTCHs located in areas with a RY 2008 that estimated outlier payments not estimated payments per discharge from
wage index value that is less than 1.0 exceed 8 percent of estimated total the 2007 LTCH PPS rate year compared
to the 2008 LTCH PPS rate year, as adjustment. This is because many of the ownership control type: voluntary;
shown in Table 11. Other urban LTCHs LTCHs that began participating in proprietary; and government. Based on
are projected to experience a higher Medicare between October 1983 and the most recent available data,
than average decrease in estimated September 1993 are located in areas approximately 4 percent of LTCHs are
payments per discharge because of the where the RY 2008 wage index value identified as government-owned and
changes to the area wage adjustment. would be greater than the RY 2007 wage operated. We expect that for these
This is because the majority of other index value, and because several of government-owned and operated
urban LTCHs (over 90 percent) are these LTCHs are located in areas that LTCHs, estimated 2008 LTCH PPS rate
located in urban areas that have a wage have a wage index value of greater than year payments per discharge would
index value of less than 1.0, and 1.0, (as explained above). decrease 4.5 percent in comparison to
therefore, would experience a higher LTCHs that began participating before the 2007 LTCH PPS rate year, as shown
than average decrease in estimated October 1983 are projected to in Table 11. We are projecting that
payments per discharge as a result of the experience a 2.5 percent decrease in government-run LTCHs would
changes to the wage index adjustment, estimated payments per discharge from experience a higher than average
as explained above. the 2007 LTCH PPS rate year compared decrease in estimated payments in RY
Large urban LTCHs are projected to to the 2008 LTCH PPS rate year (see 2008 as compared to RY 2007 due to the
experience a lower than average Table 11). We are projecting that LTCHs effect of the changes to the area wage
decrease in estimated payments per that began participating in Medicare adjustment. This is because all but 3 of
discharge for all changes because of the before October 1983 would experience a the 13 government-run LTCHs in our
changes to the area wage adjustment decrease in estimated payments for RY database are located in areas where the
because the majority of large urban 2008 as compared to RY 2007 primarily wage index value for RY 2008 is less
LTCHs are located in urban areas that because we are projecting that LTCHs in than 1.0, as explained above.
have a wage index value of greater than this participation date category would Similarly, we project that estimated
1.0, as explained above in this section. experience a decrease in estimated 2008 LTCH PPS rate year payments per
Additionally, all rural and both large payments in RY 2008 as compared to discharge for voluntary LTCHs, which
and other urban hospitals are projected RY 2007 due to the changes to the fixed- account for approximately 22 percent of
to experience a lower than average loss amount. In addition, LTCHs that LTCHs, would decrease 4 percent in
decrease in estimated payments per began participating in Medicare before comparison to estimated 2007 LTCH
discharge for all changes because of the October 1983 are expected to experience PPS rate year payments (see Table 11).
increased HCO fixed-loss amount as a lower than average decrease in We are projecting that voluntary LTCHs
discussed previously. estimated payments due to the revision would experience a slightly higher than
b. Participation Date of the SSO policy. average decrease in estimated payments
Approximately 29 percent of LTCHs in RY 2008 as compared to RY 2007 due
LTCHs are grouped by participation began participating in Medicare after to the changes to the wage index
date into four categories: (1) Before October 2002 (that is, the beginning of adjustment since over 60 percent (51
October 1983; (2) between October 1983 the LTCH PPS, which was implemented LTCHs) of the voluntary LTCHs are
and September 1993; (3) between for cost reporting periods beginning on located in areas where the wage index
October 1993 and September 2002; and or after October 1, 2002), and those value is less than 1.0 (as discussed
(4) after October 2002. Based on the LTCHs are projected to experience a 4.5 above).
most recent available data, the majority percent decrease in estimated payments The majority (approximately 67
(approximately 54 percent) of the LTCH per discharge from the 2007 LTCH PPS percent) of LTCHs are identified as
cases are in hospitals that began rate year compared to the 2008 LTCH proprietary. We project that 2008 LTCH
participating between October 1993 and PPS rate year (see Table 11). We are PPS rate year estimated payments per
September 2002, and are projected to projecting that LTCHs that began discharge for these proprietary LTCHs
experience a 3.8 percent decrease in participating in Medicare after October would decrease 3.7 percent in
estimated payments per discharge from 2002 will experience a higher than comparison to the 2007 LTCH PPS rate
the 2007 LTCH PPS rate year compared average decrease in estimated payments year (see Table 11).
to the 2008 LTCH PPS rate year, as for RY 2008 primarily because we are
shown in Table 11. projecting that these LTCHs would d. Census Region
Approximately 12 percent of LTCH experience a larger than average Estimated payments per discharge for
PPS cases are in LTCHs that began decrease (1.5 percent) in estimated the 2008 LTCH PPS rate year are
participating in Medicare between payments per discharge due to the projected to decrease for LTCHs located
October 1983 and September 1993, and changes to the area wage adjustment. in all regions in comparison to the 2007
those LTCHs are projected to experience This is because the majority of the LTCH PPS rate year although five out of
a 3.4 percent decrease in estimated LTCHs that began participating in the nine regions are projected to have a
payments per discharge from the 2007 Medicare after October 2002 are located lower than average or average decrease
LTCH PPS rate year compared to the in areas where the RY 2008 wage index in payments as compared to the average
2008 LTCH PPS rate year, as shown in value would be less than the RY 2007 decrease for all providers. The percent
Table 11. We are projecting that LTCHs wage index value, and because the decrease in estimated payments per
that began participating in Medicare majority (over 96 percent) of these discharge from the 2007 LTCH PPS rate
between October 1983 and September LTCHs are located in areas that would year to the 2008 LTCH PPS rate year for
1993 would experience a lower than have a RY 2008 wage index value of less most regions is largely attributable to
average decrease in estimated payments than 1.0, (as discussed above in this the increase in the HCO fixed-loss
for RY 2008 primarily because we are section). amount (as explained above).
projecting that these LTCHs are Of the 9 census regions, we project

expected to experience a lower than c. Ownership Control that the decrease in 2008 LTCH PPS rate
average decrease (0.8 percent) in Other than LTCHs whose ownership year estimated payments per discharge
estimated payments per discharge due control type is unknown, LTCHs are in comparison to the 2007 LTCH PPS
to the changes to the area wage grouped into three categories based on rate year would have the largest impact
on LTCHs in the East South Central and 2007 wage index value. In addition, the conduct a comprehensive reevaluation
West South Central regions (5.3 percent majority (over 84 percent) of LTCHs of our FY 2003 BN calculation at this
and 4.8 percent, respectively; see Table with 49 beds or less are located in areas time.
11). LTCHs located in both the East where the RY 2008 wage index is less Section 123 of the BBRA and section
South Central and West South Central than 1.0. We project that LTCHs with 307 of the BIPA provide the Secretary
regions are expected to experience a greater than 200 beds would have a less with extremely broad authority in
higher than average decrease in than average decrease in estimated 2008 developing the LTCH PPS, including the
estimated payments due to the changes LTCH PPS rate year payments per authority for appropriate adjustments.
in the area wage adjustment (2.3 percent discharge in comparison to the 2007 In accordance with this broad authority,
for the East South Central region, and LTCH PPS rate year (2.5 percent; see we may discuss in a future proposed
1.7 percent for the West South Central Table 11). This smaller decrease in rule a possible one-time prospective
region, as shown in Table 11). This is estimated payments per discharge for adjustment to the LTCH PPS rates under
because over 80 percent of all LTCHs LTCHs with greater than 200 beds is § 412.523(d)(3) on or before July 1, 2008,
located in the East South Central region primarily due to the changes to the area so that the effect of any significant
and the West South Central regions are wage adjustment. This is because the differences between actual payments
located in areas with a wage index value majority of these LTCHs are located in and estimated payments for the first
that is less than 1.0 (as described above). areas where the RY 2008 wage index year of the LTCH PPS is not perpetuated
In addition, these LTCHs are also value is greater than the RY 2007 wage in the LTCH PPS payment rates for
expected to experience a higher than index value, and because 12 of the 13 future years.
average decrease in estimated payments LTCHs with greater than 200 beds are
per discharge due to the revision of the located in an area where the RY 2008 6. Effect on Medicare Beneficiaries
SSO policy since many of the LTCHs in wage index value is greater than 1.0 (as Under the LTCH PPS, hospitals
these two regions have a larger than described above). receive payment based on the average
average percentage of SSO cases (based resources consumed by patients for each
5. Effect on the Medicare Program
on FY 2006 LTCH claims data). diagnosis. We do not expect any
Based on actuarial projections, an changes in the quality of care or access
e. Bed Size estimate of Medicare spending (total to services for Medicare beneficiaries
LTCHs were grouped into seven estimated Medicare program payments) under the LTCH PPS, but we expect that
categories based on bed size: 0–24 beds; for LTCH services over the next 5 years paying prospectively for LTCH services
25–49 beds; 50–74 beds; 75–124 beds; based on current LTCH PPS policy (as would enhance the efficiency of the
125–199 beds; greater than 200 beds; established in previous LTCH PPS final Medicare program.
and unknown bed size. rules) is shown in Table 4 in section
We are projecting a decrease in IV.D.5. of the preamble of this final rule. C. Impact of Other Policy Changes
estimated 2008 LTCH PPS rate year As noted, we project that the provisions 1. Effects of Policy Expansion of the
payments per discharge in comparison of this final rule, would result in a Special Payment Provisions for LTCH
to the 2007 LTCH PPS rate year for all decrease in estimated aggregate LTCH HwHs and LTCH Satellites to Certain
bed size categories. As noted above, the PPS payments in RY 2008 of about $156 Situations Not Presently Covered by
projected percent decrease in estimated million (or about 3.8 percent) for the Existing § 412.534 for Subclause (I)
payments per discharge from the 2007 377 LTCHs in our database, as LTCHs
LTCH PPS rate year to the 2008 LTCH explained in greater detail above in
PPS rate year is largely attributable to section XV.A. of this regulatory impact In section V.B. of the preamble to this
the changes in the area wage analysis. final rule, we have revised § 412.534
adjustment, and the increase in the Consistent with the statutory and added § 412.536 to extend the
outlier fixed-loss amount (as explained requirement for BN, as we discussed in existing payment provision for co-
above). the August 30, 2002 final rule that located LTCHs (HwHs and satellites of
Of the six different bed size implemented the LTCH PPS, in LTCHs) to certain situations not
categories, the two categories with the developing the LTCH PPS, we intended presently covered by existing § 412.534
lowest bed count (0–24 beds and 25–49 that estimated aggregate payments for subclause (I) LTCHs. Under the
beds) are projected to have higher than under the LTCH PPS in FY 2003 be existing policy, which was finalized for
average decreases in payment. projected to equal the estimated FY 2005, a payment adjustment is
Estimated payments per discharge for aggregate payments that would have applied to those discharges from co-
the 2008 LTCH PPS rate year for LTCHs been made if the LTCH PPS were not located LTCHs that were admitted from
with 0–24 beds are projected to decrease implemented. Our methodology for host hospitals that are in excess of a
the most in comparison to the 2007 estimating payments for purposes of the specified threshold unless those
LTCH PPS rate year (4.7 percent; see BN calculations for determining the FY patients had reached HCO status at the
Table 11), followed by LTCHs with 25– 2003 standard Federal rate uses the best referring hospital. Following a 4-year
49 beds (4.3 percent; see Table 11). This available data and necessarily reflects phase-in of this payment adjustment, for
higher than average decrease in assumptions. As we collect data from cost reporting periods beginning during
estimated payments per discharge for LTCHs, we will monitor payments and FY 2008, the threshold is 25 percent or
LTCHs with less than 49 beds (that is, evaluate the ultimate accuracy of the an applicable percentage established
LTCHs in the 0–24 bed size category assumptions used in the BN under the regulation that takes into
and LTCHs in the 25–49 bed size calculations (that is, inflation factors, account the particular circumstances of
category) is largely due to the changes intensity of services provided, or rural, urban single, or MSA dominant
to the area wage adjustment and the behavioral response to the hospitals. Specifically, at existing
increase in the HCO fixed-loss amount implementation of the LTCH PPS). As § 412.534, we have provided that under
(as explained above). Specifically, the discussed in section IV.D.6. of this final the LTCH PPS, Medicare will pay the
majority of LTCHs with 49 beds or less rule, we still do not have sufficient new lesser of an amount otherwise payable
are located in areas where the RY 2008 cost report and claims data generated under subpart O of 42 CFR part 412 or
wage index value is less than the RY under the LTCH PPS to enable us to a LTCH PPS payment amount
equivalent to what would have been § 412.536) or from a co-located host Medicare payments under the LTCH
paid under the IPPS for those discharges (under the revision to § 412.534) exceed PPS, and therefore, to the extent that
that were not HCOs from the referring 25 percent (or the applicable LTCHs alter their admission protocols,
hospital and that exceed 25 percent (or percentage) for the LTCH’s cost we do not believe that there would be
the applicable percentage) of the LTCH reporting period, an adjusted payment an adverse financial impact on LTCHs,
or LTCH satellite’s Medicare discharges would be made at the lesser of the nor would there be an adverse impact
for any cost reporting period (69 FR otherwise payable amount under the on Medicare beneficiary’s access to care.
49191 through 49213). We originally LTCH PPS or the LTCH PPS payment
2. Effects of Policy Change Relating to
established this payment adjustment amount that would be equivalent to
Payment for Direct Graduate Medical
because our data suggested that in many what Medicare would otherwise pay
Education (GME)
cases, hospitals were prematurely under the IPPS. Grandfathered LTCH
shifting patients to co-located LTCHs, HwHs and LTCH satellites will also be In section XII. of the preamble of this
and therefore, that we were generating subject to the 25 percent (or applicable final rule, with respect to the rules that
a Medicare payment to the first hospital percentage) threshold payment hospitals must meet to count residents
(generally an acute care hospital paid adjustment for Medicare discharges training in nonhospital settings for
under the IPPS) and also an additional admitted from their co-located host, indirect medical education (IME) and
Medicare payment under the LTCH PPS under § 412.534(g) and will additionally direct GME payment purposes, we
to an LTCH for what was, in essence, be governed by § 412.536 for discharges finalized our proposal to revise
one episode of care. Consequently, we admitted from non-co-located referring § 413.75(b) revising the definition of ‘‘all
believed that in such circumstances co- hospitals. or substantially all of the costs for the
located LTCHs were functioning as step- It is our intent that the revisions that training program in the nonhospital
down units of their host hospitals, a we are finalizing would discourage setting.’’ We also finalized our proposal
configuration which is not permitted inappropriate patient shifting to LTCHs to revise § 412.105(f)(1)(ii)(C) for IME
under section 1886(d)(1)(B) of the Act, before the referring hospital delivers a and add § 413.78(f) to reflect the revised
which provides for the establishment of full episode of patient care. To the definition of ‘‘all or substantially all.’’
rehabilitation and psychiatric units of extent that LTCHs change their The revised definition is effective for
acute care hospitals but does not allow behaviors because this policy reduces cost reporting periods beginning on or
LTCH units. the financial incentives for certain after July 1, 2007 and states that ‘‘all or
situations not presently covered by substantially all of the costs for the
As detailed in section V.B. of the existing § 412.534 to admit patients training program in the nonhospital
preamble of this final rule, our data prematurely discharged from other setting’’ means at least 90 percent of the
suggests that many of our concerns hospitals, we believe that there would total of the costs of the residents’
regarding patient shifting between co- be savings to the Medicare program. salaries and fringe benefits (including
located providers also pertain to those Specifically, as under the existing travel and lodging where applicable)
LTCHs that are not co-located with policy for co-located LTCHs at existing and the portion of the cost of teaching
other hospitals. The RY 2005 LTCH § 412.534, the payment adjustment physicians’ salaries attributable to direct
discharges from the MedPAR files would not apply to either those GME. This differs from the prior
indicate that about 73 percent of the subclause (I) LTCH discharges admitted definition of ‘‘all or substantially all of
then 200 free-standing LTCHs admitted from referring hospitals not co-located the costs for the training program in the
25 percent or less of their Medicare with the LTCH or LTCH satellite (under nonhospital setting,’’ which required
discharges from an individual acute care § 412.536) or those subclause (I)LTCH that, to count FTE residents training in
hospital; for 82 of those freestanding HwH or satellite discharges admitted a nonhospital setting, a hospital was
LTCHs, the percentage was between 25 from co-located host hospitals (under required to pay for 100 percent of the
and 50 percent; for 33 of the the revision to § 412.534) that have residents’ salaries and fringe benefits, as
freestanding LTCHs, it was between 50 already reached HCO status. well as the portion of the actual cost of
and 75 percent. For 6 percent of those At this time, based on the most recent the teaching physician’s salary and
free-standing LTCHs, it was between 75 LTCH claims data available and fringe benefits attributable to direct
and 100 percent of their Medicare assuming no change in LTCH behavior GME activities at the nonhospital site.
discharges were admitted from one if this policy were implemented, we In addition, under the revised definition
acute care hospital. In addition, the RY estimate that the extension of the 25 of ‘‘all or substantially all’’ of the costs,
2005 LTCH discharges from the percent (or applicable percentage) in response to hospitals’ concerns
MedPAR files indicate that for over 63 threshold at existing § 412.534 to certain regarding the difficulty of obtaining
percent of all LTCHs, more than 25 situations not presently covered by actual salary data from teaching
percent of their discharges are for existing § 412.534 subclause (I) LTCHs physicians to document the actual cost
patients admitted from an individual would not result in savings to the of the teaching physicians’ time spent
acute care hospital. Based on this data, Medicare program in RY 2008 due to on GME activities, we are finalizing our
as discussed in section V.B. of this final our adoption of a 3 year transition to proposal to allow hospitals to use
rule, we have decided to expand this this policy. However, as that policy is certain proxy information, such as
above described payment adjustment at fully implemented at 25 percent (or the national average physician
existing § 412.534 to apply equally to applicable level) there will be a compensation amounts, to calculate the
certain situations not presently covered significant impact in LTCH payments. cost of the teaching physicians’ time
by existing § 412.534 for subclause (I) As discussed above in this section, we spent in GME activities at the
LTCHs beginning with cost reporting believe that this policy would nonhospital site.
periods starting in RY 2008. Under this discourage inappropriate patient We believe that much of the
policy, if any subclause (I) LTCH’s or shifting to LTCHs before the non-co- administrative burden on hospitals
satellite facility’s discharges that had located referring hospital or co-located related to calculating and documenting
been admitted from any referring host delivered a full episode of patient the amount they need to pay for ‘‘all or
hospital that is not co-located with the care and because we believe that this substantially all’’ of the costs of
LTCH or LTCH satellite (under policy would result in appropriate residency training at the nonhospital
site will be significantly reduced, if not was reviewed by the Office of § 412.105 Special treatment: Hospitals that
eliminated, under our final rule. Had we Management and Budget. incur indirect costs for graduate medical
not made the changes and continued to education programs.
List of Subjects * * * * *
require that hospitals provide extensive
documentation that they are paying for 42 CFR Part 412 (f) * * *
the costs of the training program in the (1) * * *
Administrative practice and (ii) * * *
nonhospital setting, we understand the
procedure, Health facilities, Medicare, (C) Effective for discharges occurring
industry had expressed concern that
Puerto Rico, Reporting and on or after October 1, 1997, the time
hospitals may significantly reduce the
recordkeeping requirements. spent by a resident in a nonhospital
amount of training occurring in
nonhospital settings and caused 42 CFR Part 413 setting in patient care activities, as
residency training to be transferred to defined in § 413.75(b) of this
Health facilities, Kidney diseases, subchapter, under an approved medical
hospitals. We further note that the Medicare, Reporting and recordkeeping residency training program is counted
Congress intended to encourage the shift requirements. towards the determination of full-time
of training to nonhospital settings and
■ For the reasons set forth in the equivalency if the criteria set forth in
we believe this policy change can
preamble, the Centers for Medicare & § 413.78(c), (d), (e), or (f) of this
facilitate further shifts to nonhospital
Medicaid Services amends 42 CFR subchapter, as applicable, are met.
settings. Since we are not finalizing a
change that will impact the aggregate chapter IV as set forth below: * * * * *
amount of residency training that will PART 412—PROSPECTIVE PAYMENT Subpart O—Prospective Payment
occur, and Medicare will continue to SYSTEMS FOR INPATIENT HOSPITAL System for Long-Term Care Hospitals
pay for residency training occurring in SERVICES
hospitals, overall Medicare payments ■ 4. Section 412.517 is amended by—
for residency training as a result of this ■ 1. The authority citation for part 412 ■ A. Redesignating the introductory text
finalized policy will remain constant. continues to read as follows: and paragraphs (a), (b), (c), and (d) as
D. Accounting Statement Authority: Secs. 1102 and 1871 of the paragraphs (a) introductory text, (a)(1),
Social Security Act (42 U.S.C. 1302 and (a)(2), (a)(3), and (a)(4), respectively.
As discussed in section XV.A.1. of 1395hh) and section 124 of Pub. L. 106–113 ■ B. Adding new paragraph (b).
this regulatory impact analysis, the (113 Stat. 1501A–332). The addition reads as follows:
impact analysis of this final rule results
in a decrease in estimated aggregate Subpart B—Hospital Services Subject § 412.517 Revision of LTC–DRG group
classifications and weighting factors.
payments of $156 million (or about 3.8 to and Excluded From the Prospective
percent) for the 377 LTCHs in our Payment Systems for Inpatient * * * * *
database. Therefore, as required by OMB Operating Costs and Inpatient Capital- (b) Beginning in FY 2008, the annual
Circular A–4 (available at http:// Related Costs changes to the LTC–DRG classifications
www.whitehouse.gov/omb/circulars/ and recalibration of the weighting
a004/a-4.pdf), in Table 12, we have ■ 2. Section 412.22 is amended by factors described in paragraph (a) of this
prepared an accounting statement adding paragraphs (h)(3)(i) and (ii) to section are made in a budget neutral
showing the classification of the read as follows: manner such that estimated aggregate
expenditures associated with the LTCH PPS payments are not affected.
§ 412.22 Excluded hospitals and hospital
provisions of this final rule. Table 12 units: General rules. ■ 5. Section 412.523 is amended by
provides our best estimate of the adding new paragraph (c)(3)(iv) to read
decrease in Medicare payments under * * * * *
as follows:
the LTCH PPS as a result of the (h) * * *
provisions presented in this final rule (3) * * * § 412.523 Methodology for calculating the
based on the data for the 377 LTCHs in (i) Any hospital structured as a Federal prospective payment rates.
our database. All expenditures are satellite facility on September 30, 1999, * * * * *
classified as transfers to Medicare and excluded from the prospective (c) * * *
providers (that is, LTCHs). payment systems on that date, to the (3) * * *
extent the hospital continues operating (iv) For long-term care hospital
prospective payment system rate year
TABLE 12.—ACCOUNTING STATEMENT: under the same terms and conditions,
beginning July 1, 2007 and ending June
CLASSIFICATION OF ESTIMATED EX- including the number of beds and 30, 2008. The standard Federal rate for
square footage considered, for the
PENDITURES, FROM THE 2007 LTCH long-term care hospital prospective
purposes of Medicare participation and
PPS RATE YEAR TO THE 2008 payment, to be part of the hospital, in payment system rate year beginning July
LTCH PPS RATE YEAR effect on September 30, 1999; or 1, 2007 and ending June 30, 2008 is the
[In Millions] (ii) Any hospital excluded from the standard Federal rate for the previous
prospective payment systems under long-term care hospital prospective
Category Transfers § 412.23(e)(2)(ii). payment system rate year updated by
* * * * * 0.71 percent. The standard Federal rate
Annualized Monetized Negative transfer— is adjusted, as appropriate, as described
Transfers. estimated decrease in paragraph (d) of this section.
in expenditures: Subpart G—Special Treatment of
$156. Certain Facilities Under the * * * * *
From Whom To Federal Government Prospective Payment System for ■ 6. Section 412.529 is amended by—
Whom? to LTCH Medicare Inpatient Operating Costs ■ A. Revising paragraph (a).

