[Federal Register Volume 59, Number 169 (Thursday, September 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 94-21488]


[[Page Unknown]]

[Federal Register: September 1, 1994]


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Part II





Department of Health and Human Services





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Health Care Financing Administration



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42 CFR Part 412, et al.




Medicare Program; Changes to the Hospital Inpatient Prospective Payment 
Systems and FY 1995 Rates; Final Rule
DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 412, 413, 466, 482, 485 and 489

[BPD-802-FC]
RIN 0938-AG46

 
Medicare Program; Changes to the Hospital Inpatient Prospective 
Payment Systems and Fiscal Year 1995 Rates

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Final rule with comment period.

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SUMMARY: We are revising the Medicare hospital inpatient prospective 
payment systems for operating costs and capital- related costs to 
implement necessary changes arising from our continuing experience with 
the system. In addition, in the addendum to this final rule, we are 
describing changes in the amounts and factors necessary to determine 
prospective payment rates for Medicare hospital inpatient services for 
operating costs and capital-related costs. These changes are applicable 
to discharges occurring on or after October 1, 1994. We are also 
setting forth rate-of-increase limits for hospitals and hospital units 
excluded from the prospective payment systems. Finally, we are revising 
the criteria used by the Medicare Geographic Classification Review 
Board (MGCRB) to decide on applications by hospitals for geographic 
reclassification for prospective payment purposes.

DATES: Effective Date: This final rule with comment period is effective 
on October 1, 1994, except that the changes to Sec. 412.230 (concerning 
the geographic reclassification criteria used by the MGCRB) are 
effective on September 1, 1994.
    Comments: Comments on the revisions to the criteria for geographic 
reclassification by the MGCRB will be considered if we receive them at 
the appropriate address, as provided below, no later than October 31, 
1994. We will not consider comments concerning any other issues.

ADDRESSES: Mail written comments (1 original and 3 copies) to the 
following address: Health Care Financing Administration, Department of 
Health and Human Services, Attention: BPD-802-FC, P.O. Box 7517, 
Baltimore, MD 21207-0517.
    If you prefer, you may deliver your written comments (1 original 
and 3 copies) to one of the following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC 20201, or
Room 132, East High Rise Building, 6325 Security Boulevard, Baltimore, 
MD 21207.

    Because of staffing and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file code BPD-802-FC. Comments received timely will be available for 
public inspection as they are received, generally beginning 
approximately 3 weeks after publication of a document, in Room 309-G of 
the Department's offices at 200 Independence Avenue, SW., Washington, 
DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m. 
(phone: (202) 690-7890).
    Copies: To order copies of the Federal Register containing this 
document, send your request to: New Orders, Superintendent of 
Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date 
of the issue requested and enclose a check or money order payable to 
the Superintendent of Documents, or enclose your Visa or Master Card 
number and expiration date. Credit card orders can also be placed by 
calling the order desk at (202) 783-3238 or by faxing to (202) 512-
2250. The cost for each copy is $6.00. As an alternative, you can view 
and photocopy the Federal Register document at most libraries 
designated as Federal Depository Libraries and at many other public and 
academic libraries throughout the country that receive the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Lana Price, (410) 966-4529.

SUPPLEMENTARY INFORMATION:

I. Background

A. Summary

    Under section 1886(d) of the Social Security Act (the Act), a 
system of payment for the operating costs of acute hospital inpatient 
stays under Medicare Part A (Hospital Insurance) based on 
prospectively-set rates was established effective with hospital cost 
reporting periods beginning on or after October 1, 1983. Under this 
system, Medicare payment for hospital inpatient operating costs is made 
at a predetermined, specific rate for each hospital discharge. All 
discharges are classified according to a list of diagnosis-related 
groups (DRGs). The regulations governing the hospital inpatient 
prospective payment system are located in 42 CFR part 412. On September 
1, 1993, we published a final rule with comment period (58 FR 46270) to 
implement changes to the prospective payment system for hospital 
operating costs beginning with Federal fiscal year (FY) 1994.
    For cost reporting periods beginning before October 1, 1991, 
hospital inpatient operating costs were the only costs covered under 
the prospective payment system. Payment for capital-related costs had 
been made on a reasonable cost basis because, under sections 1886(a)(4) 
and (d)(1)(A) of the Act, those costs had been specifically excluded 
from the definition of inpatient operating costs. However, section 
4006(b) of the Omnibus Budget Reconciliation Act of 1987 (Public Law 
100-203) revised section 1886(g)(1) of the Act to require that, for 
hospitals paid under the prospective payment system for operating 
costs, capital-related costs would also be paid under a prospective 
payment system effective with cost reporting periods beginning on or 
after October 1, 1991. As required by section 1886(g) of the Act, we 
replaced the reasonable cost-based payment methodology with a 
prospective payment methodology for hospital inpatient capital-related 
costs. Under the new methodology, effective for cost reporting periods 
beginning on or after October 1, 1991, a predetermined payment amount 
per discharge is made for Medicare inpatient capital-related costs. 
(See subpart M of 42 CFR part 412, and the August 30, 1991, final rule 
(56 FR 43358) for a complete discussion of the prospective payment 
system for hospital inpatient capital-related costs.)

B. Summary of the Provisions of the May 27, 1994 Proposed Rule

    On May 27, 1994, we published a proposed rule in the Federal 
Register (59 FR 27708) to amend the prospective payment systems for 
operating costs and capital-related costs as follows:
     We proposed changes for FY 1995 DRG classifications and 
weighting factors as required by section 1886(d)(4)(C) of the Act. This 
section requires that we adjust the DRG classifications and relative 
weights at least annually.
     We proposed to revise the methodology for computing the 
wage index and to update the wage data. Specific issues addressed 
included updating the wage index for FY 1995, changes in the reporting 
of hospital wage index data, revising the wage index based on hospital 
redesignations, the impact of the revised hospital wage index, 
occupational mix adjustment, research on refinements to labor market 
areas, and State labor market options.
     We discussed several provisions of the regulations in 42 
CFR parts 412, 413, 485, and 489 concerning the prospective payment 
system for inpatient operating costs. The proposed changes concerned 
the following:

--Definition of and payment for transfer cases.
--Review of DRG assignments.
--National average standardized amounts for FY 1995.
--Outliers.
--Rural referral centers.
--Determination of number of beds in determining the indirect medical 
education adjustment.
--Disproportionate share adjustment.
--Changes affecting essential access community hospitals (EACHs) and 
rural primary care hospitals (RPCHs).
--Clarification of payments to rural referral center/EACH hospitals.
--Direct graduate medical education payment.
--Other technical changes.

     We discussed several provisions of the regulations in 42 
CFR parts 412 and 413 concerning the prospective payment for capital-
related costs. The proposed changes concerned the following:

--Evaluation of provisions relating to obligated capital for hospitals 
subject to lengthy certificate-of-need (CON) process.

--Specific adjustment for taxes to the capital prospective payment 
system federal rate.
--Revision of provision relating to exceptions payments.
--Extraordinary circumstances exceptions payments.
--Funding of depreciation.

     We discussed changes to the regulations at 42 CFR parts 
412 and 413 for hospital units excluded from the prospective payment 
system. The proposed changes concerned the following:

--New requirements for certain long-term care hospitals excluded from 
the prospective payment systems.

--Removal of the 1986 malpractice rule.
--Related technical changes.

     In the addendum to the proposed rule, we set forth 
proposed changes to the amounts and factors for determining the FY 1995 
prospective payment rates for operating costs and capital-related 
costs. We also proposed new update factors for determining the rate-of-
increase limits for cost reporting periods beginning in FY 1995 for 
hospitals and hospital units excluded from the prospective payment 
system.

     In Appendix A of the proposed rule, we set forth an 
analysis of the impact that the proposed changes described in the 
proposed rule would have on affected entities.
     In Appendix B of the proposed rule, we set forth the 
technical appendix on the proposed FY 1995 capital acquisition model 
and budget neutrality adjustment.
     In Appendix C of the proposed rule, we set forth our 
initial estimate of a recommended update factor for FY 1995 for both 
prospective payment hospitals and hospitals excluded from the 
prospective payment system, as required by section 1886(e)(3)(B) of the 
Act.
     In Appendix D of the proposed rule, we provided our 
recommendation of the appropriate percentage change for FY 1995, as 
required by sections 1886(e)(4) and (e)(5) of the Act, for the 
following:

--Large urban, other urban, and rural average standardized amounts (and 
hospital-specific rates applicable to sole community hospitals) for 
hospital inpatient services paid for under the prospective payment 
system for operating costs.
--Target rate-of-increase limits to the allowable operating costs of 
hospital inpatient services furnished by hospitals and hospital units 
excluded from the prospective payment system.

     In Appendix E of the proposed rule, we set forth a 
preliminary framework for developing the annual update factor for 
inpatient hospital capital-related costs.
    In the May 27, 1994 proposed rule, we also discussed in detail the 
March 1, 1994 recommendations made by the Prospective Payment 
Assessment Commission (ProPAC). ProPAC is directed by section 
1886(e)(2)(A) of the Act to make recommendations on the appropriate 
percentage change factor to be used in updating the average 
standardized amounts. In addition, section 1886(e)(2)(B) of the Act 
directs ProPAC to make recommendations regarding changes in each of the 
Medicare payment policies under which payments to an institution are 
prospectively determined. In particular, the recommendations relating 
to the hospital inpatient prospective payment systems are to include 
recommendations concerning the number of DRGs used to classify 
discharges, adjustments to the DRGs to reflect severity of illness, and 
changes in the methods under which hospitals are paid for capital-
related costs. Under section 1886(e)(3)(A) of the Act, the 
recommendations required of ProPAC under sections 1886(e)(2)(A) and (B) 
of the Act are to be reported to Congress not later than March 1 of 
each year.
    We printed ProPAC's March 1, 1994 report, which includes its 
recommendations, as Appendix F of the proposed rule. The 
recommendations, and the actions we proposed to take with regard to 
them (when an action is recommended), were discussed in detail in the 
appropriate sections of the preamble, the addendum, or the appendices 
of the proposed rule.
    Set forth below in sections II, III, IV, V, VI, VII, and VIII of 
this preamble, the addendum to this final rule, and the appendices, are 
detailed discussions of the May 27, 1994 proposed rule, the public 
comments received in response to the proposed rule, and the responses 
to those comments, as well as any changes we are making.
    We note that the proposed rule included an extensive discussion of 
our research concerning refinements to the labor market areas that are 
used to construct the hospital wage index. Comments on this issue were 
due on August 31, 1994, and we intend to discuss the comments and 
respond to them in the FY 1996 prospective payment system proposed 
rule.

C. Public Comments Received in Response to the May 27, 1994 Proposed 
Rule

    A total of 1339 items of correspondence containing comments on the 
May 27, 1994 proposed rule were received timely. The main areas of 
concern addressed by commenters were the following:
     Changes in the reporting of hospital wage index data.
     Definition of and payment for transfer cases.
     New exclusion criteria for long-term care hospitals.
     Revisions to the capital exceptions policy.
     Requests for changes in DRG classifications and relative 
weights.

II. Changes to DRG Classifications and Relative Weights

A. Background

    Under the prospective payment system, we pay for inpatient hospital 
services on the basis of a rate per discharge that varies by the DRG to 
which a beneficiary's stay is assigned. The formula used to calculate 
payment for a specific case takes an individual hospital's payment rate 
per case and multiplies it by the weight of the DRG to which the case 
is assigned. Each DRG weight represents the average resources required 
to care for cases in that particular DRG relative to the average 
resources used to treat cases in other DRGs.
    Congress recognized that it would be necessary to recalculate the 
DRG relative weights periodically to account for changes in resource 
consumption. Accordingly, section 1886(d)(4)(C) of the Act requires 
that the Secretary adjust the DRG classifications and relative weights 
annually. These adjustments are made to reflect changes in treatment 
patterns, technology, and any other factors that may change the 
relative use of hospital resources. The changes to the DRG 
classification system and the recalibration of the DRG weights for 
discharges occurring on or after October 1, 1994 are discussed below.

B. DRG Reclassification

1. General
    Cases are classified into DRGs for payment under the prospective 
payment system based on the principal diagnosis, up to eight additional 
diagnoses, and up to six procedures performed during the stay, as well 
as age, sex, and discharge status of the patient. The diagnosis and 
procedure information is reported by the hospital using codes from the 
International Classification of Diseases, Ninth Edition, Clinical 
Modification (ICD-9-CM). The Medicare fiscal intermediary enters the 
information into its claims system and subjects it to a series of 
automated screens called the Medicare Code Editor (MCE). These screens 
are designed to identify cases that require further review before 
classification into a DRG can be accomplished.
    After screening through the MCE and any further development of the 
claims, cases are classified by the GROUPER software program into the 
appropriate DRG. The GROUPER program was developed as a means of 
classifying each case into a DRG on the basis of the diagnosis and 
procedure codes and demographic information (that is, sex, age, and 
discharge status). It is used both to classify past cases in order to 
measure relative hospital resource consumption to establish the DRG 
weights and to classify current cases for purposes of determining 
payment. The records for all Medicare hospital inpatient discharges are 
maintained in the Medicare Provider Analysis and Review (MedPAR) file. 
The data in this file are used to evaluate possible DRG classification 
changes and to recalibrate the DRG weights.
    Currently, cases are assigned to one of 491 DRGs in 25 major 
diagnostic categories (MDCs). Most MDCs are based on a particular organ 
system of the body (for example, MDC 6, Diseases and Disorders of the 
Digestive System); however, some MDCs are not constructed on this basis 
since they involve multiple organ systems (for example, MDC 22, Burns).
    In general, principal diagnosis determines MDC assignment. However, 
there are four DRGs to which cases are assigned on the basis of 
procedure codes rather than first assigning them to an MDC based on the 
principal diagnosis. These are the DRGs for liver and bone marrow 
transplant (DRGs 480 and 481, respectively) and the two DRGs for 
tracheostomies (DRGs 482 and 483). Cases are assigned to these DRGs 
before classification to an MDC.
    Within most MDCs, cases are then divided into surgical DRGs (based 
on a surgical hierarchy that orders individual procedures or groups of 
procedures by resource intensity) and medical DRGs. Medical DRGs 
generally are differentiated on the basis of diagnosis and age. Some 
surgical and medical DRGs are further differentiated based on the 
presence or absence of complications or comorbidities (hereafter CC).
    Generally, GROUPER does not consider other procedures; that is, 
nonsurgical procedures or minor surgical procedures generally not 
performed in an operating room are not listed as operating room (OR) 
procedures in the GROUPER decision tables. However, there are a few 
non-OR procedures that do affect DRG assignment for certain principal 
diagnoses, such as extracorporeal shock wave lithotripsy for patients 
with a principal diagnosis of urinary stones.
    We proposed to make several changes to the DRG classification 
system for FY 1995. These proposed changes and the comments we received 
concerning them, as well as our responses to those comments and the 
final DRG changes, are set forth below.
2. MDC 2 (Diseases and Disorders of the Eye)
    When a case is coded with a principal diagnosis of subcorneal 
pustular dermatosis (diagnosis code 694.1), it is classified to MDC 2 
(Diseases and Disorders of the Eye), where it is assigned to DRGs 46, 
47, and 48 (Other Disorders of the Eye).\1\ As discussed in the 
proposed rule, we received a suggestion from the public that we should 
review the DRG classification of subcorneal pustular dermatosis because 
it is a dermatological condition and is not a disease or disorder of 
the eye.
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    \1\A single title combined with two DRG numbers is used to 
signify pairs. Generally, the first DRG is for cases with CC and the 
second is for cases without CC. If a third number is included, it 
represents cases of patients who are age 0-17. Occasionally, a pair 
of DRGs is split on age >17 and age 0-17.
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    Since this issue involves a possible medical misclassification of a 
diagnosis, we asked our medical consultants to evaluate the condition. 
They determined that subcorneal pustular dermatosis is indeed a 
dermatological condition and not an eye condition. Based on their 
determination and recommendations, we proposed to remove diagnosis code 
694.1 from its current classification in MDC 2 and assign it to MDC 9 
(Diseases and Disorders of the Skin, Subcutaneous Tissue and Breast).
    In order to determine the appropriate DRG assignment in MDC 9, we 
first made a clinical evaluation of the medical DRGs. Based on the 
current MDC 9 configuration, the only possible DRGs appear to be DRGs 
272 and 273 (Major Skin Disorders) or DRGs 283 and 284 (Minor Skin 
Disorders). After reviewing the average standardized charges and the 
types of costs assigned to DRGs 272 and 273, we believe the best 
assignment for 694.1 is DRGs 283 and 284. The proposed FY 1995 relative 
weights of DRGs 46, 47, and 48 (0.7573, 0.4330, and 0.4182, 
respectively) were approximately equal to those of DRGs 283 and 284 
(0.7142 and 0.4358, respectively). Therefore, we proposed to move 
diagnosis code 694.1 to DRGs 283 and 284. We received only one comment 
on this proposal, which supported our change. Thus, we are 
incorporating our proposal in this final rule.
3. MDC 15 (Newborns and Other Neonates With Conditions Originating in 
the Perinatal Period)
    In the September 1, 1993 final rule (58 FR 46283), we stated that 
we would evaluate the newborn and neonate DRG classifications and 
relative weights for possible improvements. Because of the low volume 
of cases in these DRGs in the MedPAR file, we stated that we intended 
to rely on data bases outside the Medicare claims file to supplement 
our data. We expect that any major reclassification changes to MDC 15 
will be based on an evaluation of actual neonate case data, including 
charges and clinical information.
    In the proposed rule, we stated that we had not yet completed this 
evaluation, so we did not propose MDC 15 revisions for FY 1995. 
However, we discussed several suggestions from the public concerning 
improvements for the neonate DRG classifications. Some commenters 
suggested that we reevaluate the diagnoses that are currently 
considered significant problems in determining the assignment of a 
neonate case to DRG 390 (Neonate with Other Significant Problems) 
rather than DRG 391 (Normal Newborn). These commenters believe that 
many of the diagnoses currently assigned to DRG 390 are not truly 
significant clinically and in terms of resource use. These commenters 
also identified specific diagnoses within this group that are 
problematic. Even though we are not ready to proceed with a 
comprehensive proposal for revising MDC 15, we did ask our medical 
specialists to evaluate the specific conditions that were identified as 
problematic in the assignment of newborns to DRG 390.
    Currently, cases of otherwise normal newborns with one of the 
following diagnoses are assigned to DRG 390 rather than DRG 391:

752.5  Undescended testicle
795.4  Other nonspecific abnormal histological findings
V05.3  Need for prophylactic vaccination against viral hepatitis
V05.4  Need for prophylactic vaccination against Varicella
V20.1  Other healthy infant or child receiving care

    All of these diagnoses were identified by the commenters as 
nonsignificant conditions that either are not problems or require only 
minimal diagnostic work-up, no treatment, and result in the consumption 
of minimal or no additional resources. For these reasons, the 
commenters believe that these diagnoses should be added to the list of 
conditions that may be found as secondary diagnoses for DRG 391.
    Specifically, a healthy newborn with undescended testicles requires 
only a minimal diagnostic work-up and no treatment at the time of 
birth. In addition, the conditions that are assigned to diagnosis code 
795.4 (Other nonspecific abnormal histological findings) are 
nonsignificant problems and require no additional resources to treat.
    Commenters also pointed out that it has become standard practice to 
inoculate newborns against viral hepatitis, and that a prophylactic 
vaccination against Varicella is normal and routine and does not 
indicate a problem with the newborn. Diagnosis code V20.1 is generally 
used to identify a healthy infant that remains in the hospital for an 
extended period of time because of maternal illness, and should not be 
considered a significant problem.
    All of the conditions listed above were reevaluated on a clinical 
basis by our medical specialists, who determined that these diagnoses 
are not significant problems in neonates. Therefore, we proposed to add 
them to the list of secondary diagnoses that would assign an otherwise 
normal newborn to DRG 391.
    We also reevaluated perinatal jaundice (diagnosis codes 774.0 
through 774.7) and its DRG assignments in response to suggestions we 
received. Currently, all of these diagnosis codes except 774.6 
(unspecified fetal and neonatal jaundice) are considered major problems 
and are assigned to DRGs 387 (Prematurity with Major Problems) and 389 
(Full Term Neonate with Major Problems). Diagnosis code 774.6 is not 
considered a significant problem and is assigned to DRG 388 
(Prematurity without Major Problems) and DRG 391. Some did not believe 
that 774.6 should be assigned to DRG 391 when all the other perinatal 
jaundice codes are considered major problems. Others believe that some 
of the perinatal jaundice diagnoses that are currently considered major 
are really not that resource intensive.
    Our medical specialists reevaluated these perinatal jaundice 
conditions, and, based on their determinations, we proposed several 
revisions to the neonatal DRG assignments. First, the following 
diagnosis codes would be removed from the major problems list in DRGs 
387 and 389 and would be added to the significant problems list:

774.0  Perinatal jaundice from hereditary hemolytic anemias
774.1  Perinatal jaundice from other excessive hemolysis
774.2  Neonatal jaundice associated with preterm delivery

Thus, a premature newborn with one of these codes would be assigned to 
DRG 388 and a full-term newborn with one of these codes would be 
assigned to DRG 390.
    The following diagnosis codes would be removed from the major 
problems list in DRGs 387 and 389 and would not be added to the 
significant problems list:

774.30  Neonatal jaundice due to delayed conjugation, cause unspecified
774.31  Neonatal jaundice due to delayed conjugation in diseases 
classified elsewhere
774.39  Other neonatal jaundice due to delayed conjugation from other 
causes
774.5  Perinatal jaundice from other causes

Therefore, a premature newborn with one of these conditions would be 
assigned to DRG 388 and a full-term newborn with one of these 
conditions would be assigned to DRG 391.
    The following diagnosis codes would remain on the major problems 
list and continue to result in assignment to DRGs 387 and 389:

774.4  Perinatal jaundice due to hepatocellular damage
774.7  Kernicterus not due to isoimmunization

    Finally, diagnosis codes 774.6 (Unspecified fetal and neonatal 
jaundice) would continue to be considered a nonsignificant condition 
and result in assignment to DRGs 388 and 391.
    We note again that these proposals were based only on clinical 
considerations and responded to specific requests made by the public. 
We will continue our work on a more comprehensive evaluation of the MDC 
15 DRGs and will announce our proposal when that evaluation is 
completed.
    Comment: We received two comments regarding these proposed changes. 
One commenter supported all of the changes; the other commenter 
supported the reassignment of diagnosis codes 752.5, 795.4, V05.3, 
V05.4, and V20.1 from DRG 390 to DRG 391, but disagreed with the 
proposed changes to the classification of the perinatal jaundice codes. 
This commenter stated that perinatal jaundice frequently involves 
significant testing and prolonged hospitalization and that 
classification changes to these diagnoses should be delayed until HCFA 
completes the evaluation of the newborn and neonate DRGs.
    Response: Under our proposal, two perinatal jaundice diagnoses 
remain on the major problems list (codes 774.4 and 774.7) and three 
remain on the significant problems list (codes 774.0, 774.1, and 
774.2). The diagnoses that have been redesignated from the major and 
significant problems list are conditions that are not considered to be 
clinically significant. That is, our medical staff do not believe that 
these conditions require the expenditure of significant additional 
resources by the hospital for treatment.
    We note that under the New York All-Patient (AP) DRGs, the only 
perinatal jaundice conditions considered to be major problems are 774.4 
and 774.7. This is consistent with our proposal. In addition, of the 
remaining codes, only 774.2 is considered a significant problem. The 
remaining perinatal jaundice codes are not considered problems for 
newborns under the AP-DRGs. Since New York uses the AP-DRGs to classify 
and pay hospitals for the treatment of an all-patient population, we 
believe that their classification of neonate diagnosis codes is a 
reliable reflection of the actual resources used.
    Since there is agreement with the AP-DRGs on the major problems and 
we have included additional codes under the Medicare significant 
problem DRGs, we are confident that our proposal is supportable. 
Therefore, we are incorporating our proposed changes as final. As a 
part of our analysis of the MDC 15 DRGs, we will evaluate our revisions 
to verify that we have appropriately classified the perinatal jaundice 
diagnoses. We note again that these changes are made in response to 
public request and do not have a significant impact on the Medicare 
population. In FY 1993, there were 25 cases classified in DRGs 387 
through 391.
4. Surgical Hierarchies
    Some inpatient stays entail multiple surgical procedures, each one 
of which, occurring by itself, could result in assignment of the case 
to a different DRG within the MDC to which the principal diagnosis is 
assigned. It is therefore necessary to have a decision rule by which 
these cases are assigned to a single DRG. The surgical hierarchy, an 
ordering of surgical classes from most to least resource intensive, 
performs that function. Its application ensures that cases involving 
multiple surgical procedures are assigned to the DRG associated with 
the most resource-intensive surgical class.
    Because the relative resource intensity of surgical classes can 
shift as a function of DRG reclassification and recalibration, we 
reviewed the surgical hierarchy of each MDC, as we have for previous 
reclassifications, to determine if the ordering of classes coincided 
with the intensity of resource utilization, as measured by the same 
billing data used to compute the DRG relative weights.
    A surgical class can be composed of one or more DRGs. For example, 
in MDC 5, the surgical class ``heart transplant'' consists of a single 
DRG (DRG 103) and the class ``coronary bypass'' consists of two DRGs 
(DRGs 106 and 107). Consequently, in many cases, the surgical hierarchy 
has an impact on more than one DRG. The methodology for determining the 
most resource-intensive surgical class, therefore, involves weighting 
each DRG for frequency to determine the average resources for each 
surgical class. For example, assume surgical class A includes DRGs 1 
and 2 and surgical class B includes DRGs 3, 4, and 5, and that the 
average charge of DRG 1 is higher than that of DRG 3, but the average 
charges of DRGs 4 and 5 are higher than the average charge of DRG 2. To 
determine whether surgical class A should be higher or lower than 
surgical class B in the surgical hierarchy, we would weight the average 
charge of each DRG by frequency (that is, by the number of cases in the 
DRG) to determine average resource consumption for the surgical class. 
The surgical classes would then be ordered from the class with the 
highest average resource utilization to that with the lowest, with the 
exception of ``other OR procedures'' as discussed below.
    This methodology may occasionally result in a case involving 
multiple procedures being assigned to the lower-weighted DRG (in the 
highest, most resource-intensive surgical class) of the available 
alternatives. However, given that the logic underlying the surgical 
hierarchy provides that the GROUPER searches for the procedure in the 
most resource-intensive surgical class, which may sometimes occur in 
cases involving multiple procedures, this result is unavoidable.
    We note that, notwithstanding the foregoing discussion, there are a 
few instances when a surgical class with a lower average relative 
weight is ordered above a surgical class with a higher average relative 
weight. For example, the ``other OR procedures'' surgical class is 
uniformly ordered last in the surgical hierarchy of each MDC in which 
it occurs, regardless of the fact that the relative weight for the DRG 
or DRGs in that surgical class may be higher than that for other 
surgical classes in the MDC. The ``other OR procedures'' class is a 
group of procedures that are least likely to be related to the 
diagnoses in the MDC but are occasionally performed on patients with 
these diagnoses. Therefore, these procedures should only be considered 
if no other procedure more closely related to the diagnoses in the MDC 
has been performed.
    A second example occurs when the difference between the average 
weights for two surgical classes is very small. We have found that 
small differences generally do not warrant reordering of the hierarchy 
since, by virtue of the hierarchy change, the relative weights are 
likely to shift such that the higher-ordered surgical class has a lower 
average weight than the class ordered below it.
    Based on the preliminary recalibration of the DRGs, we proposed to 
modify the surgical hierarchy as set forth below. As discussed in 
section II.C of this preamble, the final recalibrated weights are 
somewhat different from those proposed, since they are based on more 
complete data. Consequently, we have further revised the hierarchy in 
this final rule using the principles set forth above.
     In MDC 2 (Diseases and Disorders of the Eye), we proposed 
to reorder Extraocular Procedures Except Orbit (DRGs 40 and 41) above 
Intraocular Procedures Except Retina, Iris and Lens (DRG 42).
     In MDC 3 (Diseases and Disorders of the Ear, Nose, Mouth 
and Throat), we proposed to reorder Rhinoplasty (DRG 56) above Salivary 
Gland Procedures Except Sialoadenectomy (DRG 51).
    We received no comments concerning the proposed surgical hierarchy. 
In addition, based on a test of the proposed changes using the most 
recent MedPAR file and the revised GROUPER software, we find that the 
changes are still supported by the data and are adopting the proposals 
in this final rule. However, based on the final MedPAR file, we need to 
make another change in the surgical hierarchy for MDC 3. In MDC 3, in 
addition to reordering DRG 56 above DRG 51, we will also reorder DRG 56 
above DRG 50 (Sialoadenectomy). Therefore, the final revised hierarchy 
for these three DRGs is as follows:

Rhinoplasty (DRG 56)
Sialoadenectomy (DRG 50)
Salivary Gland Procedures Except Sialoadenectomy (DRG 51)
5. Refinement of Complications and Comorbidities List
    There is a standard list of diagnoses that are considered 
complications or comorbidities (CCs). We developed this list using 
physician panels to include those diagnoses that, when present as a 
secondary condition, would be considered a substantial complication or 
comorbidity. In preparing the original CC list, a substantial CC was 
defined as a condition that, because of its presence with a specific 
principal diagnosis, would increase the length of stay by at least 1 
day for at least 75 percent of the patients.
    In previous years, we have made changes to the standard list of 
CCs, either by adding new CCs or deleting CCs already on the list. For 
FY 1995, we did not propose to make any changes to the current CC list.
    In the September 1, 1987 final notice concerning changes to the DRG 
classification system (52 FR 33143), we modified the GROUPER logic so 
that certain diagnoses included on the standard list of CCs would not 
be considered a valid CC in combination with a particular principal 
diagnosis. Thus, we created the CC Exclusions List. We made these 
changes to preclude coding of CCs for closely related conditions, to 
preclude duplicative coding or inconsistent coding from being treated 
as CCs, and to ensure that cases are appropriately classified between 
the complicated and uncomplicated DRGs in a pair.
    In the May 19, 1987 proposed notice concerning changes to the DRG 
classification system (52 FR 18877), we explained that the excluded 
secondary diagnoses were established using the following five 
principles:
     Chronic and acute manifestations of the same condition 
should not be considered CCs for one another (as subsequently corrected 
in the September 1, 1987 final notice (52 FR 33154)).
     Specific and nonspecific (that is, not otherwise specified 
(NOS)) diagnosis codes for a condition should not be considered CCs for 
one another.
     Conditions that may not co-exist, such as partial/total, 
unilateral/bilateral, obstructed/unobstructed, and benign/malignant, 
should not be considered CCs for one another.
     The same condition in anatomically proximal sites should 
not be considered CCs for one another.
     Closely related conditions should not be considered CCs 
for one another.
    The creation of the CC Exclusions List was a major project 
involving hundreds of codes. The FY 1988 revisions were intended to be 
only a first step toward refinement of the CC list in that the criteria 
used for eliminating certain diagnoses from consideration as CCs were 
intended to identify only the most obvious diagnoses that should not be 
considered complications or comorbidities of another diagnosis. For 
that reason, and in light of comments and questions on the CC list, we 
have continued to review the remaining CCs to identify additional 
exclusions and to remove diagnoses from the master list that have been 
shown not to meet the definition of a CC stated above, as appropriate. 
(See the September 30, 1988 final rule for the revision made for the 
discharges occurring in FY 1989 (53 FR 38485), the September 1, 1989 
final rule for the revision made for discharges occurring in FY 1990 
(54 FR 36552), the September 4, 1990 final rule for the revision made 
for discharges occurring in FY 1991 (55 FR 36126), the August 30, 1991 
final rule for the revision made for discharges occurring in FY 1992 
(56 FR 43209), the September 1, 1992 final rule for the revisions made 
for discharges occurring in FY 1993 (57 FR 39753), and the September 1, 
1993 final rule for the revisions made for discharges occurring in FY 
1994 (58 FR 46278).)
    We proposed a limited revision of the CC Exclusions List to take 
into account the changes that will be made in the ICD-9-CM diagnosis 
coding system effective October 1, 1994. (See section II.B.7, below, 
for a discussion of these changes.) These proposed changes were made in 
accordance with the principles established when we created the CC 
Exclusions List in 1987.
    In addition, upon review of our current CC Exclusions List, we 
found that there are some diagnosis codes that do not exclude 
themselves as CCs. In the September 1, 1987 final notice, we noted that 
a very few codes were not excluded from themselves because they may 
signify the bilateral occurrence of a particular condition (for 
example, diagnosis code 730.02 (acute osteomyelitis of upper arm)) (52 
FR 33154). However, we found some diagnosis codes that do not meet this 
criterion. Therefore, we proposed to add the following diagnosis codes 
to the CC Exclusions List as excluding themselves when they are 
secondary diagnoses:

710.0 Systemic lupus erythematous
710.1 Systemic sclerosis
710.3 Sicca syndrome
710.4 Dermatomyositis
710.8 Other specified diffuse diseases of connective tissue

    Based on a comment we received, we also proposed to exclude 
diagnosis code 707.1 (Ulcer of lower limb, except decubitus) as a CC 
when the principal diagnosis is 440.23 (Atherosclerosis of the 
extremities with ulceration). The commenter believes that this 
exclusion is similar to the current exclusion of 785.4 (Gangrene) when 
the principal diagnosis is 440.24 (Atherosclerosis of the extremities 
with gangrene), and we agree with the commenter's assessment.
    Finally, it was brought to our attention by another commenter that 
when a patient's principal diagnosis is complication of a transplant 
condition (diagnosis codes 996.71 and 996.8x), the diagnosis codes used 
to denote transplant status (V42.x) should not be considered CCs. Thus, 
for the following principal diagnoses, we proposed to delete the 
indicated status code:
     For code 996.71 (Complications due to heart valve 
prosthesis) delete code V42.2 (Heart valve transplant influencing 
health status) as a CC.
     For code 996.80 (Complications of unspecified organ 
transplant) delete code V42.0 (Kidney transplant influencing health 
status), V42.1 (Heart transplant influencing health status), V42.6 
(Lung transplant influencing health status), V42.7 (Liver transplant 
influencing health status), V42.8 (Other specified organ or tissue 
transplant influencing health status) as CCs.
     For code 996.81 (Complications of kidney transplant) 
delete code V42.0 (Kidney transplant influencing health status) as a 
CC.
     For code 996.82 (Complications of liver transplant) delete 
code V42.7 (Liver transplant influencing health status) as a CC.
     For code 996.83 (Complications of heart transplant) delete 
code V42.1 (Heart transplant influencing health status) as a CC.
     For code 996.84 (Complications of lung transplant) delete 
code V42.6 (Lung transplant influencing health status) as a CC.
     For code 996.86 (Complications of pancreas transplant) 
delete code V42.8 (Other specified organ or tissue transplant 
influencing health status) as a CC.
     For code 996.89 (Complications of other specified organ 
transplant) V42.8 (Other specified organ or tissue transplant 
influencing health status) as a CC.
    Comment: We received one comment that supported our revision of the 
CC Exclusions List. However, another commenter, while agreeing that 
transplant status (V42.x) is implied in the organ-specific complication 
codes (996.8x), disagreed with one of our revisions. Specifically, the 
commenter believes that code V42.8 (Other specified organ or tissue 
transplant influencing health status) should not be excluded for cases 
in which the principal diagnosis is 996.86 (Complications of pancreas 
transplant) or 996.89 (Complications of other specified organ 
transplant). The commenter notes that code V42.8 includes transplants 
other than pancreas (for example, intestines). Therefore, to exclude as 
a CC a code that is not organ specific means that, for example, a 
pancreatic transplant patient experiencing a complication with an 
intestinal transplant would not have the V42.8 code associated 
classified as a CC.
    Response: We agree with the commenter that the fact that all the 
complication codes (996.8x) and the status codes (V42.x) are not 
perfectly matched in organ specificity occasionally leads to the 
inability to code certain otherwise allowable CCs. However, we believe 
the problem is extremely limited in the Medicare population, who do not 
tend to have multiple transplanted organs. The problem with leaving 
V42.8 (a ``not elsewhere classified'' code) as a CC for 996.86 and 
996.89 is that it opens the door for incorrect coding in order to gain 
a higher DRG assignment.
    If hospitals followed correct coding guidelines concerning the V 
status codes, we would not have had to make the proposed changes to the 
CC Exclusions List. That is, it is not correct to code the status code 
for an organ transplant when the principal diagnosis is complication of 
the same organ transplant. However, based on the information in the 
MedPAR file, hospitals were following this incorrect procedure and were 
gaining an inappropriate financial advantage. Therefore, we believe 
that leaving V42.8 off the exclusion list for 996.86 and 996.89 would 
cause more incorrect DRG assignments than including it on the list. We 
note that when a transplant complication is coded as the principal 
diagnosis, hospitals may code the actual complication and any other 
secondary diagnoses documented by the physician.
    Tables 6f and 6g in section V of the addendum to this final rule 
contain the final revisions to the CC Exclusions List (including the 
change for V42.8) that will be effective for discharges occurring on or 
after October 1, 1994. Each table shows the principal diagnoses with 
the changes to the excluded CCs. Each of these principal diagnoses is 
shown with an asterisk and the additions or deletions to the CC 
Exclusions List are provided in an indented column immediately 
following the affected principal diagnosis.
    CCs that are added to the list are in Table 6f--Additions to the CC 
Exclusions List. Beginning with discharges on or after October 1, 1994, 
the indented diagnoses will not be recognized by the GROUPER as valid 
CCs for the asterisked principal diagnosis.
    CCs that are deleted from the list are in Table 6g--Deletions from 
the CC Exclusions List. Beginning with discharges on or after October 
1, 1994, the indented diagnoses will be recognized by the GROUPER as 
valid CCs for the asterisked principal diagnosis.
    Copies of the original CC Exclusions List applicable to FY 1988 can 
be obtained from the National Technical Information Service (NTIS) of 
the Department of Commerce. It is available in hard copy for $84.00 and 
on microfiche for $20.50, plus $3.00 for shipping and handling. A 
request for the FY 1988 CC Exclusions List (which should include the 
identification accession number, (PB) 88-133970) should be made to the 
following address: National Technical Information Service; United 
States Department of Commerce; 5285 Port Royal Road, Springfield, 
Virginia 22161; or by calling (703) 487-4650.
    Users should be aware of the fact that all revisions to the CC 
Exclusions List (FYs 1989, 1990, 1991, 1992, 1993, and 1994) and those 
in Tables 6f and 6g of this document must be incorporated into the list 
purchased from NTIS in order to obtain the CC Exclusions List 
applicable for discharges occurring on or after October 1, 1994.
    Alternatively, the complete documentation of the GROUPER logic, 
including the current CC Exclusions List, is available from 3M/Health 
Information Systems (HIS), which, under contract with HCFA, is 
responsible for updating and maintaining the GROUPER program. The DRG 
Definitions Manual, Version 12.0, which includes the changes set forth 
in this final rule, is available for $195.00, which includes $15.00 for 
shipping and handling. These manuals may be obtained by writing 3M/HIS 
at: 100 Barnes Road; Wallingford, Connecticut 06492; or by calling 
(203) 949-0303. Please specify the revision or revisions requested.
6. Review of Procedure Codes in DRGs 468, 476, and 477
    Each year, we review cases assigned to DRG 468 (Extensive OR 
Procedure Unrelated to Principal Diagnosis), DRG 476 (Prostatic OR 
procedure Unrelated to Principal Diagnosis), and DRG 477 (Nonextensive 
OR Procedure Unrelated to Principal Diagnosis) in order to determine 
whether procedures are properly assigned among these DRGs.
    DRGs 468, 476, and 477 are reserved for those cases in which none 
of the OR procedures performed is related to the principal diagnosis. 
These DRGs are intended to capture atypical cases, that is, those cases 
not occurring with sufficient frequency to represent a distinct, 
recognizable clinical group. DRG 476 is assigned to those discharges in 
which one or more of the following prostatic procedures are performed 
and are unrelated to the principal diagnosis:

60.0  Incision of prostate
60.12  Open biopsy of prostate
60.15  Biopsy of periprostatic tissue
60.18  Other diagnostic procedures on prostate and periprostatic tissue
60.2  Transurethral prostatectomy
60.61  Local excision of lesion of prostate
60.69  Prostatectomy NEC
60.81  Incision of periprostatic tissue
60.82  Excision of periprostatic tissue
60.93  Repair of prostate
60.94  Control of (postoperative) hemorrhage of prostate
60.95  Transurethral balloon dilation of the prostratic urethra
60.99  Other operations on prostate

    All remaining OR procedures are assigned to DRGs 468 and 477, with 
DRG 477 assigned to those discharges in which the only procedures 
performed are nonextensive procedures that are unrelated to the 
principal diagnosis. The original list of the ICD-9-CM procedure codes 
for the procedures we consider nonextensive procedures if performed 
with an unrelated principal diagnosis was published in Table 6C in 
section IV of the addendum to the September 30, 1988 final rule (53 FR 
38591). As part of the final rules published on September 4, 1990, 
August 30, 1991, September 1, 1992, and September 1, 1993, we moved 
several other procedures from DRG 468 to 477. (See 55 FR 36135, 56 FR 
43212, 57 FR 23625, and 58 FR 46279, respectively.)
    a. Adding Procedure Codes to MDCs. We annually conduct a review of 
procedures producing DRG 468 or 477 assignments on the basis of volume 
of cases in these DRGs with each procedure. Our medical consultants 
then identify those procedures occurring in conjunction with certain 
principal diagnoses with sufficient frequency to justify adding them to 
one of the surgical DRGs for the MDC in which the diagnosis falls. On 
the basis of this review, we proposed the following DRG classification 
changes in order to reduce unnecessary assignment of cases to DRG 468 
or 477.
     MDC 1 (Diseases and Disorders of the Nervous System).
    We have observed that surgical pacemaker procedures are being 
performed with increasing frequency for anatomical nerve problems 
associated with heart block. These diagnoses, diagnosis codes 337.0 
(Idiopathic peripheral autonomic neuropathy), 742.8 (Other specified 
anomalies of nervous system), and 742.9 (Unspecified anomaly of brain, 
spinal cord, and nervous system), are assigned to MDC 1, but the 
surgical pacemaker procedures are not. Consequently, when a pacemaker 
procedure is performed on a patient with one of these diagnoses, the 
case is assigned to DRG 468. Therefore, we proposed to add the 
following procedure codes to DRGs 7 and 8 (Peripheral and Cranial Nerve 
and Other Nervous System Procedures):

37.74  Insertion or replacement of epicardial lead (electrode) into 
epicardium
37.75  Revision of lead (electrode)
37.76  Replacement of transvenous atrial and/or ventricular lead(s) 
(electrode)
37.77  Removal of lead(s) (electrode) without replacement
37.79  Revision or relocation of pacemaker pocket
37.80  Insertion of permanent pacemaker, initial or replacement, type 
of device not specified
37.85  Replacement of any type pacemaker device with single-chamber 
device, not specified as rate responsive
37.86  Replacement of any type pacemaker device with single-chamber 
device, rate responsive
37.87  Replacement of any type pacemaker device with dual-chamber 
device
37.89  Revision or removal of pacemaker device

    In addition, during our review of DRG 468 cases, we found that 
there are several hundred cases of lower limb amputation procedures 
with a principal diagnosis from MDC 1. Patients with diabetes often 
develop complications that require the performance of a lower limb 
amputation. Although the majority of the diagnosis codes for diabetes 
are assigned to MDC 10 (Endocrine, Nutritional and Metabolic Diseases 
and Disorders), cases with a principal diagnosis of diabetes with 
neurological manifestations (diagnosis codes 250.60, 250.61, 250.62 and 
250.63) are assigned to MDC 1. Therefore, we proposed to move the 
following procedures to DRGs 7 and 8:

84.11  Amputation of toe
84.12  Amputation through foot
84.13  Disarticulation of ankle
84.14  Amputation of ankle through malleoli of tibia and fibula
84.15  Other amputation below knee
84.16  Disarticulation of knee
84.17  Amputation above knee

    Two commenters wrote concerning the proposal to add pacemaker and 
amputation procedures to DRGs 7 and 8.
    Comment: One commenter noted that pacemaker procedure codes that 
are not recognized by the GROUPER unless they are paired with their 
related codes were excluded from the list of codes to be moved to DRGs 
7 and 8. The commenter recommends that all pacemaker procedures with a 
principal diagnosis assigned to MDC 1 be added to DRG 7 and 8.
    Response: The pacemaker codes we proposed to move to DRGs 7 and 8 
are only those codes considered to be OR procedures. The pacemaker 
procedures that are considered to be non-OR procedures were not moved. 
Coding the initial implantation of a permanent cardiac pacemaker 
requires that one lead and one device code must be used in combination 
for DRG assignment. Coding of revision and replacement pacemaker 
procedures does not require combined codes to be assigned to DRGs.
    The pacemaker procedure codes that are non-OR procedures are not 
recognized by the GROUPER unless they are combined with their related 
codes. That is, they are considered for DRG assignment only if they 
occur in pairs. Otherwise they are treated as other non-OR procedures 
and do not affect DRG assignment. These non-OR procedures are as 
follows:

37.70  Initial insertion pacemaker lead, not otherwise specified
37.71  Initial insertion of transvenous lead into ventricle
37.72  Initial insertion of transvenous leads into atrium and ventricle
37.73  Initial insertion of transvenous lead into atrium
37.81  Initial insertion of single-chamber device, not specified as 
rate responsive
37.82  Initial insertion of single-chamber device, rate responsive
37.83  Initial insertion of dual-chamber device

These non-OR procedures were not included in the list of pacemaker 
codes that we proposed to move from DRGs 7 and 8 when they occurred 
with an MDC 1 principal diagnosis.
    However, we agree with the commenter that these non-OR pacemaker 
procedure codes, when accompanying an MDC 1 principal diagnosis, should 
be assigned to DRGs 7 or 8 rather that DRG 468 when they are paired 
with the related procedure code. Therefore, we are adding the following 
pacemaker codes, when they occur in combination, to DRGs 7 and 8:

37.70 & 37.81  Initial insertion pacemaker lead and single-chamber 
device, non-rate responsive
37.70 & 37.82  Initial insertion pacemaker lead and single-chamber 
device, rate responsive
37.71 & 37.81  Initial insertion of transvenous lead into ventricle and 
single-chamber device, non-rate responsive
37.71 & 37.82  Initial insertion of transvenous lead into ventricle and 
single-chamber device, rate responsive
37.72 & 37.83  Initial insertion of transvenous leads into atrium and 
ventricle & dual-chamber device
37.73 & 37.81  Initial insertion of transvenous lead into atrium and 
single-chamber device, non-rate responsive
37.73 & 37.82  Initial insertion of transvenous lead into atrium and 
single-chamber device, rate responsive

    We emphasize that procedure codes 37.70, 37.71, 37.72, 37.73, 
37.81, 37.82, and 37.83 are not considered by the GROUPER unless used 
in combination with their related codes. If used singularly, these 
codes will be ignored for the purpose of DRG assignment. The pacemaker 
codes originally proposed may occur alone or in pairs, and will be 
assigned to DRG 7 or 8 when they occur with a principal diagnosis in 
MDC 1 as proposed.
    We are adopting the changes in the proposed rule, with the 
revisions discussed above.
    Comment: We received a comment that objected to the placement of 
pacemaker procedures and lower limb amputation procedures in DRGs 7 and 
8. The commenter stated that unless clinical evidence supported the 
assignment of these pacemaker cases to DRG 7 or 8, it would be more 
reasonable to move these cases to DRG 115 (Permanent Cardiac Pacemaker 
Implant with AMI, Heart Failure, or Shock) or DRG 116 (Other Permanent 
Pacemaker Implant or AICD Lead or Generator Procedures) in MDC 5 
(Diseases and Disorders of the Circulatory System). It was also 
suggested that the amputation cases be assigned to DRGs in MDC 10 
(Endocrine, Nutritional, and Metabolic Diseases and Disorders), where 
diabetic patients with manifestations are classified.
    Response: The DRGs were developed as a patient classification 
scheme consisting of classes of patients who were similar clinically 
and in terms of their consumption of hospital resources. The concept of 
clinical coherence requires that the patient characteristics included 
in the definition of each DRG relate to a common organ system or 
etiology and that a specific medical specialty should typically provide 
care to the patients in the DRG. Each case is assigned to a DRG, 
usually within an MDC. The MDCs are generally based on a common organ 
system that is identified by principal diagnosis.
    Thus, the proposed assignment of procedures from DRG 468 was based 
on the principal diagnosis that is currently assigned to the DRGs in 
question. For example, a patient may have a principal diagnosis of 
idiopathic peripheral autonomic neuropathy (diagnosis code 337.0) and a 
secondary diagnosis of congestive heart failure (diagnosis code 428.0) 
that requires the insertion of a pacemaker lead and a single chamber 
device (procedure codes 37.70 and 37.82, respectively). Cases with the 
principal diagnosis code 337.0 are assigned to MDC 1; however, the 
pacemaker procedures have not been assigned to this MDC. Therefore, 
this case would be grouped to DRG 468. We have proposed to place the 
pacemaker procedures, when occurring with a principal diagnosis found 
in MDC 1, to the most appropriate DRG within that category. It would be 
inappropriate to assign the pacemaker procedures, when they occur with 
a principal diagnosis classified to MDC 1, to a DRG in MDC 5 or any 
other unrelated MDC. In the past, these cases have been assigned to DRG 
468 because the procedure performed is unrelated to the principal 
diagnosis.
    This is true, also, for the amputation procedures. The principal 
diagnoses defining diabetes with neurological manifestations are found 
in MDC 1, although the procedures were not. Clinical experts concurred 
with the classification of the neurological manifestations of diabetes 
to MDC 1 as sharing a common body system rather than to MDC 10, which 
relates to the endocrine and metabolic manifestations of the condition.
     MDC 5 (Diseases and Disorders of the Circulatory System).
    Closed endoscopic biopsy of lung (procedure code 33.27) and open 
biopsy of lung (procedure code 33.28), diagnostic tools for vascular 
tumors, are often performed on patients with a principal diagnosis of 
228.00 (Hemangioma of unspecified site) or 228.09 (Hemangioma of other 
sites). Although these principal diagnoses are assigned to MDC 5, the 
diagnostic procedures are not. Thus, if they are included together on 
the same claim, the case will be assigned to DRG 468. Therefore, we 
proposed to assign procedure codes 33.27 and 33.28 to DRG 120 (Other 
Circulatory System OR Procedures) in MDC 5.
    In addition, we identified the following nonextensive OR procedures 
(that is, procedures assigned to DRG 477) as appropriate to move to MDC 
5:

40.11  Biopsy of lymph structure
40.19  Other diagnostic procedures on lymphatic structures
40.21  Excision of deep cervical lymph node
40.23  Excision of axillary lymph node
40.24  Excision of inguinal lymph node
40.29  Simple excision of other lymphatic structure
40.3  Regional lymph node excision

These procedures are commonly performed with a variety of diagnoses 
found in MDC 5 such as disorders of the peripheral vascular system 
(diagnosis codes 747.60 and 747.69) and peripheral angiopathy 
(diagnosis code 443.81), as well as a number of heart conditions 
including malignant neoplasm of the heart (diagnosis code 164.1), and 
coxsackie carditis, coxsackie pericarditis, coxsackie endocarditis, and 
coxsackie myocarditis (diagnosis codes 074.20, 074.21, 074.22, 074.23, 
respectively). We note that these commonly performed diagnostic 
procedures are assigned to virtually every other MDC because they are 
associated with many diagnoses. Therefore, we proposed to move these 
procedures to DRG 120.
    We also note that hemangioma and anomalies of the peripheral 
vascular system may require open rectal biopsy (procedure code 48.25) 
or excision of the rectal lesion (procedure code 48.35) as part of 
their treatment. At the present time, neither of these procedure codes 
classify to MDC 5. Thus, we proposed to move procedure codes 48.25 and 
48.35 to DRG 120.
     MDC 6 (Diseases and Disorders of the Digestive System).
    A total splenectomy (procedure code 41.5) may be performed on 
patients with a principal diagnosis of secondary malignant neoplasm of 
other digestive organs and spleen (diagnosis code 197.8). This 
diagnosis is included in MDC 6, but the procedure is not, resulting in 
the assignment of cases to DRG 468. Thus, we proposed to add procedure 
code 41.5 to DRG 170 and 171 (Other Digestive System OR Procedures) in 
MDC 6.
    Comment: One commenter, while concurring with the proposed 
assignment of procedure codes from DRG 468 to relevant MDCs, did not 
agree with several of our proposed DRG classifications. This objection 
was based on the DRG relative weight differential between the relative 
weight of the proposed DRG and the relative weight of other DRGs to 
which these procedures are already assigned. This commenter believes 
that new DRGs should be created within the MDCs for the procedures we 
proposed to move out of DRG 468 with weights similar to the weights 
they command in other DRG assignments. If we cannot do this, the 
commenter requested that these cases remain in DRG 468.
    Specifically, this commenter agreed with the assignment of 
pacemaker codes, as well as lower limb amputation associated with 
diabetes, to MDC 1 but disagreed with their assignment to DRGs 7 and 8. 
Further, this commenter supported the addition of the lung biopsy codes 
33.27 and 33.28 to MDC 5, but objected to their assignment to DRG 120 
because the weights of DRG 75 (Major Chest Procedures) and DRG 76 and 
77 (Other Respiratory System OR Procedures) in MDC 4 (Diseases and 
Disorders of the Respiratory System) to which procedure 33.27 and 33.28 
are classified, respectively, have a higher relative weight than DRG 
120.
    Nor did this commenter agree with the assignment of procedure code 
41.5 to DRGs 170 and 171 because the weights of these DRGs do not 
reflect the resources used in these cases. Again, the commenter 
believes that a new DRG should be created within MDC 6 for this 
procedure with a relative weight similar to that of DRG 392 
(Splenectomy Age > 17) in MDC 16 (Diseases and Disorders of the Blood, 
Blood Forming Organs and Immunological Disorders), to which these 
procedures are also assigned, or the cases should remain in DRG 468.
    Response: We do not believe it is appropriate to compare the DRG 
relative weights for the proposed DRG assignments to other DRGs in 
which the same procedures may be classified. Each surgical DRG 
classification is determined by a combination of principal diagnosis, 
secondary diagnoses, surgical procedures, age, and sex. To compare 
procedure classifications and relative weights without taking into 
consideration the principal diagnosis and other factors is 
inappropriate and results in misinterpretation and misleading 
comparisons.
    Many of the procedures we have proposed to move from DRG 468 are 
assigned to multiple DRGs, depending on the principal diagnosis. Thus, 
to compare lung biopsies (procedure codes 33.27 and 33.28) to DRG 
assignments in MDC 4 fails to take into account the principal diagnosis 
responsible for the MDC assignment. Procedure code 33.28 is currently 
assigned to 7 DRGs in 4 MDCs, with FY 1995 weights that range from 
0.9529 to 3.0551. (The FY 1995 weights for DRGs 7 and 8 are 2.5005 and 
0.9185, respectively). Similarly, to compare splenectomy procedures 
with a principal diagnosis of secondary malignant neoplasm of other 
digestive organs and spleen (diagnosis code 197.6), for example, to a 
splenectomy performed in conjunction with a principal diagnosis 
assigned to DRG 392 in MDC 16 is specious. To interpolate from a DRG 
assignment with one set of related principal diagnoses to one with 
another set of related principal diagnoses significantly underestimates 
the role of principal diagnosis in determining resource intensity.
    As noted above, one of the basic principles of DRG classification 
is that cases assigned to each DRG should be similar both clinically 
and in resource utilization. As the first step in ensuring clinical 
coherence, we subject all DRG modifications under consideration to 
careful, thorough medical judgment and evaluation. Total charges, 
submitted by hospitals on inpatient claims, serve as a proxy measure of 
resource use. Similar resource use does not mean identical resource 
use, but, rather, that the resources used to treat a range of patients 
within one DRG classification will be relatively consistent and that 
this level of variation is known and predictable. Thus, although the 
procedures we have proposed moving from DRG 468 to more specific DRGs 
may have charges slightly higher or lower than the average for the DRG 
to which they are assigned, this variation is well within the expected 
range and can be accurately predicted.
    In each MDC there is usually a surgical class referred to as 
``other surgical procedures.'' The ``other'' classes are not as 
precisely defined from a clinical perspective and include diagnoses or 
procedures which are infrequently encountered or not well defined 
clinically. The ``other'' surgical category contains surgical 
procedures which, while infrequent, could still reasonably be expected 
to be performed for a patient in the particular MDC. We note that the 
procedures we proposed to move from DRG 468 to specific MDCs are all 
assigned to the ``other'' surgical class DRG or DRGs. We believe it is 
appropriate to assign cases to the DRG that contains clinically similar 
cases within the most specific MDC possible. DRG 468 exists for those 
patients who receive surgical procedures that are completely unrelated 
to the MDC to which the patient was assigned. For the procedures 
identified to be assigned to specific MDCs, the principal diagnosis was 
appropriate for the proposed MDC assignment, the cases occurred in 
sufficient volume and were clinically similar enough to those existing 
in the proposed DRG assignment to justify our decision to move them. 
The ``other'' category exists within each MDC for this express purpose: 
to classify those cases that are sufficiently related to be assigned to 
the MDC, but are not clearly defined or occur in low volume. We believe 
the procedures we have recommended for MDC assignment meet these 
criteria.
    We do not believe it would be prudent policy to create new DRGs 
within the relevant MDCs to cover the procedures being reassigned from 
DRG 468. This would represent a departure from the process of defining 
the surgical classes within MDCs by organizing a DRG based on 
procedures more appropriately categorized in the ``other'' surgical 
class. DRG classification requires physician judgment, statistical 
analysis, and historical data. Until we have sufficient data to 
determine the performance of these procedures within the relevant DRGs, 
we can not justify creating additional DRGs. We will continue to review 
and evaluate these procedures to determine the appropriateness of DRG 
assignment. Until we have data documenting the need for further 
modification, we are adopting the DRG assignment of the procedures as 
proposed with revisions as discussed.
    b. Reassignment of Procedures Among DRGs 468, 476, and 477. For the 
proposed rule, we also reviewed the list of procedures that produce 
assignments to each of DRG 468, 476, and 477 to ascertain if any of 
those procedures should be moved to one of the other DRGs based on 
average charges and length of stay. Generally, we move only those 
procedures for which we have an adequate number of discharges to 
analyze the data. Based on our review this year, we proposed to move a 
limited number of procedures.
    In reviewing the list of OR procedures that produce DRG 468 
assignments, we analyzed the average charge and length of stay data for 
cases assigned to that DRG to identify those procedures that are more 
similar to the discharges that currently group to either DRG 476 or 
477. We identified three procedures that are significantly less 
resource intensive than the other procedures assigned to DRG 468. 
Therefore, we proposed to move the following procedures to the list of 
procedures that result in assignment to DRG 477:

24.5  Alveoloplasty
53.61  Incisional hernia repair with prosthesis
53.69  Repair of other hernia of anterior abdominal wall with 
prosthesis

    We conducted a similar analysis of the procedures that assign cases 
to DRG 477 to determine if any of those procedures might more 
appropriately be classified to DRG 468. Again, we analyzed charge and 
length of stay data to identify procedures that were more similar to 
discharges assigned to DRG 468 than to those classified in DRG 477. We 
did not identify any procedures in DRG 477 that should be assigned to 
DRG 468.
    We received no comments on the proposed reassignments to DRG 477, 
therefore, they are adopted as final and will be effective with 
discharges beginning on or after October 1, 1994.
7. Changes to the ICD-9-CM Coding System
    As discussed above in section II.B.1 of this preamble, the ICD-9-CM 
is a coding system that is used for the reporting of diagnoses and 
procedures performed on a patient. In September 1985, the ICD-9-CM 
Coordination and Maintenance Committee was formed. This is a Federal 
interdepartmental committee charged with the mission of maintaining and 
updating the ICD-9-CM. That mission includes approving coding changes, 
and developing errata, addenda, and other modifications to the ICD-9-CM 
to reflect newly developed procedures and technologies and newly 
identified diseases. The Committee is also responsible for promoting 
the use of Federal and non-Federal educational programs and other 
communication techniques with a view toward standardizing coding 
applications and upgrading the quality of the classification system.
    The Committee is co-chaired by the National Center for Health 
Statistics (NCHS) and HCFA. The NCHS has lead responsibility for the 
ICD-9-CM diagnosis codes included in Volume 1--Diseases: Tabular List 
and Volume 2--Diseases: Alphabetic Index, while HCFA has lead 
responsibility for the ICD-9-CM procedure codes included in Volume 3--
Procedures: Tabular List and Alphabetic Index.
    The Committee encourages participation in the above process by 
health-related organizations. In this regard, the Committee holds 
public meetings for discussion of educational issues and proposed 
coding changes. These meetings provide an opportunity for 
representatives of recognized organizations in the coding fields, such 
as the American Health Information Management Association (AHIMA) 
(formerly American Medical Record Association (AMRA)), the American 
Hospital Association (AHA), and various physician specialty groups as 
well as physicians, medical record administrators, health information 
management professionals, and other members of the public to contribute 
ideas on coding matters. After considering the opinions expressed at 
the public meetings and in writing, the Committee formulates 
recommendations, which then must be approved by the agencies.
    The Committee presented proposals for coding changes at public 
meetings held on May 6, August 5, and December 2, 1993, and finalized 
the coding changes after consideration of comments received at the 
meetings and in writing within 30 days following the December 1993 
meeting. The initial meeting for consideration of coding issues for 
implementation in FY 1996 was held on May 5, 1994. Copies of the 
minutes of these meetings may be obtained by writing to one of the co-
chairpersons representing NCHS and HCFA. We encourage commenters to 
address suggestions on coding issues involving diagnosis codes to: Sue 
Meads, Co-Chairperson; ICD-9-CM Coordination and Maintenance Committee; 
NCHS; Rm. 9-58; 6525 Belcrest Road; Hyattsville, Maryland 20782.
    Questions and comments concerning the procedure codes should be 
addressed to: Patricia E. Brooks, Co-Chairperson; ICD-9-CM Coordination 
and Maintenance Committee; HCFA, Office of Coverage and Eligibility 
Policy; Rm. 401 East High Rise Building; 6325 Security Boulevard; 
Baltimore, Maryland 21207.
    The ICD-9-CM code changes that have been approved will become 
effective October 1, 1994. The new ICD-9-CM codes are listed, along 
with their DRG classifications, in Tables 6a and 6b (New Diagnosis 
Codes and New Procedure Codes, respectively) in section IV of the 
addendum to this final rule. As we stated above, the code numbers and 
their titles were presented for public comment in the ICD-9-CM 
Coordination and Maintenance Committee meetings. Both oral and written 
comments were considered before the codes were approved. Therefore, 
comments were solicited only on the proposed DRG classification.
    Further, the Committee has approved the expansion of certain ICD-9-
CM codes to require an additional digit for valid code assignment. 
Diagnosis codes that have been replaced by expanded codes, other codes, 
or have been deleted are in Table 6c (Invalid Diagnosis Codes). The 
invalid diagnosis codes will not be recognized by the GROUPER beginning 
with discharges occurring on or after October 1, 1994. The 
corresponding new or expanded codes are included in Tables 6a and 6b. 
The committee did not delete any procedure codes effective for October 
1, 1994. Revisions to diagnosis and procedure code titles are in Tables 
6d (Revised Diagnosis Code Titles) and 6e (Revised Procedure Code 
Titles), which also include the proposed DRG assignments for these 
revised codes.
    The comments we received regarding the ICD-9-CM coding changes fall 
into three general categories: Spelling or other technical errors in 
our Tables 6a through 6e; disagreement with the assignment of a new 
code or revised code; and comments about coding policy.
    Based on the comments and our own review, we have corrected 
misspellings, added omitted codes, and corrected phrasing in the code 
descriptions in Tables 6a, 6c, and 6d. The codes for which changes have 
been made are as follows: Table 6a: 709.01, 760.76, 996.04, V12.00, and 
V57.22. Table 6c: 305.10, 305.11, 305.12, and 305.13 were added. Table 
6d: 440.24.
    The remaining comments are addressed below.
    Comment: We received one inquiry regarding our assignment of 
procedure code 998.81 (Emphysema resulting from a procedure) to DRGs 
452 and 453 (Complications of Treatment). The commenter suggested that 
the code be assigned to DRGs 101 and 102 (Other Respiratory System 
Diagnoses) in MDC 4 (Diseases and Disorders of the Respiratory System).
    Response: Procedure code 998.81 is one of three new codes that are 
5th-digit expansions of the existing 998.8 category of codes for 
specific complications of procedures, not elsewhere classified. The new 
code 998.81 is to be used for a systemic condition, subcutaneous 
emphysema, that results from a procedure rather than one of the more 
specific emphysema conditions assigned to a DRG in MDC 4. Therefore, we 
are not changing its designation in this final rule.
    We note that the current 4-digit code 998.8 is assigned to DRGs 452 
and 453. Our usual practice is to continue to assign 5th-digit 
expansions of a code to the same DRGs to which the 4-digit code was 
assigned unless there is a compelling or practical reason to make a 
different assignment. As noted by the commenter, we did assign code 
998.82 (Cataract fragment in eye following cataract surgery) to DRGs 
46, 47, and 48 (Other Disorders of the Eye) in MDC 2 because of the 
specificity of the coded condition and the similarity of the new code 
to the other complication codes currently assigned to DRGs 46 through 
48. However, this is a very isolated case of change in DRG assignment.
    Comment: We received one comment regarding the DRG assignment of 
code 440.24 (Atherosclerosis of native arteries of the extremities with 
gangrene). The commenter requested that the code be assigned to DRG 387 
(Prematurity with Major Problems) in addition to DRGs 130 and 131 
(Peripheral Vascular Disorders) as is indicated in Table 6d.
    Response: The DRG assignment of code 440.24, which has a revised 
title for FY 1995, has not been changed. It continues to be considered 
a ``major problem'' for purposes of assignment to DRG 387 and we have 
corrected this oversight in Table 6d.
    Comment: A commenter questioned why we assigned new diagnosis code 
677 (Late effect of complication of pregnancy, childbirth, the 
puerperium) to DRG 469 (Principal Diagnosis Invalid as Discharging 
Diagnosis) rather than DRGs 373 (Vaginal Delivery without Complicating 
Diagnoses), 376 (Postpartum and Post Abortion Diagnoses without OR 
Procedure), and 384 (Other Antepartum Diagnoses without Medical 
Complications).
    Response: This code was created by the National Center for Health 
Statistics, the group responsible for revisions to the ICD-9-CM 
diagnosis codes, for use as an epidemiologic tool to trace the 
physical, long-term effects of childbearing. It should not be used as a 
principal diagnosis. Rather, the specific complication that has 
occasioned the inpatient stay should be coded as the principal 
diagnosis. Code 677 should be included as a secondary diagnosis. 
Therefore, if 677 is coded as principal, the case will group to DRG 
469.
    Comment: We received two comments requesting that we reconsider our 
non-OR designation for new procedure code 41.04 (Autologous 
hematopoietic stem cell transplant). The commenters both believe that 
this should be considered an OR procedure based on the resource use 
associated with it. In addition, one commenter has requested that the 
code be assigned to DRG 481 (Bone Marrow Transplant) along with the 
other codes in category 41.0 (Bone marrow transplant).
    Response: Currently, these stem cell transplant procedures are 
included in procedure code 99.73 (Therapeutic erythrocytapheresis), a 
non-OR procedure. As noted above, our practice is to assign a new code 
to the same category as its predecessor code. One compelling reason for 
this practice is our inability to move the cases associated with a new 
code to a new DRG assignment as a part of DRG reclassification and 
recalibration. Because we cannot separately identify the stem cell 
transplant cases from the other cases coded with 99.73 in order to 
reclassify them and their charges to a new DRG, we are unable to 
predict the new weights of both the DRGs in which this code currently 
is classified and the new DRG to which it would be assigned. Therefore, 
we are prevented from redesignating code 41.04 as an OR procedure.
    Regarding the request that this code be reassigned to DRG 481, we 
note that the procedure represented by this code is not a bone marrow 
transplant procedure. While it may consume hospital resources similar 
to those transplant procedures, we will be unable to verify that 
assumption until we can evaluate the newly coded stem cell transplant 
cases in the FY 1995 MedPAR file. That file will be available in 
calendar year 1996 and we will analyze the cases with procedure code 
41.04 as a part of our DRG agenda for FY 1997.
    Comment: One commenter requested that we publish revised diagnosis 
code category headings when a formerly valid diagnosis code is made 
invalid due to a revision of the codes in that group to require a 
fourth or fifth digit.
    Response: We publish the ICD-9-CM coding system changes in the 
proposed and final rules in order to display our CC and DRG assignments 
of new and revised codes. We also publish an informational list of 
invalid codes that will no longer be recognized by the Medicare 
GROUPER. The proposed and final prospective payment rules are not a 
replacement for ICD-9-CM coding manuals. We publish only that coding 
information that is necessary for public understanding and 
implementation of the DRG classification system. Therefore, we do not 
believe that we should publish the information requested by the 
commenter.
    Comment: We received one comment expressing disappointment in the 
very minor changes made to Volume 3 of the ICD-9-CM (the procedure 
codes) for FY 1995. The commenter recommends that we do much more to 
update and revise Volume 3.
    Response: There are severe physical space constraints that limit 
the number of changes that can be made to the procedure codes in Volume 
3. HCFA is aware that this Volume does not contain the most current 
codes to match changing technology, but, due to its current 
configuration, Volume 3 is limited to 4-digit codes. We have begun the 
process to revise this Volume, but that work will require several years 
for completion and implementation.
    We again encourage commenters to address questions, comments, and 
suggestions on issues involving diagnosis codes to Sue Meads and those 
concerning procedure codes to Patricia E. Brooks at the addresses set 
forth above.
8. DRG Refinements
    For several years, we have been analyzing major refinements to the 
DRG classification system to compensate hospitals more equitably for 
treating severely ill Medicare patients. These refinements, generally 
referred to as severity of illness adjustments, would create DRGs 
specifically for hospital discharges involving very ill patients who 
consume far more resources than do other patients classified to the 
same DRGs in the current system. This approach has been taken by 
various other groups in refining the DRG system, most notably the 
research done for Yale, the changes incorporated by the State of New 
York into its all patient (AP) DRG system, and the all-patient refined 
(APR) DRGs, which are a joint effort of 3M/HIS and the National 
Association of Children's Hospitals and Related Institutions.
    In the proposed rule, we announced the availability of a paper we 
have prepared that describes our proposed severity DRG classification 
system as well as the analysis upon which our proposal was formulated. 
Comments are due to HCFA by September 30, 1994.
    Our plan is to incorporate comments and suggestions we receive and 
to consider proposing the complete revised DRG system as part of the FY 
1996 prospective payment system proposed rule, which will be published 
in the spring of 1995. However, as the final rule published on 
September 1, 1992 (57 FR 39761) indicates, we would not propose to make 
significant changes to the DRG classification system unless we are able 
either to improve our ability to predict coding changes by validating 
in advance the impact that potential DRG changes may have on coding 
behavior, or to make methodological changes to prevent building the 
inflationary effects of the coding changes into future program 
payments.
    Besides the mandate of section 1886(d)(4)(C)(iii) of the Act, which 
provides that aggregate payments may not be affected by DRG 
reclassification and recalibration changes, we do not believe it is 
prudent policy to make changes for which we cannot predict the effect 
on the case-mix index and, thus, payments. Our goal is to refine our 
methodology so that we can fulfill, in the most appropriate manner, 
both the statutory requirement to make appropriate DRG classification 
changes and to recalibrate DRG relative weights (as mandated by section 
1886(d)(4)(C) of the Act) as well as to make DRG changes in a budget 
neutral manner.
    One approach to this problem would be to maintain the average case 
weight at 1.0 after recalibration, thereby eliminating the process of 
normalization. In other words, after recalibration, we would not scale 
the new relative weights upward to carry forward the cumulative effects 
of past case-mix increases. We would, instead, make an adjustment or 
include in the annual update factor a specific allowance for any real 
case-mix change that occurred during the previous year. This is a 
relatively simple and straightforward system for preventing the effects 
of year-to-year increase in the case-mix index from accumulating in the 
DRG weights. It could be done in a budget neutral fashion.
    In addition to the severity changes, we also intend to improve the 
classification and relative weights of the DRGs that apply to newborns, 
children, and maternity patients. The Medicare population does not 
include many of these individuals. The original DRG classification 
system was developed from analysis of claims data representative of the 
total inpatient population. When we calculated the original Medicare 
weights for the DRGs to which newborn, children and maternity patients 
are classified, we used non-MedPAR discharge records from Maryland and 
Michigan hospitals because there were either no MedPAR cases or too few 
cases assigned to these DRGs to provide a reasonably precise estimate 
of the average cost of care. (See the September 1, 1983 prospective 
payment final rule with comment period (48 FR 39768).) Since that time, 
because of the lack of MedPAR data, these low-volume DRGs have not been 
analyzed and refined, and the relative weights assigned to them may no 
longer be entirely reflective of the resources needed to treat the 
patients. We again intend to rely on data bases outside the MedPAR file 
to supplement our data.
    We received some comments on the proposed revisions to the DRGs to 
incorporate a measure of severity. We do not intend to answer any of 
the specific comments at this time, but rather answer all the comments 
in the document that sets forth our final proposal. There were, 
however, two general types of comments that we will respond to in this 
document.
    Comment: Several commenters requested that HCFA make more 
information available to the public so that they can more easily assess 
some of the changes in case-mix value that result from implementation 
of the revised DRGs. One commenter noted that it appears that 10 
percent of the Medicare inpatient payments are shifted from rural to 
urban hospitals.
    Response: The data we have made available to the public on the 
severity DRG proposal are similar to the data we make available during 
the annual rulemaking process addressing changes to the prospective 
payment system. These include a complete MedPAR file with the current 
and revised DRG designations, a revised case-mix index file, a revised 
DRG Table 5, and the AOR/BOR File. We believe that these data, coupled 
with the description of the changes in the paper, the list of revised 
CC designations of all diagnosis codes, and the impact analysis are 
sufficient to allow analysis of our proposal. Since the available 
MedPAR file lists every case and its revised DRG assignment and the new 
weights are listed in Table 5, we believe that those who are interested 
can evaluate why the case-mix index value for specific hospitals or 
groups of hospitals has changed.
    Concerning the commenter's contention that there is a shift of 10 
percent of Medicare payments from rural to urban hospitals, we note 
that the impact analysis of the refined DRGs shows that rural hospitals 
overall lose 0.6 percent of their payments, other urban hospitals lose 
0.3 percent, and large urban hospitals gain 0.2 percent.
    Comment: We received several comments concerning the proposal to 
recalibrate the DRG weights to 1.0. Some commenters believe that this 
will eliminate all real case-mix index increase as well as coding 
``creep.'' Other commenters stated that HCFA should not pursue this 
policy as there currently is no way to measure satisfactorily real 
case-mix index change.
    Response: We did not include a proposal to recalibrate the DRG 
weights to 1.0 in the proposed rule. We presented it as one solution to 
our current problem of being unable to make DRG reclassification 
changes in a budget neutral fashion. We agree with commenters that it 
is important to develop a mechanism to accurately distinguish real 
case-mix increase from that attributable merely to changes in coding. 
As noted above, we would make an additional adjustment to include real 
case-mix change in Medicare payments. We intend to continue to analyze 
possible solutions to this problem.
9. Other Issues
    a. Lung Transplants.
    Comment: We received comments urging that we create a new DRG 
solely for lung transplants. The commenters state that, even though 
HCFA has not made a national coverage determination for these 
procedures, Part A fiscal intermediaries are approving some lung 
transplant cases for coverage. Because there is no specific lung 
transplant DRG, these cases are classified to DRG 75 (Major Chest 
Procedures), which the commenters argue results in a DRG payment that 
is woefully inadequate to cover the costs of the procedure. In 
addition, one of the commenters understands that HCFA is in the process 
of approving a national coverage determination for lung transplants 
that will be effective in the very near future. Therefore, the 
commenter believes that HCFA should not delay in having a DRG in place 
for the procedure. This commenter also recommends that heart/lung 
transplants be assigned to the new DRG.
    Response: Because we are considering making a Medicare national 
coverage determination on lung transplants in the near future, we are 
establishing a new DRG for lung transplants as a part of this final 
rule. As noted by the commenters, these cases currently are assigned to 
DRG 75 in MDC 4 (Diseases and Disorders of the Respiratory System).
    Cases will be assigned to the new DRG 495, Lung Transplant, based 
on the presence of the procedure code for lung transplants (33.5) and 
will not first be assigned to an MDC based on the principal diagnosis. 
This is the same procedure we follow for liver and bone marrow 
transplants.
    As is our current policy for organ acquisition costs for kidney, 
heart, and liver transplant cases paid under Medicare, lung acquisition 
costs will be paid on a reasonable cost basis and are not included in 
the prospective payment amount. We are revising Secs. 412.2(d)(4) and 
412.113(d), which describe payment for organ acquisition costs as a 
reasonable cost payment, to include lung acquisition costs.
    The relative weight assigned to DRG 495 is based on the lung 
transplant cases in the FY 1993 MedPAR file. When the weight of DRG 495 
was initially calculated, the weight was less than the weight of DRG 
483, Tracheostomy Except for Face, Mouth and Neck Diagnoses. Since 
several lung transplant cases also received tracheostomies, we removed 
these cases from DRG 495 and classified them to DRG 483 to receive the 
higher payment assigned to that DRG. We note that each of these cases 
had an average standardized charge that was much higher than the 
average for all lung transplants. Thus, the final DRG 495 weight of 
12.8346 is based on 105 cases of lung transplants in which no 
tracheostomy was performed in the FY 1993 MedPAR file. This weight 
places DRG 495 after DRGs 480, 483, and 481 (Bone Marrow Transplant) in 
the pre-MDC surgical hierarchy. For a detailed discussion of surgical 
hierarchy, see section II.B. 4 of this preamble.
    Regarding the commenter's request that we include heart/lung 
transplants with lung transplants in the new DRG, we note that heart/
lung transplants remain covered on a case-by-case basis as determined 
by the fiscal intermediaries. Therefore, we do not believe we should 
move them from their current classification in DRG 103, Heart 
Transplant. We note that, for FY 1995, the relative weight for DRG 103 
(13.5495) is actually higher than the weight for DRG 495.
    b. Cochlear Implants (DRG 49).
    Comment: We received two comments regarding cochlear implants. Both 
commenters expressed concern that the cost incurred by cases receiving 
the implant device far exceeds the Medicare payment these cases receive 
under DRG 49 (Major Head and Neck Procedures) to which they are 
assigned. According to these commenters, the cost of the device itself 
represents more than the total DRG payment and, thus, is not subject to 
traditional hospital cost control techniques. One commenter noted that 
the economic facts regarding the costs of this implant procedure 
require a more expeditious and effective adjustment than has been 
granted in the past. This commenter suggests that the payment weight 
assigned to cochlear implants should be appropriately adjusted, either 
by assignment to a different DRG or by creation of a new DRG 
specifically for cochlear implants. The other commenter requests that 
cochlear implant procedures be assigned to DRG 1 (Craniotomy Age > 17 
Except for Trauma) in MDC 1 (Diseases and Disorders of the Nervous 
System).
    Both commenters noted that, although we agreed in the September 1, 
1993 final rule (58 FR 46273) to continue monitoring cochlear implant 
cases, we did not discuss them in the proposed rule. One of the 
commenters requested that we review the FY 1994 data for DRG 49, as 
this would be the first data to reflect the change in DRG 49 weight as 
a result of moving a lower cost procedure to another DRG.
    In addition to the issue of inadequate payment, one commenter 
observes that the number of Medicare cochlear implant cases continue to 
decline. The commenter attributes this decrease to hospitals 
determining that the financial loss suffered in providing the cochlear 
implant to the Medicare population precludes a viable ongoing cochlear 
implant program. This commenter is concerned that cochlear implants may 
not exist for the Medicare population in the future.
    The commenter also observes that the number of extraordinarily low 
charges submitted by hospitals for the cochlear implant procedure has 
decreased substantially and may be an indication that our instructions 
to intermediaries on proper coding for this implant is having an 
effect.
    Response: Cochlear implants were first covered by Medicare in 1986 
and were assigned to DRG 49 (Major Head & Neck Procedures), the highest 
weighted surgical DRG in major diagnostic category (MDC) 3 (Diseases 
and Disorders of the Ear, Nose, Mouth and Throat). Since that time, the 
cochlear industry has contended that the weight of DRG 49 is too low 
and does not adequately reflect the resources necessary for the 
cochlear implant procedure. In response to these concerns, we have 
analyzed Medicare data every year since 1986.
    Effective October 1, 1993, in an effort to improve the homogeneity 
of resource use in cases within DRG 49, we moved the lowest charge 
procedure, partial glossectomy, from DRG 49 to DRGs 168 and 169 (Mouth 
Procedures). This resulted in a slight increase in the average charge 
for DRG 49. We have evaluated the remaining procedures in DRG 49 to 
determine if further reclassification is appropriate. However, there 
are no other low charge procedures remaining in DRG 49 that occur in 
sufficient volume to justify further DRG shifts. We note that FY 1994 
does not end until September 30, 1994, so we will not be able to 
evaluate thoroughly the impact of the modification to DRG 49 until 
after that date.
    We note also that although we do not always publish the results of 
our analysis in the Federal Register, this does not mean we have failed 
to honor our commitment to continue monitoring the cochlear implant 
procedures. On the contrary, we have reviewed and analyzed these data 
annually. We did not include our results in the May 1994 proposed rule 
because they did not vary from previous findings and we had nothing new 
to add to our prior discussions. However, we will present them now.
    Using FY 1993 Medicare claims data, we identified a total of 81 
cochlear implant cases. These cases represent 3.5 percent of all cases 
in DRG 49, and incurred an average charge of $22,386 compared to an 
average charge of $15,679 for all cases in DRG 49. While there is a 
higher charge for the 81 cochlear cases than for the other cases in DRG 
49, we note that the cases are distributed across 54 hospitals, with no 
more than 7 cases at any one hospital. The majority of hospitals (70 
percent) treated only one case (38 of 54 hospitals).
    We have repeatedly addressed the recommendation that we assign 
cochlear implants to DRG 1, most recently in the September 1993 final 
rule (58 FR 46274). Our objection to this suggestion is that the 
diagnosis associated with cochlear cases (diagnosis code 389 (Hearing 
loss)) is not clinically coherent with the diagnosis codes assigned to 
MDC 1. A basic premise of DRG classification is the assignment of 
clinically similar discharges within categories based on a common body 
system or organ system. To reassign cochlear implant cases to MDC 1, we 
would have to move the principal diagnosis code 389 from MDC 3, which 
would move all cases with this diagnosis to a clinically inappropriate 
MDC.
    We acknowledge that the Medicare payment for cochlear implant 
patients has been an issue for several years. However, we find no 
justification for creating a special DRG for cochlear implants. We have 
consistently classified clinically similar patients in DRGs who use 
approximately the same amount of hospital resources. In addition, we 
prefer to maintain DRGs with enough cases to ensure a normal 
distribution and relative stability over time. We continue to believe 
that the low volume of these cases does not justify the establishment 
of a new DRG specific to cochlear implants. Nor do we generally create 
DRGs that are specific to a single technology, especially those 
available through a single source manufacturer.
    Although some new technologies may engender a certain amount of 
fixed costs, and thus, do not lend themselves readily to cost control 
techniques, there are other occasions within the hospital's performance 
that are responsive to cost containment. Thus, the incentive is for the 
hospital to treat a mix of patients and to manage its operations in 
such a way to offset losses on cases where payment is less than cost 
with gains on cases where the payment is in excess of cost.
    In response to the commenter's concern that cochlear implants may 
not be available to Medicare beneficiaries in the future, we note that 
a hospital may not refuse to provide a covered service to a Medicare 
beneficiary if it provides that service to other patients. 
Specifically, the Medicare regulations at 42 CFR 489.53(a)(2) provide 
that HCFA may terminate a hospital's Medicare provider agreement if it 
finds that the hospital places restrictions on the persons it accepts 
for treatment and fails to apply them to Medicare beneficiaries the 
same as to all other persons seeking care.
    c. Epilepsy (DRGs 24, 25, and 26).
    Comment: We received several comments addressing the classification 
in DRGs 24, 25, and 26 (Seizure and Headache) of patients with 
intractable epilepsy, particularly those admitted for neurodiagnostic 
monitoring. The commenters believe that it is critical that a revision 
be made to these DRGs for the intractable epilepsy patients to account 
for the greater resource use and length of stay compared to all other 
patients admitted under the same DRGs. The commenters state that the 
financial risk is greatest to the small number of specialized epilepsy 
centers that treat the majority of these complex patients.
    The commenters refer to an analysis conducted by HCFA that reviewed 
the FY 1993 average charges for all cases with a diagnosis of 
intractable epilepsy where video/radio-telemetered monitoring 
(procedure code 89.19) was performed. The commenters believe that the 
results of the HCFA study support the need for a change in the DRG 
classification system for certain cases, to be implemented in FY 1995, 
using the following criteria:
     A diagnosis of intractable epilepsy (diagnosis codes 
345.0-345.9 with a 5th digit of 1).
     The performance of video/radio-telemetered monitoring 
(procedure code 89.19).
     Patient age under 60.
    Finally, one commenter believes that we need to address the 
appropriate diagnosis code to use for patients who receive 
neurodiagnostic monitoring whose seizures are not epileptic. These 
patients are currently coded under 780.3 (Convulsions). The commenter 
would prefer to include these patients under the unspecified 
intractable epilepsy code of 345.91 so that they can be included in any 
new DRG we create.
    Response: The epilepsy treatment community has for some time 
expressed concern that the resources used to treat the intractable 
epilepsy patients far exceeded those needed for other patients in the 
same DRGs, and that Medicare payment is inadequate to meet these costs. 
We have previously addressed the issue of Medicare payment for 
intractable epilepsy cases, most recently in the September 1, 1993 
final rule (58 FR 46287). As a result of our previous analyses, we have 
concluded that although intractable epilepsy patients incur higher 
average charges than other patients in the same DRGs, there is not a 
sufficient differential nor a sufficient volume to warrant a DRG 
change.
    In order to respond to the comments, we updated our most recent 
study and evaluated the June 1994 update of the FY 1993 MedPAR file. We 
identified 2,284 intractable epilepsy cases with an average charge of 
$8,820 compared to an average charge of $7,602 for all patients in the 
same DRGs. Nonintractable epilepsy cases incurred an average charge of 
$7,423, for 13,412 cases. The incidence of inpatient admissions for all 
cases of epilepsy has decreased by nearly 30 percent, with intractable 
inpatient admissions down 19 percent from the FY 1992 data (2,817 to 
2,284 cases). The following table summarizes our most recent epilepsy 
analysis findings, comparing the average charges between epilepsy and 
other cases assigned to the same DRG (the number of cases is included 
in parentheses): 