Providers. ■ B. Revising the introductory text for
■ 3. Section 412.105 is amended by paragraph (c)(2).
In accordance with the provisions of revising paragraph (f)(1)(ii)(C) to read as ■ C. Redesignating paragraph (c)(3) as
Executive Order 12866, this final rule follows: paragraph (c)(4).
■ D. Adding new paragraph (c)(3). amount for such a case is determined are admitted from the co-located
The revision and addition reads as under paragraph (c)(2) of this section. hospital and who cause the long-term
follows: * * * * * care hospital or satellite facility to
■ 7. Section 412.534 is amended by— exceed the 25 percent threshold for
§ 412.529 Special payment provision for discharged patients who have been
■ A. Revising paragraphs (a), (b), (c)(1),
short-stay outliers.
(c)(2), (d)(1), and (e)(1). admitted from the co-located hospital
(a) Short-stay outlier defined. ‘‘Short- ■ B. Revising the introductory text for are the lesser of the amount otherwise
stay outlier’’ means a discharge with a paragraph (g). payable under this subpart or the
covered length of stay in a long-term ■ C. Adding paragraph (h). amount payable under this subpart that
care hospital that is up to and including The revision and addition read as is equivalent, as set forth in paragraph
five-sixths of the geometric average follows: (f) of this section, to the amount that
length of stay for each LTC–DRG. would be determined under the rules at
§ 412.534 Special payment provisions for Subpart A, § 412.1(a). Payments for the
* * * * * long-term care hospitals within hospitals
(c) * * * and satellites of long-term care hospitals.
remainder of the long-term care
(2) Except as provided in paragraph hospital’s or satellite facility’s patients
(a) Scope. Except as provided in
(c)(3)(i) of this section, for discharges are made under the rules in this subpart
paragraph (h), the policies set forth in
occurring on or after July 1, 2006, from at § 412.500 through § 412.541 with no
this section apply to discharges
long-term care hospitals described adjustment under this section.
occurring in cost reporting periods
under § 412.23(e)(2)(i), the LTCH beginning on or after October 1, 2004 * * * * *
prospective payment system adjusted from long-term care hospitals as (d) * * *
payment amount for a short-stay outlier (1) Subject to paragraphs (g) and (h)
described in § 412.23(e)(2)(i) meeting
case is the least of the following of this section, in the case of a long-term
the criteria in § 412.22(e)(2), or satellite
amounts: care hospital or satellite facility that is
facilities of long-term care hospitals that
(i) * * * located in a rural area as defined in
meet the criteria in § 412.22(h).
(ii) * * * (b) Patients admitted from hospitals § 412.64(b)(1)(ii)(C) and is co-located
not located in the same building or on with another hospital for any cost
(iii) * * *
the same campus as the long-term care reporting period beginning on or after
(iv) * * * October 1, 2004 in which the long-term
(3) For discharges specified in hospital or long-term care hospital
satellite. Payments to the long-term care care hospital or satellite facility has a
paragraph (c)(3)(i) of this section, discharged Medicare inpatient
occurring on or after July 1, 2007, from hospital for patients admitted to the
long-term care hospital or to a satellite population of whom more than 50
long-term care hospitals described percent were admitted to the long-term
under § 412.23(e)(2)(i), the LTCH of the long-term care hospital from
another hospital that is not the co- care hospital or satellite facility from the
prospective payment system adjusted co-located hospital, payments for the
payment amount for a short-stay outlier located hospital are made under the
rules in this subpart with no adjustment patients who are admitted from the co-
case is adjusted as follows: located hospital and who cause the
(i) If the covered length of stay of the under this section. For cost reporting
periods beginning on or after July 1, long-term care hospital or satellite
case assigned to a particular LTC–DRG facility to exceed the 50 percent
is less than or equal to one standard 2007, payments to the long-term care
hospital for discharges of Medicare threshold for discharged patients who
deviation from the geometric ALOS of were admitted from the co-located
the same DRG under the inpatient patients admitted to the LTCH hospital
or LTCH satellite facility of the long- hospital are the lesser of the amount
prospective payment system (the IPPS- otherwise payable under this subpart or
comparable threshold), the LTCH term care hospital from another hospital
that is not the co-located hospital are the amount payable under this subpart
prospective payment system adjusted that is equivalent, as set forth in
payment amount for such a case is the subject to the provisions in § 412.536.
(c) * * * paragraph (f) of this section, to the
least of the following amounts: amount that were otherwise payable
(1) Except as provided in paragraphs
(A) 120 percent of the LTC–DRG (g) and (h) of this section, for any cost under subpart A, § 412.1(a). Payments
specific per diem amount determined reporting period beginning on or after for the remainder of the long-term care
under paragraph (d)(1) of this section; October 1, 2004 in which the long-term hospital’s or satellite facility’s patients
(B) 100 percent of the estimated cost care hospital or its satellite facility has are made under the rules in this subpart
of the case determined under paragraph a discharged Medicare inpatient at § 412.500 through § 412.541 with no
(d)(2) of this section; population of whom no more than 25 adjustment under this section.
(C) The Federal prospective payment percent were admitted to the hospital or * * * * *
for the LTC–DRG as determined under its satellite facility from the co-located (e) Special treatment of urban single
paragraph (d)(3) of this section; or hospital, payments are made under the or MSA dominant hospitals. (1) Subject
(D) An amount payable under subpart rules at § 412.500 through § 412.541 in to paragraphs (g) and (h) of this section,
O comparable to the hospital inpatient this subpart with no adjustment under in the case of a long-term care hospital
prospective payment system per diem this section. or satellite facility that is co-located
amount determined under paragraph (2) Except as provided in paragraph with the only other hospital in the MSA
(d)(4) of this section. (d), (e), (g), or (h) of this section, for any or with a MSA dominant hospital as
(ii) If the covered length of stay of the cost reporting period beginning on or defined in paragraph (e)(4) of this
case assigned to a particular LTC–DRG after October 1, 2004 in which the long- section, for any cost reporting period
is greater than one standard deviation term care hospital or satellite facility beginning on or after October 1, 2004 in
from the geometric ALOS of the same has a discharged Medicare inpatient which the long-term care hospital or
DRG under the inpatient prospective population of whom more than 25 satellite facility has a discharged
payment system (the IPPS-comparable percent were admitted to the hospital or Medicare inpatient population of whom
threshold), the LTCH prospective satellite facility from the co-located more than the percentage calculated
payment system adjusted payment hospital, payments for the patients who under paragraph (e)(2) of this section
were admitted to the hospital from the (ii) For cost reporting periods either paragraph (b)(1) or paragraph
co-located hospital, payments for the beginning on or after July 1, 2008 and (b)(2) of this section.
patients who are admitted from the co- before July 1, 2009, the lesser of 50 (1) Except as provided in paragraphs
located hospital and who cause the percent of the total number of Medicare (c), (d) and subject to paragraph (f) of
long-term care hospital to exceed the discharges that were admitted to the this section, for any cost reporting
applicable threshold for discharged LTCH or the satellite of an LTCH from period beginning on or after July 1, 2007
patients who have been admitted from its co-located hospital or the percentage in which a long-term care hospital or a
the co-located hospital are the lesser of of Medicare discharges that had been long-term care hospital satellite facility
the amount otherwise payable under admitted from that co-located hospital has a discharged Medicare inpatient
this subpart or the amount under this during the long-term care hospital’s or population of whom no more than 25
subpart that is equivalent, as set forth in satellite’s RY 2005 cost reporting period. percent were admitted to the long-term
paragraph (f) of this section, to the (iii) For cost reporting periods care hospital or the satellite facility from
amount that otherwise would be beginning on or after July 1, 2009, 25 any individual hospital not co-located
determined under Subpart A, § 412.1(a). percent of the total number of Medicare with the long-term care hospital or with
Payments for the remainder of the long- discharges that were admitted to the the satellite of a long-term care hospital,
term care hospital’s or satellite facility’s long-term care hospital or satellite from payments for the Medicare discharges
patients are made under the rules in this its co-located hospital during the cost admitted from that hospital are made
subpart with no adjustment under this reporting period. under the rules at § 412.500 through
section. (3) In determining the percentage of § 412.541 in this subpart with no
Medicare discharges admitted from the adjustment under this section.
* * * * *
(2) Except as provided in paragraph
(g) Transition period for long-term co-located hospital under this
(c) and (d) and subject to paragraph (f)
care hospitals and satellite facilities paragraph, patients on whose behalf a
of this section, for any cost reporting
paid under this subpart. Except as Medicare high cost outlier payment was
period beginning on or after July 1, 2007
specified in paragraph (h)(2), in the case made at the co-located referring hospital in which a long-term care hospital or
of a long-term care hospital or a satellite are not counted toward this threshold. long-term care hospital satellite facility
facility that is paid under the provisions (4) For cost reporting periods has a discharged Medicare inpatient
of this subpart on October 1, 2004 or of beginning on or after July 1, 2007, population of whom more than 25
a hospital that is paid under the payments to long term care hospitals percent were admitted to the long-term
provisions of this subpart and whose described in § 412.23(e)(2)(i) that meet care hospital or satellite facility from
qualifying period under § 412.23(e) the criteria in § 412.22(f) and satellite any individual hospital not co-located
began on or before October 1, 2004, the facilities of long-term care hospitals with the long-term care hospital or with
amount paid is calculated as specified described at § 412.22(h)(3)(i) are subject the satellite of a long-term care hospital,
below: to the provisions of § 412.536 for payment for the Medicare discharges
* * * * * discharges of Medicare patients who are who cause the long-term care hospital or
(h) Effective date of policies in this admitted from a hospital not located in satellite facility to exceed the 25 percent
section for certain co-located LTCH the same building or on the same threshold for discharged patients who
hospitals and satellites of LTCHs. campus as the LTCH or LTCH satellite have been admitted from that referring
(1) The policies set forth in this facility. hospital is the lesser of the amount
section apply to Medicare patient otherwise payable under this subpart or
discharges that were admitted from a ■ 8. Section 412.536 is added to read as
the amount payable under this subpart
hospital located in the same building or follows:
that is equivalent, as set forth in
on the same campus as a long-term care § 412.536 Special payment provisions for paragraph (e) of this section, to the
hospital described in § 412.23(e)(2)(i) long-term care hospitals and satellites of amount that would be determined under
that meets the criteria in § 412.22(f) and long-term care hospitals that discharged the rules at subpart A, § 412.1(a).
a satellite facility of a long-term care Medicare patients admitted from a hospital Payments for the remainder of the long-
hospital as described at § 412.22(h)(3)(i) not located in the same building or on the term care hospital’s or satellite facility’s
for discharges occurring in cost same campus as the long-term care patients admitted from that referring
reporting periods beginning on or after hospital or satellite of the long-term care
hospital are made under the rules in this
hospital.
July 1, 2007. subpart at § 412.500 through § 412.541
(2) In the case of a long-term care (a) Scope. For cost reporting periods with no adjustment under this section.
hospital or satellite of a long-term care beginning on or after July 1, 2007, the (3) In determining the percentage of
hospital that is described under policies set forth in this section apply to Medicare discharges admitted to the
paragraph (h)(1), the thresholds applied discharges from long-term care hospitals long-term care hospital or long-term
at (c), (d), and (e) will not be less than as described in § 412.23(e)(2)(i) and care hospital satellite facility from any
the percentages specified below: satellite facilities of long-term care referring hospital not co-located with
(i) For cost reporting periods hospitals described in § 412.22(h), the long-term care hospital or with the
beginning on or after July 1, 2007 and including satellite facilities of long-term satellite of a long-term care hospital,
before July 1, 2008, the lesser of 75 care hospitals described in (h)(3)(i) but under paragraphs (b)(1) and (b)(2) of this
percent of the total number of Medicare excluding satellite facilities described in section, patients on whose behalf a
discharges that were admitted to the (h)(3)(ii). Medicare high cost outlier payment was
long-term care hospital or satellite from (b) For cost reporting periods made to the referring hospital are not
its co-located hospital during the cost beginning on or after July 1, 2007, counted towards the 25 percent
reporting period or the percentage of payments for discharges of Medicare threshold from that referring hospital.
Medicare discharges that had been patients admitted from a hospital not (c) Special treatment of rural
admitted to the long-term care hospital located in the same building or on the hospitals. (1) Subject to paragraph (f) of
or satellite from that co-located hospital same campus as the long-term care this section, in the case of a long-term
during the long-term care hospital’s or hospital or long-term care hospital care hospital or long-term care hospital
satellite’s RY 2005 cost reporting period. satellite facility will be made under satellite facility that is located in a rural
area as defined in § 412.64(b)(1)(ii)(C) otherwise would be determined under (iii) Includes, where applicable,
that has a discharged Medicare inpatient Subpart A, § 412.1(a). Payments for the adjustments for indirect medical
population of whom more than 50 remainder of the long-term care education costs and for the costs of
percent were admitted to the long-term hospital’s or satellite facility’s Medicare serving a disproportionate share of low-
care hospital or long-term care hospital discharges admitted from that referring income patients.
satellite facility from a hospital not co- hospital are made under the rules in this (3) Hospital inpatient prospective
located with the long-term care hospital subpart at § 412.500 through § 412.541 payment system capital Federal rate.
or with the satellite of a long-term car with no adjustment under this section. The hospital inpatient prospective
hospital, payment for the Medicare (2) For purposes of paragraph (d)(1) of payment system capital Federal rate—
discharges who are admitted from that this section, the percentage threshold is (i) Is adjusted for the applicable
hospital and who cause the long-term equal to the percentage of total Medicare hospital inpatient prospective payment
care hospital or satellite facility to discharges in the Metropolitan system DRG weighting factors;
exceed the 50 percent threshold for Statistical Area (MSA) in which the (ii) Is adjusted by the applicable
Medicare discharges is determined at hospital is located that are from the geographic adjustment factors,
the lesser of the amount otherwise referring hospital, but in no case is less including local cost variation based on
payable under this subpart or the than 25 percent or more than 50 the applicable geographic classifications
amount payable under this subpart that percent. set forth at § 412.64(b)(1)(ii)(A) through
is equivalent, as set forth in paragraph (3) In determining the percentage of (C) and the applicable full hospital
(e) of this section, to the amount that is inpatient prospective payment system
patients admitted from the referring
otherwise payable under subpart A, wage index value for non-reclassified
hospital under paragraph (d)(1) of this
§ 412.1(a). Payments for the remainder hospitals, applicable large urban
section, patients on whose behalf a
of the long-term care hospital’s or long- location and cost of living adjustment
Medicare outlier payment was made at
term care hospital satellite facility’s factors for long-term care hospitals for
the referring hospital are not counted
Medicare discharges admitted from that Alaska and Hawaii, if applicable;
toward the applicable threshold.
referring hospital are made under the (iii) Includes, where applicable,
(4) For purposes of this paragraph, an capital inpatient prospective payment
rules in this subpart at § 412.500 ‘‘MSA-dominant hospital’’ is a hospital
through § 412.541 with no adjustment system adjustments for indirect medical
that has discharged more than 25 education costs and the costs of serving
under this section. percent of the total hospital Medicare
(2) In determining the percentage of a disproportionate share of low-income
discharges in the MSA in which the patients.
Medicare discharges admitted from the hospital is located.
referring hospital under paragraph (c)(1) (4) High cost outlier. An additional
(e) Calculation of adjusted payment— payment for high cost outlier cases is
of this section, patients on whose behalf
(1) Calculation of adjusted long-term based on the applicable fixed loss
a Medicare high cost outlier payment
care hospital prospective payment amount established for the hospital
was made at the referring hospital are
system amount. CMS calculates an inpatient prospective payment system.
not counted toward the 50 percent
amount payable under subpart O (f) Transition period for long-term
threshold.
(d) Special treatment of urban single equivalent to an amount that would care hospitals and satellites paid under
or MSA dominant hospitals. (1) Subject otherwise be paid under the hospital this section. In the case of a long-term
to paragraph (f) of this section, in the inpatient prospective payment system at care hospital or satellite of a long-term
case of a long-term care hospital or long- Subpart A, § 412.1(a). The amount is care hospital that is paid under the
term care hospital satellite facility that based on the sum of the applicable provisions of this section, the thresholds
admits Medicare patients from the only hospital inpatient prospective payment applied under paragraphs (b), (c) and (d)
other hospital in the MSA or from a system operating standardized amount of this section will not be less than the
referring MSA dominant hospital as and capital Federal rate in effect at the percentages specified below:
defined in paragraph (d)(4) of this time of the long-term care hospital (1) For cost reporting periods
section, that are not co-located with the discharge. beginning on or after July 1, 2007 and
long-term care hospital or with the (2) Operating inpatient prospective before July 1, 2008, the lesser of 75
satellite of a long-term care hospital for payment system standardized amount. percent of the total number of Medicare
any cost reporting period beginning on The hospital inpatient prospective discharges that were admitted to the
or after July 1, 2007, in which the long- payment system operating standardized long-term care hospital or satellite
term care hospital or satellite facility amount— facility of a long-term care hospital from
has a discharged Medicare inpatient (i) Is adjusted for the applicable all referring hospitals not co-located
population of whom more than the hospital inpatient prospective payment with the long-term care hospital or with
percentage calculated under paragraph system DRG weighting factors; the satellite facility of a long-term care
(d)(2) of this section were admitted to (ii) Is adjusted for different area wage hospital during the cost reporting period
the hospital from the single or MSA- levels based on the geographic or the percentage of Medicare
dominant referring hospital, payment classifications set forth at discharges that had been admitted to the
for the Medicare discharges who are § 412.64(b)(1)(ii)(A) through (C) and the long-term care hospital or satellite of a
admitted from the referring hospital and applicable hospital inpatient long-term care hospital from that
who cause the long-term care hospital or prospective payment system labor- referring hospital during the long-term
long-term care hospital satellite facility related share, using the applicable care hospital’s or satellite’s RY 2005
to exceed the applicable threshold for hospital inpatient prospective payment cost reporting period.
Medicare discharges who have been system wage index value for non- (2) For cost reporting periods
admitted from the referring hospital is reclassified hospitals. For long-term care beginning on or after July 1, 2008 and
the lesser of the amount otherwise hospitals located in Alaska and Hawaii, before July 1, 2009, the lesser of 50
payable under this subpart or the this amount is also adjusted by the percent of the total number of Medicare
amount under this subpart that is applicable hospital inpatient discharges that were admitted to the
equivalent, as set forth in paragraph (e) prospective payment system cost of long-term care hospital or to the satellite
of this section, to the amount that living adjustment factors; facility of a long-term care hospital from
all referring hospitals not co-located of teaching physicians’ salaries and incur at least 90 percent of the total of
with the long-term care hospital or with fringe benefits attributable to direct the costs of the resident’s salary and
the satellite facility of a long-term care graduate medical education (GME); and fringe benefits (and travel and lodging
hospital during the cost reporting period (2) Effective for cost reporting periods where applicable) while the resident is
or the percentage of Medicare beginning on or after July 1, 2007, at training in the nonhospital site and the
discharges that had been admitted from least 90 percent of the total of the costs portion of the cost of the teaching
that referring hospital during the long- of the residents’ salaries and fringe physician’s salary attributable to
term care hospital’s or satellite’s RY benefits (including travel and lodging nonpatient care direct GME activities.
2005 cost reporting period. where applicable) and the portion of the The written agreement must specify the
(3) For cost reporting periods cost of teaching physicians’ salaries total cost of the training program at the
beginning on or after July 1, 2009, 25 attributable to nonpatient care direct nonhospital site, and the amount the
percent of the total number of Medicare GME activities. hospital will incur (at least 90 percent
discharges that were admitted to the * * * * * of the total), and must indicate the
long-term care hospital or to the satellite portion of the amount the hospital will
■ 11. Section 413.78 is amended by—
facility of a long-term care hospital from incur that reflects residents’ salaries and
■ A. Revising the introductory text of
all referring hospitals not co-located fringe benefits (and travel and lodging
paragraph (e). where applicable), and the portion of
with the long-term care hospital or with
■ B. Adding new paragraph (f).
the satellite facility of a long-term care this amount that reflects teaching
The revision and addition read as physician compensation. Hospitals may
hospital to the long-term care hospital
follows: modify the amounts specified in the
during the cost reporting period.
(4) In determining the percentage of § 413.78 Direct GME payments: written agreement by the end of the
Medicare discharges admitted from the Determination of the total number of FTE academic year (that is, June 30) to reflect
referring hospital under this paragraph, residents. that at least 90 percent of the costs of
patients on whose behalf a Medicare * * * * * the training program in the nonhospital
high cost outlier payment was made at (e) For portions of cost reporting site has been incurred.
the referring hospital are not counted periods occurring on or after October 1, (4) The hospital is subject to the
toward this threshold. 2004, and for cost reporting periods principles of community support and
beginning before July 1, 2007, the time redistribution of costs as specified in
PART 413—PRINCIPLES OF residents spend in nonprovider settings § 413.81.
REASONABLE COST such as freestanding clinics, nursing (Catalog of Federal Domestic Assistance
REIMBURSEMENT; PAYMENT FOR homes, and physicians’ offices in Program No. 93.773, Medicare—Hospital
END-STAGE RENAL DISEASE connection with approved programs Insurance; and Program No. 93.774,
SERVICES; PROSPECTIVELY may be included in determining the Medicare—Supplementary Medical
DETERMINED PAYMENT RATES FOR Insurance Program)
number of FTE residents in the
SKILLED NURSING FACILITIES calculation of a hospital’s resident count Dated: April 24, 2007.
if the following conditions are met: Leslie V. Norwalk,
■ 9. The authority citation for part 413
continues to read as follows: * * * * * Acting Administrator, Centers for Medicare
(f) For cost reporting periods & Medicaid Services.
Authority: Secs. 1102, 1812(d), 1814(b),
1815, 1833(a), (i), and (n), 1861(v), 1871, beginning on or after July 1, 2007, the Approved: April 30, 2007.
1881, 1883, and 1886 of the Social Security time residents spend in non-provider Michael O. Leavitt,
Act (42 U.S.C. 1302, 1395d(d), 1395f(b), settings such as freestanding clinics, Secretary.
1395g, 1395l(a), (i), and (n), 1395x(v), nursing homes, and physicians’ offices The following addenda will not
1395hh, 1395rr, 1395tt, and 1395ww); and in connection with approved programs appear in the Code of Federal
sec. 124 of Pub. L. 106–133 (113 Stat. 1501A– may be included in determining the
332). Regulations.
number of FTE residents the calculation
of a hospital’s resident count if the Addendum
Subpart F—Specific Categories of following conditions are met—
Costs Addendum A contains the tables
(1) The resident spends his or her referred to throughout the preamble to
■ 10. Section 413.75(b) is amended by time in patient care activities. this final rule. The tables presented
revising the definition ‘‘all or (2) The hospital must incur all or below are as follows:
substantially all of the costs for the substantially all of the costs for the Table 1: Long-Term Care Hospital
training program in the nonhospital training program in the nonhospital Wage Index for Urban Areas for
setting’’ to read as follows: setting(s) (in accordance with the Discharges Occurring from July 1, 2007
definition under § 413.75(b)). through June 30, 2008.
§ 413.75 Direct GME payments: General (3) The hospital must comply with Table 2: Long-Term Care Hospital
requirements. one of the following: Wage Index for Rural Areas for
* * * * * (i) The hospital must pay for all or Discharges Occurring from July 1, 2007
(b) * * * substantially all of the costs for the through June 30, 2008.
* * * * * training program in a nonhospital Table 3: FY 2007 LTC–DRG Relative
All or substantially all of the costs for setting(s) attributable to training that Weights, Geometric Average Length of
the training program in the nonhospital occurs during a month by the end of the Stay, and Five-sixths of the Geometric
setting means— third month following the month in Average Length of Stay (for Short-Stay
(1) Effective on or after January 1, which the training in the nonhospital Outlier Cases) (effective for discharges
1999 and for cost reporting periods site occurred; or occurring on or after October 1, 2006
beginning before July 1, 2007, the (ii) There is a written agreement in through September 30, 2007), and the
residents’ salaries and fringe benefits place between the hospital and the IPPS Average Length of Stay plus one
(including travel and lodging where nonhospital site before the training Standard Deviation (for the Short-Stay
applicable) and the portion of the cost begins that states that the hospital will Outlier policy). (Note: The first four
columns of this table are the same reprinted here for convenience. The in section VI.A.2. of the preamble of this
information provided in Table 11 of the fifth column of this table was added to final rule.)
FY 2007 IPPS final rule (71 FR 48321 provide information on the revision to
through 48331), which has been the short-stay outlier policy, discussed
TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1,
2007 THROUGH JUNE 30, 2008 1
4/5ths
Full wage
CBSA code Urban area (constituent counties) wage
index 2 index 3
10180 ....... Abilene, TX ....................................................................................................................................................... 0.8000 0.8400

Callahan County, TX.
Jones County, TX.
Taylor County, TX.
10380 ....... Aguadilla-Isabela-San Sebastián, PR ............................................................................................................... 0.3915 0.5132
Aguada Municipio, PR.
Aguadilla Municipio, PR.
Añasco Municipio, PR.
Isabela Municipio, PR.
Lares Municipio, PR.
Moca Municipio, PR.
Rincón Municipio, PR.
San Sebastián Municipio, PR.
10420 ....... Akron, OH ......................................................................................................................................................... 0.8654 0.8923
Portage County, OH.
Summit County, OH.
10500 ....... Albany, GA ........................................................................................................................................................ 0.8991 0.9193
Baker County, GA.
Dougherty County, GA.
Lee County, GA.
Terrell County, GA.
Worth County, GA.
10580 ....... Albany-Schenectady-Troy, NY .......................................................................................................................... 0.8720 0.8976
Albany County, NY.
Rensselaer County, NY.
Saratoga County, NY.
Schenectady County, NY.
Schoharie County, NY.
10740 ....... Albuquerque, NM .............................................................................................................................................. 0.9458 0.9566
Bernalillo County, NM.
Sandoval County, NM.
Torrance County, NM.
Valencia County, NM.
10780 ....... Alexandria, LA ................................................................................................................................................... 0.8006 0.8405
Grant Parish, LA.
Rapides Parish, LA.
10900 ....... Allentown-Bethlehem-Easton, PA-NJ ............................................................................................................... 0.9947 0.9958
Warren County, NJ.
Carbon County, PA.
Lehigh County, PA.
Northampton County, PA.
11020 ....... Altoona, PA ....................................................................................................................................................... 0.8812 0.9050
Blair County, PA.
11100 ....... Amarillo, TX ...................................................................................................................................................... 0.9169 0.9335
Armstrong County, TX.
Carson County, TX.
Potter County, TX.
Randall County, TX.
11180 ....... Ames, IA ........................................................................................................................................................... 0.9760 0.9808
Story County, IA.
11260 ....... Anchorage, AK .................................................................................................................................................. 1.2023 1.1618
Anchorage Municipality, AK.
Matanuska-Susitna Borough, AK.
11300 ....... Anderson, IN ..................................................................................................................................................... 0.8681 0.8945
Madison County, IN.
11340 ....... Anderson, SC .................................................................................................................................................... 0.9017 0.9214
Anderson County, SC.
11460 ....... Ann Arbor, MI .................................................................................................................................................... 1.0826 1.0661
Washtenaw County, MI.
11500 ....... Anniston-Oxford, AL .......................................................................................................................................... 0.7770 0.8216

Calhoun County, AL.
11540 ....... Appleton, WI ..................................................................................................................................................... 0.9455 0.9564
Calumet County, WI.
Outagamie County, WI.
2007 THROUGH JUNE 30, 2008 1—Continued
4/5ths
Full wage
index 2 index 3
11700 ....... Asheville, NC .................................................................................................................................................... 0.9216 0.9373

Buncombe County, NC.
Haywood County, NC.
Henderson County, NC.
Madison County, NC.
12020 ....... Athens-Clarke County, GA ................................................................................................................................ 0.9856 0.9885
Clarke County, GA.
Madison County, GA.
Oconee County, GA.
Oglethorpe County, GA.
12060 ....... Atlanta-Sandy Springs-Marietta, GA ................................................................................................................. 0.9762 0.9810
Barrow County, GA.
Bartow County, GA.
Butts County, GA.
Carroll County, GA.
Cherokee County, GA.
Clayton County, GA.
Cobb County, GA.
Coweta County, GA.
Dawson County, GA.
DeKalb County, GA.
Douglas County, GA.
Fayette County, GA.
Forsyth County, GA.
Fulton County, GA.
Gwinnett County, GA.
Haralson County, GA.
Heard County, GA.
Henry County, GA.
Jasper County, GA.
Lamar County, GA.
Meriwether County, GA.
Newton County, GA.
Paulding County, GA.
Pickens County, GA.
Pike County, GA.
Rockdale County, GA.
Spalding County, GA.
Walton County, GA.
12100 ....... Atlantic City, NJ ................................................................................................................................................ 1.1831 1.1465
Atlantic County, NJ.
12220 ....... Auburn-Opelika, AL ........................................................................................................................................... 0.8096 0.8477
Lee County, AL.
12260 ....... Augusta-Richmond County, GA-SC .................................................................................................................. 0.9667 0.9734
Burke County, GA.
Columbia County, GA.
McDuffie County, GA.
Richmond County, GA.
Aiken County, SC.
Edgefield County, SC.
12420 ....... Austin-Round Rock, TX .................................................................................................................................... 0.9344 0.9475
Bastrop County, TX.
Caldwell County, TX.
Hays County, TX.
Travis County, TX.
Williamson County, TX.
12540 ....... Bakersfield, CA ................................................................................................................................................. 1.0725 1.0580
Kern County, CA.
12580 ....... Baltimore-Towson, MD ...................................................................................................................................... 1.0088 1.0070
Anne Arundel County, MD.
Baltimore County, MD.
Carroll County, MD.
Harford County, MD.
Howard County, MD.
Queen Anne’s County, MD.

Baltimore City, MD.
12620 ....... Bangor, ME ....................................................................................................................................................... 0.9711 0.9769
Penobscot County, ME.
12700 ....... Barnstable Town, MA ........................................................................................................................................ 1.2539 1.2031
4/5ths
Full wage
index 2 index 3
Barnstable County, MA.

12940 ....... Baton Rouge, LA .............................................................................................................................................. 0.8084 0.8467
Ascension Parish, LA.
East Baton Rouge Parish, LA.
East Feliciana Parish, LA.
Iberville Parish, LA.
Livingston Parish, LA.
Pointe Coupee Parish, LA.
St. Helena Parish, LA.
West Baton Rouge Parish, LA.
West Feliciana Parish, LA.
12980 ....... Battle Creek, MI ................................................................................................................................................ 0.9762 0.9810
Calhoun County, MI.
13020 ....... Bay City, MI ...................................................................................................................................................... 0.9251 0.9401
Bay County, MI.
13140 ....... Beaumont-Port Arthur, TX ................................................................................................................................ 0.8595 0.8876
Hardin County, TX.
Jefferson County, TX.
Orange County, TX.
13380 ....... Bellingham, WA ................................................................................................................................................ 1.1104 1.0883
Whatcom County, WA.
13460 ....... Bend, OR .......................................................................................................................................................... 1.0743 1.0594
Deschutes County, OR.
13644 ....... Bethesda-Gaithersburg-Frederick, MD ............................................................................................................. 1.0903 1.0722
Frederick County, MD.
Montgomery County, MD.
13740 ....... Billings, MT ....................................................................................................................................................... 0.8712 0.8970
Carbon County, MT.
Yellowstone County, MT.
13780 ....... Binghamton, NY ................................................................................................................................................ 0.8786 0.9029
Broome County, NY.
Tioga County, NY.
13820 ....... Birmingham-Hoover, AL .................................................................................................................................... 0.8894 0.9115
Bibb County, AL.
Blount County, AL.
Chilton County, AL.
Jefferson County, AL.
St. Clair County, AL.
Shelby County, AL.
Walker County, AL.
13900 ....... Bismarck, ND .................................................................................................................................................... 0.7240 0.7792
Burleigh County, ND.
Morton County, ND.
13980 ....... Blacksburg-Christiansburg-Radford, VA ........................................................................................................... 0.8213 0.8570
Giles County, VA.
Montgomery County, VA.
Pulaski County, VA.
Radford City, VA.
14020 ....... Bloomington, IN ................................................................................................................................................ 0.8533 0.8826
Greene County, IN.
Monroe County, IN.
Owen County, IN.
14060 ....... Bloomington-Normal, IL .................................................................................................................................... 0.8944 0.9155
McLean County, IL.
14260 ....... Boise City-Nampa, ID ....................................................................................................................................... 0.9401 0.9521
Ada County, ID.
Boise County, ID.
Canyon County, ID.
Gem County, ID.
Owyhee County, ID.
14484 ....... Boston-Quincy, MA ........................................................................................................................................... 1.1679 1.1343
Norfolk County, MA.
Plymouth County, MA.
Suffolk County, MA.
14500 ....... Boulder, CO ...................................................................................................................................................... 1.0350 1.0280

Boulder County, CO.
14540 ....... Bowling Green, KY ........................................................................................................................................... 0.8148 0.8518
Edmonson County, KY.
Warren County, KY.
4/5ths
Full wage
index 2 index 3
14740 ....... Bremerton-Silverdale, WA ................................................................................................................................. 1.0913 1.0730

Kitsap County, WA.
14860 ....... Bridgeport-Stamford-Norwalk, CT ..................................................................................................................... 1.2659 1.2127
Fairfield County, CT.
15180 ....... Brownsville-Harlingen, TX ................................................................................................................................. 0.9430 0.9544
Cameron County, TX.
15260 ....... Brunswick, GA .................................................................................................................................................. 1.0164 1.0131
Brantley County, GA.
Glynn County, GA.
McIntosh County, GA.
15380 ....... Buffalo-Niagara Falls, NY ................................................................................................................................. 0.9424 0.9539
Erie County, NY.
Niagara County, NY.
15500 ....... Burlington, NC ................................................................................................................................................... 0.8674 0.8939
Alamance County, NC.
15540 ....... Burlington-South Burlington, VT ....................................................................................................................... 0.9474 0.9579
Chittenden County, VT.
Franklin County, VT.
Grand Isle County, VT.
15764 ....... Cambridge-Newton-Framingham, MA .............................................................................................................. 1.0970 1.0776
Middlesex County, MA.
15804 ....... Camden, NJ ...................................................................................................................................................... 1.0392 1.0314
Burlington County, NJ.
Camden County, NJ.
Gloucester County, NJ.
15940 ....... Canton-Massillon, OH ....................................................................................................................................... 0.9031 0.9225
Carroll County, OH.
Stark County, OH.
15980 ....... Cape Coral-Fort Myers, FL ............................................................................................................................... 0.9342 0.9474
Lee County, FL.
16180 ....... Carson City, NV ................................................................................................................................................ 1.0025 1.0020
Carson City, NV.
16220 ....... Casper, WY ....................................................................................................................................................... 0.9145 0.9316
Natrona County, WY.
16300 ....... Cedar Rapids, IA .............................................................................................................................................. 0.8888 0.9110
Benton County, IA.
Jones County, IA.
Linn County, IA.
16580 ....... Champaign-Urbana, IL ...................................................................................................................................... 0.9644 0.9715
Champaign County, IL.
Ford County, IL.
Piatt County, IL.
16620 ....... Charleston, WV ................................................................................................................................................. 0.8542 0.8834
Boone County, WV.
Clay County, WV.
Kanawha County, WV.
Lincoln County, WV.
Putnam County, WV.
16700 ....... Charleston-North Charleston, SC ..................................................................................................................... 0.9145 0.9316
Berkeley County, SC.
Charleston County, SC.
Dorchester County, SC.
16740 ....... Charlotte-Gastonia-Concord, NC-SC ................................................................................................................ 0.9554 0.9643
Anson County, NC.
Cabarrus County, NC.
Gaston County, NC.
Mecklenburg County, NC.
Union County, NC.
York County, SC.
16820 ....... Charlottesville, VA ............................................................................................................................................. 1.0125 1.0100
Albemarle County, VA.
Fluvanna County, VA.
Greene County, VA.
Nelson County, VA.
Charlottesville City, VA.

16860 ....... Chattanooga, TN-GA ........................................................................................................................................ 0.8948 0.9158
Catoosa County, GA.
Dade County, GA.
Walker County, GA.
4/5ths
Full wage
index 2 index 3
Hamilton County, TN.

Marion County, TN.
Sequatchie County, TN.
16940 ....... Cheyenne, WY .................................................................................................................................................. 0.9060 0.9248
Laramie County, WY.
16974 ....... Chicago-Naperville-Joliet, IL ............................................................................................................................. 1.0751 1.0601
Cook County, IL.
DeKalb County, IL.
DuPage County, IL.
Grundy County, IL.
Kane County, IL.
Kendall County, IL.
McHenry County, IL.
Will County, IL.
17020 ....... Chico, CA .......................................................................................................................................................... 1.1053 1.0842
Butte County, CA.
17140 ....... Cincinnati-Middletown, OH-KY-IN ..................................................................................................................... 0.9601 0.9681
Dearborn County, IN.
Franklin County, IN.
Ohio County, IN.
Boone County, KY.
Bracken County, KY.
Campbell County, KY.
Gallatin County, KY.
Grant County, KY.
Kenton County, KY.
Pendleton County, KY.
Brown County, OH.
Butler County, OH.
Clermont County, OH.
Hamilton County, OH.
Warren County, OH.
17300 ....... Clarksville, TN-KY ............................................................................................................................................. 0.8436 0.8749
Christian County, KY.
Trigg County, KY.
Montgomery County, TN.
Stewart County, TN.
17420 ....... Cleveland, TN ................................................................................................................................................... 0.8109 0.8487
Bradley County, TN.
Polk County, TN.
17460 ....... Cleveland-Elyria-Mentor, OH ............................................................................................................................ 0.9400 0.9520
Cuyahoga County, OH.
Geauga County, OH.
Lake County, OH.
Lorain County, OH.
Medina County, OH.
17660 ....... Coeur d’Alene, ID ............................................................................................................................................. 0.9344 0.9475
Kootenai County, ID.
17780 ....... College Station-Bryan, TX ................................................................................................................................ 0.9045 0.9236
Brazos County, TX.
Burleson County, TX.
Robertson County, TX.
17820 ....... Colorado Springs, CO ....................................................................................................................................... 0.9701 0.9761
El Paso County, CO.
Teller County, CO.
17860 ....... Columbia, MO ................................................................................................................................................... 0.8542 0.8834
Boone County, MO.
Howard County, MO.
17900 ....... Columbia, SC .................................................................................................................................................... 0.8933 0.9146
Calhoun County, SC.
Fairfield County, SC.
Kershaw County, SC.
Lexington County, SC.
Richland County, SC.
Saluda County, SC.

17980 ....... Columbus, GA-AL ............................................................................................................................................. 0.8239 0.8591
Russell County, AL.
Chattahoochee County, GA.
Harris County, GA.
4/5ths
Full wage
index 2 index 3
Marion County, GA.

Muscogee County, GA.
18020 ....... Columbus, IN .................................................................................................................................................... 0.9318 0.9454
Bartholomew County, IN.
18140 ....... Columbus, OH .................................................................................................................................................. 1.0107 1.0086
Delaware County, OH.
Fairfield County, OH.
Franklin County, OH.
Licking County, OH.
Madison County, OH.
Morrow County, OH.
Pickaway County, OH.
Union County, OH.
18580 ....... Corpus Christi, TX ............................................................................................................................................. 0.8564 0.8851
Aransas County, TX.
Nueces County, TX.
San Patricio County, TX.
18700 ....... Corvallis, OR ..................................................................................................................................................... 1.1546 1.1237
Benton County, OR.
19060 ....... Cumberland, MD-WV ........................................................................................................................................ 0.8446 0.8757
Allegany County, MD.
Mineral County, WV.
19124 ....... Dallas-Plano-Irving, TX ..................................................................................................................................... 1.0075 1.0060
Collin County, TX.
Dallas County, TX.
Delta County, TX.
Denton County, TX.
Ellis County, TX.
Hunt County, TX.
Kaufman County, TX.
Rockwall County, TX.
19140 ....... Dalton, GA ........................................................................................................................................................ 0.9093 0.9274
Murray County, GA.
Whitfield County, GA.
19180 ....... Danville, IL ........................................................................................................................................................ 0.9266 0.9413
Vermilion County, IL.
19260 ....... Danville, VA ...................................................................................................................................................... 0.8451 0.8761
Pittsylvania County, VA.
Danville City, VA.
19340 ....... Davenport-Moline-Rock Island, IA-IL ................................................................................................................ 0.8846 0.9077
Henry County, IL.
Mercer County, IL.
Rock Island County, IL.
Scott County, IA.
19380 ....... Dayton, OH ....................................................................................................................................................... 0.9037 0.9230
Greene County, OH.
Miami County, OH.
Montgomery County, OH.
Preble County, OH.
19460 ....... Decatur, AL ....................................................................................................................................................... 0.8159 0.8527
Lawrence County, AL.
Morgan County, AL.
19500 ....... Decatur, IL ........................................................................................................................................................ 0.8172 0.8538
Macon County, IL.
19660 ....... Deltona-Daytona Beach-Ormond Beach, FL .................................................................................................... 0.9263 0.9410
Volusia County, FL.
19740 ....... Denver-Aurora, CO ........................................................................................................................................... 1.0930 1.0744
Adams County, CO.
Arapahoe County, CO.
Broomfield County, CO.
Clear Creek County, CO.
Denver County, CO.
Douglas County, CO.
Elbert County, CO.
Gilpin County, CO.

Jefferson County, CO.
Park County, CO.
19780 ....... Des Moines,-West Des Moines, IA ................................................................................................................... 0.9214 0.9371
Dallas County, IA.
4/5ths
Full wage
index 2 index 3
Guthrie County, IA.

Madison County, IA.
Polk County, IA.
Warren County, IA.
19804 ....... Detroit-Livonia-Dearborn, MI ............................................................................................................................. 1.0281 1.0225
Wayne County, MI.
20020 ....... Dothan, AL ........................................................................................................................................................ 0.7381 0.7905
Geneva County, AL.
Henry County, AL.
Houston County, AL.
20100 ....... Dover, DE ......................................................................................................................................................... 0.9847 0.9878
Kent County, DE.
20220 ....... Dubuque, IA ...................................................................................................................................................... 0.9133 0.9306
Dubuque County, IA.
20260 ....... Duluth, MN-WI .................................................................................................................................................. 1.0042 1.0034
Carlton County, MN.
St. Louis County, MN.
Douglas County, WI.
20500 ....... Durham, NC ...................................................................................................................................................... 0.9826 0.9861
Chatham County, NC.
Durham County, NC.
Orange County, NC.
Person County, NC.
20740 ....... Eau Claire, WI ................................................................................................................................................... 0.9630 0.9704
Chippewa County, WI.
Eau Claire County, WI.
20764 ....... Edison, NJ ......................................................................................................................................................... 1.1190 1.0952
Middlesex County, NJ.
Monmouth County, NJ.
Ocean County, NJ.
Somerset County, NJ.
20940 ....... El Centro, CA .................................................................................................................................................... 0.9076 0.9261
Imperial County, CA.
21060 ....... Elizabethtown, KY ............................................................................................................................................. 0.8697 0.8958
Hardin County, KY.
Larue County, KY.
21140 ....... Elkhart-Goshen, IN ........................................................................................................................................... 0.9426 0.9541
Elkhart County, IN.
21300 ....... Elmira, NY ......................................................................................................................................................... 0.8240 0.8592
Chemung County, NY.
21340 ....... El Paso, TX ....................................................................................................................................................... 0.9053 0.9242
El Paso County, TX.
21500 ....... Erie, PA ............................................................................................................................................................. 0.8827 0.9062
Erie County, PA.
21604 ....... Essex County, MA ............................................................................................................................................ 1.0418 1.0334
Essex County, MA.
21660 ....... Eugene-Springfield, OR .................................................................................................................................... 1.0876 1.0701
Lane County, OR.
21780 ....... Evansville, IN-KY .............................................................................................................................................. 0.9071 0.9257
Gibson County, IN.
Posey County, IN.
Vanderburgh County, IN.
Warrick County, IN.
Henderson County, KY.
Webster County, KY.
21820 ....... Fairbanks, AK ................................................................................................................................................... 1.1059 1.0847
Fairbanks North Star Borough, AK.
21940 ....... Fajardo, PR ....................................................................................................................................................... 0.4036 0.5229
Ceiba Municipio, PR.
Fajardo Municipio, PR.
Luquillo Municipio, PR.
22020 ....... Fargo, ND-MN ................................................................................................................................................... 0.8250 0.8600
Cass County, ND.
Clay County, MN.
22140 ....... Farmington, NM ................................................................................................................................................ 0.8589 0.8871

San Juan County, NM.
22180 ....... Fayetteville, NC ................................................................................................................................................. 0.8945 0.9156
Cumberland County, NC.
Hoke County, NC.
4/5ths
Full wage
index 2 index 3
22220 ....... Fayetteville-Springdale-Rogers, AR-MO ........................................................................................................... 0.8865 0.9092

Benton County, AR.
Madison County, AR.
Washington County, AR.
McDonald County, MO.
22380 ....... Flagstaff, AZ ...................................................................................................................................................... 1.1601 1.1281
Coconino County, AZ.
22420 ....... Flint, MI ............................................................................................................................................................. 1.0969 1.0775
Genesee County, MI.
22500 ....... Florence, SC ..................................................................................................................................................... 0.8388 0.8710
Darlington County, SC.
Florence County, SC.
22520 ....... Florence-Muscle Shoals, AL ............................................................................................................................. 0.7843 0.8274
Colbert County, AL.
Lauderdale County, AL.
22540 ....... Fond du Lac, WI ............................................................................................................................................... 1.0063 1.0050
Fond du Lac County, WI.
22660 ....... Fort Collins-Loveland, CO ................................................................................................................................. 0.9544 0.9635
Larimer County, CO.
22744 ....... Fort Lauderdale-Pompano Beach-Deerfield Beach, FL ................................................................................... 1.0133 1.0106
Broward County, FL.
22900 ....... Fort Smith, AR-OK ............................................................................................................................................ 0.7731 0.8185
Crawford County, AR.
Franklin County, AR.
Sebastian County, AR.
Le Flore County, OK.
Sequoyah County, OK.
23020 ....... Fort Walton Beach-Crestview-Destin, FL ......................................................................................................... 0.8643 0.8914
Okaloosa County, FL.
23060 ....... Fort Wayne, IN .................................................................................................................................................. 0.9517 0.9614
Allen County, IN.
Wells County, IN.
Whitley County, IN.
23104 ....... Fort Worth-Arlington, TX ................................................................................................................................... 0.9569 0.9655
Johnson County, TX.
Parker County, TX.
Tarrant County, TX.
Wise County, TX.
23420 ....... Fresno, CA ........................................................................................................................................................ 1.0943 1.0754
Fresno County, CA.
23460 ....... Gadsden, AL ..................................................................................................................................................... 0.8066 0.8453
Etowah County, AL.
23540 ....... Gainesville, FL .................................................................................................................................................. 0.9277 0.9422
Alachua County, FL.
Gilchrist County, FL.
23580 ....... Gainesville, GA ................................................................................................................................................. 0.8958 0.9166
Hall County, GA.
23844 ....... Gary, IN ............................................................................................................................................................. 0.9334 0.9467
Jasper County, IN.
Lake County, IN.
Newton County, IN.
Porter County, IN.
24020 ....... Glens Falls, NY ................................................................................................................................................. 0.8324 0.8659
Warren County, NY.
Washington County, NY.
24140 ....... Goldsboro, NC .................................................................................................................................................. 0.9171 0.9337
Wayne County, NC.
24220 ....... Grand Forks, ND-MN ........................................................................................................................................ 0.7949 0.8359
Polk County, MN.
Grand Forks County, ND.
24300 ....... Grand Junction, CO .......................................................................................................................................... 0.9668 0.9734
Mesa County, CO.
24340 ....... Grand Rapids-Wyoming, MI .............................................................................................................................. 0.9455 0.9564
Barry County, MI.
Ionia County, MI.

Kent County, MI.
Newaygo County, MI.
24500 ....... Great Falls, MT ................................................................................................................................................. 0.8598 0.8878
Cascade County, MT.
4/5ths
Full wage
index 2 index 3
24540 ....... Greeley, CO ...................................................................................................................................................... 0.9602 0.9682

Weld County, CO.
24580 ....... Green Bay, WI .................................................................................................................................................. 0.9787 0.9830
Brown County, WI.
Kewaunee County, WI.
Oconto County, WI.
24660 ....... Greensboro-High Point, NC .............................................................................................................................. 0.8866 0.9093
Guilford County, NC.
Randolph County, NC.
Rockingham County, NC.
24780 ....... Greenville, NC ................................................................................................................................................... 0.9432 0.9546
Greene County, NC.
Pitt County, NC.
24860 ....... Greenville, SC ................................................................................................................................................... 0.9804 0.9843
Greenville County, SC.
Laurens County, SC.
Pickens County, SC.
25020 ....... Guayama, PR ................................................................................................................................................... 0.3235 0.4588
Arroyo Municipio, PR.
Guayama Municipio, PR.
Patillas Municipio, PR.
25060 ....... Gulfport-Biloxi, MS ............................................................................................................................................ 0.8915 0.9132
Hancock County, MS.
Harrison County, MS.
Stone County, MS.
25180 ....... Hagerstown-Martinsburg, MD-WV .................................................................................................................... 0.9038 0.9230
Washington County, MD.
Berkeley County, WV.
Morgan County, WV.
25260 ....... Hanford-Corcoran, CA ...................................................................................................................................... 1.0282 1.0226
Kings County, CA.
25420 ....... Harrisburg-Carlisle, PA ..................................................................................................................................... 0.9402 0.9522
Cumberland County, PA.
Dauphin County, PA.
Perry County, PA.
25500 ....... Harrisonburg, VA .............................................................................................................................................. 0.9073 0.9258
Rockingham County, VA.
Harrisonburg City, VA.
25540 ....... Hartford-West Hartford-East Hartford, CT ........................................................................................................ 1.0894 1.0715
Hartford County, CT.
Litchfield County, CT.
Middlesex County, CT.
Tolland County, CT.
25620 ....... Hattiesburg, MS ................................................................................................................................................ 0.7430 0.7944
Forrest County, MS.
Lamar County, MS.
Perry County, MS.
25860 ....... Hickory-Lenoir-Morganton, NC ......................................................................................................................... 0.9010 0.9208
Alexander County, NC.
Burke County, NC.
Caldwell County, NC.
Catawba County, NC.
26100 ....... Holland-Grand Haven, MI ................................................................................................................................. 0.9163 0.9330
Ottawa County, MI.
26180 ....... Honolulu, HI ...................................................................................................................................................... 1.1096 1.0877
Honolulu County, HI.
26300 ....... Hot Springs, AR ................................................................................................................................................ 0.8782 0.9026
Garland County, AR.
26380 ....... Houma-Bayou Cane-Thibodaux, LA ................................................................................................................. 0.8082 0.8466
Lafourche Parish, LA.
Terrebonne Parish, LA.
26420 ....... Houston-Sugar Land-Baytown, TX ................................................................................................................... 1.0008 1.0006
Austin County, TX.
Brazoria County, TX.
Chambers County, TX.

Fort Bend County, TX.
Galveston County, TX.
Harris County, TX.
Liberty County, TX.
4/5ths
Full wage
index 2 index 3
Montgomery County, TX.

San Jacinto County, TX.
Waller County, TX.
26580 ....... Huntington-Ashland, WV-KY-OH ...................................................................................................................... 0.8997 0.9198
Boyd County, KY.
Greenup County, KY.
Lawrence County, OH.
Cabell County, WV.
Wayne County, WV.
26620 ....... Huntsville, AL .................................................................................................................................................... 0.9007 0.9206
Limestone County, AL.
Madison County, AL.
26820 ....... Idaho Falls, ID ................................................................................................................................................... 0.9088 0.9270
Bonneville County, ID.
Jefferson County, ID.
26900 ....... Indianapolis-Carmel, IN ..................................................................................................................................... 0.9895 0.9916
Boone County, IN.
Brown County, IN.
Hamilton County, IN.
Hancock County, IN.
Hendricks County, IN.
Johnson County, IN.
Marion County, IN.
Morgan County, IN.
Putnam County, IN.
Shelby County, IN.
26980 ....... Iowa City, IA ...................................................................................................................................................... 0.9714 0.9771
Johnson County, IA.
Washington County, IA.
27060 ....... Ithaca, NY ......................................................................................................................................................... 0.9928 0.9942
Tompkins County, NY.
27100 ....... Jackson, MI ....................................................................................................................................................... 0.9560 0.9648
Jackson County, MI.
27140 ....... Jackson, MS ..................................................................................................................................................... 0.8271 0.8617
Copiah County, MS.
Hinds County, MS.
Madison County, MS.
Rankin County, MS.
Simpson County, MS.
27180 ....... Jackson, TN ...................................................................................................................................................... 0.8853 0.9082
Chester County, TN.
Madison County, TN.
27260 ....... Jacksonville, FL ................................................................................................................................................ 0.9165 0.9332
Baker County, FL.
Clay County, FL.
Duval County, FL.
Nassau County, FL.
St. Johns County, FL.
27340 ....... Jacksonville, NC ............................................................................................................................................... 0.8231 0.8585
Onslow County, NC.
27500 ....... Janesville, WI .................................................................................................................................................... 0.9655 0.9724
Rock County, WI.
27620 ....... Jefferson City, MO ............................................................................................................................................ 0.8332 0.8666
Callaway County, MO.
Cole County, MO.
Moniteau County, MO.
Osage County, MO.
27740 ....... Johnson City, TN .............................................................................................................................................. 0.8043 0.8434
Carter County, TN.
Unicoi County, TN.
Washington County, TN.
27780 ....... Johnstown, PA .................................................................................................................................................. 0.8620 0.8896
Cambria County, PA.
27860 ....... Jonesboro, AR .................................................................................................................................................. 0.7662 0.8130
Craighead County, AR.