------------------------------------------------------------------------
                       Intractable  Nonintractable     All              
         DRG            epilepsy       epilepsy     epilepsy   All cases
------------------------------------------------------------------------
24...................     $10,605                                       
                          (1,152)         $8,525                        
                                         (9,595)       $8,748           
                                                     (10,747)     $8,630
                                                                (57,041)
25...................      $7,003                                       
                          (1,132)         $4,654                        
                                         (3,811)       $5,192           
                                                      (4,943)     $4,738
                                                                (20,456)
26...................           0         $4,003                        
                                             (6)       $4,003           
                                                          (6)     $5,912
                                                                    (43)
All Cases............      $8,820                                       
                          (2,284)         $7,423                        
                                        (13,412)       $7,626           
                                                     (15,696)     $7,602
                                                                (77,540)
------------------------------------------------------------------------

    Focusing our analysis on intractable epilepsy patients with and 
without video-telemetered monitoring (procedure code 89.19) confirms 
our earlier findings; that is, intractable epilepsy patients who 
receive the neurodiagnostic monitoring do in fact incur charges greater 
than those of other intractable epilepsy cases and of all other 
patients in the same DRGs. Although, in the past, there has been a 
problem with the underreporting of procedure code 89.19 and an 
inability to identify the extent of use of this procedure, we note that 
there has been a substantial increase in reporting in the FY 1993 data. 
The number of cases now appears to more accurately match the volume 
predicted in the past by the epilepsy treatment centers. The results of 
this analysis are summarized in the following table: 

------------------------------------------------------------------------
                                             Intractable  Nonintractable
                    DRG                       epilepsy       epilepsy   
------------------------------------------------------------------------
24 with 89.19..............................      $13,493                
                                                   (104)        $9,711  
                                                                  (28)  
24 w/o 89.19...............................      $10,318                
                                                 (1,048)        $8,521  
                                                               (9,567)  
25 with 89.19..............................      $10,178                
                                                   (359)        $9,544  
                                                                  (77)  
25 w/o 89.19...............................       $5,529                
                                                   (773)        $4,553  
                                                               (3,734)  
26 with 89.19..............................            0             0  
26 w/o 89.19...............................            0        $4,003  
                                                                   (6)  
------------------------------------------------------------------------

    The commenters recommend that, in revising the DRGs, we target the 
under age 60 patients who are hospitalized with intractable epilepsy 
and receive a neurodiagnostic work-up with video-telemetered 
monitoring. We used age 65 rather than age 60 in our analysis because 
that is a natural age break in the Medicare patient population. That 
is, patients under age 65 who receive Medicare benefits qualify on the 
basis of disability rather than on the basis of age. We do not believe 
the difference in age break is significant.
    Our analysis identified 335 cases of intractable epilepsy with 
video-telemetered monitoring in DRG 25 that were under age 65. (We 
concentrated on DRG 25 as suggested by the commenters because patients 
admitted for neurodiagnostic monitoring must be relatively healthy and, 
thus, do not usually have any complicating conditions.) The average 
charge for all intractable epilepsy patients in DRG 25 with procedure 
89.19 was $10,178. When age less than 65 was taken into account, the 
average charge was $10,368, compared to an average of $7,527 for the 24 
patients age 65 and over. The following table summarizes the DRG 25 
average charges for intractable epilepsy patients under age 65 compared 
to other patients:

------------------------------------------------------------------------
               DRG 25                  Age <65     Age >65     All Ages 
------------------------------------------------------------------------
All Cases...........................      $4,740                        
                                        ($7,422)      $4,737            
                                                    (13,034)      $4,738
                                                                (20,456)
Intractable Epilepsy Cases..........      $7,323                        
                                           (952)      $5,313            
                                                       (180)      $7,003
                                                                 (1,132)
Intractable Epilepsy Cases with                                         
 89.19..............................     $10,368                        
                                           (335)      $7,527            
                                                        (24)     $10,178
                                                                   (359)
Intractable Epilepsy Cases w/o 89.19      $5,670                        
                                           (617)      $4,973            
                                                       (156)      $5,529
                                                                   (773)
Nonintractable Epilepsy Cases with                                      
 89.19..............................     $10,078                        
                                            (58)      $7,913            
                                                        (19)      $9,544
                                                                    (77)
Nonintractable Epilepsy Cases w/o                                       
 89.19..............................      $4,180                        
                                         (1,520)      $4,808            
                                                     (2,214)      $4,553
                                                                (3,734) 
------------------------------------------------------------------------

    While we concur with the commenters that the average charges for 
intractable epilepsy receiving video-telemetered monitoring are indeed 
greater than those who do not, our findings indicate that this is more 
a function of the procedure than age of the patient. The highest 
charges of any group are those intractable epilepsy cases with 
procedure 89.19 in DRG 24 ($13,493 for 104 cases). The average charge 
for all intractable epilepsy cases with procedure code 89.19 is 
$10,922, while those under 65 in DRG 24 have average charges of $13,452 
and those under 65 in DRG 25 average $10,368. Thus, based on the FY 
1993 data, the majority of the intractable epilepsy cases under age 65 
who receive video-telemetered monitoring classify to DRG 25 (79 
percent; 335 cases of 423). However, the highest average charges for 
this age group and procedure are found in DRG 24. In addition, the 
nonintractable epilepsy patients under age 65 who receive procedure 
code 89.19 in DRG 25 averaged charges of $10,078, only slightly lower 
than the average charge for the intractable epilepsy cases in the same 
DRG and age category.
    At the request of one commenter, we reviewed the number of cases 
with diagnosis code 780.3 (Convulsions) and found this diagnosis 
accounted for 61 percent of the total cases in DRGs 24 through 26 
(47,340 of 77,540 cases). Intractable epilepsy was reported as a 
secondary diagnosis in only 10 of these cases, with an average charge 
of $3,502; nonintractable epilepsy was a secondary diagnosis in 81 
instances, with an average charge of $6,351. We note that, in response 
to the commenter's suggestion that these cases would be more 
appropriately coded to diagnosis 345.91, the coding notes for 345.91 
specifically excludes conditions coded to 780.3. We agree with the 
commenter this change in coding be pursued through the ICD-9-CM 
Coordination and Maintenance Committee.
    As a result of our analysis, we note that, as a group, the 
intractable epilepsy cases are not the most resource-intensive set of 
cases assigned to DRGs 24 through 26. The highest volume of epilepsy 
cases are coded 345.3 (Epilepsy, Grand Mal status), with 5,708 cases 
reported in the FY 1993 MedPAR and an average charge of $12,324. Of the 
epilepsy diagnoses, the average charge for grand mal epilepsy is 
exceeded only by intractable epilepsy partialis continua (diagnosis 
code 345.71) with an average charge of $13,346 but only 47 cases.
    In response to the commenter's contention that epilepsy centers are 
at financial risk, we also evaluated the distribution of epilepsy cases 
across hospitals. We found 830 hospitals admitted patients with 
intractable epilepsy; 3,141 hospitals treated patients with 
nonintractable epilepsy. Of those hospitals treating intractable 
epilepsy cases, only 5 percent of these hospitals (44) treated 10 or 
more cases, while 2.3 percent treated 20 or more cases. The vast 
majority (86 percent) treated 3 or fewer cases (711 of 830 hospitals). 
As in our prior analyses, we found that among the high volume 
hospitals, charges for these cases were normally distributed, with 
approximately 50 percent above the average charge and 50 percent below 
the average.
    Of the 30 recognized epilepsy treatment centers, only 23 reported 
any intractable epilepsy discharges in FY 1993. The remaining epilepsy 
centers are either children's hospitals and are excluded from the 
prospective payment system or did not treat intractable epilepsy 
patients in FY 1993. Approximately 70 percent (16 of 23 centers) 
treated 10 or more cases; less than 2 percent treated fewer than 4 
intractable epilepsy cases. However, of the total 2,284 intractable 
epilepsy cases, less than 18 percent (405 cases) were admitted to 
epilepsy treatment centers. The average charge per intractable epilepsy 
case treated at an epilepsy treatment center was $9,546, only slightly 
higher than the $8,820 average charge at all hospitals.
    Although the distribution of intractable epilepsy patients across 
hospitals tends to minimize the impact of higher charges on any one 
hospital, we acknowledge that, even though the volume of hospitals is 
small, many hospitals treating high numbers of intractable epilepsy 
patients may incur charges above the average. This is particularly true 
for the specialized treatment centers. However, we note that these 
hospitals are for the most part large urban or teaching hospitals or 
both and, as such, receive some of the highest Medicare payment rates.
    We are not recommending any DRG modification for epilepsy cases at 
this time. Although the intractable epilepsy cases, especially those 
using procedure 89.19, result in higher charges than other cases in the 
same DRGs, the difference is neither clearly defined by age category or 
DRG nor of sufficient volume to justify a separate DRG for these 
patients. Therefore, we do not accept the commenters' recommendation 
that we create a DRG for intractable epilepsy patients, under age 60, 
using video-telemetered monitoring.
    Comment: Another commenter expressed concern that the current 
Medicare payment policy may be having an adverse effect on patient 
access for those intractable epilepsy cases requiring neurodiagnostic 
monitoring.
    Response: As noted above, in our response to cochlear implant 
comments, hospitals may not refuse to offer a covered service to 
Medicare patients if they provide this same service to other patients.
    d. Heart Assist Devices.
    Comment: We received several comments concerning the DRG assignment 
of and payment for the implantation of ventricular assist devices. The 
commenters believe that the current assignment of this procedure 
(procedure code 37.62) to DRGs 110 and 111 (Major Cardiovascular 
Procedures) was made based on outdated data and does not reflect 
current practice.
    The commenters note that only one heart assist device, the BVS 5000 
biventricular support system, has received approval from the Food and 
Drug Administration (FDA) and is covered by Medicare when used in 
patients suffering from postcardiotomy ventricular dysfunction. (See 
section 65-15 of the Medicare Coverage Issues Manual (HCFA Pub. 6).) 
One of the commenters, the manufacturer of the BVS 5000, submitted the 
results of a study it commissioned to analyze the current Medicare 
payments for that device.
    The study analyzed the hospital bills for 36 cases of implantation 
of the heart assist device that were performed at 13 hospitals. Using 
the information on the hospital bills, total hospital charges were 
calculated for each of the 36 cases and then standardized using 
Medicare formulas and adjustment factors. (The 36 cases are a sample of 
all patients receiving the BVS 5000 and are not restricted to Medicare 
beneficiaries.) The results of the study indicated that the average 
standardized charge for the 36 cases was consistently much higher than 
the average standardized charge for each of the nine DRGs to which 
these cases would have been assigned. Overall, the average standardized 
charge for the 36 cases was $155,396, compared to an estimated average 
DRG payment of $30,488, exclusive of capital and outlier payments.
    Using the average standardized charge of $155,396, the study 
imputes a DRG weight of 19.3803 for these cases. Even if the cases that 
would group to DRG 103 (Heart Transplant) and DRG 483 (Tracheostomy 
Except for Face, Mouth, and Neck Diagnoses) are excluded, the average 
standardized charge is still $114,299, implying a weight of 14.2548. 
Based on this result, the study recommends that the BVS 5000 cases be 
reassigned from DRGs 110 and 111 to DRG 103, which, with an FY 1994 
weight of 14.0215, is the most appropriate DRG assignment in MDC 5 
(Diseases and Disorders of the Circulatory System). In addition, from a 
clinical perspective, both patients assigned to DRG 103 and those who 
receive a BVS 5000 are seriously ill, have cardiac dysfunction that 
cannot continue to sustain life, and require lengthy and intensive 
hospital care.
    Finally, one commenter expressed concern that the volume of cases 
in the FY 1993 MedPAR file with procedure code 37.62 (406 cases) 
indicates that many of the Medicare patients are receiving nonapproved 
heart assist devices that should be excluded from Medicare payment. The 
commenter suggested that hospitals should be directed to use code 37.62 
only for procedures involving FDA-approved and Medicare-covered 
devices.
    Response: Our analysis of the FY 1993 MedPAR file identified 406 
cases with a procedure code of 37.62. Approximately 10 percent of these 
cases (38 cases) were assigned to DRGs outside of MDC 5, with the 
highest volume (25 cases) classified to DRG 483. Of the remaining 368 
cases, 266 were assigned to DRGs other than DRGs 110 and 111. 
Therefore, there were only 102 cases (approximately 25 percent of the 
total) that were assigned to a DRG based on the presence of a heart 
assist device (96 cases to DRG 110 and 6 cases to DRG 111). In DRG 110, 
the average standardized charge for cases with procedure code 37.62 was 
$39,038 and the average for all cases in that DRG was $32,939. For the 
6 cases assigned to DRG 111, the average standardized charge was 
$57,375 compared to $18,259 for all cases in that DRG.
    Based on the results of our analysis, we do not believe that the 
cases of implantation of a heart assist system assigned to DRG 110 are 
vastly underpaid. In fact, the average charge for those cases is only 
$6,000 higher than the other cases in the DRG and is well within the 
normal range of charges for DRG 110. In addition, although the average 
charge for the 6 cases assigned to DRG 111 is much higher than the 
overall average (almost $40,000 more), the exclusion of one extremely 
expensive case (standardized charge of $258,172) results in an average 
charge of $17,218 for the remaining 5 cases, which is below the DRG 111 
average charge. We note that the expensive case would have received a 
large outlier payment in addition to its operating and capital DRG 
payments.
    Unlike the manufacturer's study, which identified specific cases 
using the FDA-approved device, we are not able to distinguish the 
approved device from other devices which are still investigational. 
Based on the volume of cases in the FY 1993 data, we are certain that 
several different devices are being captured by the 37.62 code for 
heart assist implants. We note that the cases in this file were all 
discharged prior to the date the BVS 5000 was approved for coverage 
(October 1, 1993). Therefore, with the exception of those limited cases 
in which contractor discretion has been exercised, there are no covered 
devices in the FY 1993 MedPAR file, including the BVS 5000 cases. The 
manufacturer of the BVS 5000 declined to honor our request for a list 
of the hospitals that purchase and implant its device. A list of 
identified hospitals could help us to narrow our analysis to cases that 
are likely to be covered under Medicare.
    Because of our inability to identify specifically the FDA-approved 
device, we cannot determine the DRG distribution nor the charges 
attributable to the implant of the BVS 5000. Nor is it possible to 
identify those cases where the heart assist device is used as a bridge 
to heart transplant, for which it is not covered under Medicare policy. 
Therefore, at this time, we do not believe that we have enough 
information to recommend any change in DRG classification for this 
device. Based on the data available, it does not appear that DRGs 110 
and 111 are inappropriate designations for procedure code 37.62.
    We cannot advise hospitals that they may use procedure code 37.62 
only for those devices that are approved and covered under Medicare. 
The ICD-9-CM procedure codes are not the exclusive domain of Medicare 
payment policy. These codes are used by many other organizations and 
agencies for various health-related purposes. We suggest that the 
commenters contact Patricia E. Brooks, co-chairperson of the ICD-9-CM 
Coordination and Maintenance Committee, concerning the feasibility of 
creating a procedure code specific to implant of the FDA-approved 
biventricular support system. Ms. Brooks' address is set forth in 
section II.B.7 of this preamble.
    e. Automatic implantable cardioverter defibrillator (AICD) 
procedures (DRG 116). For several years, we have received 
correspondence concerning the appropriate DRG assignment of certain 
procedures involving automatic implantable cardioverter defibrillators 
(AICDs). When a patient whose principal diagnosis is classified to MDC 
5 (Diseases and Disorders of the Circulatory System) receives a total 
AICD system implant or replacement (procedure code 37.94), the case is 
assigned to DRG 104 or 105 (Cardiac Catheterization). However, prior to 
October 1, 1992, if a procedure was performed that involved the 
implantation or replacement of only part of the AICD system (that is, 
replacement or implant of either the leads or pulse generator only), 
the case was assigned to DRG 120 (Other Circulatory System OR 
Procedures). Effective with discharges occurring on or after October 1, 
1992, these procedures were assigned to DRG 116 (Other Permanent 
Cardiac Pacemaker Implant or AICD Lead or Generator Procedure). 
Although we proposed no further changes to this DRG assignment for FY 
1995, we received several comments.
    Comment: Commenters requested that we change the DRG assignment for 
procedures in which replacement or implantation of only part of the 
AICD system (either the leads or pulse generator) is performed from DRG 
116 to DRG 115 (Permanent Cardiac Pacemaker Implantation with AMI, 
Heart Failure or Shock). The relevant procedure codes are the 
following: 37.95 (Implantation of automatic cardioverter/defibrillator 
lead(s) only), 37.96 (Implantation of automatic cardioverter/
defibrillator pulse generator only), 37.97 (Replacement of automatic 
cardioverter/defibrillator lead(s) only), 37.98 (Replacement of 
automatic cardioverter/defibrillator pulse generator only).
    The commenters expressed concern that, even with the revised 
classification to DRG 116, hospitals are not adequately compensated for 
these procedures. Based on the results of an August 1992 study 
commissioned by the only AICD manufacturer at that time, the commenters 
estimate that these procedures should be assigned to a DRG with a 
relative weight of 3.7300. (The FY 1995 relative weights for DRGs 115 
and 116 are 3.5936 and 2.4514, respectively.) Therefore, the commenters 
assert that assignment of AICD cases to DRG 115 would be more 
equitable.
    Response: As explained in detail in the September 1, 1992 final 
rule (57 FR 39749), the current clinical composition and relative 
weights of the surgical DRGs in MDC 5 do not offer a perfect match with 
the AICD cases. After reviewing the current DRGs in terms of clinical 
coherence and similar resource use, we determined that DRG 116 was the 
best fit possible.
    Since reassignment of these procedures to DRG 116, we have annually 
reanalyzed the cases based on the most recent data. Based on data in 
the 1993 MedPAR file, the average standardized charge for AICD cases 
was $27,999 for the 1,933 cases assigned to DRG 116. The average 
standardized charge for all cases in DRG 116 was $19,456 and, for DRG 
115, $29,001. Although the $8,543 difference between the average charge 
for AICD cases in DRG 116 and all cases in DRG 116 is within the normal 
range of charges for that DRG, the difference in charges has grown over 
the last 2 years.
    The average length of stay for these AICD cases is 4.6 days 
compared to 4.6 for all cases in DRG 116. However, the length of stay 
for cases in DRG 115 is 12.8 days. In general, the patients classified 
to DRG 115 are seriously ill and the long length of stay supports this 
contention. We believe that even though the average charge for an AICD 
case is closer to the average charge in DRG 115 than that of DRG 116, 
clinically, the AICD patients are much more similar to the patients 
classified to DRG 116 than those in DRG 115. Thus, it is the cost of 
the AICD device that is responsible for the high average charge for 
these cases and not the intensity of hospital services required to 
treat the patient.
    Although originally there was only one AICD device on the market, 
others have become approved and are now available for hospitals. We 
believe that with these new devices, increased competition may result 
in a decrease in the price and a corresponding drop in the average 
charge for a hospital stay for AICD procedures. In any case, as with 
the cochlear implants discussed above in this section of the preamble, 
we are reluctant to provide higher DRG weights for categories of cases 
that are made costly due to the cost of a device. We do, however, 
acknowledge that this problem with new technologies is increasing and 
we are interested in finding a cost-effective solution to the problem. 
In the meantime, we believe continued assignment of AICD implant cases 
to DRG 116 is appropriate. We will continue reviewing this issue during 
FY 1995.
    f. DRG Assignment Issues. Among the comments received on the 
proposed rule were three inquiries regarding DRG case assignments. 
These comments, although unrelated to any changes in the proposed rule, 
are representative of the types of questions that we receive throughout 
the year concerning DRG assignment. We are responding to these comments 
in this final rule in the interest of public information and 
clarification of the DRG classification system.
    Comment: One commenter requests an explanation of why a patient 
with a principal diagnosis of osteomyelitis (diagnosis code 730.xx) who 
has a toe amputation (procedure code 84.11) is assigned to DRG 225 
(Foot Procedures) with a proposed FY 1995 weight of 0.9056 when a 
patient with the same principal diagnosis who has no surgical 
intervention is assigned to higher-weighted DRG 238 (Osteomyelitis), 
with a proposed weight of 1.4971. The commenter suggests that a more 
appropriate assignment for the toe amputation would be DRGs 233 and 234 
(Other Musculoskeletal System and Connective Tissue OR Procedures) with 
proposed weights of 1.9004 and .9497, respectively.
    Response: The classification of a case to a DRG begins with 
assignment to an MDC based on principal diagnosis. A patient with 
osteomyelitis is assigned to MDC 8 (Diseases and Disorders of the 
Musculoskeletal System and Connective Tissue). The next step is to 
group the case into the appropriate DRG within that MDC. If an 
operating room procedure is performed, the case will group to one of 
the surgical DRGs in MDC 8. A case with the same principal diagnosis 
code and no surgical procedure will group to a medical DRG.
    The DRG relative weights assigned to a particular DRG are based on 
the average amount of resources used in treating the patients in that 
DRG, as measured by total charges, relative to the average resources 
used to treat all patients. The commenter assumes that a case in which 
surgery is performed has higher resource use and, therefore, should 
have a weight that is higher than a case in which no surgery is 
performed. This assumption is unfounded since many other aspects, 
including length of stay and severity of illness, also account for 
resource use. In fact, cases in DRG 225 have a much shorter average 
length of stay (5.2 days) than cases in DRG 238 (12.8 days). One reason 
we have found for lower relative weights in some surgical DRGs as 
compared to medical DRGs in the same MDC is the fact that often the 
patients in the surgical DRG have received a clear diagnosis and begin 
treatment soon after they are admitted to the hospital. On the other 
hand, some medical cases involve lengthy medical diagnostic workup and 
testing to discover both the reason for the hospital stay and the 
treatment that should be given.
    The cases that group to DRG 225 receive one of several well-
defined, relatively low-resource use procedures and are discharged 
within a few days. However, the cases that group to DRG 238 encompass a 
large range of principal diagnoses, many of which can take several days 
to diagnose and treat.
    Comment: The same commenter is also concerned about a case in which 
a patient is admitted with chest pain, has a cardiac catheterization, 
and is ultimately diagnosed with a noncardiac diagnosis such as 
gastritis. In this scenario, the case is assigned to a DRG consistent 
with the principal diagnosis of gastritis, and the cardiac 
catheterization does not affect the DRG assignment. The commenter, 
therefore, believes that the hospital is not being adequately 
compensated for the resources expended. If the same patient had been 
determined to have a cardiac condition, the catheterization would have 
counted in DRG assignment.
    Response: As discussed above, the classification of a case to a DRG 
begins with assignment to an MDC based on the principal diagnosis. In 
order to maintain the integrity of the system, cases must be assigned 
to DRGs to which they are most clinically related. Cardiac 
catheterization is a non-OR procedure that is considered for DRG 
assignment within MDC 5, but is treated as any other non-OR procedure 
in all the other MDCs. This policy recognizes the fact that 
catheterization is an important determinant in the resources used in 
the cardiac cases in MDC 5. However, it is not generally associated 
with treatment or diagnosis in other MDCs.
    Under the prospective payment system, Medicare does not pay for the 
costs of individual cases. Because it is a system based on an averaging 
process, some cases in a particular DRG will incur costs in excess of 
payment while others will receive payment in excess of costs. Thus, 
although a patient with a principal diagnosis of gastritis who receives 
a cardiac catheterization may consume more resources than the average 
patient with that diagnosis, there will no doubt be patients with the 
same principal diagnosis and DRG assignment who consume fewer than 
average resources.
    Comment: Another commenter questions the assignment of a patient 
with pulmonary edema and heart disease (principal diagnosis code 428.0 
(Congestive heart failure)) who requires mechanical ventilation to DRG 
127 (Heart Failure and Shock) with a final FY 1995 relative weight of 
1.0239. However, a patient with acute pulmonary edema and no heart 
condition (principal diagnosis code of 518.4 (Acute edema of lung, 
unspecified)) who requires mechanical ventilation is assigned to DRG 
475 (Respiratory System Diagnosis with Ventilator Support) with a FY 
1995 relative weight of 3.7005. Again, the commenter cannot understand 
the different payment amount for the same type of case.
    Response: Although these cases exhibit the same symptom (pulmonary 
edema), the principal diagnoses are assigned to two different MDCs. 
Under our current system, mechanical ventilation is a determining 
factor in the assignment of cases in MDC 4. Therefore, the case that 
groups to that MDC is classified to a DRG based on the mechanical 
ventilation. In all other MDCs, the use of mechanical ventilation is 
not considered in the assignment of the case. In the September 1, 1993 
final rule, we discussed our intention to analyze cases with mechanical 
ventilation in all MDCs and to consider the appropriate placement of 
these cases as a part of our larger DRG refinement work (58 FR 46285.) 
As we have discussed above in section II.B.8 of this preamble, that 
refinement will not be implemented before FY 1996.

C. Recalibration of DRG Weights

    We proposed to use the same basic methodology for the FY 1995 
recalibration as we did for FY 1994. (See the September 1, 1993 final 
rule (58 FR 46290).) That is, we proposed to recalibrate the weights 
based on charge data for Medicare discharges. However, we proposed to 
use the most current charge information available, the FY 1993 MedPAR 
file, rather than the FY 1992 MedPAR file. The MedPAR file is based on 
fully-coded diagnostic and surgical procedure data for all Medicare 
inpatient hospital bills.
    The proposed recalibrated DRG relative weights were constructed 
from FY 1993 MedPAR data, received by HCFA through December 1993, from 
all hospitals subject to the prospective payment system and short-term 
acute care hospitals in waiver States. The FY 1993 MedPAR file at that 
time included data for approximately 10.5 million Medicare discharges. 
The MedPAR file updated through June 1994 includes data from 
approximately 10.7 million discharges and is the file used to calculate 
the weights set forth in Table V of the addendum to this final rule.
    The methodology used to calculate the DRG relative weights from the 
FY 1993 MedPAR file is as follows:
     To the extent possible, all the claims were regrouped 
using the revised DRG classification revisions discussed above in 
section II.B of this preamble. As noted in section II.B.4, due to the 
unavailability of revised GROUPER software, we simulate most major 
classification changes to approximate the placement of cases under the 
proposed reclassification. However, there are some changes that cannot 
be modeled.
     Charges were standardized to remove the effects of 
differences in area wage levels, indirect medical education costs, 
disproportionate share payments, and, for hospitals in Alaska and 
Hawaii, the applicable cost-of-living adjustment.
     The average standardized charge per DRG was calculated by 
summing the standardized charges for all cases in the DRG and dividing 
that amount by the number of cases classified in the DRG.
     We then eliminated statistical outliers using the same 
criterion as was used in computing the current weights. That is, all 
cases outside of 3.0 standard deviations from the mean of the log 
distribution of charges per case for each DRG were eliminated.
     The average charge for each DRG was then recomputed 
(excluding the statistical outliers) and divided by the national 
average standardized charge per case to determine the relative weight.
     We established the relative weight for heart transplants 
(DRG 103) and liver transplants (DRG 480) in a manner consistent with 
the methodology for all other DRGs except that the transplant cases 
that were used to establish the weights were limited to those Medicare-
approved heart and liver transplant centers, respectively, that have 
cases in the FY 1993 MedPAR file. Similarly, we limited the lung 
transplant cases that were used to establish the weight for DRG 495 
(Lung Transplant) to those hospitals that are established lung 
transplant centers.
     Acquisition costs for kidney, heart, liver, and lung 
transplants are paid on a reasonable cost basis. Unlike other excluded 
costs, the acquisition costs are concentrated in specific DRGs (DRG 302 
(Kidney Transplant); DRG 103 (Heart Transplant); DRG 480 (Liver 
Transplant); and DRG 495 (Lung Transplant)). Because these costs are 
paid separately from the prospective payment rate, it is necessary to 
make an adjustment to prevent the relative weights for these DRGs from 
including the effect of the acquisition costs. Therefore, we subtracted 
the acquisition charges from the total charges on each transplant bill 
that showed acquisition charges before computing the average charge for 
the DRG and before eliminating statistical outliers.
    When we recalibrated the DRG weights for previous years, we set a 
threshold of 10 cases as the minimum number of cases required to 
compute a reasonable weight. We proposed to use that same case 
threshold in recalibrating the DRG weights for FY 1995. Using the final 
FY 1993 MedPAR data set, there are 35 DRGs that contain fewer than 10 
cases. We computed the weight for the 35 low-volume DRGs by adjusting 
the original weights of these DRGs by the percentage change in the 
average weight of the cases in the remaining DRGs.
    The weights developed according to the methodology described above, 
using the DRG classification changes, result in an average case weight 
that is different from the average case weight before recalibration. 
Therefore, the new weights are normalized by an adjustment factor, so 
that the average case weight after recalibration is equal to the 
average case weight before recalibration. This adjustment is intended 
to ensure that recalibration by itself neither increases nor decreases 
total payments under the prospective payment system.
    Although we received no comments on the recalibration of the DRG 
weights, we did receive two comments that relate to that process.
    Comment: Two commenters were concerned that the proposed FY 1995 
DRG weights for certain transplant cases were lower than the weights 
that were in effect for FY 1994. The DRGs in question are those for 
liver transplants (DRG 480) and heart transplants (DRG 103). The 
commenters believe that these cases are getting more costly, not less, 
as the lower weights would lead one to believe. The commenters suggest 
that we further investigate the data on these cases.
    Response: Every year when the relative weights are recalibrated, we 
use charge information from the most recent Medicare data available. 
That is, we use the charges reported by hospitals for the cases paid 
under each DRG. Therefore, any change in the relative weight of a DRG 
is directly related to the average charge of the cases classified to 
that DRG compared to the average charge of all the cases.
    The average charges used to calculate the weight for DRG 103 
actually increased between the FY 1992 data used to calculate the FY 
1994 weights and the FY 1993 data used to calculate the FY 1995 
weights; however, the average charge for DRG 480 decreased. The average 
charge for DRG 103 increased from $105,748 to $107,489 and the average 
charge for DRG 480 decreased from $146,824 to $144,843. These changes 
reflect an increase of less than 2 percent in the charges for DRG 103 
and a decrease of slightly more than 1 percent in the charges for DRG 
480. However, the average charge of all cases in the 2 years increased 
from $10,483 to $11,108, an increase of 6 percent. Thus, the weights of 
DRG 103 and 480 both decrease between FY 1994 and FY 1995 because the 
change in the average charges for those DRGs is less than the increase 
in the average charge for all cases.
    We note that the relative weight of DRG 103 has been slightly 
erratic in the last 5 years, with a low of 12.5568 in FY 1993 and a 
high of 14.0323 in FY 1992. This is not unusual for a relatively low 
volume DRG (under 400 cases) with a large range of reported charges 
(approximately $25,000 to $600,000). A few very low or very high charge 
cases can make a dramatic difference in the DRG weight. Regarding DRG 
480, we note that the weight has been steadily decreasing since FY 1992 
(relative weight of 22.8213).
    Section 1886(d)(4)(C)(iii) of the Act requires that beginning with 
FY 1991, reclassification and recalibration changes be made in a manner 
that assures that the aggregate payments are neither greater than nor 
less than the aggregate payments that would have been made without the 
changes. Although normalization is intended to achieve this effect, 
equating the average case weight after recalibration to the average 
case weight before recalibration does not necessarily achieve budget 
neutrality with respect to aggregate payments to hospitals because 
payment to hospitals is affected by factors other than average case 
weight. Therefore, as discussed in section II.A.4.b. of the Addendum to 
this final rule, we are making a budget neutrality adjustment to 
implement the requirement of section 1886(d)(4)(C)(iii) of the Act.

III. Changes to the Hospital Wage Index and Medicare Geographic 
Classification Review Board Guidelines

A. Background

    Under the Medicare prospective payment system, different payment 
rates are calculated for hospitals located in rural, urban, and large 
urban areas. For purposes of the standardized payment amount, section 
1886(d)(2)(D) of the Social Security Act requires that we use 
Metropolitan Statistical Areas (MSAs) as defined by the Office of 
Management and Budget (OMB) to determine whether hospitals are located 
in rural, urban or large urban areas (areas with a population over 1 
million). However, section 1886(d)(3)(A) of the Act provides for the 
elimination of separate urban and rural standardized payment amounts 
beginning in FY 1995.
    Section 1886(d)(3)(E) of the Act requires that, as part of the 
methodology for determining prospective payments to hospitals, the 
Secretary shall adjust the standardized amounts ``for area differences 
in hospital wage levels by a factor (established by the Secretary) 
reflecting the relative hospital wage level in the geographic area of 
the hospital compared to the national average hospital wage level.'' In 
accordance with the broad discretion conferred by this provision, we 
currently define hospital labor market areas based on the definitions 
of MSAs issued by OMB. Additionally, we adjust the wage index to take 
into account the geographic reclassification of hospitals in accordance 
with sections 1886(d)(8)(B) and 1886(d)(10) of the Act.
    Section 1886(d)(3)(E) of the Act also requires that the wage index 
be updated annually beginning October 1, 1993. This section further 
provides that the Secretary base the update on a survey of wages and 
wage-related costs of short- term acute care hospitals. The survey 
should measure, to the extent feasible, the earnings and paid hours of 
employment by occupational category and must exclude data with respect 
to the wages and wage-related costs incurred in furnishing skilled 
nursing services.
    For determining prospective payments to hospitals in FY 1995, the 
wage index is based on the data collected from the Medicare cost 
reports submitted by short-term acute care hospitals for cost reporting 
periods beginning in FY 1991 (that is, cost reporting periods beginning 
on or after October 1, 1990 and before October 1, 1991). The current 
wage index includes wages and salaries paid by a hospital, home office 
salaries, fringe benefits, and certain contract labor costs and hours. 
The current computation of the wage index excludes salaries and wages 
associated with non-hospital type services, such as skilled nursing 
facility services, home health agency services, or other subprovider 
components that are not subject to the prospective payment system.
    In the May 27, 1994 proposed rule, we proposed to use updated wage 
data to construct the FY 1995 wage index as required by section 
1886(d)(3)(E) of the Act. In addition, we proposed changes in the 
future reporting of hospital wage index data. The changes we proposed 
to the wage index are discussed in detail below.
    In the proposed rule, we also presented our research and analysis 
concerning several options for alternative labor market areas and 
solicited public comment. The deadline for comments concerning any of 
the labor market alternatives was August 31, 1994. As stated in the 
proposed rule, we will consider all comments received by this date as 
we continue to evaluate possible options for revising wage index labor 
market areas.
    In addition, we are revising the guidelines for reclassification by 
the MGCRB by eliminating the adjacency requirement for individual 
hospital reclassifications. This change is discussed below in section 
III.F. of this preamble. We welcome public comments on the elimination 
of this requirement.

B. FY 1995 Wage Index Update

    We proposed to base the FY 1995 wage index, effective for hospital 
discharges occurring on or after October 1, 1994 and before October 1, 
1995, upon the data collected from the Medicare cost report (Worksheet 
S-3, Part II) submitted by hospitals for cost reporting periods 
beginning in FY 1991.
    We proposed to use all of the categories of data collected from 
Worksheet S-3, Part II. Therefore, the FY 1995 wage index reflects the 
following:
     Total short-term acute care hospital salaries and hours.
     Home office costs and hours.
     Fringe benefits associated with hospital and home office 
salaries.
     Direct patient care related contract labor cost and hours.
     The exclusion of salaries and hours for non-hospital type 
services such as skilled nursing facility services, home health 
services, or other sub-provider components that are not subject to the 
prospective payment system.
1. Midyear Wage Data Corrections
    The data for the proposed FY 1995 wage index was obtained from 
Worksheet S-3, Part II, of the HCFA-2552 submitted by short-term acute 
care hospitals for cost reporting periods beginning during FY 1991. The 
wage data are reported electronically to HCFA through the Hospital Cost 
Report Information System (HCRIS). Because of substantial deficiencies 
in the initial data reported by hospitals on the cost report (including 
missing data items such as excluded hours and total paid hours), we 
initiated an intensive review of the wage data and made numerous edits 
to ensure quality and accuracy. Medicare intermediaries were instructed 
to transmit any revisions to HCFA through HCRIS by early January 1994. 
In the proposed rule, we discussed in detail the review of the cost 
report data (59 FR 27718), as well as the process that hospitals could 
use to verify their wage data and to submit corrections if necessary.
    The wage file used to construct the proposed wage index included 
data obtained in late January 1994 from the HCRIS database and 
subsequent changes we received from intermediaries through March 14, 
1994. To allow sufficient time to process any changes, we instructed 
hospitals to submit requests for corrections to their fiscal 
intermediaries by May 15, 1994. To be reflected in the final wage 
index, any wage data corrections had to be reviewed by the intermediary 
and transmitted to HCFA via HCRIS on or before June 15, 1994. In the 
proposed rule, we noted that we would make a diskette available in mid-
August that would contain the finalized raw wage data used to construct 
the wage index values in this final rule. We also noted that we were 
making the August diskette available for the limited purpose of 
identifying any potential errors made by HCFA or the intermediary in 
the tabulation of finalized wage data, not for the initiation of new 
wage data correction requests (59 FR 27719).
    If, after reviewing the diskette made available to hospitals in 
August or after reviewing the data published in this rule, a hospital 
believes that its wage data is incorrect due to a fiscal intermediary 
or HCFA error, it should immediately send a letter to both its fiscal 
intermediary and HCFA. The letters to the intermediary and HCFA should 
outline why the hospital believes an error exists. These requests must 
be received by HCFA no later than September 23, 1994. Requests should 
be sent to: Charles R. Booth, Director; Office of Payment Policy; 181 
East High Rise; 6325 Security Boulevard; Baltimore, Maryland 21207. The 
intermediary will review requests upon receipt and, if it is determined 
that an intermediary or HCFA error exists, the fiscal intermediary will 
notify HCFA immediately. As we noted in the proposed rule, after mid-
August, we will make changes to the hospital wage data only in those 
very limited circumstances involving an error by the intermediary or 
HCFA that the hospital could not have known about before review of the 
August diskette.
    We stated that if hospitals followed the steps outlined in the 
proposed rule, errors in the final wage index should be eliminated. 
However, we proposed to allow midyear corrections to the wage data 
under limited circumstances. Accordingly, we are revising 
Sec. 412.63(s)(2) to provide that the Secretary may make midyear 
corrections to the wage index only in those limited circumstances where 
a hospital can show: (1) that the intermediary or HCFA made a 
tabulation error, and (2) that the hospital could not have known about 
the error, or did not have an opportunity to correct the error, by 
September 23, 1994. Since a hospital will have the opportunity to 
verify its data and the intermediary will notify the hospital of any 
changes, we foresee few, if any, specific circumstances under which 
midyear corrections would be made. However, should a midyear correction 
be necessary, the wage index change for the affected area will be made 
prospectively from the date the correction is made. If midyear 
corrections to the wage index values are made, we will take their 
effect into account in establishing the standardized amounts for the 
following Federal fiscal year in accordance with Sec. 412.63(s)(4).
    Comment: We received numerous comments about our proposed midyear 
correction process. One commenter suggested that we allow providers to 
change their wage data at any point in the fiscal year. Another agreed 
with our plan for allowing midyear corrections only in cases of 
intermediary or HCFA error but wanted us to apply any changes 
retroactive to October 1, 1994. Another commenter suggested that we 
expand the midyear correction process to include cases in which the 
intermediary should have known the data was wrong and therefore should 
have investigated any obvious discrepancy as well as cases in which the 
intermediary should have reviewed a hospital's data because the 
hospital's average hourly wage decreased from the prior fiscal year.
    Response: We do not believe that it is appropriate to allow 
hospitals to change their wage data at any point in the fiscal year or 
to expand the midyear correction process as the commenter has 
suggested. As we stated in the proposed rule (59 FR 27719), we believe 
that midyear corrections should not be made in most cases. The wage 
data correction process described above and in the proposed rule has 
provided hospitals with sufficient opportunity to bring errors made in 
the preparation of Worksheet S-3 to the intermediary's attention. 
Moreover, because hospitals have had access to the raw wage data in 
mid-August, they will have had the opportunity to detect any 
ministerial tabulation errors made by the intermediary or HCFA before 
the implementation of the prospective payment rates. We believe that if 
hospitals have availed themselves of the opportunity to review their FY 
1991 wage data, the wage index implemented on October 1 should be free 
of errors.
    We believe our policy is consistent with section 1886(d)(3)(E) of 
the Act, which requires that the wage index be updated annually 
beginning with October 1, 1993. In so providing, Congress has 
essentially created an annual wage data review process that ends with 
the publication of the payment rates for the fiscal year at issue. 
Moreover, as we noted in the September 1, 1992 final rule (57 FR 
39765), implementation of midyear corrections in previous years 
resulted in several problems related to the reclassification of 
hospitals by the Medicare Geographic Classification Review Board. 
Allowing hospitals to continue to raise wage data issues beyond the 
deadlines described in this rule would also divert resources that would 
otherwise be used to ensure that the following year's wage index is as 
accurate as possible. Accordingly, we believe that it is incumbent that 
HCFA and the hospital community direct their energies to reviewing and 
correcting wage data before the prospective payment system rates for a 
given year are constructed.
    We also disagree with the commenter's suggestion that the failure 
of an intermediary to detect an error made by a hospital in reporting 
its wage data should be characterized as an intermediary error or 
should require a midyear correction. Hospitals are required to complete 
the Worksheet S-3, Part II, along with the rest of the cost report and 
to attest to its accuracy at the time the cost report is filed. The 
cost report is signed by an Officer or Administrator of the hospital 
certifying that the cost report is ``a true, correct and complete 
statement prepared from the books and records of the provider in 
accordance with applicable instructions * * *.'' Thus, the ultimate 
responsibility for the accuracy of the wage data reported on the 
Medicare cost report rests with the hospital. Moreover, we have 
repeatedly stressed in the Federal Register and other communications 
with the hospital industry the importance of reporting accurate wage 
data to both the development of the wage index and to the geographic 
reclassification process.
    We have also expended considerable time and effort to review 
hospital wage data for potential errors. Because our initial 
examination of the FY 1991 wage data detected substantial deficiencies 
in the initial data reported by hospitals on the cost report (including 
missing data items such as excluded hours and total paid hours), we 
initiated an intensive review of the wage data, which we described in 
detail in the proposed rule (59 FR 27718). In September 1993, we sent 
each fiscal intermediary a listing of its hospitals' wage data. In 
November and December of 1993, our fiscal intermediaries performed desk 
reviews for each hospital to ensure the reasonableness of the data. As 
a result of this effort and our own review of the wage data, edits for 
over 1,300 providers were resolved prior to constructing the proposed 
hospital wage index published in the proposed rule.
    Intermediaries were also responsible for reviewing hospital 
requests for data changes submitted by the May 15, 1994 deadline and 
for transmitting any corrections to HCFA on or before June 15, 1994. 
After receiving any new wage data from fiscal intermediaries by June 
15, 1994, we once again completed our own review of the wage data in 
early July. Finally, on July 26, 1994, we sent each intermediary a 
listing of the wage data for all their hospitals and requested one 
final review to ensure that our database reflected the latest wage data 
for each hospital.
    In short, we are confident that we have created as accurate a 
database as possible under existing time and resource constraints. 
Moreover, as we described in detail in the proposed rule, we have 
provided ample opportunities to hospitals to review for accuracy the 
wage data used to construct the wage index. We note that the diskette 
made available to the public in mid-March 1994 contained the raw 
hospital wage data for all prospective payment system hospitals. This 
not only enabled individual hospitals to detect errors concerning their 
own data, but also allowed all hospitals in an MSA or rural area to 
check for any obvious discrepancies in the wage index data of other 
hospitals in their area, as well as any reduction in the average hourly 
wage from previous years. In light of the above, we do not believe that 
it is appropriate to make midyear changes to the wage index to correct 
substantive wage data reporting errors.
    We have also taken steps to ensure that the wage index that will go 
into effect October 1, 1994 is free from any ministerial tabulation 
errors. As noted above, in mid-August we made available a diskette with 
all the wage data used to construct the wage index set forth in this 
final rule. We believe hospitals will have ample opportunity to verify 
their data prior to the September 23 deadline. Therefore, we foresee 
few, if any, circumstances under which midyear corrections would be 
made to correct a tabulation error. In those limited cases where a 
midyear correction is warranted, the wage index change for the affected 
area will be made prospectively from the date the correction is made. 
This is consistent with our longstanding policy to allow wage index 
corrections on a prospective basis only. This policy was originally set 
forth in the preambles to the September 1, 1983 interim final rule (48 
FR 39765) and the January 3, 1984 final rule (49 FR 258) implementing 
the prospective payment system and was later codified at Sec. 412.63 as 
part of the September 4, 1990 final rule (55 FR 36042).
    Comment: One commenter suggested that we establish an appeals 
process for disputes over corrections submitted by hospitals to 
intermediaries. The commenter was concerned over the inability of 
hospitals to make final corrections to wage index data before it is 
submitted to HCFA. The commenter noted that, even with hospitals having 
time to verify their data, any decisions on the changes submitted by 
hospitals are left to the discretion of the intermediary without an 
appeal process for the hospital.
    Response: We do not believe a formal appeals process is necessary. 
Moreover, we do not believe that a formal appeals process would be 
feasible, since the process could not be completed before the 
development of the final wage index. In the few cases where the 
hospital and the intermediary have disagreed on specific cost items 
reported on Worksheet S-3, the issue has been resolved by contacts 
between the hospital or intermediary and HCFA. We continue to believe 
that this informal method is sufficient to resolve disputes between 
hospitals and intermediaries.
    In the proposed rule (59 FR 27718), we detailed the steps that a 
hospital must follow to ensure that any corrections to its wage data 
are included in the final wage index. We stated that to be reflected in 
the final wage index, any wage data corrections had to be reviewed by 
the intermediary and transmitted to HCFA via HCRIS on or before June 
15, 1994. This deadline was necessary to allow sufficient time to 
download and edit the data so that the final wage index calculation 
could be completed for development of the final prospective payment 
rates to be published in this final rule. After reviewing requested 
changes submitted by hospitals, intermediaries transmitted any revised 
cost reports to HCRIS and forwarded to the hospitals a copy of the 
revised Worksheet S-3, Part II. If requested changes were not accepted, 
fiscal intermediaries notified hospitals in writing of reasons why the 
changes were not accepted. This procedure ensured that hospitals had an 
opportunity to verify the data that will be used to construct their 
wage index values.
    We continue to believe that fiscal intermediaries are in the best 
position to make evaluations regarding the appropriateness of a 
particular cost and whether it should be included in the wage index 
data. However, in the event that a hospital disagrees with the 
intermediary's resolution of a requested change, hospitals may request 
that intermediaries re-review the issue and receive HCFA's concurrence. 
The intermediary was to submit a written request to HCFA for 
concurrence describing its handling of the issue raised by the 
hospital. After evaluating the facts, HCFA contacted the intermediary 
with the decision, and the intermediary notified the hospital.
    This process was designed to resolve all substantive wage data 
correction disputes before we finalized the raw wage data for the FY 
1995 payment rates. However, we note that this process must be 
completed at least 3 months before the publication of the final rule, 
to allow the intermediary sufficient time to submit wage data changes. 
Therefore, to initiate a change to the FY 1991 data, a hospital had to 
submit such requests to its intermediary by May 15, 1994. The hospital 
can evaluate the data HCFA is using either by requesting from the 
intermediary a copy of the Worksheet S-3, Part II that has been 
transmitted to HCRIS or, as indicated in the proposed rule, by 
requesting a copy of the public use wage file.
    Comment: Several commenters raised concerns about inconsistent 
auditing of wage data by the fiscal intermediaries. They indicated that 
while certain fiscal intermediaries acted stringently in applying HCFA 
guidelines, other fiscal intermediaries were not as restrictive in 
their auditing processes. Specifically, commenters cited instances in 
which providers have been allowed to include questionable fringe 
benefit costs, such as parking expenses, and salaries for Part B 
physicians' services. One commenter recommended that our desk review 
program include a specific check for Line 1B of the Worksheet S-3, Part 
II, to ensure that Part B physicians' services are removed.
    Response: We are concerned about all instances of inconsistent 
auditing by the fiscal intermediaries and have taken several steps that 
we believe should have eliminated most inconsistencies. Specifically, 
in November and December of 1993, the fiscal intermediaries performed 
desk reviews on the wage data reported by each hospital. These reviews 
were conducted based on reasonableness parameters established by HCFA. 
Additionally, all fiscal intermediaries have been given a fringe 
benefit guideline to assist them in determining if certain reported 
fringe benefits are allowable for purposes of the wage index. We have 
also instructed fiscal intermediaries to contact a HCFA staff member in 
cases where questions arise. In addition, intermediary performances on 
the desk reviews are evaluated by HCFA regional office personnel.
    Regarding the commenter's concern about Part B physician services, 
we agree that there should be a more thorough review of the Line 1B of 
the Worksheet S-3, Part II, where that data are reported. Therefore, we 
are adopting the commenter's suggestion and will incorporate additional 
instructions in the next version of the desk review program to ensure 
consistent Part B physician reporting.
    In addition, if a hospital has knowledge that an intermediary may 
be incorrectly handling a particular issue, the hospital is encouraged 
to bring it to our attention. We will continue our efforts to ensure 
uniform reporting of wage data. We believe that the changes we are 
making to the reporting of wage data for future cost reporting periods 
will greatly enhance the uniformity and equity of the hospital wage 
index.
    Comment: We received two comments from Richmond, Virginia hospitals 
requesting relief for an error in the data used to calculate the FY 
1994 wage index. They requested that the wage index for the Richmond, 
Virginia MSA for FY 1995 be increased to compensate for the 
``deflation'' in its FY 1994 wage index.
    Response: The issue of whether an error was made in calculating the 
FY 1994 Richmond, Virginia wage index is not related to the contents of 
this regulation. Accordingly, we intend to respond to the Richmond, 
Virginia hospitals concerning this matter in separate correspondence. 
We note, however, that section 1886(d)(3)(E) of the Act provides that 
we revise the wage index each year based on updated wage data. Given 
this provision, we do not believe it would be appropriate in any 
circumstance to adjust an MSA's FY 1995 wage index, which is based on 
FY 1991 data, to account for additional wages paid in FY 1990.
    Comment: We received one comment addressing various aspects of the 
availability of wage index data for review by providers. Generally, the 
comment centered on the data included in the file and the creation of a 
wage data bulletin board that could be updated regularly.
    Response: HCFA has continued to work to improve the availability 
and distribution of wage index data for provider information.
    First, the commenter requested that MSA classifications and MGCRB 
redesignations be added to the wage data file that is released before 
publication of the proposed rule. It was also suggested that we compile 
separate wage data files by State so that hospitals do not have to 
purchase the entire file. The purpose of the preliminary diskette is to 
allow hospitals to review the database from which the wage index will 
be derived, prior to publication of the wage index. It is not intended 
to provide data that would allow hospitals to construct the wage index. 
Data on MSA classifications and reclassified hospitals can be purchased 
on separate diskettes once the wage index is published (59 FR 27756). 
With respect to maintaining the wage file on a computer bulletin board, 
we do not have resources to maintain and update such a bulletin board 
on an ongoing basis as revised wage data is transmitted to HCRIS. Also, 
given the modest price of the diskette ($145.00) and the fact that 
provider numbers are in State order on the current file, we do not see 
the need to provide separate files for each State.
    The commenter also asked that we include prior year's data on the 
current file, so that hospitals can readily tell what changes have 
occurred. The wage data from previous years are made available on 
diskette after publication of each year's final wage index. Therefore, 
we do not see the need to replicate this information on the subsequent 
year's wage file. We advise hospitals to retain this year's diskette 
for comparison with next year's wage data information. We see this as 
an efficient and inexpensive alternative to repeating information.
    With respect to the format of the data included on the diskette, we 
plan to evaluate this issue to determine if a more ``user friendly'' 
format can be developed that would be easily adaptable to most computer 
systems.
    Comment: We received several comments expressing confusion about 
the responsibility of the providers and the fiscal intermediaries in 
the submission of the corrections to the final wage index data by the 
June 15th deadline.
    Response: As we previously indicated, we believe that each provider 
has the ultimate responsibility to ensure the accuracy of its data, and 
we allow providers ample opportunity to make needed corrections. If, 
after reviewing the data used in calculating the proposed rule wage 
index (either from the published proposed rule or the diskette that was 
made available to all hospitals), a hospital believed that its FY 1991 
wage data were incorrectly reported, the hospital should have submitted 
corrections along with complete supporting documentation to its 
intermediary in time to allow for proper review, verification, and 
transmission of the data before the development of the final wage 
index. We established a May 15 deadline for submission of revised data 
by hospitals in order to allow fiscal intermediaries ample time to 
review the submission. We also noted there was no guarantee that 
submissions of revised data after that date would be processed in time 
for the final wage index. That is, handling of data correction requests 
received after May 15 was dependent on the fiscal intermediaries' 
workload. The fiscal intermediary was then responsible for sending any 
corrected information to HCRIS before the established deadline of June 
15, 1994.
    This deadline was necessary to allow sufficient time to download 
and edit the data, so that the final wage index calculation could be 
completed in time for the development of the final prospective payment 
rates. We could not guarantee that corrections transmitted to HCFA 
after June 15 would be reflected in the final wage index. Therefore, we 
suggested that hospitals wishing to submit corrected data do so as soon 
as possible and follow up with their intermediaries to ensure inclusion 
of the corrected data in the final wage index. Intermediaries were also 
instructed to inform providers about the disposition of any data 
correction requests and, where changes were made, to supply a copy of 
any revised Worksheet S-3, Part II, to providers to alert them that a 
correction had been made.
2. Computation of the Wage Index
    As noted above, we are basing the FY 1995 wage index on wage data 
reported on the FY 1991 cost report. The wage index is based on data 
from 5,290 hospitals paid under the prospective payment system and 
short-term acute care hospitals in waiver States. The method used to 
compute the FY 1995 wage index is as follows:
    Step 1--We gathered data from each of the non-Federal short-term 
acute care hospitals for which data were reported on the Worksheet S-3, 
Part II of the Medicare cost report for the hospital's cost reporting 
periods beginning on or after October 1, 1990, and before October 1, 
1991. Each hospital was assigned to its appropriate urban or rural area 
prior to any reclassifications under sections 1886(d)(8) or 1886(d)(10) 
of the Act. In addition, we included data from a few hospitals that had 
cost reporting periods beginning in September 1990 and had reported a 
cost reporting period exceeding 52 weeks. The data were included 
because no other data from these hospitals would be available for the 
cost reporting period described above, and particular labor market 
areas might be affected due to the omission of these hospitals. 
However, we generally describe this wage data as FY 1991 data.
    Step 2--For each hospital, we subtracted the excluded salaries 
(that is, direct salaries attributable to skilled nursing facility 
services, home health services, and other sub-provider components not 
subject to the prospective payment system) from gross hospital salaries 
to determine net hospital salaries. To the net hospital salaries, we 
added hospital contract labor costs, hospital fringe benefits, and any 
home office salaries and fringe benefits reported by the hospital to 
determine total salaries plus fringe benefits.
    Step 3--For each hospital, we inflated or deflated, as appropriate, 
the total salaries plus fringe benefits resulting from Step 2 to a 
common period to determine total adjusted salaries. To make the wage 
inflation adjustment, we used the percentage change in average hourly 
earnings for each 30-day increment from October 14, 1990 through 
September 15, 1992, for hospital industry workers from S.I.C. 806, 
Bureau of Labor Statistics Employment and Earnings Bulletin. The annual 
inflation rates used were 5.6 percent for FY 1990 and FY 1991 and 4.8 
percent for FY 1992. The inflation factors used to inflate the 
hospital's data were based on the midpoint of the cost reporting period 
as indicated below. 

                   Midpoint of Cost Reporting Period                    
------------------------------------------------------------------------
                                                              Adjustment
                     After                          Before      factor  
------------------------------------------------------------------------
10/14/90........................................    11/15/90    1.071953
11/14/90........................................    12/15/90    1.067097
12/14/90........................................    01/15/91    1.062262
01/14/91........................................    02/15/91    1.057450
02/14/91........................................    03/15/91    1.052659
03/14/91........................................    04/15/91    1.047890
04/14/91........................................    05/15/91    1.043143
05/14/91........................................    06/15/91    1.038417
06/14/91........................................    07/15/91    1.033713
07/14/91........................................    08/15/91    1.029030
08/14/91........................................    09/15/91    1.024368
09/14/91........................................    10/15/91    1.019727
10/14/91........................................    11/15/91    1.015751
11/14/91........................................    12/15/91    1.011790
12/14/91........................................    01/15/92    1.007845
01/14/92........................................    02/15/92    1.003915
02/14/92........................................    03/15/92    1.000000
03/14/92........................................    04/15/92    0.996101
04/14/92........................................    05/15/92    0.992217
05/14/92........................................    06/15/92    0.988348
06/14/92........................................    07/15/92    0.984494
07/14/92........................................    08/15/92    0.980655
08/14/92........................................    09/15/92    0.976831
------------------------------------------------------------------------

    For example, the midpoint of a cost reporting period beginning 
January 1, 1991 and ending December 31, 1991 is June 30, 1991. An 
inflation adjustment factor of 1.033713 would be applied to the wages 
of a hospital with such a cost reporting period. In addition, for the 
data for any cost reporting period that began in FY 1991 and covers a 
period of less than 360 days or greater than 370 days, we annualized 
the data to reflect a 1-year cost report. Annualization is accomplished 
by dividing the data by the number of days in the cost report and then 
multiplying the results by 365.
    Step 4--For each hospital, we subtracted the reported excluded 
hours from the gross hospital hours to determine net hospital hours. We 
increased the net hours by the addition of any reported contract labor 
hours and home office hours to determine total hours.
    Step 5--As part of our editing process, we deleted data for 76 
hospitals that are no longer participating in the Medicare program or 
that are in bankruptcy status, and for which we lacked sufficient 
documentation to verify data that failed edits. We retained the data 
for other hospitals that are no longer participating in the Medicare 
program because these hospitals contributed to the relative wage levels 
in their labor market areas during their FY 1991 cost reporting period.
    Step 6--Within each urban or rural labor market area we added the 
total adjusted salaries plus fringe benefits obtained in Step 3 for all 
hospitals in that area to determine the total adjusted salaries plus 
fringe benefits for the labor market area.
    Step 7--We divided the total adjusted salaries plus fringe benefits 
obtained in Step 6 by the sum of the total hours (from Step 4) for all 
hospitals in each labor market area to determine an average hourly wage 
for the area.
    Step 8--We added the total adjusted salaries plus fringe benefits 
obtained in Step 3 for all hospitals in the nation and then divided the 
sum by the national sum of total hours from Step 4 to arrive at a 
national average hourly wage. Using the data as described above, the 
national average hourly wage is $18.2626.
    Step 9--For each urban or rural labor market area, we calculated 
the hospital wage index value by dividing the area average hourly wage 
obtained in Step 7 by the national average hourly wage computed in Step 
8.
    Comment: A few commenters suggested that we eliminate from the wage 
index computation, hospitals that have terminated their participation 
in the Medicare program. The commenters believe that wage data from 
terminated hospitals do not reflect the wages paid in a labor market 
area, since the terminated hospital may have no incentive to ensure 
accurate reporting of wage data in the final cost reporting period.
    Response: We have always maintained that any hospital that is in 
operation during the data collection period should be included in the 
database, since the hospital's data reflects conditions occurring in 
that labor market area during the period surveyed. Moreover, we believe 
that, in general, this is the most practical and equitable way to 
administer the data collection process, because it would be difficult 
to determine which terminated hospitals should be excluded. For 
example, if a hospital's participation in the Medicare program is 
terminated just before the publication of the prospective payment 
system proposed rule in May, or between the proposed rule and the 
publication of the final rule, it would be very difficult to ensure 
that such a hospital was identified as terminated, since our analysis 
of the database is accomplished well before the final rule is 
published.
    However, we agree that it is appropriate to eliminate data for 
terminated hospitals when there is reason to believe that the data are 
incorrect, and the data cannot be verified due to the facility's 
closure. We believe this is appropriate since in most cases any 
aberrant data reported by terminated hospitals cannot be evaluated for 
reasonableness because hospital records may not be available to the 
intermediaries.
    Each hospital is responsible for accurately completing the cost 
report and must attest to the accuracy of the data at the time the cost 
report is filed. If the wage data for a terminated hospital did not 
fail any of our edits for reasonableness, the hospital remains in the 
database and its data are used in developing the wage index for the 
labor market area. In preparing the data for the final wage index, we 
identified 76 terminated hospitals that reported questionable data and 
therefore were eliminated from the wage index database.
    Comment: Two commenters suggested that for wage index purposes we 
require hospitals to report Full Time Equivalent employees on a 
standardized basis of 2,080 hours worked. Commenters are concerned that 
inconsistent reporting of total hours results in inequities in the 
calculation of the average hourly rate. One commenter indicated that a 
hospital could manipulate this policy to increase its average hourly 
wage by recomputing the average hourly wage for an employee based on a 
7.5 hour day, thereby reporting 37.5 hours per week per employee.
    Response: We have always used total paid hours as opposed to total 
hours worked for calculating the average hourly rate. Total paid hours 
more accurately reflect all elements of total salary. We clarified the 
definition of total hours in the cost reporting instructions to specify 
that total hours mean total paid hours. Paid hours include regular 
hours, overtime hours (counted as a regular hour), and paid holiday, 
vacation, and sick leave hours or any other hours associated with paid 
time off such as jury duty or bereavement pay. These are included to 
achieve comparability among hospitals and to recognize all work hours 
for which the hospital paid wages. Salaries are based on a standard 
work period (such as 40 hours or 37.5 hours per week) that is specified 
by the hospital employer. This work period includes any time covered by 
paid leave, as well as any non-productive time for which the employee 
receives a salary (such as a paid lunch period or a 15-minute break). 
Hospitals are not asked to account for and/or subtract this non-
productive time, because the employee is being paid for the time. If a 
hospital elects to pay its employees based on a 7.5 hour day because 
employees are not paid for lunch and are free to leave the work site, 
and the overtime rate and other fringe benefits are based on the hourly 
rate computed based on the 7.5 work day, the hospital's labor 
distribution report would appropriately report hours based on 37.5 
hours per week.
    Additionally, we emphasize that hours reported must correspond to 
the salaries reported. If a salary is paid there should be 
corresponding hours. We anticipate that this clarification will result 
in more consistent reporting of total paid hours for wage index 
purposes.

C. Changes In the Reporting of Hospital Wage Index Data

    Currently, the data used to develop the wage index are submitted by 
hospitals on the Worksheet S-3, Part II, of the Medicare cost report. 
We developed this worksheet as part of the FY 1990 cost reports, and we 
used the worksheet to calculate the wage index for FY 1994. The 
worksheet has been evaluated by HCFA and industry representatives to 
ensure that this data collection mechanism captures relative wage costs 
as accurately as possible and to determine whether any refinements are 
appropriate. The Medicare Technical Advisory Group (MTAG) established a 
task force to study and recommend changes to the cost reporting form 
used to collect wage index data. The task force comprised hospital, 
intermediary, and HCFA representatives. The MTAG task force 
recommended, and we are implementing, three major changes to the 
Worksheet S-3, Part II; the provider cost report questionnaire (HCFA 
339); and accompanying instructions as discussed below. We note that 
the changes in the reporting of hospital wage index data, outlined 
below, are effective for cost reporting periods beginning on or after 
October 1, 1994. Therefore the changes will not affect the FY 1995 wage 
index, which is based on FY 1991 wage data.
1. The Elimination of Part A Physicians' and CRNA Salaries
    Currently, a hospital that directly employs and pays the salary of 
a physician can include the Part A portion of the physician's salary in 
total salaries reported on Worksheet S-3, Part II. (The Part B portion 
of physician salaries has always been excluded from the wage index.) 
However, if a hospital contracts for physician services, it is not 
permitted to include the Part A physician services as contract labor 
because we consider Part A physician services to be administrative, not 
direct patient-care related (currently, to be included in the 
computation of the wage index, contract labor must be directly related 
to patient care).
    Not all hospitals directly employ physicians. There are currently 
five States in which State laws specifically prevent hospitals from 
directly hiring physicians. Hospitals in these States are forced to 
contract out for physicians. The inability of these hospitals to 
include the Part A portion of the services as contract labor has been 
perceived as inequitable. In States where hospitals may directly employ 
physicians, the hospitals may include some of these characteristically 
high wages in the wage data, while in States where hospitals must 
contract for their physician services, these contract wages cannot be 
included in their wage data.
    As outlined in the proposed rule, we are providing on the Worksheet 
S-3, Part II, for the exclusion of all Part A physician costs 
regardless of whether the physician is a hospital employee or 
contractor. For purposes of this exclusion, physicians' salaries are 
defined as salaries applicable to positions for which a licensed 
physician is normally a prerequisite, such as a medical director of a 
department. Salaries for physicians employed in other positions that do 
not necessarily require a physician, such as hospital administrator, 
are not excluded.
    All hospitals must separately report any physicians' salaries (both 
Part A and Part B related) as part of the wage data reported on the 
Medicare cost report. This action should not require any additional 
reporting burden since these Part A physician salaries already are 
reported on the cost report (Worksheet A-8-2). Regarding Part A CRNA 
(certified registered nurse anesthetist) costs, we are requiring 
hospitals to exclude these salaries from the wage data reported on the 
cost report. In addition, salaries for interns and residents will be 
separately reported (see comments below).
    We note that these changes are effective for cost reporting periods 
beginning on or after October 1, 1994 and will not affect the current 
reporting of physicians and CRNA salaries.
    Comment: We received over 50 comments concerning our proposal to 
exclude from the computation of the wage index all physician salaries 
(including those associated with teaching physicians) and CRNA Part A 
services. Many commenters supported this proposal; some suggested that 
we also eliminate other salaries related to services paid outside the 
prospective payment system, such as the salaries of interns and 
residents. Other commenters suggested that rather than eliminate all 
physicians' salaries, we add contracted Part A physicians' services to 
the wage index computation. Some of these commenters argued that the 
administrative portion of physicians' salaries are included under the 
prospective payment system and should therefore continue to be included 
in the wage index. A number of commenters indicated concern about the 
redistributional effect of this change and suggested we collect all the 
necessary data components before implementing the new policy. In 
particular, several teaching hospitals stated that they would be 
affected adversely by the elimination of physician salaries from the 
computation of the wage index. Finally, several commenters asked that 
we clarify that only those salaries for positions that require a 
licensed physician be excluded from the wage data.
    Response: Consistent with past refinements of the hospital wage 
index to exclude those costs related to services not covered under the 
prospective payment system, we believe it is appropriate to exclude all 
salary costs associated with graduate medical education programs. 
Therefore, in addition to the exclusion of teaching physicians' salary 
costs, we are adopting the commenters' suggestion and will provide for 
the separate reporting (and possible exclusion from the wage index) of 
salary costs for interns and residents, since none of the costs 
associated with these services are paid under the prospective payment 
system. We believe that any redistributional effect on Medicare 
payments resulting from this change would be appropriate since teaching 
hospitals may be unfairly advantaged relative to other hospitals by the 
inclusion of graduate medical education costs in the prospective 
payment system wage index. Although this change may significantly 
affect teaching hospitals, we believe the timing of the change, which 
would not take effect for wage index purposes until FY 1999, will 
enable hospitals to anticipate a possible reduction in their wage index 
values. With respect to the exclusion of other Part A physicians's 
salary costs, we do not believe the redistributional effects would be 
significant given that these costs would be excluded for all hospitals 
nationwide. Since this change would apply equally to hospitals that are 
permitted to employ physicians and to those that must contract for 
physician services, we believe this revision would promote payment 
equity and provide more uniformity in the wage data across areas.
    With regard to the suggestion that we include all Part A physician 
costs (whether salaried or under contract) in computing the wage index, 
we continue to believe that eliminating all physicians' salaries is 
more appropriate than that alternative. As discussed in the proposed 
rule (59 FR 27721), we do not believe that physician costs are driven 
by normal labor market conditions and, in many cases, hospitals must 
hire physicians from outside of their recruiting areas. Second, many 
hospitals have indicated that they have difficulty accurately 
determining the hours for the physicians attributable to Part A 
services, especially for those under contract. Third, we have found 
that some hospitals that employ physicians are not appropriately 
eliminating Part B physician salaries from the total salaries reported 
for the wage index as required in the cost reporting instructions. 
Thus, we believe that inclusion of all Part A physician costs would not 
accurately reflect relative wages across areas.
    We believe that the exclusion of all Part A physician costs (even 
though a portion of these costs not related to teaching activities is 
recognized under the prospective payment system) is the approach that 
would provide the greatest uniformity across areas. Since most 
hospitals incur costs associated with Part A physicians contracts, we 
do not believe the relative wage index values would vary greatly across 
areas under either approach. However, as suggested by commenters, we 
will revise the cost reporting form, effective for cost reporting 
periods beginning on or after October 1, 1994, to collect separately 
additional data elements needed to evaluate the appropriateness of this 
change as part of the FY 1999 wage index update.
    With respect to the elimination of CRNA Part A services, we note 
first that these Part A services are currently paid on a ``pass-
through'' basis, outside the prospective payment system. Therefore, we 
believe it is appropriate to exclude these costs from the wage index. 
Moreover, this Part A pass-through provision is applicable to a limited 
number of hospitals (small rural hospitals). All other hospitals are 
paid for CRNA services under Part B of the Medicare program. Therefore, 
in order to ensure consistency across areas, we believe that no CRNA 
costs should be reflected in the wage index computation. CRNA services 
are generally excluded from the wage index as Part B services. Since 
the Part A portion was granted as a pass-through for certain rural 
hospitals, it is currently included in the wage index. In addition, we 
have seen several examples during our editing process where the hours 
associated with these services are difficult to determine. CRNAs bill 
on 15-minute intervals during surgery; however, time before or after 
the billing time (that is, actual surgery time) is difficult to 
determine from time records yet is part of the time CRNAs devote to a 
particular patient.
    Finally, as specified in the proposed rule, salaries for physicians 
employed in positions (such as hospital administrator) for which a 
licensed physician is not normally a prerequisite, would not be 
reported as physician's salaries. The hospital is responsible, however, 
for providing its fiscal intermediary with the necessary documentation 
to allow an appropriate determination with respect to these salaries.
    Therefore, effective with cost reporting periods beginning on or 
after October 1, 1994, we are revising the Medicare cost report to 
provide for the separate reporting of all salary costs for physicians 
(including teaching physicians), interns and residents, and CRNAs. 
After evaluating these data, we will propose appropriate changes to the 
FY 1999 wage index update.
    Comment: One commenter suggested that we exclude the salaries 
associated with several other services that could be billed under Part 
B, such as the services of nurse midwives, nurse practitioners, 
clinical psychologists, and clinical social workers. The commenter 
believes these services should be eliminated since they are similar to 
Part B physician services, which are currently excluded from the wage 
index data.
    Response: While we believe it is appropriate to remove from the 
wage index data salaries not included in the prospective payment 
system, we think that it would be difficult to accurately distinguish 
between Part A and Part B services for the services mentioned by the 
commenter. It is also unclear to us if the hospitals and intermediaries 
will have the documentation to distinguish between the time spent on 
Part A services performed by these employees and time spent on Part B 
billable services. In addition we believe that these costs are 
relatively small, and therefore would have an insignificant effect on 
the wage index. However, we will continue to examine this issue, and, 
if we find these costs are substantial and can be documented, we will 
propose future changes to the reporting of hospital wage data.
2. Management Contracts
    The second major change concerns the inclusion of certain 
management contracts in the hospital wage index data. Before FY 1994, 
the wage index did not include any costs associated with contract 
services. However, many hospitals indicated that they were 
inappropriately disadvantaged because they were forced to contract out 
for nurses and technicians due to shortages of these services in their 
areas. To alleviate this problem, we revised the cost report to collect 
the data associated with any direct patient care service contract (that 
is, nursing, therapeutic, etc.). We specifically excluded any Part B 
services, Part A physician services, management contracts, or any 
contract for services not directly involved with patient care.
    The hospital industry has expressed concern that we do not 
currently recognize the cost of certain contract management services. 
In particular, many rural hospitals that are either unable to recruit 
or cannot afford top managers such as hospital administrators must 
contract for the services of these individuals. Therefore, we believe 
it is appropriate to include the costs of certain management contracts 
in the wage index. We are expanding the definition of contract services 
reported on the Worksheet S- 3 to include the personnel cost associated 
with contracts for any personnel hired in the top four positions within 
the hospital. Allowable contract management services would be limited 
to the personnel costs for those individuals who are working at the 
hospital facility in the capacity of the Chief Executive Officer (CEO)/
Hospital Administrator, Chief Operating Officer (COO), Chief Financial 
Officer (CFO), or Nursing Administrator. The exact titles assigned to 
individuals may vary but the individuals should be performing 
essentially the same duties as customarily assigned these management 
positions.
    Hospitals (via HCFA-339 form) will be required to provide fiscal 
intermediaries with complete details on all direct patient care related 
contracts and the description and aggregate totals for all management 
contracts. Because of the difficulty in accurately determining hours 
and isolating wage related costs for the other types of contract 
services, the wage data will continue to exclude all non-patient care 
contract services except those limited management contracts discussed 
above.
    Since the current cost report does not provide for the collection 
of management contract data, this revised definition will not be 
effective until cost reporting periods beginning on or after October 1, 
1994. To provide consistent reporting of data, hospitals must continue 
to exclude all management contracts until the FY 1995 data is reported.
    Comment: One commenter suggested that contract labor be included in 
the wage index calculation if it is for services for which many 
hospitals in the country routinely employ contract personnel.
    Response: The services for which hospitals employ contract 
personnel vary considerably across the country. Furthermore, the cost 
of contract labor is generally higher than the cost of non-contract 
labor for the same service. Many times, the cost of contract labor will 
include costs for other non-wage related items such as supplies or 
equipment, and thus may not accurately reflect relative hospital wage 
rates across labor market areas.
    Before FY 1994, the wage index did not include any costs associated 
with contract services. However, in response to the concerns of 
hospitals in areas experiencing nursing shortages that must rely on 
contract labor sources, we included in the computation of the wage 
index contract labor costs for services directly related to patient 
care. Because of the difficulty in accurately determining hours and 
isolating wage-related costs for contract services not directly related 
to patient care, the wage data will continue to exclude all non-patient 
care contract services except certain top management contracts, which 
will be reported separately on the Worksheet S-3, Part II.
    Comment: A few commenters asked why we did not include the position 
of Medical Director in the definition of the top management contract 
personnel at the hospital that may be included on Worksheet S-3 of the 
cost report.
    Response: The position of Medical Director must be filled by a 
licensed physician. Thus, the duties performed by the Medical Director 
would be described as a Part A physician's salary. Therefore, excluding 
these types of management contracts is consistent with our revised 
reporting policy and potential exclusion of physician salaries from the 
wage index data.
    Comment: We received one comment requesting that HCFA clarify the 
status of direct patient care service contracts. The commenter was 
confused about whether one hospital may report the cost and hours 
related to contract services furnished at another prospective payment 
system hospital.
    Response: We believe there are two situations for which 
clarification is needed. In each case, hospitals must take care to 
avoid duplicate reporting of the costs and hours of the contract 
services.
    In the first case, Hospital A may contract out the services of its 
nurses to Hospital B. In this case, Hospital A may not claim the 
salaries paid to those nurses on the Worksheet S-3, Part II, while they 
are working at Hospital B. Instead, Hospital A must deduct the salaries 
and corresponding hours associated with the time the nurses worked at 
the other facility. Hospital B, however, can include the payment and 
corresponding hours for the nurses as direct patient care related 
contract labor.
    In the second case, Hospital A sends a patient to Hospital B for 
tests and procedures that Hospital A cannot provide. Hospital A cannot 
claim the labor portion of the amounts paid to Hospital B for contract 
labor. We consider this type of arrangement as a purchased service 
rather than contract labor. In this situation, the scope of the 
contracted service involves more than the services of nurses or 
technicians. The associated ancillary services provided also include 
costs for supplies, equipment, etc. In many cases hospitals are unable 
to accurately provide a breakdown of their charges to show how much is 
attributable to direct patient care services as opposed to the supplies 
and equipment used to provide those services. Because of the difficulty 
of accurately determining the labor portion of such contracted 
services, and given the fact that the employees do not work on the 
hospital's premises, Hospital A cannot claim this as contract labor for 
purposes of the wage index. We believe that this is consistent with our 
goal of establishing a uniform method for collecting wage data.
3. Reporting of Wage-Related Costs
    Since we began including fringe benefits in the wage index, we have 
been concerned with the inconsistent reporting of fringe benefits, 
whether because of a lack of provider proficiency in identifying fringe 
benefit costs or varying interpretations across fiscal intermediaries 
of the definition for fringe benefits in PRM-I, Sec. 2144.1. Although 
we have attempted to promote consistent reporting of fringe benefits by 
providing fiscal intermediaries with general guidelines to be used in 
determining allowable fringe benefit costs, the intermediaries must 
necessarily make judgments as to whether certain costs qualify as a 
fringe benefit, and inconsistencies persist.
    Last summer, HCFA conducted a survey to determine what costs the 
health care industry thought should be recognized as fringe benefit 
costs. The survey consisted of a questionnaire with a yes/no response 
column and a column for comments. We received 238 responses from 
hospitals, fiscal intermediaries, state hospital associations, national 
hospital associations, state agencies, and bureaus and offices within 
HCFA. The results of those surveys were examined closely by the MTAG 
task force.
    Based on the recommendations of the task force, we are making 
several changes that we believe will promote more equitable and 
consistent reporting of wage-related costs for all hospitals. Where the 
term ``fringe benefit'' has been used in the past, we will now refer to 
these costs as ``wage-related costs'' for wage index purposes. We 
believe that this change in terminology will eliminate the confusion 
regarding those wage-related costs that we will allow to be 
incorporated in the wage index versus the definition of fringe benefits 
required by Medicare principles for cost reimbursement purposes. 
Accordingly, we are revising the Worksheet S-3, Part II, to capture 
wage-related costs in three parts.
    a. Wage-Related Costs (Core). For most hospitals, the wage-related 
costs used to develop the wage index would be limited to ``core'' wage-
related costs. The list of ``core'' wage-related costs includes all 
commonly recognized costs that contribute significantly to the wage 
costs of a hospital and that are readily identifiable on the hospital 
records. These costs will also be listed on the revised HCFA-339 form, 
and hospitals will be required to provide the intermediary with a 
detailed description of the wage-related costs in Exhibit 7. This 
description will allow the intermediary to review the appropriateness 
of each wage-related cost. We believe that this core list includes 
virtually all significant wage- related costs, including those costs 
that are required by statute.
    To develop the list of core wage-related costs, the MTAG task force 
established a number of specific criteria. To be considered a core 
wage-related cost, one or more of the following criteria must be met:
     The wage-related cost is provided at a significant 
financial cost to the employer.
     The wage-related cost is of a type and nature that would 
generally be offered as a fringe benefit by most employers.
     The perceived value of this wage-related cost is of such 
importance that it would influence an individual's employment 
decisions.
     The wage-related cost is a mandatory requirement under 
Federal or State law (for example FICA, Federal and State unemployment, 
etc.).
     Fees paid to external organizations that are directly 
associated with the core wage-related costs may be included as part of 
the wage-related cost (for example, actuarial fees, claim 
administration fees, IRS form preparation fees, etc.).
    The following is the list of core wage-related costs:

(1) Retirement Costs:
    401(k) employer contributions
    Tax sheltered annuity (TSA) employer contributions
    Qualified and non-qualified pension plan cost
    Prior year pension service cost
(2) Plan Administration Costs (Paid to external organization):
    401(k)/TSA plan administration fees
    Legal/accounting/management fees--pension plan
    Employee managed care program administration fees
(3) Health and Insurance Costs:
    Health insurance (purchased or self-funded)
    Prescription drug plan
    Dental, hearing, vision plans
    Life insurance (if employee is owner or beneficiary)
    Accident insurance (if employee is owner or beneficiary)
    Disability insurance (if employee is owner or beneficiary)
    Long-term care insurance (if employee is owner or beneficiary)
    Worker's compensation insurance
    Retiree health care cost (only current year, not the extraordinary 
accrual required by FASB 106 (that is, the non-cumulative portion))
(4) Taxes:
    FICA--employer's portion only
    Medicare taxes--employer's portion only
    Unemployment insurance
    State or Federal unemployment taxes
(5) Other:
    Executive deferred compensation
    Day care cost and allowances
    Tuition reimbursement

    b. Other Wage-Related Costs. A hospital may be able to report a 
wage-related cost that does not appear on the core list if it meets all 
of the following criteria:
     The wage-related cost is provided at a significant 
financial cost to the employer. To meet this test the individual wage-
related cost must be greater than 1 percent of total salaries after the 
direct excluded salaries are removed (Column 3, line 3 on Worksheet S-
3, Part II).
     The wage-related cost would be a fringe benefit if 
reported to the IRS as a fringe benefit in accordance with IRS 
requirements.
     The wage-related cost has not been furnished for the 
convenience of the provider.
    We note that those wage-related costs that are required to be 
reported to the IRS as salary (for example, loan forgiveness and sick 
pay accruals) would not be included as other wage-related costs, since 
the costs associated with these items are considered salaries and would 
already be included in the total salaries reported on line 1.01 of the 
Worksheet S-3, Part II.
    c. Wage-Related Costs (Excluded Area). Wage-related costs 
associated with employees in areas of the hospital that are excluded 
from the data used to calculate the wage index (such as a hospital-
based SNF) should be removed from the total wage-related costs. This is 
not a new policy; however, to ensure that hospitals are removing these 
costs, we have added a new line on the Worksheet S-3, Part II.
    In addition to the above changes, beginning on or after October 1, 
1994, hospitals are required to follow Generally Accepted Accounting 
Principles (GAAP) in developing the wage-related costs contained in the 
Worksheet S-3, Part II, for purposes of the hospital wage index. 
Medicare principles, however, will continue to apply in determining the 
allowability of fringe benefit costs. The MTAG task force recommended 
application of GAAP for purposes of developing wage-related costs used 
to construct the hospital wage index. We believe it is appropriate to 
apply GAAP for these purposes because the function of the wage index is 
to measure relative hospital labor costs across areas. This function is 
distinct from that of cost reimbursement, in which applicable Medicare 
principles (which may differ from GAAP) measure the actual costs 
incurred by individual hospitals. We believe the application of GAAP 
for purposes of compiling data on wage-related costs used to construct 
the wage index will more accurately reflect relative labor costs, 
because certain wage-related costs (such as pension costs) as recorded 
under GAAP tend to be more static from year to year. Application of 
Medicare principles, on the other hand, could create large swings in 
these costs from year to year, particularly in years when there are 
large over- or under-funded pension estimates; such application might 
lead to a wage index that does not accurately reflect relative labor 
costs. Again, we emphasize that GAAP applies only for purposes of 
developing wage-related costs on Worksheet S-3 Part II. Our policy 
requiring the use of applicable Medicare principles for determining 
fringe benefits for all other purposes remains unchanged.
    The revised cost report and the HCFA-339 forms are currently being 
evaluated by the Office of Management and Budget. Once these forms are 
approved, we propose to implement the form to collect wage data for any 
cost report beginning on or after October 1, 1994.
    Comment: One commenter believes that the internal administration 
costs of many types of core wage-related costs, such as health and 
insurance costs, dental, prescription drug plans, etc., should be 
included as part of the wage-related cost. The commenter states that 
some organizations administer these wage-related costs internally as a 
cost-saving measure and that these administration costs should be 
included, just as fees paid to external organizations are included in 
the calculation of the core wage-related cost. To do otherwise, the 
commenter suggested, would encourage a more costly method of 
administration and penalize a more efficient one.
    Response: In the proposed rule we listed core wage-related costs 
including health and insurance costs. We did not intend to exclude 
internal administration costs from this list. For example, the proposed 
rule included a parenthetical reference that specified that health 
insurance costs could be purchased or self-funded (59 FR 27722). We 
encourage hospitals to be cost-conscious and efficient in their 
administration of health and insurance costs. However, amounts paid to 
employees within the hospital are already accounted for in the total 
wages paid, and therefore should not be included as part of this wage-
related cost.
    Comment: Several commenters addressed the proposed changes to the 
reporting of wage-related costs on the Worksheet S-3, Part II. 
Virtually all commenters supported the establishment of a core list of 
wage-related costs, although many suggested variations in the items 
included on the core list. Specifically, commenters suggested we add 
items such as: moving expenses, health related costs (that is, 
physicals, discounted inpatient and outpatient services), parking 
expenses, malpractice expenses, employee assistance programs, hospital 
sponsored continuing medical education, professional organization dues, 
cafeteria discounts, outpatient services, and any fringe benefit that 
is reported to the IRS.
    We also received a number of comments with respect to our proposed 
criteria for including additional wage-related costs that were not 
reflected in the core list. Some stated that the 1 percent criterion 
for qualifying as an ``Other'' wage-related cost was too high. A few 
commenters suggested that we apply the 1 percent test on total salaries 
and wage-related costs prior to the elimination of wages and related 
costs for the excluded areas. Other comments stated that the second and 
third criteria for qualifying as other wage-related costs are 
repetitive, and that we should eliminate the IRS reporting requirement.
    Response: We developed the list of core wage-related costs in 
conjunction with the MTAG Task Force. Our goal was to establish a list 
of commonly recognized costs that contribute significantly to the wage 
costs of a hospital and are readily identifiable on the hospital 
records. We believe the final core list includes virtually all 
significant wage-related costs, including those costs that are required 
by statute. As part of the process of developing the core list, members 
of the MTAG Task Force conducted a limited analysis to determine what 
percentage of total fringe benefits or wage-related costs would be 
captured using the core list. On average, this percentage exceeded 90 
percent for hospitals that were included in the analysis. However, we 
were concerned that individual hospitals might incur unusually large 
wage-related costs that are not reflected on the core list but that may 
represent a significant wage-related cost. Therefore, the task force 
recommended that hospitals be allowed to include other wage-related 
costs if they meet each of the three criteria listed above.
    The provision to include wage-related costs other than those 
reflected on the core list is intended to recognize only those limited 
circumstances where a hospital incurs any additional wage-related cost 
items that truly represent a significant financial burden to the 
hospital, but that also meet the current definition of a fringe benefit 
cost. We believe the 1 percent threshold is an appropriate measure of 
significance, and that the exclusion of any cost representing less than 
1 percent of total salaries would not significantly affect the 
hospital's overall average hourly wage. We consider the 1 percent test 
critical in ensuring that providers only include other wage-related 
costs that contribute significantly to their wage costs and that are 
not accounted for in the core list. In addition, we believe the 1 
percent test should be calculated using total salaries net of all 
direct excluded salaries since the excluded salaries and wage-related 
costs are removed from the wage index calculations.
    Finally, we believe it is appropriate to retain the IRS reporting 
requirement, where applicable. Since there are many cost items that may 
or may not qualify as a fringe benefit depending on the individual 
hospital's circumstances, we believe this requirement delineates 
certain of those costs (such as employee meal costs) as a recognized 
fringe benefit cost. Therefore, we believe that the second and third 
criteria play important parts in determining the allowability of the 
other wage-related costs.
    Comment: We also received specific comments concerning retiree 
health care costs and professional liability insurance costs. With 
respect to retiree health care costs, some commenters requested we 
allow not only the current year cost, but also any extraordinary 
accruals. One commenter stated that these costs should be eliminated 
from the core list because they are unrelated to the current employee 
workforce. With respect to professional liability insurance costs, 
commenters requested that we clarify those situations where these costs 
would be recognized as an ``other'' wage-related cost for purposes of 
the wage index.
    Response: With respect to retiree health insurance costs, we 
believe that the extraordinary accruals should be excluded because such 
accruals are not representative of the current wage costs to the 
hospital. Although costs associated with retired employees also do not 
reflect the current workforce, we believe that the availability of 
retiree health insurance benefits is a significant factor affecting the 
employment decisions of the current workforce and therefore should be 
included as a core wage-related cost.
    To clarify the allowability of malpractice insurance costs for 
purposes of the wage index, only those policies that list actual names 
or specific titles (for example, President of the hospital) of covered 
employees may be included in the wage index. General malpractice 
liability coverage maintained by hospitals is not recognized as a wage-
related cost for purposes of the wage index. We note that effective 
with cost reporting periods beginning on or after October 1, 1994, 
malpractice insurance costs related to salaried physicians should be 
separately reported since physicians' salary costs may be excluded from 
the wage index in FY 1999.
    Comment: One commenter requested that HCFA release a summary of the 
results of the fringe benefit survey conducted last summer to determine 
what costs the health care industry thought should be recognized as 
fringe benefits.
    Response: We will make the results of the survey available to 
anyone requesting the data in writing. Requests may be sent to the 
following address: Division of Hospital Payment Policy; Attn: Lana 
Price; 1-H-1 East Low Rise; 6325 Security Boulevard; Baltimore, 
Maryland 21207.
    Comment: A few commenters addressed the exclusion of wage-related 
costs associated with excluded areas within the hospital. Commenters 
requested detailed guidelines to follow when determining the wage-
related costs for excluded areas.
    Response: As indicated in the proposed rule, we are revising the 
Worksheet S-3, Part II, to incorporate an additional line to ensure 
that wage-related costs for any areas excluded from the wage index 
calculation are removed from the total wage-related costs reported by 
the hospital. Our policy on the removal of fringe benefits associated 
with excluded salaries is not new. Since not all hospitals are able to 
specifically identify wage-related costs attributable to individuals 
who work in the excluded areas, we believe it is appropriate to exclude 
a percentage of wage-related costs based on the relationship between 
the salaries paid in the excluded areas of the hospital to total 
salaries paid. The hospital must make available to its intermediary 
calculations used to determine these excluded wage-related costs.
    Comment: Many commenters supported the utilization of Generally 
Accepted Accounting Principles (GAAP) in reporting wage-related costs 
beginning October 1, 1994. However, a few commenters raised concerns 
over its implementation, citing differences between the requirements of 
GAAP and the IRS. Since GAAP is not always consistent with IRS rules, 
they suggested that IRS rules should not be applied with respect to 
items such as tuition reimbursement, automobile/transportation 
allowances, or the unrecovered costs of employee meals.
    Response: We continue to believe the application of GAAP for 
purposes of compiling data on wage-related costs used to construct the 
wage index will more accurately reflect relative labor costs, because 
certain wage-related costs (such as pension costs) as recorded under 
GAAP tend to be more static from year to year.
    We have added to the form HCFA-339, Exhibit 7, Part 3, a 
reconciliation worksheet to aid hospitals and fiscal intermediaries in 
moving between GAAP when developing wage-related costs and Medicare 
principles when determining reimbursable costs. All providers must 
complete this reconciliation form.
    The differences between GAAP and IRS requirements, relate to the 
reporting of expenses on an entity's tax return and do not relate to 
whether a specific item is a fringe benefit that must be reported to 
the IRS as income to the employee receiving the benefit. We believe 
that following IRS requirements with respect to the reporting of fringe 
benefits as employee income is appropriate. Thus, items such as the 
unrecovered cost of employee meals, tuition reimbursement, and auto 
allowances will only be allowed as a wage-related cost for purposes of 
the wage index if properly reported to the IRS on an employee's W-2 
form as a fringe benefit.
    Comment: Five commenters suggested that, in addition to excluding 
the direct salaries and hours for sub-provider components of the 
hospital, HCFA should also exclude the general service, or overhead, 
wages and hours that are associated with these areas. Most of the 
commenters believe that exclusion of only the direct salaries is unfair 
to hospitals with sub-providers since the average hourly wages of the 
general service cost centers, such as Dietary/Food Service, and 
Housekeeping and Laundry Services, are usually lower than a particular 
facility's nursing unit costs. Further, the commenters state that these 
hospitals do incur additional general service costs relative to the 
exempt area, and these costs should be accounted for in the excluded 
wage data. They believe that, by removing the higher nursing costs and 
leaving in the lower general service costs, the hospital's average wage 
per hour is artificially weighted downward.
    Response: In 1993, we considered making an allocation of overhead 
salaries and hours for the excluded components of the hospital. In 
response to requests from the hospital industry for exclusion of 
additional costs, we initiated a special data collection to obtain the 
hours associated with workers in the general service areas of those 
hospitals that reported excluded salaries and hours. We received 
general service hour data for 3,811 of the 5,436 hospitals for which we 
had wage data. We analyzed this special survey data in conjunction with 
the wage data from the cost report to determine whether we could 
reasonably allocate the overhead wages and hours to the excluded areas 
of the hospital. For several reasons, we concluded that it was not 
feasible to allocate overhead wages and hours to the excluded areas of 
the hospital.
    Our analysis revealed that the average hourly wage for a large 
proportion of hospitals would decrease rather than increase as a result 
of performing the allocation. This unexpected result contributed to our 
conclusion that the data collected regarding overhead hours were 
inaccurate. Because of the large number of hospitals removed through 
the edit process, which was discussed in detail in the May 26, 1993 
proposed rule (58 FR 30237), the large number of hospitals with large 
swings in their average hourly wages, and the large proportion of 
hospitals whose average hourly wage would decrease rather than 
increase, we continue to believe it would be inappropriate to employ 
the allocation of general service salaries and hours to the excluded 
areas of hospitals in constructing the FY 1995 wage index.
    We agree with these commenters that it would be reasonable to 
exclude some portion of the general service costs associated with those 
areas of the hospital that are excluded from the wage index calculation 
once an accurate and uniform allocation method is devised. Although 
many hospitals have attempted to make this calculation independently, 
we have instructed the fiscal intermediaries that independently 
determined allocation methods are unacceptable. We do not believe it is 
appropriate to allow some hospitals to allocate certain overhead 
salaries to the excluded areas, while other hospitals do not. We plan 
to re-examine this issue based on the data reported on the FY 1992 cost 
report, which include the general service hours reported on line 16 of 
the Worksheet S-3, Part II, and hope to propose an allocation method 
all hospitals can use. In addition, we have proposed a change to the 
Worksheet S-3, Part III, to collect overhead cost data for excluded 
areas effective with cost reporting periods beginning October 1, 1994. 
Therefore, we will continue to collect data and attempt to produce a 
more accurate and uniform allocation method that can be used by all 
hospitals with excluded areas and that will provide data the 
intermediary can verify. We will discuss our analysis of the FY 1992 
overhead data in the FY 1996 proposed rule.
    Comment: Several of the commenters who supported the proposed 
revisions to the reporting of wage data with respect to Part A 
physician costs, management contracts, and wage-related costs advocated 
the immediate implementation of such changes. They suggested that we 
reopen previous cost reports and collect the necessary data to effect a 
revised wage index based on these changes as early as FY 1995. They 
stated that making these changes effective with cost reports beginning 
on or after October 1, 1994 will extend inequities until FY 1999.
    Response: Making immediate changes in the wage index based on the 
revised reporting requirements would be inappropriate for several 
reasons. First, the data necessary to institute these changes 
immediately are not available. Currently, relevant detailed data have 
not been collected for Part A physician salaries, CRNA services, fringe 
benefits or management contracts that would enable us to immediately 
implement these changes. Moreover, the collection of additional data 
applicable to prior periods would create a significant reporting burden 
for hospitals. As indicated earlier, we are revising the Worksheet S-3, 
Part II, to identify separately Part A and Part B physician services 
for potential exclusion from the wage data.
    In addition, it has always been our policy not to apply policy 
changes retroactively. The revisions to our policies regarding the 
reporting of wage-related costs represent a change in policy. The 
current policies are still in effect for the FY 1992 cost reports that 
will be used in computing the FY 1996 wage index. Since the prior cost 
reporting periods have already ended or are about to close for many 
providers, we do not believe it is appropriate to change the reporting 
rules retroactively. Further, it would not be fair to hospitals to 
require that they retroactively revise their recordkeeping systems to 
accommodate these changes.
    Finally, while it is true that adjustments to the wage index will 
not be reflected until FY 1999, this allows time for hospitals that may 
be adversely affected to adjust their fiscal plan. The changes we are 
implementing on the reporting of wage data are extensive and will 
likely result in some payment shifts. We believe that it is incumbent 
upon us to allow hospitals sufficient time to adjust their operations 
so they can continue to provide efficient and quality services to all 
beneficiaries. Therefore, to ensure that hospitals have ample time to 
adjust for the changes in the reporting of wage data, all changes will 
be effective for cost reporting periods beginning on or after October 
1, 1994, and thus are scheduled to be reflected in the wage index for 
FY 1999.

D. Revisions to the Wage Index Based on Hospital Redesignation

    Under section 1886(d)(8)(B) of the Act, hospitals in certain rural 
counties adjacent to one or more Metropolitan Statistical Areas (MSAs) 
are considered to be located in one of the adjacent MSAs if certain 
standards are met. Under section 1886(d)(10) of the Act, the Medicare 
Geographic Classification Review Board (MGCRB) considers applications 
by hospitals for geographic reclassification for purposes of payment 
under the prospective payment system.
    The methodology for determining the wage index values for 
redesignated hospitals is applied jointly to the hospitals located in 
those rural counties that were deemed urban under section 1886(d)(8)(B) 
of the Act and those hospitals that were reclassified as a result of 
the MGCRB decisions under section 1886(d)(10) of the Act. Section 
1886(d)(8)(C) of the Act provides that the application of the wage 
index to redesignated hospitals is dependent on the hypothetical impact 
that the wage data from these hospitals would have on the wage index 
value for the area to which they have been redesignated. Therefore, 
pursuant to section 1886(d)(8)(C) of the Act, the wage index values 
were determined by considering the following:
     If including the wage data for the redesignated hospitals 
reduces the MSA wage index value by 1 percentage point or less, the MSA 
wage index value determined exclusive of the wage data for the 
redesignated hospitals applies to the redesignated hospitals.
     If including the wage data for the redesignated hospitals 
reduces the wage index value for the area to which the hospitals are 
redesignated by more than 1 percentage point, the hospitals that are 
redesignated are subject to the wage index value of the area that 
results from including the wage data of the redesignated hospitals (the 
``combined'' wage index value). However, the wage index value for the 
redesignated hospitals cannot be reduced below the wage index value for 
the rural areas of the State in which the hospitals are located.
     Rural areas whose wage index values would be reduced by 
excluding the data for hospitals that have been redesignated to another 
area continue to have their wage index calculated as if no 
redesignation had occurred. Those rural areas whose wage index value 
increases as a result of excluding the wage data for the hospitals that 
have been redesignated to another area have their wage index calculated 
exclusive of the redesignated hospitals.
     The wage index value for an urban area is calculated 
exclusive of the wage data for hospitals that have been reclassified to 
another area. However, geographic reclassification may not reduce the 
wage index for an urban area below the Statewide rural average, 
provided the wage index prior to reclassification was greater than the 
Statewide rural wage index value.
     Section 13501(b) of Public Law 103-66 amended section 
1886(d)(8)(C) of the Act to provide that a change in classification of 
hospitals from one area to another may not result in the reduction in 
the wage index for any urban area whose wage index is below the rural 
wage index for the State. This provision also applies to any urban area 
that encompasses an entire State.
    We note that, except for those rural areas where redesignation 
would reduce the rural wage index value, and in the situation described 
above that was addressed by section 13501(b) of Public Law 103-66, the 
wage index value for each area is computed exclusive of the data for 
hospitals that have been redesignated from the area for purposes of 
their wage index. As a result, several MSAs listed in Table 4a have no 
hospitals remaining in the MSA. This is because all the hospitals 
originally in these MSAs have been reclassified to another area by the 
MGCRB. For those areas, we have listed the Statewide rural wage index 
value.
    The revised wage index values effective for discharges occurring on 
or after October 1, 1994 are shown in Tables 4a, 4b, and 4c of the 
addendum to this final rule. Hospitals that are redesignated should use 
the wage index values shown in Table 4c. For some areas, more than one 
wage index value will be shown in Table 4c. This occurs when hospitals 
from more than one State are included in the group of redesignated 
hospitals, and one State has a higher Statewide rural wage index value 
than the wage index value otherwise applicable to the redesignated 
hospitals. Tables 4d and 4e list the average hourly wage for each labor 
market area based on the FY 1991 wage data. In addition, we have 
expanded Table 3c (Hospital Case-Mix Indexes for Discharges) to include 
the average hourly wage for each hospital based on the FY 1991 data. 
Hospitals may use the average hourly wage published in the final rule 
for purposes of applying to the MGCRB for wage index reclassifications 
in FY 1996. We note that in adjudicating these wage reclassification 
requests during FY 1995, the MGCRB will use the average hourly wages 
for each hospital and labor market area that are reflected in the final 
FY 1995 wage index.
    The FY 1995 wage index values incorporate all reclassification 
decisions made by the MGCRB for FY 1995. At the time the final wage 
index was constructed, the MGCRB had completed its review. Any changes 
to the wage index that result from withdrawals of requests for 
reclassification, wage index corrections, appeals, and the 
Administrator's review process have also been incorporated into the 
wage index values published in this final rule. There were 425 
hospitals redesignated for purposes of the wage index (including 
hospitals redesignated under both sections 1886(d)(8)(B) and 
1886(d)(10) of the Act).
    Comment: One commenter suggested that we incorporate the MSA code 
for each area in table 4A.
    Response: Since many users may have a need for the MSA code, we 
have revised Table 4A by including the 4-digit MSA code to the left of 
the name of each area.

E. Impact of the Revised Hospital Wage Index

    Section 1886(d)(3)(E) of the Act requires that the wage index be 
updated annually beginning October 1, 1993. In addition, this section 
requires that updates to the hospital wage index be budget neutral. The 
FY 1995 wage index represents the second annual update to the wage 
data. We used the wage data from the FY 1991 Medicare cost report to 
calculate the updated wage index. For FY 1995, the wage index will 
continue to include salaries, fringe benefits, home office salaries, 
and certain contract labor salaries. In the past, updates to the wage 
data have resulted in significant payment shifts among hospitals. Since 
the wage index is now updated annually and there are no changes to the 
types of costs included in the wage index data, we expect these payment 
fluctuations will be minimized. Based on the wage index calculation 
(after reclassifications under sections 1886(d)(8)(B) and 1886(d)(10) 
of the Act), there is a significant drop, compared with previous years, 
in the number of labor markets that experience major increases or 
decreases in wage index values. We reviewed the data for any area that 
experienced a wage index change of 10 percent or more to determine the 
reason for the fluctuation. When necessary, we contacted the 
intermediaries to determine the validity of the data, or to obtain an 
explanation for the change. Our review indicated that most of the 
significant changes were attributable to improved reporting by 
hospitals.
    The following chart compares the shifts in wage index values (after 
reclassifications) for labor markets for FY 1995 with those experienced 
as a result of last year's wage index update.

------------------------------------------------------------------------
                                                         Number of labor
                                                          market areas  
      Percentage change in area wage index values      -----------------
                                                        FY 1995  FY 1994
------------------------------------------------------------------------
Increase more than 10 percent.........................        2       13
Increase between 5 and 10 percent.....................        4       24
Decrease between 5 and 10 percent.....................       13       58
Decrease more than 10 percent.........................       10       14
------------------------------------------------------------------------

    Under the FY 1995 wage index, 90.6 percent of all prospective 
payment hospitals (5,325 hospitals) would experience a change in their 
wage index value of less than 5.0 percent. Approximately 4.7 percent 
(248 hospitals) would experience a change of between 5 and 10 percent, 
and 4.8 percent (255 hospitals) would experience a change of more than 
10 percent. The following chart shows the projected impact for urban 
and rural hospitals. (The totals in this chart exceed the number of 
hospitals in our database because our projection includes new hospitals 
and hospitals that for other reasons are not included in our wage 
file.) 

------------------------------------------------------------------------
                                                            Number of   
                                                            hospitals   
      Percentage change in area wage index values      -----------------
                                                         Rural    Urban 
------------------------------------------------------------------------
Decrease more than 10 percent.........................       98       70
Decrease between 5 and 10 percent.....................       24       61
Change between -5 and +5 percent......................    2,116    2,706
Increase between 5 and 10 percent.....................       41      122
Increase more than 10 percent.........................       68       19
------------------------------------------------------------------------

F. Medicare Geographic Classification Review Board--Elimination of the 
Adjacency Requirement for Individual Hospital Reclassifications

1. Background
    Section 1886(d)(10) of the Social Security Act (the Act) provides 
for the establishment of the Medicare Geographic Classification Review 
Board (MGCRB). The MGCRB is responsible for issuing decisions on 
applications submitted by hospitals seeking reclassification to another 
geographic area for purposes of payment under the prospective payment 
system. The MGCRB is required by statute to issue decisions on hospital 
applications no later than 180 days after October 1, the first day of 
the Federal fiscal year (FY) preceding the Federal fiscal year for 
which the hospital is seeking reclassification. Hospitals may be 
reclassified individually for purposes of their wage index, 
standardized amount, or both. Hospitals may also be reclassified as a 
group for purposes of both the wage index and the standardized amount, 
but not solely for one of these measures.
    Guidelines concerning the criteria and conditions for hospital 
reclassification are located at 42 CFR Secs. 412.230 through 412.236. 
Currently, Sec. 412.230(a)(2) specifies that to qualify for 
reclassification, an individual hospital must be located in a county or 
MSA that is adjacent to the area to which it seeks reclassification 
(``the adjacency requirement''). In addition, under Sec. 412.230(a)(3), 
a hospital must meet one of the geographic proximity criteria set forth 
at Sec. 412.230(b) (``the proximity requirement''). Specifically, to 
meet the proximity requirement, either the distance from a hospital to 
the adjacent area to which it seeks reclassification must be no more 
than 15 miles for an urban hospital and no more than 35 miles for a 
rural hospital, or at least 50 percent of the hospital's employees must 
reside in the adjacent area. (Under Sec. 412.230(a)(4), rural referral 
centers and sole community hospitals are not subject to the adjacency 
or proximity requirements.)
    On May 6, 1994, in Athens Community Hospital, Inc. v. Shalala, 21 
F.3d 1176 (D.C. Cir. 1994) (``Athens''), the United States Court of 
Appeals for the District of Columbia Circuit ruled on the validity of 
the adjacency requirement as applied to individual rural hospitals. The 
Court of Appeals noted that the Secretary had already demonstrated in 
previous litigation that geographic proximity is relevant to 
determining whether a hospital competes in a particular area for labor. 
Athens at 1175. In Universal Health Services of McAllen v. Sullivan, 
770 F. Supp. 704 (D.D.C. 1991), aff'd mem., 978 F.2d 745 (D.C. Cir. 
1992), the court had upheld the proximity criterion that requires a 
rural hospital seeking reclassification to an urban area to demonstrate 
that it is no more than 35 miles from the area to which it seeks 
redesignation.
    In the Athens decision, the Court of Appeals found that the 
proximity requirement's mileage criteria ensure that a hospital is 
geographically proximate to the county to which it seeks 
reclassification. Athens at 1176. The court further concluded that, as 
a supplement to the proximity requirement, the adjacency requirement 
has no additional role to play in determining the labor markets in 
which a hospital competes. The court invalidated the adjacency 
requirement for individual rural hospital reclassifications. Athens at 
1176.
2. Elimination of the Adjacency Requirement
    We have decided to acquiesce in the Athens decision by eliminating 
the adjacency requirement for individual hospitals seeking geographic 
reclassification for purposes of the prospective payment system. 
(Although the court's ruling specifically pertains only to the 
adjacency requirement as it is applied to individual rural hospitals, 
we are eliminating the requirement for individual urban hospitals as 
well.) As a result of our acquiescence in the Athens decision, an 
individual hospital will no longer be required to demonstrate that the 
county or MSA in which it is located is adjacent to the area to which 
it seeks reclassification. However, individual hospitals seeking 
reclassification to another area still must meet the proximity criteria 
at Sec. 412.230(b) (except for sole community hospitals and rural 
referral centers, as specified in current Sec. 412.230(a)(4)).
    This change, which eliminates the adjacency requirement for 
individual hospitals, is effective for applications submitted by 
October 3, 1994, for hospitals seeking reclassification for FY 1996. We 
also are removing the provision in Sec. 412.230(a)(4)(i) that excepted 
sole community hospitals and rural referral centers from the adjacency 
requirement. Since the adjacency requirement will no longer apply to 
any individual hospital applying for reclassification, this provision 
is unnecessary.
    Although we are eliminating the adjacency criteria for individual 
hospital reclassifications, our policies regarding hospitals seeking 
group reclassifications under Sec. 412.232 and Sec. 412.234 remain 
unchanged. As discussed above, the Athens decision applies only to 
individual hospital reclassifications. The court found that the 
proximity requirement alone is sufficient to determine whether an 
individual hospital is geographically proximate to the area to which it 
seeks reclassification. Thus, the court found that for an individual 
hospital, the adjacency requirement is an unnecessary supplement to the 
proximity requirement. However, urban and rural hospitals applying for 
reclassification as a group are not required to meet proximity 
requirements similar to those set forth at Sec. 412.230(b). Thus, we 
have determined that the adjacency requirement is necessary to 
guarantee geographic proximity for hospitals applying for 
reclassification as a group.
    Accordingly, the elimination of the adjacency requirement only 
applies to individual hospitals that are required to meet the proximity 
requirements set forth at Sec. 412.230(b). Finally, we note that the 
alternative reclassification criteria for hospitals located in a New 
England County Metropolitan Area (NECMA), as set forth under 
Sec. 412.236 (b) and (c), are also unaffected by this final rule.
3. Provisions of This Final Rule Concerning Geographic Reclassification 
Criteria
    To implement the policies discussed above, we are amending 
Sec. 412.230 as follows:
     We are eliminating the adjacency requirement for 
individual hospital reclassifications by deleting paragraph (a)(2);
     We are redesignating paragraphs (a)(3) through (a)(5) of 
Sec. 412.230 as (a)(2) through (a)(4);
     We are removing the exception to the adjacency provision 
for sole community hospitals and rural referral centers, which is now 
unnecessary, by deleting redesignated paragraph (a)(3)(i). (Paragraphs 
(a)(3)(ii) through (a)(3)(v) are redesignated as (a)(3)(i) through 
(a)(3)(iv)); and
     We are making a series of technical changes to 
Sec. 412.230 to eliminate references to ``adjacent area'' and to 
correct internal cross references.

G. Application for Geographic Reclassification in FY 1996

    Hospitals that intend to apply for geographic reclassification for 
FY 1996 should make note of the following information regarding the 
submission of applications to the MGCRB. First, the statutory deadline 
for filing applications with the MGCRB for FY 1996 reclassifications is 
October 1, 1994. However, since this date falls on a Saturday, the 
MGCRB will accept applications through October 3, 1994, the first 
Federal working day following the usual deadline. This extension is 
consistent with the provisions in section 216(j) of the Act, which 
apply to the Medicare program by virtue of section 1872 of the Act. 
Applications must be received by the MGCRB by close of business on 
October 3, 1994, in order to be considered timely. Untimely 
applications will not be accepted. Hospitals are expected to undertake 
the appropriate measures to ensure that their applications are received 
by the MGCRB in a timely manner.
    In addition, we note that the MGCRB has moved to a new address. All 
MGCRB applications should be sent to the following address: Medicare 
Geographic Classification Review Board, Professional Building, 6660 
Security Boulevard, Suite 13, Baltimore, Maryland 21207-5187. The MGCRB 
is not responsible for applications that are not received timely due to 
an incorrect address. We received one comment on the MGCRB application 
process.
    Comment: One commenter noted that hospitals have 45 days from 
publication of the proposed rule to withdraw their applications for 
geographic reclassification. The commenter asserted that since changes 
may occur in the wage index values between the publication of the 
proposed rule and the final rule due to editing and the correction of 
errors in the FY 1991 data, hospitals should be permitted to withdraw 
their applications up to 15 days after the publication of the final 
rule.
    Response: We continue to believe that the proposed rule constitutes 
the latest feasible resource for providing hospitals with the necessary 
information to decide whether to withdraw requests for 
reclassification. We recognize that the proposed wage index values may 
change somewhat as a result of withdrawal requests, the effect of any 
decisions by the MGCRB or the Administrator that were not issued in 
time to be taken into account in the proposed rule, and the effect of 
any further corrections to the wage data.
    It is important to note, however, that withdrawals that occur after 
the 45-day deadline have a direct impact on the area wage index values 
both for the area in which the hospital is located and the area to 
which it had previously been reclassified. Therefore, we cannot extend 
the 45-day deadline, because doing so would not provide sufficient time 
to take withdrawals into account in the development of the final wage 
index and prospective payment system rates. We note that although 
hospitals are permitted to withdraw their applications for 
reclassification at any time during the 45-day period, if an MGCRB 
decision has already been made, a hospital that requests that its 
application be withdrawn may not request that the MGCRB decision be 
reinstated after publication of the prospective payment system final 
rule.

IV. Other Changes to the Prospective Payment System for Inpatient 
Operating Costs

A. Definition of and Payment for Transfer Cases (Sec. 412.4)

    The prospective payment system distinguishes between 
``discharges,'' situations in which a patient leaves an acute-care 
hospital after receiving complete treatment, and ``transfers,'' 
situations in which the patient is transferred to another acute-care 
hospital for related care. If a full DRG payment were made to each 
hospital involved in a transfer situation irrespective of the length of 
time the patient spent in the ``sending'' hospital prior to transfer, 
this would create a strong incentive to increase transfers, thereby 
unnecessarily endangering patients' health. Therefore, the regulations 
at Sec. 412.4(d) provide that, in a transfer situation, full payment is 
made to the final discharging hospital and each transferring hospital 
is paid a per diem rate for each day of the stay, not to exceed the 
full DRG payment that would have been made if the patient had been 
discharged without being transferred.
    Currently, the per diem rate paid to a transferring hospital is 
determined by dividing the full DRG payment that would have been paid 
in a nontransfer situation by the geometric mean length-of-stay for the 
DRG into which the case falls. Transferring hospitals are also eligible 
for outlier payments for cases that meet the cost outlier criteria 
established for all other cases (nontransfer and transfer cases alike) 
classified to the DRG. They are not, however, eligible for day outlier 
payments. Two exceptions to the transfer payment policy are transfer 
cases classified into DRG 385 (Neonates, Died or Transferred to Another 
Acute Care Facility) or DRG 456 (Burns, Transferred to Another Acute 
Care Facility), which are not paid on a per diem basis but instead 
receive the full DRG payment.
1. Definition of a Transfer Case
    Under current policy, cases that are transferred from an acute care 
area paid under the prospective payment system to a hospital or unit 
excluded from the prospective payment system are considered to be 
discharges (as opposed to transfers) from the acute care hospital. As a 
discharge, payment for the case is the full DRG amount.
    For the most part, inpatient hospital services furnished by 
hospitals and units excluded from the prospective payment system are 
paid on a reasonable cost basis, subject to a cost per discharge limit. 
This payment does not vary by source of admission or discharge 
destination. Under Secs. 412.22 through 412.29, the following types of 
facilities are identified as being excluded from the prospective 
payment system: psychiatric hospitals and distinct part units; 
rehabilitation hospitals and distinct part units; long-term care 
hospitals; cancer hospitals; children's hospitals; hospitals outside 
the 50 States, the District of Columbia, or Puerto Rico; Veterans 
Administration and other Federal hospitals; and nonparticipating 
hospitals furnishing emergency services to Medicare beneficiaries. Also 
listed in Sec. 412.22(c) (2) and (3) are hospitals paid under approved 
State cost control systems and hospitals paid in accordance with 
authorized demonstration projects. Under Sec. 412.4(b)(3)(i), patients 
moving from an acute care hospital paid under the prospective payment 
system to hospitals within either of these categories are currently 
considered transfers, and therefore they are not referred to in the 
following discussion.
    Since implementation of the prospective payment system over 10 
years ago the distinctions between the types of services provided in 
acute care hospitals and excluded hospitals and hospital units have 
become less clear. Acute care hospitals may have an incentive to reduce 
patient lengths of stay, and thus patient costs, in order to maximize 
profits since payment is no longer linked to actual costs. This has led 
to a steady increase in the numbers of excluded hospitals and units, as 
well as postacute-care facilities, as acute-care hospitals look to 
discharge patients whom heretofore they were treating until the 
patients were ready to be discharged to their homes. (See Langenbruner 
et al., Health Care Financing Review, Spring 1989.)
    As part of a study of Medicare transfer cases funded by HCFA 
(``Transfers of Medicare Hospital Patients under the Prospective 
Payment System'', PM-191-HCFA, January 1994), RAND examined trends in 
transfer episodes from FY 1987 to FY 1991. RAND's analysis found that, 
from 1987 to 1991, while transfers from one prospective payment system 
setting to another increased 4.1 percent, transfers from a prospective 
payment system setting to excluded rehabilitation units and excluded 
psychiatric units increased 18.9 percent and 7.0 percent, respectively. 
We believe that this growth in transfers to excluded hospital units is 
an indication that the distinction in the types of services provided in 
short-term, acute care settings and excluded settings is not as 
significant as it was in 1983.
    We strongly believe that patients should be treated in settings 
that are best suited to provide the levels of care the patients need. 
Decisions regarding the most appropriate setting should be based on 
clinical criteria. To help ensure that this occurs, to the greatest 
extent practicable, financial incentives should be neutral regarding 
the setting wherein a patient is treated. This means matching payments 
as nearly as possible to the resources required to treat the patient. 
We believe our current definition of transfer cases may provide 
financial incentives on the acute-care side to transfer patients to 
excluded hospitals and units in order to reduce lengths of stay and at 
the same time receive payment at the full DRG amount. These incentives 
may exist whether the acute-care hospital is transferring patients to 
its hospital-based excluded units or to other excluded hospitals.
    For these reasons, we proposed to change our definition of a 
transfer case by adding new Sec. 412.4(b)(4) to include cases 
transferred from an acute-care setting paid under the prospective 
payment system to an excluded hospital or unit. We believed that this 
policy would more appropriately pay those prospective payment hospitals 
that are transferring patients to an excluded hospital or unit before 
completion of a course of treatment. The proposed policy would have 
applied to cases transferred to all excluded hospitals and units, 
Veterans Administration hospitals, other Federal hospitals, and 
hospitals not participating in Medicare. However, discharges to 
nonhospital settings, such as skilled nursing facilities and 
intermediate care facilities, would still be paid as discharges.
2. Payment for Transfer Cases
    Since the inception of the prospective payment system, there has 
been concern that a flat per diem payment rate for transfer cases fails 
to account for the likelihood that the beginning of a patient's 
hospitalization is the most resource intensive portion of the stay. 
Comments received in response to the September 1, 1983 interim final 
rule, which first implemented the prospective payment system, 
recommended that the transferring hospital should either receive the 
full DRG amount or be paid on a sliding scale to reflect the higher 
costs of the first few days of a patient's stay. Our response at that 
time was that little or no data were provided in support of this 
position (49 FR 245; January 3, 1984).
    In 1993, as a part of a study of transfer case payment, RAND found 
that among cases transferred prior to reaching the mean length-of-stay, 
1-day stays cost 2.096 times the per diem payment amount for cases in 
nonsurgical DRGs (based on the geometric mean length of stay) and 2.576 
times the per diem for surgical DRGs. Among nonsurgical transfer cases, 
the costs of the second day are about 1.215 times the per diem payment 
amount, and the costs after the second day are about 10 percent more 
than the applicable per diem amount. Among surgical cases, the costs 
per day beyond 2 or more days are actually about 7 percent below the 
applicable per diem amount.
    To evaluate the impact of replacing the flat per diem methodology 
with one designed to reflect the observed relationship between costs 
and the first few days of hospitalization, RAND simulated a transfer 
payment methodology that multiplies the per diem amounts by the 
coefficients referred to above. The improvement in payment-to-cost 
ratios for per diem transfer cases was significant, from 0.7224 under 
current policy to 0.9722 using the scaled per diem.
    We did not propose a change to the transfer payment policy last 
year, however, due to concerns over the specification of the transfer 
payment formula. First, the coefficients used to graduate the per diem 
amount are dependent on the specification of the model and the data 
employed. Ensuring the continued validity of the per diem weighting 
factors would require frequent reestimation as other payment parameters 
change and more recent data become available.
    Second, we were concerned that weighting the per diem amounts by 
the coefficients directly from the regression may overstate the 
precision of the estimates of costs per day prior to transfer. Because 
available data do not attribute charges or costs to a particular day, 
the estimated costs for each additional day reflect the incrementally 
higher costs per case compared to transfers occurring 1 day earlier. 
If, in transfers occurring after 3 or more days, for example, costs per 
day were more evenly distributed than the graduated per diem payments, 
the coefficients in the regression might not reflect the costs of 
additional days.
    This leads to a third concern, that the graduation of the scaled 
per diem amounts may generate inappropriate incentives to transfer 
patients as soon as possible, that is, before the point at which costs 
equal payments. This incentive could arise, for example, for cases in 
which payments early in a patient's stay are greater than costs (that 
is, cases with more even costs throughout the stay rather than high 
costs in the first day or two). In such cases, the longer the patient 
stays in the hospital, the more likely that total costs will approach 
total payments. Under this scenario, a hospital seeking to maximize its 
profit could do so by transferring the patient as soon as possible.
    Despite these concerns, we proposed at Sec. 412.4(d)(1) to pay 
transfers twice the per diem amount for the first day of any transfer 
stay plus the per diem amount for each of the remaining days prior to 
transfer, up to the full DRG amount. We believed that the potential 
improvement in payment equity outweighed the concerns of the proposal. 
We proposed that this change be applied uniformly for both medical and 
surgical transfer cases; although surgical transfer cases appear to be 
more costly, on average, the first day, they are relatively less costly 
for the second day and beyond.
    Using the graduated per diem methodology we proposed, RAND 
estimated the payment-to-cost ratio of transfer cases that were 
transferred prior to reaching the geometric mean length of stay would 
be 0.9321. While this is somewhat less than the payment-to-cost ratio 
for nontransfer cases (0.9645), it represents a significant improvement 
over the current ratio for these cases (0.7224).
    Since publication of the September 1, 1993 final rule, RAND has 
completed the second and final phase of its study. This phase of the 
study focused on the receiving hospitals and how they fare under our 
current transfer payment policy. Their findings in this regard were 
more ambiguous than in the case of sending hospitals. RAND performed 
regressions on transfer cases in receiving hospitals to determine 
whether these cases were more expensive than nontransfer cases within 
the same DRGs. They found no consistent relationship.
    Over 60 percent of all transfer cases were assigned DRGs from MDC 5 
(Diseases and Disorders of the Circulatory System). According to RAND, 
``. . . for the surgical DRGs in MDC 5 (DRGs 104 through 116), the 
costs of transfer cases relative to nontransfer cases at the same 
hospital range from almost the same (in DRG 106, coefficient = 0.007) 
to about 11 percent greater (DRG 105, coefficient = 0.105). In the 
medical DRGs in MDC 5, the range is even wider, with transfers received 
into DRG 121 and 122 actually costing less than other cases in the same 
DRG at the same hospital and transfers received in DRG 127 costing 37 
percent more.'' (See RAND page 40.)
    Based on these results, RAND did not recommend and we did not 
propose any change in the payments for the receiving hospital in a 
transfer episode. That is, if the receiving hospital is also the final 
discharging hospital, they will be paid the full DRG amount plus any 
outlier payments they are eligible to receive (under either the day or 
cost outlier thresholds). If the patient is transferred again prior to 
discharge, then, under the change we proposed, the sending hospital in 
this second transfer episode would be paid using the graduated per diem 
methodology, rather than the flat per diem rate they currently receive.
    We received over 1000 comments on the transfer policy proposals, 
the majority of which disagreed with our proposed revision in the 
transfer definition. Based on these comments and further analysis we 
are not making the proposed changes to our transfer policies in this 
final rule. However, we intend to continue to analyze our policies.
    Comment: The most frequent comments were objections to our 
rationale for proposing the change. Many stated that this proposal was 
an overreaching attempt to address a small number of inappropriate 
transfers by penalizing all transfers to excluded hospitals and units. 
Many of the commenters stated that the problem should be addressed 
through Peer Review Organizations rather than through our proposal.
    Other commenters questioned our analytic basis for the change, 
pointing out that they believe we misinterpreted the studies referenced 
in the proposed rule, and that the real reason for the increase in the 
number of excluded hospitals and units and the corresponding increase 
in the number of transfers is the clinical needs of the Medicare 
patients. Similarly, many commenters asserted that, contrary to the 
assertions in the proposed rule, the distinctions between the types of 
services provided in short-term acute care settings and excluded 
hospital settings is more significant now than it was in 1983.
    Response: We believe that the majority of the commenters 
misunderstood our rationale for this proposed change. A primary 
objective in proposing this change was to improve the extent to which 
payments match the cost of the services provided in each of the various 
settings involved in the course of treatment of a particular patient. 
Our proposal to pay the transferring acute care hospital a per diem 
amount is based upon the premise that an increasing number of patients 
are being transferred to excluded hospitals or units and that these 
patients are still in the acute care phase of treatment when they are 
transferred (we note that many commenters agreed with this premise). As 
these excluded settings are treating more severely ill patients and 
receiving correspondingly higher payment amounts from Medicare 
(particularly through adjustments to the limits on the rate-of-increase 
in their operating costs per case), we believe it is more appropriate 
to define these cases as transfers under the same logic applied to 
cases transferred from one acute care hospital to another; that is, the 
transferring hospital generally is not providing the entire course of 
treatment associated with the DRG.
    As noted in the proposed rule (59 FR 27735), when the prospective 
payment system was implemented in 1983, we believed that the transfer 
of patients to excluded hospitals or units indicated that the acute 
phase of their treatment was completed and that payment in full to the 
transferring hospitals for that treatment was warranted. We believe 
this has changed. Patients who 10 years ago would have stayed in an 
acute care hospital throughout their course of treatment are now being 
transferred to excluded settings, and these transfers are occurring 
earlier during the acute hospital stay. Consistent with the data we 
cite in the proposed rule indicating increased utilization of excluded 
facilities, many of the commenters noted that there is an increasing 
emphasis on beginning rehabilitative therapy as soon as possible.
    We did not mean to imply (as some commenters inferred) that we view 
this trend as inappropriate. On the contrary, we developed the proposal 
under the assumption that increasing transfers to excluded settings 
would continue in the future. The important point is simply that we 
believe that there is now substantial overlap in the care being 
provided by acute care and excluded facilities, particularly with 
regard to inpatient rehabilitation settings. As one rehabilitation 
professional commented, ``Inpatient rehabilitation units are equipped 
medically and staffed to handle many continuing medical problems.''
    Our second objective in proposing this change was to ensure that 
the payment methodology, as much as practicable, is neutral in terms of 
any incentives affecting where and how patients are treated. To the 
extent that the transfer payment methodology is representative of the 
average per diem costs hospitals incur for these cases, we disagree 
with the argument that our proposal would penalize acute care hospitals 
for transferring patients to excluded facilities. To the contrary, 
paying the full DRG amount for these cases rewards hospitals for 
transferring patients as soon as possible, particularly as excluded 
facilities have equipped themselves to treat more acutely ill patients. 
Again, we wish to emphasize that we are not under the assumption that 
the general trend toward earlier discharges is in itself inappropriate. 
We agree with the commenters that we do not have evidence that patient 
care has suffered overall as a result of this trend. Rather, we 
proposed the change in definition of a transfer because we believed 
that a per diem payment, based on average costs per day within specific 
DRGs, would more appropriately compensate the acute care hospital.
    Comment: Numerous commenters questioned whether our objective was 
to create an incentive to send patients to skilled nursing facilities 
(SNFs) or other postacute or subacute settings. They noted that, 
although SNFs are increasingly providing rehabilitative services and, 
in some cases, competing with inpatient rehabilitation facilities, few, 
if any, SNFs are accredited by the Commission on Accreditation of 
Rehabilitation Facilities. Many commenters opined that, rather than 
neutralizing the incentives affecting where patients are treated, the 
proposed change would create a financial incentive for acute care 
hospitals to transfer patients to SNFs instead of rehabilitation 
facilities, since they would receive a full DRG payment for these 
cases. Most of the commenters expressed a belief that the proposal 
would have a detrimental impact on patient care.
    Response: Our proposal was not intended to create an incentive for 
hospitals to transfer patients to SNFs for rehabilitation services in 
order to save money. Rather, we remain committed to ensuring that the 
payment system not unduly influence the choice of setting in which 
patients are treated. We did not propose to consider discharges to SNFs 
as transfers because we do not consider SNFs to be hospital settings; 
thus, there is generally little overlap with acute care hospitals in 
the services provided. In fact, the unanimous opinion expressed by the 
commenters was that SNFs and other post-hospital care providers do not 
generally provide the same intensity of services as rehabilitation 
hospitals and units.
    Nevertheless, we are concerned that the criteria used to indicate 
the most appropriate rehabilitation setting may not be well understood. 
Although we believe that decisions regarding appropriate settings will 
predominantly be made based on the clinical needs of the patient, we 
intend to study this issue further. In particular, we will explore the 
implications associated with use of the Uniform Needs Assessment 
Instrument for determining appropriate post-acute hospital settings.
    Comment: We received some comments stating that we failed to 
document the impacts our proposal would have on hospital payment.
    Response: In Appendix A (Regulatory Impact Analysis) to the 
proposed rule (59 FR 27847), we analyzed the impacts on hospital 
payment of all of the proposed FY 1995 changes, including the transfer 
changes. That analysis found that the combined impacts of the proposed 
changes to the transfer policy (that is, to the payment methodology and 
the definition of transfers) was budget neutral across all hospitals. 
The higher payments for transfer cases due to the proposed graduated 
per diem methodology were offset by the reduction in payments for 
transfers to excluded settings. Among specific categories, the changes 
generally affected urban hospitals negatively (0.1 percent) and rural 
hospitals positively (0.5 percent). The impact on small hospitals was 
also positive.
    In response to the commenters, we have also evaluated the impact of 
the proposed transfer definitional change by itself. Transfers to 
rehabilitation settings account for nearly 78 percent of the total 
transfers from acute care to excluded settings (rehabilitation units 
account for over one-half of these transfers). Because rehabilitation 
settings receive such a large percentage of transfers, and because the 
vast majority of comments we received pertained to the impact on 
rehabilitation facilities of the change, we focused our analysis on 
cases going to rehabilitation settings. Of these transfers, three DRGs 
stood out because of the large number of such transfer cases: DRG 14, 
Specific Cerebrovascular Disorders Except TIA; DRG 209, Major Joint and 
Limb Reattachment Procedures--Lower Extremity; and DRG 210, Hip and 
Femur Procedures Except Major Joint Age >17 With CC. We also examined 
DRG 483, Tracheostomy Except For Face, Mouth and Neck Diagnoses. 
Although it presently constitutes a much smaller percentage of transfer 
cases, it is of special concern because of its high DRG weight (and 
payment) and long average length of stay.
    We analyzed how well our payment methodology would compensate 
hospitals for the costs of cases in these DRGs when patients are 
transferred to excluded settings prior to reaching the geometric mean 
length of stay for the DRG, minus one. (Based on the proposed change in 
payment methodology, a full DRG payment is received at that point). The 
results of our analysis are as follows. First, for each of these DRGs, 
over 90 percent of the cases are transferred to excluded settings after 
the geometric mean length of stay minus one, and, thus, would be 
unaffected by the change in definition of a transfer (except for cases 
that may qualify as a day outlier, since transfers are ineligible for 
this adjustment). Second, for DRGs 14 and 483, the costs of these cases 
progress evenly with length of stay, indicating that a per diem payment 
methodology would adequately compensate for the costs incurred prior to 
transfer.
    A problem arises, however, with DRGs 209 and 210. Consistent with 
RAND's analysis of the per diem costs of transfers of surgical DRGs 
between two acute care settings, the bulk of the costs appear to occur 
during the first day of the acute care stay. In fact, costs in DRGs 209 
and 210 appear to be even more heavily skewed toward the first day than 
RAND found. This is of significant concern, given that these DRGs 
account for such a high proportion of transfers to excluded facilities. 
(RAND found, consistent with prior analyses, that surgical DRGs 
comprise only a fraction of transfers between acute care hospitals). 
Even with the proposed change in the per diem payment methodology, 
hospitals would be systematically underpaid for short-stay cases on 
DRGs 209 and 210 if we were to adopt the proposed change in transfer 
definition.
    Therefore, we have decided to withdraw this proposal at this time. 
Thus, transfers from acute care hospitals to hospitals and units 
excluded from the prospective payment system will continue to be 
considered discharges. We wish to emphasize that we remain concerned 
about the appropriateness of this policy and intend to continue our 
research in this area.
    Comment: The comments we received regarding the change to the per 
diem payment methodology were generally favorable. One commenter 
recommended that we provide for different gradations to the per diem 
for medical and surgical cases. Another, while supporting the change in 
principle, felt that we should pay more than twice the per diem for the 
first day of a transfer stay. Several commenters indicated their belief 
that the standardized amounts for all hospitals would have to be 
recalculated to reflect our proposed changes to transfer policy.
    Response: We are also withdrawing the proposed change to the 
payment methodology for transfer cases. In assessing the 
appropriateness of the proposed change, we must balance the merits 
against the problems. As discussed above and in the proposed rule (59 
FR 27736), we have several concerns with a graduated payment 
methodology, such as problems in specifying the gradation and possible 
incentives to transfer. (See also the discussion in the September 1, 
1993 final rule (58 FR 46307).) Nevertheless, we proposed to change the 
payment methodology because we believed the benefits outweighed the 
problems.
    In the proposed rule, we estimated that the proposed change to the 
transfer payment methodology in conjunction with the proposed change to 
the definition of transfer would result in zero net impact on overall 
spending (59 FR 27854). However, as explained above, we are withdrawing 
the proposal to change the definition of transfers. Accordingly, the 
financial impact of the proposed payment methodology must be 
reevaluated. We estimate that the costs of the proposed change in 
payment methodology, standing alone, would be just over $150 million.
    This cost must be considered together with the other factors 
arguing for and against a change to the payment methodology. Given 
those other factors, and given current Federal budgetary constraints, 
we do not feel it would be appropriate to change the transfer payment 
methodology absent an offsetting savings provision. We note that, in 
its March 1, 1993 report to Congress, ProPAC recommended that Congress 
provide authority to HCFA to implement a graduated payment methodology 
in a budget neutral manner; as yet, no such legislative change has been 
enacted.
    Comment: We received several other more general comments with 
respect to our proposed transfer changes. Some commenters believe that 
the prospective payment system is a self-correcting system; thus, it is 
inappropriate to reduce payments for discharges made before the mean 
length of stay without similarly adjusting payments upward for 
discharges made beyond the mean length of stay. Reducing payment alone 
penalizes efficient hospitals, which is contrary to the objectives of 
the prospective payment system. Other commenters, including ProPAC, 
noted the health reform movements toward a continuum of care, although 
ProPAC did not express the view of some commenters that the proposed 
change to transfer definitions was contrary to this movement. In its 
comments, ProPAC also discussed its findings with regard to hospitals 
that receive high percentages of transfer cases, primarily that these 
incoming transfers frequently become outlier cases. The Commission 
referred to its comments on outlier policy in this regard.
    Response: During the next year, we intend to continue our 
evaluation of all aspects of transfer payment policy. Our analysis has 
indicated several areas for potential improvements that we believe 
should be addressed in a comprehensive manner. We disagree with the 
comment that it is inappropriate to reduce payments for transfers 
without increasing payments beyond the mean length of stay, since we do 
increase payments at the high cost end through our outlier policy, but 
we do intend to carefully examine the overall symmetry of the 
prospective payment system in terms of payment equity at both the low 
and high ends of inpatient stays. As part of that examination, we will 
approach this analysis from a perspective that recognizes the 
increasing movement of patients in and out of various treatment 
settings.

B. Review of DRG Assignments (Sec. 412.60, 466.71, and 466.78)

    Under the provisions of Sec. 412.60(d), a hospital has 60 days from 
the date of the notice of the initial DRG assignment of a claim to 
request review of that assignment. The hospital may submit additional 
information as part of its request. The intermediary reviews the 
request and any additional information and decides if a change in the 
assignment is appropriate. Any change by the intermediary to a higher-
weighted DRG must be reviewed by the hospital's Peer Review 
Organization (PRO) to determine if the request and the change are 
appropriate.
    Under the first PRO contract cycle, this review was conducted on a 
postpayment basis. However, the second PRO contract, effective July 1, 
1986, required that this review be conducted on a prepayment basis. 
Therefore, Sec. 412.60(d)(2) currently provides that the intermediary 
must request that the PRO review any change in assignment to a higher-
weighted DRG.
    Under the fourth contract cycle, the PROs are no longer required to 
review these cases on a prepayment basis. Rather, the cases are flagged 
and the PRO conducts a 100 percent review after payment. Therefore, we 
proposed to revise Sec. 412.60(d)(2) to conform the regulations to 
current practice. At the same time, we proposed to revise an incorrect 
cross-reference to the regulations that govern the PROs' review of 
these DRG reassignments. The correct cross-reference is 
Sec. 466.71(c)(2).
    We received one comment on this proposal, which was in favor of the 
change. Thus, we are incorporating the proposed change concerning the 
PRO review of DRG assignments in this final rule. In addition, we are 
making technical changes Secs. 466.71(c)(2) and 466.78(a) to conform 
the text of those sections to this revised policy.

C. National Average Standardized Amounts for FY 1995 (Sec. 412.63)

    Section 1886(d)(3)(A) of the Act directs the Secretary to compute 
national average standardized amounts for use in determining payments 
for inpatient operating services, updated annually by the applicable 
percentage increase set forth under section 1886(b)(3)(B) of the Act. 
Under section 1886(d)(3)(A)(ii) of the Act, for FYs 1988 through 1994, 
the Secretary has computed separate national average standardized 
amounts for large urban, other urban and rural areas. However, section 
1886(d)(3)(A)(iii) of the Act requires that, for discharges occurring 
after October 1, 1994, the average standardized amounts for hospitals 
located in a rural area shall be equal to the average standardized 
amount for hospitals located in an other urban area. We note that 
hospitals located in a rural area will continue to be considered rural 
for all other payment purposes, such as the disproportionate share 
adjustment.
    The Secretary has been applying updates to the average standardized 
amounts for each fiscal year as provided under section 1886(b)(3)(B) of 
the Act. For FY 1995, section 1886(b)(3)(B)(i)(X) of the Act directs 
the Secretary to update the rural national average standardized amount 
by the amount necessary to make it equal to the other urban national 
average standardized amount.
    Current Sec. 412.63(m) already reflects the requirement that, for 
discharges occurring after October 1, 1994, we will pay for inpatient 
hospital services based on national average standardized amounts for 
large urban and other areas. Thus, there will no longer be separate 
national average standardized amounts for other urban and rural areas. 
However, we proposed to make several technical changes to 
Sec. 412.63(m) and (r), concerning computation of Federal rates, to 
eliminate now obsolete references to the rural and other urban 
standardized amounts and replace them with references to the 
standardized amounts for other areas. In the addendum to this final 
rule, we provide a description of the updates for FY 1995 under the 
requirements of sections 1886(b)(3)(B)(i)(X) and 1886(d)(3)(A)(iv) of 
the Act.

D. Outliers (Secs. 412.80, 412.82 and 412.84)

    Section 1886(d)(5)(A) of the Act provides that, in addition to the 
basic prospective payment rates, payments must be made for discharges 
involving day outliers and may be made for cost outliers. Under section 
1886(d)(3)(B) of the Act, the Secretary has been required to separately 
reduce the urban and rural national standardized amount by the 
proportion of estimated total DRG payments attributable to outliers in 
each respective area. Beginning with FY 1995, section 1886(d)(3)(B) of 
the Act, as amended by section 4002(c)(2)(B)(iii) of Public Law 101-
508, requires the Secretary to reduce the large urban and other 
national standardized amounts by the same factor to account for the 
proportion of total DRG payments made to outlier cases. (As explained 
in section IV.C. of this preamble, section 1886(d)(3)(A)(iii) of the 
Act specifies that beginning in FY 1995, the standardized amount for 
other urban and rural areas will be equal, with the result that there 
will be only two standardized amounts, one for large urban areas and 
one for all other areas.) Section 1886(d)(9)(B)(iv) of the Act requires 
that the urban and other standardized amounts applicable to hospitals 
in Puerto Rico be reduced by the proportion of estimated total DRG 
payments attributable to estimated outlier payments. Furthermore, 
section 1886(d)(5)(A)(iv) of the Act directs that outlier payments in 
any year ``may not be less than 5 percent nor more than 6 percent of 
total payments projected or estimated to be made based'' on the 
prospective payment rates.
    Section 13501(c) of the Omnibus Budget Reconciliation Act of 1993 
(Public Law 103-66) amended section 1886(d)(5)(A) of the Act with 
respect to outliers beginning in FY 1995. With regard to cost outliers, 
section 13501(c) of Public Law 103-66 modifies the methodology for 
determining the cost outlier threshold. Formerly, section 
1886(d)(5)(A)(ii) of the Act specified that a hospital can receive 
payment for a cost outlier if the adjusted costs for a discharge exceed 
the greater of a fixed dollar amount or a fixed multiple of the DRG 
payment for the case. As amended by section 13501(c)(2) of Public Law 
103-66, section 1886(d)(5)(A)(ii) of the Act now specifies that, for 
discharges on or after October 1, 1994, a hospital may receive payment 
for a cost outlier if adjusted costs exceed the DRG prospective payment 
rate plus a fixed dollar amount determined by the Secretary. We will 
refer to this revised cost outlier threshold as ``fixed loss.'' A 
further discussion of the methodology for determining the fixed loss is 
provided below.
    Section 13501(c) of Public Law 103-66 also amended section 
1886(d)(5)(A) of the Act with respect to day outliers. Beginning with 
FY 1995, section 1886(d)(5)(A) of the Act requires the Secretary to 
reduce the proportion of total outlier payments paid under the day 
outlier methodology. Under the requirements of section 1886(d)(5)(A)(v) 
of the Act, the proportion of outlier payments paid under the day 
outlier methodology, relative to the proportion of outlier payments in 
FY 1994, shall be 75 percent in FY 1995, 50 percent in FY 1996 and 25 
percent in FY 1997. Under the provisions of section 1886(d)(5)(A)(i) of 
the Act, the Secretary will no longer pay for day outliers for 
discharges occurring after September 30, 1997. As indicated in the 
table published in our September 1, 1993 final rule (58 FR 46348), we 
estimated that 18 percent of FY 1994 outlier payments would be for 
outliers meeting the day outlier threshold only, while 13 percent would 
meet the day and cost outlier thresholds and be paid under the day 
outlier methodology. Thus, a total of 31.3 percent of total outlier 
payments in FY 1994 would be paid as day outlier cases. Pursuant to 
section 1886(d)(5)(A) of the Act, we proposed to set the day outlier 
thresholds for FY 1995 through FY 1998 so that day outlier payments 
approximate the following proportion of total outlier payments:
     FY 1995--24 percent (75 percent of 31.3 percent).
     FY 1996--16 percent (50 percent of 31.3 percent).
     FY 1997--8 percent (25 percent of 31.3 percent).
    As payments to day outliers are reduced, there will be a 
corresponding increase in payments to cost outliers.
1. FY 1995 Outlier Thresholds
    For FY 1994, the day outlier threshold is the geometric mean length 
of stay for each DRG plus the lesser of 23 days or 3.0 standard 
deviations. The marginal cost factor (or the percent of Medicare's 
average per diem payment paid for each outlier day) for day outliers is 
equal to 55 percent in FY 1994. The cost outlier threshold is the 
greater of 2.0 times the prospective payment rate for the DRG or 
$36,000 ($33,000 for hospitals that have not yet entered the 
prospective payment system for inpatient capital-related costs). The 
marginal cost factor (or the percent of costs paid after costs for the 
case exceed the threshold) for cost outliers is 75 percent.
    For FY 1995, we are establishing the day outlier threshold at the 
geometric mean length of stay for each DRG plus the lesser of 22 days 
or 3.0 standard deviations (for a detailed discussion of the 
methodology, see section II.A.4.c of the addendum to this final rule). 
Section 13501(c)(3) of Public Law 103-66 provides that the additional 
payments for outlier cases may be different than the hospital's 
marginal cost of care during the transition period phasing out payments 
to day outliers. As proposed, we are revising Sec. 412.80 to reflect 
this provision. We are also revising Sec. 412.82(c), so that it does 
not specify a marginal cost factor of 55 percent. HCFA will specify the 
level of the marginal cost factor for each fiscal year during the day 
outlier phase-out in the annual prospective payment system rulemaking 
process.
    We stated that our proposed policy would reduce the proportion of 
outlier payments paid to day outliers as required by section 
1886(d)(5)(A) of the Act. We proposed to accomplish the required 
reduction in payments to day outliers for FY 1995 solely through a 
reduction in the marginal cost factor rather than through an increase 
in the threshold. To determine the marginal cost factor necessary to 
achieve the mandated reduction in outlier payments, we simulated both 
the FY 1994 and FY 1995 outlier policies. Based on these simulations, 
in the proposed rule we determined that a reduction in the marginal 
cost factor to 49 percent is necessary to achieve the required 25 
percent reduction in the proportion of payments paid under the day 
outlier methodology. In this final rule, based on updated simulations, 
we are establishing a marginal cost factor of 47 percent in FY 1995, a 
reduction from the 55 percent in FY 1994.
    We are also establishing a fixed loss cost outlier threshold in FY 
1995 equal to the prospective payment rate for the DRG plus $20,500 
($18,800 for hospitals that have not yet entered the prospective 
payment system for capital-related costs). The fixed loss threshold 
would replace the current threshold, which is equal to the greater of 
2.0 multiplied by the DRG payment for the case or $36,000.
    We are using the fixed loss threshold pursuant to section 
1886(d)(5)(A) of the Act. We believe the fixed loss threshold is an 
improvement over current policy because it focuses Medicare's outlier 
payments on the most costly cases. Under current policy, it is possible 
that cases in certain high-weight DRGs can incur losses significantly 
greater than $36,000 before Medicare will make an outlier payment. (We 
note that the fixed loss threshold is adjusted by the wage index, 
similar to the current cost outlier threshold.)
    To further focus Medicare's cost outlier payments on the costliest 
cases, we are increasing the marginal cost factor from 75 percent to 80 
percent, as proposed. We note that raising the marginal cost factor to 
80 percent is consistent with a recommendation made by ProPAC in its 
March 1, 1994 annual report. While we are raising the marginal cost 
factor for cost outlier cases to 80 percent, we are continuing to set 
the cost and day outlier thresholds in order to maintain the estimated 
5.1 percent proportion of total DRG payments paid as outliers.
    The thresholds we would have used if we were not implementing the 
change in the day and cost outlier payment methodology required by 
section 1886(d)(5)(A)(v) of the Act and discussed above are:
     Day outliers--The geometric mean length of stay for each 
DRG plus the lesser of 21 days or 3 standard deviations.
     Cost outliers--The greater of 2.0 times the prospective 
payment rate for the DRG or $27,000.
    We estimate that the final FY 1995 outlier thresholds that we are 
establishing would result in 55 percent of outlier cases paid using the 
cost outlier methodology and 45 percent paid using the day outlier 
methodology. Cases that meet the day outlier threshold but that would 
be paid using the cost outlier methodology, because it yields the 
higher payment, would represent 22 percent of all outlier cases. Our 
simulation of FY 1995 outlier payments based on FY 1993 MedPAR data 
indicates that the percentage of outlier cases that would qualify as 
day outliers is approximately 67 percent. The cases paid as day 
outliers would receive approximately 24 percent of operating outlier 
payments in FY 1995.
    The following table illustrates these findings in greater detail: 

----------------------------------------------------------------------------------------------------------------
                                                                   Percentage of   Percentage of                
                                                   Percentage of     operating        capital      Percentage of
                Type of outlier                    outlier cases      outlier         outlier      total outlier
                                                                     payments        payments        payments   
----------------------------------------------------------------------------------------------------------------
Meets day threshold only........................            36.0            12.0            10.0            12.0
Meets day and cost thresholds, paid using day                                                                   
 methodology....................................             9.0            12.0            10.0            12.0
Meets day and cost thresholds, paid using cost                                                                  
 methodology....................................            22.0            49.0            47.0            49.0
Subtotal--All cases meeting day threshold.......            67.0            73.0            67.0            73.0
Meets cost threshold only.......................            33.0            27.0            33.0            27.0
      Total.....................................           100.0           100.0           100.0           100.0
----------------------------------------------------------------------------------------------------------------

    When we modeled the combined operating and capital outlier 
payments, we find that using a common set of thresholds resulted in a 
slightly higher percentage of outlier payments for capital-related 
costs than for operating costs. We estimated that the final thresholds 
for FY 1995 will result in outlier payments equal to 5.1 percent of 
operating DRG payments and 5.9 percent of capital payments based on the 
Federal rate.
    The following is an example of how additional payment to a hospital 
paid using the fully prospective payment methodology will be determined 
for an outlier case in FY 95.