Poinsett County, AR.
27900 ....... Joplin, MO ......................................................................................................................................................... 0.8605 0.8884
Jasper County, MO.
Newton County, MO.
4/5ths
Full wage
index 2 index 3
28020 ....... Kalamazoo-Portage, MI .................................................................................................................................... 1.0704 1.0563

Kalamazoo County, MI.
Van Buren County, MI.
28100 ....... Kankakee-Bradley, IL ........................................................................................................................................ 1.0083 1.0066
Kankakee County, IL.
28140 ....... Kansas City, MO-KS ......................................................................................................................................... 0.9495 0.9596
Franklin County, KS.
Johnson County, KS.
Leavenworth County, KS.
Linn County, KS.
Miami County, KS.
Wyandotte County, KS.
Bates County, MO.
Caldwell County, MO.
Cass County, MO.
Clay County, MO.
Clinton County, MO.
Jackson County, MO.
Lafayette County, MO.
Platte County, MO.
Ray County, MO.
28420 ....... Kennewick-Richland-Pasco, WA ....................................................................................................................... 1.0343 1.0274
Benton County, WA.
Franklin County, WA.
28660 ....... Killeen-Temple-Fort Hood, TX .......................................................................................................................... 0.8901 0.9121
Bell County, TX.
Coryell County, TX.
Lampasas County, TX.
28700 ....... Kingsport-Bristol-Bristol, TN-VA ........................................................................................................................ 0.7985 0.8388
Hawkins County, TN.
Sullivan County, TN.
Bristol City, VA.
Scott County, VA.
Washington County, VA.
28740 ....... Kingston, NY ..................................................................................................................................................... 0.9367 0.9494
Ulster County, NY.
28940 ....... Knoxville, TN ..................................................................................................................................................... 0.8249 0.8599
Anderson County, TN.
Blount County, TN.
Knox County, TN.
Loudon County, TN.
Union County, TN.
29020 ....... Kokomo, IN ....................................................................................................................................................... 0.9669 0.9735
Howard County, IN.
Tipton County, IN.
29100 ....... La Crosse, WI-MN ............................................................................................................................................ 0.9426 0.9541
Houston County, MN.
La Crosse County, WI.
29140 ....... Lafayette, IN ...................................................................................................................................................... 0.8931 0.9145
Benton County, IN.
Carroll County, IN.
Tippecanoe County, IN.
29180 ....... Lafayette, LA ..................................................................................................................................................... 0.8289 0.8631
Lafayette Parish, LA.
St. Martin Parish, LA.
29340 ....... Lake Charles, LA .............................................................................................................................................. 0.7914 0.8331
Calcasieu Parish, LA.
Cameron Parish, LA.
29404 ....... Lake County-Kenosha County, IL-WI ............................................................................................................... 1.0570 1.0456
Lake County, IL.
Kenosha County, WI.
29460 ....... Lakeland, FL ..................................................................................................................................................... 0.8879 0.9103
Polk County, FL.
29540 ....... Lancaster, PA ................................................................................................................................................... 0.9589 0.9671
Lancaster County, PA.

29620 ....... Lansing-East Lansing, MI ................................................................................................................................. 1.0088 1.0070
Clinton County, MI.
Eaton County, MI.
Ingham County, MI.
4/5ths
Full wage
index 2 index 3
29700 ....... Laredo, TX ........................................................................................................................................................ 0.7811 0.8249

Webb County, TX.
29740 ....... Las Cruces, NM ................................................................................................................................................ 0.9273 0.9418
Dona Ana County, NM.
29820 ....... Las Vegas-Paradise, NV ................................................................................................................................... 1.1430 1.1144
Clark County, NV.
29940 ....... Lawrence, KS .................................................................................................................................................... 0.8365 0.8692
Douglas County, KS.
30020 ....... Lawton, OK ....................................................................................................................................................... 0.8065 0.8452
Comanche County, OK.
30140 ....... Lebanon, PA ..................................................................................................................................................... 0.8679 0.8943
Lebanon County, PA.
30300 ....... Lewiston, ID-WA ............................................................................................................................................... 0.9853 0.9882
Nez Perce County, ID.
Asotin County, WA.
30340 ....... Lewiston-Auburn, ME ........................................................................................................................................ 0.9126 0.9301
Androscoggin County, ME.
30460 ....... Lexington-Fayette, KY ...................................................................................................................................... 0.9181 0.9345
Bourbon County, KY.
Clark County, KY.
Fayette County, KY.
Jessamine County, KY.
Scott County, KY.
Woodford County, KY.
30620 ....... Lima, OH ........................................................................................................................................................... 0.9042 0.9234
Allen County, OH.
30700 ....... Lincoln, NE ........................................................................................................................................................ 1.0092 1.0074
Lancaster County, NE.
Seward County, NE.
30780 ....... Little Rock-North Little Rock, AR ...................................................................................................................... 0.8890 0.9112
Faulkner County, AR.
Grant County, AR.
Lonoke County, AR.
Perry County, AR.
Pulaski County, AR.
Saline County, AR.
30860 ....... Logan, UT-ID .................................................................................................................................................... 0.9022 0.9218
Franklin County, ID.
Cache County, UT.
30980 ....... Longview, TX .................................................................................................................................................... 0.8788 0.9030
Gregg County, TX.
Rusk County, TX.
Upshur County, TX.
31020 ....... Longview, WA ................................................................................................................................................... 1.0011 1.0009
Cowlitz County, WA.
31084 ....... Los Angeles-Long Beach-Glendale, CA ........................................................................................................... 1.1760 1.1408
Los Angeles County, CA.
31140 ....... Louisville-Jefferson County, KY-IN ................................................................................................................... 0.9118 0.9294
Clark County, IN.
Floyd County, IN.
Harrison County, IN.
Washington County, IN.
Bullitt County, KY.
Henry County, KY.
Jefferson County, KY.
Meade County, KY.
Nelson County, KY.
Oldham County, KY.
Shelby County, KY.
Spencer County, KY.
Trimble County, KY.
31180 ....... Lubbock, TX ...................................................................................................................................................... 0.8613 0.8890
Crosby County, TX.
Lubbock County, TX.
31340 ....... Lynchburg, VA .................................................................................................................................................. 0.8694 0.8955

Amherst County, VA.
Appomattox County, VA.
Bedford County, VA.
Campbell County, VA.
4/5ths
Full wage
index 2 index 3
Bedford City, VA.

Lynchburg City, VA.
31420 ....... Macon, GA ........................................................................................................................................................ 0.9519 0.9615
Bibb County, GA.
Crawford County, GA.
Jones County, GA.
Monroe County, GA.
Twiggs County, GA.
31460 ....... Madera, CA ....................................................................................................................................................... 0.8154 0.8523
Madera County, CA.
31540 ....... Madison, WI ...................................................................................................................................................... 1.0840 1.0672
Columbia County, WI.
Dane County, WI.
Iowa County, WI.
31700 ....... Manchester-Nashua, NH ................................................................................................................................... 1.0243 1.0194
Hillsborough County, NH.
Merrimack County, NH.
31900 ....... Mansfield, OH ................................................................................................................................................... 0.9271 0.9417
Richland County, OH.
32420 ....... Mayagüez, PR .................................................................................................................................................. 0.3848 0.5078
Hormigueros Municipio, PR.
Mayagüez Municipio, PR.
32580 ....... McAllen-Edinburg-Mission, TX .......................................................................................................................... 0.8773 0.9018
Hidalgo County, TX.
32780 ....... Medford, OR ..................................................................................................................................................... 1.0818 1.0654
Jackson County, OR.
32820 ....... Memphis, TN-MS-AR ........................................................................................................................................ 0.9373 0.9498
Crittenden County, AR.
DeSoto County, MS.
Marshall County, MS.
Tate County, MS.
Tunica County, MS.
Fayette County, TN.
Shelby County, TN.
Tipton County, TN.
32900 ....... Merced, CA ....................................................................................................................................................... 1.1471 1.1177
Merced County, CA.
33124 ....... Miami-Miami Beach-Kendall, FL ....................................................................................................................... 0.9812 0.9850
Miami-Dade County, FL.
33140 ....... Michigan City-La Porte, IN ................................................................................................................................ 0.9118 0.9294
LaPorte County, IN.
33260 ....... Midland, TX ....................................................................................................................................................... 0.9786 0.9829
Midland County, TX.
33340 ....... Milwaukee-Waukesha-West Allis, WI ............................................................................................................... 1.0218 1.0174
Milwaukee County, WI.
Ozaukee County, WI.
Washington County, WI.
Waukesha County, WI.
33460 ....... Minneapolis-St. Paul-Bloomington, MN-WI ....................................................................................................... 1.0946 1.0757
Anoka County, MN.
Carver County, MN.
Chisago County, MN.
Dakota County, MN.
Hennepin County, MN.
Isanti County, MN.
Ramsey County, MN.
Scott County, MN.
Sherburne County, MN.
Washington County, MN.
Wright County, MN.
Pierce County, WI.
St. Croix County, WI.
33540 ....... Missoula, MT ..................................................................................................................................................... 0.8928 0.9142
Missoula County, MT.
33660 ....... Mobile, AL ......................................................................................................................................................... 0.7913 0.8330

Mobile County, AL.
33700 ....... Modesto, CA ..................................................................................................................................................... 1.1729 1.1383
Stanislaus County, CA.
33740 ....... Monroe, LA ....................................................................................................................................................... 0.7997 0.8398
4/5ths
Full wage
index 2 index 3
Ouachita Parish, LA.

Union Parish, LA.
33780 ....... Monroe, MI ........................................................................................................................................................ 0.9707 0.9766
Monroe County, MI.
33860 ....... Montgomery, AL ................................................................................................................................................ 0.8009 0.8407
Autauga County, AL.
Elmore County, AL.
Lowndes County, AL.
Montgomery County, AL.
34060 ....... Morgantown, WV .............................................................................................................................................. 0.8423 0.8738
Monongalia County, WV.
Preston County, WV.
34100 ....... Morristown, TN .................................................................................................................................................. 0.7933 0.8346
Grainger County, TN.
Hamblen County, TN.
Jefferson County, TN.
34580 ....... Mount Vernon-Anacortes, WA .......................................................................................................................... 1.0517 1.0414
Skagit County, WA.
34620 ....... Muncie, IN ......................................................................................................................................................... 0.8562 0.8850
Delaware County, IN.
34740 ....... Muskegon-Norton Shores, MI ........................................................................................................................... 0.9941 0.9953
Muskegon County, MI.
34820 ....... Myrtle Beach-Conway-North Myrtle Beach, SC ............................................................................................... 0.8810 0.9048
Horry County, SC.
34900 ....... Napa, CA .......................................................................................................................................................... 1.3374 1.2699
Napa County, CA.
34940 ....... Naples-Marco Island, FL ................................................................................................................................... 0.9941 0.9953
Collier County, FL.
34980 ....... Nashville-Davidson—Murfreesboro, TN ............................................................................................................ 0.9847 0.9878
Cannon County, TN.
Cheatham County, TN.
Davidson County, TN.
Dickson County, TN.
Hickman County, TN.
Macon County, TN.
Robertson County, TN.
Rutherford County, TN.
Smith County, TN.
Sumner County, TN.
Trousdale County, TN.
Williamson County, TN.
Wilson County, TN.
35004 ....... Nassau-Suffolk, NY ........................................................................................................................................... 1.2662 1.2130
Nassau County, NY.
Suffolk County, NY.
35084 ....... Newark-Union, NJ-PA ....................................................................................................................................... 1.1892 1.1514
Essex County, NJ.
Hunterdon County, NJ.
Morris County, NJ.
Sussex County, NJ.
Union County, NJ.
Pike County, PA.
35300 ....... New Haven-Milford, CT ..................................................................................................................................... 1.1953 1.1562
New Haven County, CT.
35380 ....... New Orleans-Metairie-Kenner, LA .................................................................................................................... 0.8831 0.9065
Jefferson Parish, LA.
Orleans Parish, LA.
Plaquemines Parish, LA.
St. Bernard Parish, LA.
St. Charles Parish, LA.
St. John the Baptist Parish, LA.
St. Tammany Parish, LA.
35644 ....... New York-White Plains-Wayne, NY-NJ ............................................................................................................ 1.3177 1.2542
Bergen County, NJ.
Hudson County, NJ.

Passaic County, NJ.
Bronx County, NY.
Kings County, NY.
New York County, NY.
4/5ths
Full wage
index 2 index 3
Putnam County, NY.

Queens County, NY.
Richmond County, NY.
Rockland County, NY.
Westchester County, NY.
35660 ....... Niles-Benton Harbor, MI ................................................................................................................................... 0.8915 0.9132
Berrien County, MI.
35980 ....... Norwich-New London, CT ................................................................................................................................. 1.1932 1.1546
New London County, CT.
36084 ....... Oakland-Fremont-Hayward, CA ........................................................................................................................ 1.5819 1.4655
Alameda County, CA.
Contra Costa County, CA.
36100 ....... Ocala, FL .......................................................................................................................................................... 0.8867 0.9094
Marion County, FL.
36140 ....... Ocean City, NJ .................................................................................................................................................. 1.0472 1.0378
Cape May County, NJ.
36220 ....... Odessa, TX ....................................................................................................................................................... 1.0073 1.0058
Ector County, TX.
36260 ....... Ogden-Clearfield, UT ........................................................................................................................................ 0.8995 0.9196
Davis County, UT.
Morgan County, UT.
Weber County, UT.
36420 ....... Oklahoma City, OK ........................................................................................................................................... 0.8843 0.9074
Canadian County, OK.
Cleveland County, OK.
Grady County, OK.
Lincoln County, OK.
Logan County, OK.
McClain County, OK.
Oklahoma County, OK.
36500 ....... Olympia, WA ..................................................................................................................................................... 1.1081 1.0865
Thurston County, WA.
36540 ....... Omaha-Council Bluffs, NE-IA ........................................................................................................................... 0.9450 0.9560
Harrison County, IA.
Mills County, IA.
Pottawattamie County, IA.
Cass County, NE.
Douglas County, NE.
Sarpy County, NE.
Saunders County, NE.
Washington County, NE.
36740 ....... Orlando-Kissimmee, FL .................................................................................................................................... 0.9452 0.9562
Lake County, FL.
Orange County, FL.
Osceola County, FL.
Seminole County, FL.
36780 ....... Oshkosh-Neenah, WI ........................................................................................................................................ 0.9315 0.9452
Winnebago County, WI.
36980 ....... Owensboro, KY ................................................................................................................................................. 0.8748 0.8998
Daviess County, KY.
Hancock County, KY.
McLean County, KY.
37100 ....... Oxnard-Thousand Oaks-Ventura, CA ............................................................................................................... 1.1546 1.1237
Ventura County, CA.
37340 ....... Palm Bay-Melbourne-Titusville, FL ................................................................................................................... 0.9443 0.9554
Brevard County, FL.
37460 ....... Panama City-Lynn Haven, FL ........................................................................................................................... 0.8027 0.8422
Bay County, FL.
37620 ....... Parkersburg-Marietta-Vienna, WV-OH .............................................................................................................. 0.7977 0.8382
Washington County, OH.
Pleasants County, WV.
Wirt County, WV.
Wood County, WV.
37700 ....... Pascagoula, MS ................................................................................................................................................ 0.8215 0.8572
George County, MS.

Jackson County, MS.
37860 ....... Pensacola-Ferry Pass-Brent, FL ....................................................................................................................... 0.8000 0.8400
Escambia County, FL.
Santa Rosa County, FL.
4/5ths
Full wage
index 2 index 3
37900 ....... Peoria, IL ........................................................................................................................................................... 0.8982 0.9186

Marshall County, IL.
Peoria County, IL.
Stark County, IL.
Tazewell County, IL.
Woodford County, IL.
37964 ....... Philadelphia, PA ................................................................................................................................................ 1.0996 1.0797
Bucks County, PA.
Chester County, PA.
Delaware County, PA.
Montgomery County, PA.
Philadelphia County, PA.
38060 ....... Phoenix-Mesa-Scottsdale, AZ ........................................................................................................................... 1.0287 1.0230
Maricopa County, AZ.
Pinal County, AZ.
38220 ....... Pine Bluff, AR ................................................................................................................................................... 0.8383 0.8706
Cleveland County, AR.
Jefferson County, AR.
Lincoln County, AR.
38300 ....... Pittsburgh, PA ................................................................................................................................................... 0.8674 0.8939
Allegheny County, PA.
Armstrong County, PA.
Beaver County, PA.
Butler County, PA.
Fayette County, PA.
Washington County, PA.
Westmoreland County, PA.
38340 ....... Pittsfield, MA ..................................................................................................................................................... 1.0266 1.0213
Berkshire County, MA.
38540 ....... Pocatello, ID ...................................................................................................................................................... 0.9400 0.9520
Bannock County, ID.
Power County, ID.
38660 ....... Ponce, PR ......................................................................................................................................................... 0.4842 0.5874
Juana Dı́az Municipio, PR.
Ponce Municipio, PR.
Villalba Municipio, PR.
38860 ....... Portland-South Portland-Biddeford, ME ............................................................................................................ 0.9908 0.9926
Cumberland County, ME.
Sagadahoc County, ME.
York County, ME.
38900 ....... Portland-Vancouver-Beaverton, OR-WA .......................................................................................................... 1.1416 1.1133
Clackamas County, OR.
Columbia County, OR.
Multnomah County, OR.
Washington County, OR.
Yamhill County, OR.
Clark County, WA.
Skamania County, WA.
38940 ....... Port St. Lucie-Fort Pierce, FL ........................................................................................................................... 0.9833 0.9866
Martin County, FL.
St. Lucie County, FL.
39100 ....... Poughkeepsie-Newburgh-Middletown, NY ....................................................................................................... 1.0911 1.0729
Dutchess County, NY.
Orange County, NY.
39140 ....... Prescott, AZ ...................................................................................................................................................... 0.9836 0.9869
Yavapai County, AZ.
39300 ....... Providence-New Bedford-Fall River, RI-MA ..................................................................................................... 1.0783 1.0626
Bristol County, MA.
Bristol County, RI.
Kent County, RI.
Newport County, RI.
Providence County, RI.
Washington County, RI.
39340 ....... Provo-Orem, UT ................................................................................................................................................ 0.9537 0.9630
Juab County, UT.

Utah County, UT.
39380 ....... Pueblo, CO ....................................................................................................................................................... 0.8753 0.9002
Pueblo County, CO.
39460 ....... Punta Gorda, FL ............................................................................................................................................... 0.9405 0.9524
4/5ths
Full wage
index 2 index 3
Charlotte County, FL.

39540 ....... Racine, WI ........................................................................................................................................................ 0.9356 0.9485
Racine County, WI.
39580 ....... Raleigh-Cary, NC .............................................................................................................................................. 0.9864 0.9891
Franklin County, NC.
Johnston County, NC.
Wake County, NC.
39660 ....... Rapid City, SD .................................................................................................................................................. 0.8833 0.9066
Meade County, SD.
Pennington County, SD.
39740 ....... Reading, PA ...................................................................................................................................................... 0.9622 0.9698
Berks County, PA.
39820 ....... Redding, CA ...................................................................................................................................................... 1.3198 1.2558
Shasta County, CA.
39900 ....... Reno-Sparks, NV .............................................................................................................................................. 1.1963 1.1570
Storey County, NV.
Washoe County, NV.
40060 ....... Richmond, VA ................................................................................................................................................... 0.9177 0.9342
Amelia County, VA.
Caroline County, VA.
Charles City County, VA.
Chesterfield County, VA.
Cumberland County, VA.
Dinwiddie County, VA.
Goochland County, VA.
Hanover County, VA.
Henrico County, VA.
King and Queen County, VA.
King William County, VA.
Louisa County, VA.
New Kent County, VA.
Powhatan County, VA.
Prince George County, VA.
Sussex County, VA.
Colonial Heights City, VA.
Hopewell City, VA.
Petersburg City, VA.
Richmond City, VA.
40140 ....... Riverside-San Bernardino-Ontario, CA ............................................................................................................. 1.0904 1.0723
Riverside County, CA.
San Bernardino County, CA.
40220 ....... Roanoke, VA ..................................................................................................................................................... 0.8647 0.8918
Botetourt County, VA.
Craig County, VA.
Franklin County, VA.
Roanoke County, VA.
Roanoke City, VA.
Salem City, VA.
40340 ....... Rochester, MN .................................................................................................................................................. 1.1408 1.1126
Dodge County, MN.
Olmsted County, MN.
Wabasha County, MN.
40380 ....... Rochester, NY ................................................................................................................................................... 0.8994 0.9195
Livingston County, NY.
Monroe County, NY.
Ontario County, NY.
Orleans County, NY.
Wayne County, NY.
40420 ....... Rockford, IL ....................................................................................................................................................... 0.9989 0.9991
Boone County, IL.
Winnebago County, IL.
40484 ....... Rockingham County-Strafford County, NH ....................................................................................................... 1.0159 1.0127
Rockingham County, NH.
Strafford County, NH.
40580 ....... Rocky Mount, NC .............................................................................................................................................. 0.8854 0.9083

Edgecombe County, NC.
Nash County, NC.
40660 ....... Rome, GA ......................................................................................................................................................... 0.9193 0.9354
Floyd County, GA.
4/5ths
Full wage
index 2 index 3
40900 ....... Sacramento—Arden-Arcade—Roseville, CA .................................................................................................... 1.3372 1.2698

El Dorado County, CA.
Placer County, CA.
Sacramento County, CA.
Yolo County, CA.
40980 ....... Saginaw-Saginaw Township North, MI ............................................................................................................. 0.8874 0.9099
Saginaw County, MI.
41060 ....... St. Cloud, MN ................................................................................................................................................... 1.0362 1.0290
Benton County, MN.
Stearns County, MN.
41100 ....... St. George, UT .................................................................................................................................................. 0.9265 0.9412
Washington County, UT.
41140 ....... St. Joseph, MO-KS ........................................................................................................................................... 1.0118 1.0094
Doniphan County, KS.
Andrew County, MO.
Buchanan County, MO.
DeKalb County, MO.
41180 ....... St. Louis, MO-IL ................................................................................................................................................ 0.9005 0.9204
Bond County, IL.
Calhoun County, IL.
Clinton County, IL.
Jersey County, IL.
Macoupin County, IL.
Madison County, IL.
Monroe County, IL.
St. Clair County, IL.
Crawford County, MO.
Franklin County, MO.
Jefferson County, MO.
Lincoln County, MO.
St. Charles County, MO.
St. Louis County, MO.
Warren County, MO.
Washington County, MO.
St. Louis City, MO.
41420 ....... Salem, OR ........................................................................................................................................................ 1.0438 1.0350
Marion County, OR.
Polk County, OR.
41500 ....... Salinas, CA ....................................................................................................................................................... 1.4337 1.3470
Monterey County, CA.
41540 ....... Salisbury, MD .................................................................................................................................................... 0.8953 0.9162
Somerset County, MD.
Wicomico County, MD.
41620 ....... Salt Lake City, UT ............................................................................................................................................. 0.9402 0.9522
Salt Lake County, UT.
Summit County, UT.
Tooele County, UT.
41660 ....... San Angelo, TX ................................................................................................................................................. 0.8362 0.8690
Irion County, TX.
Tom Green County, TX.
41700 ....... San Antonio, TX ................................................................................................................................................ 0.8844 0.9075
Atascosa County, TX.
Bandera County, TX.
Bexar County, TX.
Comal County, TX.
Guadalupe County, TX.
Kendall County, TX.
Medina County, TX.
Wilson County, TX.
41740 ....... San Diego-Carlsbad-San Marcos, CA .............................................................................................................. 1.1354 1.1083
San Diego County, CA.
41780 ....... Sandusky, OH ................................................................................................................................................... 0.9302 0.9442
Erie County, OH.
41884 ....... San Francisco-San Mateo-Redwood City, CA ................................................................................................. 1.5165 1.4132
Marin County, CA.

San Francisco County, CA.
San Mateo County, CA.
41900 ....... San Germán-Cabo Rojo, PR ............................................................................................................................ 0.4885 0.5908
Cabo Rojo Municipio, PR.
4/5ths
Full wage
index 2 index 3
Lajas Municipio, PR.