    Example: Hospital X is a 150 bed hospital located in the San 
Francisco, California MSA, which is a large urban area. Hospital X 
has a ratio of interns and residents to beds of .1, a ratio of 
interns and residents to average daily census of .085, and a 
disproportionate patient percentage of 30.2%. Mr. Jones is admitted 
to Hospital X on October 1, 1994 and is discharged on November 30, 
1994. The billed charges for Mr. Jones' stay are $100,000. Mr. Jones 
is classified in DRG 286. Because Mr. Jones' 61 day stay exceeds the 
30 day length of stay outlier threshold for DRG 286, Hospital X is 
eligible for payment for 31 outlier days in addition to the 
otherwise applicable prospective payment. The amount of Hospital X's 
outlier payment (excluding the usual Federal payments for operating 
and capital costs that apply for both outlier and non-outlier cases, 
and the hospital-specific portion of the capital payment) is 
calculated as follows: 

                                                                        
Day Outlier:                                                            
  Step 1: Computation of the Federal Rate                               
   (excludes capital, indirect medical                                  
   education (IME) and disproportionate share                           
   hospital (DSH) payments):                                            
    National Large Urban Standardized Amounts:                          
        Labor-Related.........................  $2,709.42               
        Nonlabor-Related......................  1,085.29                
    San Francisco MSA Wage Index..............  1.4120                  
    DRG 286 Relative Weight...................  2.2621                  
DRG Relative Weight  x  [(Labor-Related                                 
 National Large Urban Standardized Amount  x                            
 San Francisco MSA Wage Index) + Nonlabor-                              
 Related National Large Urban Standardized                              
 Amount] = Federal Rate for Operating Costs:                            
    2.2621  x  [($2,709.42  x  1.4120) +        11,109.15               
     $1,085.29] =.                                                      
  Step 2: Computation of Federal Capital                                
   Payments:                                                            
    Federal Capital Rate......................  376.83                  
    DRG 286 Relative Weight...................  2.2621                  
    Federal Portion of Capital Rate...........  40%\1\                  
    Geographic Adjustment Factor..............  1.2665                  
DRG Relative Weight  x  Federal Capital Rate                            
 x  Federal Portion of Capital Rate  x                                  
 Geographic Adjustment Factor  x  Large Urban                           
 Add-On = Federal Rate for Capital Costs:                               
    2.2621  x  $376.83  x  0.40  x  1.2665  x   444.79                  
     1.03 =.                                                            
  Step 3: Computation of Day Outlier Payments:                          
    Arithmetic Mean Length of Stay for DRG 286  9.3 days                
    Outlier Days..............................  = (61 - 30) = 31 days   
    Marginal Cost Factor......................  47%                     
    A. Operating Outlier Payment (excludes IME                          
     and DSH) = Number of outlier days  x                               
     (Operating Federal Payment .                               
      Arithmetic Mean Length of Stay for DRG    17,404.34               
       286)  x  Marginal Cost Factor = 31  x                            
       ($11,109.15  9.3)  x  .47 =.                             
    B. Capital Outlier Payment (excludes DSH)                           
     = Number of outlier days  x  (Capital                              
     Federal Payment  Arithmetic.                               
      Mean Length of Stay for DRG 286)  x       696.84                  
       Marginal Cost Factor = 31  x  ($444.79                           
        9.3)  x  .47 =.                                         
  Step 5: Computation of IME Adjustment For                             
   Day Outliers:                                                        
    i. IME Operating Factor...................  .0744                   
Operating Outlier Payment  x  IME Operating                             
 Factor = IME Operating Outlier Adjustment:                             
    $17,404.34  x  .0744 =....................  1,294.88                
    ii. IME Capital Factor....................  .0243                   
      Capital Outlier Payment  x  IME Capital                           
       Factor = IME Capital Outlier                                     
       Adjustment:                                                      
        $696.84  x  .0243 =...................  16.93                   
  Step 6: Computation of DSH Adjustment for                             
   Day Outliers:                                                        
    i. Operating DSH Adjustment Factor........  .1413                   
    Operating DSH Adjustment Factor  x                                  
     Operating Outlier Payment = DSH Operating                          
     Outlier Adjustment:.                                               
        .1413  x  $17,404.34 =................  2,459.23                
    ii. Capital DSH Adjustment Factor.........  .0631                   
      Capital DSH Adjustment Factor  x                                  
       Capital Payment = DSH Capital Outlier                            
       Adjustment:                                                      
        .0631  x  $696.84 =...................  43.97                   
  Step 7: Total Day Outlier Payments:                                   
    Regular Operating Outlier Payment.........  17,404.34               
    Regular Capital Outlier Payment...........  696.84                  
    IME Operating.............................  1,294.88                
    IME Capital...............................  16.93                   
    DSH Operating.............................  2,459.23                
    DSH Capital...............................  43.97                   
                                               -------------------------
      Total...................................  21,916.19               
Cost Outlier:                                                           
  Step 1: Computation of Hospital X's                                   
   Standardized Costs:                                                  
    Billed Charges............................  100,000                 
    Hospital X's Operating Cost-to-Charge       .72\2\                  
     Ratio.                                                             
    Hospital X's Capital Cost-to-Charge Ratio.  .06                     
    IME Operating Adjustment Factor...........  .0744                   
    IME Capital Adjustment Factor.............  .0243                   
    DSH Operating Adjustment Factor...........  .1413                   
    DSH Capital Adjustment Factor.............  .0631                   
(Billed charges  x  Operating Cost-to-Charge                            
 Ratio)  (1 + IME Operating Adjustment                          
 Factor + Operating DSH Adjustment Factor) =                            
 Standardized Operating Costs:                                          
    ($100,000  x  .72)  (1 + .0744 +    59,225.14               
     .1413) =.                                                          
(Billed Charges  x  Capital Cost-to-Charge                              
 Ratio)  (1 + IME Capital Factor +                              
 Capital DSH Factor) = Standardized Capital                             
 Costs:                                                                 
    ($100,000  x  .06  (1 + .0243 +     5,517.75                
     .0631) =.                                                          
  Step 2: Determination of Cost Thresholds:                             
    A. Computing the Operating Threshold                                
     Amount:                                                            
        Operating Federal Rate for DRG 286....  11,109.15               
        Fixed Loss Threshold..................  20,500                  
        Labor-Related Share, Operating........  .7140                   
        Nonlabor Share, Operating.............  .2860                   
          i. Operating standard cost a share                            
           of total costs Operating Cost-to-                            
           Charge Ratio  (Operating                             
           Cost-to-Charge Ratio + Capital Cost-                         
           to-Charge Ratio) = Operating Cost                            
           as a Share of Total Costs: .72                               
            (.72 + .06) = [.9231]                               
Wage Index Adjusted Operating Cost Outlier                              
 Threshold = {[Fixed Loss Threshold  x                                  
 ((Labor-Related Share  x  San Francisco MSA                            
 Wage Index) + Nonlabor-Related Share)  x                               
 Operating Standard cost as a share of total                            
 costs] + (Operating Federal Rate for DRG                               
 286]}                                                                  
    {[20,500  x  ((.7140  x  1.4120) + .2860)   35,599.40               
     x  .9231] + 11,109.15{time}  =.                                    
    B. Computing the Capital Threshold Amount:                          
        Federal Capital Rate..................  376.83                  
        Fixed Loss Threshold..................  20,500                  
        DRG 286 Relative Weight...............  2.2621                  
        San Francisco Geographic Adjustment     1.2665                  
         Factor.                                                        
          i. Capital Standard Cost as a Share   .0769                   
           of Total Costs Capital Cost-to-                              
           Charge Ratio (Operating Cost-to-                             
           Charge Ratio + Capital Cost-to-                              
           Charge Ratio) = Capital Cost as a                            
           Share of Total Costs: .06                            
           (.72 + .06) =                                                
Geographic Adjustment Factor Adjusted Capital   3,168.46                
 Cost Outlier Threshold = [(Fixed Loss                                  
 Threshold  x  Geographic Adjustment Factor  x                          
  Large Urban Add-On Factor  x  Capital                                 
 standard cost as a share of total costs) +                             
 (Federal Rate  x  DRG 286 Relative Weight  x                           
 San Francisco MSA Geographic Adjustment                                
 Factor  x  Large Urban Add-On Factor)]                                 
 [(20,500  x  1.2665  x  1.03  x  .0769) +                              
 (376.83  x  2.2621  x  1.2665  x  1.03)] =                             
    Computation A Result, Operating...........  35,599.40               
    Computation B Result, Capital.............  3,168.46                
    Threshold = $35,599.40 + $3,168.46 =......  38,767.86               
  Step 3: Determination of Cost Outlier                                 
   Payment:                                                             
    Marginal Cost Factor......................  .80                     
    A. Operating Outlier Payment:                                       
      Operating Outlier Cost = Standard                                 
       Operating Costs - Operating Threshold:                           
        $59,225.14 - $35,599.40 =.............  23,625.74               
      Operating Outlier Payment = Operating                             
       Outlier Cost  x  Marginal Cost Factor:                           
        $23,625.74  x  .80 =..................  18,900.59               
    B. Federal Portion of Capital Outlier                               
     Payment:                                                           
      Capital Outlier Cost = Standard Capital                           
       Costs - Capital Threshold:                                       
        $5,517.75 - $3,168.46 =...............  2,349.29                
      Capital Outlier Payment = Capital                                 
       Outlier Cost  x  Marginal Cost Factor:                           
        $2,349.29  x  .80 =...................  1,879.43                
      Federal Portion of Capital Outlier                                
       Payment = Federal Portion of Capital                             
       Rate  x  Capital Outlier Payment:                                
        $1,879.43  x  .40 =...................  751.77                  
  Step 4: Cost Outlier Payment for IME:                                 
    i. Operating Outlier Payment  x  IME                                
     Operating Adjustment Factor = Cost                                 
     Outlier Payment for IME Operating:                                 
        $18,900.59  x  .0744 =................  1,406.20                
    ii. Capital Outlier Payment  x  IME                                 
     Capital Adjustment Factor = Cost Outlier                           
     Payment for IME Capital:                                           
        $751.77  x  .0243 =...................  18.27                   
  Step 5: Cost Outlier Payment for DSH:                                 
    i. Operating Outlier Payment  x  Operating                          
     DSH Adjustment Factor = Cost Outlier                               
     Payment for DSH Operating:                                         
        $18,900.59  x  .1413 =................  2,670.65                
    ii. Capital Outlier Payment x Capital DSH                           
     Adjustment Factor = Cost Outlier Payment                           
     for DSH Capital:                                                   
        $751.77  x  .0631 =...................  47.44                   
  Step 6: Total Cost Outlier Payments:                                  
    Operating.................................  18,900.59               
    Federal Portion of Capital................  751.77                  
    IME Operating.............................  1,406.20                
    IME Capital...............................  18.27                   
    DSH Operating.............................  2,670.65                
    DSH Capital...............................  47.44                   
                                               -------------------------
      Total...................................  23,794.92               
Determination of Outlier Payment:                                       
    Total Day Outlier Payment.................  21,916.19               
    Total Cost Outlier Payment................  23,794.92               
Hospital X receives the greater of the two                              
 payments, which is $23,794.92, the cost                                
 outlier payment.                                                       
                                                                        
\1\a. If Hospital X were a hold harmless hospital, it would use the     
  lesser of:                                                            
The hospital-specific ratio of new to total capital, or         
The national average ratio of new to total capital.             
b. If Hospital X were a 100% Federal hospital, the Federal portion would
  1.0.                                                                  
\2\This is the same cost-to-charge ratio currently used to determine    
  outlier payments using operating costs only. The capital cost-to-     
  charge ratio, when added to the operating cost-to-charge ratio, will  
  yield a total cost-to-charge ratio. (This occurs because the          
  denominator in both cases is total charges. The charges are not       
  divided into operating and capital charges.)                          

    Comment: Several commenters disagree with the change in the cost 
outlier methodology, from the higher of 2.0 times the DRG rate or a 
fixed dollar amount to the DRG amount plus a fixed dollar amount (the 
``fixed loss'' method), asserting that although the statute permits us 
to make this change, it does not require it. These commenters believe 
the revised formula adversely affects various hospital groups with low 
payment-to-cost ratios for outlier cases. The commenters stated that we 
should continue to calculate the cost outlier threshold using the 
current method, since the provisions of Public Law 103-66 allows us the 
option of using either method.
    Response: We believe that the change to the fixed loss method of 
calculating the cost outlier threshold is appropriate because it 
addresses concerns regarding outlier payments. Under the current method 
of calculating the thresholds, cases with losses of up to $100,000 
might not qualify for outlier payments. Under the fixed loss method, 
all cases at a given hospital, regardless of the DRG to which they are 
assigned, will face no more than a fixed loss amount at which time they 
would begin receiving outlier payments. While the language of section 
13501(c)(2) of Public Law 103-66 may be somewhat ambiguous, we note 
that the conference report accompanying Public Law 103-66 states that 
the conference agreement includes the House provision regarding the 
phase-out of day outlier payments ``with an amendment to require that 
the payment threshold for cost outlier cases be set at the applicable 
DRG payment plus a fixed dollar amount'' (emphasis added) (H.R. Conf. 
Rep. No. 213, 103d Cong., 1st Sess. 749 (1993)). We believe that it 
would be inappropriate to use any other method of calculating the cost 
outlier threshold, given this indication of Congressional intent.
    Nevertheless, as a result of the comments we received on this 
issue, we performed additional analysis of the impact on payment-to-
cost ratios for outlier cases and for all cases using the data 
available for this final rule. Our analysis indicated that under this 
change in cost outlier payment methodology, overall payment-to-cost 
ratios change only slightly, with the majority of hospital groups 
facing changes in their payment-to-cost ratios of less than 0.2 
percentage points. The payment-to-cost ratios for all rural hospitals 
decrease by 0.1 percentage points while those for sole community 
hospitals increase by 0.3 percentage points. The payment-to-cost ratios 
for teaching hospitals with 100 or more residents increase 0.3 
percentage points, while those for urban disproportionate share 
hospitals with at least 100 beds are unchanged. Payment-to-cost ratios 
for outlier cases increase 1.2 percentage points for all hospitals. 
Outlier case payment-to-cost ratios decrease 0.1 percentage points for 
rural hospitals and increase for urban hospitals (as they do for the 
majority of hospital groups). We believe that the results of our 
analysis, which show outlier payment-to-cost ratios increasing overall, 
indicate that we are more appropriately targeting outlier payments to 
those cases that face the greatest losses. As a result, we continue to 
believe that the change to the fixed loss cost outlier methodology is 
appropriate, as well as consistent with Congressional intent.
    Comment: The Prospective Payment Assessment Commission (ProPAC) 
believes that, in the calculation of the cost of an outlier case, we 
should no longer standardize to remove the effects of indirect medical 
education (IME) and disproportionate share hospital (DSH) adjustments. 
In addition, they believe that once this change is implemented, we 
should no longer make IME and DSH payments on the outlier portion of a 
hospital's payment.
    Response: Currently the operating and capital costs of an outlier 
case are calculated as follows:

Cost = (Charges  x  CCR)  (1 + IME + DSH), where:
CCR = the operating or capital cost-to-charge ratio, as appropriate;
IME = the indirect teaching adjustment for operating or capital PPS 
payments; and,
DSH = the disproportionate share adjustment for operating or capital 
PPS payments.

By dividing the charges, adjusted to cost, by (1 + IME + DSH) we are 
removing from the costs of the case the effects of teaching and serving 
a disproportionate share of low income patients. We remove these costs 
because sections 1886(d)(5) (B) and (F) of the Act require that we make 
additional payments for IME and DSH on outlier payments. If we did not 
remove the effect of IME and DSH from the estimated costs of outlier 
payments, we would be paying IME and DSH twice: once through the 
estimate of the marginal cost of treating these patients, which would 
include the effects on cost of IME and DSH, and again through the 
additional payments made on outlier payments. Thus, it would be 
inappropriate to eliminate the standardization since we are required by 
statute to make additional IME and DSH payments on outlier payments.
2. Outlier Changes Planned for FY 1996 Through FY 1998
    As stated above, section 1886(d)(5)(A) of the Act requires us to 
phase out payments for day outliers over the FY 1995 through FY 1997 
period. We currently expect to meet the statutory reductions in day 
outlier payments for FY 1996 and FY 1997 solely through a reduction in 
the marginal cost factor without having to raise the day outlier 
threshold. If necessary, we will propose achieving the reduction in day 
outlier payments between FYs 1996 and 1997 through a combination of 
reducing the marginal cost factor and raising the threshold. There will 
be corresponding increases in payments to cost outliers as we phase-out 
payment to day outliers.

E. Rural Referral Centers (Sec. 412.96)

    Under the authority of section 1886(d)(5)(C)(i) of the Act, 
Sec. 412.96 sets forth the criteria a hospital must meet in order to 
receive special treatment under the prospective payment system as a 
rural referral center. For discharges occurring before October 1, 1994, 
rural referral centers receive the benefit of payment based on the 
other urban payment rate rather than the rural payment rate. As of that 
date, the other urban and rural payment rates will be the same. 
However, rural referral centers will continue to receive special 
treatment under both the disproportionate share hospital payment 
adjustment and the criteria for geographic reclassification.
    One of the criteria under which a rural hospital may qualify as a 
referral center is to have 275 or more beds available for use. A rural 
hospital that does not meet the bed size criterion can qualify as a 
rural referral center if the hospital meets two mandatory criteria 
(number of discharges and case-mix index) and at least one of three 
optional criteria (medical staff, source of inpatients, or volume of 
referrals). With respect to the two mandatory criteria, a hospital is 
classified as a rural referral center if its--
     Case-mix index is at least equal to the lower of the 
median case-mix index for urban hospitals in its census region, 
excluding hospitals with approved teaching programs, or the median 
case-mix index for all urban hospitals nationally; and
     Number of discharges is at least 5,000 discharges per year 
or, if fewer, the median number of discharges for urban hospitals in 
the census region in which the hospital is located. (The number of 
discharges criterion for an osteopathic hospital is at least 3,000 
discharges per year.)
1. Case-Mix Index
    Section 412.96(c)(1) provides that HCFA will establish updated 
national and regional case-mix index values in each year's annual 
notice of prospective payment rates for purposes of determining rural 
referral center status. In determining the proposed national and 
regional case-mix index values, we followed the same methodology we 
used in the November 24, 1986 final rule, as set forth in regulations 
at Sec. 412.96(c)(1)(ii). Therefore, the proposed national case-mix 
index value included all urban hospitals nationwide, and the proposed 
regional values were the median values of urban hospitals within each 
census region, excluding those with approved teaching programs (that 
is, those hospitals receiving indirect medical education payments as 
provided in Sec. 412.105).
    The values in the proposed rule were based on discharges occurring 
during FY 1993 (October 1, 1992 through September 30, 1993) and 
included bills posted to HCFA's records through December 1993. 
Therefore, in addition to meeting other criteria, we proposed that to 
qualify for initial rural referral center status for cost reporting 
periods beginning on or after October 1, 1994, a hospital's case-mix 
index value for FY 1993 would have to be at least--
     1.3028; or
     Equal to the median case-mix index value for urban 
hospitals (excluding hospitals with approved teaching programs as 
identified in Sec. 412.105) calculated by HCFA for the census region in 
which the hospital is located. (See table set forth in the May 27, 
1994, proposed rule at 59 FR 27739.)
    Based on the latest data available (through June 1994), the final 
national case-mix value is 1.3040 and the median case-mix values for 
each region are set forth in the table below:

------------------------------------------------------------------------
                                                               Case-mix 
                           Region                                index  
                                                                 value  
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).....................      1.1986
2. Middle Atlantic (PA, NJ, NY).............................      1.2040
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)......      1.3091
4. East North Central (IL, IN, MI, OH, WI)..................      1.2185
5. East South Central (AL, KY, MS, TN)......................      1.2492
6. West North Central (IA, KS, MN, MO, NE, ND, SD)..........      1.2047
7. West South Central (AR, LA, OK, TX)......................      1.2835
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)................      1.3488
9. Pacific (AK, CA, HI, OR, WA).............................      1.3090
------------------------------------------------------------------------

    For the benefit of hospitals seeking to qualify as referral centers 
or those wishing to know how their case-mix index value compares to the 
criteria, we are publishing each hospital's FY 1993 case-mix index 
value in Table 3C in section V of the addendum to this final rule. In 
keeping with our policy on discharges, these case-mix index values are 
computed based on all Medicare patient discharges subject to DRG-based 
payment.
2. Discharges
    Section 412.96(c)(2)(i) provides that HCFA will set forth the 
national and regional numbers of discharges in each year's annual 
notice of prospective payment rates for purposes of determining 
referral center status. As specified in section 1886(d)(5)(C)(ii) of 
the Act, the national standard is set at 5,000 discharges. However, we 
proposed to update the regional standards. The proposed regional 
standards were based on discharges for urban hospitals' cost reporting 
periods that began during FY 1992 (that is, October 1, 1991 through 
September 30, 1992). That is the latest year for which we have complete 
discharge data available.
    Therefore, in addition to meeting other criteria, we proposed that 
to qualify for initial rural referral center status for cost reporting 
periods beginning on or after October 1, 1994, the number of discharges 
a hospital must have for its cost reporting period that began during FY 
1993 would have to be at least--
     5,000; or
     Equal to the median number of discharges for urban 
hospitals in the census region in which the hospital is located. (See 
table set forth in the May 27, 1994, proposed rule 59 FR 27739.)
    Based on the latest discharge data available, the final median 
numbers of discharges for urban hospitals by census region are as 
follows: 

------------------------------------------------------------------------
                                                               Number of
                           Region                             discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).....................       6,814
2. Middle Atlantic (PA, NJ, NY).............................       8,878
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)......       7,157
4. East North Central (IL, IN, MI, OH, WI)..................       7,024
5. East South Central (AL, KY, MS, TN)......................       5,659
6. West North Central (IA, KS, MN, MO, NE, ND, SD)..........       5,180
7. West South Central (AR, LA, OK, TX)......................       4,517
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)................       8,409
9. Pacific (AK, CA, HI, OR, WA).............................       5,788
------------------------------------------------------------------------

    We reiterate that, to qualify for rural referral center status for 
cost reporting periods beginning on or after October 1, 1994, an 
osteopathic hospital's number of discharges for its cost reporting 
period that began during FY 1993 would have to be at least 3,000.

3. Retention of Referral Center Status

    Section 412.96(f) states that each hospital receiving the referral 
center adjustment is reviewed every 3 years to determine if the 
hospital continues to meet the criteria for referral center status. To 
retain status as a referral center, a hospital must meet the criteria 
for classification as a referral center specified in Sec. 412.96(b)(1) 
or (b)(2) or (c) for 2 of the last 3 years, or for the current year. A 
hospital may meet any one of the three sets of criteria for individual 
years during the 3-year period or the current year. For example, a 
hospital may meet the two mandatory requirements in Sec. 412.96(c)(1) 
(case-mix index) and (c)(2) (number of discharges) and the optional 
criterion in paragraph (c)(3) (medical staff) during the first year. 
During the second or third year, the hospital may meet the criteria 
under Sec. 412.96(b)(1) (rural location and appropriate bed size).
    A hospital must meet all of the criteria within any one of these 
three sections of the regulations in order to meet the retention 
requirement for a given year. That is, it will have to meet all of the 
criteria of Sec. 412.96(b)(1) or Sec. 412.96(b)(2) or Sec. 412.96(c). 
For example, if a hospital meets the case-mix index standards in 
Sec. 412.96(c)(1) in years 1 and 3 and the number of discharge 
standards in Sec. 412.96(c)(2) in years 2 and 3, it will not meet the 
retention criteria. All of the standards would have to be met in the 
same year.
    The requirement for triennial review was originally added to the 
regulations in 1984, to be effective for cost reporting periods 
beginning on or after October 1, 1987 (the end of the first 3 years of 
the referral center adjustment). However, three statutory moratoriums 
on the performance of the triennial reviews were enacted by Congress. 
The third of these moratoriums expires at the end of cost reporting 
periods that began during FY 1994. (See the September 1, 1993 final 
rule (58 FR 46310) for a detailed explanation of the moratorium and the 
implementation of the triennial reviews.)
    With the expiration of the current moratorium, we will begin 
reviewing each rural referral center's compliance with the triennial 
review criteria effective with cost reporting periods beginning on or 
after October 1, 1994. As noted above, although rural referral centers 
will no longer be paid a higher standardized amount than other rural 
hospitals, hospitals approved as rural referral centers continue to be 
entitled to higher disproportionate share payments and continue to 
receive preferential consideration before the Medicare Geographic 
Classification Review Board. Therefore, we believe it is important that 
only those hospitals that meet the rural referral center triennial 
review criteria continue to be so classified. Thus, effective with cost 
reporting periods beginning on and after October 1, 1994, a hospital 
that has been classified as a referral center for at least 3 years will 
be subject to the triennial review criteria as discussed below.
    In accordance with Sec. 412.96(f)(2), the review process is limited 
to the hospital's compliance during the last 3 years. Thus, if a 
hospital meets the criteria in effect for at least 2 of the last 3 
years or if it meets the criteria in effect for the current year (that 
is, the criteria for FY 1995 outlined above in this section of the 
preamble), it will retain its status for another 3 years. No hospital 
is subject to a review until the end of its third full cost reporting 
period as a referral center. We have constructed the following chart 
and example to aid hospitals that qualify as referral centers under the 
criteria in Sec. 412.96(c) in projecting whether they will retain their 
status as a referral center.
    Under Sec. 412.96(f), to qualify for a 3-year extension effective 
with cost reporting periods beginning in FY 1995, a hospital must meet 
the criteria in Sec. 412.96(c) for FY 1995 or it must meet the criteria 
for 2 of the last 3 years as follows: 

------------------------------------------------------------------------
                                    Use the                             
                                  discharges                            
                          Use       for the                             
    For the cost      hospital's  hospital's  Use numerical standards as
  reporting period     case-mix      cost      published in the Federal 
beginning during FY    index for   reporting          Register on       
                          FY        period                              
                                   beginning                            
                                  during FY                             
------------------------------------------------------------------------
1994................        1992        1992  September 1, 1993.        
1993................        1991        1991  September 1, 1992.        
1992................        1990        1990  August 30, 1991.          
------------------------------------------------------------------------

    Example: A hospital with a cost reporting period beginning July 
1 qualified as a referral center effective July 1, 1992. The 
hospital has fewer than 275 beds. Its 3-year status as a referral 
center is protected through June 30, 1995 (the end of its cost 
reporting period beginning July 1, 1994). To determine if the 
hospital should retain its status as a referral center for an 
additional 3-year period, we will review its compliance with the 
applicable criteria for its cost reporting periods beginning July 1, 
1992, July 1, 1993, and July 1, 1994. The hospital must meet the 
criteria in effect either for its cost reporting period beginning 
July 1, 1995, or for two out of the three past periods. For example, 
to be found to have met the criteria at Sec. 412.96(c) for its cost 
reporting period beginning July 1, 1993, the hospital's case-mix 
index value during FY 1991 must have equaled or exceeded the lower 
of the national or the appropriate regional standard as published in 
the September 1, 1992 final rule. The hospital's total number of 
discharges during its cost reporting year beginning July 1, 1991, 
must have equaled or exceeded 5,000 or the regional standard as 
published in the September 1, 1992 final rule.
    For those hospitals that seek to retain referral center status 
by meeting the criteria of Sec. 412.96(b)(1)(i) and (ii) (that is, 
rural location and at least 275 beds), we will look at the number of 
beds shown for indirect medical education purposes (as defined at 
Sec. 412.105(b)) on the hospital's cost report for the appropriate 
year. We will consider only full cost reporting periods when 
determining a hospital's status under Sec. 412.96(b)(1)(ii). This 
definition varies from the number of beds criterion used to 
determine a hospital's initial status as a referral center because 
we believe it is important for a hospital to demonstrate that it has 
maintained at least 275 beds throughout its entire cost reporting 
period, not just for a particular portion of the year.

    We received no comments on the rural referral center policies; 
therefore, they are adopted as proposed.

F. Determination of Number of Beds in Determining the Indirect Medical 
Education Adjustment (Sec. 412.105)

    Section 1886(d)(5)(B) of the Act provides that prospective payment 
hospitals that have residents in an approved graduate medical education 
program receive an additional payment to reflect the higher indirect 
operating costs associated with graduate medical education. The 
regulations regarding the calculation of this additional payment, known 
as the indirect medical education (IME) adjustment, are at 
Sec. 412.105. The additional payment is calculated by multiplying a 
hospital's DRG revenue (including outlier payments) by the applicable 
IME adjustment factor. The adjustment factor is calculated by using a 
hospital's ratio of residents-to-beds in the formula set forth at 
section 1886(d)(5)(B)(ii) of the Act.
    Section 412.105(b) states that the number of beds used in the 
resident-to-bed ratio is calculated by dividing the number of days 
during the cost reporting period into ``the number of available bed 
days during the cost reporting period, not including beds assigned to 
newborns, custodial care, and excluded distinct part hospital units. . 
. .'' Since we added this language to the regulations in the September 
3, 1985 final rule (50 FR 35679 and 35690), there has been some 
confusion over whether this definition includes or excludes bed days 
attributable to neonatal intensive care units. This confusion has 
resulted in some hospitals contesting their fiscal intermediaries' 
inclusion of neonatal intensive care beds in the hospitals' count of 
available beds.
    Prior to the adoption of Sec. 412.105(b), the definition of 
available beds was at section 2510.5A of the Provider Reimbursement 
Manual--Part 1, which was originally used to establish bed-size 
categories for purposes of applying the cost limits under section 
1861(v)(1)(A) of the Act. That definition excluded newborn beds but 
specifically included beds in intensive care units, coronary care 
units, and other special care inpatient hospital units. The exclusion 
of newborn beds was consistent with the exclusion of newborn days and 
costs from the determination of Medicare's share of allowable routine 
service costs (see section 2202.11B of the Manual). If a neonatal unit 
qualifies as an intensive care unit, however, the costs of that unit 
are included in determining Medicare's costs (see section 2202.7.II.B 
of the Manual). Correspondingly, the days in a neonatal unit that 
qualifies as an intensive care unit are counted as intensive care type 
days rather than nursery days (see section 2202.7.II.A of the Manual). 
Finally, section 2510.5A of the Manual clearly indicates that intensive 
care unit beds and special care unit beds are included in a hospital's 
bed complement.
    In the September 3, 1985 final rule, we added the definition of 
available beds to the regulations governing the IME adjustment (then 
Sec. 412.118(b)). The expressed purpose for the change was to stop 
counting beds ``based upon the total number of beds available on the 
first day of the pertinent cost reporting period'' and to begin 
counting based on ``the number of available bed days (excluding beds 
assigned to newborns, custodial beds, and beds in excluded units) 
during the current cost reporting period divided by the number of days 
in the cost reporting period'' (50 FR 35679). We did not change the 
definition of available beds. Our current position regarding the 
treatment of these beds is unchanged from the time when the cost limits 
established under section 1861(v)(1)(A) of the Act were in effect and 
is consistent with the way we treat beds in other hospital areas. That 
is, if the bed days and costs are allowable in the calculation of 
Medicare's share of inpatient costs, the beds within that unit are 
included as well.
    Some hospitals have asserted that when we excluded beds assigned to 
newborns, we changed our treatment of neonatal intensive care unit 
beds. However, we note that the term ``newborn'' has historically been 
used synonymously with nursery. Perhaps the clearest illustration of 
this is the definition of a ``newborn inpatient day'' as a day that 
``an infant occupies a newborn bed in the nursery'' (see section 2815 
of the Provider Reimbursement Manual--Part 2). This definition dates 
back to at least 1975. If Sec. 412.105(b) was indeed meant to change 
our established policy, we would have referenced that intent at the 
time. This would have been necessary since neonatal intensive care 
costs and days were still included in the calculation of Medicare's 
costs.
    Finally, in August 1988, we issued Provider Reimbursement Manual 
Transmittal No. 345, revising section 2405.3G of the Manual, which 
provides implementing instructions for the IME adjustment. As part of 
this revision, the definition of the number of beds was clarified to 
specifically exclude beds ``. . . assigned to newborns which are not in 
intensive care areas. . . .'' Those who argue that Sec. 412.105(b) 
excludes neonatal intensive care unit beds from the hospital bed count 
also argue that this Manual issuance is contradictory to the 
regulations.
    In order to clarify our policy, we proposed to revise the 
regulations at Sec. 412.105(b) to exclude specifically only beds 
assigned to newborns in the nursery. Thus, neonatal intensive care beds 
would not be excluded from the bed count. We stressed that this does 
not represent a policy change in our bed counting rules, but rather a 
reaffirmation of our longstanding position. Revising the wording of the 
regulations should alleviate any future misunderstandings, as well as 
clarify our position regarding previous application of this policy, 
both before and since the original publication of our bed counting 
regulations now specified at Sec. 412.105(b).
    We also proposed to make a technical change to Sec. 412.105(d)(1) 
to correct a reference.
    Comment: We received several comments in opposition to our proposed 
clarification. One commenter stated that this was a policy change 
requiring public comment that cannot be applied retroactively. Other 
commenters claimed that since Medicare has little or no utilization in 
these areas, all of the beds should be excluded from the available bed 
count. One commenter stated that including these beds in the hospital 
bed size determination was incongruous with the determination of 
Medicare allowable costs.
    Response: As explained in the proposed rule and repeated above, we 
are only clarifying our longstanding policy position regarding neonatal 
intensive care beds and are not making a change in policy. We note that 
the United States Court of Appeals for the Eighth Circuit recently 
upheld this long-standing policy Sioux Valley Hospital v. Shalala, No. 
93-3741SD (8th Cir. July 20, 1994).
    We disagree with the position that neonatal intensive care beds 
should be excluded based on the degree of Medicare utilization. Rather, 
we believe it is appropriate to include these beds because the costs 
and days of these beds are recognized in the determination of Medicare 
costs (nursery costs and days, on the other hand, are excluded from 
this determination). We also note that time spent by residents working 
in these areas is included in the resident-to-bed ratio calculation, 
irrespective of Medicare utilization.
    Comment: Another commenter elaborated on the definition of a 
newborn, pointing out that Dorand's Illustrated Medical Dictionary, 
27th Ed., makes no distinction with regard to the physical status of 
newborn infants, describing them only as ``a recently born infant.'' 
This commenter then contends that the term ``newborn'' in 
Sec. 412.105(b) includes infants regardless of whether they are in an 
intensive care unit. The commenter goes on to state that by including 
neonatal intensive care unit beds, we are placing an undue burden on 
these facilities.
    Response: Our policy to include the costs, days, and beds of 
neonatal intensive care units has been in place since prior to the 
prospective payment system and has been the subject of considerable 
attention. We believe we have a responsibility to apply this policy 
consistently over time and across providers. Excluding these beds from 
the determination of bed size would have an adverse impact on some 
hospitals. Several other prospective payment system special adjustments 
are based on bed size; for example, thresholds and adjustments for the 
disproportionate share (DSH) adjustment for urban hospitals with 100 or 
more beds. If we no longer considered neonatal intensive care beds in 
determining bed size, DSH adjustments to some hospitals would be 
sharply reduced. To prevent any future confusion about the term 
``newborn'' in Sec. 412.105(b), we are revising the proposed language 
to reference ``nursery beds.''
    We reiterate that our policy is unchanged and that we are merely 
clarifying the regulations at Sec. 412.105(b). We are adopting the 
proposed change with technical revisions.

G. Disproportionate Share Adjustment (Sec. 412.106)

    Section 1886(d)(5)(F) of the Act provides for additional Medicare 
payments for hospitals that serve a disproportionate share of low 
income patients. Section 1886(d)(5)(F)(vii) of the Act, as added by 
section 6003(c)(1)(B) of Public Law 101-239 and amended by section 
4002(b)(1) of Public Law 101-508, specifies the formula for determining 
the disproportionate share adjustment percentage for hospitals that are 
located in an urban area and have 100 or more beds, or are located in a 
rural area and have 500 or more beds. The statute establishes different 
payment formulas for different years, including a change in the formula 
for discharges occurring on or after October 1, 1994.
    Regulations concerning the Medicare disproportionate share 
adjustment are set forth at Sec. 412.106. Under Sec. 412.106(c)(1)(i), 
a hospital that is located in an urban area and has 100 or more beds, 
or is located in a rural area and has 500 or more beds, must have a 
``disproportionate patient percentage'' of at least 15 percent to 
qualify for a disproportionate share payment adjustment. Section 
412.106(d)(2) sets forth the formulas for determining the 
disproportionate payment adjustment factors applicable to these two 
groups of hospitals.
    In the proposed rule, we did not propose changes to any part of 
Sec. 412.106. However, we wish to ensure that hospitals are aware of 
the revised payment formulas that will take effect in FY 1995 pursuant 
to the statute. Specifically, for discharges occurring on or after 
October 1, 1994, any such hospital with a disproportionate share 
patient percentage greater than 20.2 percent will receive a 
disproportionate share adjustment equal to 5.88 percent plus 82.5 
percent of the difference between 20.2 percent and the hospital's 
disproportionate share patient percentage.

H. Changes Affecting Essential Access Community Hospitals (EACHs) and 
Rural Primary Care Hospitals (RPCHs) (Secs. 412.109, 485.602, 485.635, 
and 489.102)

    On May 26, 1993, we published a final rule to implement the EACH 
program (58 FR 30630). The rule set forth the requirements for 
designating certain hospitals as EACHs or RPCHs, the conditions that an 
RPCH must meet to participate in Medicare, and the rules for Medicare 
payment for services furnished by EACHs and RPCHs. The final rule 
implemented section 1820 of the Act, as added by sections 6003(g) and 
6116(b)(2) of Public Law 101-239 and revised by section 4008(d) of 
Public Law 101-508. The amendments were intended to promote 
regionalization of rural health services in grant States, improve 
access to hospital and other health services for rural residents, and 
enhance the provision of emergency and other transportation services 
related to health care.
    Since the publication of that rule, we have identified several 
necessary additions to the EACH/RPCH provisions. First, to provide for 
orderly review and adjudication of disagreements about whether a 
facility's designation has been terminated properly, we proposed to 
specify under new Sec. 412.109(e) that a determination by HCFA that a 
hospital does not meet the criteria for EACH designation, or that a 
hospital's EACH designation should be terminated, is subject to review 
under 42 CFR part 405, subpart R.
    We also proposed several clarifying changes to the definition of 
``direct services'' at Sec. 485.602, as well as clarifying references 
in Sec. 485.635, the condition of participation on provision of 
services. These revisions merely would restate more clearly our 
existing policies under which the services listed in Sec. 485.635(b) 
(``direct services'') must be furnished by employed staff, not under 
agreements or arrangements.
    In addition, we proposed to revise the range of laboratory services 
that an RPCH must furnish as direct services. In a final rule with 
comment period published on December 2, 1993 (58 FR 63533), we revised 
the RHC regulations at Sec. 491.9 to eliminate, as required direct 
services, tests not classified as waived under the Clinical 
Laboratories Improvement Act of 1988 (CLIA). (See 42 CFR 493.15.) We 
made these changes in the RHC regulations because the CLIA program 
introduced participation requirements that may cause some RHCs to 
withdraw from the program, creating a shortage of available medical 
care in some areas.
    Because RPCHs typically are located in rural areas similar to those 
served by RHCs and serve similar patient populations, and because the 
RPCH designation criteria in section 1820(f)(1)(H) of the Act state 
that RPCHs must meet the requirement for direct provision of routine 
diagnostic services in the statutory definition of ``rural health 
clinic,'' we believe it is appropriate to impose the same requirements 
in both settings. Therefore, we proposed to revise the RPCH regulations 
at Sec. 485.635 to require the RHCs to provide directly the following 
laboratory services:
    (1) Chemical examination of urine by stick or tablet method or both 
(including urine ketones);
    (2) Hemoglobin or hematocrit;
    (3) Blood glucose;
    (4) Examination of stool specimens for occult blood;
    (5) Pregnancy tests; and
    (6) Primary culturing for transmittal to a certified laboratory.
    We noted that this change would not prevent any RPCH from providing 
tests that are not listed in Sec. 485.635(b)(2). An RPCH is free to 
choose a higher level CLIA certification than the certificate of waiver 
if it wishes to provide tests of a higher complexity and to comply with 
all CLIA requirements.
    The current regulations do not set out a clear and consistent 
position on the applicability of the advance directives requirement. 
Under the regulations in Sec. 485.645(b)(1), swing-bed RPCHs are 
required to meet a number of skilled nursing facility (SNF) 
requirements, including Sec. 483.10(b)(4). That regulation requires 
that the patient be given the right to make an advance directive. (An 
advance directive is a written instruction, such as a living will or a 
durable power of attorney for health care, that deals with the 
provision of health care when the individual is incapacitated. See 
Subpart I of 42 CFR Part 489.) Thus, the regulations apply the advance 
directives requirement to RPCH inpatients receiving a SNF level of care 
in swing beds, but not to inpatients receiving RPCH care.
    We believe the RPCH benefit could be administered more simply and 
equitably if both hospitals and RPCHs were required to comply with the 
same advance directives requirement. As explained in the preamble to 
the May 26, 1993 final rule on EACHs (58 FR 30635-30636), as authorized 
by section 1861(e) of the Act, we have read the word ``hospital'' to 
include RPCHs where the context appears to support such a reading. We 
believe the context of section 1866(a)(1)(Q) of the Act would support 
this reading, since many patients are likely to seek RPCH care as an 
alternative to treatment in a hospital or SNF, and many RPCHs will 
accept patients who are at risk of the kind of incapacitating condition 
addressed by an advance directive. Thus, we proposed to revise the 
regulations at Sec. 489.102 to provide for more consistent application 
of the advance directive requirement, by specifying that it will apply 
to RPCHs on the same basis as to hospitals.
    We believe this approach is simpler to administer and expands 
beneficiary rights. Moreover, since all prospective RPCHs must be (or 
have been) hospitals and have been required to meet the advance 
directive requirement, there should not be any added burden.
    In response to our proposal to provide for appeals of EACH 
designation decisions under 42 CFR Part 405, Subpart R, we received one 
comment.
    Comment: A commenter indicated that the proposed regulations are 
not clear with respect to when the 180-day time period for filing 
appeals of a HCFA determination on a hospital's EACH status begins. The 
commenter recommended that the regulations be revised to state whether 
the time period begins on the date of notice to the hospital of the 
determination, or on the date of the Notice of Program Reimbursement 
(NPR) that reflects the determination.
    Response: The regulations at Sec. 405.1801, concerning provider 
reimbursement determinations and appeals, define an ``intermediary 
determination'' as ``a determination of the amount of total 
reimbursement due the provider pursuant to Sec. 405.1803 following the 
close of the provider's cost reporting period * * *.'' Section 
405.1811(a) states that a provider that has received a NPR may request 
an intermediary hearing if the amount in controversy exceeds a 
specified level and the request is in writing and is filed with the 
intermediary within 180 calendar days after the date of the notice. In 
addition, the regulations at Sec. 405.1841(a)(1) allowing Provider 
Reimbursement Review Board (PRRB) hearings provide a similar time frame 
for filing appeals for Board hearings.
    We believe it is appropriate to make appeals of determinations 
affecting EACH status subject to the same time limitations as other 
determinations affecting the amount of payment due providers. Thus, a 
determination that a hospital does not qualify (or no longer qualifies) 
as an EACH will be considered to be made on the date of the NPR that 
reflects the non-EACH status of the hospital.
    To clarify this point, we have revised Sec. 412.109(e) to state 
that a determination by HCFA on the EACH status of a hospital for a 
cost reporting period is considered to be an intermediary determination 
subject to review under 42 CFR Part 405, subpart R, including the time 
limits for filing requests for hearings as specified in 
Secs. 405.1811(a) and 405.1841(a)(1) and (b).
    We received no comments on the other changes described above. 
Therefore, we are adopting those changes as proposed.

I. Clarification of Payment to RRC/EACH Hospitals

    In the preamble to the proposed rule, we stated that we wish to 
clarify a response in the EACH final rule of May 26, 1993 (58 FR 30639-
30640), regarding the effect on a rural referral center's (RRC) payment 
rate should it elect to become an EACH. An RRC that elects to become an 
EACH is considered to have dual classification; that is, it is 
classified as an RRC/EACH. Since section 1886(d)(5)(D)(iii)(III) of the 
Act specifies that an EACH is to be treated as an sole community 
hospital (SCH), in determining which of the three payment rates will 
yield the highest aggregate payment, we will use the ``other'' 
standardized amount in determining the Federal payment rate for 
discharges occurring on or after October 1, 1994. (As discussed above, 
as of that date, the other urban and rural payment rates will be the 
same.) For discharges occurring before October 1, 1994, the Federal 
payment rate is based on the ``other urban'' payment rate.
    Thus, an RRC that elects to become an EACH is paid based on 
whichever of the following rates yields the greatest aggregate payment 
for the cost reporting period:
     The national Federal rate applicable to the hospital (that 
is, other urban before October 1, 1994 and ``other'' on or after that 
date);
     The updated hospital-specific rate using FY 1982 cost per 
discharge; or
     The updated hospital-specific rate using the FY 1987 cost 
per discharge.
    We did not propose to revise any regulations in connection with 
this clarification, and no comments on the clarification were received.

J. Direct Graduate Medical Education Payment (Sec. 413.86)

1. Definition of Initial Residency Period
    Section 1886(h)(4) of the Act bases payment for direct graduate 
medical education (GME) costs on the hospital's number of full-time 
equivalent (FTE) residents multiplied by a hospital-specific adjusted 
base year per resident amount. The number of FTE residents is 
determined by applying a weighting factor to each FTE resident. A 
resident in an initial residency period is weighted as 1.0 FTE. 
Residents in approved training programs that are beyond their initial 
residency period are required by law to be counted as .50 FTE. The 
initial residency period is defined at Sec. 413.86(g)(1), as the 
minimum number of years of formal training necessary to satisfy the 
requirements for initial board eligibility in the particular specialty 
plus 1 year, not to exceed 5 years.
    Section 13563(b) of Public Law 103-66 amended section 1886(h)(5)(F) 
of the Act by deleting ``plus one year'' from the statutory definition 
of initial residency period, effective July 1, 1995. To conform the 
regulations to the statute, we proposed to revise Sec. 413.86(g)(1) by 
specifying that, effective July 1, 1995, an initial residency period is 
defined as the minimum number of years required for board eligibility.
    For example, if a resident completed a 3-year internal medicine 
program and then started a cardiology program that requires an 
additional 2 years of training, the resident would be counted as 1.0 
FTE for the 3 years spent in internal medicine and as a .50 for 2 years 
in the cardiology program. (Prior to Public Law 103-66, the resident 
would have been counted as 1.0 FTE during the first year of the 
cardiology residency program.)
2. Part-time Resident
    Currently, the last sentence of Sec. 413.86(f)(1)(ii) specifies 
that, for purposes of GME, ``[a] part-time resident counts as a partial 
FTE based on the proportion of time worked as compared to the average 
time spent by other residents working in the same specialty program.''
    The definition of part-time resident for purposes of GME is 
consistent with the definition of part-time resident for purposes of 
IME. However, the language in the regulations text differs and this 
difference has led to some confusion. Therefore, we proposed to revise 
the language at Sec. 413.86(f)(1)(ii) to be consistent with the IME 
definition specified at Sec. 412.105(g).
    Comment: A commenter noted that in making the language for 
determining the part-time status of a resident for purposes of GME 
payments consistent with the IME language at Sec. 412.105(g), we 
limited the determination to time spent by the intern or resident 
working ``in the hospital.'' Limiting the determination to time spent 
in the hospital is inconsistent with the regulation at 
Sec. 413.86(f)(iii).
    Response: It was not our intent to limit the determination only to 
time spent by the intern or resident in the hospital. Our intent was 
solely to make the language regarding the comparison to the total time 
necessary to fill a full time internship or residency slot, consistent 
for both GME and IME. The reference to time worked in the hospital was 
inadvertent. The reference should have been to the allowable time the 
resident worked in the program, as specified at Sec. 413.86(f). 
Accordingly, we have revised the language at Sec. 413.86(f)(1)(ii) as 
follows:

    A part-time resident counts as a partial FTE based on the 
proportion of allowable time worked compared to the total time 
necessary to fill a full-time internship or residency slot.

    We also proposed to make a technical change to Sec. 412.113(b)(3) 
to correct a reference to Sec. 413.86 and we are adopting the proposal 
in this final rule.

K. Other Technical Changes (Sec. 412.232)

    We are republishing provisions in Sec. 412.232(c) that were 
inadvertently deleted from the regulations text published in the Code 
of Federal Regulations (CFR) due to an error in amendatory language in 
our September 1, 1992 final rule. In order to provide the public with 
the complete text of the provisions of Sec. 412.232(c), pending 
publication of the next edition of the CFR, we are publishing 
Sec. 412.232(c) in its entirety.

V. Changes and Clarifications to the Prospective Payment System for 
Capital-Related Costs

A. Evaluation of Provisions Relating to Obligated Capital for Hospitals 
Subject to Lengthy Certificate-of-Need (CON) Process 
(Sec. 412.302(c)(2))

    Section 412.302(c)(2) of the regulations specifies the conditions 
under which capital projects may be treated as obligated capital for 
hospitals subject to a lengthy CON process. Under this provision, a 
capital project that is subject to a CON process may qualify as 
obligated capital if several conditions are met. These conditions are:
     The hospital is required under State law to obtain prior 
approval of the capital project by a designated State or local planning 
authority in the State in which the hospital is located;
     The hospital filed by December 31, 1989, an initial 
application meeting the requirements of the State that includes, at a 
minimum, a detailed description of the project and its estimated cost, 
and had not received approval or disapproval by September 30, 1990;
     The hospital expended the lesser of $750,000 or 10 percent 
of the estimated project cost by December 31, 1990; and
     The project is completed and the asset put into use for 
patient care on or before the earlier of September 30, 1996 or 4 years 
from the date CON approval is received.
    The purpose of allowing hospitals in CON states to qualify projects 
for recognition as obligated capital under these special conditions was 
to recognize that in situations where there is a lengthy CON process, 
hospitals may have deferred making the legal commitments required under 
the general rule for recognizing obligated capital until the CON 
approval was received. We believe that such hospitals should not be 
disadvantaged if they reasonably anticipated the CON approval process 
in their capital planning but were unable to meet the December 31, 1990 
cut-off date for obligated capital because timely approval had not been 
received. Our intent was not to afford more favorable treatment for 
these hospitals relative to other hospitals, but rather to make a 
reasonable and equitable allowance for the impact a lengthy CON process 
may have on the ability of hospitals that have already made a 
substantial financial commitment to meet the criteria for recognition 
of obligated capital costs. Thus, the intent was to put these hospitals 
on an even footing with other hospitals.
    In the interests of maintaining an equitable policy for those 
hospitals, we proposed to change the deadline for putting assets into 
use for patient care to the later of September 30, 1996 or 4 years from 
the date of CON approval. We received two comments on the proposal to 
extend the deadline for putting assets into use for patient care under 
the obligated capital provision to the later of September 30, 1996 or 4 
years from the date of CON approval. Both commenters supported the 
proposal. Therefore, we are adopting as final the proposed change in 
the deadline, under the special obligated capital provision for CON 
states, for putting assets into use for patient care.

B. Specific Adjustment for Taxes to the Capital Prospective Payment 
System Federal Rate (Sec. 412.312)

    In our May 27, 1994 proposed rule, we discussed an adjustment to 
the capital prospective payment system for capital-related taxes (59 FR 
27744-27746). We described the background of this issue, our data 
collection efforts and preliminary results, approaches to making a 
hospital-specific tax adjustment, and the costs and concerns we could 
initially identify with making such a change. We noted that it was 
premature to make a regulations proposal at that time due to the 
problematic nature of the data currently available on taxes and on 
payments in lieu of taxes. We stated that we would seek clarifying 
information on the 23 percent of proprietary hospitals not reporting 
tax costs and the 13 percent of non-proprietary hospitals reporting 
taxes or payments in lieu of taxes. We requested comments from the 
entire hospital community on the appropriateness of and preferred 
methodology for any capital prospective payment system adjustment for 
tax costs.
    Based on the comments we received and our analysis of the property 
tax component of capital-related costs, we agree that specific 
adjustments for tax costs should be made, along with a corresponding 
adjustment to the capital prospective payment system Federal rate, at 
such time that we have substantially completed and verified data 
necessary to implement both adjustments. We intend to complete this 
process in time for the FY 1996 proposed rule.
    We concur with commenters that maintain that capital-related taxes, 
as defined by Medicare regulations, may be a unique cost imposed on 
certain hospitals that are readily defined and distinct from other 
capital-related costs. Therefore, it may be inequitable to continue to 
include those costs in the Federal rate payment made to all hospitals, 
as hospitals move to capital payments based on 100 percent of the 
Federal rate. We also agree that a payment adjustment for tax costs 
should not be limited to proprietary hospitals. Non-proprietary 
hospitals that can document costs that meet the criteria for taxes as 
specified at Sec. 413.130(a)(2) and (i)(5) should also be eligible for 
such an adjustment. An assessment in lieu of property taxes may also 
qualify as a capital related payment if the assessment is based 
specifically on the assessed value of the hospital's land or 
depreciable assets which are used for patient care. An assessment that 
is made on a hospital that is not based on the value of those assets 
would not qualify as a capital related payment in lieu of taxes and 
would therefore not be subject to this adjustment. We intend to 
institute a change in cost reporting instructions which will restrict 
entries of tax information on Worksheet A-7 to capital-related taxes 
that meet the criteria for taxes as specified at Sec. 413.130(a)(2) and 
(i)(5).
    Although we are committed to implementing specific adjustments for 
capital-related tax costs, we find that we are not in a position to 
make an appropriate adjustment in the FY 1995 Federal rate to account 
for the tax adjustment. After two additional updates to the FY 1992 
cost report data on the Hospital Cost Report Information System (HCRIS) 
since the May 27, 1994 proposed rule discussion, we still lack tax data 
for nearly 22 percent of proprietary hospitals. Also, we have no data 
on the amount of payments in lieu of taxes that could meet the criteria 
specified above for non-proprietary hospitals. Based on the information 
provided by our regional offices, it appears that in many instances 
hospitals have included other costs (for example, sales taxes) as 
payments in lieu of taxes that do not qualify as capital-related tax 
costs.
    In order to avoid making duplicate payments to hospitals that would 
receive a payment adjustment for taxes, the Federal capital prospective 
payment system rate must be adjusted to adequately offset the total of 
hospital-specific tax adjustment payments that will be made with 
implementation of this initiative. These missing or questionable 
amounts are potentially too significant to make an accurate Federal 
rate adjustment. In addition, we believe that since nearly 5 out of 6 
hospitals will face a Federal rate reduction without any increase in 
payments, and that the level of the Federal rate adjustment may be even 
more substantial than our earlier data indicated (2 to 3 times the 0.77 
percent reduction to the base capital rate reported at 59 FR 27745), 
every effort must be made to make an accurate adjustment to the rate.
    We believe that we need to develop the methodology and complete any 
data analysis prior to publishing the proposed rule for the FY 1996 
capital prospective payment system in order to ensure that we will be 
in a position to finalize an appropriate tax adjustment for FY 1996. 
Thus, solicitation of data and comments on the methodology must be 
essentially completed no later than December 15, 1994.
    In order to meet these objectives, we are initiating (through 
Medicare intermediaries) data collection and verification of Medicare 
capital-related tax costs incurred during a hospital's cost reporting 
period(s), totalling 12 months, beginning on or after October 1, 1991, 
but before October 1, 1992. In order for a hospital to be eligible for 
a hospital-specific tax payment adjustment for discharges occurring on 
and after October 1, 1995, all tax costs that meet the definition of 
capital-related tax costs (including payments in lieu of taxes) cited 
above along with supporting documentation must be submitted to the 
intermediaries no later than December 15, 1994. Furthermore, payment 
eligibility for this adjustment to the capital prospective payment 
system rates may be dependent on accurate data being provided by the 
hospital on Worksheet A-7 of the hospital's cost report in all future 
fiscal periods. Medicare intermediaries will contact each hospital in 
writing requesting verification of the amount of and exact source and 
basis for taxes or payment in lieu of taxes reflected in the hospital's 
FY 1992 Form 2552-92, Worksheet A-7, Part III, column 6, line 5, or for 
submittal of that information if it was not reflected on Worksheet A-7.
    Using this verified data and other pertinent FY 1992 cost report 
information for each hospital, an adjustment to the Federal capital 
prospective payment system rate for FY 1996 removing taxes and payments 
in lieu of taxes, would be developed along the following lines: We 
would propose an adjustment to the Federal capital prospective payment 
system rate to remove amounts for taxes and payments in lieu of taxes. 
The adjustment will be based on data from cost reports beginning in FY 
1992. The adjustment would reflect the allowable capital-related taxes 
from Worksheet A-7, supplemented by Medicare fiscal intermediary data 
as described in the previous paragraph, and may be allocated through 
step-down to Medicare cost amounts. The total capital-related taxes 
allocated to Medicare would be subtracted from total Medicare capital-
related costs for all hospitals, yielding Medicare capital-related 
costs without taxes. An adjustment reflecting the ratio of Medicare 
capital costs without taxes to total Medicare capital-related costs 
(including capital-related taxes) would then be applied to the Federal 
capital prospective payment system rate. This adjustment is necessary 
in order to remove tax costs currently reflected in the Federal capital 
prospective payment system rate.
    With respect to a hospital-specific tax payment methodology, two 
approaches were presented in general outline in the proposed rule (59 
FR 27745). In any method ultimately selected, we would use only a 
hospital's verified FY 1992 tax cost data based on the intermediary 
initiative described above. Hospitals (other than new hospitals) that 
have no taxes or payments in lieu of taxes verified by the intermediary 
for FY 1992 would not receive an adjustment for taxes in the future. 
Based on the FY 1992 tax data and other pertinent information from the 
hospital's FY 1992 cost report, a Medicare tax cost per discharge in 
the FY 1992 base year would be established for each eligible hospital.
    In our May 27, 1994 proposed rule (59 FR 27745) we discussed a 
method whereby the tax cost per discharge amount would be calculated as 
part of the property tax factor (PTF) approach. Under that methodology 
we would determine a ratio of the FY 1992 base year tax cost per 
discharge to the base year FY 1992 Federal capital prospective payment 
system rate. This percentage would then be applied to the Federal rate 
for each eligible hospital for cost reporting periods beginning on or 
after October 1, 1995. This percentage (or property tax factor (PTF)) 
adjustment would be applied on a discharge basis to the Federal capital 
prospective payment system rate for FY 1996 and future years.
    However, we no longer believe that this approach is desirable. 
Since the payments would increase or decrease as a function of changes 
to the Federal capital prospective payment system rate, the total 
amount paid to hospitals eligible for this adjustment in FY 1996 could 
differ substantially from FY 1992 total Medicare tax costs trended 
forward to FY 1996. This is because some factors affecting changes in 
the Federal rate may not be correlated with a change in capital-related 
taxes.
    The second option discussed in the proposed rule was to apply a 
hospital-specific Medicare tax cost per discharge amount from the FY 
1992 base year as a direct add-on amount to each discharge for eligible 
hospitals, beginning October 1, 1995. Again any hospital for which the 
intermediary has not documented FY 1992 taxes or payments in lieu of 
taxes (except for new hospitals) will not receive a tax add-on in 
future years. The direct add-on approach has the advantages of 
separating the tax adjustment from changes in the Federal rate, thereby 
limiting the potential for a divergence in payments for taxes as 
compared to the hospital's original tax experience. In addition, it 
would improve comparability of the Federal rate adjustment to the total 
amount of hospital-specific tax adjustment payments.
    Under this approach each hospital's FY 1992 Medicare tax cost per 
discharge would be calculated and then subsequently updated by an 
appropriate factor for periods after FY 1996. We are using each 
hospital's FY 1992 tax cost per discharge as the base year because it 
is the hospital's first cost reporting period under capital prospective 
payment system and is the most recent data available. Changes in tax 
policies after the base period will not be recognized. In establishing 
the update factor we would evaluate the appropriateness of applying an 
index consistent with the update index used for the Federal capital 
rate.
    In the event that a unique tax update factor is necessary, we 
believe that one possibility is to use 2 or 3 years of reliable cost 
report tax data from which we can calculate either a national or 
regional rate of change in tax costs. However, any update methodology 
would necessarily need to be insulated from the effects of arbitrary 
actions by taxing jurisdictions. Under this methodology we would 
anticipate utilizing the applicable Federal rate update factor until an 
alternative tax cost specific or other appropriate factor is developed.
    Finally, we would assure that new hospitals would have the benefit 
of a similar adjustment in the future. The hospital's first full cost 
reporting year's tax amount could be used to establish its tax 
adjustment factor. Timely comments on this option are sought.
    Again, we reiterate the importance of hospitals cooperating with 
their servicing intermediary in providing capital-related tax 
information and documentation, and in submitting specific comments on 
the issues and options discussed in this section on hospital tax 
adjustments to the Federal rate and capital prospective payment system 
payments. Submissions of tax data must be made to the intermediary no 
later than December 15, 1994. Comments must be received by the same 
date. Mail all comments to the following address: Health Care Financing 
Administration, Department of Health and Human Services, Bureau of 
Policy Development, Attention: Tzvi Hefter, Room 1-H-1 ELR, 6325 
Security Blvd., Baltimore, MD 21207-5187.
    Comment: Comments were received that objected to any consideration 
of a specific property tax adjustment. One basis for the objection was 
that many hospitals are currently required to provide certain levels of 
charity care or other specified services in order to maintain their 
tax-exempt status. The commenters stated that such requirements were in 
effect the equivalent of paying real estate and personal property taxes 
which are then used by these same tax jurisdictions to pay for the 
provision of medical and other services. Since we do not provide an 
adjustment to any Medicare payments in such instances, the commenters 
believe that none should be considered for taxes paid by proprietary 
hospitals or any others.
    Response: While we recognize that charity care and other payments 
in the way of services or other charges are being imposed on hospitals 
by communities and this trend may be increasing, we believe that these 
costs are of a different nature than taxes paid on the value of land 
and depreciable assets which form the definition of taxes for Medicare 
program purposes. Such costs are, in large part, operating costs rather 
than capital-related costs. It is conceivable that these costs were 
recognized in the base year amounts used to establish the operating 
prospective payment systems rates and, to some degree, are represented 
in the adjustments (for example, disproportionate share adjustment) to 
those rates. These considerations (that is, charity care, bad debts, 
etc.) apply to all hospitals to a greater or lesser extent whether they 
are proprietary or non-proprietary facilities.
    We believe that due to the special and identifiable nature of 
capital-related tax costs used in setting the Federal capital 
prospective payment system rate, we should discontinue general 
distribution of those specific costs to all hospitals when only about 1 
in 6 hospitals are subject to this unique cost. We also believe that 
the relationship of capital-related tax costs to other factors that 
affect the number or intensity of patient care services that 
communities are imposing on a hospital is tenuous at best and, 
therefore, only the former should be treated separately in developing 
Medicare payment policies.
    Comment: We received several comments supporting adjustment of 
capital prospective payment system for tax costs originally included in 
the Federal rate determinations. A commenter expressed concern that 
HCFA was underestimating the impact of the payment inequity arising 
from failure to establish an immediate property tax adjustment. The 
commenters recommended that HCFA exclude the cost of taxes from the 
Federal capital prospective payment system rate and report on, or make 
an immediate adjustment for, taxes and payments in lieu of taxes 
through a hospital-specific adjustment to capital prospective payment 
system payments. Two comments recommended using the actual amount in 
each hospital's most recently settled cost report to make the payment 
adjustments, in a manner similar to wage index adjustments to 
prospective payment system payments. Only one commenter suggested using 
the Property Tax Factor (PTF) method discussed in the proposed rule (59 
FR 27745).
    Response: For the reasons cited in the previous response, we agree 
that adjustments for capital-related tax costs should be implemented 
for both proprietary and non-proprietary hospitals at the earliest 
feasible time. As explained in the foregoing discussion, it would not 
be appropriate to attempt payment adjustments on the basis of the 
preliminary and unaudited information available at this time. This 
adjustment could have a significant redistributional effect on capital 
payments to hospitals.
    Equally important is the fact that we have not resolved issues 
regarding the appropriate methodology to use in providing for capital-
related tax cost adjustments. We received differing suggestions in the 
comments regarding which periods to use to make the adjustment and only 
one comment recommended a specific methodology. We, therefore, believe 
it is necessary to seek additional guidance from interested and 
affected parties in the hospital industry and the public before 
implementing an adjustment.
    We appreciate that in a few instances the burden on a hospital with 
high capital-related tax costs may be exacerbated by any delay in 
changing the payment policy on the treatment of these tax costs. 
However, we maintain that there is no significant and general adverse 
impact on proprietary or other hospitals. The capital prospective 
payment system transition methodology for payments is based, in large 
measure, on the actual historical capital cost components and levels 
experienced by hospitals before capital prospective payment system 
implementation in FY 1992. Therefore, we believe the rationale 
discussed in the proposed rule (59 FR 27745) for delaying the 
implementation of any adjustment continues to be appropriate in spite 
of the commenter's assertions that tax costs are assumed to have 
increased an average of 10 percent since FY 1991 or the commenter's use 
of one extreme hypothetical case.
    More than 75 percent of affected hospitals are receiving capital 
prospective payment system payments on the basis of either the hold-
harmless or the fully prospective methodology less than half-way 
through the transition period. Accordingly, the payments they are 
receiving are still substantially based on their hospital-specific pre-
transitional cost experience, which includes taxes.
    Comment: A commenter objected to the discussion in the proposed 
rule (59 FR 27744-27746) where we stated that we believed it was 
premature to develop a proposal for a property tax adjustment due to 
current data limitations including non-reporting by hospitals, the 
status of payments in lieu of taxes and the preliminary nature of the 
data contained in the Hospital Cost Report System (HCRIS).
    Response: The importance ascribed to adequate data is addressed in 
the preceding response. We would also like to point out that regardless 
of the reasons that hospitals do not report properly on matters that 
directly impact on their payment status, fiscal intermediaries must 
perform a substantial amount of work to obtain and verify the necessary 
tax data to implement a property tax adjustment. We do not believe that 
reliable changes can be made when 20 to 25 percent of the basic 
information is missing.
    With respect to alleged problems in reporting of tax information 
due to problems with the instructions for completing Worksheet A-7 of 
the cost report (Form HCFA 2552-92), we believe that the assertion that 
it is impossible to report taxes properly is not supported by the fact 
that over 77 percent of proprietary hospitals and over 13 percent of 
non-proprietary hospitals were able to complete the information and 
pass the comprehensive cost report submission editing program required 
for submission and entry into HCRIS. We will, however, examine the 
specific technical comments provided on the cost report procedures to 
determine whether further refinement of the form or instructions for 
its completion are needed.
    Comment: A commenter addressed our concern with the potential 
divergence of the payments that would be made under a percentage 
adjustment methodology from the actual ratio of tax costs to Medicare 
inpatient costs originally used to establish the property tax factor 
adjustment. The commenter suggested that the PTF approach should be 
implemented regardless of our concern. The commenter suggested that 
when and if data becomes available that conclusively showed that taxes 
do not vary consistent with other capital-related costs, another 
methodology could be developed.
    Response: We concur with the commenter's assumption that several 
years of cost report tax data will be needed to analyze and determine 
whether changes in taxes and other capital costs are sufficiently 
consistent for updating purposes. However, we do not believe that a 
parallel function between the cost of taxes and other capital-related 
costs, which would only address the need for a separate update factor, 
should impact on our decision as to which payment methodology should be 
adopted. Our specific concerns with the PTF methodology were discussed 
previously. Arbitrarily selecting the PTF method does not 
satisfactorily address our concerns.

C. Revision of Provision Relating to Exceptions Payment (Sec. 412.348)

    Section 412.348 provides that, during the transition period, a 
hospital may receive additional payment under an exceptions process 
when its regular payments are less than a minimum percentage, 
established by class of hospital, of the hospital's reasonable capital-
related costs. The amount of the exceptions payment is the difference 
between the hospital's minimum payment level and the payments the 
hospital would receive under the capital prospective payment system in 
the absence of an exceptions payment. The comparison is made on a 
cumulative basis for all cost reporting periods during which the 
hospital is subject to the capital prospective payment transition 
rules.
    Under current Sec. 412.348(b)(1), the minimum payment percentages 
by class of hospitals for FY 1995 are:
     For sole community hospitals, 90 percent;
     For urban hospitals with at least 100 beds that have a 
disproportionate share patient percentage of at least 20.2 percent or 
that received more than 30 percent of its net inpatient care revenues 
from State or local governments for indigent care, 80 percent;
     For all other hospitals, 70 percent of the hospital's 
reasonable inpatient capital-related costs.
    The current regulations also provide that total estimated payments 
under the exceptions process in a year may not exceed 10 percent of 
total estimated capital prospective payments (exclusive of hold-
harmless payments for old capital) for the same fiscal year. Therefore, 
as we stated in the August 30, 1991 final rule, we will revise the 
minimum payment percentages during any subsequent transition year, if 
necessary, to ensure that exceptions payments do not exceed the 10 
percent limit. It has not yet been necessary to reduce the original 
minimum payment percentages to meet the 10 percent limit.
    In the final rule for the prospective payment system for capital-
related costs, we stated that we would carefully monitor the impact of 
the capital prospective payment system in order to determine whether 
``some type of permanent exceptions process is necessary and the 
circumstances under which additional payments would be made (56 FR 
43409).'' Since the publication of the final rule for the capital 
prospective payment system, several commenters have urged us to provide 
special protection for hospitals that are undertaking major renovation 
or replacement of aging facilities during the decade of the transition. 
These commenters have pointed out that, unlike hospitals that undertook 
major renovation or replacement during the 1980s, many hospitals that 
undertake capital replacement or renovation projects during the 
transition do not qualify for the protection for old capital or 
obligated capital during the transition. In addition, unlike hospitals 
that will undertake major capital replacement or renovation in the 
decade after the transition period, such hospitals have not had an 
opportunity to accrue capital prospective payments to fund the 
projects.
    We are aware of a number of major projects, scheduled for 
completion later in the transition, that could therefore not be 
included as old or obligated capital, and that involve major 
replacement or renovation of aging facilities. In the design of the 
capital prospective payment system, we have made every effort to 
consider the circumstances of hospitals for whom the transition to 
prospective payment poses special difficulties. We agree with the 
commenters that hospitals that need to undertake major renovation or 
replacement projects during the transition face special difficulties 
merely because of the timing of their projects. We do not believe that 
the Medicare program should guarantee to underwrite every major program 
of replacement or renovation of capital assets. However, under certain 
circumstances we believe that it is fair to provide special protection, 
through the exceptions process, for hospitals that find themselves in 
the circumstances cited.
    In addition to the exceptions categories identified above, we 
therefore proposed at Sec. 412.348 to provide special protection for 
some hospitals that are undertaking major projects to renovate or 
replace aging plant during the transition period. We proposed that this 
special protection would provide a 70 percent minimum payment level for 
up to ten years beyond the transition period, and would be available 
only to the following classes of hospitals:
     Sole community hospitals that have a current ratio less 
than or equal to 1.75 in the exception year;
     Urban hospitals with at least 100 beds that either have 
disproportionate share percentages of at least 20.2 percent or receive 
at least 30 percent of their revenue from State or local funds for 
indigent care, and that have a current ratio less than or equal to 1.75 
in the exception year; and
     Hospitals with a combined inpatient Medicare and Medicaid 
utilization of at least 70 percent.
    In addition, we proposed that the hospital must meet an age of 
asset test and, if applicable, receive approval for the project from a 
State or local planning authority. If planning approval is not 
required, an urban hospital must demonstrate either that it is in a 
metropolitan statistical area (MSA) that does not have an overall 
average occupancy rate less than 80 percent or that its capacity is no 
more than 80 percent of its prior capacity (in terms of bed size).
    We proposed a two-part age of asset test to identify aging 
hospitals that undertake needed major capital replacement or renovation 
projects during the transition. The test would only consider changes in 
the average age of building and fixed equipment (determined by the 
ratio of accumulated depreciation for building and fixed equipment to 
current depreciation for building and fixed equipment) in order to 
focus on major capital replacement and renovation projects. The average 
age of buildings and fixed equipment can be determined on the basis of 
information on the current Medicare cost report (HCFA 2552-92, 
Worksheet G, Lines 14, 14.01, 16, 16.01, 18, 18.01, 20, and 20.01, and 
Worksheet A-7, Part III, Column 9, Lines 1 and 3). The first part of 
the age-of-asset test was designed to determine whether a hospital had 
an urgent need for replacement or renovation of facilities because of 
relatively aged fixed assets at the beginning of the capital transition 
period (that is, the hospital's first cost reporting period beginning 
on or after October 1, 1991). We proposed that the threshold for 
qualifying under this part of the test would be the 75th percentile. 
Under the proposed rule, we would determine whether a hospital is at or 
above the 75th percentile nationally on the basis of Medicare cost 
report data for FY 1992.
    We proposed that the second part of the test would compare the 
average age of buildings and fixed equipment in the cost reporting 
period beginning in FY 1992 with the average age of fixed assets in the 
year the hospital reports the completion of a major capital replacement 
or renovation. A major renovation or replacement of hospital capital 
during the transition period should result in a dramatically reduced 
average age of buildings and fixed equipment compared to the first year 
of the transition. We therefore proposed that the test would be whether 
a hospital's average age of buildings and fixed equipment has declined 
by at least 50 percent since the first year of payment under the 
capital prospective payment system. Thus, a hospital whose average age 
of buildings and fixed equipment is at or above the 75th percentile 
nationally in the first year of capital prospective payment, and whose 
average age of buildings and fixed equipment has declined by at least 
50 percent in a designated year later in the transition, meets the age-
of-assets test.
    We do not believe that this special exception for replacement and 
renovation of old facilities should apply to hospitals whose capital 
projects preserve the overcapacity that is currently evident in much of 
the hospital industry. Therefore, we proposed that a hospital cannot 
qualify for an exception unless it has received any required approval 
from a State or local planning authority. We also proposed that, if 
such approval is not required, an urban hospital must demonstrate 
either that (1) overall average occupancy in its MSA is at least 80 
percent, or (2) its capacity is no more than 80 percent of its prior 
capacity (in terms of bed size). We are exempting rural hospitals from 
this requirement because of concern about maintaining access to needed 
services in rural areas.
    We proposed that hospitals qualifying for exceptions under this 
special provision could continue to receive exceptions payments for up 
to 10 years beyond the transition. Exceptions payments would be 
available under the proposal to hospitals that meet the special 
criteria above for 10 years after the date when the hospital meets the 
age of asset test, provided that the hospital meets the age of asset 
test no later than the end of the capital prospective payment system 
transition period for the hospital (that is, the last day of the 
hospital's last cost reporting period beginning before October 1, 
2001).
    We proposed to continue to determine the amount of the exceptions 
payments under this special provision on a cumulative basis. That is, 
we proposed to determine the hospital's exception payment under the 
special provision by comparing the cumulative payments made to the 
hospital under the capital prospective payments system to the 
cumulative minimum payment levels applicable to the hospital for each 
cost reporting period subject to the prospective payment system. Any 
amount by which the hospital's cumulative payments exceed its 
cumulative minimum payment levels would be deducted from the additional 
payment that would otherwise be payable for the cost reporting period. 
In addition, we proposed to apply another test designed to limit the 
amount of exceptions payments under this special provision. We proposed 
to reduce the amount of an exception payment that would otherwise be 
made for any cost reporting period under this special provision by the 
amount of any Medicare hospital inpatient prospective payment system 
payments for the cost reporting period (less 75 percent of operating 
prospective payment system disproportionate share payments if 
applicable) that are in excess of Medicare inpatient operating and 
capital costs. The calculation would include payments under both the 
capital and operating prospective payment systems but, not graduate 
medical education payments, outpatient service payments, or payments 
for any other services covered under Medicare Part B. We proposed to 
exclude 75 percent of operating prospective payment system 
disproportionate share payments from the determination of the Medicare 
operating prospective payments system payments in order to account for 
the financial pressure that disproportionate share hospitals experience 
in other parts of their operations.
    We received 14 comments from individual hospitals and hospital 
associations on our proposal to extend capital prospective payment 
system exceptions payments for some hospitals for up to 10 years beyond 
the current transition period. The commenters focused on the use of the 
current ratio, the proposed age of asset test, the proposed minimum 
payment level, and the proposed exception payment offsets.
    Comment: A number of commenters objected to the proposal that sole 
community hospitals and urban DSH hospitals demonstrate financial need 
in the exception year by maintaining a current ratio less than or equal 
to 1.75. Some commenters objected to the use of a single indicator, and 
of that particular indicator, to measure financial need. These 
commenters contended that liquidity is not the sole indicator of 
financial need, and that the current ratio is often not the best 
measure of liquidity. These commenters variously recommended 
consideration of measures such as the debt service coverage ratio, 
operating or total margin, liability to fund balance, and days in 
accounts receivable. A commenter recommended that a high 
disproportionate share percentage serve as an indicator of financial 
need. Other commenters objected to including any financial need test in 
the proposed exceptions provision. One of those commenters noted that 
the remaining criteria (that is, those related to community service and 
capital burden) and the payment restrictions are very restrictive even 
without the financial need test. A commenter recommended adoption of a 
project size test as a financial need indicator, on the grounds that 
major capital projects necessarily create financial stress. That 
commenter recommended that hospitals qualify if total project costs 
exceed between 75 percent and 100 percent of allowable operating costs 
in the year the construction began. Another commenter stated that the 
1.75 threshold for the proposed current ratio test was too high, and 
recommended a threshold of 1.5 instead.
    Response: We agree with the commenters that a separate financial 
need test is unnecessary, provided that the other criteria remain 
relatively stringent. As we discuss below, we are strengthening the 
qualifying requirements so that all hospitals must meet a project size 
test, hospitals in CON states must demonstrate CON approval, and 
hospitals in non-CON states must meet the age of asset test to 
demonstrate the need for capital renovation or replacement. Projects of 
sufficient magnitude to pass the project size and/or age of asset tests 
would necessarily place a financial strain on hospitals. Furthermore, 
the 70 percent minimum payment level and the offsets would prevent 
financially robust hospitals from benefiting very much under the 
provision. Therefore, we are not adopting the proposed current ratio 
test.
    Comment: Several commenters objected to the use of the average age 
of assets test as the only measure to establish a hospital's need for 
major replacement or renovation of capital assets. Some of these 
commenters contended that the age of assets measure contains a 
distortion. Under the formula which determines age as the ratio of 
accumulated depreciation to current depreciation, the true age of 
hospitals can be masked by a vintage effect: the inclusion of some 
assets acquired more recently at higher relative price levels would 
have a disproportionate effect on the ratio, thus making some hospitals 
appear to be younger than they really are. A commenter recommended 
determining the average age of assets on a price-level adjusted basis 
rather than a historical cost basis in order to correct for this 
distortion. Other commenters contended that such a test is unnecessary 
in states with CON requirements. Some of these commenters recommended 
that hospitals be given the alternative of meeting the average age of 
asset test or a test of capital project size, for example, undertaking 
a capital project that expends a minimum of the lower of $100 million 
or 25 percent of average annual operating costs on a CON-approved 
project over a specified period. Another commenter simply recommended 
that we reconsider the age of asset test and develop an alternative 
qualification criterion based upon hospital-specific expenditures for 
capital projects over a period of time. A commenter recommended that 
the 75th percentile for average age of assets should be determined on a 
statewide basis rather than nationally.
    Response: Analysis and consultation with industry experts confirms 
the possibility of the distortion cited by commenters in the age of 
asset measure. However, there is a countervailing distortion in the 
measure: the effect of any fully depreciated assets that are still in 
use for patient care is to make a hospital appear older than it really 
is. We cannot determine the degree to which the two distortions tend to 
cancel each other out. However, we cannot accept the recommendation to 
determine age of assets on a price-level adjusted basis for two 
reasons: (1) a price-level adjusted determination would eliminate only 
the distortion identified by the commenters, leaving nothing in the 
measure to counteract the effect of the other distortion, and (2) as 
the commenter conceded, price-level adjusted depreciation is contrary 
to generally accepted accounting principles and thus cannot be applied 
to most hospitals. We believe that the measure has sufficient validity 
to retain it within the proposed policy.
    We do not agree with the commenter who suggested determining the 
75th percentile in age of assets on a state-by-state basis. Adopting 
the commenter's recommendation would provide an advantage to hospitals 
in states with facilities that are generally newer than the national 
average, and a disadvantage to hospitals in states with facilities that 
are generally older than the national average. Our intention in 
developing this special exception provision is to protect hospitals 
with the greatest need for replacement or renovation of their 
facilities. It would therefore be inappropriate to adopt the 
commenter's recommendation.
    We agree with those commenters who contended that an age of asset 
test is unnecessary for hospitals in CON states. We proposed the age of 
asset test as a method for determining whether there was a need for a 
major renovation or replacement of capital projects and whether a 
hospital had indeed undertaken and completed such a project during the 
transition period. The CON process is specifically designed to require 
that hospitals demonstrate the need for capital projects that they 
undertake. We are therefore requiring that only hospitals in states 
that do not require CON approval satisfy the age of asset test in order 
to qualify for extended exceptions. However, for reasons that we will 
discuss below, we are modifying the age of assets test so that those 
hospitals must meet only the first part of the test as we proposed it, 
i.e., a hospital that is not required to obtain CON approval must 
demonstrate only that its average age of buildings and fixed equipment 
was at or above the 75th percentile nationally in the first year of the 
capital prospective payment system transition.
    We agree with various commenters that a project size test should be 
incorporated into the qualifying criteria. A project size test could be 
based on a relative scale (that is, a percentage of one year's 
operating cost), an absolute dollar threshold (for example, $200 
million), or both, over a designated period of time (for example, FY 
1986 through FY 2001). A relative scale test accommodates the needs of 
smaller hospitals. An absolute dollar threshold favors larger 
hospitals. In order to accommodate both smaller and larger hospitals, 
we have decided that a project size test should allow hospitals to meet 
either an absolute threshold or a relative scale threshold. Available 
information about the major projects planned for this decade indicates 
that most exceed 75 percent of annual operating expenses, and many 
exceed 100 percent. Since we have always intended this special 
exceptions provision to apply to circumstances in which hospitals must 
undertake significant replacement or renovation of their facilities, we 
believe that a relative scale threshold at the level of 100 percent of 
annual operating costs is reasonable. (As we noted previously, one 
commenter recommended a project size test at the level of 75 to 100 
percent of operating cost as a replacement for the current ratio test.) 
Similarly, available information concerning the cost estimates for 
large hospitals undertaking capital projects in this decade indicates 
that a dollar threshold of $200 million is reasonable.
    Commenters variously recommended adoption of a project size test as 
a replacement for the age of asset test, or as an option to the age of 
asset test for demonstrating the need for major renovation or 
replacement of capital assets. We have decided to require that all 
hospitals must meet the project size test. One reason is a concern that 
the qualifying criteria be comparable for hospitals in CON states and 
non-CON states. Applying a project size test to all hospitals provides 
a set of equivalent criteria: all hospitals must meet both a project 
need test (either CON approval or the age of asset test) and a project 
size test. In addition, we are persuaded by the argument of the 
commenter cited above that a project size test is a reasonable 
replacement for our proposed financial need test. Therefore, in 
addition to meeting an appropriate project need test (that is, either 
receiving CON approval or meeting the age of asset test), hospitals 
will be required to show that they have expended, during their capital 
prospective payment system transition period, either 100 percent of 
average annual operating expenses for that period or $200 million on a 
project to renovate or replace capital assets.
    Adopting the project size test for all hospitals does, however, 
render the second part of the age of assets test redundant. The 
requirement that a hospital's average age of buildings and fixed 
equipment must decline by at least 50 percent during the transition 
period was designed to assure that the hospital had undertaken a major 
project of capital renovation or replacement. The project size test 
obviously fills that role. We are therefore requiring that a hospital 
in a non-CON state demonstrate only that its average age of buildings 
and fixed equipment is at or above the 75th percentile nationally in 
the first year of the capital prospective payment system transition.
    Comment: A commenter suggested that a project need criterion could 
be based simply on the chronological age of the hospital. The commenter 
pointed out that there comes a point when hospital buildings need to be 
replaced because they can no longer be renovated to accommodate new 
technologies and patterns of patient care. The commenter suggested that 
major renovation and replacement programs to replace patient care 
buildings with core original plants older than 50 years old.
    Response: It may well be true, as the commenter contends, that a 
hospital building of a certain age necessarily has an antiquated 
structural design. However, we simply know of no objective criteria 
that could be used to establish ``how old is too old.'' In the place of 
such criteria, we believe that our tests should effectively screen 
hospitals that genuinely require renovation or replacement of capital 
assets.
    Comment: Several commenters recommended that the exceptions 
provision be designed to protect hospitals undertaking major 
modernization programs during the period from 5 years before the 
beginning of the capital prospective payment system transition period 
to the end of the transition. A commenter stated specifically that the 
exclusion of hospitals who completed their major modernization projects 
in the years just before the beginning of the capital prospective 
payment system transition was inappropriate. Other commenters 
recommended proposed expenditure tests based on capital expenditures 
over the 15-year period from 1987 through 2001.
    Response: We believe that it is entirely appropriate to exclude 
hospitals who completed their major modernization programs during the 
years immediately before the implementation of the capital prospective 
payment system. Hospitals who completed major modernization programs 
during those years have gained from the protections offered under the 
old capital and obligated capital provisions in the capital prospective 
payment system regulations. The proposed exceptions policy was 
specifically designed to address the situation of hospitals that were 
not in the position to benefit from those provisions because of the 
timing of their capital projects. Therefore, it would be inappropriate 
to expand the proposed exceptions policy to provide additional 
protection for those hospitals. The average age of asset and project 
size tests adopted under this final rule will therefore apply only to 
projects completed during the period of the capital prospective payment 
system transition.
    Comment: A commenter contended that the selection of 1992 as a base 
for the age of asset test is arbitrary. The commenter recommended 
calculating the base at a time just before the capital acquisition is 
undertaken.
    Response: We proposed 1992 as the base year for the age of asset 
test because it is the first year of the capital prospective payment 
system transition period, and the test was designed to accommodate the 
situation of hospitals that, as previous commenters had informed us, 
entered the transition period with a need for major replacement or 
renovation of their facilities. We are therefore maintaining this 
feature of the age of asset test.
    Comment: A commenter recommended that the base for calculating the 
age of assets should be separated into components instead of being 
grouped together since there are often multiple generations of plants 
among a hospital's assets.
    Response: We do not believe that a component test is feasible or 
desirable. Since the exceptions provision will include a minimum level 
of payment relative to the Medicare inpatient capital costs of the 
entire facility, we do not believe that the qualifying test should 
measure only the ages of discrete assets within the hospital.
    Comment: A number of commenters objected to adoption of a 70 
percent payment floor for all providers under the proposed exceptions 
policy. The commenters recommended maintaining the payment floors 
established under the current exceptions policy (90 percent for sole 
community hospitals, 80 percent for large urban DSH hospitals, and 70 
percent for all other hospitals) during the post-transition period. 
Several commenters stated that the 70 percent level is inappropriate 
for providers with a high volume of Medicare beneficiaries and for 
providers in states in which cost-shifting is legally precluded. Two 
commenters acknowledged that we would want to reduce support for 
hospitals receiving exceptions payments at the higher minimum payment 
levels over time. These two commenters contended, however, that reduced 
support for these hospitals would occur naturally over time even if we 
maintained the higher minimum payment levels because the eligible 
hospitals' need for exceptions payments will have waned.
    Response: We agree with those commenters who acknowledged that it 
is understandable to expect hospitals to reduce their dependence on 
cost-based payments from Medicare over time. We will retain the 
proposed 70 percent minimum payment level precisely to give effect to 
that reasonable expectation. If, as the commenters contend, hospitals' 
need for exceptions payments will naturally wane over time, the 
difficulty posed by a 70 percent minimum payment level should also 
wane. Furthermore, most hospitals are already at the 70 percent minimum 
payment level during the transition period. We believe that it is 
entirely reasonable that those hospitals for whom we are providing this 
special exceptions provision for the period 10 to 20 years after the 
beginning of prospective payment for capital receive the same minimum 
payment level which most hospitals have been receiving from the 
beginning of the transition.
    Comment: A number of commenters objected to the proposed cumulative 
payment level of 70 percent. The commenters pointed out that the theory 
of capital prospective payment system is to allow hospitals to accrue 
equity during low capital cost years to reduce the need for borrowing 
during high cost capital years. Thus, the commenters contended that it 
is inappropriate to deny exceptions payments for hospitals because they 
had lower levels of losses in some years. The commenters recommended 
that only payments in excess of a hospital's capital costs in prior 
years should be offset against the exceptions payment that the hospital 
would otherwise receive.
    Response: The cumulative minimum payment level limitation is an 
existing feature of the transition period exceptions provision. We 
continue to believe, as we did when we established the final rule on 
exceptions payments during the transition period (see 56 FR 43409), 
that it is a reasonable measure to limit the amount of exceptions 
payments. We see no reason to exempt the hospitals who qualify under 
this exception provision from a requirement imposed on hospitals under 
the current exceptions policy.
    Comment: A commenter expressed concern about requiring a rebate of 
excess capital payment in prior years. The commenter emphasized that 
his hospital had used all the capital it has accumulated to replace 
needed equipment and to provide the equity required to obtain funding.
    Response: We did not propose a requirement that hospitals 
``rebate'' excess payments received in previous years, but rather to 
offset payments above a certain level in prior years against the amount 
of the exception payment that a hospital would otherwise receive. Thus 
hospitals will not be required, as the commenter seems to believe, to 
return any previous excess payments to HCFA. Rather, we will simply 
reduce the exception payment amount in any year when prior year 
payments have exceeded the minimum payment level.
    Comment: Two commenters contended that the proposed eligibility 
criteria ignore hospitals that provide significant community benefits 
through their outpatient services. The commenters proposed adding 
criteria that reflect a significant amount of outpatient services to 
the poor and underserved.
    Response: Since the capital prospective payment system is intended 
for inpatient capital-related costs, we feel it would be inappropriate 
to consider any outpatient services when determining eligibility. Any 
outpatient capital-related costs would be reimbursed under Medicare 
Part B payments to hospitals.
    Comment: Several commenters objected to the proposal to offset any 
positive Medicare hospital inpatient margin (including both capital and 
operating prospective payment system payments, but excluding 75 percent 
of operating disproportionate share payments). A commenter stated that 
it would be inappropriate to apply a means test based on a prospective 
payment system margin, since a hospital's total margin is a better 
measure of its ability to retain earnings for capital formation. 
Another commenter opposed means testing as contrary to the philosophy 
of Medicare prospective payment to encourage efficient hospital 
operations. That commenter stated that the limitation would penalize 
efficient, low-cost hospitals that would otherwise benefit under the 
proposed exceptions policy. Another commenter contended that this 
proposed policy, together with the cumulative payment limitation, leads 
to a cyclical underfunding of hospital Medicare operations.
    Response: The offset of any positive margin of Medicare inpatient 
prospective payment system over costs is new to this exceptions 
provision. We believe it is reasonable to provide an additional limit 
on exceptions payments for the period 10 to 20 years after the 
beginning of capital prospective payments. We believe that such an 
offset promotes the goals of a prospective payment system by further 
restricting the amount of cost-based exceptions payments which 
hospitals may receive. We believe that the Medicare prospective payment 
system margin, rather than total margin, is the proper standard for 
determining this additional offset, since total margin reflects the 
effects of costs and payments attributable to other payers. We do not 
believe that this measure penalizes efficient hospitals or contributes 
to cyclical underfunding.
    Comment: A commenter expressed concern that the proposed offset of 
positive prospective payment system margins, in conjunction with the 
cumulative minimum payment offset, would result in a ``double dip'' 
against providers. The same commenter asked for clarification on 
several technical points concerning the offsets. The commenter asked us 
to:
    (1) Clarify whether the comparison of prospective payment system 
operating and capital payments to costs is made solely on a year-to-
year basis or cumulatively;
    (2) State explicitly in the regulations text that only 25 percent 
of prospective payment system inpatient operating DSH payments are 
included in that comparison; and
    (3) State that GME and other services that are not paid for as part 
of the prospective payment system are also excluded from the 
comparison.
    Response: We do not agree that the proposed offsets contain a 
``double dip'' against providers. While both comparisons consider 
capital payments, they do not consider the same capital payments, but 
rather capital payments from different years (that is, capital payments 
from prior years in the case of the cumulative minimum payment offset, 
and capital payments during the current year in the case of the 
positive prospective payment system margin offset). There is thus no 
double counting. We are revising Sec. 412.348 to clarify each of the 
other issues raised by the commenter:
     The positive prospective payment system margin offset will 
be made on a year-to-year basis, rather than cumulatively.
     75 percent of operating prospective payment system 
disproportionate share payments, if applicable, are excluded from the 
comparison of prospective payment system operating and capital payments 
to prospective payment system operating and capital costs; and
     The comparison of prospective payment system operating and 
capital payments to prospective payment system operating and capital 
costs considers only services paid for under the prospective payment 
system.
    Comment: A commenter pointed out the difficulties that some 
hospitals will have in maintaining a high disproportionate share 
percentage in emerging managed care environments. Medicaid managed care 
tends to decrease the average length of stay for Medicaid patients, 
render identification of Medicaid patients by hospitals more difficult, 
and limit the ability of hospitals to control or predict Medicaid 
utilization. The commenter recommended that we allow hospitals to meet 
the 20.2 percent DSH threshold under the proposed exceptions policy in 
FY 1992. Alternatively, the commenter suggested the adoption of a 
graduated minimum payment level based on DSH percentage or changing the 
basis of determining disproportionate share utilization to the higher 
of utilization determined on the basis of patient days or admissions.
    Response: The intention of the 20.2 percent threshold was to 
provide additional financial relief to those hospitals serving a 
significant disproportionate share population. When a hospital falls 
below this threshold, whether or not it is beyond their control, it 
fails to fit the intended criteria for special payment protection.
    Emerging managed care environments will increase hospitals' 
incentive to keep costs competitive with other neighboring hospitals. 
This should provide additional incentive for hospitals to make 
judicious capital expenditures. In a managed care environment, 
hospitals that fail to have competitive costs will lose Medicaid 
managed care patients to more cost-efficient providers. When that 
occurs, we do not believe that the Medicare program should continue to 
pay those hospitals as if they were still treating larger numbers of 
Medicaid patients.
    For hospitals that continue to serve a large disproportionate share 
population, properly identifying Medicaid patients by hospitals will 
have to become a priority. We feel that it is not unreasonable to 
expect that hospitals adopt reasonable measures to obtain the 
information needed to compute the disproportionate share percentage as 
a condition of receiving additional financial protection for serving 
these patients. We will, however, examine whether the special 
difficulties of identifying Medicaid patients in states with Medicaid 
managed care programs warrants additional measures to assist hospitals 
in obtaining the required information.
    Comment: A commenter supported the inclusion of hospitals with 
combined Medicare/Medicaid utilization of 70 percent among the 
hospitals eligible for exceptions under the proposal. The commenter 
contended that providers with high Medicare utilization should be given 
the same benefits as currently enjoyed by sole community and 
disproportionate share providers. Another commenter disagreed with the 
special protection afforded under the Medicare prospective payment 
system for hospitals with high Medicaid utilization. The commenter 
contended that, since Medicare and Medicaid are financed from separate 
trust funds, it is inappropriate to employ criteria that allocate 
Medicare funds on the basis of Medicaid utilization. The commenter 
recommended adoption of a threshold based only on Medicare utilization 
at the 60 percent level.
    Response: During the transition period, we have made special 
protection available to urban as well as rural sole community 
hospitals, and to urban hospitals with at least 100 beds that either 
have disproportionate share patient percentages of at least 20.2 
percent or receive at least 30 percent of revenue from state or local 
funds. We believe that concerns about access to care are most properly 
focused on hospitals that serve vulnerable populations, and we have 
made special payment protection available to them as a result.
    In addition to the exceptions categories above, we proposed to 
provide exceptions for up to 10 years after the end of the current 
capital prospective payment system transition period for certain 
hospitals with major renovation or reconstruction projects during the 
transition period. We have extended this exception to hospitals with 
heavy utilization by beneficiaries of the Federal health programs. We 
believe this additional special protection should continue to focus on 
hospitals that serve vulnerable populations. We believe that a combined 
Medicare and Medicaid utilization rate is a reasonable qualifying 
condition for this type of protection. The average hospital utilization 
by Medicaid beneficiaries is approximately 10 percent. As one commenter 
mentioned, a 60 percent Medicare utilization rate can be considered 
high. We believe that a combined Medicare/Medicaid utilization 
threshold of 70 percent is thus reasonable.
    Comment: Two commenters objected to the eligibility period under 
the proposed exceptions policy. The commenters maintained that, if 
there is a continued need for exceptions payments, they should be 
allowed to continue through September 30, 2011.
    Response: The proposed exceptions policy was designed to address 
the situations of hospitals who were unable to qualify for the 
protection offered under the old capital and obligated capital 
provisions. The special protections for old capital and obligated 
capital were limited to the duration of the transition period and were 
thus, in effect, limited to no more than 10 years. Old capital assets, 
which by definition were in use for patient care by December 31, 1991, 
could receive 10 years of payment based on reasonable cost. Obligated 
capital assets in most cases have come into use for patient care since 
the beginning of the transition period and therefore will receive less 
than 10 years of reasonable cost payment. We therefore believe that it 
is fair and reasonable to extend exceptions payments for hospitals who 
must undertake major renovation or replacement of facilities during the 
transition period only for 10 years after the date they meet the 
qualifying criteria.
    Comment: A commenter stated that implementing such strict 
requirements on hospitals so soon after the transition period, which 
already affected so many hospitals negatively, will be devastating to 
many hospitals.
    Response: We do not believe that it is unreasonable to impose 
strict requirements as a condition for receiving cost-based exceptions 
payments a full 10 years and more after the beginning of prospective 
payment for capital costs.
    Comment: A commenter objected that the proposed exceptions 
provision is too narrowly defined to benefit most hospitals.
    Response: The proposed exceptions provision was intended to be 
narrowly defined, focusing on a small group of hospitals who found 
themselves in a disadvantaged position. The target hospitals were those 
who had an immediate and imperative need to begin major renovations or 
replacements just after the beginning of capital prospective payment 
system. These hospitals would not be eligible for protection under the 
old capital and obligated capital provisions, and would not have been 
allowed any time to accrue excess capital prospective payments to fund 
the projects.
    In the design of the capital prospective payment system, we made 
every effort to consider the circumstances of hospitals for whom the 
transition to prospective payment poses special difficulties. We 
believe this exceptions policy provides appropriate protection for 
these disadvantaged hospitals.
    Comment: A commenter stated the expectation that extended 
exceptions payments would be funded through a budget neutrality 
discount applied to either the capital prospective payment system rate 
or the combined operating and capital rate.
    Response: We are revising Sec. 412.308(c)(3) to provide that an 
exceptions payment adjustment factor will continue to be applied to the 
Federal rate through any period for which an exceptions policy will be 
in effect. This revision assures that estimated payments under the new 
policy will be funded through a reduction in the Federal rate, as is 
the case under the current exceptions policy.
    We received no comments on our proposal to require that urban 
hospitals in states without CON provisions demonstrate either that they 
are located in MSAs with overall occupancy levels at 80 percent or 
above, or that they have replaced no more than 80 percent of their 
previous capacity (in terms of bed size). We are therefore adopting 
that provision as proposed.
    In this final rule, we are therefore providing at Sec. 412.348 a 
special exception provision for some hospitals that are undertaking 
major projects to renovate or replace aging plant during the transition 
period. This special exception provision will provide a minimum payment 
level to eligible hospitals for ten years after they meet the 
qualifying criteria. The eligible classes of hospitals are:
     Sole community hospitals;
     Urban hospitals with at least 100 beds that either have 
disproportionate share percentages of at least 20.2 percent or receive 
at least 30 percent of their revenue from State or local funds for 
indigent care; and
     Hospitals with a combined inpatient Medicare and Medicaid 
utilization of at least 70 percent.
    To qualify, an eligible hospital must meet both project need and 
project size requirements. For hospitals in states with CON 
requirements, the project need test is satisfied by obtaining CON 
approval. For other hospitals, the project need requirement is 
satisfied by meeting an age of asset test. To meet the age of asset 
test, a hospital must have an average age of buildings and fixed 
equipment (determined on the basis of information on the current 
Medicare cost report, HCFA 2552-92, specifically Worksheet G, Lines 14, 
14.01, 16, 16.01, 18, 18.01, 20, and 20.01, and Worksheet A-7, Part 
III, Column 9, Lines 1 and 3) at or above the 75th percentile 
nationally in the first year of capital prospective payment. In the 
June 1994 update of the cost report file, the 75th percentile for 
buildings and fixed equipment is 16.4. We will make a final 
determination of the 75th percentile at a later date on the basis of 
more complete cost report information for FY 1992.
    In addition, all hospitals must meet a project size requirement. A 
hospital must complete, by the end of the capital prospective payment 
system transition period, a project whose costs for replacement and/or 
renovation of fixed assets related to patient care equal or exceed 
either 100 percent of annual operating expenses for FY 1992 or $200 
million. Annual operating expenses are the sum of net expenses for all 
reimbursable cost centers, before cost allocation. This information is 
found on the Medicare cost report, Form HCFA-2552-92, Worksheet B, Part 
I, Column 0. It includes the following cost centers (and corresponding 
Worksheet B line numbers): general service (lines 1-24), hospital 
inpatient service (lines 25-30), other hospital inpatient (line 31 and 
lines 33-36), ancillary service (lines 37-59), outpatient service 
(lines 60-63), other reimbursable centers (lines 64-68 and lines 70-
82), and special purpose centers (lines 83-94).
    For hospitals in states without CON requirements, an urban hospital 
must demonstrate either that it is in a metropolitan statistical area 
(MSA) that does not have an overall average occupancy rate less than 80 
percent or that its capacity is no more than 80 percent of its prior 
capacity (in terms of bed size).
    A hospital will be eligible for exceptions payments for 10 years 
after completion of the project that meets the project need and project 
size requirements. We will determine the hospital's exception payment 
under the special provision by comparing the cumulative payments made 
to the hospital under the capital prospective payments system to the 
cumulative minimum payment levels applicable to the hospital for each 
cost reporting period subject to the prospective payment system. Any 
amount by which the hospital's cumulative payments exceed its 
cumulative minimum payment levels will be deducted from the additional 
payment that would otherwise be payable for the cost reporting period. 
In addition, we will reduce the amount of an exception payment that 
would otherwise be made for any cost reporting period under this 
special provision by the amount of any Medicare hospital inpatient 
prospective payment system payments for the cost reporting period (less 
75 percent of operating prospective payment system disproportionate 
share payments if applicable) that are in excess of Medicare inpatient 
operating and capital costs. This comparison will consider costs and 
payments under both the capital and operating prospective payment 
systems, but not costs and payments for graduate medical education, 
outpatient services, or for any other services covered under Medicare 
Part B. We will exclude 75 percent of operating prospective payment 
system disproportionate share payments from the determination of the 
Medicare operating prospective payments system payments in order to 
account for the financial pressure that disproportionate share 
hospitals experience in other parts of their operations.
    Finally, we emphasize that these policies are subject to 
reevaluation in the light of passage of comprehensive health care 
reform by Congress. The hospitals for whom we are providing special 
protection under this exceptions provision may no longer require such 
protections after the implementation of comprehensive health care 
financing reform. Therefore, we will carefully monitor the impact of 
final health care reform legislation on the hospitals that would 
receive special treatment under the policies above to determine whether 
such legislation justifies revision of those policies.
    We are making the following revisions to the regulations text to 
implement the changes discussed above:
     We are making a conforming technical change to 
Sec. 412.308(c)(3).
     Under new Sec. 412.348(a), we would define annual 
operating expenses, average age of fixed assets, and fixed assets.
     The new special exceptions requirements are set forth at 
Sec. 412.348(g).
     Current paragraphs (a) through (e) have been redesignated 
as paragraphs (b) through (f), and current paragraph (f) has been 
redesignated as paragraph (h).
     We are also making conforming technical changes to 
Sec. 412.348 to correct references.

D. Extraordinary Circumstances Exceptions Payments (Sec. 412.348(e))

    Currently, Sec. 412.348(e) provides that a hospital may request an 
additional payment during the capital transition period if the hospital 
incurs an unanticipated capital expenditure in excess of $5 million 
(net of insurance proceeds) due to extraordinary circumstances beyond 
the hospital's control. Extraordinary circumstances include but are not 
limited to a flood, fire, or earthquake. A hospital must apply to the 
HCFA regional office, for a determination by the HCFA Administrator, 
within 180 days of the extraordinary circumstance that caused the 
unexpected expenditures in order to qualify for exceptions payments. We 
proposed to revise Sec. 412.348 to clarify our policy and reconcile 
conflicts between the regulation text and the language and intent of 
the preamble to the August 30, 1991 final rule that implemented 
prospective payment system for capital-related costs (56 FR 43411).
    In Sec. 412.348(e)(1), we proposed that the minimum expenditure 
criteria that the hospital must meet in order to qualify for payments 
is the net amount of proceeds expected to be recovered by the hospital 
in connection with the event from any other source including, but not 
limited to, insurance, litigation, or other government relief funding. 
Our discussion in the proposed rule (59 FR 27748) cited the August 30, 
1991 final rule preamble's instruction to consider payments from other 
sources in determining the threshold. However, in the original 
regulations text we reflected our intention to establish the threshold 
net of insurance but did not include the other comparable sources, such 
as court awards for damages, or other governmental relief funds.
    Since we clearly did not intend to replace or supplement other 
payment sources that have an obligation to pay or provide special 
authorization for funding in these same circumstances, we proposed to 
revise current Sec. 412.348(e)(1) to conform with the preamble 
instructions provided in the August 30, 1991 final rule concerning 
application of the extraordinary circumstances exception policy and, 
specifically, documentation of evidence of the extent of net loss.
    We received no comments on this proposal; therefore, we are 
adopting it as proposed.
    We also proposed to correct the provision in current 
Sec. 412.348(e)(2) regarding the level at which the determination of a 
hospital's eligibility for an extraordinary circumstance exception 
payment is made. Although the determination authority was reserved to 
the HCFA Administrator, we proposed that the appropriate official to 
make this decision is the Director of the Office of Payment Policy, 
Bureau of Policy Development, Health Care Financing Administration. 
This change is warranted because it is inappropriate that the HCFA 
Administrator make a decision that he or she may be called on to review 
if a hospital requests an administrative appeal of an adverse decision 
on its exceptions application.
    We received no comments on this proposal. However, we are modifying 
the proposed change to Sec. 412.348(e)(2) by deleting the specific 
reference to the Director of the Office of Payment Policy because a 
reorganization of the Bureau of Policy Development is under 
consideration and may make that designation obsolete during FY 1995.

E. Funding of Depreciation (Secs. 413.134 and 413.153)

    Section 1861(v)(1)(A) of the Act gives the Secretary broad latitude 
to prescribe regulations concerning Medicare payments to providers on a 
reasonable cost basis. Under this authority, Sec. 413.134(e) provides 
that, although we do not require the funding of depreciation, we 
strongly recommend it as a means of conserving funds for the 
replacement of depreciable assets.
1. Offset of Investment Income
    To encourage the funding of depreciation, we have specified at 
Secs. 413.134(e)(1) and 413.153(b)(2)(iii) that investment income 
earned on funded depreciation will not be used to reduce allowable 
interest expense. Further, Sec. 413.134(e) stipulates that additions to 
the funded depreciation account must remain in the account for at least 
6 months to be considered valid funding transactions and be eligible 
for the benefits of a funded depreciation account. In response to a 
comment in the August 30, 1991 final rule on the prospective payment 
system for inpatient hospital capital-related costs (56 FR 43424), we 
stated that interest on any funds that do not qualify as funded 
depreciation account funds, which would include funded depreciation 
deposits of less than 6 months duration, must be used to offset 
interest expense. Section 226.3 of the Provider Reimbursement Manual 
(HCFA Pub. 15-1) provides that investment income earned prior to the 
elapse of the 6-month period will not be offset unless the deposits are 
actually withdrawn during this period.
    We proposed to revise Sec. 413.134(e)(1) to state specifically that 
investment income earned during the 6-month period will not be used to 
offset interest expense unless the funds are withdrawn for an improper 
purpose during this period. Under this change, if a provider withdraws 
funds from the funded depreciation account before the expiration of the 
6-month time limit, and the withdrawal is made for an allowable purpose 
as described in Sec. 413.134(e)(3)(i)(A), the investment income earned 
on the funds is not offset against allowable interest expense.
2. Loans to the General Fund
    We proposed to revise and clarify our policy regarding loans from 
the provider's funded depreciation fund to the provider's general fund. 
Sections 413.153(b)(3)(ii) and (c)(2) permit a provider to lend its 
funded depreciation funds to its general fund. Moreover, these sections 
provide that interest expense incurred on such loans are considered 
allowable costs. Section 226.1 of the Manual amplifies this policy by 
explaining that, in order for the interest expense incurred on such 
loans to be allowable, the interest expense must meet the ``necessary 
and proper'' tests (set forth in the regulations at Sec. 413.153(b) (2) 
and (3), and in the Manual at sections 202.2 and 202.3). This section 
of the Manual also explains that the funds loaned to the general fund 
must not be used to acquire depreciable assets used to furnish patient 
care because the provider is expected to use its funded depreciation, 
rather than to lend it, for that purpose. Finally, this section of the 
Manual explains that deposits to the funded depreciation fund will not 
be recognized to the extent that loans of funded depreciation funds to 
the general fund are outstanding. Rather, such deposits will be 
considered repayments of the loan to the general fund.
    Three other sections of the Manual address loans from a provider's 
funded depreciation fund to the provider's general fund. Section 226.C 
of the Manual, in discussing the availability of funded depreciation 
funds, provides that loans made from funded depreciation do not alter 
the requirement that funded depreciation must be available for the 
acquisition of the provider's depreciable assets used to furnish 
patient care, or for other capital purposes related to patient care. 
Section 226.3 of the Manual, in discussing the application of the 6-
month rule for a deposit to become a valid funding transaction, 
provides that a loan of funded depreciation funds to the general fund 
is considered a withdrawal for purposes of applying the 6-month rule. 
That is, if the provider borrows from funded depreciation for a working 
capital purpose, and some or all of the funds borrowed were not on 
deposit in the funded depreciation fund for at least 6 months, the 
borrowing would be considered a withdrawal from the funded depreciation 
account. In addition, if a deposit did not satisfy the 6-month rule any 
investment income earned on the deposit would have to be used to offset 
otherwise allowable interest expense. Section 226.4B of the Manual, in 
an example of applying of the last-in, first-out basis to withdrawals 
from funded depreciation for an improper purpose, also characterizes a 
loan to the general fund from the funded depreciation fund as a 
withdrawal.
    In recent years, we have received a number of inquiries suggesting 
that loans from the provider's funded depreciation fund to the 
provider's general fund are characterized more appropriately as 
investments of funded depreciation, rather than withdrawals. We agree 
with the inquirers. The term ``withdrawal'' implies that the funds have 
been removed from the funded depreciation account and used, either for 
a proper purpose (for example, acquisition of a depreciable asset) or 
an improper purpose (for example, to purchase office supplies). In 
contrast, the term ``investment'' implies that the funds have not 
actually been removed from the funded depreciation account and used; 
rather, they have been temporarily converted to one or more income 
producing vehicles (for example, the purchase of U.S. Treasury bills). 
Because loans from the funded depreciation funds to the general fund 
generate investment income for the funded depreciation fund, we believe 
that such loans more properly should be considered as investments, 
rather than withdrawals.
    In conjunction with this change, we had to decide whether such 
loans would have to meet the ``readily marketable'' test for allowable 
funded depreciation investments expressed in Sec. 413.134(e) and 
section 226 of the Manual. Loans made from funded depreciation do not 
alter the requirement that the funded depreciation be available for the 
acquisition of depreciable assets used to furnish patient care, or for 
other capital purposes related to patient care; therefore, we believe 
that application of the ``readily marketable'' test would be redundant. 
That is, if a provider loans funded depreciation to the general fund, 
and while that loan is outstanding the provider needs funds to acquire 
a depreciable asset related to patient care, the provider may not 
borrow funds to acquire the depreciable asset. Rather, the provider 
must recall the funds from the general fund loan to use to acquire the 
asset.
    Accordingly, we proposed to add paragraph (e)(4) to Sec. 413.134 to 
address loans from the funded depreciation account. New 
Sec. 413.134(e)(4) would both consolidate the policies now set forth in 
the manual sections cited above and revise our policy regarding the 
characterization of loans from the funded depreciation account. Such 
loans would be considered investments, rather than withdrawals.
3. Spenddown of ``Tainted'' Funded Depreciation
    The preamble to the August 30, 1991 final rule also addressed the 
issue of spenddown (56 FR 43421). ``Spenddown'' is a process whereby we 
permit providers to ``cure'' borrowing that was found to be unnecessary 
(because of available funded depreciation) by using those funded 
depreciation funds for a proper purpose. Under spenddown, if additional 
deposits are made to funded depreciation after the unnecessary 
borrowing determination, withdrawals from the funded depreciation after 
the determination are made on a last-in, first-out basis (typically, 
withdrawals for a proper purpose are made on a first-in, first-out 
basis). The result of this policy is that all additional deposits to 
funded depreciation must be used before spending can be allotted to the 
``tainted'' funds, that is, the portion of the funded depreciation that 
resulted in the unnecessary borrowing. In addition, Medicare's policy 
has been that any other funded depreciation funds in the account at the 
time of the unnecessary borrowing must be used before the ``tainted'' 
funds can be spent down or cured.
    Since the publication of the August 30, 1991 final rule, we have 
received several inquiries asking why our policy on spenddown was not 
incorporated into the regulations. These inquiries also have pointed 
out that the last-in, first-out method set forth at 
Sec. 413.134(e)(3)(i)(C) will not work properly when the unnecessary 
borrowing is repaid from the funded depreciation account if that 
account contained untainted funded depreciation at the time of the 
unnecessary borrowing or received additional deposits after the 
borrowing. The inquirers suggested that this situation may be rectified 
by establishing an exception to the last-in, first-out rule when the 
unnecessary borrowing that caused the ``tainting'' is repaid out of 
funded depreciation. In this case, any use of funded depreciation to 
repay the unnecessary borrowing will be deemed to be from ``tainted'' 
funded depreciation. We agreed and proposed to provide for such an 
exception in Sec. 413.134(e)(2)(iv).
    Similarly, where the provider repays part or all of the principal 
of the unnecessary borrowing that caused the ``tainted'' funded 
depreciation by using general funds, a corresponding amount of the 
``tainted'' funded depreciation must be cured. This is necessary so 
that the ``tainted'' portion of the funded depreciation does not exceed 
the amount of the balance of the unnecessary borrowing that caused the 
``tainting'' in the first place.
    We proposed to revise Sec. 413.134(e) to incorporate the curing 
process of ``tainted'' funded depreciation and also to provide that the 
provider's subsequent repayment of the principal portion of the 
unnecessary borrowing will be from the ``tainted'' funds in the funded 
depreciation. Thus, neither the first-in, first-out nor the last-in, 
first-out basis would be applicable for such repayments.
4. Necessary and Unnecessary Borrowing
    In February 1977, HCFA published Sec. 203 of the Provider 
Reimbursement Manual to address interest on loans in excess of asset 
value acquired after 1970. Section 203.D of the Manual states that 
``[r]epayments of the funds borrowed are applied first to reducing the 
portion of the loan applied to the allowable cost of the patient care 
assets, then to the tangible and intangible assets not considered 
reasonably related to patient care, and lastly to goodwill.'' We have 
applied this long-standing principle to cases where a provider repays 
borrowed funds where some of these funds are deemed to be unnecessary. 
In these circumstances, we have held that all of the necessary 
borrowing must be repaid before any of the repayments may be applied to 
the unnecessary borrowing.
    We also apply this principle to unnecessary borrowing that causes 
``tainted'' funded depreciation. When a portion of a provider's 
borrowing is considered unnecessary because of the availability of 
funded depreciation, subsequent repayments, whether from funded 
depreciation or general funds, are first applied to the allowable 
portion of the borrowing and, when all of the allowable borrowing is 
repaid, to the unallowable portion of the loan. This places the 
provider in the same position as if the available funded depreciation 
had been used without any unnecessary borrowing.
    These applications have not been clearly set forth in the 
regulations. Therefore, we proposed to revise Secs. 413.134(e) and 
413.153(d) to clearly address both situations.
    We also proposed to make a technical change to Sec. 413.134(d)(1) 
to correct a reference.
    Comment: We received one comment on the proposals regarding the 
funding of depreciation. The commenter recommended that we specify that 
the policy changes set forth in Secs. 413.134 and 413.153 are effective 
for cost reporting periods beginning on or after October 1, 1994. In 
addition, the commenter made a series of recommendations related to the 
proposed revisions to Secs. 413.134 and 413.153. The recommendations 
are as follows:
     Consistent with section 226.2 of the Provider 
Reimbursement Manual, Sec. 413.134(e)(1) should explicitly state that, 
in order for the investment income earned on a funded depreciation 
account to be exempt from offset against interest expense, the 
investment income must be deposited in, and become part of, the funded 
depreciation account.
     Consistent with section 226.D of the Manual, 
Sec. 413.134(e)(4) should state that when a provider invests or 
transfers assets of the fund to a related organization, these assets 
continue to be treated as the provider's funds and are subject to all 
the provisions governing funded depreciation, notwithstanding the 
transfer.
     Section 413.134(e)(4) should clarify that loans from the 
provider's funded depreciation account may not be used to purchase 
depreciable assets for that provider. The provider's funded 
depreciation account must be used, rather than loaned, for that 
purpose. Section 226.1 of the Manual reflects such a restriction with 
regard to loans to the provider's own general fund, and the same 
restriction should be extended to loans of funded depreciation funds to 
related organizations.
     Section 413.134(e)(4) should be revised to prohibit using 
the proceeds of a loan from a provider's funded depreciation for the 
purpose of acquiring depreciable assets of the related organization 
borrowing the funds. The commenter believes that ``investing'' funded 
depreciation in depreciable assets of a related organization is not an 
appropriate interpretation of the concept of ``available funds.''
     Section 413.153 should be revised to include a definition 
of ``investment income.'' The commenter believes that our current 
definition of investment income, which is set forth in the Manual 
rather than in regulations, is inconsistent with generally accepted 
accounting principles.
     HCFA should revise Sec. 413.153(d)(3) to explain 
explicitly how the allocation of repayments is made between the 
principal and interest portions of the loan in paying off necessary 
borrowing. The commenter believes that any repayments must be applied 
to both the allowable principal and interest portions of the loan 
before applying any repayments to the unallowable portion of the loan. 
In addition, HCFA should include in the final rule an example 
illustrating the application of the policy regarding repayments for the 
necessary and unnecessary portions of a loan.
     If any funds that are generated from the provider's 
patient care activities are diverted to pay for an unallowable 
borrowing, that diversion should be considered an investment of the 
provider's patient-care-related funds, and any investment income 
generated should be used to reduce the provider's otherwise allowable 
interest expense. The commenter recommends that we revise 
Sec. 413.153(d)(3) to reflect this concept.
    Finally, the commenter suggested editorial changes to improve the 
clarity of Sec. 413.153(d)(2) and (3).
    Response: As noted by the commenter, the revisions to Sec. 413.134 
and 413.153 are effective for cost reporting periods beginning on or 
after October 1, 1994. Because the revisions to these sections involve 
changes to the cost payment rules rather than the prospective payment 
system rules, an effective date tied to the cost reporting period is 
more appropriate than an effective date tied to discharges.
    We also agree with several of the commenter's recommendations, and 
have made the following changes in response to these comments:
     We are revising Sec. 413.134(e)(1) to state that, in order 
for the investment income earned on the funded depreciation account to 
be exempt from offset against interest expense, the investment income 
must be deposited in, and become part of, the funded depreciation 
account at the time of receipt by the provider. This revision is 
consistent with section 226.2 of the Manual, and it also incorporates 
the requirement in section 226.3 of the Manual that the investment 
income must be deposited, by the provider, in the funded depreciation 
account at the time of receipt.
     As recommended, we are revising the regulations to state 
that when a provider invests or transfers assets of the fund to a 
related organization, these assets are treated as the provider's funds 
and are subject to all the provisions governing funded depreciation, 
notwithstanding the transfer. However, because we believe this is a 
pervasive principle of the funded depreciation rules, we are inserting 
this statement in the introductory material of Sec. 413.134(e)(1), 
rather than in Sec. 413.134(e)(4), as the commenter suggested.
     We are revising Sec. 413.134(e)(4) to state that interest 
expense incurred on loans from the providers's funded depreciation 
account to purchase depreciable assets for that provider is not an 
allowable cost. We agree that, consistent with section 226.1 of the 
Manual, the provider's funded depreciation must be used, rather than 
loaned, for that purpose.
     We are adding the parenthetical phrase ``principal and 
interest'' after both uses of the word ``loan'' in Sec. 413.153(d)(3) 
to clarify that any repayments must be applied to both the allowable 
principal and interest portions of the necessary portion of the loan 
before the repayments can be applied to the unallowable portion of the 
loan. However, we do not believe that it is appropriate to revise the 
regulations to add an example illustrating the application of the 
policy regarding repayments for the necessary and unnecessary portions 
of a loan. Instead. we intend to incorporate the example into a section 
203.D of the Provider Reimbursement Manual as part of the upcoming 
revision of that manual.
     We are revising Sec. 413.153(d)(3) to clarify that if any 
funds that are generated from the provider's patient care activities 
are diverted to pay an unallowable borrowing, that diversion is 
considered an investment of the provider's patient care related funds, 
and any investment income generated must be used to reduce the 
provider's otherwise allowable interest expense.
    We also adopted several of the commenter's editorial suggestions. 
However, as discussed below, we did not agree with two of the 
commenter's recommendations.
    Since 1983, we have had several inquiries regarding whether a 
provider may lend its funded depreciation to a related organization for 
the purpose of acquiring depreciable assets to be used by the related 
organization. We have responded to these inquiries by stating that 
these loans are permissible as long as the funds remain available to 
the provider making the loan. Thus, if a provider lends its funded 
depreciation to a related organization, and subsequently borrows for a 
purpose for which its funded depreciation should have been used, the 
borrowing will be considered unnecessary to the extent of the funded 
depreciation that should have been available, but was not, due to the 
loan to the related organization. We are adding new 
Sec. 413.134(e)(4)(iv) to incorporate this longstanding policy.
    We do not believe that it would be appropriate to add a definition 
of investment income to Sec. 413.153 in this final rule for the 
following reasons. First, since we did not propose to add a new 
definition of investment income to the regulations, there would be no 
opportunity for public comment. Moreover, we would prefer to continue 
to refine our definition of this term and propose it in a future 
rulemaking document. In developing any changes to this definition, we 
will fully consider the commenter's suggestions.

VI. Changes for Hospitals Excluded From the Prospective Payment Systems

A. New Requirements for Certain Long-Term Care Hospitals Excluded From 
the Prospective Payment Systems (Sec. 412.23)

    Section 1861(e) of the Act and the regulations at 42 CFR part 482 
define a hospital as an institution that qualifies to participate in 
Medicare because it meets certain health and safety standards, known as 
``conditions of participation'' (COPs). A hospital must be surveyed for 
compliance with the COPs by State agencies that work under agreement 
with HCFA unless, under section 1865 of the Act and regulations at 42 
CFR part 488, the hospital is presumed to meet the COPs on the basis of 
accreditation by the Joint Commission on Accreditation of Healthcare 
Organizations or the American Osteopathic Association.
    Recently, some entities have discovered that the process for 
becoming a provider under the COPs can be manipulated to permit them to 
receive exclusion from the prospective payment systems. Specifically, 
hospitals have begun to organize themselves under what they themselves 
refer to as the ``hospital within a hospital'' model. Under this model, 
an entity may operate in space leased from a hospital, and have most or 
all services furnished under arrangements by employees of the lessor 
hospital. The newly organized entity may be operated by a corporation 
formed and controlled by the lessor hospital, or by a third entity that 
controls both. In either case, the new entity seeks State licensure and 
Medicare participation as a hospital, demonstrates that it has an 
average length of stay of over 25 days, and obtains an exclusion from 
the prospective payment systems. The effect of this process is to 
extend the long-term care hospital exclusion to what is for all 
practical purposes a long-term care hospital unit.
    We believe it may not be appropriate for a long-term care 
``hospital within a hospital'' to receive an exclusion from the 
prospective payment systems. The considerations underlying exclusions 
from the prospective payment systems may not apply to these entities.
    Under the prospective payment systems, hospitals are paid for 
inpatient services on the basis of prospectively determined rates. 
Under section 1886(d)(1)(B) of the Act, certain hospitals and units are 
excluded from the prospective payment systems, including psychiatric, 
rehabilitation, children's, and long-term care hospitals, and 
psychiatric and rehabilitation units. These hospitals and units are 
excluded because they could not be paid appropriately under the 
prospective payment systems.
    The prospective payment systems are based on an averaging concept 
that recognizes that some patients will stay longer and consume more 
resources than expected, while others will have shorter, less costly 
stays. We expect that an efficiently operated hospital will be able to 
deliver quality care to Medicare patients at an aggregate cost no 
greater than its aggregate Medicare payments under the prospective 
payment systems for each cost reporting period.
    The DRG system does not, however, apply to long-stay hospitals. 
Those hospitals have few short-stay or low-cost cases, and might be 
systematically underpaid if the prospective payment method applied. 
Thus, exclusion of entire long-term care hospitals from the prospective 
payment systems is appropriate. However, if an entity that provides 
long-term care is part of a larger hospital, the reasons for exclusion 
may not apply. A long-term care ``hospital within a hospital'' is 
essentially a long-term care hospital unit that accounts for only a 
part of the larger hospital's patient load. The principles underlying 
the prospective payment systems do apply to the larger hospital, unlike 
entire long-term care hospitals. Exclusion of long-term care units 
could inadvertently encourage hospitals to try to abuse the prospective 
payment systems, by diverting all long-stay cases to the excluded unit, 
leaving only the shorter, less costly cases to be paid for under the 
prospective payment systems. In such cases, hospitals would profit 
inappropriately from prospective payments.
    For these reasons, we believe it may be inappropriate to grant an 
exclusion to a long-term care ``hospital within a hospital.'' Moreover, 
exclusion of long-term care ``units'' is inconsistent with the 
statutory scheme. Section 1886(d)(1)(B) of the Act clearly provides for 
exclusions from the prospective payment systems for long-term care 
hospitals, and also for psychiatric units and rehabilitation units, but 
the statute does not provide for exclusion of long-term care units. 
Because we believe such exclusions are contrary to the purpose and 
scheme of section 1886(d)(1)(B) of the Act, we proposed to revise the 
regulations to prevent inappropriate exclusions.
    To avoid recognizing nominal hospitals, while allowing adequate 
flexibility for legitimate networking and sharing of services, we 
proposed additional criteria in 42 CFR part 412, subpart B for 
determining whether an entity qualifies for exclusion from the 
prospective payment systems as a long-term care hospital. Under the 
proposed rule, the revised criteria would apply to entities seeking 
exclusion as a long-term care hospital for cost reporting periods 
beginning on or after October 1, 1994, including reapprovals of long-
term care exclusions for entities that are currently excluded.
    We proposed that in addition to meeting any of the classification 
requirements set forth in Sec. 412.23, for cost reporting periods 
beginning on or after October 1, 1994, to be excluded from the 
prospective payment systems, a hospital located in the same building or 
in one or more entire buildings located on the same campus as another 
hospital and seeking long-term care exclusion must meet the following 
requirements:
     Separate governing body. The hospital has a governing body 
that is separate from the governing body of the hospital from which it 
obtains space. The hospital's governing body is not under the control 
of the hospital that provides space, or of any third entity that 
controls both hospitals.
     Separate chief medical officer. The hospital has a single 
chief medical officer who reports directly to the governing body and 
who is responsible for all medical staff activities of the hospital. 
The chief medical officer of the hospital is not employed by or under 
contract with either the hospital that provides space or any third 
entity that controls both hospitals.
     Separate medical staff. The hospital has a medical staff 
that is separate from the medical staff of the hospital from which it 
obtains space. The hospital's medical staff is directly accountable to 
the governing body for the quality of medical care provided in the 
hospital, and adopts and enforces bylaws governing medical staff 
activities, including criteria and procedures for recommending to the 
governing body the privileges to be granted to individual 
practitioners.
     Chief executive officer. The hospital has a single chief 
executive officer through whom all administrative authority flows, and 
who exercises control and surveillance over all administrative 
activities of the hospital. The chief executive officer is not employed 
by, or under contract with, either the hospital that provides space or 
any third entity that controls both hospitals.
     Performance of basic hospital functions. The hospital 
performs the basic hospital functions specified in Secs. 482.21 through 
482.27, 482.30, and 482.42 through the use of employees or under 
contracts or other agreements with entities other than the hospital 
from which it obtains space, or a third entity that controls both 
hospitals. Food and dietetic services and housekeeping, maintenance, 
and other services necessary to maintain a clean and safe physical 
environment could be obtained under contracts or other agreements with 
the hospital that provides space, or with a third entity that controls 
both hospitals.
    For purposes of these proposals, we considered ``control'' to exist 
if an individual or organization has the power, directly or indirectly, 
significantly to influence or direct the actions or policies of an 
organization or institution. This definition of ``control'' is now 
codified in the regulations at Sec. 413.17(b)(3), concerning allowable 
Medicare costs, and we would apply the same criteria to determine 
whether hospitals and hospital units should be excluded from the 
prospective payment systems. Thus, most hospital managers and 
administrators are familiar with this definition. We asked for comments 
on this and other issues concerning the proposed exclusion criteria.
    Finally, to ensure that hospitals that are excluded from the 
prospective payment systems are not confused with the types of 
facilities that can participate separately in Medicare as distinct-part 
psychiatric hospitals or skilled nursing facilities, we proposed to 
delete all references in the current prospective payment systems 
regulations to excluded units as ``distinct part'' facilities.
    We received a number of comments on these proposals and our 
responses to them are as follows.
    Comment: Some commenters expressed unqualified support for the new 
criteria, saying they would help to limit long-term care exclusions to 
only legitimately organized long-term care hospitals, and allow for 
more equitable treatment of facilities.
    Response: We continue to believe new criteria, as proposed in 
Sec. 412.23(e)(3), are needed and are adopting them, subject to the 
changes described below.
    Comment: Several commenters questioned HCFA's authority to impose 
new criteria for exclusion of long-term care hospitals. The commenters 
stated that the term ``hospital'' is defined in section 1861(e) of the 
Act and section 1886(d)(1)(B) of the Act provides an exclusion from the 
prospective payment systems for a ``hospital'' having an average length 
of stay over 25 days.
    Response: As discussed above and in the proposed rule, we are 
adding new criteria to prevent inappropriate exclusions from the 
prospective payment system. The purpose of excluding entities from the 
prospective payment system is to address situations in which the 
principles of prospective payment do not apply well. The considerations 
underlying exclusions may not apply to situations involving a 
``hospital within a hospital.'' If an entity is effectively part of 
another hospital and the principles of prospective payment do apply 
well to the organization as a whole, then it would not be appropriate 
to exclude part of that organization from the prospective payment 
system.
    Moreover, we believe that granting exclusion to a ``hospital within 
a hospital'' may be contrary to the statutory scheme. The statute 
provides for exclusion of certain types of hospitals and certain types 
of hospital units. Significantly, the statute does not provide for 
exclusion of long-term care units. A ``hospital within a hospital'' may 
essentially be a long-term care unit of another hospital. We believe 
these distinctions are meaningful and that it would undermine the 
distinctions if we allowed exclusion of entities that are essentially 
long-term care units.
    Thus, in order to prevent exclusions that are contrary to the 
purpose of the statute and to the statutory scheme, we proposed 
additional criteria for entities seeking exclusion. Sections 1102 and 
1871 of the Act confer authority on the Secretary to establish rules 
and regulations as may be necessary to administer the Medicare program.
    Comment: Some commenters indicated that the new criteria would not 
eliminate the possibility that some entities may be able to circumvent 
the prospective payment systems. Several commenters suggested that, 
instead of imposing structural criteria for determining when an entity 
qualifies as a bona fide separate hospital, we should develop criteria 
that, like those for rehabilitation hospitals and units, are specific 
to the types of care or services furnished. Another commenter 
recommended that we accept individual States' standards for long-term 
care hospitals instead of adopting the proposed requirements. Some 
commenters stated that a facility being operated as a long-term care 
unit rather than a separate hospital would be expected to receive most 
of its patients on referral from the host hospital. Thus, one commenter 
recommended that, in addition to meeting other criteria, a long-term 
care hospital must show that it has some admissions from hospitals 
other than the one with which it shares a building or campus. Another 
commenter recommended that requiring a minimum percentage of admissions 
from hospitals other than the one in which it is located be adopted as 
an alternative to the proposed criteria. Still another commenter 
recommended that a long-term care hospital be required to have at least 
75 percent of its admissions from entities to which it is not related 
by common control, as defined in Sec. 413.17(b)(3).
    Response: Although we recognize that the proposed criteria may not 
prevent all attempts to circumvent the prospective payment systems, we 
do expect them to identify situations when exclusion is appropriate, 
and thus address the potential abuses of the exclusion provisions. We 
do not agree that the intended effect of the proposals could be 
achieved through service-specific criteria. The problem the proposals 
were designed to deal with does not relate to the scope or types of 
services available in facilities, but to the organizational integrity 
of entities seeking exclusion from the prospective payment systems as 
separate hospitals. If a ``hospital within a hospital'' is really part 
of another hospital and the principles of the prospective payment 
system would apply to the organization as a whole, then the ``hospital 
within a hospital'' should not receive an exclusion.
    Also, although long-term care hospitals are required to comply with 
licensure or other State laws affecting patient health and safety, we 
do not agree that it would be appropriate simply to adopt whatever 
requirements a particular State might impose on long-term care 
hospitals as the basis for exclusion from the prospective payment 
systems; on the contrary, we believe exclusion decisions should be made 
under a uniform national policy.
    With regard to the suggestions that we adopt a standard related to 
the source of a hospital's patients, we agree that the extent to which 
a facility accepts patients from outside sources can be an important 
indicator of its status as a separate facility, not merely a unit of 
another hospital. In general, a facility's functional separateness 
should be reflected in its ability to attract patients from sources 
other than the hospital that serves as its host. For example, if a 
facility receives all (or nearly all) of its admissions independently 
(that is, from outside sources), it can reasonably be assumed to be 
functioning separately from the host hospital. In such a case, the fact 
that it shared services and facilities with the host hospital would not 
necessarily be an indication that exclusion is inappropriate. On the 
other hand, if a facility has no more than a bare majority (for 
example, 51 or 55 percent) of its admissions from other sources, and 
does not meet the other criteria for separateness, the facility may be 
dependent upon the host hospital for both services and patients. In 
such cases, we do not believe it can or should be seen as functionally 
or structurally separate from the host hospital; therefore, the payment 
considerations underlying exclusion do not apply and exclusion would be 
inappropriate.
    On the other hand, the level of outside referrals required should 
not be set so high as to discourage use of the facility by the host 
facility as well as by others in the community. To balance these 
opposing concerns, we are revising Sec. 412.23 to adopt a 75 percent 
referral standard as an alternative criterion to the proposed criteria. 
Under this approach, a hospital may obtain an exclusion either by 
meeting the criteria relating to organizational and functional 
separateness in Sec. 412.23(e)(3)(i), or by meeting the organizational 
separateness criteria (that is, Sec. 412.23(e)(3)(i) (A) through (D)) 
and by showing that, during the qualifying period used to establish 
compliance with the length of stay requirement, at least 75 percent of 
the hospital's inpatient population were referred to it from a source 
other than a hospital occupying space in the same building or on the 
same campus. We believe allowing a hospital to qualify under either of 
these alternatives will mitigate the concerns expressed by commenters 
about cost-effectiveness and the status of satellite facilities 
(discussed below), while still helping to avoid circumvention of the 
rules governing exclusion from the prospective payment systems.
    We recognize that in determining the level of outside referrals 
needed to permit a long-term care exclusion for a hospital operating in 
the same building or on the same campus as another, we could have 
chosen a percentage higher or lower than 75 percent. We adopted this 
level of outside referrals as a qualifying level not only because it 
was recommended by a commenter but also because we believe it is 
indicative of situations when a hospital is sufficiently separate so 
that the reasons underlying exclusions do apply. At the same time, it 
prevents exclusion for a facility that is not a functionally separate 
hospital meeting community needs for long-term care, but may be a paper 
entity for which the reasons underlying exclusions do not apply.
    In adopting this criterion, we are aware of the possibility that 
some facilities may attempt to adopt reciprocal referral arrangements 
under which one so-called ``hospital within a hospital'' would refer 
patients to another such entity, thus establishing ``hospitals'' that 
are not true community institutions but in effect operate as mutually 
supportive hospital units. We plan to monitor the referral patterns of 
facilities that obtain prospective payment system exclusion under the 
criterion based on their inpatient population, and may propose further 
changes to the regulations or take other actions as needed.
    Comment: Two commenters stated that the new exclusion criteria for 
long-term care hospitals appear to have been designed to prevent 
inappropriate exclusion of long-stay units of prospective payment 
systems hospitals. As proposed, however, the criteria would also 
prevent a current long-term care hospital from keeping its long-term 
care exclusion if it sets up a separate rehabilitation hospital on its 
campus or in its facility, in order to avoid actual and potential 
problems. (One hospital apparently faces an actual problem in providing 
rehabilitation services at costs less than its TEFRA limits, since 
those limits reflect a base year during which it furnished virtually no 
rehabilitative care. The hospital also faces a potential problem, in 
that if it remains a single long-term care hospital it may not qualify 
for payment under whatever prospective payment system is finally 
adopted for rehabilitation hospitals and units.) To avoid this result, 
one commenter recommended that the proposed regulations be revised to 
apply only to applicant long-term care hospitals set up in the same 
building or on the same campus as prospective payment systems 
hospitals, or that existing long-term care hospitals be exempted from 
the new criteria. Another commenter suggested that the new criteria be 
applied more liberally in the case of applicant long-term care 
hospitals that obtain space from hospitals excluded from the 
prospective payment systems.
    Response: The new exclusion criteria were developed in response to 
situations involving prospective payment systems hospitals rather than 
currently excluded hospitals. However, we recognize that there may be 
other situations in which a hospital may want to reconfigure itself 
solely to gain a reimbursement advantage, rather than to improve its 
quality of care or efficiency of operation. Under these circumstances, 
we believe it is appropriate to apply the revised long-term care 
exclusion criteria as needed to ensure that a facility is not able to 
circumvent the prospective payment systems or a TEFRA limitation simply 
through a nominal restructuring. In addition, Sec. 413.40 contains 
several provisions that allow for adjustments to accommodate changes 
that occur after an excluded hospital's base year. For these reasons, 
we have not revised the exclusion criteria for long-term care hospitals 
as requested by these commenters.
    Comment: Some commenters stated that the new exclusion criteria are 
not necessary to prevent inappropriate utilization of long-term care 
services, since PRO review of admissions already achieves this result.
    Response: We recognize the importance of PRO activities in assuring 
appropriate utilization, but we do not believe PRO review of specific 
admissions can be effective in dealing with problems of inappropriate 
exclusion of certain types of facilities.
    Comment: A commenter stated that in some cases, long-term care 
exclusions have been granted to hospitals that lease space from another 
company to which they are related by common ownership. The commenter 
recommended the final rules be clarified to state that long-term care 
exclusions are available to hospitals that are separately operated but 
are related through common ownership.
    Response: A facility may qualify for exclusion as long as it meets 
the criteria, even if it is owned by the same entity as a hospital with 
which it shares a building or a campus. A separately operated hospital 
is not ineligible for exclusion solely because it and the host facility 
are under common ownership. We do not believe that it is necessary to 
revise the regulations to clarify this point.
    Comment: Some commenters stated that the new exclusion criteria 
could adversely affect the quality of care patients receive, by 
limiting access to care and by requiring transfers that could be 
medically inappropriate. A commenter stated that the criteria could 
lead to a shortage of long-term care beds in rural areas, and suggested 
we either abandon the proposal or create an exception for rural 
facilities.
    Response: We agree that it would not be desirable to limit 
patients' access to long-term care or to require medically 
inappropriate transfers. However, none of the commenters presented any 
data, studies, or other objective information to demonstrate that these 
results would occur. Moreover, all hospitals are obligated under the 
Medicare conditions of participation (Sec. 482.21(b)) to have an 
effective, ongoing discharge planning program that facilitates the 
provision of follow-up care. We believe this requirement is effective 
in preventing premature or inappropriate discharges, but will 
investigate fully any complaints we receive in this area. In this 
context, we note that the new criteria are designed only to make 
appropriate payments, not to affect medical practice.
    We also considered the proposal to exempt rural facilities from the 
requirements; however, we believe that the exclusion provisions can be 
administered most efficiently and equitably if we use a single set of 
standards for both urban and rural facilities. In addition, we do not 
want to indirectly encourage the development of hospitals within 
hospitals in rural areas. Therefore, we are not adopting this 
suggestion.
    Comment: A commenter expressed reservations about several of the 
specific proposed criteria, saying that having a separate governing 
body, chief medical officer, and chief executive officer could impede 
coordination of care.
    Response: As noted above, all hospitals are responsible for 
discharge planning, and they typically develop referral and other 
relationships with other facilities to fulfill this responsibility. In 
general, there is no indication that the independence of these 
facilities impedes the coordination of hospital and post-hospital care. 
Thus, we do not believe that these criteria will impede the 
coordination of patient care.
    Comment: A commenter opposed the use of the definition of 
``control'' incorporated into the proposed criteria. The commenter 
stated that ``control'' is a reimbursement concept and that it is not 
appropriate to apply this concept for purposes of determining whether 
two facilities may be separately certified for Medicare participation.
    Response: The purpose of the proposed criteria is not to determine 
whether a facility seeking to participate in Medicare as a hospital is 
qualified to do so under the conditions of participation. On the 
contrary, the goal of the criteria is to limit exclusions to situations 
when exclusion is warranted. We believe that it is appropriate to adopt 
the definition of control under Sec. 413.17(b)(3), which currently 
applies for reimbursement purposes, because it is a long-established 
and well understood payment rule that can be readily applied to this 
new situation.
    Comment: Several commenters stated that the proposals would 
increase costs by limiting hospitals' ability to share space and 
services. Even some commenters who generally favored the ``core 
services'' criteria (that is, the requirement under proposed 
Sec. 412.23(e)(3)(v) that a hospital perform basic hospital functions 
through the use of its employees or under contract with an entity other 
than the hospital from which it obtains space) nevertheless suggested 
that long-term care hospitals be allowed to buy laboratory and 
radiology services from the host hospital.
    Response: We understand the commenters' concerns, but also believe 
that the ability to provide certain core services, including laboratory 
and radiology services, needed by patients can be an important 
indicator of the separateness of a facility seeking exclusion as a 
long-term care hospital. Moreover, as noted elsewhere in this preamble, 
hospitals that receive a certain percentage of their patients from 
sources other than the hospital from which it obtains space are not 
required to meet the ``core services'' requirement. Therefore, we did 
not adopt the recommendation that laboratory and radiology be excluded 
from the list of core services.
    Comment: A commenter asked for clarification of whether the 
additional criteria would apply only when an applicant long-term care 
hospital obtains space from another hospital, or whether they also 
would apply when the applicant long-term care hospital obtains space 
from a third entity that controls both hospitals.
    Response: The new criteria apply whenever a hospital seeking long-
term care exclusion occupies space in a building that is also used by 
another hospital, or in a building that is located on the same campus 
as one or more buildings used by another hospital. If these conditions 
exist, the exclusion request must be evaluated under the new criteria, 
regardless of whether the space occupied by the applicant long-term 
care hospital is furnished by another hospital or by a third entity. 
However, the criteria do not apply if the applicant long-term care 
hospital is the only hospital to occupy space in the building or on the 
campus.
    The following examples illustrate this rule: if a hospital seeking 
long-term care exclusion and another hospital each occupy five floors 
of the same ten-story building, the new criteria apply. This is the 
case even if the applicant long-term care hospital does not lease its 
space from the other hospital, but from another source, such as a 
private realty company that acts only as a lessor and does not have any 
other association with the long-term care hospital. However, the 
criteria do not apply if the applicant long-term care hospital occupies 
the entire building, or if the other five floors are occupied by an 
entity other than a hospital, such as a health maintenance organization 
or physician professional corporation. Under these circumstances the 
criteria do not apply, even if the space is provided to the applicant 
long-term care hospital by a controlling third entity, such as a chain 
organization that owns or controls it as well as one or more other 
hospitals.
    To clarify these points, we have revised Sec. 412.23(e) to remove 
references to hospitals that provide or obtain space, and to refer 
instead to hospitals that occupy space in the same building or on the 
same campus.
    Comment: A commenter asked whether a hospital seeking long-term 
care exclusion would be disqualified if it purchased therapy services 
and supplies, such as pharmaceuticals, from the hospital from which it 
obtains space.
    Response: In general, exclusion or non-exclusion of individual 
facilities is determined on a facility-by-facility basis by the HCFA 
regional office (RO), based on the facility's compliance with the 
exclusion criteria. We note that pharmaceutical services are among the 
core services that a hospital must provide directly, or obtain from an 
entity other than the one with which it shares space in a building or 
on a hospital campus. However, we also note that, if a hospital 
satisfies the 75 percent referral standard, it would not be 
disqualified simply because it purchased pharmaceutical services from 
the host hospital.
    Comment: A commenter suggested that the term ``campus'' be defined 
more specifically as a continuous parcel of property owned by an 
applicant long-term care hospital. The commenter believes that 
``campus'' should not include any property owned by an excluded 
hospital, even though it may adjoin the applicant hospital's property.
    Response: We have not adopted an explicit definition of the term 
``campus,'' but intend that decisions about whether facilities are on 
the same campus be made by the ROs in the course of applying the new 
provisions. In making these assessments, RO staff will consider not 
only the ownership of a tract of land but its actual use. For example, 
if a hospital owns one tract of land but holds an adjacent tract under 
a long-term lease, and occupies and uses both tracts as if they were 
one, the two tracts might be considered the hospital's campus 
regardless of the ownership of the second tract. Thus, because of the 
possibility of arrangements such as this, we do not believe that 
ownership is the sole determinant of what constitutes a hospital's 
campus.
    Comment: A commenter recommended that the regulations be revised to 
exclude situations in which a hospital has a majority of its beds 
located in a single site, and incurs most of its costs at that site, 
but has a satellite location at which some of its beds are located in 
the same building as another hospital.
    Response: We believe the proposed criteria should be applied in all 
cases involving joint occupancy of a building or campus by an applicant 
long-term care hospital and another hospital, and have not adopted this 
comment. This means that if a hospital has established a satellite unit 
within another hospital and has most or all basic hospital functions 
for the unit performed by the host hospital or by a controlling third 
entity, the hospital would not be able to qualify for a long-term care 
exclusion under the criteria as proposed. However, the additional 
criterion related to the sources of a long-term care hospital's 
patients will be applied with respect to the total patient population a 
hospital treats at all locations, including both base and satellite 
facilities. A hospital which has a majority of its beds at a central 
location and maintains only a small number of satellite beds probably 
would attract patients from a variety of sources other than the 
hospital(s) in which its satellite facilities are located, and thus may 
be able to meet the alternative criterion related to the sources of its 
patients.
    Comment: Several commenters noted that some long-term care 
hospitals have operated for many years by using space and services 
obtained from other hospitals, and that the TEFRA rates for these 
hospitals effectively prevent excess costs at these facilities. Because 
of this, the commenters recommended that we exempt currently excluded 
facilities from the new criteria, or provide a facility-by-facility 
exceptions process.
    Response: We understand that some facilities that have been 
excluded under their current forms of organization for many years may 
not meet the new exclusion criteria. We agree that it might be 
inequitable to impose new criteria on them effective immediately. 
However, we believe that the exclusion provisions can be administered 
most efficiently and equitably if we use a single set of standards for 
both currently excluded hospitals and those requesting exclusion for 
the first time. We considered the suggestion that we adopt a case-by-
case exceptions process, but we are concerned about the administrative 
burden involved in such a process, as well as the difficulty in setting 
criteria. Therefore, to allow for equitable treatment of currently 
excluded hospitals while ensuring that all similar hospitals eventually 
will be subject to the same standards, we are adding paragraph (e)(4) 
to Sec. 412.23 to allow hospitals with long-term care exclusions in 
effect for cost reporting periods beginning on or after October 1, 
1993, but before October 1, 1994, an additional 12 months before the 
new exclusion criteria will apply. Thus, the new exclusion criteria 
specified in Sec. 412.23(e)(3) will not apply to those hospitals until 
the start of their first cost reporting period beginning on or after 
October 1, 1995.

B. Miscellaneous Comments

    Comment: Some commenters recommended that we revise the regulations 
on exclusion of rehabilitation hospitals and units from the prospective 
payment systems. They suggested that four new medical conditions--
oncology cases, pulmonary disorders, cardiac disorders, and chronic 
pain--be added to the list of medical conditions, under 
Sec. 412.23(b)(2), that is used to identify hospitals and hospital 
units that are primarily engaged in intensive inpatient rehabilitation.
    Response: Although this issue was not addressed in the May 27, 1994 
proposed rule, we are interested in suggestions regarding changes in 
this provision and will take them into consideration in deciding what, 
if any, future changes are appropriate.
    Comment: Some commenters stated that there is an increasing need 
for subacute care, which is not now recognized as a distinct level of 
care under Medicare. The commenters recommended that new coverage and 
payment policies specific to subacute care be adopted to respond to 
this need.
    Response: These comments are similar to others we have recently 
received from providers involved in treating long-stay patients. These 
commenters suggested that a separate Medicare benefit, similar to the 
hospital and SNF care benefits, be developed for care that is variously 
described as ``transitional'' or ``subacute.'' We are reviewing these 
suggestions carefully, and may propose new legislation or regulations 
on this type of care in the future. However, there is currently no 
Medicare benefit for subacute care, and we made no change in these 
regulations based on these comments.

C. Removal of the 1986 Malpractice Rule (Sec. 413.56)

    We proposed to remove from the regulations ``the 1986 malpractice 
rule'', which is set forth at Sec. 413.56. We also proposed to remove 
all cross-references to Sec. 413.56. This technical change is designed 
to conform the regulations to the various authorities that have 
previously established that the 1986 malpractice rule is invalid. See 
the May 27, 1994 proposed rule for a detailed discussion of this 
proposed change (59 FR 27751). We received no comments and are adopting 
the proposal without change in this final rule. As a result, the 
amended Medicare rules reflect the previously established legal 
requirement that reasonable cost reimbursement for provider malpractice 
insurance cost claims that are either open or the subject of properly 
pending appeals, must be determined under the pre-1979 utilization 
method.

D. Related Technical Changes (Secs. 412.20, 412.22, 412.25, 412.27, 
412.29, 412.30, 412.96, 412.105, 412.108, 412.116, 412.130, 412.71, 
413.40, 413.53, 413.174 and 482.66)

    We proposed to remove the words ``distinct part'', wherever they 
appear, in the following places:
    (a) Section 412.20(b)(1);
    (b) Section 412.22(b);
    (c) The section title and paragraph (a) of Sec. 412.25;
    (d) The undesignated introductory texts of Secs. 412.27 and 412.29;
    (e) The section title of Sec. 412.30;
    (f) Section 412.96(c)(1) and (c)(2);
    (g) Section 412.105(b), (f)(5) and (g)(1)(iii);
    (h) Section 412.108(a)(2);
    (i) Section 412.116(a) and (b);
    (j) The section title of 412.130;
    (k) Section 412.130(a)(2) and (a)(3);
    (l) Section 413.40(a)(2)(ii), (b)(1)(i) through (b)(1)(iii) and 
(f)(2); and
    (m) In Sec. 482.66(a)(7)(i), the second appearance of the words 
``distinct part'' are removed.
    We also proposed to revise the section titles of Secs. 412.27 and 
412.29 to remove the words ``distinct part'' and replace them with the 
word ``excluded''.
    In addition, we proposed to make technical changes to 
Secs. 412.71(b), 413.53 and 413.174(b)(4)(iv) to remove and replace 
obsolete language and to correct references.
    We received no comments on the technical changes described above. 
Therefore, we are adopting those changes as proposed.

VII. ProPAC Recommendations

    As required by law, we reviewed the March 1, 1994 report submitted 
by ProPAC to Congress and gave its recommendations careful 
consideration in conjunction with the proposals set forth in the 
proposed rule. We also responded to the individual recommendations in 
the proposed rule. The comments we received on the treatment of the 
ProPAC recommendations are set forth below along with our responses to 
those comments. However, if we received no comments from the public 
concerning a ProPAC recommendation or our response to that 
recommendation, we have not repeated the recommendation and response in 
the discussion below. Recommendations 9, 12, and 13 concerning the 
update factors for inpatient operating costs are discussed in Appendix 
D to this final rule. Recommendations 10 and 11 concerning the update 
factors for inpatient capital costs are discussed in Appendix E. 
Recommendations 15 and 16 concerning hospital wage data and the 
hospital wage index are discussed in section III of this preamble. The 
remaining recommendations on which we received comments are discussed 
below.

A. Update to the Composite Rate for Dialysis Services (Recommendation 
14)

    Recommendation: The FY 1995 update recommendation for the composite 
rate for dialysis services accounts for the following:
     The projected increase in the market basket for dialysis 
services in FY 1995, estimated at 4.3 percent;
     A positive adjustment of 0.7 percentage points to reflect 
the additional costs associated with scientific and technological 
advances;
     A negative adjustment of 1.0 percentage points to 
encourage productivity improvements; and
     A negative discretionary adjustment of 4.0 percentage 
points to reflect the relationship between payments and estimated FY 
1994 costs.
    This results in a net update recommendation of 0.0 percent.
    Response in the Proposed Rule: We agree with ProPAC's 
recommendation not to propose a payment rate increase for dialysis 
services. The 1991 audited data support this decision. As the 
Commission points out, these data show that independent renal facility 
composite payment rates are higher than their Medicare allowable costs, 
while hospital renal facilities continue to report costs in excess of 
their payment rates. The audits did not provide an explanation for the 
higher reported costs of hospital renal facilities relative to 
independent renal facilities. However, auditors found that hospital 
renal facilities often fail to maintain adequate records for allocation 
costs in the renal department. Since hospitals' payments are not 
affected by renal cost reports, Supplement Worksheet I of HCFA-2552, 
hospitals do not always complete their cost reports accurately.
    Although we realize the importance of regular renal audits, the 
budget for audits continues to decline. Thus, we do not plan to conduct 
renal audits in 1994 or 1995. We have requested funds to conduct renal 
audits in 1996. During this 2-year interval, we would review the 1992 
and 1993 cost report data for those renal facilities in the 1991 audit 
sample.
    We believe that this analysis will provide cost information about 
the ESRD program in lieu of audited data for these years. Furthermore, 
it will provide a basis for analyzing cost data over time and allow for 
better comparison of audited and unaudited costs.
    Comment: ProPAC believes that annual audits are necessary to 
develop the data needed to monitor dialysis costs over time and to 
ensure that payments for dialysis services are updated appropriately.
    Response: We believe it is not feasible at this time to conduct 
annual audits of renal facilities. The selection of a representative 
sample of renal facilities nationally, the coordination of the audits 
with fiscal intermediaries, and the review and analysis of data are 
time consuming activities. The audit process takes about 12 months to 
complete. Moreover, audits impose burdens on renal facilities, who have 
limited staff resources. We believe that conducting audits on a 3-year 
basis is a reasonable alternative to annual audits. During the 
interval, unaudited data are available from HCRIS for ProPAC's 
analysis. In addition, prior audit results can be used to account for 
differences between reported and audited costs.
    Comment: One commenter believes that the lack of a payment rate 
increase for dialysis services is unfair to hospital-based renal 
facilities, and claims that hospitals service a more resource-intensive 
and consequently costlier patient population.
    Response: In its report to Congress, ProPAC addressed the issue of 
the cost differential between hospital-based renal facilities and 
independent facilities (see p. 85-86). ProPAC's analyses of various 
data failed to attribute the cost difference between hospital-based and 
independent renal facilities to factors, such as patient mix, for which 
the payment system should compensate. The data showed that higher costs 
for hospital-based renal facilities may be due, in part, to ``richer 
employee skill mix'' and the inclusion of inpatient dialysis service 
costs in the outpatient department. Furthermore, ProPAC found that 
audited cost data did not justify an increase and recommended no 
payment rate update.
    To date, no study has clearly demonstrated that hospitals treat a 
more resource-intensive, and consequently costlier, ESRD patient 
population than independent renal facilities. Until an ESRD case mix 
index is developed to adjust payment rates, the exception process 
provides a mechanism for adjusting payment rates to account for 
differences in patient mix.