Sabana Grande Municipio, PR.
San Germán Municipio, PR.
41940 ....... San Jose-Sunnyvale-Santa Clara, CA .............................................................................................................. 1.5543 1.4434
San Benito County, CA.
Santa Clara County, CA.
41980 ....... San Juan-Caguas-Guaynabo, PR .................................................................................................................... 0.4452 0.5562
Aguas Buenas Municipio, PR.
Aibonito Municipio, PR.
Arecibo Municipio, PR.
Barceloneta Municipio, PR.
Barranquitas Municipio, PR.
Bayamón Municipio, PR.
Caguas Municipio, PR.
Camuy Municipio, PR.
Canóvanas Municipio, PR.
Carolina Municipio, PR.
Cataño Municipio, PR.
Cayey Municipio, PR.
Ciales Municipio, PR.
Cidra Municipio, PR.
Comerı́o Municipio, PR.
Corozal Municipio, PR.
Dorado Municipio, PR.
Florida Municipio, PR.
Guaynabo Municipio, PR.
Gurabo Municipio, PR.
Hatillo Municipio, PR.
Humacao Municipio, PR.
Juncos Municipio, PR.
Las Piedras Municipio, PR.
Loı́za Municipio, PR.
Manatı́ Municipio, PR.
Maunabo Municipio, PR.
Morovis Municipio, PR.
Naguabo Municipio, PR.
Naranjito Municipio, PR.
Orocovis Municipio, PR.
Quebradillas Municipio, PR.
Rı́o Grande Municipio, PR.
San Juan Municipio, PR.
San Lorenzo Municipio, PR.
Toa Alta Municipio, PR.
Toa Baja Municipio, PR.
Trujillo Alto Municipio, PR.
Vega Alta Municipio, PR.
Vega Baja Municipio, PR.
Yabucoa Municipio, PR.
42020 ....... San Luis Obispo-Paso Robles, CA ................................................................................................................... 1.1598 1.1278
San Luis Obispo County, CA.
42044 ....... Santa Ana-Anaheim-Irvine, CA ......................................................................................................................... 1.1473 1.1178
Orange County, CA.
42060 ....... Santa Barbara-Santa Maria, CA ....................................................................................................................... 1.1091 1.0873
Santa Barbara County, CA.
42100 ....... Santa Cruz-Watsonville, CA ............................................................................................................................. 1.5457 1.4366
Santa Cruz County, CA.
42140 ....... Santa Fe, NM .................................................................................................................................................... 1.0824 1.0659
Santa Fe County, NM.
42220 ....... Santa Rosa-Petaluma, CA ................................................................................................................................ 1.4464 1.3571
Sonoma County, CA.
42260 ....... Sarasota-Bradenton-Venice, FL ........................................................................................................................ 0.9868 0.9894
Manatee County, FL.
Sarasota County, FL.
42340 ....... Savannah, GA ................................................................................................................................................... 0.9351 0.9481
Bryan County, GA.

Chatham County, GA.
Effingham County, GA.
42540 ....... Scranton—Wilkes-Barre, PA ............................................................................................................................. 0.8347 0.8678
Lackawanna County, PA.
4/5ths
Full wage
index 2 index 3
Luzerne County, PA.

Wyoming County, PA.
42644 ....... Seattle-Bellevue-Everett, WA ............................................................................................................................ 1.1434 1.1147
King County, WA.
Snohomish County, WA.
42680 ....... Sebastian-Vero Beach, FL ................................................................................................................................ 0.9573 0.9658
Indian River County, FL.
43100 ....... Sheboygan, WI ................................................................................................................................................. 0.9026 0.9221
Sheboygan County, WI.
43300 ....... Sherman-Denison, TX ....................................................................................................................................... 0.8502 0.8802
Grayson County, TX.
43340 ....... Shreveport-Bossier City, LA .............................................................................................................................. 0.8865 0.9092
Bossier Parish, LA.
Caddo Parish, LA.
De Soto Parish, LA.
43580 ....... Sioux City, IA-NE-SD ........................................................................................................................................ 0.9200 0.9360
Woodbury County, IA.
Dakota County, NE.
Dixon County, NE.
Union County, SD.
43620 ....... Sioux Falls, SD ................................................................................................................................................. 0.9559 0.9647
Lincoln County, SD.
McCook County, SD.
Minnehaha County, SD.
Turner County, SD.
43780 ....... South Bend-Mishawaka, IN-MI ......................................................................................................................... 0.9842 0.9874
St. Joseph County, IN.
Cass County, MI.
43900 ....... Spartanburg, SC ............................................................................................................................................... 0.9174 0.9339
Spartanburg County, SC.
44060 ....... Spokane, WA .................................................................................................................................................... 1.0447 1.0358
Spokane County, WA.
44100 ....... Springfield, IL .................................................................................................................................................... 0.8890 0.9112
Menard County, IL.
Sangamon County, IL.
44140 ....... Springfield, MA .................................................................................................................................................. 1.0079 1.0063
Franklin County, MA.
Hampden County, MA.
Hampshire County, MA.
44180 ....... Springfield, MO ................................................................................................................................................. 0.8469 0.8775
Christian County, MO.
Dallas County, MO.
Greene County, MO.
Polk County, MO.
Webster County, MO.
44220 ....... Springfield, OH .................................................................................................................................................. 0.8593 0.8874
Clark County, OH.
44300 ....... State College, PA ............................................................................................................................................. 0.8784 0.9027
Centre County, PA.
44700 ....... Stockton, CA ..................................................................................................................................................... 1.1442 1.1154
San Joaquin County, CA.
44940 ....... Sumter, SC ....................................................................................................................................................... 0.8083 0.8466
Sumter County, SC.
45060 ....... Syracuse, NY .................................................................................................................................................... 0.9691 0.9753
Madison County, NY.
Onondaga County, NY.
Oswego County, NY.
45104 ....... Tacoma, WA ..................................................................................................................................................... 1.0789 1.0631
Pierce County, WA.
45220 ....... Tallahassee, FL ................................................................................................................................................ 0.8942 0.9154
Gadsden County, FL.
Jefferson County, FL.
Leon County, FL.
Wakulla County, FL.
45300 ....... Tampa-St. Petersburg-Clearwater, FL .............................................................................................................. 0.9144 0.9315

Hernando County, FL.
Hillsborough County, FL.
Pasco County, FL.
Pinellas County, FL.
4/5ths
Full wage
index 2 index 3
45460 ....... Terre Haute, IN ................................................................................................................................................. 0.8765 0.9012

Clay County, IN.
Sullivan County, IN.
Vermillion County, IN.
Vigo County, IN.
45500 ....... Texarkana, TX-Texarkana, AR ......................................................................................................................... 0.8104 0.8483
Miller County, AR.
Bowie County, TX.
45780 ....... Toledo, OH ........................................................................................................................................................ 0.9586 0.9669
Fulton County, OH.
Lucas County, OH.
Ottawa County, OH.
Wood County, OH.
45820 ....... Topeka, KS ....................................................................................................................................................... 0.8730 0.8984
Jackson County, KS.
Jefferson County, KS.
Osage County, KS.
Shawnee County, KS.
Wabaunsee County, KS.
45940 ....... Trenton-Ewing, NJ ............................................................................................................................................ 1.0835 1.0668
Mercer County, NJ.
46060 ....... Tucson, AZ ........................................................................................................................................................ 0.9202 0.9362
Pima County, AZ.
46140 ....... Tulsa, OK .......................................................................................................................................................... 0.8103 0.8482
Creek County, OK.
Okmulgee County, OK.
Osage County, OK.
Pawnee County, OK.
Rogers County, OK.
Tulsa County, OK.
Wagoner County, OK.
46220 ....... Tuscaloosa, AL ................................................................................................................................................. 0.8542 0.8834
Greene County, AL.
Hale County, AL.
Tuscaloosa County, AL.
46340 ....... Tyler, TX ........................................................................................................................................................... 0.8811 0.9049
Smith County, TX.
46540 ....... Utica-Rome, NY ................................................................................................................................................ 0.8396 0.8717
Herkimer County, NY.
Oneida County, NY.
46660 ....... Valdosta, GA ..................................................................................................................................................... 0.8369 0.8695
Brooks County, GA.
Echols County, GA.
Lanier County, GA.
Lowndes County, GA.
46700 ....... Vallejo-Fairfield, CA .......................................................................................................................................... 1.5137 1.4110
Solano County, CA.
47020 ....... Victoria, TX ....................................................................................................................................................... 0.8560 0.8848
Calhoun County, TX.
Goliad County, TX.
Victoria County, TX.
47220 ....... Vineland-Millville-Bridgeton, NJ ........................................................................................................................ 0.9832 0.9866
Cumberland County, NJ.
47260 ....... Virginia Beach-Norfolk-Newport News, VA-NC ................................................................................................ 0.8790 0.9032
Currituck County, NC.
Gloucester County, VA.
Isle of Wight County, VA.
James City County, VA.
Mathews County, VA.
Surry County, VA.
York County, VA.
Chesapeake City, VA.
Hampton City, VA.
Newport News City, VA.
Norfolk City, VA.

Poquoson City, VA.
Portsmouth City, VA.
Suffolk City, VA.
Virginia Beach City, VA.
4/5ths
Full wage
index 2 index 3
Williamsburg City, VA.

47300 ....... Visalia-Porterville, CA ....................................................................................................................................... 0.9968 0.9974
Tulare County, CA.
47380 ....... Waco, TX .......................................................................................................................................................... 0.8633 0.8906
McLennan County, TX.
47580 ....... Warner Robins, GA ........................................................................................................................................... 0.8380 0.8704
Houston County, GA.
47644 ....... Warren-Troy-Farmington Hills, MI ..................................................................................................................... 1.0054 1.0043
Lapeer County, MI.
Livingston County, MI.
Macomb County, MI.
Oakland County, MI.
St. Clair County, MI.
47894 ....... Washington-Arlington-Alexandria, DC-VA-MD-WV ........................................................................................... 1.1054 1.0843
District of Columbia, DC.
Calvert County, MD.
Charles County, MD.
Prince George’s County, MD.
Arlington County, VA.
Clarke County, VA.
Fairfax County, VA.
Fauquier County, VA.
Loudoun County, VA.
Prince William County, VA.
Spotsylvania County, VA.
Stafford County, VA.
Warren County, VA.
Alexandria City, VA.
Fairfax City, VA.
Falls Church City, VA.
Fredericksburg City, VA.
Manassas City, VA.
Manassas Park City, VA.
Jefferson County, WV.
47940 ....... Waterloo-Cedar Falls, IA ................................................................................................................................... 0.8408 0.8726
Black Hawk County, IA.
Bremer County, IA.
Grundy County, IA.
48140 ....... Wausau, WI ...................................................................................................................................................... 0.9722 0.9778
Marathon County, WI.
48260 ....... Weirton-Steubenville, WV-OH ........................................................................................................................... 0.8063 0.8450
Jefferson County, OH.
Brooke County, WV.
Hancock County, WV.
48300 ....... Wenatchee, WA ................................................................................................................................................ 1.0346 1.0277
Chelan County, WA.
Douglas County, WA.
48424 ....... West Palm Beach-Boca Raton-Boynton Beach, FL ......................................................................................... 0.9649 0.9719
Palm Beach County, FL.
48540 ....... Wheeling, WV-OH ............................................................................................................................................. 0.7010 0.7608
Belmont County, OH.
Marshall County, WV.
Ohio County, WV.
48620 ....... Wichita, KS ....................................................................................................................................................... 0.9063 0.9250
Butler County, KS.
Harvey County, KS.
Sedgwick County, KS.
Sumner County, KS.
48660 ....... Wichita Falls, TX ............................................................................................................................................... 0.8311 0.8649
Archer County, TX.
Clay County, TX.
Wichita County, TX.
48700 ....... Williamsport, PA ................................................................................................................................................ 0.8139 0.8511
Lycoming County, PA.
48864 ....... Wilmington, DE-MD-NJ ..................................................................................................................................... 1.0684 1.0547

New Castle County, DE.
Cecil County, MD.
Salem County, NJ.
48900 ....... Wilmington, NC ................................................................................................................................................. 0.9835 0.9868
4/5ths
Full wage
index 2 index 3
Brunswick County, NC.

New Hanover County, NC.
Pender County, NC.
49020 ....... Winchester, VA-WV .......................................................................................................................................... 1.0091 1.0073
Frederick County, VA.
Winchester City, VA.
Hampshire County, WV.
49180 ....... Winston-Salem, NC ........................................................................................................................................... 0.9276 0.9421
Davie County, NC.
Forsyth County, NC.
Stokes County, NC.
Yadkin County, NC.
49340 ....... Worcester, MA .................................................................................................................................................. 1.0722 1.0578
Worcester County, MA.
49420 ....... Yakima, WA ...................................................................................................................................................... 0.9847 0.9878
Yakima County, WA.
49500 ....... Yauco, PR ......................................................................................................................................................... 0.3854 0.5083
Guánica Municipio, PR.
Guayanilla Municipio, PR.
Peñuelas Municipio, PR.
Yauco Municipio, PR.
49620 ....... York-Hanover, PA ............................................................................................................................................. 0.9397 0.9518
York County, PA.
49660 ....... Youngstown-Warren-Boardman, OH-PA .......................................................................................................... 0.8802 0.9042
Mahoning County, OH.
Trumbull County, OH.
Mercer County, PA.
49700 ....... Yuba City, CA ................................................................................................................................................... 1.0730 1.0584
Sutter County, CA.
Yuba County, CA.
49740 ....... Yuma, AZ .......................................................................................................................................................... 0.9109 0.9287
Yuma County, AZ.
1 As discussed in section IV.D.1.d. of the preamble of this final rule, because there will no longer be any LTCHs in their cost reporting periods
that began during FYs 2003, 2004 or 2005 (the first 3 years of the 5-year wage index phase-in, respectively), we are no longer showing the 1/
5th, 2/5ths and 3/5ths wage index value. For further details on the 5-year phase-in of the wage index, see section IV.D.1.of this final rule.
2 The wage index values are calculated using the same wage data used to compute the wage index used by acute care hospitals under the
IPPS for Federal FY 2007 (that is, fiscal year 2003 audited acute care hospital inpatient wage data without regard to reclassification under sec-
tion 1886(d)(8) or section 1886(d)(10) of the Act).
3 Four-fifths of the full wage index value, applicable for a LTCH’s cost reporting period beginning on or after October 1, 2005 through Sep-
tember 30, 2006 (Federal FY 2006). That is, for a LTCH’s cost reporting period that begins during Federal FY 2006 and located in Chicago, Illi-
nois (CBSA 16974), the 4/5ths wage index value is computed as ((4*1.0751) + 1))/5 = 1.0601. For further details on the 5-year phase-in of the
wage index, see section IV.D.1. of this final rule.
TABLE 2.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR RURAL AREAS FOR DISCHARGES OCCURRING FROM JULY 1,
2007 THROUGH JUNE 30, 2008 1
4/5ths
Full wage
CBSA code Nonurban area wage
index 2 index 3
01 ............. Alabama ............................................................................................................................................................ 0.7591 0.8073

02 ............. Alaska ............................................................................................................................................................... 1.0661 1.0529
03 ............. Arizona .............................................................................................................................................................. 0.8908 0.9126
04 ............. Arkansas ........................................................................................................................................................... 0.7307 0.7846
05 ............. California ........................................................................................................................................................... 1.1454 1.1163
06 ............. Colorado ............................................................................................................................................................ 0.9325 0.9460
07 ............. Connecticut ....................................................................................................................................................... 1.1709 1.1367
08 ............. Delaware ........................................................................................................................................................... 0.9705 0.9764
10 ............. Florida ............................................................................................................................................................... 0.8594 0.8875
11 ............. Georgia ............................................................................................................................................................. 0.7593 0.8074
12 ............. Hawaii ............................................................................................................................................................... 1.0448 1.0358
13 ............. Idaho ................................................................................................................................................................. 0.8120 0.8496
14 ............. Illinois ................................................................................................................................................................ 0.8320 0.8656
15 ............. Indiana .............................................................................................................................................................. 0.8538 0.8830
16 ............. Iowa ................................................................................................................................................................... 0.8681 0.8945

17 ............. Kansas .............................................................................................................................................................. 0.7998 0.8398
18 ............. Kentucky ........................................................................................................................................................... 0.7768 0.8214
19 ............. Louisiana ........................................................................................................................................................... 0.7438 0.7950
20 ............. Maine ................................................................................................................................................................ 0.8443 0.8754
TABLE 2.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR RURAL AREAS FOR DISCHARGES OCCURRING FROM JULY 1,
4/5ths
Full wage
CBSA code Nonurban area wage
index 2 index 3
21 ............. Maryland ........................................................................................................................................................... 0.8926 0.9141

22 ............. Massachusetts 4 ................................................................................................................................................ ................ ................
23 ............. Michigan ............................................................................................................................................................ 0.9062 0.9250
24 ............. Minnesota .......................................................................................................................................................... 0.9153 0.9322
25 ............. Mississippi ......................................................................................................................................................... 0.7738 0.8190
26 ............. Missouri ............................................................................................................................................................. 0.7927 0.8342
27 ............. Montana ............................................................................................................................................................ 0.8590 0.8872
28 ............. Nebraska ........................................................................................................................................................... 0.8677 0.8942
29 ............. Nevada .............................................................................................................................................................. 0.8944 0.9155
30 ............. New Hampshire ................................................................................................................................................ 1.0853 1.0682
31 ............. New Jersey 4 ..................................................................................................................................................... ................ ................
32 ............. New Mexico ...................................................................................................................................................... 0.8332 0.8666
33 ............. New York .......................................................................................................................................................... 0.8232 0.8586
34 ............. North Carolina ................................................................................................................................................... 0.8588 0.8870
35 ............. North Dakota ..................................................................................................................................................... 0.7215 0.7772
36 ............. Ohio ................................................................................................................................................................... 0.8658 0.8926
37 ............. Oklahoma .......................................................................................................................................................... 0.7629 0.8103
38 ............. Oregon .............................................................................................................................................................. 0.9753 0.9802
39 ............. Pennsylvania ..................................................................................................................................................... 0.8320 0.8656
40 ............. Puerto Rico 4 ..................................................................................................................................................... ................ ................
41 ............. Rhode Island 4 ................................................................................................................................................... ................ ................
42 ............. South Carolina .................................................................................................................................................. 0.8566 0.8853
43 ............. South Dakota .................................................................................................................................................... 0.8480 0.8784
44 ............. Tennessee ........................................................................................................................................................ 0.7827 0.8262
45 ............. Texas ................................................................................................................................................................ 0.7965 0.8372
46 ............. Utah ................................................................................................................................................................... 0.8140 0.8512
47 ............. Vermont ............................................................................................................................................................. 0.9744 0.9795
49 ............. Virginia .............................................................................................................................................................. 0.7940 0.8352
50 ............. Washington ....................................................................................................................................................... 1.0263 1.0210
51 ............. West Virginia ..................................................................................................................................................... 0.7607 0.8086
52 ............. Wisconsin .......................................................................................................................................................... 0.9553 0.9642
53 ............. Wyoming ........................................................................................................................................................... 0.9295 0.9436
1 As discussed in section IV.D.1.d. of the preamble of this final rule, because there are no longer any LTCHs in their cost reporting periods that
began during FYs 2003, 2004 or 2005 (the first 3 years of the 5-year wage index phase-in, respectively), we are no longer showing the
1/5th, 2/5ths and 3/5ths wage index value. For further details on the 5-year phase-in of the wage index, see section IV.D.1. of this final rule.
2 The wage index values are calculated using the same wage data used to compute the wage index used by acute care hospitals under the
IPPS for Federal FY 2007 (that is, fiscal year 2003 audited acute care hospital inpatient wage data without regard to reclassification under sec-
tion 1886(d)(8) or section 1886(d)(10) of the Act).
3 Four-fifths of the full wage index value, applicable for a LTCH’s cost reporting period beginning on or after October 1, 2005 through Sep-
tember 30, 2006 (Federal FY 2006). That is, for a LTCH’s cost reporting period that begins during Federal FY 2006 and located in rural Illinois,
the 4/5ths wage index value is computed as ((4*0.8320) + 1))/5 = 0.8656. For further details on the 5-year phase-in of the wage index, see sec-
tion IV.D.1. of this final rule.
4 All counties within the State are classified as urban.
TABLE 3: FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE
GEOMETRIC AVERAGE LENGTH OF STAY AND THE IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION
IPPS av-
5/6ths of
Geo- erage
the geo-
metric av- length of
Relative metric av-
LTC–DRG Description erage stay plus
weight erage
length of one
length of
stay standard
stay deviation*
1 ............... 5 CRANIOTOMY AGE >17 W CC ............................................................................. 1.6835 37.1 30.9 16.1

2 ............... 6 CRANIOTOMY AGE >17 W/O CC ......................................................................... 1.6835 37.1 30.9 7.1
3 ............... 6 CRANIOTOMY AGE 0–17 ...................................................................................... 1.6835 37.1 30.9 20.1
6 ............... 6 CARPAL TUNNEL RELEASE ................................................................................. 0.4175 17.0 14.2 4.8
7 ............... PERIPH & CRANIAL NERVE & OTHER NERV SYST PROC W CC ...................... 1.2052 36.1 30.1 15.8
8 ............... 2 PERIPH & CRANIAL NERVE & OTHER NERV SYST PROC W/O CC ................ 0.5594 21.0 17.5 4.2
9 ............... SPINAL DISORDERS & INJURIES .......................................................................... 1.0424 34.0 28.3 9.7
10 ............. NERVOUS SYSTEM NEOPLASMS W CC .............................................................. 0.6971 22.1 18.4 9.6
11 ............. 2 NERVOUS SYSTEM NEOPLASMS W/O CC ........................................................ 0.5594 21.0 17.5 5.7
12 ............. DEGENERATIVE NERVOUS SYSTEM DISORDERS ............................................. 0.6788 25.1 20.9 8.4
13 ............. MULTIPLE SCLEROSIS & CEREBELLAR ATAXIA ................................................. 0.6003 23.1 19.3 7.4
14 ............. INTRACRANIAL HEMORRHAGE OR CEREBRAL INFARCTION ........................... 0.6772 24.9 20.8 8.6
15 ............. NONSPECIFIC CVA & PRECEREBRAL OCCLUSION W/O INFARCT .................. 0.7705 26.1 21.8 6.4
16 ............. NONSPECIFIC CEREBROVASCULAR DISORDERS W CC .................................. 0.6978 23.1 19.3 10.1
17 ............. 2 NONSPECIFIC CEREBROVASCULAR DISORDERS W/O CC ............................ 0.5594 21.0 17.5 4.7
TABLE 3: FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE GEO-
METRIC AVERAGE LENGTH OF STAY AND THE IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—
Continued
IPPS av-
5/6ths of
Geo- erage
the geo-
Relative metric av-
weight erage
length of one
length of
stay standard
stay deviation*
18 ............. CRANIAL & PERIPHERAL NERVE DISORDERS W CC ........................................ 0.7503 25.4 21.2 8.2
19 ............. CRANIAL & PERIPHERAL NERVE DISORDERS W/O CC ..................................... 0.4512 19.5 16.3 5.3
21 ............. 3 VIRAL MENINGITIS ................................................................................................ 0.7819 23.9 19.9 9.9
22 ............. 3 HYPERTENSIVE ENCEPHALOPATHY ................................................................. 0.7819 23.9 19.9 7.9
23 ............. NONTRAUMATIC STUPOR & COMA ...................................................................... 1.0118 29.4 24.5 6.1
26 ............. 6 SEIZURE & HEADACHE AGE 0–17 ...................................................................... 0.5594 21.0 17.5 6.2
27 ............. TRAUMATIC STUPOR & COMA, COMA >1 HR ..................................................... 0.9978 30.6 25.5 7.6
28 ............. TRAUMATIC STUPOR & COMA, COMA <1 HR AGE >17 W CC .......................... 0.7983 25.8 21.5 9.1
29 ............. 1 TRAUMATIC STUPOR & COMA, COMA <1 HR AGE >17 W/O CC .................... 0.4175 17.0 14.2 5.0
30** .......... 6 TRAUMATIC STUPOR & COMA, COMA <1 HR AGE 0–17 ................................. 0.4175 17.0 14.2 2.0
31 ............. 1 CONCUSSION AGE >17 W CC ............................................................................. 0.4175 17.0 14.2 6.2
32 ............. 6 CONCUSSION AGE >17 W/O CC ......................................................................... 0.4175 17.0 14.2 3.4
33** .......... 6 CONCUSSION AGE 0–17 ...................................................................................... 0.4175 17.0 14.2 1.6
34 ............. OTHER DISORDERS OF NERVOUS SYSTEM W CC ........................................... 0.7029 23.4 19.5 7.4
35 ............. OTHER DISORDERS OF NERVOUS SYSTEM W/O CC ........................................ 0.5080 21.1 17.6 4.7
36 ............. 6 RETINAL PROCEDURES ....................................................................................... 0.5594 21.0 17.5 2.7
37 ............. 6 ORBITAL PROCEDURES ....................................................................................... 0.5594 21.0 17.5 6.6
38 ............. 6 PRIMARY IRIS PROCEDURES ............................................................................. 0.5594 21.0 17.5 4.3
39 ............. 6 LENS PROCEDURES WITH OR WITHOUT VITRECTOMY ................................. 0.5594 21.0 17.5 3.1
40 ............. 6 EXTRAOCULAR PROCEDURES EXCEPT ORBIT AGE >17 ............................... 0.5594 21.0 17.5 6.7
41** .......... 6 EXTRAOCULAR PROCEDURES EXCEPT ORBIT AGE 0–17 ............................. 0.5594 21.0 17.5 1.6
42 ............. 6 INTRAOCULAR PROCEDURES EXCEPT RETINA, IRIS & LENS ....................... 0.5594 21.0 17.5 3.7
43 ............. 6 HYPHEMA ............................................................................................................... 0.4175 17.0 14.2 4.6
44 ............. 3 ACUTE MAJOR EYE INFECTIONS ....................................................................... 0.7819 23.9 19.9 7.4
45 ............. 1 NEUROLOGICAL EYE DISORDERS ..................................................................... 0.4175 17.0 14.2 4.6
46 ............. 2 OTHER DISORDERS OF THE EYE AGE >17 W CC ........................................... 0.5594 21.0 17.5 6.6
47 ............. 6 OTHER DISORDERS OF THE EYE AGE >17 W/O CC ........................................ 0.4175 17.0 14.2 4.7
48** .......... 6 OTHER DISORDERS OF THE EYE AGE 0–17 .................................................... 0.4175 17.0 14.2 2.9
49 ............. 6 MAJOR HEAD & NECK PROCEDURES ............................................................... 1.1625 29.5 24.6 7.1
50 ............. 6 SIALOADENECTOMY ............................................................................................. 1.1625 29.5 24.6 2.6
51 ............. 6 SALIVARY GLAND PROCEDURES EXCEPT SIALOADENECTOMY .................. 1.1625 29.5 24.6 4.0
52 ............. 6 CLEFT LIP & PALATE REPAIR ............................................................................. 1.1625 29.5 24.6 2.1
53 ............. 6 SINUS & MASTOID PROCEDURES AGE >17 ...................................................... 1.1625 29.5 24.6 6.2
54** .......... 6 SINUS & MASTOID PROCEDURES AGE 0–17 .................................................... 1.1625 29.5 24.6 3.2
55 ............. 4 MISCELLANEOUS EAR, NOSE, MOUTH & THROAT PROCEDURES ............... 1.1625 29.5 24.6 4.3
56 ............. 6 RHINOPLASTY ....................................................................................................... 1.1625 29.5 24.6 4.1
57 ............. 6 T&A PROC, EXCEPT TONSILLECTOMY &/OR ADENOIDECTOMY ONLY, 0.4175 17.0 14.2 4.9
AGE >17.
58** .......... 6 T&A PROC, EXCEPT TONSILLECTOMY &/OR ADENOIDECTOMY ONLY, 0.4175 17.0 14.2 1.5
AGE 0–17.
59 ............. 6 TONSILLECTOMY &/OR ADENOIDECTOMY ONLY, AGE >17 ........................... 0.4175 17.0 14.2 3.6
60 ............. 6 TONSILLECTOMY &/OR ADENOIDECTOMY ONLY, AGE 0–17 ......................... 0.4175 17.0 14.2 2.7
61 ............. 6 MYRINGOTOMY W TUBE INSERTION AGE >17 ................................................. 0.4175 17.0 14.2 10.2
62 ............. 6 MYRINGOTOMY W TUBE INSERTION AGE 0–17 ............................................... 0.4175 17.0 14.2 2.3
63 ............. 4 OTHER EAR, NOSE, MOUTH & THROAT O.R. PROCEDURES ......................... 1.1625 29.5 24.6 7.2
64 ............. EAR, NOSE, MOUTH & THROAT MALIGNANCY ................................................... 1.1797 26.2 21.8 10.2
65 ............. 1 DYSEQUILIBRIUM .................................................................................................. 0.4175 17.0 14.2 4.2
66 ............. 6 EPISTAXIS .............................................................................................................. 0.4175 17.0 14.2 4.8
67 ............. 3 EPIGLOTTITIS ........................................................................................................ 0.7819 23.9 19.9 5.8
68 ............. OTITIS MEDIA & URI AGE &>17 W CC .................................................................. 0.6211 20.3 16.9 5.9
69 ............. 1 OTITIS MEDIA & URI AGE &>17 W/O CC ............................................................ 0.4175 17.0 14.2 4.5
70 ............. 6 OTITIS MEDIA & URI AGE 0–17 ........................................................................... 0.4175 17.0 14.2 3.6
71 ............. 6 LARYNGOTRACHEITIS .......................................................................................... 0.5594 21.0 17.5 6.7
72 ............. 3 NASAL TRAUMA & DEFORMITY .......................................................................... 0.7819 23.9 19.9 5.2
73 ............. OTHER EAR, NOSE, MOUTH & THROAT DIAGNOSES AGE >17 ....................... 0.7745 22.9 19.1 6.9
74 ............. 6 OTHER EAR, NOSE, MOUTH & THROAT DIAGNOSES AGE 0–17 ................... 0.4175 17.0 14.2 3.9
75 ............. MAJOR CHEST PROCEDURES .............................................................................. 1.9944 33.5 27.9 15.4
76 ............. OTHER RESP SYSTEM O.R. PROCEDURES W CC ............................................. 2.3982 42.5 35.4 17.2
77 ............. 2 OTHER RESP SYSTEM O.R. PROCEDURES W/O CC ....................................... 0.5594 21.0 17.5 7.4
78 ............. PULMONARY EMBOLISM ........................................................................................ 0.6746 22.6 18.8 9.4