B. Level of the Indirect Medical Education Adjustment to PPS Operating 
Payments (Recommendation 19)

    Recommendation: The Commission recommends that the indirect medical 
education adjustment to prospective payments for hospital inpatient 
operating costs be reduced from its current level of 7.7 percent to 7.0 
percent for fiscal year 1995. This reduction should be implemented with 
the anticipated decrease in indirect medical education payments 
returned to all hospitals through a proportionate increase in the 
standardized payment amounts. The Commission also recommends 
continuation of the indirect medical education adjustment to operating 
payments until an alternative system of compensating appropriately for 
the higher costs of patient care in teaching institutions is fully 
operational.
    Response in the Proposed Rule: The first part of this 
recommendation is identical to ProPAC's recommendation on the level of 
the IME adjustment for FY 1994, to which we responded in the May 26, 
1993 proposed rule (58 FR 30255) and September 1, 1993 final rule (58 
FR 46326) containing the changes to the prospective payment systems for 
FY 1994. We agree that the IME adjustment should be reduced. Although 
we have disagreed with ProPAC in the past over the degree of reduction, 
we have proposed reductions as part of the President's budgets for the 
last several years.
    With respect to ProPAC's methodology for estimating the indirect 
cost effect of teaching without accounting for the DSH adjustment, we 
explained our opposition to this suggestion in the September 1, 1993 
final rule (58 FR 46328). To reiterate, our analysis indicates that 
there is evidence of significantly higher costs related to DSH among 
urban hospitals with 100 or more beds (see O'Dougherty et al., Health 
Care Financing Review, Winter 1992, p. 31). Since these hospitals 
receive over 96 percent of all DSH payments, we believe ProPAC's claim 
that ``DSH payments generally do not reflect differences in costs'' is 
overstated. We do agree, however, that the current level of DSH 
payments exceeds the measured cost effect of DSH even among urban 
hospitals with 100 or more beds. In that regard, we point out that in 
the regression model used to estimate the teaching effect, we did not 
specify the DSH variable as the level of DSH payments, but instead set 
it equal to the DSH percentage for urban hospitals with 100 or more 
beds and zero for all other hospitals. (For a complete description of 
our estimating model, see the August 30, 1991 final rule implementing 
the capital prospective payment system, 56 FR 43370.) As ProPAC alludes 
to in its report, not controlling for DSH leads to its higher IME cost 
estimate relative to our IME cost estimate.
    The remainder of ProPAC's recommendation raises policy issues 
related to the appropriate level of IME funding as the transition is 
made from the current system to the new health care system. Since these 
transition issues are currently being addressed as part of the health 
care reform debate, we are not responding in this document to this part 
of ProPAC's recommendation.
    Comment: In commenting on the proposed rule, ProPAC reiterated much 
of its original recommendation, stating again that the IME adjustment 
should be reduced to 7.0 in FY 1995. The Commission continues to argue 
that further reductions should be gradual and occur only after 
examination of the financial status of teaching hospitals. The 
Commission expressed its appreciation for HCFA's explanation of the 
methodology it uses to control for DSH when estimating indirect 
teaching costs. The Commission also indicated its intent to continue 
examining the level and the structure of the IME adjustment. Finally, 
ProPAC indicated support for the explicit recognition of IME by all 
payers under health care reform, and called for Medicare to retain the 
IME adjustment until an alternative system was operational.
    Response: We appreciate ProPAC's past contributions to the 
understanding of the relationship between patient care costs and 
graduate medical education, and anticipate that the Commission will 
continue to be at the analytic forefront of this important issue.

C. Beneficiary Liability for Hospital Outpatient Services 
(Recommendation 22)

    Recommendation: Beneficiary coinsurance for hospital outpatient 
services should be limited to 20 percent of the Medicare-allowed 
payment, as it is in other settings. For services not paid on a 
prospective basis, beneficiary copayment would need to be estimated 
because it is not known at the time of service delivery.
    Response in the Proposed Rule: We share ProPAC's concern that 
beneficiaries may be paying a disproportionate share of the total 
payment for hospital outpatient services under the current cost based 
system. However, we are in the process of developing a prospective 
payment system for hospital outpatient services that will be moving 
away from costs and charges as a basis for payment. We believe that it 
would be most appropriate to make any changes to beneficiary 
coinsurance in conjunction with the implementation of this hospital 
outpatient prospective payment system. Therefore, as we develop this 
system, we are reviewing the issue of beneficiary liability and are 
working to come up with an approach that will be fair to beneficiaries, 
while minimizing the negative financial impact on the Medicare program.
    Comment: ProPAC continues to believe that the Secretary should not 
delay correcting beneficiary liability for outpatient services until 
the implementation of prospective payment.
    Response: We understand the concern expressed by ProPAC. However, 
we continue to believe that a meaningful solution to the high level of 
beneficiary liability can most appropriately be achieved with the 
implementation of a prospective payment system for hospital outpatient 
services in the near future. The time and effort needed to develop an 
interim solution might detract from the development of the prospective 
payment system that would make possible an equitable solution for all 
parties, while minimizing the negative financial impact on the Medicare 
program.

VIII. Other Required Information

A. Paperwork Reduction Act

    As discussed in detail in section III.F of this preamble, we 
proposed several changes to forms used to gather hospital wage data, 
specifically the Worksheet S-3, Part II, of the Medicare cost report, 
and the provider cost report questionnaire (HCFA-339). The current 
information collection requirements associated with these items have 
been approved by the Office of Management and Budget (OMB) under 
approval numbers 0938-0050 and 0938-0301, respectively. We proposed 
that the changes to these forms would be effective for cost reporting 
periods beginning on or after October 1, 1994. However, these changes 
will not be effective until OMB approval is received under the 
authority of the Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et 
seq.).

B. Requests for Data from the Public

    In order to respond promptly to public requests for data related to 
the prospective payment system, we have set up a process under which 
commenters can gain access to the raw data on an expedited basis. 
Generally, the data are available in computer tape format or 
cartridges; however, some files are available on diskette. In our May 
27, 1994 proposed rule, we published a list of data sets that are 
available for purchase (59 FR 27756). We received no comments 
concerning this process.

C. Waiver of Notice of Proposed Rulemaking and 30-Day Delay in the 
Effective Date

    We ordinarily publish a notice of proposed rulemaking for a rule to 
provide a period for public comment. However, we may waive that 
procedure if we find good cause that prior notice and comment are 
impractical, unnecessary, or contrary to public interest. We find good 
cause to implement this rule as a final rule with comment period 
because the delay involved in prior notice and comment procedures for 
the new provisions of this rule would be contrary to the public 
interest.
    The only provisions of this rule that were not part of our May 27, 
1994, proposed rule are those eliminating the requirement in 42 CFR 
412.230 that an individual hospital be located in an area adjacent to 
the area to which it seeks geographic reclassification. As discussed in 
section III.F of this preamble, the MGCRB is required, by statute, to 
issue decisions on hospital applications no later than 180 days after 
October 1, the first day of the Federal fiscal year preceding the 
Federal fiscal year for which the hospital is seeking reclassification. 
To be considered for reclassification for FY 1996, a hospital must 
submit its application no later than October 1, 1994. In this rule, we 
are revising Sec. 412.230 to eliminate the adjacency requirement for 
individual hospitals seeking geographic reclassification for 
prospective payment purposes. We believe that it is necessary to 
implement this revision as part of this final rule to allow hospitals 
that previously would not have qualified for reclassification an 
opportunity to submit timely applications for the next MGCRB 
adjudication period. We find that the delay involved in prior notice 
and comment would be contrary to the public interest in that it would 
diminish or eliminate some hospital's opportunities to file timely 
applications for reclassification for FY 1996 and to receive the 
potential benefits of reclassification.
    Timely adjudication is essential not only to ensure that hospitals 
are not deprived of the statutory right, subject to specified criteria, 
to apply for reclassification for FY 1996, but also to ensure that the 
budget neutrality requirement imposed by Congress in section 
1886(d)(8)(D) of the Act can be met for FY 1996 prospective payment 
system rates.
    Therefore, we have concluded that it is appropriate to implement 
the revisions to Sec. 412.230 as final in this instance. However, we 
are providing a 60-day period for public comment, as indicated at the 
beginning of this rule, on these changes to the reclassification 
criteria.
    We also normally provide a delay of 30 days in the effective date 
of a regulation. However, if adherence to this procedure would be 
impractical, unnecessary, or contrary to public interest, we may waive 
the delay in the effective date. We may also waive the delay in the 
case of a rule that grants an exemption or relieves a restriction. We 
find good cause to waive the usual 30-day delay in this instance. As 
explained above, it is essential that these provisions have immediate 
effect, so that hospitals will be able to apply for reclassification 
under the revised criteria set forth in this final rule with comment 
period. A 30-day delay in the effective date could deprive some 
hospitals of the opportunity to file timely applications and to receive 
the potential benefits of reclassification. Moreover, the delay would 
jeopardize the budget neutrality requirement described above. Thus, a 
30-day delay in the effective date would be contrary to the public 
interest. Therefore, we find good cause to waive the usual 30-day delay 
in the effective date.

D. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on Federal Register documents published for comment, we are not 
able to acknowledge or respond to them individually. We will consider 
all comments we receive by the date and time specified in the ``DATES'' 
section of this preamble, and we will respond to these comments in 
subsequent rulemaking document. Comments on changes to the criteria for 
geographic reclassification will be considered if we receive them by 
the date specified in the ``DATES'' section of this preamble. We will 
not consider comments concerning provisions that remain unchanged from 
the May 27, 1994 proposed rule or that were changed based on public 
comments.

List of Subjects

42 CFR Part 412

    Administrative practice and procedure, Health facilities, Medicare, 
Puerto Rico, Reporting and recordkeeping requirements.

42 CFR Part 413

    Health facilities, Kidney diseases, Medicare, Puerto Rico, 
Reporting and recordkeeping requirements.

42 CFR Part 466

    Grant programs-health, Health care, Health facilities, Health 
professions, Peer Review Organizations (PRO), Reporting and 
recordkeeping requirements.

42 FR Part 482

    Grant programs-health, Hospitals, Medicaid, Medicare, Reporting and 
recordkeeping requirements.

42 FR Part 485

    Grant programs-health, Health facilities, Medicaid, Medicare, 
Reporting and recordkeeping requirements.

42 CFR Part 489

    Health facilities, Medicare, Reporting and recordkeeping 
requirements.

    42 CFR chapter IV is amended as set forth below:
    A. Part 412 is amended as follows:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

    1. The authority citation for part 412 continues to read as 
follows:

    Authority: Secs. 1102, 1815(e), 1820, 1871, and 1886 of the 
Social Security Act (42 U.S.C. 1302, 1395g(e), 1395i-4, 1395hh, and 
1395ww).

Subpart A--General Provisions


Sec. 412.2  [Amended]

    2. In paragraph (e)(4) of Sec. 412.2, remove the words ``and 
liver'' and add, in their place, the words ``liver, and lung''.

Subpart B--Hospital Services Subject to and Excluded From the 
Prospective Payment Systems for Inpatient Operating Costs and 
Inpatient Capital-Related Costs

    3. In Sec. 412.23, paragraph (e) is revised to read as follows:


Sec. 412.23  Excluded hospitals: Classifications.

* * * * *
    (e) Long-term care hospitals. A long-term care hospital must meet 
the requirements of paragraphs (e)(1) and (e)(2) of this section, and, 
where applicable, the additional requirements in paragraph (e)(3) of 
this section.
    (1) The hospital must have a provider agreement under part 489 of 
this chapter to participate as a hospital.
    (2) The hospital must have an average length of inpatient stay 
greater than 25 days--
    (i) As computed by dividing the number of total inpatient days 
(less leave or pass days) by the number of total discharges for the 
hospital's most recent complete cost reporting period; or
    (ii) If a change in the hospital's average length of stay is 
indicated, as computed by the same method for the immediately preceding 
six-month period.
    (3) Except as provided in paragraph (e)(4) of this section, for 
cost reporting periods beginning on or after October 1, 1994, a 
hospital that occupies space in a building also used by another 
hospital, or in one or more entire buildings located on the same campus 
as buildings used by another hospital, must meet either the criteria in 
paragraph (e)(3)(i) or (e)(3)(ii) of this section.
    (i) The hospital meets the following requirements:
    (A) Separate governing body. The hospital has a governing body that 
is separate from the governing body of the hospital occupying space in 
the same building or on the same campus. The hospital's governing body 
is not under the control of the hospital occupying space in the same 
building or on the same campus, or of any third entity that controls 
both hospitals.
    (B) Separate chief medical officer. The hospital has a single chief 
medical officer who reports directly to the governing body and who is 
responsible for all medical staff activities of the hospital. The chief 
medical officer of the hospital is not employed by or under contract 
with either the hospital occupying space in the same building or on the 
same campus or any third entity that controls both hospitals.
    (C) Separate medical staff. The hospital has a medical staff that 
is separate from the medical staff of the hospital occupying space in 
the same building or on the same campus. The hospital's medical staff 
is directly accountable to the governing body for the quality of 
medical care provided in the hospital, and adopts and enforces bylaws 
governing medical staff activities, including criteria and procedures 
for recommending to the governing body the privileges to be granted to 
individual practitioners.
    (D) Chief executive officer. The hospital has a single chief 
executive officer through whom all administrative authority flows, and 
who exercises control and surveillance over all administrative 
activities of the hospital. The chief executive officer is not employed 
by, or under contract with, either the hospital occupying space in the 
same building or on the same campus or any third entity that controls 
both hospitals.
    (E) Performance of basic hospital functions. The hospital performs 
the basic hospital functions specified in Secs. 482.21 through 482.27, 
482.30, and 482.42 of this chapter through the use of employees or 
under contracts or other agreements with entities other than the 
hospital occupying space in the same building or on the same campus, or 
a third entity that controls both hospitals. Food and dietetic services 
and housekeeping, maintenance, and other services necessary to maintain 
a clean and safe physical environment could be obtained under contracts 
or other agreements with the hospital occupying space in the same 
building or on the same campus, or with a third entity that controls 
both hospitals.
    (ii) For the period of at least 6 months used to determine 
compliance with the length-of-stay criterion in paragraph (e)(2) of 
this section, the hospital meets the requirements of paragraphs 
(e)(3)(i)(A) through (e)(3)(i)(D) of this section and has an inpatient 
population of whom at least 75 percent were referred to the hospital 
from a source other than another hospital occupying space in the same 
building or on the same campus.
    (4) If a hospital has been excluded from the prospective payment 
systems under this paragraph for any cost reporting period beginning on 
or after October 1, 1993, but before October 1, 1994, the criteria in 
paragraphs (e)(3) of this section do not apply to the hospital until 
the hospital's first cost reporting period beginning on or after 
October 1, 1995.
    (5) For purposes of this section, control exists if an individual 
or an organization has the power, directly or indirectly, significantly 
to influence or direct the actions or policies of an organization or 
institution.
* * * * *


Sec. 412.27  [Amended]

    4. In Sec. 412.27, the section heading is revised to read 
``Excluded psychiatric units: Additional requirements.''


Sec. 412.29  [Amended]

    5. In Sec. 412.29, the section heading is revised to read 
``Excluded rehabilitation units: Additional requirements.''

Subpart D--Basic Methodology for Determining Prospective Payment 
Federal Rates for Inpatient Operating Costs

    6. In paragraph (d)(2) of Sec. 412.60, the second sentence is 
revised to read as follows:


Sec. 412.60  DRG classification and weighting factors.

* * * * *
    (d) * * *
    (2) * * * If the intermediary decides that a higher-weighted DRG 
should be assigned, the case will be reviewed by the appropriate PRO as 
specified in Sec. 466.71(c)(2) of this chapter.
* * * * *
    7. In Sec. 412.63, paragraph (m)(1), the paragraph heading of 
paragraph (r), and paragraphs (r)(1) introductory text, (r)(1)(i), 
(r)(2) introductory text, (r)(2)(i), and (s)(2) are revised to read as 
follows:


Sec. 412.63  Federal rates for inpatient operating costs for fiscal 
years after Federal fiscal year 1984.

* * * * *
    (m) * * *
    (1) Plus, for hospitals located in rural areas, the percentage 
increase necessary so that the average standardized amounts computed 
under paragraph (c) through (i) of this section are equal to the 
average standardized amounts for hospitals located in an urban area 
other than a large urban area.
* * * * *
    (r) Computing Federal rates for inpatient operating costs for 
hospitals located in large urban and other areas. * * *
    (1) For hospitals located in a large urban area in the United 
States or that region respectively, the rate equals the product of--
    (i) The adjusted average standardized amount (computed under 
paragraph (c) of this section) for the fiscal year for hospitals 
located in a large urban area in the United States or in that region; 
and
* * * * *
    (2) For hospitals located in an other area in the United States or 
that region respectively, the rate equals the product of--
    (i) The adjusted average standardized amount (computed under 
paragraph (c) of this section) for the fiscal year for hospitals 
located in an other area in the United States or that region; and
* * * * *
    (s) * * *
    (2)(i) HCFA makes a midyear correction to the wage index for an 
area only if a hospital can show that--
    (A) The intermediary or HCFA made an error in tabulating the 
hospital's data; and
    (B) The hospital could not have known about the error, or did not 
have the opportunity to correct the error, before the beginning of the 
Federal fiscal year.
    (ii) A midyear correction to the wage index is effective 
prospectively from the date the change is made to the wage index.
* * * * *

Subpart E--Determination of Transition Period Payment Rates for the 
Prospective Payment System for Inpatient Operating Costs

    8. In Sec. 412.71, paragraph (b) introductory text is revised, 
paragraph (b)(1) is removed and paragraphs (b)(2) through (b)(8) are 
redesignated as paragraphs (b)(1) through (b)(7). The revision is to 
read as follows:


Sec. 412.71  Determination of base-year inpatient operating costs.

* * * * *
    (b) Modifications to base-year costs. Prior to determining the 
hospital-specific rate, the intermediary will adjust the hospital's 
estimated base-year inpatient operating costs, as necessary, to include 
malpractice insurance costs in accordance with Sec. 413.53(a)(1)(i) of 
this chapter, and exclude the following:
* * * * *

Subpart F--Payment for Outlier Cases

    9. In Sec. 412.80, the introductory text of paragraphs (a)(1) and 
(a)(1)(ii) are revised, and a new paragraph (a)(1)(iii) is added to 
read as follows:


Sec. 412.80  General provisions.

    (a) Basic rule. (1) For discharges before October 1, 1994, except 
as provided in paragraph (a)(2) of this section concerning transferring 
hospitals, HCFA provides for additional payment, approximating a 
hospital's marginal cost of care beyond thresholds specified by HCFA, 
to a hospital for covered inpatient hospital services furnished to a 
Medicare beneficiary if either of the conditions specified in 
paragraphs (a)(1)(i) and (a)(1)(ii) of this section is met. For 
discharges occurring on or after October 1, 1994, except as provided in 
paragraph (a)(2) of this section concerning transferring hospitals, 
HCFA provides for additional payment, beyond standard DRG payments, to 
a hospital for covered inpatient hospital services furnished to a 
Medicare beneficiary if either of the conditions specified in 
paragraphs (a)(1)(i) and (a)(1)(iii) of this section is met.
* * * * *
    (ii) For discharges occurring before October 1, 1994, the 
beneficiary's length of stay does not exceed criteria established under 
paragraph (a)(1)(i) of this section, but the hospital's charges for 
covered services furnished to the beneficiary, adjusted to operating 
costs and, effective with cost reporting periods beginning on or after 
October 1, 1991, capital costs, by applying cost-to-charge ratios as 
described in Sec. 412.84(h), exceed the greater of the following: * * *
    (iii) For discharges occurring on or after October 1, 1994, the 
beneficiary's length of stay does not exceed criteria established under 
paragraph (a)(1)(i) of this section, but the hospital's charges for 
covered services furnished to the beneficiary, adjusted to operating 
costs and capital costs by applying cost-to-charge ratios as described 
in Sec. 412.84(h), exceed the DRG payment for the case plus a fixed 
dollar amount (adjusted for geographic variation in costs) as specified 
by HCFA.
* * * * *
    10. In Sec. 412.82, paragraph (c) is revised to read as follows:


Sec. 412.82  Payment for extended length-of-stay cases (day outliers).

* * * * *
    (c) Except as provided in Sec. 412.86, the per diem payment made 
under paragraph (a) of this section is derived by taking a percentage 
of the average per diem payment for the applicable DRG, as calculated 
by dividing the Federal prospective payment rate for inpatient 
operating costs and inpatient capital-related costs determined under 
subpart D of this part, by the arithmetic mean length of stay for that 
DRG. HCFA issues the applicable percentage of the average per diem 
payment in the annual publication of the prospective payment rates in 
accordance with Sec. 412.8(b).
* * * * *


Sec. 412.84  [Amended]

    11. In paragraph (j) of Sec. 412.84, remove the words ``75 
percent'' wherever they appear in the paragraph and add, in their 
place, the words ``80 percent''.

Subpart G--Special Treatment of Certain Facilities Under the 
Prospective Payment System for Inpatient Operating Costs

    12. In Sec. 412.96, paragraph (d) is revised to read as follows:


Sec. 412.96  Special treatment: Referral centers.

* * * * *
    (d) Payment to rural referral centers. Effective for discharges 
occurring on or after April 1, 1988, and before October 1, 1994, a 
hospital that is located in a rural area and meets the criteria of 
paragraphs (b)(1), (b)(2) or (c) of this section is paid prospective 
payments for inpatient operating costs per discharge based on the 
applicable other urban payment rates as determined in accordance with 
Sec. 412.63, as adjusted by the hospital's area wage index.
* * * * *
    13. Section 412.105 is amended as follows:
    a. Paragraph (b) is revised.
    b. In paragraph (d)(1), the phrase ``set forth in paragraph (c)(1) 
of this section.'' is revised to read ``set forth in paragraph (c) of 
this section.''
    The revision is to read as follows:


Sec. 412.105  Special treatment: Hospitals that incur indirect costs 
for graduate medical education programs.

* * * * *
    (b) Determination of number of beds. For purposes of this section, 
the number of beds in a hospital is determined by counting the number 
of available bed days during the cost reporting period, not including 
nursery beds assigned to newborns that are not in intensive care areas, 
custodial care beds, and beds in excluded distinct part hospital units, 
and dividing that number by the number of days in the cost reporting 
period.
* * * * *
    14. In Sec. 412.109, a new paragraph (e) is added to read as 
follows:


Sec. 412.109  Special treatment: Essential access community hospitals 
(EACHs).

* * * * *
    (e) Review of HCFA Determination. A determination by HCFA that a 
hospital does not meet the criteria for EACH designation, or that a 
hospital's EACH designation should be terminated, is subject to review 
under part 405, subpart R of this chapter, including the time limits 
for filing requests for hearings as specified in Secs. 405.1811(a) and 
405.1841(a)(1) and (b) of this chapter.

Subpart H--Payments to Hospitals Under the Prospective Payment 
Systems


Sec. 412.113  [Amended]

    15. Section 412.113 is amended as follows:
    a. In paragraph (b)(3), the phrase ``Except as provided in 
Sec. 413.86(c)(1) of this chapter,'' is revised to read ``Except as 
provided in Sec. 413.86(c) of this chapter,''.
    b. In paragraph (d), remove the words ``and liver'' wherever they 
appear and add, in their place, the words ``liver, and lung''.

Subpart L--The Medicare Geographic Classification Review Board

    16. Section 412.230 is amended as follows:
    a. Paragraph (a)(2) is removed and paragraphs (a)(3) through (a)(5) 
are redesignated as paragraphs (a)(2) through (a)(4).
    b. In redesignated paragraph (a)(2), ``(a)(4)'' is removed and 
``(a)(3)'' is added in its place, and the word ``adjacent'' is removed.
    c. Redesignated paragraph (a)(3)(i) is removed, redesignated 
paragraphs (a)(3)(ii) through (a)(3)(v) are further redesignated as 
(a)(3)(i) through (a)(3)(iv), in redesignated paragraph (a)(3)(iii) 
remove ``(a)(4)'' and add, in its place, ``(a)(3)'', and redesignated 
paragraph (a)(3)(iv) is revised.
    d. In paragraphs (b), (c), and (d), the word ``adjacent'' is 
removed wherever it appears.
    e. In paragraph (e), the word ``adjacent'' is removed wherever it 
appears, the introductory text of paragraph (e)(2) is republished, and 
paragraphs (e)(2)(ii)(A) and (e)(2)(ii)(B) are revised.
    The revisions read as follows:


Sec. 412.230  Criteria for an individual hospital seeking redesignation 
to another rural area or an urban area.

    (a) General-- * * *
    (3) Special rules for sole community hospitals and rural referral 
centers-- * * *
    (iv) A hospital that is redesignated under paragraph (a)(3) of this 
section may not be redesignated in the same fiscal year under paragraph 
(a)(2) of this section.
* * * * *
    (e) Use of urban or other rural area's wage index-- * * *
    (2) Appropriate wage data. For a wage index change, the hospital 
must submit appropriate data as follows:
* * * * *
    (ii) * * *
    (A) The average hourly wage in the area in which the hospital is 
located and the average hourly wage in the area to which the hospital 
seeks reclassification. The wage data are taken from the HCFA hospital 
wage survey used to construct the wage index in effect for prospective 
payment purposes during the fiscal year prior to the fiscal year for 
which the hospital requests reclassification and;
    (B) If the hospital is requesting reclassification under 
Sec. 412.230(e)(1)(iv)(B), occupational-mix data to demonstrate the 
average occupational mix for each employment category in the area to 
which the hospital seeks reclassification. Occupational-mix data can be 
obtained from surveys conducted by the American Hospital Association.

    17. In Sec. 412.232, paragraph (c) is revised to read as follows:


Sec. 412.232  Criteria for all hospitals in a rural county seeking 
urban redesignation.

* * * * *
    (c) Wage criteria. In applying the following numeric criteria, 
rounding of numbers to meet the qualifying percentages is not 
permitted.
    (1) Aggregate hourly wage. The aggregate average hourly wage for 
all hospitals in the rural county must be equal to at least 85 percent 
of the average hourly wage in the adjacent urban area; or
    (2) Aggregate hourly wage weighted for occupational mix. The 
aggregate average hourly wage for all hospitals in the rural county, 
weighted for occupational categories, is at least 90 percent of the 
average hourly wage in the adjacent urban area.
* * * * *

Subpart M--Prospective Payment System for Inpatient Hospital 
Capital Costs

    18. In Sec. 412.302, paragraph (c)(2)(i)(D) is revised to read as 
follows:


Sec. 412.302  Introduction to capital costs.

* * * * *
    (c) * * *
    (2) * * *
    (i) * * *
    (D) The hospital put the asset into patient use on or before the 
later of September 30, 1996 or 4 years from the date the certificate of 
need was approved.
* * * * *


Sec. 412.308  [Amended]

    19. In paragraph (c)(3) of Sec. 412.308, remove the phrase ``For FY 
1992 through FY 2001,''.
    20. Section 412.348 is revised to read as follows:


Sec. 412.348  Exception payments.

    (a) Definitions. As used in this section--
    Annual operating expenses. Annual operating expenses means the sum 
of net expenses for all reimbursable cost centers for a 12 month cost 
reporting period. Annual operating expenses are obtained from the 
Medicare cost report.
    Average age of fixed assets. The average age of fixed assets is the 
ratio of accumulated depreciation for buildings and fixed equipment to 
current depreciation expense for buildings and fixed equipment. The 
average age of fixed assets is determined from information on the 
Medicare cost report.
    Fixed assets. Fixed assets mean buildings and fixed equipment.
    (b) Criterion for additional payment during the transition period. 
An additional payment is made to a hospital paid under either the fully 
prospective payment methodology or the hold-harmless payment 
methodology as determined under paragraph (c) of this section for cost 
reporting periods beginning on or after October 1, 1991 and before 
October 1, 2001.
    (c) Minimum payment level by class of hospital. (1) HCFA 
establishes a minimum payment level by class of hospital. The minimum 
payment level for a hospital will equal a fixed percentage of the 
hospital's capital-related costs. The minimum payment levels may be no 
greater than the percentages of allowable capital-related costs that 
follow:
    (i) 90 percent for sole community hospitals.
    (ii) 80 percent for hospitals located in an urban area for purposes 
of Sec. 412.63(a) with at least 100 beds, as determined under 
Sec. 412.105(b), that have a disproportionate share patient percentage 
of at least 20.2 percent as determined under Sec. 412.106(b), and for 
hospitals located in an urban area for purposes of Sec. 412.63(a) with 
at least 100 beds that qualify for disproportionate share payments 
under Sec. 412.106(c)(2).
    (iii) 70 percent for all other hospitals.
    (2) HCFA will issue the minimum payment levels for each class of 
hospital in determining the additional exception payment in the annual 
notice of capital prospective payment rates, published in accordance 
with Sec. 412.8(b).
    (d) Additional payments. A hospital is entitled to an additional 
payment if its capital payments for the cost reporting period would 
otherwise be less than the applicable minimum payment level. The 
additional payment equals the difference between the applicable minimum 
payment level and the capital payments that the hospital would 
otherwise receive minus any offset amount determined under paragraph 
(e)(2) of this section.
    (e) Determining a hospital's exception payment amount--(1) 
Cumulative comparison. For each cost reporting period beginning before 
October 1, 2001, the hospital's exception payment is determined by 
comparing the cumulative payments made to the hospital under the 
capital prospective payment system to the cumulative minimum payment 
levels applicable to the hospital for each cost reporting period 
subject to the prospective payment system.
    (2) Offsetting amounts. Any amount by which the hospital's 
cumulative payments exceed its cumulative minimum payment levels is 
deducted from the additional payment that would otherwise be payable 
for a cost reporting period.
    (f) Additional payment exception for extraordinary circumstances. 
(1) A hospital may request an additional payment if the hospital incurs 
unanticipated capital expenditures in excess of $5 million (net of 
proceeds from other payment sources such as insurance, litigation 
decisions and other State, local or Federal government funding 
programs) due to extraordinary circumstances beyond the hospital's 
control. Extraordinary circumstances include, but are not limited to, a 
flood, fire, or earthquake.
    (2) A hospital must apply to its HCFA Regional Office by the later 
of October 1, 1992 or 180 days after the extraordinary circumstance 
causing the unanticipated expenditures for a determination by HCFA of 
whether the hospital is eligible for an additional payment based on the 
nature of the circumstances and the amount of financial loss documented 
by the hospital.
    (3) Except for sole community hospitals, the additional payment is 
based on a minimum payment amount of 85 percent for Medicare's share of 
allowable capital-related costs attributable to the extraordinary 
circumstances. For sole community hospitals, the minimum payment amount 
is 100 percent.
    (4) The minimum payment level applicable under paragraph (c)(1) of 
this section is adjusted to take into account the 85 percent minimum 
payment level (100 percent for sole community hospitals) under 
paragraph (f)(3) of this section for the unanticipated capital-related 
costs. The additional payment for the cost reporting period equals the 
difference between the adjusted minimum payment level and the capital 
payments the hospital would otherwise receive less any offset amount 
determined under paragraph (e)(2) of this section.
    (g) Special exceptions process. For eligible hospitals that meet a 
project need requirement, a project size requirement, and, in the case 
of certain urban hospitals, meet an excess capacity test, an additional 
payment may be made for up to 10 years beyond the end of the capital 
prospective payment system transition period.
    (1) Eligible hospitals. The following classes of hospitals are 
eligible to receive exceptions payments under this special exceptions 
provision:
    (i) Sole community hospitals.
    (ii) Hospitals located in an urban area under Sec. 412.63(a) with 
at least 100 beds, as determined under Sec. 412.105(b), that either 
have a disproportionate share of at least 20.2 percent as determined 
under Sec. 412.106(b) or qualify for disproportionate share payments 
under Sec. 412.106(c)(2).
    (iii) Hospitals with a combined inpatient Medicare and Medicaid 
utilization of at least 70 percent.
    (2) Project need requirement. A hospital must show that it has 
obtained any required approval from a State or local planning 
authority. If a hospital is not required to obtain approval from a 
planning authority, it must satisfy the age of asset test specified in 
paragraph (g)(3) of this section and, in the case of an urban hospital, 
the excess capacity test under paragraph (g)(4) of this section.
    (3) Age of assets test. A hospital must show that its average age 
of fixed assets is at or above the 75th percentile for the hospital's 
first cost reporting period beginning on or after October 1, 1991.
    (4) Excess capacity test for urban hospitals. Urban hospitals that 
are not required to receive approval from a State or local planning 
authority must demonstrate that either--
    (i) The overall average occupancy rate in its metropolitan 
statistical area is at least 80 percent; or
    (ii) After completion of the project, its capacity is no more than 
80 percent of its prior capacity (in terms of bed size).
    (5) Project size requirement. A hospital must complete, during the 
period from the beginning of its first cost reporting period beginning 
on or after October 1, 1991 to the end of its last cost reporting 
period beginning before October 1, 2001, a project whose costs for 
replacement and/or renovation of fixed assets related to patient care 
are at least:
    (i) $200 million; or
    (ii) 100 percent of its operating cost during the first 12 month 
cost reporting period beginning on or after October 1, 1991.
    (6) Minimum payment level. The minimum payment level for qualifying 
hospitals will be 70 percent.
    (7) Limitation on the period for exception payments. A qualifying 
hospital may receive an exceptions payment for up to 10 years from the 
year in which it completes a project for replacement or renovation of 
capital assets that meets project need and project size requirements 
(and, if applicable, excess capacity test), provided that it completes 
the project no later than the end of the hospital's last cost reporting 
period beginning before October 1, 2001. A project is considered to be 
completed when the assets are put into use for patient care.
    (8) Determining a hospital's exception payment amount--(i) 
Cumulative comparison. For each cost reporting period, the hospital's 
exception payment is determined by comparing the cumulative payments 
made to the hospital under the capital prospective payment system to 
the cumulative minimum payment levels applicable to the hospital for 
each cost reporting period subject to the prospective payment system.
    (ii) Offsetting amounts. Offsetting amounts are applied in the 
following order--(A) Any amount by which the hospital's cumulative 
payments exceed its cumulative minimum payment levels is deducted from 
the additional payment that would otherwise be payable for a cost 
reporting period.
    (B) Any amount by which the hospital's current year Medicare 
inpatient operating and capital prospective payment system payments 
(excluding, if applicable, 75 percent of the hospital's operating 
prospective payment system disproportionate share payments) exceed its 
Medicare inpatient operating and capital costs is deducted from the 
additional payment that would otherwise be payable for the cost 
reporting period. For purposes of calculating the offset, the costs and 
payments for services that are not subject to the hospital inpatient 
prospective payment system are excluded.
    (h) Limit on exception payments. Total estimated payments under the 
exception process may not exceed 10 percent of the total estimated 
capital prospective payments (exclusive of hold-harmless payments for 
old capital) for the same fiscal year.


Secs. 412.20, 412.22, 412.25, 412.27, 412.29, 412.30, 412.96, 412.105, 
412.108, 412.116 and 412.130  [Amended]

    21. In part 412, remove the words ``distinct part'', wherever they 
appear, in the following places:
    a. Section 412.20(b)(1);
    b. Section 412.22(b);
    c. Section heading of Sec. 412.25;
    d. Section 412.25(a) introductory text;
    e. Section 412.27, the introductory text for the section;
    f. Section 412.29, the introductory text for the section;
    g. Section heading of Sec. 412.30;
    h. Section 412.96(c)(1) introductory text and (c)(2)(i) 
introductory text;
    i. Section 412.105(b), (f)(5) and (g)(1)(iii);
    j. Section 412.108(a)(2);
    k. Section 412.116(a) and (b)(1) introductory text;
    l. Section heading of Sec. 412.130; and
    m. Section 412.130(a)(2) and (a)(3).
    B. Part 413 is amended as follows:

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR 
END-STAGE RENAL DISEASE SERVICES

    1. The authority citation for part 413 continues to read as 
follows:

    Authority: Secs. 1102, 1814(b), 1815, 1833 (a), (i), and (n), 
1861(v), 1871, 1881, 1883, and 1886 of the Social Security Act (42 
U.S.C. 1302, 1395f(b), 1395g, 1395l (a), (i), and (n), 1395x(v), 
1395hh, 1395rr, 1395tt, and 1395ww); sec. 104(c) of Public Law 100-
360 as amended by sec. 608(d)(3) of Public Law 100-485 (42 U.S.C. 
1395ww (note)) and sec. 101(c) of Public Law 101-234 (42 U.S.C. 
1395ww (note)).

Subpart C--Limits on Cost Reimbursement


Sec. 413.40  [Amended]

    2. In paragraphs (a)(2)(ii), (b)(1)(i) through (b)(1)(iii) and 
(f)(2) of Sec. 413.40, remove the words ``(distinct parts)'' and 
``distinct part'', wherever they appear.

Subpart D--Apportionment

    3. In Sec. 413.53, paragraph (a)(1)(i) is revised to read as 
follows:


Sec. 413.53  Determination of cost of services to beneficiaries.

    (a) * * *
    (1) Departmental method--(i) Methodology. Except as provided in 
paragraph (a)(1)(ii) of this section with respect to the treatment of 
the private room cost differential for cost reporting periods starting 
on or after October 1, 1982, the ratio of beneficiary charges to total 
patient charges for the services of each ancillary department is 
applied to the cost of the department; to this is added the cost of 
routine services for program beneficiaries, determined on the basis of 
a separate average cost per diem for general routine patient care areas 
as defined in paragraph (b) of this section, taking into account, in 
hospitals, a separate average cost per diem for each intensive care 
unit, coronary care unit, and other intensive care type inpatient 
hospital units.
* * * * *


Sec. 413.56  [Removed and Reserved]

    4. Section 413.56 is removed and reserved.

Subpart F--Specific Categories of Costs

    5. Section 413.86 is amended as follows:
    a. In paragraph (f)(1)(ii), the third sentence is revised.
    b. In paragraph (g)(1) introductory text, a new sentence is added 
after the second sentence.
    The revision and addition are to read as follows:


Sec. 413.86  Direct graduate medical education payments.

* * * * *
    (f) * * *
    (1) * * *
    (ii) * * * A part-time resident counts as a partial FTE based on 
the proportion of allowable time worked compared to the total time 
necessary to fill a full-time internship or residency slot.
* * * * *
    (g) * * *
    (1) * * * Effective July 1, 1995, an initial residency period is 
defined as the minimum number of years required for board eligibility. 
* * *
* * * * *

Subpart G--Capital-Related Costs

    6. Section 413.134 is amended as follows:
    a. In paragraph (d)(1), the phrase ``where permitted under 
Sec. 413.134(a)(3),'' is revised to read ``when permitted under 
paragraph (a)(3) of this section,''.
    b. Paragraphs (e)(1) and (e)(2)(ii) are revised, and paragraphs 
(e)(2)(iii), (e)(2)(iv) and (e)(4) are added.
    The revisions and additions are to read as follows:


Sec. 413.134  Depreciation: Allowance for depreciation based on asset 
costs.

* * * * *
    (e) * * *
    (1) Incentive. As an incentive for funding, investment income on 
funded depreciation is not treated as a reduction of allowable interest 
expense provided such investment income is deposited in, and becomes 
part of, the funded depreciation account at the time of receipt by the 
provider. Investment income earned on deposits before the 6-month 
period elapses are not offset unless the deposits are withdrawn for an 
improper purpose during this period. If a provider transfers assets of 
the funded depreciation account to a related organization (for example, 
pooling of several chain organization providers' funded depreciation 
accounts at the chain home office for investment purposes), these 
assets shall be treated as the provider's funds and are subject to all 
the requirements specified in paragraph (e) of this section.
    (2) * * *
    (ii) Borrowing for a purpose for which funded depreciation account 
funds should have been used makes the borrowing unnecessary to the 
extent that funded depreciation account funds were available at the 
time of the borrowing. Available funds in the funded depreciation 
account, to the extent of the unnecessary borrowing, are called 
``tainted'' funds. Interest expense incurred on borrowing for a capital 
purpose is not an allowable cost to the extent that funded depreciation 
account funds were available at the time of the borrowing.
    (iii) A provider can remove the ``unnecessary'' characterization of 
borrowing, and thereby cure tainted funded depreciation, by using the 
tainted funds for a proper purpose described in paragraph (e)(3)(i) of 
this section. However, any funded depreciation that existed at the time 
of the unnecessary borrowing and is not classified as tainted must be 
used before any of the tainted funds.
    (iv) When only a portion of the borrowing is considered unnecessary 
under paragraph (e)(2)(ii) of this section, subsequent repayments of 
such borrowing from general funds are applied first to the allowable 
portion of the borrowing and then, when all of the allowable borrowing 
is repaid, to the unallowable portion of the borrowing. When funds from 
the funded depreciation account are used for the repayment of the 
unnecessary borrowing, an equivalent amount of tainted funds is cured 
without regard to the provisions of paragraphs (e)(2)(ii) and 
(e)(3)(i)(C) of this section. Similarly, where general funds are used 
to pay for the unallowable borrowing after the necessary borrowing has 
been repaid, an equivalent amount of tainted funded depreciation is 
cured without regard to the provisions of paragraphs (e)(2)(ii) and 
(e)(3)(i)(C) of this section.
* * * * *
    (4) Loans from funded depreciation. (i) When the general fund of 
the provider borrows from the funded depreciation to obtain working 
capital for normal operating expenses to furnish patient care, interest 
incurred by the general fund is an allowable operating cost only if the 
interest expense is supported by documents that evidence that the funds 
were borrowed and that payment of interest and repayment of the funds 
are required, is separately identified in the provider's accounting 
records, and meets the necessary and proper tests described in 
Secs. 413.153(b)(2) and (b)(3). However, if the general fund of the 
provider borrows from the funded depreciation account to acquire 
depreciable assets used in furnishing patient care, or for other 
capital purposes related to patient care, interest expense paid by the 
general fund to the funded depreciation account is not an allowable 
cost. Providers are expected to use the funded depreciation for these 
purposes.
    (ii) Loans from funded depreciation to the general fund are 
considered investments of funded depreciation, but do not have to meet 
the readily marketable test described in paragraph (e) of this section. 
Loans made from funded depreciation are subject to the requirement that 
funded depreciation must be available for the acquisition of 
depreciable assets used to furnish patient care, or for other capital 
purposes related to patient care. Costs incurred to secure lines of 
credit from lending institutions to ensure such availability are not 
allowable costs.
    (iii) Funding of depreciation from general funds will not be 
recognized to the extent of any outstanding loans from the funded 
depreciation account to the general fund. Deposits from the general 
fund into the funded depreciation account must be first applied to 
reduce any loans outstanding from the funded depreciation to the 
general fund. When the loans are repaid in full, general funds 
deposited in the funded depreciation account are considered as 
repayments of the general fund. Therefore, any subsequent interest 
expense of the general fund paid to the funded depreciation fund is not 
an allowable cost.
    (iv) A provider may loan its funded depreciation to a related 
organization for any purpose subject to the following conditions:
    (A) Authorization for such a loan by the provider's appropriate 
managing body of the provider, such as Board of Trustees or Board of 
Directors, must be on file.
    (B) The funded depreciation loaned must remain available, as 
specified in paragraph (e)(2) of this section, to the provider making 
the loan. Costs incurred for lines of credit to assure such 
availability are not allowable costs. During the period of time that 
the loan is outstanding, if the provider making the loan resorts to 
outside borrowing for a purpose for which its funded depreciation 
should have been used, interest expense on an amount of the outside 
borrowing up to the amount of the funded depreciation that should have 
been available would be disallowed as unnecessary.
    (C) Such loans shall be considered investments of the provider's 
funded depreciation, but the requirement that funded depreciation be 
invested in readily marketable investments as required in paragraph (e) 
of this section is waived for such loans.
    (D) The funded depreciation account must earn interest on such 
loans at a rate that does not exceed the rate that would be charged for 
a comparable loan from an independent lending institution. This 
investment income will not be used to reduce the provider's interest 
expense if all the other conditions in paragraph (e) of this section 
are met. If the entity borrowing the funds is another provider 
participating in the Medicare program, the interest expense incurred on 
such loans would be allowable if the loan meets all of the interest 
expense requirements specified in Sec. 413.153. (For purposes of 
Sec. 413.153(b)(3)(ii), such loans are not considered to be with a 
related lender.)
* * * * *
    7. In Sec. 413.153, paragraph (d)(2) is revised and a new paragraph 
(d)(3) is added to read as follows:


Sec. 413.153  Interest expense.

* * * * *
    (d) * * *
    (2) In determining whether a loan was made for the purpose of 
acquiring a facility, we apply any owner's investment or funds first to 
the tangible assets, then to the intangible assets other than goodwill, 
and lastly to the goodwill. If the owner's investment or funds are not 
sufficient to cover the cost allowed for tangible assets, we apply 
funds borrowed to finance the acquisition to the portion of the allowed 
cost of the tangible assets not covered by the owner's investment, then 
to the intangible assets other than goodwill, and lastly to the 
goodwill. Repayments of the funds borrowed are applied first to the 
borrowing related to the tangible assets, then to the borrowing related 
to the intangible assets other than goodwill, and lastly to the 
borrowing related to the goodwill.
    (3) When a provider borrows funds, but only some of the funds are 
necessary, repayments of the loan (principal and interest portions) are 
applied first to pay for the necessary portion of the loan. Only after 
all of the necessary portion of the loan (principal and interest) has 
been repaid are any repayments applied to the unnecessary portion of 
the loan. Repayments toward non-allowable borrowing pertaining to 
assets or activities not related to patient care are considered 
investments, and the provisions of paragraph (b)(2)(iii) of this 
section are applied.
* * * * *

Subpart H--Payment for End-Stage Renal Disease (ESRD) Services

    8. In Sec. 413.174, paragraph (b)(4)(iv) is revised to read as 
follows:


Sec. 413.174  Recordkeeping and cost reporting requirements for 
outpatient maintenance dialysis.

* * * * *
    (b) * * *
    (4) * * *
    (iv) Sections 413.64, Payments to providers, and Secs. 413.13, 
413.30, 413.35, 413.40, 413.74, and Secs. 405.465 through 405.482 of 
this chapter, Principles of reimbursement for services by hospital-
based physicians.
    C. Part 466 is amended as follows:

PART 466--UTILIZATION AND QUALITY CONTROL REVIEW

    1. The authority citation for part 466 continues to read as 
follows:

    Authority: Secs. 1102, 1154, 1159, 1866, and 1871 of the Social 
Security Act (42 U.S.C. 1302, 1320c-3, 1320c-8, 1395cc, and 1395hh).

Subpart C--Review Responsibilities of Utilization and Quality 
Control Peer Review Organizations (PROs)

    2. In Sec. 466.71, paragraph (c)(2) is revised to read as follows:


Sec. 466.71  PRO review requirements.

* * * * *
    (c) * * *
    (2) As directed by HCFA, the PRO must review changes in DRG 
assignment made by the intermediary under the provisions of 
Sec. 412.60(d) that result in the assignment of a higher-weighted DRG. 
The PRO's review must verify that the diagnostic and procedural 
information supplied by the hospital is substantiated by the 
information in the medical record.
* * * * *
    3. In Sec. 466.78, paragraph (a) is revised to read as follows:


Sec. 466.78  Responsibilities of health care facilities.

    (a) Every hospital seeking payment for services furnished to 
Medicare beneficiaries must maintain a written agreement with a PRO 
operating in the area in which the hospital is located. These 
agreements must provide for the PRO review specified in Sec. 466.71.
* * * * *
    D. Part 482 is amended as follows:

PART 482--CONDITIONS OF PARTICIPATION FOR HOSPITALS

    1. The authority citation for part 482 continues to read as 
follows:

    Authority: Secs. 1102, 1136, 1138, 1814(a)(6), 1861 (e), (f), 
(r), (v)(1)(G), (z), and (ee), 1864, 1871, 1883, 1886, 1902(a)(30), 
and 1905(a) of the Social Security Act (42 U.S.C. 1302, 1320b-6, 
1338, 1395f(a)(6), 1395x (e), (f), (k), (r), (v)(1)(G), (z), and 
(ee), 1395aa, 1395hh, 1395tt, 1395ww, 1396a(a)(30), and 1396(a)).

Subpart E--Requirements for Specialty Hospitals

    2. In paragraph (a)(7)(i) of Sec. 482.66, the second sentence is 
revised to read as follows:


Sec. 482.66  Special requirements for hospital providers of long-term 
care services (``swing-beds'').

    (a) * * *
    (7) * * *
    (i) * * * Also excluded from the bed count are beds in separately 
certified ``distinct part'' SNFs and NFs and beds in a psychiatric or 
rehabilitation unit that is excluded from the prospective payment 
system.
* * * * *
    E. Part 485 is amended as follows:

PART 485--CONDITIONS OF PARTICIPATION AND CONDITIONS FOR COVERAGE: 
SPECIALIZED PROVIDERS

    1. The authority citation for part 485 continues to read as 
follows:

    Authority: Secs. 1102, 1124, 1138, 1820, 1861(aa), and (cc) and 
1871 of the Social Security Act; (42 U.S.C. 1302, 1320a-3, 1320b-8, 
1395i-4, 1395x(aa) and (cc) and 1395hh); and sec. 353 of the Public 
Health Service Act (42 U.S.C. 263a).

Subpart F--Conditions of Participation: Rural Primary Care 
Hospitals (RPCHs)

    2. Section 485.602 is revised to read as follows:


Sec. 485.602  Definitions.

    As used in this subpart, unless the context indicates otherwise:
    Direct services means services provided by employed staff of the 
RPCH, not services provided through arrangements or agreements.
    3. In Sec. 485.635, paragraph (b) is revised to read as follows:


Sec. 485.635  Condition of participation: Provision of services.

* * * * *
    (b) Standard: Direct services--(1) General. The RPCH staff 
furnishes, as direct services, those diagnostic and therapeutic 
services and supplies that are commonly furnished in a physician's 
office or at another entry point into the health care delivery system, 
such as a low intensity hospital outpatient department or emergency 
department. These direct services include medical history, physical 
examination, specimen collection, assessment of health status, and 
treatment for a variety of medical conditions.
    (2) Laboratory services. The RPCH provides, as direct services, 
basic laboratory services essential to the immediate diagnosis and 
treatment of the patient that meet the standards imposed under section 
353 of the Public Health Service Act (42 U.S.C. 236a). (See the 
laboratory requirements specified in part 493 of this chapter.) The 
services provided include:
    (i) Chemical examination of urine by stick or tablet method or both 
(including urine ketones);
    (ii) Hemoglobin or hematocrit;
    (iii) Blood glucose:
    (iv) Examination of stool specimens for occult blood;
    (v) Pregnancy tests; and
    (vi) Primary culturing for transmittal to a certified laboratory.
    (3) Radiology services. Radiology services furnished at the RPCH 
are provided as direct services by staff qualified under State law, and 
do not expose RPCH patients or staff to radiation hazards.
    (4) Emergency procedures. In accordance with the requirements of 
Sec. 485.618, the RPCH provides as direct services medical emergency 
procedures as a first response to common life-threatening injuries and 
acute illness.
* * * * *
    F. Part 489 is amended as follows:

PART 489--PROVIDER AND SUPPLIER AGREEMENTS

    1. The authority citation for part 489 continues to read as 
follows:

    Authority: Secs. 1102, 1861, 1864, 1866, and 1871 of the Social 
Security Act (42 U.S.C. 1302, 1395x, 1395aa, 1395cc, and 1395hh).

Subpart I--Advance Directives

    2. In Sec. 489.102, paragraph (a) introductory text is revised to 
read as follows:


Sec. 489.102  Requirements for providers.

    (a) Hospitals, rural primary care hospitals, skilled nursing 
facilities, nursing facilities, home health agencies, providers of home 
health care (and for Medicaid purposes, providers of personal care 
services), and hospices must maintain written policies and procedures 
concerning advance directives with respect to all adult individuals 
receiving medical care by or through the provider and are required to:
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: August 23, 1994.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.

    Dated: August 25, 1994.
Donna E. Shalala,
Secretary.

    [Editorial Note: The following addendum and appendixes will not 
appear in the Code of Federal Regulations.]

Addendum--Schedule of Standardized Amounts Effective with Discharges On 
or After October 1, 1994 and Update Factors and Rate-of-Increase 
Percentages Effective With Cost Reporting Periods Beginning On or After 
October 1, 1994

I. Summary and Background

    In this addendum, we are setting forth the amounts and factors for 
determining prospective payment rates for Medicare inpatient operating 
costs and Medicare inpatient capital-related costs. We are also setting 
forth new rate-of-increase percentages for updating the target amounts 
for hospitals and hospital units excluded from the prospective payment 
system.
    For discharges occurring on or after October 1, 1994, except for 
sole community hospitals, hospitals located in Puerto Rico, and 
hospitals subject to the regional floor, each hospital's payment per 
discharge under the prospective payment system is based on 100 percent 
of the Federal national rate.
    Sole community hospitals are paid based on whichever of the 
following rates yields the greatest aggregate payment: the Federal 
national rate, the updated hospital-specific rate based on FY 1982 cost 
per discharge, or the updated hospital-specific rate based on FY 1987 
cost per discharge. Hospitals in Puerto Rico are paid on the basis of a 
rate per discharge comprised of 75 percent of a Puerto Rico rate and 25 
percent of a national rate (section 1886(d)(9)(A) of the Act). 
Hospitals affected by the regional floor are paid on the basis of 85 
percent of the Federal national rate and 15 percent of the Federal 
regional rate.
    As discussed below in section II, we are making changes in the 
determination of the prospective payment rates for Medicare inpatient 
operating costs. The changes, to be applied prospectively, will affect 
the calculation of the Federal rates. In section III we discuss changes 
we are making in the determination of the prospective payment rates for 
Medicare inpatient capital-related costs. Section IV sets forth our 
changes for determining the rate-of-increase limits for hospitals 
excluded from the prospective payment system. The tables to which we 
refer in the preamble to the final rule are presented at the end of 
this addendum in section V.

II. Changes to Prospective Payment Rates For Inpatient Operating Costs 
for FY 1995

    The basic methodology for determining prospective payment rates for 
inpatient operating costs is set forth at Sec. 412.63 for hospitals 
located outside of Puerto Rico. The basic methodology for determining 
the prospective payment rates for inpatient operating costs for 
hospitals located in Puerto Rico is set forth at Secs. 412.210 and 
412.212. The Federal and Puerto Rico rate changes will be effective 
with discharges occurring on or after October 1, 1994. Below, we 
discuss the manner in which we are changing some of the factors used 
for determining the prospective payment rates.
    As discussed in section IV.C of this final rule, section 
1886(d)(3)(A)(iii) specifies that for discharges occurring in the 
fiscal year beginning October 1, 1994, the average standardized amount 
for hospitals located in a rural area shall be equal to the average 
standardized amount for hospitals located in any other urban area. 
Pursuant to section 1886(b)(3)(B)(i)(X) of the Act, we will update the 
rural standardized amount by the amount necessary to equate the rural 
standardized amount with the other urban standardized amount. Since 
there will no longer be separate other urban and rural standardized 
amounts we will refer to the other urban and rural standardized amounts 
that will be effective beginning with FY 1995 as the ``other 
standardized amount.'' As required by section 1886(d)(4)(C) of the Act, 
we must adjust the DRG classifications and relative weights for 
discharges in FY 1995.
    In summary, the standardized amounts set forth in Tables 1a, 1b, 
and 1c of section V of this addendum reflect
     Updates of 1.1 percent for large urban and other urban 
hospitals (that is, the market basket percentage increase of 3.6 
percent minus 2.5 percentage points) and an update for rural hospitals 
of approximately 8.4 percent (that is, the amount required to equate 
the rural standardized amount with the other urban standardized 
amount);
     Revised labor and nonlabor shares of the national average 
standardized amounts to reflect the national average labor portion of 
the standardized amounts for urban and rural hospitals (the revised 
labor and nonlabor shares of the Puerto Rico standardized amounts 
reflect the Puerto Rico average labor portion of the standardized 
amounts for urban and rural hospitals);
     An adjustment to ensure budget neutrality as provided for 
in sections 1886(d)(4)(C)(iii) and (d)(3)(E) of the Act by applying new 
budget neutrality adjustment factors to the urban and other 
standardized amounts;
     An adjustment to ensure budget neutrality as provided for 
in section 1886(d)(8)(D) of the Act by removing the FY 1994 budget 
neutrality factor and applying a revised factor; and
     An adjustment to apply the revised outlier offset by 
removing the FY 1994 outlier offsets and applying a new offset.
A. Calculation of Adjusted Standardized Amounts
    1. Standardization of Base-Year Costs or Target Amounts. Section 
1886(d)(2)(A) of the Act required the establishment of base-year cost 
data containing allowable operating costs per discharge of inpatient 
hospital services for each hospital. The preamble to the September 1, 
1983 interim final rule (48 FR 39763) contains a detailed explanation 
of how base-year cost data were established in the initial development 
of standardized amounts for the prospective payment system and how they 
are used in computing the Federal rates.
    Section 1886(d)(9)(B)(i) of the Act required that Medicare target 
amounts be determined for each hospital located in Puerto Rico for its 
cost reporting period beginning in FY 1987. The September 1, 1987 final 
rule contains a detailed explanation of how the target amounts were 
determined and how they are used in computing the Puerto Rico rates (52 
FR 33043, 33066).
    The standardized amounts are based on per discharge averages of 
adjusted hospital costs from a base period or, for Puerto Rico, 
adjusted target amounts from a base period, updated and otherwise 
adjusted in accordance with the provisions of section 1886(d) of the 
Act. Sections 1886(d)(2)(C) and (d)(9)(B)(ii) of the Act required that 
the updated base-year per discharge costs and, for Puerto Rico, the 
updated target amounts, respectively, be standardized in order to 
remove from the cost data the effects of certain sources of variation 
in cost among hospitals. These include case mix, differences in area 
wage levels, cost of living adjustments for Alaska and Hawaii, indirect 
medical education costs, and payments to hospitals serving a 
disproportionate share of low-income patients.
    Since the standardized amounts have already been adjusted for 
differences in case mix, wages, cost-of-living, indirect medical 
education costs, and payments to hospitals serving a disproportionate 
share of low-income patients, no additional adjustments for these 
factors for FY 1995 were made. That is, the standardization adjustments 
reflected in the FY 1995 standardized amounts are the same as those 
reflected in the FY 1994 standardized amounts. Sections 1886(d)(2)(H) 
and (d)(3)(E) of the Act require that, in making payments under the 
prospective payment system, the Secretary adjust the proportion of 
payments that are wage-related (as estimated by the Secretary from time 
to time). Beginning with October 1, 1990, when the market basket was 
rebased, we have considered 71.40 percent of costs to be labor-related 
for purposes of the prospective payment system.
    2. Computing Urban and Other Averages Within Geographic Areas. 
Beginning in FY 1995, section 1886(d)(3) of the Act requires the 
Secretary to compute two average standardized amounts for discharges 
occurring in a fiscal year: one for hospitals located in large urban 
areas; and one for hospitals located in other areas. In addition, under 
section 1886(d)(9)(B)(iii) of the Act, the average standardized amount 
per discharge must be determined for hospitals located in large urban 
and other areas in Puerto Rico. Hospitals in Puerto Rico are paid a 
blend of 75 percent of the applicable Puerto Rico standardized amount 
and 25 percent of a national standardized payment amount.
    Section 1886(d)(2)(D) of the Act defines a ``large urban area'' as 
an urban area with a population of more than 1,000,000. In addition, 
section 4009(i) of Public Law 100-203 provides that a New England 
County Metropolitan Area (NECMA) with a population of more than 970,000 
is classified as a large urban area. As required by section 
1886(d)(2)(D) of the Act, population size is determined by the 
Secretary based on the latest population data published by the Bureau 
of the Census. Urban areas that do not meet the definition of a ``large 
urban area'' are referred to as ``other urban areas.'' Areas that are 
not included in MSAs are considered ``rural areas'' under section 
1886(d)(2)(D). Payment for discharges from hospitals located in large 
urban areas will be based on the large urban standardized amount. 
Payment for discharges from hospitals located in other urban and rural 
areas will be based on the other standardized amount.
    Based on 1992 population estimates published by the Bureau of the 
Census, 56 large urban areas meet the criteria to be defined as large 
urban areas for FY 1995. Since the publication of the proposed rule, 
the Bureau of the Census has published revised population estimates so 
that the Monmouth Ocean, NJ, MSA now meets the definition of a large 
urban area. Large urban areas are identified by an asterisk in Table 
4a.
    Table 1a contains the two national standardized amounts that are 
applicable to most hospitals. Table 1b sets forth the 18 regional 
standardized amounts that continue to be applicable for hospitals 
located in census areas subject to the regional floor. Under section 
1886(d)(9)(A)(ii) of the Act, the national standardized payment amount 
applicable to hospitals in Puerto Rico consists of the discharge-
weighted average of the national large urban standardized amount, and 
the national other urban standardized amount (as set forth in Table 
1a). The national average standardized amount for Puerto Rico is set 
forth in Table 1c. This table also includes the two standardized 
amounts that are applicable to most hospitals in Puerto Rico.
    We note that on July 5, 1994, the Office of Management and Budget 
announced the designation of Hattiesburg, Mississippi as a Metropolitan 
Statistical Area (MSA).
    3. Updating the Average Standardized Amounts. In accordance with 
section 1886(d)(3)(A) of the Act, we are updating the large urban, 
other urban, and rural average standardized amounts for FY 1995 using 
the applicable percentage increases specified in section 
1886(b)(3)(B)(i) of the Act. As explained earlier, there are currently 
separate large urban, other urban and rural standardized payment 
amounts. Section 1886(b)(3)(B)(i)(X) of the Act (as amended by section 
13501(a) of Pub. L. 103-66) specifies the following update factors for 
the standardized amounts for FY 1995:
     For hospitals located in large urban and other urban 
areas, the market basket percentage increase minus 2.5 percentage 
points.
     For hospitals located in rural areas, the market basket 
percentage increase plus the amount necessary to make the rural 
standardized amount equal the standardized amount for other urban 
areas.
    The percentage change in the market basket reflects the average 
change in the price of goods and services purchased by hospitals to 
furnish inpatient care. The most recent forecasted hospital market 
basket increase for FY 1995 is 3.6 percent. For FY 1995, this yields an 
update to the urban average standardized amounts of 1.1 percent (3.6 
percent minus 2.5 percent). To satisfy the requirement of section 
1886(b)(3)(i)(X) of the Act that the update for hospitals located in a 
rural area be equal to that for hospitals located in an other urban 
area beginning in FY 1995, we estimate that an overall update of the 
market basket rate of increase (that is, 3.6 percent) plus 
approximately 4.8 percentage points will be necessary. Thus, we are 
establishing an update to the rural average standardized amount for FY 
1995 of 8.4 percent.
    We are adjusting the FY 1994 standardized amounts to remove the 
effects of the FY 1994 geographic reclassifications and outlier 
payments before applying the FY 1995 updates. That is, we are 
increasing the standardized amounts to restore the reductions that were 
made for the effects of geographic reclassification and outliers. As 
these reductions were larger for urban than rural hospitals, restoring 
the reductions results in a larger increase in the urban standardized 
amounts than the rural standardized amounts. After applying an update 
of 1.1 percent to the adjusted urban standardized amount, we estimate 
that an overall update of 7.3 percent is required to equate the rural 
and other urban standardized amounts.
    However, the estimated actual increase in the standardized amounts 
for rural hospitals will be less because we also have to reduce the 
standardized amounts for the effects of geographic reclassification and 
outliers. For FY 1995, there will be a single reduction to the 
standardized amounts for each of these factors, rather than separate 
adjustments to the urban and rural standardized amounts based on the 
effect of geographic reclassification and outliers in each respective 
area. For instance, in FY 1994, we reduced the urban standardized 
amounts by 5.4 percent and the rural standardized amounts by 2.3 
percent to account for outliers in each respective area. For FY 1995, 
we will apply one adjustment for the effect of outliers--a single 
reduction in the standardized amounts of 5.1 percent. Similarly, there 
were separate reductions to the standardized amounts in FY 1994 for the 
effects of geographic reclassification of 0.7 percent for urban 
hospitals and 0.1 percent for rural hospitals. Our FY 1995 standardized 
amounts reflect a single reduction for this factor of 0.6 percent.
    With the phase-out of the separate rural standardized amount, rural 
hospitals and other urban hospitals will be paid based on the same 
standardized amount. Since Congress has mandated the elimination of 
separate payment rates based on whether a hospital is located in an 
urban or rural area, we believe it is appropriate to revise the 
national average standardized amounts based on national average labor/
nonlabor shares. As explained in the proposed rule, we are adjusting 
the labor and nonlabor proportions of the standardized amount to 
reflect the national average. (We are revising the Puerto Rico 
standardized amounts by the average labor share in Puerto Rico of 82.7 
percent.) We are therefore adjusting the labor/nonlabor proportions of 
the standardized amounts that will be applicable to both rural and 
urban hospitals based on the national average. As a result, the 
national average labor share (as reflected in the hospital market 
basket) will equal 71.4 percent of the standardized payment amounts.
    Although the update factor for FY 1995 is set by law, we were 
required by section 1886(e)(3)(B) of the Act to report to Congress no 
later than March 1, 1994 on our initial recommendation of update 
factors for FY 1995 for both prospective payment hospitals and 
hospitals excluded from the prospective payment system. For general 
information purposes, we published the report to Congress as Appendix C 
to the proposed rule. This recommendation was based on an earlier 
forecast of the hospital market basket increase. Our final 
recommendation on the update factors (which is required by sections 
1886(e)(4)(A) and (e)(5)(A) of the Act), is set forth as Appendix D to 
this final rule.
    4. Other Adjustments to the Average Standardized Amounts. a. 
Recalibration of DRG Weights and Updated Wage Index--Budget Neutrality 
Adjustment. Section 1886(d)(4)(C)(iii) of the Act specifies that 
beginning in FY 1991, the annual DRG reclassification and recalibration 
of the relative weights must be made in a manner that assures that 
aggregate payments to hospitals are not affected. As discussed in 
section II of the preamble, we normalized the recalibrated DRG weights 
by an adjustment factor, so that the average case weight after 
recalibration is equal to the average case weight prior to 
recalibration. While this adjustment is intended to ensure that 
recalibration does not affect total payments to hospitals, our analysis 
indicates that the normalization adjustment does not necessarily 
achieve budget neutrality with respect to aggregate payments to 
hospitals.
    Section 1886(d)(3)(E) of the Act specifies that the hospital wage 
index must be updated based on new survey data no later than October 1, 
1990 and on an annual basis beginning October 1, 1993. This provision 
also requires that any updates or adjustments to the wage index must be 
made in a manner that assures that aggregate payments to hospitals are 
not affected by the change in the wage index.
    To comply with the requirement of section 1886(d)(4)(C)(iii) of the 
Act that the DRG reclassification and recalibration of the relative 
weights be budget neutral and the requirement in section 1886(d)(3)(E) 
of the Act that the updated wage index be implemented in a budget 
neutral manner, we compared aggregate payments using the FY 1994 
relative weights and the wage index effective October 1, 1993 to 
aggregate payments using the proposed FY 1995 relative weights and wage 
index. The same methodology was used for the FY 1993 and FY 1994 budget 
neutrality adjustment. (See the discussion in the September 1, 1992 
final rule (57 FR 39832).) Based on this comparison, we computed a 
proposed budget neutrality adjustment factor equal to 0.997647. The 
final budget neutrality adjustment factor is equal to 0.998050. This 
budget neutrality adjustment factor is applied to the standardized 
amounts without removing the effects of the FY 1994 budget neutrality 
adjustment. We do not remove the prior budget neutrality adjustment 
because the statute requires that aggregate payments after the changes 
in the DRG relative weights and wage index equal estimated payments 
prior to the changes. If we removed the prior year adjustment, we would 
not satisfy this condition.
    In addition, we will continue to apply the same FY 1995 adjustment 
factor to the hospital-specific rates that are effective October 1, 
1994, in order to ensure that we meet the statutory requirement that 
aggregate payments neither increase nor decrease as a result of the 
implementation of the DRG weights and updated wage index. (See the 
discussion in the September 4, 1990 final rule (55 FR 36073).)
    b. Reclassified Hospitals--Budget Neutrality Adjustment. Section 
1886(d)(8)(B) of the Act provides that certain rural hospitals are 
deemed urban effective with discharges occurring on or after October 1, 
1988. In addition, section 1886(d)(10) of the Act provides for the 
reclassification of hospitals based on determinations by the Medicare 
Geographic Classification Review Board (MGCRB). Under section 
1886(d)(10) of the Act, a hospital may be reclassified for purposes of 
the standardized amount or the wage index, or both.
    Prior to FY 1995, section 1886(d)(8)(D) of the Act required the 
Secretary to adjust the urban standardized amounts so as to ensure that 
total aggregate payments under the prospective payment system after 
implementation of the provisions of sections 1886(d)(8)(B) and (C) and 
1886(d)(10) of the Act were equal to the aggregate prospective payments 
that would have been made absent these provisions. The rural 
standardized amounts were also adjusted to ensure that aggregate 
payments to rural hospitals not affected by these provisions neither 
increased nor decreased as a result of these provisions.
    Beginning October 1, 1994, the Secretary is required to adjust the 
standardized amounts by the same factor to account for the effects of 
reclassification. In the proposed rule, we applied an adjustment of 
0.993814 to ensure that the effects of reclassification are budget 
neutral. The final budget neutrality adjustment is 0.994055.
    The adjustment factors are applied to the standardized amounts 
after removing the effects of the FY 1994 budget neutrality adjustment 
factors. We note that the proposed FY 1995 adjustment reflected wage 
index and standardized amount reclassifications approved by the MGCRB 
or the Administrator as of March 14, 1994. The final budget neutrality 
adjustment factor reflects the effects of all reclassification 
decisions and changes in these decisions resulting from appeals and 
review of the MGCRB's decisions for FY 1995, or from a hospital's 
request for the withdrawal of a reclassification.
    c. Outliers. Section 1886(d)(5)(A) of the Act provides that, in 
addition to the basic prospective payment rates, payments must be made 
for discharges involving day outliers and may be made for cost 
outliers. Under section 1886(d)(3)(B) of the Act, the Secretary has 
been required to separately reduce the urban and rural standardized 
amounts by the proportion of estimated total DRG payments attributable 
to outliers in each respective area. Beginning with FY 1995, section 
1886(d)(3)(B) requires the Secretary to adjust both the large urban and 
other standardized amounts by the same factor to account for the 
estimated proportion of total DRG payments made to outlier cases. 
Section 1886(d)(9)(B)(iv) of the Act requires that the urban and other 
standardized amounts applicable to hospitals in Puerto Rico be reduced 
by the proportion of estimated total DRG payments attributable to 
estimated outlier payments. Furthermore, section 1886(d)(5)(A)(iv) of 
the Act directs that outlier payments in any year ``may not be less 
than 5 percent nor more than 6 percent of total payments projected or 
estimated to be made'' based on the prospective payment rates.
    Section 13501(c) of the Omnibus Budget Reconciliation Act of 1993 
(Public Law 103-66) amended section 1886(d)(5)(A) with respect to 
outliers beginning in FY 1995. With regard to cost outliers, section 
13501(c) of Public Law 103-66 modifies the methodology for determining 
the cost outlier threshold. For discharges occurring before October 1, 
1994, a hospital may receive payment for a cost outlier if the adjusted 
costs for a discharge exceed a fixed multiple of the DRG payment for 
the case or a fixed dollar amount. Effective for discharges occurring 
on or after October 1, 1994, a hospital may receive payment for a cost 
outlier if adjusted costs exceed the DRG prospective payment rate plus 
a fixed dollar amount. As discussed in section IV.D of the preamble, we 
refer to this revised cost outlier threshold as ``fixed loss.''
    Section 13501(c) of Public Law 103-66 also amended section 
1886(d)(5)(A) of the Act with respect to day outliers. Beginning with 
FY 1995, section 1886(d)(5)(A) requires the Secretary to reduce the 
proportion of total outlier payments paid under the day outlier 
methodology. Under the requirements of section 1886(d)(5)(A)(v), the 
proportion of outlier payments made under the day outlier methodology, 
relative to the proportion of outlier payments made under the day 
outlier methodology in FY 1994 (which we estimated at 31.3 percent in 
our September 1, 1993 final rule (58 FR 46348)), shall be 75 percent in 
FY 1995, 50 percent in FY 1996 and 25 percent in FY 1997. After 
September 30, 1997, the Secretary will no longer pay for day outliers 
under the provisions of section 1886(d)(5)(A)(i). Again, the changes 
required by section 1886(d)(5)(A) are discussed in detail in section 
IV.D of the preamble to this final rule.
    i. FY 1995 Outlier Thresholds. For FY 1994, the day outlier 
threshold is the geometric mean length of stay for each DRG plus the 
lesser of 23 days or 3.0 standard deviations. The marginal cost factor 
for day outliers (or the percent of Medicare's average per diem payment 
paid for each outlier day) is equal to 55 percent in FY 1994. The cost 
outlier threshold is the greater of 2.0 times the prospective payment 
rate for the DRG or $36,000 ($33,000 for hospitals that have not yet 
entered the prospective payment system for inpatient capital-related 
costs). The marginal cost factor for cost outliers (or the percent of 
costs paid after costs for the case exceed the threshold) is 75 
percent. We applied an outlier adjustment to the FY 1994 standardized 
amounts of 0.945960 for the urban rates, 0.977157 for the rural rates, 
and 0.9454 for the capital Federal rate.
    For FY 1995, we proposed to set the day outlier threshold at the 
geometric mean length of stay for each DRG plus the lesser of 22 days 
or 3.0 standard deviations. We also proposed to reduce the marginal 
cost factor for each outlier day from 55 percent to 49 percent in FY 
1995 in order to reduce the proportion of payments paid under the day 
outlier methodology. The thresholds that we are establishing in this 
final rule continue to be the geometric mean length of stay for each 
DRG plus the lesser of 22 days or 3.0 standard deviations. However, 
based on updated simulations we are establishing in this final rule a 
marginal cost factor for each outlier day of 47 percent in FY 1995.
    Our policy will reduce the proportion of outlier payments paid to 
day outliers as required by section 1886(d)(5)(A) of the Act. We 
proposed to establish a fixed loss cost outlier threshold in FY 1995 
equal to the prospective payment rate for the DRG plus $23,300 ($21,400 
for hospitals that have not yet entered the prospective payment system 
for capital-related costs). Additionally, we proposed to increase the 
marginal cost factor for cost outliers from 75 to 80 percent. In this 
final rule, based on updated simulations, we are establishing a fixed 
loss cost outlier threshold in FY 1995 equal to the prospective payment 
rate for the DRG plus $20,500 ($18,800 for hospitals that have not yet 
entered the prospective payment system for capital-related costs). We 
are also establishing a marginal cost factor for cost outliers of 80 
percent for FY 1995, as proposed.
    Pursuant to section 1886(d)(5)(A)(iv) of the Act, we calculated 
outlier thresholds so that estimated outlier payments equal 5.1 percent 
of estimated DRG payments.
    The model that we use to determine the outlier thresholds necessary 
to target our desired outlier payment percentage for FY 1995 uses the 
FY 1993 MedPAR file and the most recent available information on 
hospital-specific payment parameters (such as the cost-to-charge 
ratios). This information is based on the June 1994 update of the 
provider-specific file used in the PRICER program. In estimating 
payments we convert billed charges to costs for purposes of estimating 
cost outlier payments. As we explained in the September 1, 1993 final 
rule (58 FR 46347), before FY 1994, we used a charge inflation factor 
to adjust charges to costs; beginning with FY 1994, we are using a cost 
inflation factor to estimate costs. In other words, instead of 
inflating the FY 1993 charge data by a charge inflation factor for 2 
years in order to estimate FY 1995 charge data and then applying the 
cost-to-charge ratio, we adjust the charges by the cost-to-charge ratio 
and then inflate the estimated costs for 2 years of cost inflation. In 
this manner, we automatically adjust for any changes in the cost-to-
charge ratios that may occur, since the relevant variable is the costs 
estimated for a given case.
    In setting the proposed FY 1995 outlier thresholds, we used a cost 
inflation factor of 1.04735. In setting the final FY 1995 outlier 
thresholds, we used a cost inflation factor of 1.025. The difference is 
attributable to the use of the cost per case increase in PPS-9 (data 
from cost reporting periods beginning in FY 92) in setting the final FY 
95 outlier thresholds instead of the average increase in cost per case 
between PPS-7 (data from cost reporting periods beginning in FY 1990) 
and PPS-9. This modification was introduced after a preliminary review 
of the cost per case increase of 2,500 hospitals in PPS-10 (data from 
cost reporting periods beginning in FY 93). The cost per case increase 
from PPS-9 to PPS-10 was much closer to the increase from PPS-8 to PPS-
9 than from PPS-7 to PPS-9. Thus, for FY 1995, we are using a cost 
inflation factor based on the observed increase in hospital costs 
between PPS-8 and PPS-9. In the future, we still plan to use 2-year 
averages in computing the cost inflation factors, unless preliminary 
data from more recent years indicate that the 2-year average may be 
inaccurate.
    When we modeled the combined operating and capital outlier 
payments, we found that using a common set of thresholds resulted in a 
slightly higher percentage of outlier payments for capital-related 
costs than for operating costs. We estimate the final thresholds for FY 
1995 will result in outlier payments equal to 5.1 percent of operating 
DRG payments and 5.9 percent of capital payments based on the Federal 
rate.
    As stated in the September 1, 1993 final rule (58 FR 46348), we 
have established outlier thresholds that would be applicable to both 
inpatient operating costs and inpatient capital-related costs. As 
explained earlier, we are applying a reduction of approximately 5.1 
percent to the FY 1995 standardized amounts to account for the 
proportion of prospective payments made to outliers. The proposed 
outlier adjustment factors applied to the standardized amounts and the 
capital Federal rate for FY 1995 are as follows:

Operating Standardized Amount-- 0.948772
Capital Federal Rate--0.9372

    The final outlier adjustment factors applied to the standardized 
amounts and the capital Federal rate for FY 1995 are as follows:

Operating Standardized Amount--0.948940
Capital Federal Rate--0.9414

    As in the proposed rule, we will apply the outlier adjustment 
factors after removing the effects of the FY 1994 outlier adjustment 
factors on the standardized amounts and the capital Federal rate.
    ii. Other Changes Concerning Outliers. Table 5 of section V of this 
addendum contains the DRG relative weights, geometric and arithmetic 
mean lengths of stay, as well as the day outlier threshold for each 
DRG. When we recalibrate DRG weights, we set a threshold of 10 cases as 
the minimum number of cases required to compute a reasonable weight and 
geometric mean length of stay. DRGs that do not have at least 10 cases 
are considered to be low volume DRGs. For the low volume DRGs, we use 
the original geometric mean lengths of stay, because no arithmetic mean 
length of stay was calculated based on the original data.
    Table 8a in section V of this addendum contains the updated 
Statewide average operating cost-to-charge ratios for urban hospitals 
and for rural hospitals to be used in calculating cost outlier payments 
for those hospitals for which the intermediary is unable to compute a 
reasonable hospital-specific cost-to-charge ratio. These Statewide 
average ratios replace the ratios published in the September 1, 1993 
final rule (58 FR 46439), effective October 1, 1994. Table 8b contains 
comparable Statewide average capital cost-to-charge ratios. These 
average ratios will be used to calculate cost outlier payments for 
those hospitals for which the intermediary computes operating cost-to-
charge ratios lower than 0.275 or greater than 1.310 and capital cost-
to-charge ratios lower than 0.013 or greater than 0.235. This range 
represents 3.0 standard deviations (plus or minus) from the mean of the 
log distribution of cost-to-charge ratios for all hospitals. The cost-
to-charge ratios in Tables 8a and 8b will be applied to all hospital-
specific cost-to-charge ratios based on cost report settlements 
occurring during FY 1995.
    Comment: One commenter expressed concern over the use of statewide 
averages for those hospitals in which the intermediary computes 
operating cost-to-charge ratios lower than the minimum acceptable ratio 
(that is, minus 3 standard deviations from the mean). The commenter 
stated that the minimum threshold created a clear incentive for 
hospitals to artificially inflate their gross charges, and circumvent 
the intent that hospitals only be paid marginal costs for outliers. The 
commenter recommended elimination of the minimum cost-to-charge ratios.
    Response: We use the statewide average operating cost-to-charge 
ratios in cases where an intermediary is unable to compute a reasonable 
hospital-specific cost-to-charge ratio. Our current definition of 
reasonableness is based on a range of plus or minus 3.0 standard 
deviations from the mean of the log distribution of cost-to-charge 
ratios for all hospitals. We do not believe hospitals are setting their 
charges just to manipulate their cost-to-charge ratios. In fact, 
contrary to the commenter's contention, the incentives a hospital would 
have to maximize outlier payments, if any, would be to lower charges in 
order to increase its cost-to-charge ratio. Thus, we will continue to 
use statewide cost-to-charge ratios where the cost-to-charge ratio for 
any hospitals falls outside the prescribed ranges.
    iii. FY 1993 and FY 1994 Outlier Payments. In the May 26, 1993 
proposed rule (58 FR 30271), we estimated that actual FY 1993 outlier 
payments would be approximately 4.5 percent of actual FY 1993 total DRG 
payments. Our estimates of actual outlier payments were computed by 
simulating payments using actual FY 1993 bill data available at the 
time. Our current estimate is that actual FY 1993 outlier payments were 
approximately 4.2 percent of total DRG payments. These estimates are 
based on simulations using the August 1993 update of the provider-
specific file and the August 1993 update of the MedPAR file.
    In the June 4, 1992 proposed rule (57 FR 23645), we discussed 
several factors that could explain the difference between estimated 
outlier payments and actual outlier payments, relative to total DRG 
payments. With regard to FY 1993 outlier payments, we note that the 
percentage increase in the Medicare case-mix index was 0.8 percent 
between FY 1992 and FY 1993, which was a lower rate of increase than 
for prior years. Although the case-mix index is not a factor in setting 
the outlier thresholds, lower growth in FY 1993 indicates that the 
average severity of Medicare cases increased less in FY 1993 than in 
prior years.
    We also believe that use of a charge inflation factor in setting 
the FY 1993 outlier thresholds may account for some of the difference. 
As we explained in our June 4, 1992 proposed rule, charges have 
historically grown faster than costs. In setting thresholds for FY 
1993, we used the most recently available Medicare data, but that data 
contained 2-year old cost-to-charge ratios. Thus, the cost-to-charge 
ratios used to set the FY 1993 outlier thresholds are higher than those 
used to determine payments. Consequently, actual FY 1993 outlier 
payments as a percent of actual total DRG payments may be lower than we 
estimated when setting outlier thresholds.
    To address this problem in FY 1994, we began using a cost inflation 
factor rather than a charge inflation factor to update billed charges 
for purposes of estimating outlier payments. We believed that this 
refinement would improve our estimation methodology.
    In the September 1, 1993 final rule, we set the outlier thresholds 
so that estimated operating outlier payments were equal to 5.1 percent 
of estimated total estimated operating prospective payments. We 
currently estimate that actual FY 1994 outlier payments will be 3.9 
percent of actual FY 1994 total DRG payments. This figure is based on a 
computer simulation of payments in FY 1994 using FY 1993 bill data.
    We believe that actual outlier payments as a percentage of actual 
total DRG payments may be lower than estimated because actual hospital 
costs may be lower than reflected in the estimation methodology. Our 
most recent data on hospital costs show a significant trend in 
declining rates of increase. Thus, the cost inflation factor of 8.3 
percent (based on the best available data) used to estimate outlier 
payments in setting FY 1994 outlier thresholds appears to have been 
overstated. Based on more recent data, we are using a cost inflation 
factor of 2.5 percent to set outlier payments for FY 1995. Also, 
although we estimate that actual FY 1994 outlier payments will 
approximate 3.9 percent of actual FY 1994 total DRG payments, we note 
that the estimate of the market basket rate of increase used to set the 
FY 1994 rates was 4.3 percentage points, while the latest FY 1994 
market basket rate of increase estimate is 2.7 percent. Thus, the net 
effect is that hospitals are receiving higher FY 1994 payments than 
would have been established based on a more recent forecast of the 
market basket rate of increase.
    Comment: Some commenters are concerned about our projection that 
the percentage of FY 1994 outlier payments will be lower than estimated 
when we set the FY 1994 outlier thresholds. These commenters urge that 
we establish a method of monitoring outlier payments during a fiscal 
year, so that we can prospectively change the outlier thresholds in the 
event that projected outlier payments are not between 5 and 6 percent 
of total DRG payments.
    Response: We responded to similar comments in the final rules for 
FY 1993 (57 FR 39784) and FY 1994 (58 FR 46347). Section 
1886(d)(5)(A)(iv) of the Social Security Act (the Act) requires that 
outlier payments be between 5 and 6 percent of the total payments 
``projected or estimated to be made'' based on diagnosis-related group 
(DRG) prospective payment system rates for discharges in that year. 
Pursuant to this provision, we calculated the FY 1994 outlier 
thresholds so that estimated outlier payments were 5.1 percent of 
estimated total DRG payments. We used the most recent Medicare 
discharge and hospital-specific data available to estimate total 
payments and outlier payments. This is necessarily a prospective 
process, and the resulting estimate may prove to be inaccurate. We do 
not believe that Congress envisioned we would revise in midyear any of 
the estimates of factors used to set prospective payment amounts for a 
given Federal fiscal year. These factors include not only the outlier 
thresholds, but the market basket rate of increase used to establish 
the update factors, the recalibration of the DRG rates, and the various 
required budget neutrality provisions.
    Our current estimate for FY 1994 outlier payments is 3.9 percent of 
total DRG payments. We note that this result is mainly due to the 
reduction in the cost inflation factor that we use to set the 
thresholds, from the 8.3 percent level used to set the FY 94 thresholds 
to the 2.5 percent level used to make this estimate. However, as 
discussed in section IV.D. of the preamble to this final rule, we are 
addressing this problem for FY 1995 as part of our continuing efforts 
to refine the outlier estimation methodology. Normally, we would use 
the average increase in cost per case between PPS-7 (data from cost 
reporting periods beginning in FY 1990) and PPS-9 (data from cost 
reporting periods in FY 1992) as the cost inflation factor in setting 
the FY 1995 outlier thresholds. However, after reviewing the 
preliminary data for 2500 hospitals from PPS-10 (data from cost 
reporting periods in FY 1993) we found the cost per case increase to be 
much closer to the PPS-9 data than the PPS-7 data, indicating a 
continued downward trend in the rate of increase in hospitals costs. 
Thus, for FY 95, we have decided to use solely the PPS-9 cost per case 
increase of 2.5 percent.
B. Adjustments for Area Wage Levels and Cost of Living
    This section contains an explanation of the application of two 
types of adjustments to the adjusted standardized amounts that will be 
made by the intermediaries in determining the prospective payment rates 
as described in this addendum. For discussion purposes, it is necessary 
to present the adjusted standardized amounts divided into labor and 
nonlabor portions. Tables 1a, 1b, and 1c, as set forth in this 
addendum, contain the actual labor-related and nonlabor-related shares 
that will be used to calculate the prospective payment rates for 
hospitals located in the 50 States, the District of Columbia, and 
Puerto Rico.
    1. Adjustment for Area Wage Levels. Sections 1886(d)(3)(E) and 
1886(d)(9)(C)(iv) of the Act require that an adjustment be made to the 
labor-related portion of the prospective payment rates to account for 
area differences in hospital wage levels. This adjustment is made by 
the intermediaries by multiplying the labor-related portion of the 
adjusted standardized amounts by the appropriate wage index for the 
area in which the hospital is located. In section III of the preamble, 
we discuss certain revisions we are making to the wage index. This 
index is set forth in Tables 4a through 4e of this addendum.
    2. Adjustment for Cost of Living in Alaska and Hawaii. Section 
1886(d)(5)(H) of the Act authorizes an adjustment to take into account 
the unique circumstances of hospitals in Alaska and Hawaii. Higher 
labor-related costs for these two States are taken into account in the 
adjustment for area wages described above. For FY 1995, the adjustment 
necessary for nonlabor-related costs for hospitals in Alaska and Hawaii 
will be made by the intermediaries by multiplying the nonlabor portion 
of the standardized amounts by the appropriate adjustment factor 
contained in the table below. 

 Table of Cost-of-Living Adjustment Factors, Alaska and Hawaii Hospitals
Alaska--All areas..............................................   1.25  
Hawaii:                                                                 
  County of Honolulu...........................................   1.225 
  County of Hawaii.............................................   1.15  
  County of Kauai..............................................   1.175 
  County of Maui...............................................   1.225 
  County of Kalawao............................................   1.225 
(The above factors are based on data obtained from the U.S. Office of   
  Personnel Management.)                                                

C. DRG Relative Weights
    As discussed in section II of the preamble, we have developed a DRG 
classification system for hospital inpatient discharges, and have 
developed relative weights for each DRG that reflect the resource 
utilization of cases in that DRG relative to Medicare cases in other 
DRGs. The intermediary calculates the prospective payment amount by 
multiplying the applicable standardized amount by the relative weight 
for the DRG to which the discharge is assigned.
    Table 5 of section V of this addendum contains the relative weights 
that we will use for discharges occurring in FY 1995. These factors 
have been recalibrated as explained in section II of the preamble.
D. Calculation of Prospective Payment Rates for FY 1995
    General Formula for Calculation of Prospective Payment Rates for FY 
1995:

Prospective payment rate for all hospitals located outside Puerto Rico 
except sole community hospitals = Federal rate.
Prospective payment rate for sole community hospitals = Whichever of 
the following rates yields the greatest aggregate payment: 100 percent 
of the Federal rate, 100 percent of the FY 1982 hospital-specific rate, 
or 100 percent of the FY 1987 hospital-specific rate.
Prospective payment rate for Puerto Rico = 75 percent of the Puerto 
Rico rate + 25 percent of a discharge-weighted average of the large 
urban, other urban, and rural national rates.

    1. Federal Rate. For discharges occurring on or after October 1, 
1994 and before October 1, 1995, except for sole community hospitals, 
hospitals subject to the regional floor and hospitals in Puerto Rico, 
the hospital's rate is comprised exclusively of the Federal national 
rate. Section 1886(d)(1)(A)(iii) of the Act, as amended by section 
13501(f) if Public Law 103-66, provides that the Federal rate is 
comprised of 100 percent of the Federal national rate except for those 
hospitals located in census regions that have a regional rate that is 
higher than the national rate. The Federal rate for hospitals located 
in census regions that have a regional rate that is higher than the 
national rate equals 85 percent of the Federal national rate plus 15 
percent of the Federal regional rate. For discharges occurring on or 
after October 1, 1994, hospitals in regions I, IV, and VI are affected 
by the regional floor.
    The Federal rates are determined as follows:
    Step 1--Select the appropriate regional or national adjusted 
standardized amount considering the type of hospital and designation of 
the hospital as large urban or other (see Tables 1a and 1b, section V 
of this addendum).
    Step 2--Multiply the labor-related portion of the standardized 
amount by the applicable wage index for the geographic area in which 
the hospital is located (see Tables 4a, 4b, and 4c, section V of this 
addendum).
    Step 3--For hospitals in Alaska and Hawaii, multiply the nonlabor-
related portion of the standardized amount by the appropriate cost-of-
living adjustment factor.
    Step 4--Add the amount from Step 2 and the nonlabor-related portion 
of the standardized amount (adjusted if appropriate under Step 3).
    Step 5--Multiply the final amount from Step 4 by the relative 
weight corresponding to the appropriate DRG (see Table 5, section V of 
this addendum).
    2. Hospital-Specific Rate (Applicable Only to Sole Community 
Hospitals). Sections 1886(d)(5)(D)(i) and (b)(3)(C) of the Act provide 
that sole community hospitals are paid based on whichever of the 
following rates yields the greatest aggregate payment: The Federal 
rate, the updated hospital-specific rate based on FY 1982 cost per 
discharge, or the updated hospital-specific rate based on FY 1987 cost 
per discharge.
    Hospital-specific rates have been determined for each of these 
hospitals based on both the FY 1982 cost per discharge and the FY 1987 
cost per discharge. For a more detailed discussion of the calculation 
of the FY 1982 hospital-specific rate and the FY 1987 hospital-specific 
rate, we refer the reader to the September 1, 1983 interim final rule 
(48 FR 39772); the April 20, 1990 final rule with comment (55 FR 
15150); and the September 4, 1990 final rule (55 FR 35994).
    a. Updating the FY 1982 and FY 1987 Hospital-Specific Rates for FY 
1995. We are increasing the hospital-specific rates by 1.4 percent (the 
hospital market basket percentage increase minus 2.2 percentage points) 
for sole community hospitals located in all areas in FY 1995. Section 
1886(b)(3)(C)(ii) of the Act, as amended by section 13501(a)(2) of 
Public Law 103-66, provides that the update factor applicable to the 
hospital-specific rates for sole community hospitals equals the update 
factor under section 1886(b)(3)(B)(iv) of the Act, which for FY 1995, 
is the market basket rate of increase minus 2.2 percentage points. 
Prior to FY 1994, the update to the hospital-specific rates was applied 
according to a hospital's cost reporting period. However, beginning 
with FY 1994, the update to the hospital specific rate is applied on a 
Federal fiscal year basis under amended section 1886(b)(3)(C)(ii). That 
section required us to apply the FY 1994 update taking into account the 
portion of the 12-month cost reporting period beginning during FY 1993 
that occurred during FY 1994. In our September 1, 1993 final rule with 
comment (58 FR 46308), we described a methodology for calculating a 
``deemed FY 1993'' update that affected payment rates in FY 1994. 
However as discussed in our June 23, 1994 final rule (59 FR 32381), we 
have revised our interpretation of section 1886(b)(3)(C)(ii) and 
decided to prorate the FY 1994 applicable update based on the number of 
months after the end of a hospital's cost reporting period that 
occurred in FY 1994.
    b. Calculation of Hospital-Specific Rate. For sole community 
hospitals, the applicable FY 1995 hospital-specific rate will be 
calculated by multiplying a hospital's deemed hospital-specific rate 
for the preceding cost reporting period by the applicable update factor 
(that is, 1.4 percent). In addition, the hospital-specific rate will be 
adjusted by the budget neutrality adjustment factor (that is, 0.99805) 
as discussed in section II.A.4.b. of this addendum. This resulting rate 
will be used in determining the rate a sole community hospital is paid 
for its discharges beginning on or after October 1, 1994, based on the 
formula set forth above.
    3. General Formula for Calculation of Prospective Payment Rates for 
Hospitals Located in Puerto Rico Beginning On or After October 1, 1994 
and Before October 1, 1995. a. Puerto Rico Rate. The Puerto Rico 
prospective payment rate is determined as follows:
    Step 1--Select the appropriate adjusted average standardized amount 
considering the large urban or other designation of the hospital (see 
Table 1c, section V of the addendum).
    Step 2--Multiply the labor-related portion of the standardized 
amount by the appropriate wage index (see Tables 4a and 4b, section V 
of the addendum).
    Step 3--Add the amount from Step 2 and the nonlabor-related portion 
of the standardized amount.
    Step 4--Multiply the result in Step 3 by 75 percent.
    Step 5--Multiply the amount from Step 4 by the appropriate DRG 
relative weight (see Table 5, section V of the addendum).
    b. National Rate. The national prospective payment rate is 
determined as follows:
    Step 1--Multiply the labor-related portion of the national average 
standardized amount (see Table 1c, section V of the addendum) by the 
appropriate wage index.
    Step 2--Add the amount from Step 1 and the nonlabor-related portion 
of the national average standardized amount.
    Step 3--Multiply the result in Step 2 by 25 percent.
    Step 4--Multiply the amount from Step 3 by the appropriate DRG 
relative weight (see Table 5, section V of the addendum).
    The sum of the Puerto Rico rate and the national rate computed 
above equals the prospective payment for a given discharge for a 
hospital located in Puerto Rico.

III. Changes to Payment Rates for Inpatient Capital-Related Costs for 
FY 1995

    The prospective payment system for hospital inpatient capital-
related costs was implemented for cost reporting periods beginning on 
or after October 1, 1991. Effective with that cost reporting period and 
during a 10-year transition period extending through FY 2001, hospital 
inpatient capital-related costs are paid on the basis of an increasing 
proportion of the capital prospective payment system Federal rate and a 
decreasing proportion of the historical costs for capital.
    The basic methodology for determining Federal capital prospective 
rates is set forth at Secs. 412.308 through 412.352 of the regulations. 
Below we discuss the factors that we used to determine the Federal rate 
and the hospital-specific rate for FY 1995. The rates will be effective 
for discharges occurring on or after October 1, 1994.
    For FY 1992, we computed the standard Federal payment rate for 
capital-related costs under the prospective payment system by updating 
the FY 1989 Medicare inpatient capital cost per case by an actuarial 
estimate of the increase in Medicare inpatient capital costs per case. 
Each year after FY 1992 we updated the standard Federal rate for 
increases in capital-related costs as provided in Sec. 412.308(c)(1). 
Also, Sec. 412.308(c)(2) provides that the Federal rate is adjusted 
annually by a factor equal to the estimated additional payments under 
the Federal rate for outlier cases, determined as a proportion of total 
capital payments under the Federal rate. For FY 1992 through FY 2001, 
Sec. 412.308(c)(3) requires that the Federal rate be reduced by an 
adjustment factor equal to the estimated additional payments made for 
exceptions under Sec. 412.348, and Sec. 412.308(c)(4)(ii) requires that 
the Federal rate be adjusted so that the annual DRG reclassification 
and the recalibration of DRG weights and changes in the geographic 
adjustment factor are budget neutral. For FY 1992 through FY 1995, 
Sec. 412.352 requires that the Federal rate also be adjusted by a 
budget neutrality factor so that estimated aggregate payments for 
inpatient hospital capital costs will equal 90 percent of the estimated 
payments that would have been made for capital-related costs on a 
reasonable cost basis during the fiscal year.
    The hospital-specific rate for each hospital was calculated by 
dividing the hospital's Medicare inpatient capital-related costs for a 
specified base year by its Medicare discharges (adjusted for 
transfers), and dividing the result by the hospital's case mix index 
(also adjusted for transfers). The resulting case-mix adjusted average 
cost per discharge was then updated to FY 1992 based on the national 
average increase in Medicare's inpatient capital cost per discharge and 
adjusted by the exceptions payment adjustment factor and the budget 
neutrality adjustment factor to yield the FY 1992 hospital-specific 
rate. The hospital-specific rate is updated each year after FY 1992 for 
inflation and for changes in the exceptions payment adjustment factor 
and the budget neutrality adjustment factor.
    To determine the appropriate budget neutrality adjustment factors 
and the exceptions payment adjustment factor, we developed a dynamic 
model of Medicare inpatient capital-related costs, that is, a model 
that projects changes in Medicare inpatient capital-related costs over 
time. The model and its application are described more fully in 
Appendix B.
    In accordance with section 1886(d)(9)(A) of the Act, under the 
prospective payment system for inpatient operating costs, hospitals 
located in Puerto Rico are paid under a special payment formula. These 
hospitals are paid a blended rate that is comprised of 75 percent of 
the applicable standardized amount specific to Puerto Rico hospitals 
and 25 percent of the applicable national average standardized amount. 
Section 412.374 provides for the use of this blended payment system for 
payments to Puerto Rico hospitals under the prospective payment system 
for inpatient capital-related costs. Accordingly, for capital-related 
costs we compute a separate payment rate specific to Puerto Rico 
hospitals using the same methodology used to compute the national 
Federal rate for capital. Hospitals in Puerto Rico are paid based on 75 
percent of the Puerto Rico rate and 25 percent of the Federal rate.
A. Determination of Federal Inpatient Capital-Related Prospective 
Payment Rate Update
    For FY 1994, the Federal rate was $378.34. In the proposed rule, we 
stated that the proposed FY 1995 Federal rate was $353.87. In this 
final rule, we are establishing an FY 1995 Federal rate of $376.83.
    In the discussion that follows, we explain the factors that were 
used to determine the FY 1995 Federal rate. In particular, we explain 
why the FY 1995 Federal rate has decreased 0.40 percent compared to the 
FY 1994 Federal rate, and why the rate has increased 6.49 percent 
compared to the proposed FY 1995 Federal rate. We also explain that 
aggregate payments for capital in FY 1995 are estimated to increase by 
5.32 percent.
    The major factor contributing to the decrease in the FY 1995 rate 
in comparison to FY 1994 is the requirement at Sec. 412.352 that 
estimated payments each year from FY 1992 through FY 1995 for capital 
costs equal 90 percent of what would have been payable that year on a 
reasonable cost basis. Accordingly, based on the most recent estimate 
of FY 1995 costs, the rate must be reduced somewhat to assure that 
system-wide payments will equal 90 percent of cost.
    Based on the most recent data, we now estimate that capital 
payments for FY 1992 equalled 93.14 percent of reasonable costs, that 
capital payments for FY 1993 equal 96.45 percent of reasonable costs, 
and that capital payments for FY 1994 will equal 90.32 percent of 
reasonable costs. The data thus indicate that the budget neutrality 
adjustments for FY 1992, FY 1993, and FY 1994 were not sufficient to 
meet the 90 percent target and that, as a consequence, the Federal 
rates for FY 1992, FY 1993, and FY 1994 were higher than they should 
have been. While we do not retroactively adjust the budget neutrality 
factor and the Federal rate for previous years to account for revised 
estimates, we do employ the most recent information available to refine 
the budget neutrality adjustment for subsequent years.
    Two factors account for the 6.49 percent increase in the Federal 
rate since the proposed rule. One factor is the 2.05 percent increase 
in the budget neutrality target for FY 1995 over the target in the 
proposed rule. As we describe in section III.A.4 below, this increase 
is due to more recent cost report data on capital cost per case in FY 
1992, partially offset by a very small decline in the actuarial 
projections that we employ to project the FY 1995 capital cost per 
case.
    Another factor that has contributed to the increase in the Federal 
rate since the proposed rule is a revision in our projection of the 
rate of increase in case mix. As we discuss in Appendix B, we have 
reduced our projected increase in case mix from 1.5 percent to .85 
percent. The estimate of case-mix increase does not affect the cost-
per-case increase estimates that are used to set the budget neutrality 
target. It does, however, affect the payment rate level necessary to 
assure that estimated payments equal 90 percent of estimated reasonable 
costs. All other things being equal, the Federal rate must be reduced 
when case-mix increase projections accelerate to avoid exceeding the 
budget neutrality target. Conversely, a reduction of case-mix increase 
projections requires an increase in the Federal rate to assure that 
estimated payments do not fall short of the target. The reduction in 
our case-mix increase projections since the proposed rule thus requires 
an increase in the Federal rate relative to the level in the proposed 
rule.
    Although the Federal rate for FY 1995 is 0.40 percent lower than 
the FY 1994 Federal rate, we estimate that total capital payments per 
case will increase 5.32 percent in FY 1995. The estimated increase in 
total payments per case is due to the increase in the budget neutrality 
target to equal 90 percent of estimated FY 1994 capital costs per case. 
Since section 1886(g)(1)(A) of the Act requires that estimated payments 
equal 90 percent of estimated reasonable costs for capital-related 
expenses, payments under the capital prospective payment system can be 
expected to increase as capital costs per case increase. The increase 
in payments per case from FY 1994 to FY 1995 (5.32 percent) is less 
than the total estimated increase in capital costs per case between FY 
1994 and FY 1995 (5.70 percent) because estimated FY 1994 payments were 
0.36 percent higher than the FY 1994 budget neutrality target. As a 
result, payments must increase slightly less than the full increase in 
costs to prevent estimated payments for FY 1995 from exceeding 90 
percent of reasonable cost. Specifically, the increase in payments from 
FY 1994 to FY 1995 is determined by dividing the increase in cost per 
case by the excess of FY 1994 payments over the budget neutrality 
target (that is, 1.0570/1.0036=1.0532, an increase of 5.32 percent). We 
discuss the determination of the budget neutrality target in section 
III.A.4 below.
    Finally, it should be noted that total payments to hospitals under 
the prospective payment system will be relatively insensitive to 
changes in the Federal rate even after the expiration of the budget 
neutrality provision in FY 1996. Since capital payments constitute 
about 10 percent of hospital payments, a 1 percent change in the 
Federal rate yields only about a 0.1 percent change in actual payments 
to hospitals.
    1. Standard Federal Rate Update. Section 412.308(c)(1)(i) provides 
that for FY 1993 through FY 1995, the standard Federal rate is updated 
on the basis of a lagged 2-year moving average of the actual increase, 
adjusted for case-mix index change, in Medicare inpatient capital-
related costs per case for the fiscal years 3 and 4 years before the 
fiscal year in question. For FY 1995, the increase is based on the 
increase in Medicare inpatient capital-related costs per case from FY 
1990 through FY 1992. These are the most recent fiscal years for which 
cost report data are available. To determine the amount of the 
increase, we apportioned a hospital's costs and discharges to each 
fiscal year based on the number of months in the hospital's cost 
reporting period that occurred during the applicable fiscal year. Thus, 
an individual hospital may have more than one cost report included in 
the calculation.
    In the proposed rule, we stated that the proposed FY 1995 update 
factor for the Federal rate would be 2.22 percent. In this final rule, 
based on the most recent data, we are providing that the final FY 1995 
update factor for the Federal rate is 3.44 percent. The following 
chart, based on the June 1994 update of HCRIS, shows how this figure 
was computed:
      

                                                  Capital Costs per Case Increase From Cost Report Data                                                 
                                                                                                                                                        
                                                                                                              Average 2-                         Update 
                                                                                                    Increase     year                           (average
                                                                              Increase    Audit        in      increase                CMI      two year
                                              Number     Number     Unadj.    in cost    adjusted   adjusted      in      Observed   adjusted   increase
                    FY                      hospitals  hospitals   capital    per case   capital    cost per   adjusted     CMI      increase    of CMI 
                                             1st HCR      2nd      cost per  (percent)   cost per     case     cost per  (percent)  (percent)   adjusted
                                                        HCR\1\      case                 case\2\   (percent)     case                           rate of 
                                                                                                              (percent)                        increase)
                                                                                                                                               (percent)
                                                  (1)        (2)        (3)        (4)        (5)        (6)        (7)        (8)        (9)       (10)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1990......................................       4229       5413    $541.60  .........    $539.88  .........  .........  .........  .........  .........
1991......................................       4170       5332     580.43       7.17     570.35       5.64  .........       2.52       3.04  .........
1992......................................       4112       4953     631.86       8.86     601.40       5.44       5.54       1.55       3.83       3.44
\1\Columns 1 and 2 represent the numbers of hospital cost reports used in developing capital costs per case figures in column 3. Since hospital cost    
  reporting periods do not all coincide with the Federal fiscal year, data for a given Federal fiscal year must be derived from more than one hospital  
  cost report, allocated proportionately to the Federal fiscal year. For example, for a hospital with a cost reporting period beginning January 1, one  
  quarter of its cost report for the period ending December 31, 1987 would be allocated to Federal fiscal year 1988, and three quarters of its cost     
  report for the period ending December 31, 1988 would be allocated to Federal fiscal year 1987. Column 1 represents the number of cost reports used    
  that ended in the Federal fiscal year in question. Column 2 represents the number of cost reports used that began in the Federal fiscal year in       
  question. Column 2 is greater than Column 1 because Column 2 includes cost reports for hospitals whose cost reporting period coincides with the       
  Federal year along with cost reports for those hospitals whose cost reporting periods do not coincide with the Federal fiscal year. Column 1 includes 
  only cost reports for hospitals whose cost reporting periods do not coincide with the Federal fiscal year.                                            
\2\Figures in column 5 represent capital costs per case, adjusted for the anticipated effects of cost report audits and reopenings, from the June 1994  
  update of HCRIS. The following factors were used in adjusting capital costs per case figures from column 3 for the effects of audits and reopenings:  
                                                                                                                                                        
Audit Adjustment Applied to As-Submitted Cost Reports                                                                                                   
                                                                                                                                                        
Cost reporting periods beginning in:                                                                                                                    
FY 19900.9268                                                                                                                                           
FY 19910.9220                                                                                                                                           
FY 19920.9494                                                                                                                                           
                                                                                                                                                        
Audit Adjustment Applied to Settled Cost Reports                                                                                                        
                                                                                                                                                        
All years1.0045                                                                                                                                         
                                                                                                                                                        
The costs per case figures that result after the application of these audit adjustments to submitted and settled cost reports, respectively, are entered
  in Column 5.                                                                                                                                          

We note that the effect of the update on the Federal rate is limited by 
the requirement of budget neutrality until FY 1996. Thus, although the 
update factor for inflation is 3.44 percent, the FY 1995 Federal rate 
is slightly lower than the FY 1994 Federal rate because of the effects 
of the budget neutrality adjustment. We also note that the FY 1995 
budget neutrality target is determined by the estimate of FY 1995 
capital costs, not by the 2-year average update factor applied to the 
FY 1995 Federal rate. We further discuss the basis for the budget 
neutrality target in section III.A.4 below.
    Comment: One commenter stated that the proposed decreases of 6.47 
percent for the Federal rate and the 5.76 percent for the hospital-
specific rate are not tolerable. The commenter argued that the 1.0222 
update factor does not match the market basket increases, even though 
HCFA had predicted that these factors would be well above that proposed 
for FY 1995. The commenter recommended that the update factor be 
revisited to reflect a more appropriate increase in actual capital 
costs to which the 90 percent goal could then be applied via the budget 
neutrality factor.
    Response: It is not clear what market basket increases the 
commenter is referring to. The market basket used to develop the update 
recommendation for the operating prospective payment system is not 
applicable to the capital rate. As we discuss in Appendix E, a market 
basket is under development for the capital prospective payment system. 
A capital input price index will be part of the update framework that 
will take effect in FY 1996. In the meantime, the regulations require 
the use of a lagged two-year average of actual cost per case increases, 
as shown in the table above. As we also noted above, the update factor 
of 2.22 percent is not used to set the budget neutrality target. The 
procedure that we follow in setting the budget neutrality target is 
described in section IV.D below. This procedure involves developing a 
budget neutrality target on the basis of an actuarial projection of 
increases in Medicare capital costs per case. The FY 1995 budget 
neutrality target reflects a projected 5.70 percent increase in 
Medicare capital costs per case for FY 1995.
    Comment: One commenter recommended that an add-on adjustment be 
employed in setting the update factor to account for appropriate 
changes in new technology prior to the adoption of an analytical update 
framework in FY 1996.
    Response: The present update factor is based on a 2-year moving 
average of actual increases in Medicare inpatient capital-related costs 
per discharge. Since the actual costs include spending for new 
technology, the cost of new technology is already accounted for in the 
update factor. A separate adjustment for new technology would 
constitute double-counting and is therefore not appropriate, as long as 
the update is determined by the average of actual cost increases in 
recent years. However, we do believe that the cost of new technology is 
a factor that should be accounted for in the capital analytical update 
framework that will be used beginning in FY 1996. We discuss the 
methodology for incorporating appropriate changes in cost for new 
technology into the update framework in Appendix E.
    2. Outlier Payment Adjustment Factor. Section 412.312(c) 
establishes a unified outlier methodology for inpatient operating and 
inpatient capital-related costs. A single set of thresholds is used to 
identify outlier cases for both inpatient operating and inpatient 
capital-related payments. Outlier payments are made only on the portion 
of the Federal rate that is used to calculate the hospital's inpatient 
capital-related payments (for example, 40 percent for cost reporting 
periods beginning in FY 1995 for hospitals paid under the fully 
prospective methodology). Section 412.308(c)(2) provides that the 
standard Federal rate for inpatient capital-related costs be reduced by 
an adjustment factor equal to the estimated additional payments under 
the Federal rate for outlier cases, determined as a proportion of 
inpatient capital-related payments under the Federal rate. The outlier 
thresholds are set so that estimated outlier payments are 5.1 percent 
of estimated inpatient operating payments. The inpatient capital-
related outlier reduction factor is then set according to the estimated 
inpatient capital-related outlier payments that would be made if all 
hospitals were paid according to 100 percent of the Federal rate. For 
purposes of calculating the outlier thresholds and the outlier 
reduction factor, we model all hospitals as if paid 100 percent of the 
Federal rate because, as explained above, outlier payments are made 
only on the portion of the Federal rate that is included in the 
hospital's inpatient capital-related payments.
    In the September 1, 1993 final rule, we estimated that outlier 
payments for capital in FY 1994 would equal 5.46 percent of inpatient 
capital-related payments based on the Federal rate. Accordingly, we 
applied an outlier adjustment factor of 0.9454 to the Federal rate. 
Based on the thresholds as set forth in section II.A.4.d of the 
addendum, we estimate that outlier payments will equal 5.86 percent of 
inpatient capital-related payments based on the Federal rate in FY 
1995. We are therefore applying an outlier adjustment factor of 0.9414 
to the Federal rate. Thus, capital outlier payments for FY 1995 
represent a higher percentage of total capital standard payments than 
in FY 1994.
    The outlier reduction factors are not built permanently into the 
rates; that is, they are not applied cumulatively in determining the 
Federal rate. Therefore, the net change in the outlier adjustment to 
the Federal rate for FY 1995 is .9958 (.9414/.9454). Thus, the outlier 
adjustment reduces the FY 1995 Federal rate by 0.42 percent (.9958-1) 
compared with the FY 1994 outlier adjustment.
    3. Budget Neutrality Adjustment Factor for Changes in DRG 
Classification and Weights and the Geographic Adjustment Factor. 
Section 412.308(c)(4)(ii) requires that the Federal rate be adjusted so 
that estimated aggregate payments for the fiscal year based on the 
Federal rate after any changes resulting from the annual 
reclassification and recalibration of the DRG weights and changes in 
the geographic adjustment factor equal estimated aggregate payments 
that would have been made on the basis of the Federal rate without such 
changes. We used the actuarial model described in Appendix B to 
estimate the aggregate payments that would have been made on the basis 
of the Federal rate without changes in the DRG classifications and 
weights and in the geographic adjustment factor. We also used the model 
to estimate aggregate payments that would be made on the basis of the 
Federal rate as a result of those changes. We then used these figures 
to compute the adjustment required to maintain budget neutrality for 
changes in DRG weights and in the geographic adjustment factor.
    For FY 1994, we calculated a GAF/DRG budget neutrality factor of 
1.0053. In the proposed rule for FY 1995, we proposed a GAF/DRG budget 
neutrality factor of 1.00115. In this final rule, based on calculations 
using updated data, we are applying a factor of 0.9998 to meet this 
requirement. The GAF/DRG budget neutrality factors are built 
permanently into the rates; that is, they are applied cumulatively in 
determining the Federal rate. This follows from the requirement that 
aggregate payments each year be no more than it is estimated that they 
would have been in the absence of the changes from the annual DRG 
reclassification and recalibration and in the geographic adjustment 
factor. The incremental change in the adjustment from FY 1994 to FY 
1995 is 0.9998. The cumulative change in the rate due to this 
adjustment is 1.0031 (the product of the factors for FY 1993, FY 1994, 
and FY 1995: .9980  x  1.0053  x  .9998 = 1.0031).
    This factor accounts for DRG reclassifications and recalibration 
and changes in the geographic adjustment factor. It also incorporates 
the effects on the geographic adjustment factor of FY 1995 geographic 
reclassification decisions made by the MGCRB compared to FY 1994 
decisions. However, it does not account for changes in payments due to 
changes in the disproportionate share and indirect medical education 
adjustment factors or in the large urban add-on.
    4. Budget Neutrality Adjustment Factor to Assure Aggregate Payments 
Equal 90 Percent of Reasonable Cost Payments. Section 1886(g)(1)(A) of 
the Act requires that aggregate payments made each year in FY 1992 
through FY 1995 for hospital inpatient services be reduced in a manner 
that results in payments equal to 90 percent of the amount the 
Secretary estimates would have been payable on a reasonable cost basis 
for inpatient capital-related costs in that year. No retroactive 
adjustment is made if aggregate payments are greater than or less than 
90 percent of actual Medicare inpatient capital-related costs for that 
year. Section 412.352 of the regulations provides that HCFA determines 
an adjustment to the hospital-specific rate and the Federal rate 
proportionately, so that the estimated payments for capital in each 
year from FY 1992 through FY 1995 will equal 90 percent of what would 
have been payable that year on a reasonable cost basis. The effect of 
this provision is that the reduction required under section 
1886(g)(1)(A) of the Act is realized entirely through a reduction in 
the prospective payments for capital costs (that is, no reduction is 
made for this purpose in the reasonable cost payments for old capital) 
in FY 1992 through FY 1995.
    For FY 1994, we determined that a budget neutrality factor of 
0.8947 was required so that estimated aggregate payments for inpatient 
capital-related costs would equal 90 percent of what would have been 
payable on a reasonable cost basis in that year. In the proposed rule 
for FY 1995, we proposed a budget neutrality factor of 0.7986. In this 
final rule, we are establishing a budget neutrality factor of 0.8432. 
The budget neutrality adjustment factor for FY 1995 is 5.76 percent 
lower than the FY 1994 budget neutrality adjustment (.8947), and 5.58 
percent higher than the budget neutrality factory in the proposed rule 
(.7986).
    As we explain in Appendix B, we determine the budget neutrality 
adjustment factor on the basis of a projected FY 1995 capital costs per 
case budget neutrality target. We develop this target from available 
data on average Medicare capital costs per case for all short-term 
acute care hospitals subject to the capital prospective payment system 
(that is, data from excluded and waiver hospitals were eliminated). For 
the FY 1995 proposed rule, we had actual data for FY 1992 from the 
December 1993 HCRIS update. For this final rule, we have actual data 
for FY 1992 from the June 1994 HCRIS update. We also have revised 
estimates of the rates of increase in Medicare capital costs per case 
for the years FY 1993 through FY 1995.
    At the time of the final rule for FY 1994, we had estimated that 
there would be a 30.52 percent increase in Medicare inpatient capital 
cost per case between FY 1992 and FY 1995. In the proposed rule for FY 
1995, we estimated that there would be a 12.83 percent increase in 
Medicare inpatient capital cost per case between FY 1992 and FY 1995, a 
decline of 13.56 percent (1.1283/1.3052=.8644, or -13.56 percent) in 
the estimated rate of increase since the final rule for FY 1994. In 
this final rule for FY 1995, we are estimating that there will be a 
12.49 percent increase in Medicare inpatient capital cost per case 
between FY 1992 and FY 1995, a decline of 13.81 percent in the 
estimated rate of increase since the final rule for FY 1994 (1.1249/
1.3052=.8619, or 13.81 percent), and a decrease of 0.30 percent since 
the proposed rule for FY 1995 (1.1249/1.1283=-0.30 percent). The 
following chart shows how the rate-of-increase estimates for FY 1992 
through FY 1995 were calculated in the proposed rule and in this final 
rule for FY 1995.

                              Comparison of Factors for Medicare Inpatient Capital Cost Per Case Increases: FY 1995 Proposed Rule (PR) and FY 1995 Final Rule (PR)                              
                                                                                        [In percentages]                                                                                        
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                      (1)Total inpatient       (2)Medicare share      (1) x (2)=(3)Medicare    (4)Medicare enrollment  (5)Admissions incidence   (4) x (5)=(6)Medicare     (3)/(6)=(7)Estimated 
                           capital         -------------------------    inpatient capital    --------------------------------------------------        admissions          increase in Medicare 
                  -------------------------                         -------------------------                                                  -------------------------  inpatient capital cost
 Estimate for FY                                                                                                                                                                 per case       
                    FY95    FY95   Percent   FY95    FY95   Percent   FY95    FY95   Percent   FY95    FY95   Percent   FY95    FY95   Percent   FY95    FY95   Percent ------------------------
                     PR      FR     change    PR      FR     change    PR      FR     change    PR      FR     change    PR      FR     change    PR      FR     change   FY95    FY95   Percent
                                                                                                                                                                           PR      FR     change
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1993.............    5.23    5.23     0.00    0.52    0.23    -0.30    5.78    5.46    -0.30    2.67    2.67     0.00    1.00    1.00     0.00    3.70    3.70     0.00    2.00    1.70    -0.30
1994.............    7.00    7.00     0.00    1.00    1.00     0.00    8.07    8.07     0.00    2.13    2.13     0.00    1.11    1.11     0.00    3.26    3.26     0.00    4.65    4.65     0.00
1995.............    8.00    8.00     0.00    1.00    1.00     0.00    9.08    9.08     0.00    1.83    1.83     0.00    1.34    1.34     0.00    3.19    3.19     0.00    5.70    5.70     0.00
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    The chart shows the causes of the decline in the rate of increase 
projections since the proposed rule. As the chart shows, the small 
decline in the rate of increase projection is due entirely to a decline 
in the rate of increase projections for Medicare share in FY 1993. (As 
the chart also shows, the rate of increase projections for all other 
factors are unchanged.)
    In addition to the slight decline in the rate of increase estimates 
since the proposed rule, there has been a 2.36 percent increase in the 
FY 1992 cost per case in the June 1994 HCRIS data, compared to the 
December 1993 HCRIS data, that we used in the proposed rule. The 
following chart shows the combined effect of the reduced rates of 
increase estimates and the reduced FY 1992 cost per case by comparing 
the projections from FY 1992 to FY 1995 at the time of the proposed 
rule and in this final rule for FY 1994:

 Effect of Revised Rate of Increase Estimates on Calculation of FY 1995 
                        Budget Neutrality Target                        
------------------------------------------------------------------------
                                                       Percent   Percent
                                                       change    change 
                                            Capital    in rate     in   
                                            cost per     of      capital
                                              case    increase  cost per
                                                                  case  
------------------------------------------------------------------------
FY 1992 cost per case:                                                  
  Proposed FY 95: 12/93 HCRIS............  \1\$590.8                    
                                                   7       N/A      2.36
  Final FY 95: 6/94 HCRIS................  \2\$604.8                    
                                                   3  ........  ........
FY 1993 adjusted cost:                                                  
  Proposed FY 95: 2.00%..................    $602.72     -0.30      2.05
  Final FY 95: 1.70%.....................     615.10  ........  ........
FY 1994 adjusted cost:                                                  
  Proposed FY 95: 4.65%..................    $630.78      0.00      2.05
  Final FY 95: 4.65%.....................    $643.75  ........  ........
FY 1995 adjusted cost:                                                  
  Proposed FY 95: 5.70%..................    $666.75      0.00      2.05
  Final FY 95: 5.70%.....................    $680.43  ........          
                                                         -0.30  ........
Cumulative:                                                             
------------------------------------------------------------------------
\1\FY 1992 cost per case based on December 1993 HCRIS data, audit-      
  adjusted, excluding waiver hospitals and PPS-excluded hospitals.      
\2\FY 1992 cost per case based on June 1994 HCRIS data, audit-adjusted, 
  excluding waiver hospitals and PPS-excluded hospitals.                

    The chart shows that the cumulative effect of the revised rates of 
increase is to lower the FY 1995 budget neutrality target by 0.30 
percent. Together with the 2.36 percent increase due to updated HCRIS 
data, this accounts for the 2.05 percent increase in the FY 1995 final 
rule capital cost per case budget neutrality target compared to the 
proposed rule for FY 1995.
    We received several comments on the budget neutrality estimates 
presented in the proposed rule.
    Comment: Several commenters noted that the proposed regulation 
included the effect of reductions in FY 1992, FY 1993 and FY 1994 
capital costs per case estimates from previously published amounts. The 
commenters contended that, to protect the prospective nature of the 
system, HCFA should not be making retroactive changes over previously 
published amounts.
    Response: The prospective nature of the system is not threatened by 
revising previous estimates of costs per case, since we use the revised 
estimates only to set the budget neutrality factor and the rate for the 
current year, not to revise the rates for the prior years. We make no 
retroactive changes in rates or payment amounts for prior years. 
However, it is necessary to revise our prior estimates of capital cost 
per case increases as new information becomes available. Otherwise, we 
would base the budget neutrality target for the current year on 
information that we know to be inaccurate.
    Comment: One commenter expressed concern about data in the proposed 
regulations indicating that payments may be well below 90 percent of 
costs in order to offset the estimated effects of payments in excess of 
the 90 percent budget neutrality target in FY 1993 and FY 1994. The 
commenter noted that many issues remain unresolved with the 1992 base 
year audits and a number of providers have significant obligated 
capital effects to be considered. The commenter asserted that HCFA's 
forecasting methodologies do not properly reflect the capital cost 
payments anticipated by Congress in their legislative approval.
    Response: Contrary to the commenter's belief, we did not propose to 
set the level of payments lower than 90 percent of costs in order to 
offset payments greater than 90 percent of costs in previous years. 
Rather, we stated that because we estimated that payments in FY 1994 
exceeded the budget neutrality target, the increase in payments from FY 
1994 to FY 1995 would have to be less than the full increase in 
estimated costs. Otherwise, estimated payments in FY 1995 would exceed 
the budget neutrality target. Both in the proposed rule and in this 
final rule, we estimate that payments in FY 1995 will equal 90 percent 
of estimated costs. The statutory language and regulations governing 
the budget neutrality requirement do not mandate a dollar level of 
capital cost payments, as the commenter seems to imply. Rather, 
payments are tied to a percentage of estimated capital costs. We 
estimate capital costs on the basis of the best information available, 
and we revise our estimates regularly in order to account for new data. 
The capital acquisition model, which is used to determine the 
appropriate budget neutrality adjustment factor, does consider the 
effects of obligated capital. The model also contains audit adjustments 
which account for unaudited HCRIS provider data. The model and its 
application are described more fully in appendix B.
    Comment: Two commenters expressed concern over the unpredictability 
of the Federal capital rate. One commenter expressed concern over the 
accuracy of the budget neutrality estimates, asserting that HCFA's 
inability to accurately estimate budget neutrality adjustments exposes 
them to financial distress. This commenter also noted that this 
situation will become more and more critical as the Federal rate 
assumes a larger and larger proportion of the payment rate for 
hospitals paid under the fully prospective payment method. Another 
commenter expressed concern over the accuracy of HCFA's capital 
projection model, stating that uncertainty regarding future capital 
payments affects their ability to obtain capital funding, and at a 
reasonable cost.
    Response: We are sensitive to hospitals' need for predictability in 
the levels of their capital payments. We recognize that uncertainty 
regarding future capital payments affects planning for capital 
purchases and obtaining capital funding. We therefore continually seek 
to improve the accuracy and reliability of our estimates. The budget 
neutrality estimates in this final rule have changed very little in 
relation to the estimates in the proposed rule. However, we are 
required by statute and regulations to set the rates according to our 
best estimate of capital costs, and we change those estimates as the 
data at our disposal warrants. We note that this budget neutrality 
requirement expires in FY 1996.
    Comment: One hospital questioned why the budget neutrality 
adjustment resulted in a decrease in its payments. The commenter stated 
the belief that, if the budget was actually neutral, then payments 
would be identical to those in the previous year. The commenter 
contended that HCFA is using funds allocated to capital payments to 
providers for some other purpose.
    Response: The commenter has mischaracterized the budget neutrality 
requirement: the regulations do not require that payments in one year 
should be identical to payments in the preceding year, either in the 
aggregate or for individual hospitals. The regulations require that 
aggregate payments made each year in FY 1992 through FY 1995 for 
hospital inpatient services be reduced in a manner that results in 
payments equal to 90 percent of the amount the Secretary estimates 
would have been payable on a reasonable cost basis for inpatient 
capital-related costs in that year. Thus, aggregate payments will 
increase or decrease in any given year depending on the increase or 
decrease in estimated Medicare inpatient capital-related costs.
    As discussed above, we estimate that aggregate payments this year 
will increase 5.32 percent. This increase in payments is less than the 
estimated increase in costs (5.7 percent) because we estimate that 
payments in FY 1994 exceeded the budget neutrality target by 0.32 
percent. Although aggregate capital payments may increase in a 
particular year, payments to an individual hospital may increase or 
decrease for that same year. The way individual hospitals are affected 
will vary, depending upon their current capital payment method. It is 
possible that an individual hospital, especially a hospital paid based 
on 100 percent of the Federal rate, could experience a decrease in 
capital payment due to the reduction in the Federal rate. We have set 
the capital rates at the level necessary to pay the full amount 
required by the law and the regulations.
    For FY 1995, we proposed a budget neutrality factor of 0.7986. In 
this final rule, the budget neutrality adjustment factor is 0.8432. The 
budget neutrality factors are not built permanently into the rates; 
that is, the factors are not applied cumulatively in determining the 
Federal rate. The FY 1994 budget neutrality factor was .8947. The net 
adjustment to the FY 1994 Federal rate will therefore be .8432/.8947 or 
0.9424.
    5. Exceptions Payment Adjustment Factor. Section 412.308(c)(3) 
requires that the standard Federal rate for inpatient capital-related 
costs be reduced by an adjustment factor equal to the estimated 
additional payments for exceptions under Sec. 412.348 determined as a 
proportion of total payments under the hospital-specific rate and 
Federal rate. The model developed for determining the budget neutrality 
adjustment factor is also used to estimate payments under the 
exceptions payment process and to determine the exceptions payment 
adjustment factor.
    For FY 1994, we estimated that exceptions payments would equal 5.15 
percent of aggregate payments based on the Federal rate and the 
hospital-specific rate. Therefore, we applied an exceptions reduction 
factor of 0.9485 (1-.0515) in determining the Federal rate. For FY 
1995, we estimated in the May 27, 1994, proposed rule that exceptions 
payments would equal 2.03 percent of aggregate payments based on the 
Federal rate and the hospital-specific rate. Therefore, we proposed to 
apply an exceptions reduction factor of 0.9797 (1-.0203) to determine 
the FY 1995 Federal rate. For the final rule, we estimate that 
exceptions payments for FY 1995 will equal 2.66 percent of aggregate 
payments based on the Federal rate and the hospital-specific rate. We 
are therefore applying an exceptions payment reduction factor of 0.9734 
to the Federal rate for FY 1995.
    The final exceptions reduction factor for FY 1995 is thus 2.63 
percent higher than the factor for FY 1994, and 0.64 percent lower than 
the factor in the FY 1995 proposed rule. We have generally expected 
exceptions payments to increase during the transition period as 
payments are based increasingly on the Federal rate. However, it is 
also to be expected that the general tendency for exceptions payments 
to increase could be reversed by lower rates of increase in capital 
cost per case. In other words, as capital costs per case increase more 
slowly, fewer hospitals than we previously estimated will qualify for 
exceptions payments by falling below their minimum payment levels, and 
those that still do qualify may receive somewhat smaller payments. We 
believe that this explains the lower level of exceptions payments for 
FY 1995 as compared to FY 1994.
    The exceptions reductions factors are not built permanently into 
the rates; that is, the factors are not applied cumulatively in 
determining the Federal rate. The net adjustment to the FY 1995 Federal 
rate is therefore .9734/.9485, or 1.0263.
    6. Standard Federal Rate for FY 1995. For FY 1994, the Federal rate 
was $378.34. With the changes we proposed to the factors used to 
establish the Federal rate, we proposed that the FY 1995 Federal rate 
would be $353.87. In this final rule, we are establishing an FY 1995 
Federal rate of $376.83. The final Federal rate for FY 1995 was 
calculated as follows:
     The FY 1995 update factor is 1.0344.
     The FY 1995 outlier adjustment factor is 0.9414.
     The FY 1995 budget neutrality adjustment factor that is 
applied to the standard Federal payment rate for changes in the DRG 
relative weights and in the geographic adjustment factor is 0.9998.
     The FY 1995 budget neutrality adjustment factor that is 
applied to the standard Federal payment rate and the hospital-specific 
rate to assure that aggregate payments equal 90 percent of payments 
that would have been made on a reasonable cost basis is 0.8432.
     The FY 1995 exceptions payments adjustment factor is 
0.9734.
    Since the Federal rate has already been adjusted for differences in 
case mix, wages, cost of living, indirect medical education costs, and 
payments to hospitals serving a disproportionate share of low-income 
patients, we propose to make no additional adjustments in the standard 
Federal rate for these factors other than the budget neutrality factors 
for changes in the DRG relative weights and the geographic adjustment 
factor.
    Comment: Several commenters expressed concern about a proposed 
reduction in capital payments. One commenter noted a decline of 6.47 
percent in the proposed capital payment rate, and an overall decline of 
14.9 percent from the inception of PPS capital rules.
    Response: We are required to adjust the Federal rate and the 
hospital-specific rate so that aggregate payments under the prospective 
payment system for capital-related costs equal 90 percent of what it is 
estimated would have been paid on the basis of reasonable costs. While 
we did propose a reduction in the Federal rate to meet that 
requirement, we did not propose a reduction in payments, as the 
commenter states. In this final rule, we estimate that aggregate 
payments will increase 5.32 percent despite a 0.40 percent decrease in 
the Federal rate.
    As for the overall decline in the Federal rate since FY 1992, 
Public Law 103-66 required that, for discharges occurring after 
September 30, 1993, the unadjusted standard Federal rate be reduced by 
7.4 percent. Therefore, a large portion of the reduction to the Federal 
rate was the result of a Congressional action. Congress took this 
action on the basis of data that capital cost per case estimates used 
in setting the rate were too high.
    We are providing a chart that shows how each of the factors and 
adjustments for FY 1995 affected the computation of the final FY 1995 
Federal rate in comparison to the FY 1994 Federal rate. The FY final 
1995 update factor has the effect of increasing the Federal rate 3.44 
percent compared to the rate in FY 1994, while the final geographic and 
DRG budget neutrality factor has the effect of decreasing the Federal 
rate by 0.42 percent. The final FY 1995 exceptions reduction factor has 
the effect of increasing the final Federal rate by 2.63 percent 
compared to the exceptions reduction for FY 1994. The final FY 1995 
budget neutrality adjustment factor has the effect of reducing the 
final FY 1994 rate by 5.76 percent compared to the budget neutrality 
reduction in FY 1994. The combined effect of all the changes is to 
decrease the FY 1995 Federal rate by 0.40 percent compared to the 
Federal rate for FY 1994.

 Comparison of Factors and Adjustments: FY 1994 Federal Rate and FY 1995
                              Federal Rate                              
------------------------------------------------------------------------
                                                                Percent 
                                                      Change     change 
------------------------------------------------------------------------
Update factor:\1\                                                       
  FY 1994...............................    1.0304  .........  .........
  FY 1995...............................    1.0344     1.0344       3.44
GAF/DRG adjustment factor:\1\                                           
  FY 1994...............................    1.0053  .........  .........
  FY 1995...............................    0.9998     0.9998      -0.02
Outlier adjustment factor:\2\                                           
  FY 1994...............................    0.9454  .........  .........
  FY 1995...............................    0.9414     0.9958      -0.42
Exceptions adjustment factor:                                           
  FY 1994\2\............................    0.9485  .........  .........
  FY 1995...............................    0.9734     1.0263       2.63
Budget neutrality adjustment factor:\2\                                 
  FY 1994...............................    0.8947  .........  .........
  FY 1995...............................    0.8432     0.9424      -5.76
Federal Rate:                                                           
  FY 1994...............................   $378.34  .........  .........
  FY 1995...............................   $376.83     0.9960      -0.40
------------------------------------------------------------------------
\1\The update factor and the GAF/DRG budget neutrality factors are built
  permanently into the rates. Thus, for example, the incremental change 
  from FY 1994 to FY 1995 resulting from the application of the 0.9998  
  GAF/DRG budget neutrality factor for FY 1995 is 0.9998.               
\2\The outlier reduction factor, the exceptions reduction factor, and   
  the budget neutrality factor to assure that payments do not exceed 90 
  percent of what it is estimated would have been paid on the basis of  
  reasonable cost are not built permanently into the rates; that is,    
  these factors are not applied cumulatively in determining the rates.  
  Thus, for example, the net change resulting from the application of   
  the FY 1995 exceptions reduction factor is 0.9734/0.9485, or 1.0263.  

    We have refined our proposed budget neutrality and exceptions 
reduction factors for FY 1995 on the basis of the best available data. 
We have not retroactively adjusted the Federal rate for FY 1994 in 
determining the rate for FY 1995.
    We are also providing a chart that shows how the final FY 1995 
Federal rate differs from the proposed FY 1995 Federal rate.
      

Comparison of Factors and Adjustments: Proposed FY 1995 Federal Rate and
                       Final FY 1995 Federal Rate                       
------------------------------------------------------------------------
                                                                Percent 
                                                      Change     change 
------------------------------------------------------------------------
Update factor:                                                          
Proposed FY 1995........................    1.0222  .........  .........
Final FY 1995...........................    1.0344     1.0119       1.19
GAF/DRG adjustment factor:                                              
Proposed FY 1995........................    1.0012  .........  .........
Final FY 1995...........................    0.9998     0.9987      -0.13
Outlier adjustment factor:                                              
Proposed FY 1995........................    0.9372  .........  .........
Final FY 1995...........................    0.9414     1.0045       0.45
Exceptions adjustment factor:                                           
Proposed FY 1995........................    0.9797  .........  .........
Final FY 1995...........................    0.9734     0.9936      -0.64
Budget neutrality adjustment factor:                                    
Proposed FY 1995........................    0.7986  .........  .........
Final FY 1995...........................    0.8432     1.0558       5.58
Federal Rate:                                                           
Proposed FY 1995........................   $353.87  .........  .........
Final FY 1995...........................   $376.83     1.0649       6.49
------------------------------------------------------------------------

    This chart shows that the major factor in the 6.49 percent increase 
in the rate since the proposed rule is the 5.58 percent increase in the 
budget neutrality factor. The other significant factor contributing to 
the increase in the rate was the 1.19 percent increase in the update 
factor.
    6. Special Rate for Puerto Rico Hospitals. For FY 1994, the special 
rate for Puerto Rico hospitals was $291.03. With the changes we 
proposed making to the factors used to determine the rate, the proposed 
FY 1995 special rate for Puerto Rico was $272.20. In this final rule, 
the standard rate for Puerto Rico is $289.87.
B. Determination of Hospital-Specific Rate Update
    Section 412.328(e) of the regulations provides that the hospital-
specific rate for FY 1995 be determined by adjusting the FY 1994 
hospital-specific rate by the following factors:
    1. Hospital-Specific Rate Update Factor. The hospital-specific rate 
is updated in accordance with the update factor for the standard 
Federal rate determined under Sec. 412.308(c)(1). For FY 1995, we 
proposed that the hospital-specific rate be updated by a factor of 
1.0222. In this final rule, we are updating the hospital- specific rate 
by a factor of 1.0344.
    2. Exceptions Payment Adjustment Factor. For FY 1992 through FY 
2001, the updated hospital-specific rate is multiplied by an adjustment 
factor to account for estimated exceptions payments for capital-related 
costs under Sec. 412.348, determined as a proportion of the total 
amount of payments under the hospital-specific rate and the Federal 
rate. For FY 1995, we estimated in the proposed rule that exceptions 
payments would be 2.03 percent of aggregate payments based on the 
Federal rate and the hospital-specific rate. We therefore proposed that 
the updated hospital-specific rate be reduced by a factor of 0.9797. In 
this final rule, we are applying an exceptions reduction factor of 
0.9734 to the hospital-specific rate. The exceptions reductions factors 
are not built permanently into the rates; that is, the factors are not 
applied cumulatively in determining the hospital-specific rate. The net 
adjustment to the FY 1995 hospital-specific rate is therefore .9734/
.9485, or 1.0263.
    3. Budget Neutrality Adjustment Factor. For FY 1992 through FY 
1995, the updated hospital-specific rate is adjusted by a budget 
neutrality adjustment factor determined under Sec. 412.352, so that 
estimated aggregate payments under the capital prospective payment 
system will equal 90 percent of what would have been payable on a 
reasonable cost basis. (The budget neutrality adjustment for changes in 
the DRG relative weights and in the geographic adjustment factor is not 
applied to the hospital-specific rate.) For FY 1994, the budget 
neutrality adjustment was 0.8947. For FY 1995, we proposed a budget 
neutrality factor of 0.7986. In this final rule, we are applying a 
budget neutrality factor of 0.8432 to the hospital-specific rate. The 
budget neutrality factor is not built permanently into the rates; that 
is, the factor is not applied cumulatively in determining the hospital-
specific rate. The net adjustment to the FY 1995 hospital-specific rate 
is therefore .8432/.8947, or 0.9424.
    4. Net Change to Hospital-Specific Rate. We are providing a chart 
below to show the net change to the hospital-specific rate. The chart 
shows the factors for FY 1994 and FY 1995 and the net adjustment for 
each factor. It also shows that the cumulative net adjustment from FY 
1994 to FY 1995 is 1.0005, which represents an increase of 0.05 percent 
to the hospital-specific rate, as opposed to the 5.76 percent decrease 
to the hospital-specific rate in the proposed rule. The FY 1995 
hospital-specific rate for each hospital is determined by multiplying 
the FY 1994 hospital-specific rate by the cumulative net adjustment of 
1.0005.

        FY 1995 Update and Adjustments to Hospital-Specific Rates       
------------------------------------------------------------------------
                                                       Net      Percent 
                                                   adjustment    change 
------------------------------------------------------------------------
Update factor:                                                          
  FY 94................................    1.0304  ..........  .........
  FY 95................................    1.0344      1.0344       3.44
Exceptions payment adjustment factor:                                   
  FY 94................................    0.9485  ..........  .........
  FY 95................................    0.9734      1.0263       2.63
Budget neutrality factor:                                               
  FY 94................................    0.8947  ..........  .........
  FY 95................................    0.8432      0.9424      -5.76
Cumulative adjustments:                                                 
  FY 94................................    0.8744  ..........  .........
  FY 95................................    0.8748      1.0005       0.05
------------------------------------------------------------------------
Note: The update factor for the hospital-specific rate is applied       
  cumulatively in determining the rates. Thus, the incremental increase 
  in the update factor from FY 1994 to FY 1995 is 1.0344. In contrast,  
  the exceptions payment adjustment factor and the budget neutrality    
  factor are not applied cumulatively. Thus, for example, the           
  incremental increase in the budget neutrality factor from FY 1994 to  
  FY 1995 is .8432/.8947, or .9424.                                     

C. Calculation of Inpatient Capital-Related Prospective Payments for FY 
1995
    During the capital prospective payment system transition period, a 
hospital is paid for the inpatient capital-related costs under one of 
two alternative payment methodologies: The fully prospective payment 
methodology or the hold-harmless methodology. The payment methodology 
applicable to a particular hospital is determined when a hospital comes 
under the prospective payment system for capital-related costs by 
comparing its hospital-specific rate to the Federal rate applicable to 
the hospital's first cost reporting period under the prospective 
payment system. The applicable Federal rate was determined by 
adjusting:
     For outliers by dividing the standard Federal rate by the 
outlier reduction factor for that fiscal year; and,
     For the payment adjustment factors applicable to the 
hospital (that is, the hospital's geographic adjustment factor, the 
disproportionate share adjustment factor, and the indirect medical 
education adjustment factor, when appropriate).
    If the hospital-specific rate is above the applicable Federal rate, 
the hospital is paid under the hold-harmless methodology. If the 
hospital-specific rate is below the applicable Federal rate, the 
hospital is paid under the fully prospective methodology.
    For purposes of calculating payments for each discharge under both 
the hold-harmless payment methodology and the fully prospective payment 
methodology, the standard Federal rate is adjusted as follows:

(Standard Federal Rate)  x  (DRG weight)  x  (Geographic Adjustment 
Factor)  x  (Large Urban Add-on, if applicable)  x  (COLA adjustment 
for hospitals located in Alaska and Hawaii)  x  (1+Disproportionate 
Share Adjustment Factor + Indirect Medical Education Adjustment Factor, 
if applicable).

The result is termed the adjusted Federal rate.
    Payments under the hold-harmless methodology are determined under 
one to two formulas. A hold-harmless hospital is paid the higher of:
     100 percent of the adjusted Federal rate for each 
discharge; or
     An old capital payment equal to 85 percent (100 percent 
for sole community hospitals) of the hospital's allowable Medicare 
inpatient old capital costs per discharge for the cost reporting period 
plus a new capital payment based on a percentage of the adjusted 
Federal rate for each discharge. The percentage of the adjusted Federal 
rate equals the ratio of the hospital's allowable Medicare new capital 
costs to its total Medicare inpatient capital-related costs in the cost 
reporting period.
    Once a hospital receives payment based on 100 percent of the 
adjusted Federal rate in a cost-reporting period beginning on or after 
October 1, 1994 (or the first cost reporting period after obligated 
capital that is recognized as old capital under Sec. 412.302(c) is put 
in use for patient care, if later), the hospital continues to receive 
capital prospective payment system payments on that basis for the 
remainder of the transition period.
    Payment for each discharge under the fully prospective methodology 
is the sum of:
     The hospital-specific rate multiplied by the DRG relative 
weight for the discharge and by the applicable hospital-specific 
transition blend percentage for the cost reporting period; and
     The adjusted Federal rate multiplied by the Federal 
transition blend percentage.
    The blend percentages for cost reporting periods beginning in FY 
1995 or 40 percent of the adjusted Federal rate and 60 percent of the 
hospital-specific rate.
    Hospitals may also receive outlier payments for those cases that 
qualify under the thresholds established for each fiscal year. Section 
412.312(c) provides for a single set of thresholds to identify outlier 
cases for both inpatient operating and inpatient capital-related 
payments. Outlier payments are made only on that portion of the Federal 
rate that is used to calculate the hospital's inpatient capital-related 
payments. For fully prospective hospitals, that portion is 40 percent 
of the Federal rate for discharges occurring in cost reporting periods 
beginning during FY 1995. Thus, a fully prospective hospital will 
receive 40 percent of the capital-related outlier payment calculated 
for the case for discharges occurring in cost reporting periods 
beginning in FY 1995. For hold-harmless hospitals paid 85 percent of 
their reasonable costs for old inpatient capital, the portion of the 
Federal rate that is included in the hospital's outlier payments is 
based on the hospital's ratio of Medicare inpatient costs for new 
capital to total Medicare inpatient capital costs. For hold-harmless 
hospitals that are paid 100 percent of the Federal rate, 100 percent of 
the Federal rate is included in the hospital's outlier payments.
    The outlier thresholds for FY 1995 are published in section 
II.A.4.c of the Addendum to this final rule. For FY 1995, a case 
qualifies as a cost outlier if the cost for the case (after 
standardization for the indirect teaching adjustment and 
disproportionate share adjustment) is greater than the prospective 
payment rate for the DRG plus $20,500. A case qualifies as a day 
outlier for FY 1995 if the length of stay is greater than the geometric 
mean length of stay for the DRG plus the lesser of three standard 
deviations of the length of stay or 22 days.
    During the capital prospective payment system transition period, 
any hospital may also receive an additional payment under an exceptions 
process if its total inpatient capital-related payments are less than a 
minimum percentage of its allowable Medicare inpatient capital-related 
costs. The minimum payment level is established by class of hospital 
under Sec. 412.348. The minimum payment levels for portions of cost 
reporting periods occurring in FY 1995 are:
     Sole community hospitals (located in either an urban or 
rural area), 90 percent;
     Urban hospitals with at least 100 beds and a 
disproportionate share patient percentage of at least 20.2 percent and 
urban hospitals with at least 100 beds that qualify for 
disproportionate share payments under Sec. 412.106(c)(2), 80 percent; 
and,
     All other hospitals, 70 percent. Under Sec. 412.348(d), 
the amount of the exceptions payment is determined by comparing the 
cumulative payments made to the hospital under the capital prospective 
payment system to the cumulative minimum payment levels applicable to 
the hospital for each cost reporting period subject to that system. Any 
amount by which the hospital's cumulative payments exceed its 
cumulative minimum payment is deducted from the additional payment that 
would otherwise be payable for a cost reporting period.
    New hospitals are exempted from the capital prospective payment 
system for their first 2 years of operation and are paid 85 percent of 
their reasonable costs during that period. A new hospital's old capital 
costs are its allowable costs for capital assets that were put in use 
for patient care on or before the later of December 31, 1990 or the 
last day of the hospital's base year cost reporting period, and are 
subject to the rules pertaining to old capital and obligated capital as 
of the applicable date. Effective with the third year of operation, we 
will pay the hospital under either the fully prospective methodology, 
using the appropriate transition blend in that Federal fiscal year, or 
the hold-harmless methodology. If the hold-harmless methodology is 
applicable, the hold-harmless payment for assets in use during the base 
period would extend for 8 years, even if the hold-harmless payments 
extend beyond the normal transition period.

IV. Changes for Excluded Hospitals and Units

A. Rate-of-Increase Percentages for Excluded Hospitals and Units
    The inpatient operating costs of hospitals and hospital units 
excluded from the prospective payment system are subject to rate-of-
increase limits established under the authority of section 1886(b) of 
the Act, which is implemented in Sec. 413.40 of the regulations. Under 
these limits, an annual target amount (expressed in terms of the 
inpatient operating cost per discharge) is set for each hospital, based 
on the hospital's own historical cost experience trended forward by the 
applicable rate-of-increase percentages (update factors). The target 
amount is multiplied by the number of Medicare discharges in a 
hospital's cost reporting period, yielding the ceiling on aggregate 
Medicare inpatient operating costs for the cost reporting period.
    Effective with cost reporting periods beginning on or after October 
1, 1991, a hospital that has Medicare inpatient operating costs in 
excess of its ceiling is paid its ceiling plus 50 percent of its costs 
in excess of the ceiling. Total payment may not exceed 110 percent of 
the ceiling. A hospital that has inpatient operating costs less than 
its ceiling will continue to be paid its costs plus the lower of--
     Fifty percent of the difference between the allowable 
inpatient operating costs and the ceiling; or
     Five percent of the ceiling.
    Each hospital's target amount is adjusted annually, at the 
beginning of its cost reporting period, by an applicable rate-of-
increase percentage. Section 13502 of Public Law 103-66 amended section 
1886(b)(3)(B) of the Act to provide that for cost reporting periods 
beginning on or after October 1, 1993 and before October 1, 1994, the 
applicable rate-of-increase percentage is the market basket percentage 
increase minus the lesser of one percentage point, or the percentage 
point difference between 10 percent and the hospital's ``update 
adjustment percentage'' except for hospitals with an ``update 
adjustment percentage'' of at least 10 percent. The rate-of-increase 
percentage for hospitals in the latter case will be the market basket 
percentage increase. The ``update adjustment percentage'' is the 
percentage by which a hospital's allowable inpatient operating costs 
exceeds the hospital's ceiling for the cost reporting period beginning 
in Federal fiscal year 1990. For cost reporting periods beginning on or 
after October 1, 1994 and before October 1, 1997, the update adjustment 
percentage is the update adjustment percentage from the previous year 
plus the previous year's applicable reduction. The applicable reduction 
and applicable rate of increase percentage are then determined in the 
same manner as for FY 1994. The most recent forecasted market basket 
increase for FY 1995 for hospitals and hospital units excluded from the 
prospective payment system is 3.7 percent.
B. Wage Index Exceptions for Excluded Hospitals and Units
    In the August 30, 1991 final rule (56 FR 43232), we set forth our 
policy for target amount adjustments for significant wage increases. 
Effective with cost reporting periods beginning on or after April 1, 
1990, significant increases in wages since the base period are 
recognized as a basis for an adjustment in the target amount under 
Sec. 413.40(g).
    To qualify for an adjustment, the excluded hospital or hospital 
unit must be located in a labor market area for which the average 
hourly wage increased significantly more than the national average 
hourly wage between the hospital's base period and the period subject 
to the ceiling. We use the hospital wage index for prospective payment 
hospitals to determine the rate of increase in the average hourly wage 
in the labor market area. For a hospital to qualify for an adjustment, 
the wage index value for the cost reporting period subject to the 
ceiling must be at least 8 percent higher than the wage index based on 
wage survey data collected for the base year cost reporting period. If 
survey data are not available for one (or both) of the cost reporting 
periods used in the comparison, the wage index based on the latest 
available survey data collected prior to that cost reporting period 
will be used. For example, to make the comparison between a 1983 base 
period and a hospital's cost reporting period beginning in FY 1992, we 
would use the rate of increase between the wage index based on 1982 
wage data and the wage index based on the FY 1991 data, since the FY 
1991 data are the most recent data that are currently available. 
Further, the comparison is made without regard to geographic 
reclassifications made by the MGCRB under sections 1886(d)(8) and (10) 
of the Act. Therefore, the comparison is made based on the wage index 
value of the labor market area in which the hospital is actually 
located.
    We determine the amount of the adjustment for wage increases by 
considering three factors for the time between the base period and the 
period for which an adjustment is requested: the rate of increase in 
the hospital's average hourly wage; the rate of increase in the average 
hourly wage in the labor market area in which the hospital is located; 
and, the rate of increase in the national average hourly wage for 
hospital workers. The adjustment is limited to the amount by which the 
lower of the hospital's or the labor market area's rate of increase in 
average hourly wages significantly exceeds the national increase (that 
is, exceeds the national rate of increase by more than 8 percent). For 
purposes of computing the adjustment, the relative rate of increase in 
the average hourly wage for the labor market area is assumed to have 
been the same over each of the intervening years between the wage 
surveys.
    To determine the rate of increase in the national average hourly 
wage, we use the average hourly earnings (AHE) component of the wages 
and salaries portion of the market basket. This measure is derived from 
the 1982-based market basket since the 1987-based market basket uses 
the employment cost index (ECI) for hospital workers as the price proxy 
for this component. Unlike the AHE, the ECI for hospital workers can be 
measured historically only back to 1986. In addition, the ECI does not 
adjust for skill-mix shifts and, therefore, measures only the change in 
wage rates per hour.
    The average hourly earnings for hospital workers as measured by the 
market basket show the following increases:

    1992=4.8 percent
    1993=3.7 percent
    1994=2.8 percent
    1995=3.4 percent
    1996=4.3 percent

    We note that this section merely provides updated information with 
respect to areas that would qualify for the wage index adjustment under 
Sec. 413.30(g). This information was calculated in accordance with 
established policy and does not reflect any change in that policy. The 
geographic areas in which the percentage difference in wage indexes was 
sufficient to qualify for a wage index adjustment are listed in Table 
10 of section V of the addendum to this final rule. The table is 
constructed with old MSAs instead of the revised MSAs effective October 
1, 1993 because current adjustment requests are for years prior to FY 
1995.