79 ............. RESPIRATORY INFECTIONS & INFLAMMATIONS AGE >17 W CC .................... 0.8182 22.8 19.0 12.9
80 ............. RESPIRATORY INFECTIONS & INFLAMMATIONS AGE >17 W/O CC ................. 0.6485 20.9 17.4 8.3
81 ............. 6 RESPIRATORY INFECTIONS & INFLAMMATIONS AGE 0–17 ........................... 0.4175 17.0 14.2 10.1
82 ............. RESPIRATORY NEOPLASMS ................................................................................. 0.8242 21.4 17.8 11.0
Continued
IPPS av-
5/6ths of
Geo- erage
the geo-
Relative metric av-
weight erage
length of one
length of
stay standard
stay deviation*
83 ............. 1 MAJOR CHEST TRAUMA W CC ........................................................................... 0.4175 17.0 14.2 8.2

84 ............. 6 MAJOR CHEST TRAUMA W/O CC ....................................................................... 0.4175 17.0 14.2 4.8
85 ............. PLEURAL EFFUSION W CC .................................................................................... 0.6956 21.4 17.8 9.9
86 ............. 6 PLEURAL EFFUSION W/O CC .............................................................................. 0.4175 17.0 14.2 5.5
87 ............. PULMONARY EDEMA & RESPIRATORY FAILURE ............................................... 1.0295 24.8 20.7 10.3
88 ............. CHRONIC OBSTRUCTIVE PULMONARY DISEASE .............................................. 0.6411 19.3 16.1 7.5
89 ............. SIMPLE PNEUMONIA & PLEURISY AGE >17 W CC ............................................. 0.6802 20.6 17.2 8.6
90 ............. SIMPLE PNEUMONIA & PLEURISY AGE >17 W/O CC ......................................... 0.4958 17.8 14.8 5.6
91 ............. 6 SIMPLE PNEUMONIA & PLEURISY AGE 0–17 .................................................... 0.5594 21.0 17.5 5.3
92 ............. INTERSTITIAL LUNG DISEASE W CC .................................................................... 0.6638 19.6 16.3 9.4
93 ............. 1 INTERSTITIAL LUNG DISEASE W/O CC .............................................................. 0.4175 17.0 14.2 5.9
94 ............. PNEUMOTHORAX W CC ......................................................................................... 0.6785 21.3 17.8 9.6
95 ............. 8 PNEUMOTHORAX W/O CC ................................................................................... 0.6785 21.3 17.8 5.3
96 ............. BRONCHITIS & ASTHMA AGE >17 W CC .............................................................. 0.6230 18.9 15.8 6.7
97 ............. 8 BRONCHITIS & ASTHMA AGE >17 W/O CC ........................................................ 0.6230 18.9 15.8 5.2
98 ............. 6 BRONCHITIS & ASTHMA AGE 0–17 ..................................................................... 0.5594 21.0 17.5 4.4
99 ............. RESPIRATORY SIGNS & SYMPTOMS W CC ........................................................ 0.9381 24.6 20.5 4.8
100 ........... 3RESPIRATORY SIGNS & SYMPTOMS W/O CC .................................................. 0.7819 23.9 19.9 3.1
101 ........... OTHER RESPIRATORY SYSTEM DIAGNOSES W CC .......................................... 0.8147 22.2 18.5 6.7
102 ........... 1 OTHER RESPIRATORY SYSTEM DIAGNOSES W/O CC .................................... 0.4175 17.0 14.2 3.9
103*** ....... 7 HEART TRANSPLANT OR IMPLANT OF HEART ASSIST SYSTEM .................. 0.0000 0.0 0.0 0.0
104 ........... 6 CARDIAC VALVE & OTHER MAJOR CARDIOTHORACIC PROC W CARDIAC 1.1625 29.5 24.6 22.3
CATH.
105 ........... 6 CARDIAC VALVE & OTHER MAJOR CARDIOTHORACIC PROC W/O CAR- 1.1625 29.5 24.6 15.0
DIAC CATH.
106 ........... 6 CORONARY BYPASS W PTCA ............................................................................. 1.1625 29.5 24.6 16.6
108 ........... 6 OTHER CARDIOTHORACIC PROCEDURES ....................................................... 1.1625 29.5 24.6 17.1
110 ........... 4 MAJOR CARDIOVASCULAR PROCEDURES W CC ............................................ 1.1625 29.5 24.6 13.8
111 ........... 6 MAJOR CARDIOVASCULAR PROCEDURES W/O CC ........................................ 1.1625 29.5 24.6 4.9
113 ........... AMPUTATION FOR CIRC SYSTEM DISORDERS EXCEPT UPPER LIMB & TOE 1.3942 36.1 30.1 20.5
114 ........... UPPER LIMB & TOE AMPUTATION FOR CIRC SYSTEM DISORDERS .............. 1.2425 33.0 27.5 14.0
117 ........... 2 CARDIAC PACEMAKER REVISION EXCEPT DEVICE REPLACEMENT ............ 0.5594 21.0 17.5 6.7
118 ........... 3 CARDIAC PACEMAKER DEVICE REPLACEMENT .............................................. 0.7819 23.9 19.9 4.6
119 ........... 3 VEIN LIGATION & STRIPPING .............................................................................. 0.7819 23.9 19.9 8.8
120 ........... OTHER CIRCULATORY SYSTEM O.R. PROCEDURES ........................................ 1.0893 31.4 26.2 15.5
121 ........... CIRCULATORY DISORDERS W AMI & MAJOR COMP, DISCHARGED ALIVE ... 0.7451 22.4 18.7 10.1
122 ........... 2 CIRCULATORY DISORDERS W AMI W/O MAJOR COMP, DISCHARGED 0.5594 21.0 17.5 5.3
ALIVE.
123 ........... CIRCULATORY DISORDERS W AMI, EXPIRED .................................................... 0.7858 17.0 14.2 7.6
124 ........... 4 CIRCULATORY DISORDERS EXCEPT AMI, W CARD CATH & COMPLEX 1.1625 29.5 24.6 7.0
DIAG.
125 ........... 1 CIRCULATORY DISORDERS EXCEPT AMI, W CARD CATH W/O COMPLEX 0.4175 17.0 14.2 4.1
DIAG.
126 ........... ACUTE & SUBACUTE ENDOCARDITIS .................................................................. 0.8867 26.3 21.9 17.5
127 ........... HEART FAILURE & SHOCK ..................................................................................... 0.6832 21.2 17.7 8.0
128 ........... 2 DEEP VEIN THROMBOPHLEBITIS ....................................................................... 0.5594 21.0 17.5 8.0
129 ........... 1 CARDIAC ARREST, UNEXPLAINED ..................................................................... 0.4175 17.0 14.2 3.5
130 ........... PERIPHERAL VASCULAR DISORDERS W CC ...................................................... 0.6484 22.8 19.0 8.6
131 ........... PERIPHERAL VASCULAR DISORDERS W/O CC .................................................. 0.5267 21.0 17.5 5.9
132 ........... ATHEROSCLEROSIS W CC .................................................................................... 0.6621 20.7 17.3 4.3
133 ........... 2 ATHEROSCLEROSIS W/O CC .............................................................................. 0.5594 21.0 17.5 3.2
134 ........... HYPERTENSION ...................................................................................................... 0.4909 21.7 18.1 4.8
135 ........... CARDIAC CONGENITAL & VALVULAR DISORDERS AGE >17 W CC ................. 0.8014 23.8 19.8 6.8
136 ........... 1 CARDIAC CONGENITAL & VALVULAR DISORDERS AGE >17 W/O CC ........... 0.4175 17.0 14.2 4.1
137** ........ 6 CARDIAC CONGENITAL & VALVULAR DISORDERS AGE 0–17 ........................ 0.4175 17.0 14.2 3.3
138 ........... CARDIAC ARRHYTHMIA & CONDUCTION DISORDERS W CC ........................... 0.6618 21.9 18.3 6.1
139 ........... 2 CARDIAC ARRHYTHMIA & CONDUCTION DISORDERS W/O CC ..................... 0.5594 21.0 17.5 3.7
140 ........... 1 ANGINA PECTORIS ............................................................................................... 0.4175 17.0 14.2 3.6
141 ........... SYNCOPE & COLLAPSE W CC .............................................................................. 0.5891 22.1 18.4 5.3
142 ........... 8 SYNCOPE & COLLAPSE W/O CC ........................................................................ 0.5891 22.1 18.4 3.8
143 ........... 1 CHEST PAIN ........................................................................................................... 0.4175 17.0 14.2 3.1
144 ........... OTHER CIRCULATORY SYSTEM DIAGNOSES W CC .......................................... 0.7715 22.1 18.4 9.6
145 ........... OTHER CIRCULATORY SYSTEM DIAGNOSES W/O CC ...................................... 0.4292 17.0 14.2 3.9
146 ........... 5 RECTAL RESECTION W CC ................................................................................. 1.6835 37.1 30.9 14.6
Continued
IPPS av-
5/6ths of
Geo- erage
the geo-
Relative metric av-
weight erage
length of one
length of
stay standard
stay deviation*
147 ........... 6 RECTAL RESECTION W/O CC ............................................................................. 0.7819 23.9 19.9 8.5
149 ........... 6 MAJOR SMALL & LARGE BOWEL PROCEDURES W/O CC .............................. 0.7819 23.9 19.9 8.1
150 ........... 5 PERITONEAL ADHESIOLYSIS W CC ................................................................... 1.6835 37.1 30.9 17.3
151 ........... 6 PERITONEAL ADHESIOLYSIS W/O CC ............................................................... 0.4175 17.0 14.2 8.2
152 ........... 5 MINOR SMALL & LARGE BOWEL PROCEDURES W CC ................................... 1.6835 37.1 30.9 12.0
153 ........... 6 MINOR SMALL & LARGE BOWEL PROCEDURES W/O CC ............................... 1.6835 37.1 30.9 7.1
155 ........... 6 STOMACH, ESOPHAGEAL & DUODENAL PROCEDURES AGE >17 W/O CC .. 1.6835 37.1 30.9 6.4
156 ........... 6 STOMACH, ESOPHAGEAL & DUODENAL PROCEDURES AGE 0–17 .............. 1.6835 37.1 30.9 12.1
157 ........... 3 ANAL & STOMAL PROCEDURES W CC .............................................................. 0.7819 23.9 19.9 9.3
158 ........... 6 ANAL & STOMAL PROCEDURES W/O CC .......................................................... 0.7819 23.9 19.9 4.1
159 ........... 5 HERNIA PROCEDURES EXCEPT INGUINAL & FEMORAL AGE >17 W CC ..... 1.6835 37.1 30.9 8.2
160 ........... 1 HERNIA PROCEDURES EXCEPT INGUINAL & FEMORAL AGE >17 W/O CC .. 0.4175 17.0 14.2 4.1
161 ........... 6 INGUINAL & FEMORAL HERNIA PROCEDURES AGE >17 W CC ..................... 0.4175 17.0 14.2 7.3
162 ........... 6 INGUINAL & FEMORAL HERNIA PROCEDURES AGE >17 W/O CC ................. 0.4175 17.0 14.2 3.1
163 ........... 6 HERNIA PROCEDURES AGE 0–17 ...................................................................... 0.4175 17.0 14.2 4.0
164 ........... 6 APPENDECTOMY W COMPLICATED PRINCIPAL DIAG W CC ......................... 0.7819 23.9 19.9 11.9
165 ........... 6 APPENDECTOMY W COMPLICATED PRINCIPAL DIAG W/O CC ...................... 0.7819 23.9 19.9 6.1
166 ........... 6 APPENDECTOMY W/O COMPLICATED PRINCIPAL DIAG W CC ...................... 0.7819 23.9 19.9 6.8
167 ........... 6 APPENDECTOMY W/O COMPLICATED PRINCIPAL DIAG W/O CC .................. 0.7819 23.9 19.9 3.1
168 ........... 5 MOUTH PROCEDURES W CC .............................................................................. 1.6835 37.1 30.9 7.7
169 ........... 6 MOUTH PROCEDURES W/O CC .......................................................................... 0.5594 21.0 17.5 3.5
170 ........... OTHER DIGESTIVE SYSTEM O.R. PROCEDURES W CC .................................... 1.6163 35.8 29.8 18.0
171 ........... 3 OTHER DIGESTIVE SYSTEM O.R. PROCEDURES W/O CC .............................. 0.7819 23.9 19.9 6.7
172 ........... DIGESTIVE MALIGNANCY W CC ............................................................................ 0.8497 21.8 18.2 11.1
173 ........... 2 DIGESTIVE MALIGNANCY W/O CC ...................................................................... 0.5594 21.0 17.5 5.6
174 ........... G.I. HEMORRHAGE W CC ....................................................................................... 0.7149 22.9 19.1 7.2
175 ........... 2 G.I. HEMORRHAGE W/O CC ................................................................................. 0.5594 21.0 17.5 4.3
176 ........... COMPLICATED PEPTIC ULCER ............................................................................. 0.9514 24.8 20.7 8.0
177 ........... 2 UNCOMPLICATED PEPTIC ULCER W CC ........................................................... 0.5594 21.0 17.5 6.8
178 ........... 6 UNCOMPLICATED PEPTIC ULCER W/O CC ....................................................... 0.4175 17.0 14.2 4.7
179 ........... INFLAMMATORY BOWEL DISEASE ....................................................................... 0.8157 23.3 19.4 9.1
180 ........... G.I. OBSTRUCTION W CC ....................................................................................... 0.9126 22.8 19.0 8.3
181 ........... 1 G.I. OBSTRUCTION W/O CC ................................................................................. 0.4175 17.0 14.2 5.1
182 ........... ESOPHAGITIS, GASTROENT & MISC DIGEST DISORDERS AGE >17 W CC .... 0.7866 21.8 18.2 6.4
183 ........... 1 ESOPHAGITIS, GASTROENT & MISC DIGEST DISORDERS AGE >17 W/O 0.4175 17.0 14.2 4.4
CC.
184 ........... 6 ESOPHAGITIS, GASTROENT & MISC DIGEST DISORDERS AGE 0–17 ........... 0.4175 17.0 14.2 5.6
185 ........... DENTAL & ORAL DIS EXCEPT EXTRACTIONS & RESTORATIONS, AGE >17 .. 0.6634 23.2 19.3 7.2
186 ........... 6 DENTAL & ORAL DIS EXCEPT EXTRACTIONS & RESTORATIONS, AGE 0– 0.5594 21.0 17.5 5.0
17.
187 ........... 6 DENTAL EXTRACTIONS & RESTORATIONS ...................................................... 0.5594 21.0 17.5 6.8
188 ........... OTHER DIGESTIVE SYSTEM DIAGNOSES AGE >17 W CC ................................ 0.9596 24.4 20.3 8.5
189 ........... 2 OTHER DIGESTIVE SYSTEM DIAGNOSES AGE >17 W/O CC .......................... 0.5594 21.0 17.5 4.6
190 ........... 6 OTHER DIGESTIVE SYSTEM DIAGNOSES AGE 0–17 ....................................... 0.5594 21.0 17.5 5.1
191 ........... 5 PANCREAS, LIVER & SHUNT PROCEDURES W CC ......................................... 1.6835 37.1 30.9 21.1
192 ........... 6 PANCREAS, LIVER & SHUNT PROCEDURES W/O CC ...................................... 1.6835 37.1 30.9 9.3
193 ........... 4 BILIARY TRACT PROC EXCEPT ONLY CHOLECYST W OR W/O C.D.E. W 1.1625 29.5 24.6 19.7
CC.
194 ........... 6 BILIARY TRACT PROC EXCEPT ONLY CHOLECYST W OR W/O C.D.E. W/O 1.1625 29.5 24.6 9.9
CC.
195 ........... 5 CHOLECYSTECTOMY W C.D.E. W CC ................................................................ 1.6835 37.1 30.9 16.2
196 ........... 6 CHOLECYSTECTOMY W C.D.E. W/O CC ............................................................ 1.1625 29.5 24.6 8.3
197 ........... 4 CHOLECYSTECTOMY EXCEPT BY LAPAROSCOPE W/O C.D.E. W CC .......... 1.1625 29.5 24.6 14.0
198 ........... 6 CHOLECYSTECTOMY EXCEPT BY LAPAROSCOPE W/O C.D.E. W/O CC ...... 1.1625 29.5 24.6 6.6
199 ........... 3 HEPATOBILIARY DIAGNOSTIC PROCEDURE FOR MALIGNANCY .................. 0.7819 23.9 19.9 15.2
200 ........... 5 HEPATOBILIARY DIAGNOSTIC PROCEDURE FOR NON-MALIGNANCY ......... 1.6835 37.1 30.9 17.5
201 ........... OTHER HEPATOBILIARY OR PANCREAS O.R. PROCEDURES .......................... 1.5802 28.8 24.0 22.6
202 ........... CIRRHOSIS & ALCOHOLIC HEPATITIS ................................................................. 0.6011 20.2 16.8 9.9
203 ........... MALIGNANCY OF HEPATOBILIARY SYSTEM OR PANCREAS ........................... 0.7466 19.6 16.3 10.6
204 ........... DISORDERS OF PANCREAS EXCEPT MALIGNANCY .......................................... 0.8853 22.1 18.4 8.5
205 ........... DISORDERS OF LIVER EXCEPT MALIG,CIRR,ALC HEPA W CC ........................ 0.6933 23.1 19.3 9.4
206 ........... 8 DISORDERS OF LIVER EXCEPT MALIG,CIRR,ALC HEPA W/O CC .................. 0.6933 23.1 19.3 6.0
207 ........... DISORDERS OF THE BILIARY TRACT W CC ........................................................ 0.7295 21.5 17.9 8.4
208 ........... 1 DISORDERS OF THE BILIARY TRACT W/O CC .................................................. 0.4175 17.0 14.2 4.6
Continued
IPPS av-
5/6ths of
Geo- erage
the geo-
Relative metric av-
weight erage
length of one
length of
stay standard
stay deviation*
210 ........... HIP & FEMUR PROCEDURES EXCEPT MAJOR JOINT AGE >17 W CC ............. 1.4826 41.9 34.9 9.5
211 ........... 6 HIP & FEMUR PROCEDURES EXCEPT MAJOR JOINT AGE >17 W/O CC ....... 1.6835 37.1 30.9 6.3
212 ........... 6 HIP & FEMUR PROCEDURES EXCEPT MAJOR JOINT AGE 0–17 ................... 1.6835 37.1 30.9 3.8
213 ........... AMPUTATION FOR MUSCULOSKELETAL SYSTEM & CONN TISSUE DIS- 1.1871 33.5 27.9 15.2
ORDERS.
216 ........... BIOPSIES OF MUSCULOSKELETAL SYSTEM & CONNECTIVE TISSUE ............ 1.2147 37.6 31.3 8.8
217 ........... WND DEBRID & SKN GRFT EXCEPT HAND,FOR MUSCSKELET & CONN TISS 1.2414 36.5 30.4 20.4
DIS.
218 ........... 5 LOWER EXTREM & HUMER PROC EXCEPT HIP,FOOT,FEMUR AGE >17 W 1.6835 37.1 30.9 8.4
CC.
219 ........... 6 LOWER EXTREM & HUMER PROC EXCEPT HIP,FOOT,FEMUR AGE >17 W/ 1.6835 37.1 30.9 4.8
O CC.
220 ........... 6 LOWER EXTREM & HUMER PROC EXCEPT HIP,FOOT,FEMUR AGE 0–17 .... 1.6835 37.1 30.9 10.5
223 ........... 4 MAJOR SHOULDER/ELBOW PROC, OR OTHER UPPER EXTREMITY PROC 1.1625 29.5 24.6 5.1
W CC.
224 ........... 1 SHOULDER,ELBOW OR FOREARM PROC,EXC MAJOR JOINT PROC, W/O 0.4175 17.0 14.2 2.8
CC.
225 ........... FOOT PROCEDURES .............................................................................................. 0.9550 30.6 25.5 8.7
226 ........... SOFT TISSUE PROCEDURES W CC ..................................................................... 1.0626 34.3 28.6 10.6
227 ........... 3 SOFT TISSUE PROCEDURES W/O CC ............................................................... 0.7819 23.9 19.9 4.0
228 ........... 3 MAJOR THUMB OR JOINT PROC,OR OTH HAND OR WRIST PROC W CC .... 0.7819 23.9 19.9 6.7
229 ........... 6 HAND OR WRIST PROC, EXCEPT MAJOR JOINT PROC, W/O CC .................. 0.4175 17.0 14.2 3.8
230 ........... 5 LOCAL EXCISION & REMOVAL OF INT FIX DEVICES OF HIP & FEMUR ........ 1.6835 37.1 30.9 8.8
232 ........... 5 ARTHROSCOPY ..................................................................................................... 1.6835 37.1 30.9 4.1
233 ........... OTHER MUSCULOSKELET SYS & CONN TISS O.R. PROC W CC ..................... 1.1724 32.4 27.0 10.8
234 ........... 6 OTHER MUSCULOSKELET SYS & CONN TISS O.R. PROC W/O CC ............... 0.4175 17.0 14.2 4.1
235 ........... 3 FRACTURES OF FEMUR ...................................................................................... 0.7819 23.9 19.9 7.4
236 ........... FRACTURES OF HIP & PELVIS .............................................................................. 0.6802 28.9 24.1 6.8
237 ........... 1 SPRAINS, STRAINS, & DISLOCATIONS OF HIP, PELVIS & THIGH .................. 0.4175 17.0 14.2 5.9
238 ........... OSTEOMYELITIS ...................................................................................................... 0.8589 28.4 23.7 12.8
239 ........... PATHOLOGICAL FRACTURES & MUSCULOSKELETAL & CONN TISS MALIG- 0.6031 20.6 17.2 9.6
NANCY.
240 ........... CONNECTIVE TISSUE DISORDERS W CC ........................................................... 0.7134 22.4 18.7 10.3
241 ........... 1 CONNECTIVE TISSUE DISORDERS W/O CC ..................................................... 0.4175 17.0 14.2 5.6
242 ........... SEPTIC ARTHRITIS .................................................................................................. 0.7700 26.2 21.8 10.2
243 ........... MEDICAL BACK PROBLEMS ................................................................................... 0.6028 22.3 18.6 7.1
244 ........... BONE DISEASES & SPECIFIC ARTHROPATHIES W CC ..................................... 0.5516 22.0 18.3 7.0
245 ........... BONE DISEASES & SPECIFIC ARTHROPATHIES W/O CC ................................. 0.4463 19.4 16.2 4.8
246 ........... 2 NON-SPECIFIC ARTHROPATHIES ....................................................................... 0.5594 21.0 17.5 5.6
247 ........... SIGNS & SYMPTOMS OF MUSCULOSKELETAL SYSTEM & CONN TISSUE ..... 0.4582 17.6 14.7 5.1
248 ........... TENDONITIS, MYOSITIS & BURSITIS .................................................................... 0.7328 23.2 19.3 7.5
249 ........... AFTERCARE, MUSCULOSKELETAL SYSTEM & CONNECTIVE TISSUE ............ 0.6370 24.0 20.0 6.2
250 ........... 1 FX, SPRN, STRN & DISL OF FOREARM, HAND, FOOT AGE >17 W CC .......... 0.4175 17.0 14.2 6.0
251 ........... 6 FX, SPRN, STRN & DISL OF FOREARM, HAND, FOOT AGE >17 W/O CC ...... 0.4175 17.0 14.2 4.3
252** ........ 6 FX, SPRN, STRN & DISL OF FOREARM, HAND, FOOT AGE 0–17 ................... 0.5594 21.0 17.5 1.8
253 ........... FX, SPRN, STRN & DISL OF UPARM,LOWLEG EX FOOT AGE >17 W CC ........ 0.5609 24.0 20.0 7.0
254 ........... 1 FX, SPRN, STRN & DISL OF UPARM,LOWLEG EX FOOT AGE >17 W/O CC .. 0.4175 17.0 14.2 4.7
255** ........ 6 FX, SPRN, STRN & DISL OF UPARM,LOWLEG EX FOOT AGE 0–17 ............... 0.5594 21.0 17.5 2.9
256 ........... OTHER MUSCULOSKELETAL SYSTEM & CONNECTIVE TISSUE DIAGNOSES 0.7132 23.6 19.7 7.9
257 ........... 5 TOTAL MASTECTOMY FOR MALIGNANCY W CC .............................................. 1.6835 37.1 30.9 3.8
258 ........... 6 TOTAL MASTECTOMY FOR MALIGNANCY W/O CC .......................................... 0.7819 23.9 19.9 2.4
259 ........... 3 SUBTOTAL MASTECTOMY FOR MALIGNANCY W CC ...................................... 0.7819 23.9 19.9 4.1
260 ........... 6 SUBTOTAL MASTECTOMY FOR MALIGNANCY W/O CC .................................. 0.7819 23.9 19.9 1.9
261 ........... 2 BREAST PROC FOR NON-MALIGNANCY EXCEPT BIOPSY & LOCAL EXCI- 0.5594 21.0 17.5 3.2
SION.
262 ........... 4 BREAST BIOPSY & LOCAL EXCISION FOR NON-MALIGNANCY ...................... 1.1625 29.5 24.6 7.7
263 ........... SKIN GRAFT &/OR DEBRID FOR SKN ULCER OR CELLULITIS W CC .............. 1.2748 38.0 31.7 16.9
264 ........... SKIN GRAFT &/OR DEBRID FOR SKN ULCER OR CELLULITIS W/O CC ........... 0.8507 29.9 24.9 9.9
265 ........... SKIN GRAFT &/OR DEBRID EXCEPT FOR SKIN ULCER OR CELLULITIS W 1.1019 30.2 25.2 10.7
CC.
266 ........... 3 SKIN GRAFT &/OR DEBRID EXCEPT FOR SKIN ULCER OR CELLULITIS W/O 0.7819 23.9 19.9 4.7
CC.
267 ........... 6 PERIANAL & PILONIDAL PROCEDURES ............................................................. 0.7819 23.9 19.9 6.8
268 ........... 4 SKIN, SUBCUTANEOUS TISSUE & BREAST PLASTIC PROCEDURES ............ 1.1625 29.5 24.6 5.4
Continued
IPPS av-
5/6ths of
Geo- erage
the geo-
Relative metric av-
weight erage
length of one
length of
stay standard
stay deviation*
269 ........... OTHER SKIN, SUBCUT TISS & BREAST PROC W CC ......................................... 1.2075 34.7 28.9 13.4
270 ........... 3 OTHER SKIN, SUBCUT TISS & BREAST PROC W/O CC ................................... 0.7819 23.9 19.9 5.7
271 ........... SKIN ULCERS ........................................................................................................... 0.8269 26.9 22.4 10.7
272 ........... MAJOR SKIN DISORDERS W CC ........................................................................... 0.6584 23.0 19.2 9.3
273 ........... 1 MAJOR SKIN DISORDERS W/O CC ..................................................................... 0.4175 17.0 14.2 5.9
274 ........... MALIGNANT BREAST DISORDERS W CC ............................................................. 0.7231 21.8 18.2 10.1
275 ........... 6 MALIGNANT BREAST DISORDERS W/O CC ....................................................... 0.7819 23.9 19.9 5.2
276 ........... 2 NON-MALIGNANT BREAST DISORDERS ............................................................ 0.5594 21.0 17.5 7.3
277 ........... CELLULITIS AGE >17 W CC ................................................................................... 0.6089 20.9 17.4 8.4
278 ........... CELLULITIS AGE >17 W/O CC ................................................................................ 0.4254 18.0 15.0 6.1
279 ........... 6 CELLULITIS AGE 0–17 .......................................................................................... 0.4175 17.0 14.2 5.8
280 ........... TRAUMA TO THE SKIN, SUBCUT TISS & BREAST AGE >17 W CC ................... 0.7148 24.1 20.1 6.3
281 ........... 2 TRAUMA TO THE SKIN, SUBCUT TISS & BREAST AGE >17 W/O CC ............. 0.5594 21.0 17.5 4.3
282** ........ 6 TRAUMA TO THE SKIN, SUBCUT TISS & BREAST AGE 0–17 .......................... 0.5594 21.0 17.5 2.2
283 ........... MINOR SKIN DISORDERS W CC ............................................................................ 0.6876 23.1 19.3 7.2
284 ........... 2 MINOR SKIN DISORDERS W/O CC ...................................................................... 0.5594 21.0 17.5 4.6
285 ........... AMPUTAT OF LOWER LIMB FOR ENDOCRINE,NUTRIT,& METABOL DIS- 1.2418 31.6 26.3 16.0
ORDERS.
286 ........... 6 ADRENAL & PITUITARY PROCEDURES ............................................................. 1.1625 29.5 24.6 8.0
287 ........... SKIN GRAFTS & WOUND DEBRID FOR ENDOC, NUTRIT & METAB DIS- 1.0402 33.0 27.5 15.2
ORDERS.
288 ........... 4 O.R. PROCEDURES FOR OBESITY ..................................................................... 1.1625 29.5 24.6 5.4
289 ........... 6 PARATHYROID PROCEDURES ............................................................................ 1.1625 29.5 24.6 3.3
290 ........... 6 THYROID PROCEDURES ...................................................................................... 1.1625 29.5 24.6 2.8
291 ........... 6 THYROGLOSSAL PROCEDURES ......................................................................... 1.1625 29.5 24.6 2.1
292 ........... OTHER ENDOCRINE, NUTRIT & METAB O.R. PROC W CC ................................ 1.1549 32.0 26.7 16.9
293 ........... 8 OTHER ENDOCRINE, NUTRIT & METAB O.R. PROC W/O CC .......................... 1.1549 32.0 26.7 7.8
294 ........... DIABETES AGE >35 ................................................................................................. 0.6958 23.9 19.9 6.7
295 ........... 2 DIABETES AGE 0–35 ............................................................................................. 0.5594 21.0 17.5 5.7
296 ........... NUTRITIONAL & MISC METABOLIC DISORDERS AGE >17 W CC ..................... 0.7092 22.3 18.6 7.3
297 ........... NUTRITIONAL & MISC METABOLIC DISORDERS AGE >17 W/O CC ................. 0.4596 19.3 16.1 4.6
298 ........... 6 NUTRITIONAL & MISC METABOLIC DISORDERS AGE 0–17 ............................ 0.4175 17.0 14.2 5.3
299 ........... 3 INBORN ERRORS OF METABOLISM ................................................................... 0.7819 23.9 19.9 8.2
300 ........... ENDOCRINE DISORDERS W CC ............................................................................ 0.7004 23.7 19.8 9.3
301 ........... 2 ENDOCRINE DISORDERS W/O CC ...................................................................... 0.5594 21.0 17.5 5.2
302*** ....... 7 KIDNEY TRANSPLANT .......................................................................................... 0.0000 0.0 0.00.0
303 ........... 6 KIDNEY AND URETER PROCEDURES FOR NEOPLASM .................................. 0.7819 23.9 19.9 9.7
304 ........... 4 KIDNEY AND URETER PROCEDURES FOR NON-NEOPLASM W CC .............. 1.1625 29.5 24.6 13.4
305 ........... 6 KIDNEY AND URETER PROCEDURES FOR NON-NEOPLASM W/O CC .......... 0.7819 23.9 19.9 4.7
306 ........... 4 PROSTATECTOMY W CC ..................................................................................... 1.1625 29.5 24.6 9.1
307 ........... 6 PROSTATECTOMY W/O CC ................................................................................. 1.1625 29.5 24.6 2.9
308 ........... 4 MINOR BLADDER PROCEDURES W CC ............................................................. 1.1625 29.5 24.6 8.6
309 ........... 6 MINOR BLADDER PROCEDURES W/O CC ......................................................... 1.1625 29.5 24.6 2.4
310 ........... 4 TRANSURETHRAL PROCEDURES W CC ........................................................... 1.1625 29.5 24.6 7.2
311 ........... 6 TRANSURETHRAL PROCEDURES W/O CC ........................................................ 1.1625 29.5 24.6 2.7
312 ........... 3 URETHRAL PROCEDURES, AGE >17 W CC ....................................................... 0.7819 23.9 19.9 8.0
313 ........... 6 URETHRAL PROCEDURES, AGE >17 W/O CC ................................................... 0.7819 23.9 19.9 3.6
314 ........... 6 URETHRAL PROCEDURES, AGE 0–17 ................................................................ 0.7819 23.9 19.9 360.4
315 ........... OTHER KIDNEY & URINARY TRACT PROCEDURES ........................................... 1.4016 33.9 28.3 11.1
316 ........... RENAL FAILURE ...................................................................................................... 0.8321 22.9 19.1 9.9
317 ........... ADMIT FOR RENAL DIALYSIS ................................................................................ 0.9102 24.4 20.3 5.4
318 ........... KIDNEY & URINARY TRACT NEOPLASMS W CC ................................................. 0.7565 21.0 17.5 9.8
319 ........... 6 KIDNEY & URINARY TRACT NEOPLASMS W/O CC ........................................... 0.7819 23.9 19.9 3.9
320 ........... KIDNEY & URINARY TRACT INFECTIONS AGE >17 W CC ................................. 0.6200 21.7 18.1 7.7
321 ........... KIDNEY & URINARY TRACT INFECTIONS AGE >17 W/O CC ............................. 0.4450 18.5 15.4 5.4
322 ........... 6 KIDNEY & URINARY TRACT INFECTIONS AGE 0–17 ........................................ 0.4175 17.0 14.2 5.2
323 ........... 1 URINARY STONES W CC, &/OR ESW LITHOTRIPSY ........................................ 0.4175 17.0 14.2 4.8
324 ........... 1 URINARY STONES W/O CC .................................................................................. 0.4175 17.0 14.2 2.7
325 ........... 2 KIDNEY & URINARY TRACT SIGNS & SYMPTOMS AGE >17 W CC ................ 0.5594 21.0 17.5 5.8
326 ........... 6 KIDNEY & URINARY TRACT SIGNS & SYMPTOMS AGE >17 W/O CC ............ 0.4175 17.0 14.2 3.9
327 ........... 6 KIDNEY & URINARY TRACT SIGNS & SYMPTOMS AGE 0–17 ......................... 0.4175 17.0 14.2 2.8
328 ........... 6 URETHRAL STRICTURE AGE >17 W CC ............................................................ 0.5594 21.0 17.5 5.4
329 ........... 6 URETHRAL STRICTURE AGE >17 W/O CC ......................................................... 0.5594 21.0 17.5 2.4
330** ........ 6 URETHRAL STRICTURE AGE 0–17 ..................................................................... 0.5594 21.0 17.5 1.6
Continued
IPPS av-
5/6ths of
Geo- erage
the geo-
Relative metric av-
weight erage
length of one
length of
stay standard
stay deviation*
331 ........... OTHER KIDNEY & URINARY TRACT DIAGNOSES AGE >17 W CC .................... 0.7773 22.5 18.8 8.7
332 ........... 1 OTHER KIDNEY & URINARY TRACT DIAGNOSES AGE >17 W/O CC .............. 0.4175 17.0 14.2 4.8
333 ........... 6 OTHER KIDNEY & URINARY TRACT DIAGNOSES AGE 0–17 ........................... 0.4175 17.0 14.2 8.4
334 ........... 6 MAJOR MALE PELVIC PROCEDURES W CC ..................................................... 0.4175 17.0 14.2 6.1
335 ........... 1 MAJOR MALE PELVIC PROCEDURES W/O CC .................................................. 0.4175 17.0 14.2 3.7
336 ........... 4 TRANSURETHRAL PROSTATECTOMY W CC .................................................... 1.1625 29.5 24.6 4.9
337 ........... 6 TRANSURETHRAL PROSTATECTOMY W/O CC ................................................. 1.1625 29.5 24.6 2.6
338 ........... 3 TESTES PROCEDURES, FOR MALIGNANCY ..................................................... 0.7819 23.9 19.9 9.7
339 ........... 3 TESTES PROCEDURES, NON-MALIGNANCY AGE >17 ..................................... 0.7819 23.9 19.9 8.4
340** ........ 6 TESTES PROCEDURES, NON-MALIGNANCY AGE 0–17 ................................... 0.7819 23.9 19.9 2.4
341 ........... 5 PENIS PROCEDURES ........................................................................................... 1.6835 37.1 30.9 4.4
342 ........... 6 CIRCUMCISION AGE >17 ...................................................................................... 0.7819 23.9 19.9 4.6
343** ........ 6 CIRCUMCISION AGE 0–17 .................................................................................... 0.7819 23.9 19.9 1.7
344 ........... 3 OTHER MALE REPRODUCTIVE SYSTEM O.R. PROCEDURES FOR MALIG- 0.7819 23.9 19.9 3.9
NANCY.
345 ........... 4 OTHER MALE REPRODUCTIVE SYSTEM O.R. PROC EXCEPT FOR MALIG- 1.1625 29.5 24.6 8.6
NANCY.
346 ........... 3 MALIGNANCY, MALE REPRODUCTIVE SYSTEM, W CC ................................... 0.7819 23.9 19.9 9.6
347 ........... 1 MALIGNANCY, MALE REPRODUCTIVE SYSTEM, W/O CC ............................... 0.4175 17.0 14.2 4.2
348 ........... 2 BENIGN PROSTATIC HYPERTROPHY W CC ..................................................... 0.5594 21.0 17.5 6.3
349 ........... 6 BENIGN PROSTATIC HYPERTROPHY W/O CC .................................................. 0.7819 23.9 19.9 4.1
350 ........... INFLAMMATION OF THE MALE REPRODUCTIVE SYSTEM ................................ 0.5606 21.0 17.5 7.0
351** ........ 6 STERILIZATION, MALE .......................................................................................... 0.7819 23.9 19.9 1.3
352 ........... OTHER MALE REPRODUCTIVE SYSTEM DIAGNOSES ....................................... 0.8209 27.5 22.9 6.7
353 ........... 6 PELVIC EVISCERATION, RADICAL HYSTERECTOMY & RADICAL 1.1625 29.5 24.6 9.2
VULVECTOMY.
354 ........... 6 UTERINE,ADNEXA PROC FOR NON-OVARIAN/ADNEXAL MALIG W CC ......... 1.1625 29.5 24.6 8.2
355 ........... 6 UTERINE,ADNEXA PROC FOR NON-OVARIAN/ADNEXAL MALIG W/O CC ..... 1.1625 29.5 24.6 4.2
356 ........... 6 FEMALE REPRODUCTIVE SYSTEM RECONSTRUCTIVE PROCEDURES ....... 1.1625 29.5 24.6 2.7
357 ........... 6 UTERINE & ADNEXA PROC FOR OVARIAN OR ADNEXAL MALIGNANCY ...... 1.1625 29.5 24.6 12.3
358 ........... 6 UTERINE & ADNEXA PROC FOR NON-MALIGNANCY W CC ............................ 1.1625 29.5 24.6 5.7
359 ........... 6 UTERINE & ADNEXA PROC FOR NON-MALIGNANCY W/O CC ........................ 1.1625 29.5 24.6 3.3
360 ........... 6 VAGINA, CERVIX & VULVA PROCEDURES ........................................................ 1.1625 29.5 24.6 3.7
361 ........... 6 LAPAROSCOPY & INCISIONAL TUBAL INTERRUPTION ................................... 0.4175 17.0 14.2 4.5
362 ........... 6 ENDOSCOPIC TUBAL INTERRUPTION ............................................................... 0.4175 17.0 14.2 1.0
363 ........... 6 D&C, CONIZATION & RADIO-IMPLANT, FOR MALIGNANCY ............................. 0.4175 17.0 14.2 6.5
364 ........... 6 D&C, CONIZATION EXCEPT FOR MALIGNANCY ............................................... 0.4175 17.0 14.2 6.1
365 ........... 4 OTHER FEMALE REPRODUCTIVE SYSTEM O.R. PROCEDURES ................... 1.1625 29.5 24.6 13.0
366 ........... MALIGNANCY, FEMALE REPRODUCTIVE SYSTEM W CC .................................. 0.9106 21.6 18.0 10.2
367 ........... 1 MALIGNANCY, FEMALE REPRODUCTIVE SYSTEM W/O CC ............................ 0.4175 17.0 14.2 4.6
368 ........... INFECTIONS, FEMALE REPRODUCTIVE SYSTEM ............................................... 0.7846 21.3 17.8 10.2
369 ........... 3 MENSTRUAL & OTHER FEMALE REPRODUCTIVE SYSTEM DISORDERS ..... 0.7819 23.9 19.9 5.1
370 ........... 6 CESAREAN SECTION W CC ................................................................................. 0.4175 17.0 14.2 7.0
371 ........... 6 CESAREAN SECTION W/O CC ............................................................................. 0.4175 17.0 14.2 4.5
372 ........... 6 VAGINAL DELIVERY W COMPLICATING DIAGNOSES ...................................... 0.4175 17.0 14.2 4.7
373 ........... 6 VAGINAL DELIVERY W/O COMPLICATING DIAGNOSES .................................. 0.4175 17.0 14.2 3.0
374 ........... 6 VAGINAL DELIVERY W STERILIZATION &/OR D&C ........................................... 0.4175 17.0 14.2 4.1
375 ........... 6 VAGINAL DELIVERY W O.R. PROC EXCEPT STERIL &/OR D&C ..................... 0.4175 17.0 14.2 11.0
376 ........... 4 POSTPARTUM & POST ABORTION DIAGNOSES W/O O.R. PROCEDURE ..... 1.1625 29.5 24.6 5.1
377 ........... 6 POSTPARTUM & POST ABORTION DIAGNOSES W O.R. PROCEDURE ......... 0.4175 17.0 14.2 7.2
378 ........... 6 ECTOPIC PREGNANCY ......................................................................................... 0.4175 17.0 14.2 3.2
379 ........... 6 THREATENED ABORTION .................................................................................... 0.4175 17.0 14.2 4.8
380 ........... 6 ABORTION W/O D&C ............................................................................................. 0.4175 17.0 14.2 2.9
381 ........... 6 ABORTION W D&C, ASPIRATION CURETTAGE OR HYSTEROTOMY ............. 0.4175 17.0 14.2 3.6
382 ........... 6 FALSE LABOR ........................................................................................................ 0.4175 17.0 14.2 2.1
383 ........... 1 OTHER ANTEPARTUM DIAGNOSES W MEDICAL COMPLICATIONS ............... 0.4175 17.0 14.2 5.6
384 ........... 6 OTHER ANTEPARTUM DIAGNOSES W/O MEDICAL COMPLICATIONS ........... 0.4175 17.0 14.2 3.6
385** ........ 6 NEONATES, DIED OR TRANSFERRED TO ANOTHER ACUTE CARE FACIL- 0.4175 17.0 14.2 1.8
ITY.
386** ........ 6 EXTREME IMMATURITY OR RESPIRATORY DISTRESS SYNDROME, 0.4175 17.0 14.2 17.9
NEONATE.
387** ........ 6 PREMATURITY W MAJOR PROBLEMS ............................................................... 0.4175 17.0 14.2 13.3
388** ........ 6 PREMATURITY W/O MAJOR PROBLEMS ........................................................... 0.4175 17.0 14.2 8.6
389 ........... 6 FULL TERM NEONATE W MAJOR PROBLEMS .................................................. 0.4175 17.0 14.2 17.6
Continued
IPPS av-
5/6ths of
Geo- erage
the geo-
Relative metric av-
weight erage
length of one
length of
stay standard
stay deviation*
390** ........ 6 NEONATE W OTHER SIGNIFICANT PROBLEMS ................................................ 0.4175 17.0 14.2 3.4
391** ........ 6 NORMAL NEWBORN ............................................................................................. 0.4175 17.0 14.2 3.1
392 ........... 6 SPLENECTOMY AGE >17 ..................................................................................... 1.1625 29.5 24.6 14.5
393** ........ 6 SPLENECTOMY AGE 0–17 ................................................................................... 1.1625 29.5 24.6 9.1
394 ........... 4 OTHER O.R. PROCEDURES OF THE BLOOD AND BLOOD FORMING OR- 1.1625 29.5 24.6 12.1
GANS.
395 ........... RED BLOOD CELL DISORDERS AGE >17 ............................................................ 0.6651 21.9 18.3 6.5
396 ........... 6 RED BLOOD CELL DISORDERS AGE 0–17 ........................................................ 0.4175 17.0 14.2 4.5
397 ........... COAGULATION DISORDERS .................................................................................. 0.8276 20.4 17.0 8.2
398 ........... RETICULOENDOTHELIAL & IMMUNITY DISORDERS W CC ............................... 0.6278 20.8 17.3 8.8
399 ........... 1 RETICULOENDOTHELIAL & IMMUNITY DISORDERS W/O CC ......................... 0.4175 17.0 14.2 5.1
401 ........... 4 LYMPHOMA & NON-ACUTE LEUKEMIA W OTHER O.R. PROC W CC ............. 1.1625 29.5 24.6 18.9
402 ........... 6 LYMPHOMA & NON-ACUTE LEUKEMIA W OTHER O.R. PROC W/O CC ......... 0.5594 21.0 17.5 6.3
403 ........... LYMPHOMA & NON-ACUTE LEUKEMIA W CC ...................................................... 0.8846 23.9 19.9 13.2
404 ........... 3 LYMPHOMA & NON-ACUTE LEUKEMIA W/O CC ................................................ 0.7819 23.9 19.9 6.6
405** ........ 6 ACUTE LEUKEMIA W/O MAJOR O.R. PROCEDURE AGE 0–17 ........................ 0.7819 23.9 19.9 4.9
406 ........... 5 MYELOPROLIF DISORD OR POORLY DIFF NEOPL W MAJ O.R.PROC W CC 1.6835 37.1 30.9 15.5
407 ........... 6 MYELOPROLIF DISORD OR POORLY DIFF NEOPL W MAJ O.R.PROC W/O 1.1625 29.5 24.6 5.5
CC.
408 ........... 4 MYELOPROLIF DISORD OR POORLY DIFF NEOPL W OTHER O.R.PROC ..... 1.1625 29.5 24.6 14.0
409 ........... RADIOTHERAPY ...................................................................................................... 0.8416 23.2 19.3 9.5
410 ........... CHEMOTHERAPY W/O ACUTE LEUKEMIA AS SECONDARY DIAGNOSIS ........ 1.2527 28.7 23.9 5.8
411 ........... 6 HISTORY OF MALIGNANCY W/O ENDOSCOPY ................................................. 0.5594 21.0 17.5 3.3
412 ........... 6 HISTORY OF MALIGNANCY W ENDOSCOPY ..................................................... 0.5594 21.0 17.5 2.1
413 ........... OTHER MYELOPROLIF DIS OR POORLY DIFF NEOPL DIAG W CC .................. 0.8429 21.4 17.8 11.0
414 ........... 3 OTHER MYELOPROLIF DIS OR POORLY DIFF NEOPL DIAG W/O CC ............ 0.7819 23.9 19.9 6.4
417 ........... 6 SEPTICEMIA AGE 0–17 ......................................................................................... 0.7819 23.9 19.9 10.5
418 ........... POSTOPERATIVE & POST-TRAUMATIC INFECTIONS ......................................... 0.7961 24.1 20.1 9.6
419 ........... 2 FEVER OF UNKNOWN ORIGIN AGE >17 W CC ................................................. 0.5594 21.0 17.5 6.8
420 ........... 2 FEVER OF UNKNOWN ORIGIN AGE >17 W/O CC ............................................. 0.5594 21.0 17.5 4.9
421 ........... VIRAL ILLNESS AGE >17 ........................................................................................ 0.7065 20.4 17.0 6.2
422 ........... 6 VIRAL ILLNESS & FEVER OF UNKNOWN ORIGIN AGE 0–17 ........................... 0.4175 17.0 14.2 5.6
423 ........... OTHER INFECTIOUS & PARASITIC DISEASES DIAGNOSES .............................. 1.0426 23.2 19.3 13.2
424 ........... 5 O.R. PROCEDURE W PRINCIPAL DIAGNOSES OF MENTAL ILLNESS ............ 1.6835 37.1 30.9 19.7
425 ........... 1 ACUTE ADJUSTMENT REACTION & PSYCHOSOCIAL DYSFUNCTION ........... 0.4175 17.0 14.2 5.3
426 ........... DEPRESSIVE NEUROSES ...................................................................................... 0.4038 22.5 18.8 6.8
427 ........... 2 NEUROSES EXCEPT DEPRESSIVE ..................................................................... 0.5594 21.0 17.5 7.3
428 ........... DISORDERS OF PERSONALITY & IMPULSE CONTROL ..................................... 0.5183 24.5 20.4 11.4
429 ........... ORGANIC DISTURBANCES & MENTAL RETARDATION ...................................... 0.5326 24.0 20.0 8.5
430 ........... PSYCHOSES ............................................................................................................ 0.4024 23.1 19.3 12.6
431 ........... 2 CHILDHOOD MENTAL DISORDERS ..................................................................... 0.5594 21.0 17.5 10.1
432 ........... 1 OTHER MENTAL DISORDER DIAGNOSES ......................................................... 0.4175 17.0 14.2 6.1
433 ........... 6 ALCOHOL/DRUG ABUSE OR DEPENDENCE, LEFT AMA .................................. 0.4175 17.0 14.2 4.2
439 ........... SKIN GRAFTS FOR INJURIES ................................................................................ 1.2203 36.0 30.0 13.6
440 ........... WOUND DEBRIDEMENTS FOR INJURIES ............................................................. 1.2248 34.4 28.7 13.4
441 ........... 2 HAND PROCEDURES FOR INJURIES ................................................................. 0.5594 21.0 17.5 5.2
442 ........... OTHER O.R. PROCEDURES FOR INJURIES W CC .............................................. 1.3670 34.9 29.1 14.5
443 ........... 6 OTHER O.R. PROCEDURES FOR INJURIES W/O CC ........................................ 0.5594 21.0 17.5 5.6
444 ........... TRAUMATIC INJURY AGE >17 W CC .................................................................... 0.6598 23.2 19.3 6.4
445 ........... 2 TRAUMATIC INJURY AGE >17 W/O CC ............................................................... 0.5594 21.0 17.5 4.4
446** ........ 6 TRAUMATIC INJURY AGE 0–17 ........................................................................... 0.5594 21.0 17.5 2.4
447 ........... 2 ALLERGIC REACTIONS AGE >17 ........................................................................ 0.5594 21.0 17.5 3.9
448** ........ 6 ALLERGIC REACTIONS AGE 0–17 ....................................................................... 0.5594 21.0 17.5 2.9
449 ........... 3 POISONING & TOXIC EFFECTS OF DRUGS AGE >17 W CC ........................... 0.7819 23.9 19.9 5.8
450 ........... 2 POISONING & TOXIC EFFECTS OF DRUGS AGE >17 W/O CC ........................ 0.5594 21.0 17.5 2.9
451 ........... 6 POISONING & TOXIC EFFECTS OF DRUGS AGE 0–17 .................................... 0.7819 23.9 19.9 14.4
452 ........... COMPLICATIONS OF TREATMENT W CC ............................................................. 0.9275 25.7 21.4 7.8
453 ........... COMPLICATIONS OF TREATMENT W/O CC ......................................................... 0.5790 21.6 18.0 4.2
454 ........... 3 OTHER INJURY, POISONING & TOXIC EFFECT DIAG W CC ........................... 0.7819 23.9 19.9 6.5
455 ........... 6 OTHER INJURY, POISONING & TOXIC EFFECT DIAG W/O CC ....................... 0.7819 23.9 19.9 3.4
461 ........... O.R. PROC W DIAGNOSES OF OTHER CONTACT W HEALTH SERVICES ....... 1.1466 32.7 27.3 8.8
462 ........... REHABILITATION ..................................................................................................... 0.5823 22.1 18.4 14.8
463 ........... SIGNS & SYMPTOMS W CC ................................................................................... 0.6082 22.9 19.1 6.1
464 ........... SIGNS & SYMPTOMS W/O CC ............................................................................... 0.5831 24.3 20.3 4.5
Continued
IPPS av-
5/6ths of
Geo- erage
the geo-
Relative metric av-
weight erage
length of one
length of
stay standard
stay deviation*
465 ........... AFTERCARE W HISTORY OF MALIGNANCY AS SECONDARY DIAGNOSIS ..... 0.6877 21.2 17.7 5.5
466 ........... AFTERCARE W/O HISTORY OF MALIGNANCY AS SECONDARY DIAGNOSIS 0.6700 21.7 18.1 7.0
467 ........... 3 OTHER FACTORS INFLUENCING HEALTH STATUS ......................................... 0.7819 23.9 19.9 4.0
468 ........... EXTENSIVE O.R. PROCEDURE UNRELATED TO PRINCIPAL DIAGNOSIS ....... 2.1478 40.5 33.8 21.4
469*** ....... 7 PRINCIPAL DIAGNOSIS INVALID AS DISCHARGE DIAGNOSIS ....................... 0.0000 0.0 0.0 0.0
470*** ....... 7 UNGROUPABLE ..................................................................................................... 0.0000 0.0 0.0 0.0
471 ........... 5 BILATERAL OR MULTIPLE MAJOR JOINT PROCS OF LOWER EXTREMITY .. 1.6835 37.1 30.9 6.2
473 ........... ACUTE LEUKEMIA W/O MAJOR O.R. PROCEDURE AGE >17 ............................ 0.9917 25.3 21.1 21.4
476 ........... 5 PROSTATIC O.R. PROCEDURE UNRELATED TO PRINCIPAL DIAGNOSIS ..... 1.6835 37.1 30.9 17.7
477 ........... NON-EXTENSIVE O.R. PROCEDURE UNRELATED TO PRINCIPAL DIAG- 1.5119 35.9 29.9 14.8
NOSIS.
479 ........... 2 OTHER VASCULAR PROCEDURES W/O CC ...................................................... 0.5594 21.0 17.5 3.9
480*** ....... 7 LIVER TRANSPLANT AND/OR INTESTINAL TRANSPLANT ............................... 0.0000 0.0 0.0 0.0
481 ........... 6 BONE MARROW TRANSPLANT ........................................................................... 1.1625 29.5 24.6 35.2
482 ........... 5 TRACHEOSTOMY FOR FACE,MOUTH & NECK DIAGNOSES ........................... 1.6835 37.1 30.9 17.6
484 ........... 6 CRANIOTOMY FOR MULTIPLE SIGNIFICANT TRAUMA .................................... 1.6835 37.1 30.9 23.1
485 ........... 6 LIMB REATTACHMENT, HIP & FEMUR PROC FOR MULTIPLE SIGNIFICANT 1.1625 29.5 24.6 14.7
TRAUMA.
486 ........... 3 OTHER O.R. PROCEDURES FOR MULTIPLE SIGNIFICANT TRAUMA ............. 0.7819 23.9 19.9 21.8
487 ........... 4 OTHER MULTIPLE SIGNIFICANT TRAUMA ......................................................... 1.1625 29.5 24.6 11.5
488 ........... 4 HIV W EXTENSIVE O.R. PROCEDURE ................................................................ 1.1625 29.5 24.6 29.6
489 ........... HIV W MAJOR RELATED CONDITION ................................................................... 0.9436 22.1 18.4 13.3
490 ........... HIV W OR W/O OTHER RELATED CONDITION .................................................... 0.6456 20.3 16.9 8.5
491 ........... 5 MAJOR JOINT & LIMB REATTACHMENT PROCEDURES OF UPPER EX- 1.6835 37.1 30.9 4.5
TREMITY.
492 ........... 2 CHEMO W ACUTE LEUKEMIA AS SDX OR W USE OF HIGH DOSE CHEMO 0.5594 21.0 17.5 23.1
AGENT.
493 ........... 4 LAPAROSCOPIC CHOLECYSTECTOMY W/O C.D.E. W CC .............................. 1.1625 29.5 24.6 9.8
494 ........... 6 LAPAROSCOPIC CHOLECYSTECTOMY W/O C.D.E. W/O CC ........................... 1.1625 29.5 24.6 4.2
495*** ....... 7 LUNG TRANSPLANT .............................................................................................. 0.0000 0.0 0.0 0.0
496 ........... 4 COMBINED ANTERIOR/POSTERIOR SPINAL FUSION ...................................... 1.1625 29.5 24.6 13.8
497 ........... 5 SPINAL FUSION EXCEPT CERVICAL W CC ....................................................... 1.6835 37.1 30.9 8.3
498 ........... 6 SPINAL FUSION EXCEPT CERVICAL W/O CC ................................................... 1.6835 37.1 30.9 5.3
499 ........... 5 BACK & NECK PROCEDURES EXCEPT SPINAL FUSION W CC ...................... 1.6835 37.1 30.9 6.6
500 ........... 4 BACK & NECK PROCEDURES EXCEPT SPINAL FUSION W/O CC .................. 1.1625 29.5 24.6 3.3
501 ........... KNEE PROCEDURES W PDX OF INFECTION W CC ........................................... 1.2164 33.3 27.8 15.4
502 ........... 3 KNEE PROCEDURES W PDX OF INFECTION W/O CC ..................................... 0.7819 23.9 19.9 8.7
503 ........... 4 KNEE PROCEDURES W/O PDX OF INFECTION ................................................ 1.1625 29.5 24.6 6.1
504 ........... 5 EXTENSIVE BURNS OR FULL THICKNESS BURNS W MV 96+ HRS W SKIN 1.6835 37.1 30.9 48.4
GRAFT.
505 ........... 5 EXTENSIVE BURNS OR FULL THICKNESS BURNS W MV 96+ HRS W/O 1.6835 37.1 30.9 9.4
SKIN GRAFT.
506 ........... 4 FULL THICKNESS BURN W SKIN GRAFT OR INHAL INJ W CC OR SIG 1.1625 29.5 24.6 26.1
TRAUMA.
507 ........... 6 FULL THICKNESS BURN W SKIN GRFT OR INHAL INJ W/O CC OR SIG 0.4175 17.0 14.2 13.2
TRAUMA.
508 ........... FULL THICKNESS BURN W/O SKIN GRFT OR INHAL INJ W CC OR SIG 0.7588 25.6 21.3 12.1
TRAUMA.
509 ........... 1 FULL THICKNESS BURN W/O SKIN GRFT OR INH INJ W/O CC OR SIG 0.4175 17.0 14.2 8.6
TRAUMA.
510 ........... NON-EXTENSIVE BURNS W CC OR SIGNIFICANT TRAUMA .............................. 0.6720 22.6 18.8 9.7
511 ........... 1 NON-EXTENSIVE BURNS W/O CC OR SIGNIFICANT TRAUMA ........................ 0.4175 17.0 14.2 5.7
512*** ....... 7 SIMULTANEOUS PANCREAS/KIDNEY TRANSPLANT ........................................ 0.0000 0.0 0.0 0.0
513*** ....... 7 PANCREAS TRANSPLANT .................................................................................... 0.0000 0.0 0.0 0.0
515 ........... 4 CARDIAC DEFIBRILLATOR IMPLANT W/O CARDIAC CATH ............................. 1.1625 29.5 24.6 5.9
518 ........... 6 PERCUTANEOUS CARDIOVASC PROC W/O CORONARY ARTERY STENT 0.4175 17.0 14.2 3.7
OR AMI.
519 ........... 4 CERVICAL SPINAL FUSION W CC ....................................................................... 1.1625 29.5 24.6 7.4
520 ........... 6 CERVICAL SPINAL FUSION W/O CC ................................................................... 1.6835 37.1 30.9 2.8
521 ........... 2 ALCOHOL/DRUG ABUSE OR DEPENDENCE W CC ........................................... 0.5594 21.0 17.5 8.4
522 ........... 6 ALCOHOL/DRUG ABUSE OR DEPENDENCE W REHABILITATION THERAPY 0.5594 21.0 17.5 16.7
W/O CC.
523 ........... 1 ALCOHOL/DRUG ABUSE OR DEPENDENCE W/O REHABILITATION THER- 0.4175 17.0 14.2 5.8
APY W/O CC.
Continued
IPPS av-
5/6ths of
Geo- erage
the geo-
Relative metric av-
weight erage
length of one
length of
stay standard
stay deviation*
524 ........... 2 TRANSIENT ISCHEMIA .......................................................................................... 0.5594 21.0 17.5 4.8

525 ........... 6 OTHER HEART ASSIST SYSTEM IMPLANT ........................................................ 1.6835 37.1 30.9 24.1
528 ........... 6 INTRACRANIAL VASCULAR PROCEDURES W PDX HEMORRHAGE .............. 1.6835 37.1 30.9 26.9
529 ........... 5 VENTRICULAR SHUNT PROCEDURES W CC .................................................... 1.6835 37.1 30.9 11.7
530 ........... 6 VENTRICULAR SHUNT PROCEDURES W/O CC ................................................ 1.6835 37.1 30.9 4.5
531 ........... 5 SPINAL PROCEDURES W CC .............................................................................. 1.6835 37.1 30.9 15.5
532 ........... 3 SPINAL PROCEDURES W/O CC .......................................................................... 0.7819 23.9 19.9 5.9
533 ........... 4 EXTRACRANIAL PROCEDURES W CC ............................................................... 1.1625 29.5 24.6 5.7
534 ........... 6 EXTRACRANIAL PROCEDURES W/O CC ............................................................ 1.1625 29.5 24.6 2.5
535 ........... 5 CARDIAC DEFIB IMPLANT W CARDIAC CATH W AMI/HF/SHOCK ................... 1.6835 37.1 30.9 15.6
536 ........... 6 CARDIAC DEFIB IMPLANT W CARDIAC CATH W/O AMI/HF/SHOCK ............... 1.1625 29.5 24.6 11.7
537 ........... LOCAL EXCISION & REMOVAL INT FIX DEVICES EXCEPT HIP & FEMUR W 1.4672 39.9 33.3 10.8
CC.
538 ........... 4 LOCAL EXCISION & REMOVAL INT FIX DEVICES EXCEPT HIP & FEMUR W/ 1.1625 29.5 24.6 4.5
O CC.
539 ........... 4 LYMPHOMA & LEUKEMIA W MAJOR O.R. PROCEDURE W CC ....................... 1.1625 29.5 24.6 18.1
540 ........... 6 LYMPHOMA & LEUKEMIA W MAJOR O.R. PROCEDURE W/O CC ................... 0.4175 17.0 14.2 5.6
541 ........... ECMO OR TRACH W MV 96+ HRS OR PDX EXC FACE, MOUTH & NECK W 3.8893 58.1 48.4 65.8
MAJ O.R..
542 ........... TRACH W MV 96+ HRS OR PDX EXC FACE, MOUTH & NECK W/O MAJ O.R. 2.8689 45.1 37.6 49.1
543 ........... 5 CRANIOTOMY W MAJOR DEVICE IMPLANT OR ACUTE COMPLEX CNS PDX 1.6835 37.1 30.9 20.4
544 ........... 5 MAJOR JOINT REPLACEMENT OR REATTACHMENT OF LOWER EXTREM- 1.6835 37.1 30.9 6.1
ITY.
545 ........... 5 REVISION OF HIP OR KNEE REPLACEMENT .................................................... 1.6835 37.1 30.9 7.4
546 ........... 6 SPINAL FUSION EXC CERV WITH CURVATURE OF THE SPINE OR MALIG .. 1.6835 37.1 30.9 13.4
547 ........... 6 CORONARY BYPASS W CARDIAC CATH W MAJOR CV DX ............................ 1.1625 29.5 24.6 17.8
548 ........... 6 CORONARY BYPASS W CARDIAC CATH W/O MAJOR CV DX ......................... 1.1625 29.5 24.6 12.0
549 ........... 6 CORONARY BYPASS W/O CARDIAC CATH W MAJOR CV DX ......................... 1.1625 29.5 24.6 15.0
550 ........... 6 CORONARY BYPASS W/O CARDIAC CATH W/O MAJOR CV DX ..................... 1.1625 29.5 24.6 9.3
551 ........... PERMANENT CARDIAC PACEMAKER IMPL W MAJ CV DX OR AICD LEAD OR 1.6035 29.5 24.6 10.3
GNRTR.
552 ........... 4 OTHER PERMANENT CARDIAC PACEMAKER IMPLANT W/O MAJOR CV DX 1.1625 29.5 24.6 5.5
553 ........... OTHER VASCULAR PROCEDURES W CC W MAJOR CV DX ............................. 1.5837 32.5 27.1 15.8
554 ........... OTHER VASCULAR PROCEDURES W CC W/O MAJOR CV DX ......................... 1.2817 31.6 26.3 9.3
555 ........... 3 PERCUTANEOUS CARDIOVASCULAR PROC W MAJOR CV DX ...................... 0.7819 23.9 19.9 7.8
556 ........... 6 PERCUTANEOUS CARDIOVASC PROC W NON-DRUG-ELUTING STENT W/O 0.4175 17.0 14.2 2.9
MAJ CV DX.
557 ........... 4 PERCUTANEOUS CARDIOVASCULAR PROC W DRUG-ELUTING STENT W 1.1625 29.5 24.6 6.5
MAJOR CV DX.
558 ........... 6 PERCUTANEOUS CARDIOVASCULAR PROC W DRUG-ELUTING STENT W/ 0.4175 17.0 14.2 2.6
O MAJ CV DX.
559 ........... 6 ACUTE ISCHEMIC STROKE WITH USE OF THROMBOLYTIC AGENT ............. 0.7819 23.9 19.9 10.7
560 ........... BACTERIAL & TUBERCULOUS INFECTIONS OF NERVOUS SYSTEM ............... 0.9308 25.5 21.3 16.9
561 ........... NON-BACTERIAL INFECTIONS OF NERVOUS SYSTEM EXCEPT VIRAL MEN- 0.8145 22.3 18.6 15.5
INGITIS.
562 ........... SEIZURE AGE >17 W CC ........................................................................................ 0.6844 23.2 19.3 7.6
563 ........... 2 SEIZURE AGE >17 W/O CC .................................................................................. 0.5594 21.0 17.5 4.9
564 ........... HEADACHES AGE >17 ............................................................................................ 0.7565 24.1 20.1 5.3
565 ........... RESPIRATORY SYSTEM DIAGNOSIS WITH VENTILATOR SUPPORT 96+ 2.0557 34.7 28.9 23.3
HOURS.
566 ........... RESPIRATORY SYSTEM DIAGNOSIS WITH VENTILATOR SUPPORT < 96 1.5445 27.4 22.8 13.2
HOURS.
567 ........... 5 STOMACH, ESOPHAGEAL & DUODENAL PROC AGE >17 W CC W MAJOR 1.6835 37.1 30.9 25.4
GI DX.
568 ........... 5 STOMACH, ESOPHAGEAL & DUODENAL PROC AGE >17 W CC W/O 1.6835 37.1 30.9 19.2
MAJOR GI DX.
569 ........... 5 MAJOR SMALL & LARGE BOWEL PROCEDURES W CC W MAJOR GI DX ..... 1.6835 37.1 30.9 22.5
570 ........... 5 MAJOR SMALL & LARGE BOWEL PROCEDURES W CC W/O MAJOR GI DX 1.6835 37.1 30.9 14.9
571 ........... MAJOR ESOPHAGEAL DISORDERS ...................................................................... 0.8214 21.9 18.3 7.5
572 ........... MAJOR GASTROINTESTINAL DISORDERS AND PERITONEAL INFECTIONS ... 0.8505 23.3 19.4 11.0
573 ........... 5 MAJOR BLADDER PROCEDURES ....................................................................... 1.6835 37.1 30.9 16.7
574 ........... MAJOR HEMATOLOGIC/IMMUNOLOGIC DIAG EXC SICKLE CELL CRISIS & 0.8106 19.7 16.4 9.1
COAGUL.
575 ........... SEPTICEMIA W MV 96+ HOURS AGE >17 ............................................................ 1.6583 27.8 23.2 24.4
Continued
IPPS av-
5/6ths of
Geo- erage
the geo-
Relative metric av-
weight erage
length of one
length of
stay standard
stay deviation*
576 ........... SEPTICEMIA W/O MV 96+ HOURS AGE >17 ........................................................ 0.7925 23.0 19.2 11.8
577 ........... 6 CAROTID ARTERY STENT PROCEDURE ........................................................... 1.1625 29.5 24.6 3.3
578 ........... O. R. PROCEDURE W PDX EXC POSTOPERATIVE OR POST-TRAUMATIC IN- 1.4849 35.7 29.8 26.5
FECTION.
579 ........... O. R. PROCEDURE W PDX OF POSTOPERATIVE OR POST-TRAUMATIC IN- 1.2978 35.2 29.3 18.0
FECTION.
1 Relative weights for these LTC–DRGs were determined by assigning these cases to low-volume quintile 1.
6 Relative weights for these LTC–DRGs were determined by assigning these cases to the appropriate low volume quintile because they had no
LTCH cases in the FY 2005 MedPAR file.
7 Relative weights for these LTC–DRGs were assigned a value of 0.0000.
8 Relative weights for these LTC–DRGs were determined after adjusting to account for nonmonotonicity.
* ‘‘IPPS Comparable Threshold’’ for the revision to the short-stay outlier policy, as discussed in section V.A.2. of the preamble of this final rule.
** IPPS hospital statistical data for these LTC–DRGs was supplemented due to a low volume of IPPS cases.
*** Although IPPS hospital statistical data for these DRGs may be available, a value of zero for the ‘‘IPPS Comparable Threshold’’ was as-
signed for these LTC–DRGs since the relative weights for these LTC–DRGs were assigned a value of 0.0000, as discussed in section III. of the
preamble of this final rule.
[FR Doc. 07–2206 Filed 5–1–07; 4:00 pm]

BILLING CODE 4120–01–P

Rule: Medicare: Long-Term Care Hospitals Prospective Payment System (2008 RY) Annual Payment Rate Updates and Policy Changes

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Rule: Medicare: Long-Term Care Hospitals Prospective Payment System (2008 RY) Annual Payment Rate Updates and Policy Changes

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Friday,

May 11, 2007

42 CFR Parts 412 and 413

6. Alternatives Considered DRGs Diagnosis-related groups RIA Regulatory impact analysis

effective for cost reporting periods § 412.23(e)(2)(ii) is calculated by D. Limitation on Charges to

Wages and Salaries ................................................................................................................................................ 52.506 52.588

Subtotal ............................................................................................................................................................. 71.586 71.767

Total Labor-related share ................................................................................................................................. 75.665 75.788

* As established in the RY 2007 LTCH PPS final rule (71 FR 27830).

Outlier Post ICU/

475 (no LTCH) ............................................................................................................................. 3,887 32.5 20.5 12

Top 20 LTCH DRGs Average Average Average Average

Unadjusted Standard Federal Prospective Payment Rate ............................................................................................................... $38,356.45

Wage-Adjusted Labor Share of Federal Rate ................................................................................................................................... = $31,252.71

TABLE 8.—PHYSICIAN SALARY INFORMATION

Cardiology ................................................................................................................................................................ 411,916 363,081

TABLE 9.—ESTIMATED IMPACT OF THE PROVISIONS OF THIS FINAL RULE 1

Payment Rate and Policy Changes:

Subtotal 4 ........................................................................................................................................................................... ¥3.8

Expansion of the ‘‘25 Percent’’ Policy 5 ........................................................................................................................................... 0

Total 6 (¥3.8% + 0%) ....................................................................................................................................................... ¥3.8

decrease in estimated aggregate LTCH be expected to result in changes in year.

ALL PROVIDERS 377 129,812 32,948.31 31,690.36 0.6 ¥1 ¥0.9 ¥3.8

GOVERNMENT .... 14 2,694 36,386.88 34,739.92 0.6 ¥1.8 ¥0.9 4.5

projecting that these LTCHs are Of the 9 census regions, we project

Whom? to LTCH Medicare Inpatient Operating Costs ■ A. Revising paragraph (a).

10180 ....... Abilene, TX ....................................................................................................................................................... 0.8000 0.8400

11500 ....... Anniston-Oxford, AL .......................................................................................................................................... 0.7770 0.8216

11700 ....... Asheville, NC .................................................................................................................................................... 0.9216 0.9373

Queen Anne’s County, MD.

Barnstable County, MA.

14500 ....... Boulder, CO ...................................................................................................................................................... 1.0350 1.0280

14740 ....... Bremerton-Silverdale, WA ................................................................................................................................. 1.0913 1.0730

Charlottesville City, VA.

Hamilton County, TN.

Saluda County, SC.

Marion County, GA.

Gilpin County, CO.

Guthrie County, IA.

22140 ....... Farmington, NM ................................................................................................................................................ 0.8589 0.8871

22220 ....... Fayetteville-Springdale-Rogers, AR-MO ........................................................................................................... 0.8865 0.9092

Ionia County, MI.

24540 ....... Greeley, CO ...................................................................................................................................................... 0.9602 0.9682

Chambers County, TX.

Montgomery County, TX.

Craighead County, AR.

28020 ....... Kalamazoo-Portage, MI .................................................................................................................................... 1.0704 1.0563

Lancaster County, PA.

29700 ....... Laredo, TX ........................................................................................................................................................ 0.7811 0.8249

31340 ....... Lynchburg, VA .................................................................................................................................................. 0.8694 0.8955

Bedford City, VA.

33660 ....... Mobile, AL ......................................................................................................................................................... 0.7913 0.8330

Ouachita Parish, LA.

Hudson County, NJ.

Putnam County, NY.

George County, MS.

37900 ....... Peoria, IL ........................................................................................................................................................... 0.8982 0.9186

Juab County, UT.

Charlotte County, FL.

40580 ....... Rocky Mount, NC .............................................................................................................................................. 0.8854 0.9083

40900 ....... Sacramento—Arden-Arcade—Roseville, CA .................................................................................................... 1.3372 1.2698

Marin County, CA.

Lajas Municipio, PR.