V. Tables

    This section contains the tables referred to throughout the 
preamble to this final rule and in this addendum. For purposes of this 
final rule, and to avoid confusion, we have retained the designations 
of Tables 1 through 5 that were first used in the September 1, 1983 
initial prospective payment final rule (48 FR 39844). Tables 1a, 1b, 
1c, 1d, 3C, 4a, 4b, 4c, 4d, 4e, 5, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 7A, 7B, 
8a, 8b, 9 and 10 are presented below. The tables presented below are as 
follows:

Table 1a--National Adjusted Operating Standardized Amounts, Labor/
Nonlabor
Table 1b--Regional Adjusted Operating Standardized Amounts, Labor/
Nonlabor
Table 1c--Adjusted Operating Standardized Amounts for Puerto Rico, 
Labor/Nonlabor
Table 1d--Capital Standard Federal Payment Rate
Table 3C--Hospital Case Mix Indexes for Discharges Occurring in Federal 
Fiscal Year 1993 and Hospital Average Hourly Wage for Federal Fiscal 
Year 1995 Wage Index
Table 4a--Wage Index and Capital Geographic Adjustment Factor (GAF) for 
Urban Areas
Table 4b--Wage Index and Capital Geographic Adjustment Factor (GAF) for 
Rural Areas
Table 4c--Wage Index and Capital Geographic Adjustment Factor (GAF) for 
Hospitals That Are Reclassified
Table 4d--Average Hourly Wage for Urban Areas
Table 4e--Average Hourly Wage for Rural Areas
Table 5--List of Diagnosis Related Groups (DRGs), Relative Weighting 
Factors, Geometric Mean Length of Stay, and Length of Stay Outlier 
Cutoff Points Used in the Prospective Payment System
Table 6a--New Diagnosis Codes
Table 6b--New Procedure Codes
Table 6c--Invalid Diagnosis Codes
Table 6d--Revised Diagnosis Code Titles
Table 6e--Revised Procedure Code Titles
Table 6f--Additions to the CC Exclusions List
Table 6g--Deletions to the CC Exclusions List
Table 7A--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay FY 93 MEDPAR Update 6/94 GROUPER V11.0
Table 7B--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay FY 93 MEDPAR Update 6/94 GROUPER V12.0
Table 8a--Statewide Average Operating Cost-to-Charge Ratios for Urban 
and Rural Hospitals (Case Weighted) April 1994
Table 8b--Statewide Average Capital Cost-to-Charge Ratios for Urban and 
Rural Hospitals (Case Weighted) April 1994
Table 9--1993 Transfer Adjusted Case-Mix Index and Transfer Adjustment 
to Discharges for Capital Hospital-Specific Rate Redeterminations
Table 10--Percentage Difference in Wage Indexes for Areas That Qualify 
for a Wage Index Exception for Excluded Hospitals and Units

   Table 1a.--National Adjusted Operating Standardized Amounts, Labor/  
                                Nonlabor                                
------------------------------------------------------------------------
               Large urban areas                       Other areas      
------------------------------------------------------------------------
                                    Nonlabor-      Labor-     Nonlabor- 
          Labor-related              related      related      related  
------------------------------------------------------------------------
$2,709.42........................    $1,085.29    $2,666.52    $1,068.10
------------------------------------------------------------------------


   Table 1b.--Regional Adjusted Operating Standardized Amounts, Labor/  
                                Nonlabor                                
------------------------------------------------------------------------
                             Large urban areas       Other urban areas  
                         -----------------------------------------------
                            Labor-     Nonlabor-    Labor-     Nonlabor-
                           related      related    related      related 
------------------------------------------------------------------------
1. New England (CT, ME,                                                 
 MA, NH, RI, VT)........   $2,840.62   $1,137.84   $2,795.63   $1,119.82
2. Middle Atlantic (PA,                                                 
 NJ, NY)................    2,592.46    1,038.44    2,551.42    1,022.00
3. South Atlantic (DE,                                                  
 DC, FL, GA, MD, NC, SC,                                                
 VA, WV)................    2,654.29    1,063.21    2,612.28    1,046.38
4. East North Central                                                   
 (IL, IN, MI, OH, WI)...    2,892.31    1,158.55    2,846.52    1,140.20
5. East South Central                                                   
 (AL, KY, MS, TN).......    2,508.24    1,004.71    2,468.53      988.80
6. West North Central                                                   
 (IA, KS, MN, MO, NE,                                                   
 ND, SD)................    2,711.20    1,085.99    2,668.26    1,068.80
7. West South Central                                                   
 (AR, LA, OK, TX).......    2,638.83    1,057.01    2,597.06    1,040.27
8. Mountain (AZ, CO, ID,                                                
 MT, NV, NM, UT, WY)....    2,621.88    1,050.22    2,580.37    1,033.59
9. Pacific (AK, CA, HI,                                                 
 OR, WA)................    2,680.57    1,073.72    2,638.13   1,056.73 
------------------------------------------------------------------------


   Table 1c.--Adjusted Operating Standardized Amounts for Puerto Rico,  
                             Labor/Nonlabor                             
------------------------------------------------------------------------
                             Large urban areas          Other areas     
                         -----------------------------------------------
                            Labor-     Nonlabor-    Labor-     Nonlabor-
                           related      related    related      related 
------------------------------------------------------------------------
National................   $2,682.96   $1,074.69   $2,682.96    1,074.69
Puerto Rico.............    2,416.27      503.53    2,378.02      495.56
------------------------------------------------------------------------


            Table 1d.--Capital Standard Federal Payment Rate            
------------------------------------------------------------------------
                                                                  Rate  
------------------------------------------------------------------------
National.....................................................    $376.83
Puerto Rico..................................................     289.87
------------------------------------------------------------------------


                 Table 3c.--Hospital Case Mix Indexes for Discharges Occurring in Federal Fiscal Year 1993; Hospital Average Hourly Wage for Federal Fiscal Year 1995 Wage Index                
                                                                                          Page 1 of 16                                                                                          
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                Avg.                                   Avg.                                   Avg.                                   Avg.                                  Avg. 
     Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix   hour 
                      index     wage                         index     wage                         index     wage                         index     wage                         index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
010001............   01.3442   15.05   010095............   01.0795   09.76   020027............   00.9878  .......  030095............   01.1917  .......  040091............   01.3720   19.00
010004............   01.0487   10.14   010096............   01.0307  .......  030001............   01.3699   18.78   040001............   01.1281   11.01   040093............   00.9699   10.69
010005............   01.1176   13.17   010097............   00.9084   11.13   030002............   01.7746   19.83   040002............   01.1992   13.30   040095............   00.8490   10.35
010006............   01.3877   13.78   010098............   00.9527   12.29   030003............   01.3832   19.56   040003............   00.9791   12.33   040100............   01.1199   12.90
010007............   01.0801   11.93   010099............   01.0409   11.87   030004............   01.0299   11.84   040004............   01.2828   13.41   040105............   01.0224   11.67
010008............   00.9889   09.72   010100............   01.2265   13.10   030006............   01.5786   16.65   040005............   00.9403   10.85   040106............   01.1860   09.69
010009............   01.0719   14.87   010101............   01.0924   13.51   030007............   01.2290   14.86   040007............   01.6632   16.45   040107............   01.1690   15.19
010010............   01.1136   11.37   010102............   00.8912   11.19   030008............   01.9726   19.55   040008............   01.0916   10.26   040109............   01.0815   12.01
010011............   01.4690   17.34   010103............   01.6306   14.92   030009............   01.2212   14.70   040010............   01.2155   12.51   040114............   01.7801   15.12
010012............   01.3013   13.75   010104............   01.5986   15.37   030010............   01.3714   17.87   040011............   00.9928   10.69   040116............   01.3712   17.33
010015............   01.0329   12.67   010108............   01.2436   12.94   030011............   01.4628   18.72   040013............   00.9538   10.97   040118............   01.1420   12.62
010016............   01.1882   12.69   010109............   01.0737   12.62   030012............   01.2287   15.25   040014............   01.2059   14.37   040119............   01.1531   12.60
010018............   00.8766   14.94   010110............   00.9976   10.56   030013............   01.2275   16.12   040015............   01.1102   11.30   040124............   01.2008   12.65
010019............   01.2446   12.48   010112............   01.1606   12.89   030014............   01.4712   18.10   040016............   01.6978   14.44   040126............   00.9931   10.09
010021............   01.2841   13.82   010113............   01.6227   12.67   030016............   01.3398   21.17   040017............   01.3329   11.19   040132............   00.9040   11.45
010022............   00.9852   14.35   010114............   01.2586   14.30   030017............   01.4213   16.52   040018............   01.2816   15.40   050002............   01.3599   24.36
010023............   01.3996   14.63   010115............   00.8731   13.94   030018............   01.7379   19.49   040019............   01.1973   11.70   050006............   01.3569   18.76
010024............   01.3249   14.19   010117............   00.9039   17.92   030019............   01.2374   19.51   040020............   01.4992   12.86   050007............   01.5315   24.12
010025............   01.2163   11.22   010118............   01.2144   14.55   030022............   01.4990   17.29   040021............   01.2777   13.19   050008............   01.5683   24.13
010027............   00.8697   12.83   010119............   01.1022   14.41   030023............   01.2779   15.17   040022............   01.8439   12.85   050009............   01.5121   22.22
010029............   01.4519   13.86   010120............   00.9922   13.31   030024............   01.6768   18.15   040024............   01.0193   10.84   050013............   01.9683   21.58
010031............   01.2731   12.35   010121............   01.1798   12.93   030025............   01.1273   13.58   040025............   00.9299   10.28   050014............   01.0992   19.15
010032............   00.9123   13.01   010122............   00.8442  .......  030027............   01.1398   14.27   040026............   01.5777   14.46   050015............   01.3294   20.74
010033............   01.9003   17.10   010123............   01.2698   15.56   030030............   01.6884   21.32   040027............   01.3022   12.52   050016............   01.1475   19.69
010034............   01.0490   12.98   010124............   01.2786   14.78   030033............   01.2464   14.70   040028............   01.0200   08.78   050017............   02.0513   22.70
010035............   01.1935   13.35   010125............   01.0379   11.83   030034............   01.1126   15.82   040029............   01.1562   12.86   050018............   01.3054   16.74
010036............   01.1318   14.33   010126............   01.0647   11.19   030035............   01.2953   18.75   040030............   00.9105   11.23   050019............   00.8715  ......
010038............   01.2377   14.62   010127............   01.5497   15.59   030036............   01.1799   17.67   040031............   00.7835   10.74   050021............   01.3033   20.12
010039............   01.6341   14.65   010128............   00.9501   11.41   030037............   01.9356   20.11   040032............   00.9923   09.75   050022............   01.4793   21.23
010040............   01.4331   16.04   010129............   01.0839   10.44   030038............   01.5349   18.27   040035............   00.9432   09.29   050024............   01.4202   22.43
010043............   01.0160   12.49   010130............   01.0853   13.73   030040............   01.0462   16.22   040036............   01.3635   14.75   050025............   01.6421   21.40
010044............   01.0348   14.66   010131............   01.2386   16.21   030041............   00.9318   16.66   040037............   01.1669   10.55   050026............   01.4946   20.53
010045............   01.1137   11.53   010134............   00.8782   10.46   030043............   01.1886   19.23   040039............   01.2310   11.05   050028............   01.3231   15.49
010046............   01.3961   12.45   010136............   00.9052   13.02   030044............   01.0476   13.44   040040............   01.1237   14.85   050029............   01.2641   24.70
010047............   00.9961   08.62   010137............   01.2852   14.66   030046............   00.9869   17.75   040041............   01.3496   12.90   050030............   01.3478   17.25
010049............   01.0940   13.92   010138............   00.9632   11.08   030047............   00.9416   16.97   040042............   01.2528   12.86   050032............   01.2633   20.61
010050............   00.9552   10.19   010139............   01.6336   19.91   030049............   00.9762   14.22   040044............   00.9057   09.86   050033............   01.4526   24.20
010051............   00.9138   07.25   010143............   01.1697   14.49   030054............   00.8935   12.19   040045............   01.0376   13.11   050036............   01.7666   21.61
010052............   00.9459   12.78   010144............   01.3177   15.51   030055............   01.2529   15.39   040047............   00.9968   13.53   050038............   01.4599   27.19
010053............   01.0626   12.36   010145............   01.2434   16.15   030059............   01.3055   18.17   040048............   01.2032   12.62   050039............   01.6355   20.21
010054............   01.1953   14.52   010146............   01.1189   15.02   030060............   01.0566   13.68   040050............   01.1328   10.29   050040............   01.2599   22.53
010055............   01.3849   14.09   010148............   00.9529   11.17   030061............   01.5825   15.57   040051............   01.0572   11.86   050041............   01.2850   21.60
010056............   01.3838   16.34   010149............   01.4278   15.65   030062............   01.3479   14.98   040053............   01.1474   12.16   050042............   01.2659   17.98
010058............   01.0082   07.49   010150............   01.0415   13.50   030064............   01.5514   16.64   040054............   01.0580   10.02   050043............   01.5036   25.84
010059............   01.0573   13.64   010152............   01.3663   14.13   030065............   01.5217   18.30   040055............   01.3727   14.19   050045............   01.2478   17.59
010061............   01.0061   14.30   010153............   02.6152   18.16   030067............   01.0966   14.05   040058............   01.1501   12.39   050046............   01.1631   21.80
010062............   00.9862   10.43   010155............   00.9962   09.32   030068............   00.9652   13.73   040060............   00.9518   12.62   050047............   01.7720   27.86
010064............   01.8517   14.55   020001............   01.4507   24.33   030069............   01.3114   18.16   040062............   01.5168   14.54   050051............   01.1122   15.76
010065............   01.4385   13.58   020002............   00.9558   23.02   030071............   00.8850  .......  040063............   01.5633   14.49   050052............   01.8867  ......
010066............   00.9149   08.90   020004............   01.0660   23.25   030072............   00.8597  .......  040064............   00.8951   09.17   050054............   01.2695   19.42
010068............   01.2877   17.41   020005............   00.8704   22.74   030073............   01.1453  .......  040066............   01.1042   12.97   050055............   01.2753   24.47
010069............   01.1427   12.42   020006............   01.0780   22.50   030074............   01.0022  .......  040067............   01.0697   10.71   050056............   01.4260   21.51
010072............   01.1757   11.43   020007............   00.8969   18.20   030075............   00.9370  .......  040069............   01.0133   11.34   050057............   01.4685   18.64
010073............   00.9111   08.91   020008............   01.0533   25.53   030076............   00.9436  .......  040070............   00.9906   10.66   050058............   01.4153   21.51
010078............   01.2300   14.44   020009............   01.0441   19.58   030077............   00.9796  .......  040071............   01.3836   15.71   050060............   01.4793   17.85
010079............   01.1397   13.10   020010............   01.0273   26.51   030078............   01.0876  .......  040072............   01.1038   13.20   050061............   01.2803   19.57
010080............   00.9877   11.70   020011............   01.0005   21.11   030079............   00.6249  .......  040074............   01.2103   13.36   050063............   01.3995   19.94
010081............   01.8414   16.28   020012............   01.2962   22.42   030080............   01.6470   18.80   040075............   01.1241   10.83   050065............   01.5226   22.66
010083............   01.0473   15.00   020013............   01.0087   28.18   030083............   01.2863   19.53   040076............   01.0883   12.49   050066............   01.2416   22.96
010084............   01.3966   16.55   020014............   01.0943   24.09   030084............   01.1358  .......  040077............   00.9164   09.81   050067............   01.3641   21.76
010085............   01.2000   14.98   020017............   01.3855   23.44   030085............   01.4462   17.81   040078............   01.2703   14.53   050068............   01.0990   16.87
010086............   01.0091   11.41   020018............   00.9915  .......  030086............   01.1453   17.91   040080............   01.0472   14.19   050069............   01.6099   22.39
010087............   01.8168   14.94   020019............   00.8136  .......  030087............   01.6386   16.84   040081............   00.8861   09.28   050070............   01.2333   27.81
010089............   01.1454   14.71   020020............   00.8059  .......  030088............   01.3584   17.48   040082............   01.2292   13.01   050071............   01.2930   27.45
010090............   01.5670   15.24   020021............   00.8018  .......  030089............   01.4014   17.92   040084............   01.0813   14.12   050072............   01.3285   27.78
010091............   00.9593   11.17   020024............   01.1141   21.11   030092............   01.4750   16.73   040085............   01.2332   13.61   050073............   01.2469   27.89
010092............   01.3576   14.56   020025............   00.9507   21.76   030093............   01.3592   17.22   040088............   01.3066   13.30   050074............   01.1070   26.44
010094............   01.1695   16.12   020026............   01.3131  .......  030094............   01.2928   17.50   040090............   00.9106   11.44   050075............   01.3692   27.54
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                                                                          Page 2 of 16                                                                                          
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                Avg.                                   Avg.                                   Avg.                                   Avg.                                  Avg. 
     Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix   hour 
                      index     wage                         index     wage                         index     wage                         index     wage                         index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
050076............   01.5776   28.16   050170............   01.4521   20.26   050277............   01.4532   21.98   050390............   01.3119   20.96   050502............   01.6487   21.81
050077............   01.5930   21.33   050172............   01.3210   19.50   050278............   01.4107   20.59   050391............   01.3476   18.94   050503............   01.2835   21.76
050078............   01.3470   22.80   050173............   01.2847   21.21   050279............   01.2274   18.52   050392............   00.9931   14.75   050506............   01.4420   24.55
050079............   01.4682   29.24   050174............   01.6642   25.19   050280............   01.5553   20.61   050393............   01.4125   22.60   050510............   01.3252   27.75
050080............   01.3034   23.23   050175............   01.3383   22.08   050281............   01.4131   19.38   050394............   01.4869   19.55   050512............   01.3107   28.18
050081............   01.6246   20.20   050177............   01.2267   17.98   050282............   01.3133   21.41   050396............   01.5501   22.84   050515............   01.2995   28.20
050082............   01.5054   22.06   050179............   01.2476   17.01   050283............   01.2397   25.87   050397............   01.0645   18.46   050516............   01.6464   22.49
050084............   01.5680   20.91   050180............   01.5080   28.43   050286............   00.9279   18.66   050401............   01.2104   16.24   050517............   01.2745   19.39
050088............   01.1145   22.27   050181............   01.2415  .......  050289............   01.7627   25.03   050404............   01.2039   15.52   050522............   01.3938   26.52
050089............   01.3872   17.98   050183............   01.1897   18.72   050290............   01.6142   24.11   050406............   01.1165   14.52   050523............   01.2318   24.38
050090............   01.2813   20.35   050186............   01.5127   22.72   050291............   01.2160   23.08   050407............   01.2695   23.69   050526............   01.3671   23.21
050091............   01.2017   24.16   050188............   01.4071   24.07   050292............   01.0735   20.59   050410............   01.0177   24.20   050528............   01.2370   15.19
050092............   00.9137   17.43   050189............   00.9795   22.42   050293............   01.1061   19.45   050411............   01.3103   27.43   050531............   01.3607   20.08
050093............   01.5357   19.94   050191............   01.4420   22.19   050295............   01.4509   19.24   050414............   01.2934   23.33   050534............   01.4946   22.69
050095............   01.2160   27.91   050192............   01.2147   17.92   050296............   01.2147   23.31   050417............   01.2306   20.44   050535............   01.3500   22.44
050096............   01.2440   20.89   050193............   01.3646   20.72   050298............   01.1859   18.06   050418............   01.3333   22.55   050537............   01.3186   20.44
050097............   01.4662   16.38   050194............   01.2188   23.01   050299............   01.2983   22.08   050419............   01.3452   16.62   050539............   01.1746   21.36
050099............   01.5708   21.78   050195............   01.5851   28.28   050300............   01.2986   17.35   050420............   01.4434   21.82   050541............   01.5384   27.82
050100............   01.8030   23.83   050196............   01.3440   17.36   050301............   01.3566   19.83   050421............   01.4219   22.42   050542............   01.1215   13.71
050101............   01.3963   22.78   050197............   01.9400   25.14   050302............   01.3663   23.01   050423............   00.9846   16.65   050543............   00.9021   21.03
050102............   01.3789   19.71   050199............   01.3116   18.65   050305............   01.5671   27.33   050424............   01.7237   21.45   050545............   00.8660   20.90
050103............   01.6468   19.35   050204............   01.3606   21.05   050307............   01.4322   18.55   050425............   01.2778   27.22   050546............   00.8558   21.22
050104............   01.3977   20.54   050205............   01.3899   17.92   050308............   01.5293   30.29   050426............   01.3348   22.74   050547............   00.9794   22.15
050107............   01.2990   19.86   050207............   01.2836   18.15   050309............   01.3540   22.97   050427............   00.8394   22.94   050549............   01.7505   24.00
050108............   01.4855   22.51   050208............   01.2846   23.14   050310............   01.2492   19.13   050430............   01.0333   14.73   050550............   02.3726   21.19
050109............   02.1062   23.09   050211............   01.3040   26.33   050312............   01.8368   21.49   050431............   01.1447   21.80   050551............   01.3671   22.74
050110............   01.2281   17.08   050213............   01.3469   18.97   050313............   01.1901   20.49   050432............   01.5721   22.46   050552............   01.2496   19.17
050111............   01.3370   18.50   050214............   01.5529   20.85   050315............   01.3152   20.06   050433............   01.2059   13.93   050557............   01.6026   20.11
050112............   01.4534   22.04   050215............   01.5408   24.70   050317............   01.2514   22.00   050434............   01.0838   18.98   050559............   01.3589   23.50
050113............   01.1366   26.39   050217............   01.2468   15.90   050320............   01.3667   27.40   050435............   01.2227   16.54   050560............   01.4455   22.18
050114............   01.4076   27.65   050219............   01.3061   19.43   050324............   01.8356   22.28   050436............   01.0234   15.88   050561............   01.1557   27.90
050115............   01.5730   20.93   050220............   01.6373   18.06   050325............   01.2801   20.26   050438............   01.5716   22.52   050564............   01.2890   26.82
050116............   01.4942   21.77   050222............   01.5396   19.26   050327............   01.5964   20.30   050440............   01.3087   17.95   050565............   01.2111   19.30
050117............   01.2910   18.00   050224............   01.5765   20.63   050328............   01.4340   25.87   050441............   01.8342   25.65   050566............   00.9535   15.29
050118............   01.2118   22.47   050225............   01.3925   19.07   050329............   01.2255   20.16   050443............   00.9414   11.92   050567............   01.6064   20.07
050121............   01.4266   18.50   050226............   01.3679   19.25   050331............   01.3796   28.94   050444............   01.2679   19.12   050568............   01.3186   19.87
050122............   01.5397   22.28   050228............   01.3688   28.38   050333............   00.9543   17.59   050446............   00.9065   17.49   050569............   01.2307   21.62
050124............   01.1945   22.67   050230............   01.3926   23.56   050334............   01.5594   27.46   050447............   01.0648   19.33   050570............   01.7251   24.72
050125............   01.3539   23.19   050231............   01.4909   21.30   050335............   01.2475   18.97   050448............   01.1669   21.09   050571............   01.4621   22.91
050126............   01.3932   22.84   050232............   01.8392   24.76   050336............   01.3209   18.34   050449............   01.3206   20.39   050573............   01.6799   23.79
050127............   01.3040   22.13   050233............   01.2560   26.78   050337............   01.3957   24.13   050451............   00.8860   16.91   050575............   01.2474   21.28
050128............   01.5366   20.09   050234............   01.2776   18.69   050342............   01.4356   15.53   050454............   01.8386   24.99   050577............   01.2369   20.65
050129............   01.4989   20.29   050235............   01.4845   24.01   050343............   01.0621   15.51   050455............   01.8514   21.40   050578............   01.3849   23.24
050131............   01.2653   23.99   050236............   01.5310   22.42   050345............   01.4979   19.74   050456............   01.3067   22.43   050579............   01.3958   24.99
050132............   01.3951   21.23   050238............   01.5006   23.50   050348............   01.5499   24.59   050457............   01.9263   27.09   050580............   01.4041   21.12
050133............   01.3153   19.07   050239............   01.4937   21.81   050349............   00.9544   14.35   050458............   00.8655   22.37   050581............   01.4769   23.13
050135............   01.2053   24.37   050240............   01.4862   25.19   050350............   01.3974   22.44   050459............   01.2453   29.05   050583............   01.6869   21.15
050136............   01.3889   21.51   050241............   01.3090   27.24   050351............   01.5032   26.10   050464............   01.8760   22.66   050584............   01.3054   21.70
050137............   01.2685   28.56   050242............   01.3945   25.47   050352............   01.3369   21.27   050468............   01.4202   13.23   050585............   01.3352   25.78
050138............   01.7804   29.95   050243............   01.5383   21.44   050353............   01.5303   21.82   050469............   01.1137   17.38   050586............   01.3266   22.31
050139............   01.3319   28.23   050245............   01.4438   23.48   050355............   00.9418   16.56   050470............   01.1269   16.91   050587............   01.2924   19.72
050140............   01.3389   28.60   050248............   01.1319   22.92   050357............   01.9564   21.24   050471............   01.7713   23.28   050588............   01.2579   26.65
050144............   01.5704   21.85   050251............   01.0990   15.38   050359............   01.0659   18.20   050476............   01.2763   17.98   050589............   01.3272   23.05
050145............   01.3500   24.11   050253............   00.9026   17.17   050360............   01.4472   27.20   050477............   01.4095   24.42   050590............   01.2896   20.88
050146............   01.3122  .......  050254............   01.1845   18.88   050363............   02.1935  .......  050478............   01.0136   20.41   050591............   01.2187   19.81
050147............   00.6839   16.46   050256............   01.7794   20.44   050366............   01.3048   18.50   050481............   01.4398   23.28   050592............   01.2434   19.32
050148............   01.0998   14.81   050257............   01.0771   15.23   050367............   01.2720   24.59   050482............   00.9592   14.95   050593............   01.4479   24.80
050149............   01.3528   21.03   050258............   01.3430   24.73   050369............   01.2920   22.10   050483............   01.1747   19.39   050594............   02.0951   22.24
050150............   01.2998   21.08   050260............   00.9806   18.54   050373............   01.3093   22.31   050485............   01.6350   21.08   050597............   01.2757   22.04
050152............   01.3982   24.04   050261............   01.1832   16.58   050376............   01.3922   23.30   050486............   01.3920   22.96   050598............   01.4694   27.45
050153............   01.6323   26.54   050262............   01.7839   24.23   050377............   00.8663   13.19   050488............   01.3350   24.20   050599............   01.6475   21.12
050154............   01.3034   24.75   050263............   01.3142   23.85   050378............   01.0663   24.65   050489............   01.0532   23.76   050601............   01.3037   27.93
050155............   01.1483   22.21   050264............   01.4298   25.01   050379............   01.1521   16.12   050491............   01.3653   22.42   050603............   01.4440   20.02
050158............   01.5304   27.04   050267............   01.5606   23.58   050380............   01.6401   25.01   050492............   01.1869   19.34   050604............   01.4176   26.67
050159............   01.3400   18.86   050270............   01.3549   21.83   050382............   01.4205   21.08   050494............   01.0785   21.35   050607............   01.2392   19.43
050167............   01.3883   20.29   050272............   01.3900   17.78   050385............   01.3911   23.35   050496............   01.7895   27.22   050608............   01.1508   16.21
050168............   01.5795   22.94   050274............   01.1350   20.00   050387............   00.9095   12.76   050497............   00.9428   11.97   050609............   01.3274   29.05
050169............   01.5338   22.37   050276............   01.2436   25.76   050388............   00.8618   15.42   050498............   01.3050   20.50   050613............   01.0186   22.54
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                                Avg.                                   Avg.                                   Avg.                                   Avg.                                  Avg. 
     Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix   hour 
                      index     wage                         index     wage                         index     wage                         index     wage                         index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
050615............   01.4446   21.07   060016............   01.1675   10.83   070017............   01.3674   22.45   100043............   01.4152   19.25   100128............   02.1689   18.89
050616............   01.2691   20.04   060018............   01.2497   14.35   070018............   01.3498   25.96   100044............   01.4413   17.72   100129............   01.3602   17.02
050618............   01.2205   15.89   060020............   01.5142   14.61   070019............   01.2567   21.49   100045............   01.4554   14.39   100130............   01.1726   17.79
050619............   01.3454   19.03   060022............   01.6484   17.08   070020............   01.4074   22.22   100046............   01.3482   16.46   100131............   01.3011   18.69
050622............   01.2594   21.36   060023............   01.4622   16.23   070021............   01.1805   22.73   100047............   01.7883   17.88   100132............   01.4788   14.76
050623............   01.2563   21.16   060024............   01.6640   22.87   070022............   01.6437   22.82   100048............   00.9927   11.41   100135............   01.5000   14.95
050624............   01.2605   23.39   060026............   01.4335   18.36   070023............   01.2106   20.41   100049............   01.2748   16.51   100137............   01.2387   15.05
050625............   01.5236   22.82   060027............   01.4674   18.10   070024............   01.3163   20.12   100050............   01.1771   14.96   100138............   00.9841   10.25
050630............   01.2823   23.63   060028............   01.4158   18.91   070025............   01.6942   22.92   100051............   01.2647   15.10   100139............   01.0428   16.00
050633............   01.3236   20.93   060029............   00.9748   13.15   070026............   01.1741   22.90   100052............   01.4138   14.18   100140............   01.1929   16.26
050635............   01.3019   27.91   060030............   01.3480   16.98   070027............   01.2085   22.98   100053............   01.3034   17.73   100142............   01.1733   15.12
050636............   01.3894   21.83   060031............   01.5082   16.61   070028............   01.4692   21.94   100054............   01.3318   16.83   100143............   02.0565  ......
050637............   01.1270   21.41   060032............   01.4296   19.33   070029............   01.2270   19.29   100055............   01.3834   15.81   100144............   01.3439   12.10
050638............   00.9629   24.33   060033............   01.0703   11.58   070030............   01.2073   22.70   100056............   01.4688   21.01   100145............   01.3697   13.57
050641............   01.1681   12.65   060034............   01.4752   17.73   070031............   01.2867   18.49   100057............   01.3219   15.19   100146............   01.1272   15.35
050643............   00.9472  .......  060036............   01.1796   13.52   070033............   01.2692   22.64   100059............   01.6344   16.57   100147............   01.1204   12.08
050644............   00.9873   21.63   060037............   01.0028   12.14   070034............   01.3310   23.40   100060............   01.6863   17.02   100150............   01.3132   15.58
050660............   01.1327  .......  060038............   01.0135   11.55   070035............   01.3544   21.55   100061............   01.5765   20.45   100151............   01.8136   17.59
050661............   00.9004   17.84   060041............   00.9717   12.34   070036............   01.2987   25.17   100062............   01.7336   15.56   100154............   01.6023   16.55
050662............   00.8235   20.98   060042............   00.9336   13.29   080001............   01.6109   20.42   100063............   01.2711   14.64   100156............   01.1634   17.85
050663............   01.1100   20.81   060043............   01.0267   10.83   080002............   01.2228   15.45   100067............   01.4248   15.63   100157............   01.5938   17.06
050666............   00.9589   23.34   060044............   01.2595   14.53   080003............   01.3183   18.22   100068............   01.4430   15.32   100159............   01.0448   15.59
050667............   01.0549   23.63   060046............   01.0830   14.51   080004............   01.3342   16.62   100069............   01.3356   15.97   100160............   01.2094   16.10
050668............   01.1445   23.59   060047............   00.9097   12.30   080005............   01.3846   15.58   100070............   01.4113   16.41   100161............   01.4469   18.23
050671............   01.1408   25.26   060049............   01.0418   16.46   080006............   01.2297   14.99   100071............   01.2555   14.91   100162............   01.4028   16.66
050672............   00.6524   19.59   060050............   01.2021   12.70   080007............   01.2438   15.70   100072............   01.2262   14.14   100165............   01.2106   16.85
050674............   01.1892   26.59   060052............   01.1062   12.20   090001............   01.4395   18.92   100073............   01.7760   18.60   100166............   01.4555   18.62
050675............   01.5392   13.30   060053............   00.9926   12.72   090002............   01.1472   16.35   100074............   01.2348   17.34   100167............   01.3508   20.22
050676............   01.0310   12.91   060054............   01.2663   14.73   090003............   01.3310   22.14   100075............   01.6621   16.96   100168............   01.3308   17.37
050677............   01.3055   29.76   060056............   00.9409   12.78   090004............   01.5533   22.28   100076............   01.4766   18.32   100169............   01.8235   17.12
050678............   01.1027   24.06   060057............   00.9469   20.55   090005............   01.2755   25.99   100077............   01.3315   15.89   100170............   01.4798   15.72
050680............   01.2191   22.47   060058............   00.9388   10.75   090006............   01.3501   19.60   100078............   01.1794   16.23   100172............   01.3794   13.20
050682............   00.9483   13.47   060060............   01.0555   11.16   090007............   01.3341   19.75   100079............   01.1962   14.43   100173............   01.6383   15.42
050684............   01.2056   22.36   060062............   00.9858   11.79   090008............   01.5342   23.18   100080............   01.5553   17.32   100174............   01.4204   18.07
050685............   01.1501   24.19   060063............   01.1506   10.58   090010............   00.9711   24.67   100081............   01.1435   11.05   100175............   00.9514   15.25
050686............   01.3532   27.79   060064............   01.4264   18.46   090011............   01.9533   23.85   100082............   01.5118   16.80   100176............   01.9256   22.43
050688............   01.2086   25.13   060065............   01.3955   18.91   100001............   01.4715   16.11   100083............   01.2875   15.26   100177............   01.3233   16.58
050689............   01.4362   26.91   060066............   00.9326   11.17   100002............   01.4467   17.78   100084............   01.4891   15.78   100179............   01.6528   17.36
050690............   01.3427   27.92   060068............   01.2181   14.20   100004............   01.0434   11.37   100085............   01.3179   18.81   100180............   01.4301   17.00
050693............   01.2812   28.69   060070............   01.0160   15.33   100005............   01.1603   17.02   100086............   01.4018   20.75   100181............   01.6762   15.78
050694............   01.3197   21.34   060071............   01.2362   14.78   100006............   01.5877   17.22   100087............   01.7514   19.08   100183............   01.3690   17.97
050695............   01.2481   25.38   060072............   00.9051  .......  100007............   01.8613   17.80   100088............   01.6046   16.52   100186............   01.3876   15.09
050696............   02.1328   26.16   060073............   01.0079   15.52   100008............   01.6759   18.69   100089............   01.2412   15.39   100187............   01.3692   20.52
050697............   01.1797  .......  060075............   01.2514   16.15   100009............   01.5780   19.14   100090............   01.3504   15.49   100189............   01.2857   20.80
050698............   01.0467   23.39   060076............   01.4150   14.58   100010............   01.3896   18.78   100092............   01.5232   15.54   100191............   01.3367   17.44
050699............   00.8430  .......  060085............   00.9715   08.89   100012............   01.5379   17.53   100093............   01.4666   13.19   100196............   01.5217   15.84
050700............   01.3655  .......  060087............   01.6122   18.10   100014............   01.2838   16.40   100098............   01.2607   16.57   100199............   01.2090   18.69
050701............   01.2568  .......  060088............   01.0287   13.60   100015............   01.2993   17.02   100099............   01.2480   14.53   100200............   01.3809   21.17
050702............   01.2043  .......  060090............   00.9595   11.72   100017............   01.6635   15.75   100100............   01.4521   16.89   100203............   01.1543   18.05
050703............   00.8419  .......  060096............   01.0133   18.00   100018............   01.3505   17.76   100102............   01.0643   15.90   100204............   01.5526   16.81
050704............   01.2199  .......  060100............   01.3701   20.82   100019............   01.4542   17.17   100103............   01.0168   15.39   100206............   01.3807   21.64
050705............   02.6844  .......  060103............   01.2616   18.94   100020............   01.3562   17.23   100105............   01.4016   16.60   100207............   01.3841   19.04
050706............   00.9304  .......  060104............   01.3367   18.78   100022............   01.6958   21.32   100106............   01.0273   13.60   100208............   01.7382   18.61
050707............   00.8547  .......  070001............   01.7512   22.43   100023............   01.3278   14.40   100107............   01.2655   18.74   100209............   01.5364   19.87
050708............   00.8707  .......  070002............   01.8075   23.72   100024............   01.3790   19.06   100108............   01.0529   15.10   100210............   01.7008   15.97
060001............   01.4814   16.98   070003............   01.1472   21.97   100025............   01.5776   14.76   100109............   01.3352   14.91   100211............   01.2772   17.32
060003............   01.2909   17.31   070004............   01.1580   21.82   100026............   01.4999   13.26   100110............   01.4365   16.61   100212............   01.6223   16.73
060004............   01.0772   17.37   070005............   01.3270   23.96   100027............   00.8554   11.90   100112............   00.9797   10.90   100213............   01.6396   17.36
060006............   01.2666   14.82   070006............   01.3116   25.81   100028............   01.2739   15.02   100113............   02.0746   15.79   100217............   01.1845   18.25
060007............   01.2602   12.50   070007............   01.3828   22.86   100029............   01.4444   18.08   100114............   01.4922   17.48   100220............   01.8048   17.82
060008............   01.0109   13.26   070008............   01.2456   20.66   100030............   01.2716   16.73   100117............   01.2930   16.44   100221............   01.4532   17.82
060009............   01.4468   18.59   070009............   01.2617   21.54   100032............   01.8861   16.48   100118............   01.1775   15.44   100222............   01.2511   17.00
060010............   01.5638   18.49   070010............   01.4539   21.55   100034............   01.6934   17.25   100121............   01.2293   13.62   100223............   01.4441   16.55
060011............   01.2279   20.96   070011............   01.2100   21.19   100035............   01.5604   15.92   100122............   01.3603   14.84   100224............   01.4403   18.78
060012............   01.4319   14.65   070012............   01.1714   22.67   100038............   01.6547   18.93   100124............   01.3583   16.70   100225............   01.3935   19.07
060013............   01.2983   16.63   070013............   01.3347   22.91   100039............   01.7027   20.12   100125............   01.1502   17.51   100226............   01.3666   17.08
060014............   01.7025   20.85   070015............   01.3016   22.72   100040............   01.6908   16.07   100126............   01.4582   18.35   100227............   00.9534   17.48
060015............   01.5538   17.85   070016............   01.2499   23.08   100042............   01.2008   20.82   100127............   01.6127   17.26   100228............   01.2295   18.55
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                                                                                          Page 4 of 16                                                                                          
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                                Avg.                                   Avg.                                   Avg.                                   Avg.                                  Avg. 
     Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix   hour 
                      index     wage                         index     wage                         index     wage                         index     wage                         index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
100229............   01.3901   16.30   110029............   01.3254   16.69   110114............   01.0580   14.00   120001............   01.7391   22.04   140008............   01.4359   19.25
100230............   01.3248   18.30   110030............   01.2625   16.96   110115............   01.6496   17.83   120002............   01.2222   15.87   140010............   01.3097   18.77
100231............   01.7130   17.42   110031............   01.2891   20.89   110117............   00.9252   11.64   120003............   00.9710   20.59   140011............   01.1181   12.97
100232............   01.2677   16.44   110032............   01.1310   13.22   110118............   01.0457   10.01   120004............   01.2989   18.29   140012............   01.2090   15.31
100234............   01.3614   17.94   110033............   01.4208   18.34   110120............   01.0429   10.51   120005............   01.2810   17.03   140013............   01.5980   14.68
100235............   01.3840   15.58   110034............   01.4850   15.64   110121............   01.1443   11.37   120006............   01.1593   21.83   140014............   01.0954   15.12
100236............   01.4900   15.80   110035............   01.3122   17.12   110122............   01.2835   14.70   120007............   01.6419   20.22   140015............   01.2270   12.74
100237............   02.1488   22.04   110036............   01.6987   21.09   110124............   01.0984   14.20   120009............   00.9961   18.32   140016............   00.9807   10.62
100238............   01.3722   17.27   110037............   01.0639   09.10   110125............   01.1837   14.60   120010............   01.7249   20.04   140018............   01.4002   17.67
100239............   01.4978   17.74   110038............   01.3929   13.02   110127............   00.9029   09.56   120011............   01.2501   26.59   140019............   00.9330   11.96
100240............   00.8035   14.20   110039............   01.3486   16.87   110128............   01.1452   15.46   120012............   00.8968   16.54   140024............   01.0131   12.34
100241............   00.9441   11.33   110040............   01.0519   12.16   110129............   01.5352   12.01   120014............   01.2149   19.14   140025............   01.1016   15.27
100242............   01.3146   14.92   110041............   01.1457   14.35   110130............   01.0852   09.68   120015............   00.8178   19.23   140026............   01.1248   13.43
100243............   01.4250   16.65   110042............   01.0553   13.66   110132............   01.1520   12.20   120016............   00.9973   18.55   140027............   01.2020   14.63
100244............   01.3618   16.40   110043............   01.5773   13.73   110134............   00.8595   10.02   120018............   00.9138   17.94   140029............   01.3188   16.19
100246............   01.3454   19.50   110044............   01.1391   12.22   110135............   01.1043   13.78   120019............   01.2339   17.90   140030............   01.5404   19.79
100248............   01.6667   17.89   110045............   01.1241   19.62   110136............   01.1588   13.15   120021............   00.8779   19.14   140031............   01.0291   11.46
100249............   01.2751   18.23   110046............   01.2134   14.30   110140............   00.8302   13.51   120022............   01.6633   20.55   140032............   01.2865   14.20
100252............   01.1996   17.43   110048............   01.1013   13.14   110141............   00.8972   09.72   120024............   01.0150   15.72   140033............   01.2494   17.22
100253............   01.3614   16.33   110049............   01.0591   14.55   110142............   01.0137   10.29   120026............   01.2954   20.12   140034............   01.1750   14.60
100254............   01.6057   17.14   110050............   01.0847   11.33   110143............   01.2846   17.24   120027............   01.3545   19.59   140035............   01.1514   09.85
100255............   01.3267   20.57   110051............   00.9783   15.64   110144............   01.1668   12.74   130001............   01.0107   13.17   140036............   01.1215   14.22
100256............   01.8444   18.38   110052............   00.9264   14.74   110146............   00.9328   11.89   130002............   01.3774   14.35   140037............   01.0236   11.74
100258............   01.7091   20.22   110054............   01.2700   15.38   110149............   01.0750   11.01   130003............   01.2226   16.62   140038............   01.1485   13.82
100259............   01.4444   16.66   110056............   00.8911   12.63   110150............   01.2960   14.47   130005............   01.3631   16.13   140039............   01.0245   11.51
100260............   01.3833   17.08   110059............   01.3090   12.94   110152............   01.1662   11.82   130006............   01.7653   16.81   140040............   01.2453   13.79
100262............   01.3941   18.96   110061............   01.0249   09.64   110153............   00.9816   15.92   130007............   01.5368   16.33   140041............   01.1555   14.31
100263............   01.3547   17.78   110062............   00.9617   10.81   110154............   00.9816   11.86   130008............   00.9304   12.71   140042............   01.1036   12.72
100264............   01.3743   15.50   110063............   01.0882   11.47   110155............   01.0525   12.55   130009............   00.9629   13.18   140043............   01.2452   15.68
100265............   01.3079   17.19   110064............   01.2610   15.82   110156............   00.9647   11.50   130010............   00.9419   15.53   140045............   01.0059   12.10
100266............   01.3021   15.42   110065............   00.9751   11.47   110157............   01.1009   15.28   130011............   01.3533   13.99   140046............   01.2829   14.33
100267............   01.3063   18.95   110066............   01.3019   15.59   110161............   01.2406   18.47   130012............   00.9944   16.65   140047............   01.2223   11.40
100268............   01.2433   21.55   110069............   01.1801   14.92   110162............   00.8663  .......  130013............   01.2643   15.99   140048............   01.3062   20.15
100269............   01.3512   21.42   110070............   00.9980   11.76   110163............   01.4225   16.50   130014............   01.3488   16.35   140049............   01.3569   17.97
100270............   00.8838   12.30   110071............   01.0242   09.41   110164............   01.3716   17.39   130015............   00.8742   11.45   140051............   01.3482   18.90
100271............   01.6050   16.88   110072............   01.0023   12.37   110165............   01.2885   15.93   130016............   00.8542   15.89   140052............   01.2810   14.67
100273............   01.0658   16.70   110073............   01.2810   12.22   110166............   01.4933   15.76   130017............   01.0252   12.65   140053............   01.7729   16.02
100275............   01.3386   20.17   110074............   01.4423   16.63   110168............   01.6691   17.53   130018............   01.5822   19.65   140054............   01.3051   22.11
100276............   01.3219   20.62   110075............   01.1310   13.64   110169............   00.7618   17.87   130019............   01.1747   14.07   140055............   00.9338   11.82
100277............   01.0833   12.90   110076............   01.3234   17.00   110171............   01.3476   19.39   130021............   00.9281   10.63   140058............   01.1583   14.34
100278............   00.8698   16.01   110078............   01.5676   21.62   110172............   01.2397   25.10   130022............   01.1197   15.42   140059............   01.0725   11.39
100279............   01.4270   21.86   110079............   01.3888   19.60   110174............   01.0088   12.79   130024............   01.1015   14.66   140061............   01.1007   15.08
100280............   01.4172  .......  110080............   01.1829   14.65   110176............   01.1887   18.24   130025............   01.1046   15.36   140062............   01.2341   20.99
100281............   01.2160  .......  110082............   02.0224   23.13   110177............   01.3894   18.41   130026............   01.1117   16.17   140063............   01.3445   19.00
110001............   01.2551   15.81   110083............   01.6451   20.82   110178............   01.4829   17.06   130027............   00.8922   16.13   140064............   01.1811   15.11
110002............   01.2498   14.41   110086............   01.0560   14.40   110179............   01.1702   19.22   130028............   01.1847   15.29   140065............   01.4134   21.65
110003............   01.3337   12.00   110087............   01.2666   17.61   110181............   01.0288   08.35   130029............   01.0231   14.26   140066............   01.1794   13.05
110004............   01.2191   15.29   110088............   00.8786   12.27   110183............   01.2913   18.26   130030............   01.0340   12.46   140067............   01.7228   16.34
110005............   01.1700   15.96   110089............   01.2055   14.65   110184............   01.0926   18.57   130031............   01.0143   11.69   140068............   01.4052   15.66
110006............   01.2843   16.38   110091............   01.3772   19.15   110185............   01.1298   12.31   130034............   01.0457   14.13   140069............   01.0744   13.61
110007............   01.4503   15.97   110092............   01.0709   11.21   110186............   01.3356   15.53   130035............   01.0182   13.66   140070............   01.3038   14.49
110008............   01.1066   14.16   110093............   00.9715   08.54   110187............   01.1761   16.81   130036............   01.2487   08.52   140074............   01.0194   14.20
110009............   01.0204   14.23   110094............   01.0205   11.02   110188............   01.4360   17.33   130037............   01.1166   14.67   140075............   01.4119   17.78
110010............   02.0046   20.95   110095............   01.2505   13.02   110189............   01.0934   19.00   130043............   01.0399   13.65   140077............   01.2636   13.35
110011............   01.1827   14.97   110096............   01.0978   12.76   110190............   01.0854   12.93   130044............   00.9745   12.73   140079............   01.2695   21.34
110013............   01.1083   13.50   110097............   01.1016   16.29   110191............   01.2392   17.33   130045............   00.9056   11.43   140080............   01.7887   17.20
110014............   01.1894   11.75   110098............   01.0361   13.41   110192............   01.3442   19.58   130048............   01.1050   10.87   140081............   01.1079   10.92
110015............   01.1355   15.78   110100............   01.0988   11.22   110193............   01.1408   16.99   130049............   01.2245   15.55   140082............   01.4045   19.71
110016............   01.2952   13.84   110101............   01.0715   09.49   110194............   00.9760   12.31   130054............   00.9113   14.10   140083............   01.2841   15.35
110017............   00.9323   10.40   110103............   00.9611   08.82   110195............   01.2032   10.66   130056............   00.9454   11.94   140084............   01.2110   17.72
110018............   01.1766   15.88   110104............   01.1479   12.86   110198............   01.3701   21.77   130058............   00.9163   11.59   140086............   01.1083   11.72
110020............   01.1997   16.55   110105............   01.1353   13.47   110200............   01.9905   14.43   130060............   01.1885  .......  140087............   01.4133   16.09
110023............   01.2550   17.17   110107............   01.6433   17.26   110201............   01.4001   14.99   140001............   01.2552   13.67   140088............   01.5044   21.90
110024............   01.3830   15.58   110108............   01.0233   10.19   110203............   00.9939   15.78   140002............   01.2491   15.22   140089............   01.2464   13.84
110025............   01.3117   15.02   110109............   01.1199   11.30   110204............   00.8075   13.88   140003............   01.0438   13.21   140090............   01.4523   26.53
110026............   01.1566   12.82   110111............   01.1285   12.71   110205............   01.0542   11.10   140004............   00.9859   13.64   140091............   01.6824   15.96
110027............   01.0355   15.43   110112............   00.9922   15.95   110207............   01.1390  .......  140005............   00.9652   09.64   140093............   01.1922   14.60
110028............   01.6334   15.10   110113............   01.0259   13.67   110208............   00.9490   12.61   140007............   01.4615   19.18   140094............   01.3158   15.80
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                                                                                          Page 5 of 16                                                                                          
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                Avg.                                   Avg.                                   Avg.                                   Avg.                                  Avg. 
     Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix   hour 
                      index     wage                         index     wage                         index     wage                         index     wage                         index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
140095............   01.2211   17.48   140182............   01.2646   18.80   150006............   01.2471   14.67   150082............   01.4663   16.73   160033............   01.4585   14.99
140097............   00.9794   13.23   140184............   01.1702   12.95   150007............   01.2317   16.00   150084............   01.8366   20.84   160034............   00.9809   12.26
140098............   01.2721   18.87   140185............   01.4019   14.80   150008............   01.3191   17.15   150085............   00.9551   10.27   160035............   00.9182   10.60
140100............   01.4498   18.43   140186............   01.1921   17.96   150009............   01.2891   16.47   150086............   01.2684   14.97   160036............   01.0980   12.62
140101............   01.1882   16.70   140187............   01.4101   14.44   150010............   01.1613   16.91   150088............   01.1618   16.44   160037............   01.0995   13.20
140102............   01.0163   13.47   140188............   00.9952   10.46   150011............   01.2230   16.35   150089............   01.3856   17.35   160039............   01.0908   13.56
140103............   01.3476   15.26   140189............   01.1432   14.82   150012............   01.6245   17.37   150090............   01.2972   18.44   160040............   01.2992   14.92
140105............   01.3373   18.62   140190............   01.1571   12.46   150013............   01.1935   12.66   150091............   01.0796   14.68   160041............   01.1270   11.51
140107............   01.1306   11.58   140191............   01.4016   22.19   150014............   01.3786   17.11   150092............   01.0338   13.77   160043............   01.0127   11.81
140108............   01.3348   19.18   140192............   01.0745   16.18   150015............   01.2586   15.48   150094............   01.0086   15.63   160044............   01.1760   11.94
140109............   01.0492   11.80   140193............   01.0180   12.88   150017............   01.7796   16.19   150095............   01.0817   13.62   160045............   01.6674   15.84
140110............   01.2880   12.82   140197............   01.3042   18.59   150018............   01.3134   15.81   150096............   01.0511   17.17   160046............   01.0096   11.17
140112............   01.0816   12.81   140199............   01.0372   13.34   150019............   01.0796   14.92   150097............   01.0928   15.62   160047............   01.3670   14.34
140113............   01.4290   16.37   140200............   01.4005   20.01   150020............   01.0947   11.59   150098............   01.1526   11.43   160048............   01.0676   12.01
140114............   01.2761   17.35   140202............   01.2643   18.76   150021............   01.6030   16.43   150099............   01.2561   15.68   160049............   00.9581   11.45
140115............   01.1712   16.67   140203............   01.2244   15.95   150022............   01.1271   17.24   150100............   01.7072   17.00   160050............   01.0211   12.47
140116............   01.2900   17.61   140205............   00.8422   11.22   150023............   01.4118   15.56   150101............   01.1155   13.32   160051............   01.2040   12.25
140117............   01.2999   18.69   140206............   01.0654   17.10   150024............   01.2106   14.95   150102............   01.0577   13.18   160052............   01.0436   11.95
140118............   01.6004   20.68   140207............   01.3948   18.78   150025............   01.5388   16.21   150103............   01.0226   13.14   160054............   01.1022   12.01
140119............   01.6661   20.07   140208............   01.4898   22.91   150026............   01.1923   16.04   150104............   01.0812   13.64   160055............   00.9485   11.27
140120............   01.4141   13.85   140209............   01.6445   14.99   150027............   01.0126   14.08   150105............   01.1628   15.14   160056............   01.0806   12.76
140121............   01.5539   08.74   140210............   01.0433   11.29   150029............   01.2511   17.48   150106............   01.0463   17.80   160057............   01.3502   13.92
140122............   01.4768   20.02   140211............   01.1982   17.90   150030............   01.0812   15.16   150109............   01.3691   14.70   160058............   01.6992   16.69
140123............   01.2294   15.10   140212............   01.1656   20.42   150031............   01.0957   14.78   150110............   00.9296   13.42   160059............   01.2630   16.34
140124............   01.1358   19.42   140213............   01.2009   19.50   150032............   01.7588   17.72   150111............   01.0950   12.33   160060............   01.0284   12.62
140125............   01.2390   13.29   140215............   01.1446   10.48   150033............   01.5943   18.01   150112............   01.2111   16.18   160061............   00.9538   13.54
140127............   01.2956   15.35   140217............   01.2374   19.16   150034............   01.2863   17.20   150113............   01.1478   15.45   160062............   00.9618   10.99
140128............   01.0433   15.50   140218............   00.9567   13.96   150035............   01.4080   17.05   150114............   00.9924   12.31   160063............   01.1404   10.67
140129............   01.0693   12.58   140220............   01.1752   13.57   150036............   01.0229   16.08   150115............   01.3247   13.92   160064............   01.5931   15.57
140130............   01.1602   19.25   140223............   01.5029   22.80   150037............   01.1956   17.77   150122............   01.1148   17.31   160065............   01.0733   13.93
140132............   01.5272   17.61   140224............   01.3267   19.20   150038............   01.1995   15.85   150123............   01.0958   12.57   160066............   01.0801   13.35
140133............   01.3502   19.24   140228............   01.6053   16.14   150039............   00.9143   13.42   150124............   01.1234   14.04   160067............   01.3105   15.77
140135............   01.2358   14.27   140229............   00.9303   09.86   150042............   01.1893   14.72   150125............   01.3773   16.98   160068............   01.0005   13.07
140137............   01.0291   12.24   140230............   00.9506   13.17   150043............   01.0846   15.00   150126............   01.5079   18.30   160069............   01.3793   14.35
140138............   01.0241   11.15   140231............   01.5410   19.84   150044............   01.2714   15.75   150127............   01.2053   11.94   160070............   01.0399   11.90
140139............   01.0516   12.47   140233............   01.7208   14.89   150045............   01.1633   15.40   150128............   01.2212   17.22   160072............   01.1162   11.93
140140............   01.1237   11.90   140234............   01.2047   14.44   150046............   01.5484   16.63   150129............   01.2144   18.69   160073............   01.0381   11.15
140141............   00.9810   12.26   140236............   01.0041   12.56   150047............   01.6831   17.65   150130............   01.1198   13.18   160074............   01.0271   14.05
140143............   01.0728   14.63   140239............   01.5754   16.58   150048............   01.1715   15.11   150132............   01.3672   19.75   160075............   01.0535   13.37
140144............   00.9953   13.14   140240............   01.4164   20.64   150049............   01.1211   12.76   150133............   01.1774   14.00   160076............   01.0077   13.71
140145............   01.1475   14.17   140242............   01.5346   19.78   150050............   01.1464   13.85   150134............   01.1496   15.65   160077............   00.9877   09.72
140146............   00.9720   14.22   140245............   01.0564   12.26   150051............   01.3409   15.58   150136............   00.8373   18.39   160079............   01.3225   14.87
140147............   01.1895   12.55   140246............   01.0439   11.22   150052............   01.0935   10.31   150137............   02.8509  .......  160080............   01.1510   14.09
140148............   01.6515   16.06   140250............   01.2052   19.71   150053............   01.0023   16.74   150897............   04.9451  .......  160081............   01.1054   13.36
140150............   01.4651   20.76   140251............   01.3108   16.26   150054............   01.0899   12.38   160001............   01.1864   15.08   160082............   01.6745   15.91
140151............   01.1004   15.02   140252............   01.3458   20.39   150056............   01.7050   19.00   160002............   01.1621   12.09   160083............   01.5104   16.07
140152............   01.0787   21.93   140253............   01.3767   24.54   150057............   02.3820   13.49   160003............   01.0524   11.50   160085............   01.0059   11.42
140155............   01.1690   15.83   140258............   01.3969   19.92   150058............   01.6361   18.17   160005............   01.0831   12.28   160086............   00.9935   11.97
140158............   01.4060   19.65   140271............   00.9808   12.27   150059............   01.1919   17.50   160007............   00.9597   11.53   160088............   01.1130   12.79
140159............   01.2401   12.04   140275............   01.2724   14.62   150060............   01.1308   15.24   160008............   01.1460   12.99   160089............   01.2177   13.80
140160............   01.1835   14.34   140276............   02.0686   18.92   150061............   01.1952   12.43   160009............   01.2384   13.34   160090............   01.0499   13.51
140161............   01.1023   15.66   140280............   01.2391   15.41   150062............   01.0335   12.77   160012............   01.1231   12.70   160091............   01.0972   11.91
140162............   01.6816   15.64   140281............   01.5966   19.47   150063............   01.0813   13.91   160013............   01.2444   13.60   160092............   00.9851   13.58
140164............   01.2770   13.78   140285............   01.3016   14.03   150064............   01.0620   15.32   160014............   00.9484   11.72   160093............   01.1425   11.52
140165............   01.0512   12.51   140286............   01.1246   15.68   150065............   01.0845   15.64   160016............   01.2702   14.43   160094............   01.1061   14.65
140166............   01.2083   14.64   140288............   01.6329   20.42   150066............   01.0441   12.68   160018............   00.8938   11.90   160095............   01.1343   14.50
140167............   01.1178   12.82   140289............   01.2651   14.49   150067............   01.0953   13.31   160020............   01.0997   11.81   160097............   01.1379   12.57
140168............   01.1806   14.17   140290............   01.3067   19.27   150069............   01.2292   14.39   160021............   01.0801   12.04   160098............   00.9995   12.47
140170............   01.0176   10.98   140291............   01.3069   20.16   150070............   01.0214   13.03   160023............   01.0701   12.61   160099............   01.0430   10.99
140171............   00.9245   12.22   140292............   01.1650   19.76   150071............   01.1226   12.39   160024............   01.5224   15.43   160101............   01.1531   15.89
140172............   01.4928   18.33   140294............   01.1308   14.61   150072............   01.2197   14.26   160025............   01.8445   15.04   160102............   01.4203   15.23
140173............   01.0401   13.57   140297............   01.2286   20.74   150073............   00.9898   16.29   160026............   01.1258   13.21   160103............   00.9634   12.62
140174............   01.4898   16.75   140299............   00.8525   22.50   150074............   01.5553   19.36   160027............   01.1424   12.49   160104............   01.2134   15.40
140176............   01.2854   18.62   150001............   01.0566   15.39   150075............   01.1997   12.67   160028............   01.2118   16.69   160106............   01.0802   12.86
140177............   01.5125   15.14   150002............   01.3662   16.67   150076............   01.0762   15.74   160029............   01.5235   15.57   160107............   01.2048   12.64
140179............   01.2492   18.13   150003............   01.6898   15.65   150077............   01.2331   14.59   160030............   01.3238   14.98   160108............   01.0918   12.98
140180............   01.5100   19.11   150004............   01.4962   18.06   150078............   01.1045   15.23   160031............   01.1537   12.06   160109............   00.9703   11.06
140181............   01.2782   17.32   150005............   01.1848   17.30   150079............   01.1034   12.83   160032............   01.1884   13.93   160110............   01.4776   16.07
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                                Avg.                                   Avg.                                   Avg.                                   Avg.                                  Avg. 
     Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix   hour 
                      index     wage                         index     wage                         index     wage                         index     wage                         index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
160111............   01.0495   09.59   170050............   00.7731   10.65   170133............   01.1786   13.81   180047............   01.0461   12.20   190008............   01.5397   17.01
160112............   01.4123   13.17   170051............   00.9991   13.38   170134............   01.0123   11.44   180048............   01.1437   14.45   190009............   01.2947   13.88
160113............   01.0150   11.03   170052............   01.0909   10.94   170137............   01.1535   15.62   180049............   01.3972   13.11   190010............   01.0785   14.19
160114............   01.0347   13.68   170053............   00.8682   10.41   170139............   01.0526   11.31   180050............   01.2714   14.68   190011............   01.1190   12.19
160115............   01.0569   12.36   170054............   01.0889   11.90   170140............   01.0504   11.09   180051............   01.3043   12.81   190013............   01.2339   13.20
160116............   01.1453   13.89   170055............   00.9637   13.55   170142............   01.3014   15.41   180053............   01.2849   13.26   190014............   01.0865   12.69
160117............   01.2772   14.07   170056............   00.9755   10.54   170143............   01.1407   11.86   180054............   01.0041   12.50   190015............   01.1628   16.58
160118............   01.0383   12.14   170057............   01.0697   13.53   170144............   01.4728   14.00   180055............   01.0469   12.65   190017............   01.2199   12.10
160120............   00.9891   08.34   170058............   01.0783   13.89   170145............   01.1856   13.04   180056............   01.0706   15.74   190018............   01.2787   14.25
160122............   01.1631   13.40   170060............   01.0531   11.99   170146............   01.3620   16.72   180058............   00.8915   12.36   190019............   01.4660   15.85
160123............   01.0309   13.08   170061............   01.1160   11.60   170147............   01.1301   16.42   180059............   00.8664   12.17   190020............   01.1850   14.53
160124............   01.2481   13.81   170062............   00.9459   11.58   170148............   01.4025   17.53   180063............   01.0511   09.78   190025............   01.2406   11.69
160126............   01.0561   11.21   170063............   00.9046   10.73   170150............   01.0814   13.01   180064............   01.1018   10.97   190026............   01.3918   15.09
160129............   01.0282   12.08   170064............   00.9869   11.33   170151............   01.0014   10.99   180065............   00.9641   09.28   190027............   01.4597   15.99
160130............   01.0416   11.62   170066............   00.9301   11.45   170152............   00.9702   12.21   180066............   01.2906   16.62   190029............   01.1671   13.12
160131............   01.1439   11.67   170067............   00.8591   12.46   170159............   00.9310  .......  180067............   01.8613   15.59   190033............   00.9131   07.96
160133............   01.0955   16.39   170068............   01.2507   14.20   170160............   00.9833   10.63   180069............   01.0154   14.41   190034............   01.2126   13.01
160134............   01.0727   10.74   170069............   01.0333   12.27   170164............   00.9554   13.38   180070............   01.0481   12.77   190035............   01.4086   17.47
160135............   00.9890   10.91   170070............   00.9728   12.23   170166............   01.0157   13.45   180072............   01.0799   14.38   190036............   01.6500   17.28
160138............   01.1163   12.46   170072............   00.9173   10.58   170168............   00.9043   08.28   180075............   00.9842   10.68   190037............   01.0946   17.85
160140............   01.0654   13.24   170073............   01.1027   12.78   170171............   01.1033   10.91   180078............   01.0783   15.71   190039............   01.4727   16.44
160141............   00.8389   10.05   170074............   01.0959   11.30   170172............   00.9711  .......  180079............   00.9817   12.61   190040............   01.4197   17.30
160142............   01.0835   11.71   170075............   00.8432   09.47   170174............   00.8355   10.81   180080............   01.1021   12.85   190041............   01.5259   16.54
160143............   01.0648   11.92   170076............   01.1061   10.14   170175............   01.2782   15.18   180081............   01.5080   17.66   190043............   01.1080   10.44
160145............   01.0547   11.04   170077............   00.9343   11.31   170176............   01.4954   18.34   180085............   01.3121   16.18   190044............   01.0842   15.51
160146............   01.3578   14.81   170079............   01.0716   09.81   170180............   00.9497  .......  180087............   01.0822   12.45   190045............   01.2847   17.63
160147............   01.1855   13.17   170080............   01.0304   11.67   180001............   01.2063   15.10   180088............   01.6461   18.61   190046............   01.5088   16.18
160151............   01.1023   12.32   170081............   01.0304   10.30   180002............   01.0558   14.95   180092............   01.1080   13.45   190047............   01.1529   16.09
160152............   00.9970   12.73   170082............   01.0350   10.91   180004............   01.1744   12.90   180093............   01.3853   14.17   190048............   01.0973   13.35
160153............   01.6502   16.13   170084............   00.8777   10.03   180005............   01.0444   14.66   180094............   00.9476   11.59   190049............   01.0513   13.59
170001............   01.2083   14.25   170085............   00.9636   11.57   180006............   00.9029   11.80   180095............   01.1229   11.81   190050............   01.0974   13.67
170004............   01.0582   12.68   170086............   01.7041   17.38   180007............   01.4577   13.73   180099............   01.0774   10.13   190053............   01.0886   11.08
170006............   01.1785   13.00   170087............   01.3942   18.90   180009............   01.2790   16.51   180101............   01.2180   19.86   190054............   01.4390   12.13
170008............   01.0815   11.61   170088............   00.8810   08.09   180010............   01.8120   15.34   180102............   01.4457   12.80   190059............   00.9479   17.29
170009............   01.2522   15.16   170089............   01.0458   13.83   180011............   01.2072   14.69   180103............   01.9661   16.39   190060............   01.4131   14.77
170010............   01.2129   14.80   170090............   01.0756   09.53   180012............   01.3677   15.91   180104............   01.4486   14.71   190064............   01.5065   16.13
170011............   01.4374   14.07   170092............   00.7989   11.32   180013............   01.3280   14.46   180105............   00.9262   15.54   190065............   01.4844   15.65
170012............   01.3724   15.42   170093............   00.9273   11.25   180014............   01.5173   17.45   180106............   00.8984   11.57   190071............   00.8849   11.25
170013............   01.3311   14.02   170094............   01.0821   13.06   180015............   01.1320   14.27   180108............   00.8906   12.67   190075............   01.4392   19.38
170014............   01.0487   14.36   170095............   01.1131   12.46   180016............   01.2634   12.65   180115............   01.0927   13.33   190077............   00.9533   10.49
170015............   01.0035   12.48   170097............   00.9929   12.19   180017............   01.3036   12.52   180116............   01.3607   14.88   190078............   01.2408   10.47
170016............   01.5938   18.86   170098............   01.0691   13.99   180018............   01.1528   12.70   180117............   01.1918   12.53   190079............   01.2546   14.38
170017............   01.1818   15.65   170099............   01.2498   10.05   180019............   01.3022   15.60   180118............   01.0380   10.98   190081............   00.8933   09.79
170018............   01.0376   11.86   170100............   00.9250   13.52   180020............   01.0535   14.18   180120............   00.9600   11.55   190083............   00.9095   11.31
170019............   01.1664   14.86   170101............   00.9580   12.56   180021............   01.2222   12.05   180121............   01.1330   12.12   190086............   01.2984   13.80
170020............   01.2784   14.70   170102............   01.0011   12.58   180023............   00.8308   10.45   180122............   01.0106   12.03   190088............   01.2471   15.55
170022............   01.2502   11.71   170103............   01.2714   14.43   180024............   01.3172   15.71   180123............   01.4815   17.52   190089............   01.0474   09.57
170023............   01.3885   15.44   170104............   01.4228   18.83   180025............   01.1247   13.86   180124............   01.3514   14.80   190090............   01.2103   14.47
170024............   01.1843   11.73   170105............   00.9739   14.10   180026............   01.1969   10.47   180125............   01.0206   14.88   190092............   01.2826   16.62
170025............   01.2580   13.63   170106............   00.9198   12.06   180027............   01.1226   12.56   180126............   01.0168   10.88   190095............   01.0350   12.77
170026............   01.0138   14.25   170108............   00.9078   10.27   180028............   01.0368   15.42   180127............   01.2145   16.76   190098............   01.4469   16.69
170027............   01.1818   15.09   170109............   01.0837   13.77   180029............   01.2896   14.10   180128............   01.1231   14.91   190099............   01.1067   14.71
170030............   00.9610   13.61   170110............   00.9268   12.68   180030............   01.1350   11.60   180129............   01.1193   11.56   190102............   01.5102   14.99
170031............   00.9031   11.54   170112............   00.8931   11.15   180031............   00.9966   11.68   180130............   01.4243   16.58   190103............   00.8671   09.80
170032............   01.0399   13.75   170113............   01.1280   13.45   180032............   01.0592   14.39   180132............   01.1994   15.26   190106............   01.1645   15.56
170033............   01.2512   14.38   170114............   01.0939   12.12   180033............   01.0621   10.03   180133............   01.2492   17.98   190109............   01.2001   13.91
170034............   00.9660   13.54   170115............   01.0547   11.25   180034............   00.9930   13.98   180134............   00.9826   11.38   190110............   00.9443   10.81
170035............   00.9068   12.55   170116............   01.0986   12.83   180035............   01.5185   16.43   180136............   01.3870   15.97   190111............   01.5657   15.92
170036............   00.8756   11.84   170117............   01.0083   11.90   180036............   01.1639   16.11   180137............   01.6460   17.11   190112............   01.4060   16.41
170037............   01.1331   15.60   170119............   00.9699   10.40   180037............   01.2596   17.97   180138............   01.2598   17.78   190113............   01.3192   16.22
170038............   00.9494   11.73   170120............   01.3050   14.99   180038............   01.3422   14.34   180139............   01.0589   13.66   190114............   00.9470   12.67
170039............   01.0575   12.85   170121............   00.9078   10.42   180040............   01.9499   18.25   190001............   00.9125   14.98   190115............   01.3549   21.52
170040............   01.4677   16.84   170122............   01.8166   19.22   180041............   01.0425   13.18   190002............   01.5680   14.50   190116............   01.2132   12.23
170041............   01.0475   10.30   170123............   01.7327   18.31   180042............   01.0821   11.66   190003............   01.4246   17.42   190118............   01.0429   11.05
170043............   00.9951   12.13   170124............   00.9317   12.74   180043............   01.1262   13.52   190004............   01.3241   13.12   190120............   00.9278   14.66
170044............   01.1531   14.13   170126............   00.9136   10.31   180044............   01.0420   12.66   190005............   01.4454   14.98   190122............   01.2075   13.84
170045............   01.0097   12.52   170128............   00.9733   12.97   180045............   01.1996   15.05   190006............   01.1903   13.93   190124............   01.4624   18.09
170049............   01.3253   17.19   170131............   01.1254   10.65   180046............   01.0795   16.50   190007............   01.0336   12.14   190125............   01.3726   13.88
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                                                                                          Page 7 of 16                                                                                          
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                                Avg.                                   Avg.                                   Avg.                                   Avg.                                  Avg. 
     Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix   hour 
                      index     wage                         index     wage                         index     wage                         index     wage                         index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
190127............   01.4274   16.72   190222............   01.7805  .......  210030............   01.0946   18.05   220064............   01.1949   19.68   230017............   01.5141   19.59
190128............   00.9131   15.49   190223............   00.4818  .......  210031............   01.7275   21.38   220065............   01.2456   18.46   230019............   01.5005   20.62
190130............   00.9991   11.19   190227............   00.7574  .......  210032............   01.2560   17.31   220066............   01.3009   18.54   230020............   01.6541   18.94
190131............   01.2762   13.59   200001............   01.2705   15.09   210033............   01.1890   16.07   220067............   01.2473   21.25   230021............   01.5791   15.00
190133............   01.0452   09.24   200002............   01.0955   15.46   210034............   01.3026   18.66   220068............   00.5926   17.13   230022............   01.2981   17.19
190134............   00.9913   09.28   200003............   01.0709   15.05   210035............   01.1827   15.47   220070............   01.1592   18.14   230024............   01.5296   22.55
190135............   01.3911   16.54   200006............   01.1645   14.04   210036............   01.2939   16.68   220071............   01.8216   23.03   230027............   01.0751   15.36
190136............   01.0604   12.04   200007............   01.0246   15.37   210037............   01.2424   15.64   220073............   01.3094   22.57   230029............   01.5333   20.32
190138............   00.7195   19.68   200008............   01.2632   17.11   210038............   01.4191   17.39   220074............   01.2435   20.16   230030............   01.2368   16.73
190140............   00.9943   11.25   200009............   01.6699   17.96   210039............   01.1670   16.17   220075............   01.1897   20.08   230031............   01.4714   17.50
190142............   00.9868   12.54   200012............   01.1409   14.30   210040............   01.3355   21.10   220076............   01.2095   22.33   230032............   01.7001   17.85
190144............   01.1611   13.35   200013............   01.0904   14.12   210043............   01.2501   20.01   220077............   01.6494   20.98   230034............   01.1781   14.38
190145............   00.9378   14.48   200015............   01.2427   16.17   210044............   01.2676   19.24   220079............   01.1475   20.12   230035............   01.1032   14.84
190146............   01.5485   16.85   200016............   00.9868   14.92   210045............   01.0235   10.65   220080............   01.2286   17.63   230036............   01.2686   17.94
190147............   00.9870   12.33   200017............   01.2677   16.81   210046............   01.1370   09.48   220081............   00.9674   20.33   230037............   01.2047   15.86
190148............   00.9289   11.58   200018............   01.1593   13.98   210048............   01.1729   20.49   220082............   01.2124   19.86   230038............   01.5837   18.78
190149............   00.9770   10.49   200019............   01.2620   16.59   210049............   01.1487   15.63   220083............   01.1157   18.96   230040............   01.2391   15.59
190151............   01.0919   11.17   200020............   01.1415   18.32   210051............   01.2959   12.97   220084............   01.2116   21.89   230041............   01.1843   17.06
190152............   01.3446   19.19   200021............   01.1375   16.13   210054............   01.2291   19.77   220086............   01.5700   22.71   230042............   01.1267   16.80
190155............   00.9687   10.29   200023............   00.8693   15.15   210055............   01.2349   20.46   220088............   01.5463   20.83   230043............   00.5585  ......
190156............   00.8916   11.29   200024............   01.1926   17.76   210056............   01.4390   16.01   220089............   01.2495   21.22   230046............   01.8416   26.35
190158............   01.2679   20.55   200025............   01.1723   17.84   210057............   01.3107   21.17   220090............   01.1872   20.89   230047............   01.2979   18.15
190160............   01.1622   14.70   200026............   01.0477   14.44   210058............   01.7975   17.16   220092............   01.2679   20.27   230053............   01.4890   23.31
190161............   00.8950   13.49   200027............   01.2545   15.42   210059............   01.3193   20.43   220094............   01.2229   18.24   230054............   01.7235   17.38
190162............   01.2743   15.63   200028............   00.9644   13.99   210060............   01.0661   19.25   220095............   01.1984   18.77   230055............   01.1856   15.21
190164............   01.1577   14.42   200031............   01.2783   14.04   210061............   00.8608  .......  220097............   01.0484   21.81   230056............   00.9564   13.41
190165............   01.0022   10.72   200032............   01.2729   16.82   220001............   01.1826   19.14   220098............   01.2234   17.36   230058............   01.0954   15.65
190166............   01.0293   11.98   200033............   01.6732   18.43   220002............   01.4334   19.70   220099............   01.1610   19.90   230059............   01.5458   18.06
190167............   01.2778   15.44   200034............   01.2070   17.64   220003............   01.0778   15.29   220100............   01.2409   21.09   230060............   01.2794   15.46
190170............   01.0716   12.52   200037............   01.1799   15.05   220004............   01.2325   21.14   220101............   01.3956   22.89   230062............   01.1726   13.45
190173............   01.4217   18.02   200038............   01.0132   17.44   220006............   01.3029   21.22   220102............   00.6305   19.91   230063............   01.3822   17.52
190175............   01.4664  .......  200039............   01.2818   15.86   220008............   01.1498   18.22   220104............   01.2399   22.48   230065............   01.4862   17.15
190176............   01.5426   17.76   200040............   01.1008   14.71   220010............   01.2172   19.75   220105............   01.1431   19.59   230066............   01.3530   17.66
190177............   01.5260   19.77   200041............   01.1588   17.08   220011............   01.1527   25.18   220106............   01.1359   21.34   230068............   01.3995   18.55
190178............   00.9755   10.27   200043............   00.6462   15.00   220012............   01.3065   26.56   220107............   01.1159   16.97   230069............   01.1139   16.62
190182............   00.9997   20.51   200050............   01.1422   15.39   220015............   01.1847   18.96   220108............   01.1537   19.66   230070............   01.4871   18.10
190183............   01.2016   11.91   200051............   00.9967   17.08   220016............   01.2550   19.03   220110............   01.9834   28.62   230071............   00.6183   19.34
190184............   00.9813   12.28   200052............   01.0217   13.98   220017............   01.2595   22.56   220111............   01.1929   18.46   230072............   01.2474   17.07
190185............   01.2328   22.78   200055............   01.0672   13.86   220019............   01.0809   18.15   220114............   01.0022   18.76   230075............   01.4793   17.70
190186............   00.9005   10.73   200062............   00.9717   14.41   220020............   01.1734   17.95   220116............   01.8026   22.66   230076............   01.2750   19.48
190187............   00.7986   14.06   200063............   01.2053   16.48   220021............   01.2662   20.51   220118............   02.0761   24.00   230077............   01.9986   17.18
190189............   00.4825   15.10   200066............   01.1911   14.22   220023............   01.1628   16.29   220119............   01.3309   22.40   230078............   01.1509   14.20
190190............   00.9967   19.64   210001............   01.3273   16.34   220024............   01.1753   18.21   220120............   01.1833   18.85   230080............   01.1782   16.44
190191............   01.2357   18.16   210002............   02.0004   14.40   220025............   01.1050   17.54   220123............   01.0262   21.84   230081............   01.2181   15.62
190193............   01.2706   21.05   210003............   01.5187   20.58   220026............   01.3873   20.26   220126............   01.2273   19.55   230082............   01.1409   14.70
190194............   01.1226   17.88   210004............   01.3029   23.87   220028............   01.3997   19.75   220128............   01.0828   21.45   230085............   01.1124   16.73
190196............   00.8076   16.52   210005............   01.2274   15.89   220029............   01.1470   20.21   220131............   01.1501   17.81   230086............   01.0042   12.96
190197............   01.2720   16.76   210006............   01.1113   15.52   220030............   01.0906   18.23   220133............   00.8081   32.44   230087............   01.0384   14.20
190198............   01.1347   19.92   210007............   01.5132   17.96   220031............   01.6471   24.26   220135............   01.1540   22.28   230089............   01.3553   21.44
190199............   01.2829   13.69   210008............   01.3475   19.28   220033............   01.3333   19.31   220153............   01.0148   16.24   230092............   01.2759   17.05
190200............   01.5353   18.48   210009............   01.6717   17.62   220035............   01.2157   18.93   220154............   00.9165   18.82   230093............   01.2451   16.96
190201............   01.4081   17.53   210010............   01.2345   14.61   220036............   01.5922   21.53   220156............   01.3009   19.03   230095............   01.2168   15.30
190202............   01.4911   18.80   210011............   01.2678   18.56   220038............   01.2361   23.00   220162............   01.4283  .......  230096............   01.2423   16.62
190203............   01.5344   19.81   210012............   01.5499   19.80   220041............   01.1752   20.17   220163............   01.8447   25.11   230097............   01.5436   17.27
190204............   01.5003   19.33   210013............   01.2857   20.56   220042............   01.2688   22.59   220171............   01.6792   20.19   230099............   01.2443   17.18
190205............   01.7944   16.25   210015............   01.1955   18.69   220045............   01.2560   19.58   220173............   00.6336  .......  230100............   01.2151   14.53
190206............   01.4383   22.87   210016............   01.8141   17.94   220046............   01.3821   22.07   220897............   04.7812  .......  230101............   01.1090   16.09
190207............   01.1983   19.24   210017............   01.1032   13.97   220049............   01.2323   21.24   230001............   01.1909   16.33   230103............   01.0248   14.39
190208............   00.8194   09.75   210018............   01.2806   19.36   220050............   00.9707   15.98   230002............   01.2722   18.31   230104............   01.6288   20.01
190211............   00.5866   11.07   210019............   01.4061   16.06   220051............   01.1964   19.14   230003............   01.1367   16.51   230105............   01.5479   17.41
190212............   00.7212   09.55   210022............   01.4209   18.96   220052............   01.2009   20.82   230004............   01.6989   18.57   230106............   01.0959   16.74
190213............   02.6746   10.83   210023............   01.3472   22.27   220053............   01.2833   20.22   230005............   01.3315   16.98   230107............   00.8939   10.39
190214............   00.4476   11.33   210024............   01.3347   19.84   220055............   01.1986   17.51   230006............   01.0618   14.61   230108............   01.1695   14.76
190216............   00.7615  .......  210025............   01.3064   15.79   220057............   01.2906   18.41   230007............   01.0773   16.37   230110............   01.2680   14.49
190217............   00.9100  .......  210026............   01.3091   18.97   220058............   01.1247   19.41   230012............   00.7031   14.26   230111............   00.9760   14.53
190218............   00.9222  .......  210027............   01.2370   14.83   220060............   01.1423   22.58   230013............   01.3012   20.34   230113............   01.0293   17.37
190219............   00.4818  .......  210028............   01.0904   14.70   220062............   00.7219   18.20   230014............   01.2674   13.29   230114............   00.6562   20.94
190220............   01.9831  .......  210029............   01.3166   16.25   220063............   01.2105   17.96   230015............   01.2351   17.21   230115............   00.9721   14.26
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                                                                                          Page 8 of 16                                                                                          
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                                Avg.                                   Avg.                                   Avg.                                   Avg.                                  Avg. 
     Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix   hour 
                      index     wage                         index     wage                         index     wage                         index     wage                         index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
230116............   00.9313   13.79   230222............   01.3030   16.28   240058............   01.0092   09.62   240141............   00.9930   18.54   250040............   01.3036   14.79
230117............   01.9236   20.87   230223............   01.3443   18.13   240059............   01.2100   17.26   240142............   01.0475   13.23   250042............   01.1639   13.22
230118............   01.2684   15.27   230227............   01.4180   18.92   240061............   01.5649   20.05   240143............   00.9200   09.58   250043............   00.8793   11.24
230119............   01.2374   20.41   230228............   01.3346   17.04   240063............   01.5312   19.77   240144............   00.9469   14.36   250044............   01.0257   11.99
230120............   01.1310   16.19   230230............   01.3499   18.21   240064............   01.1862   17.45   240145............   01.0236   10.16   250045............   01.1858   14.86
230121............   01.2738   17.52   230232............   01.0269   15.35   240065............   00.9615   11.40   240146............   00.9792   13.78   250047............   00.9690   09.06
230122............   01.2966   17.18   230235............   00.9287   12.87   240066............   01.3761   17.16   240148............   00.9367   10.13   250048............   01.4260   13.20
230124............   01.1212   15.55   230236............   01.3267   18.37   240069............   01.1315   16.35   240150............   00.9295   10.19   250049............   00.9223   10.78
230125............   01.4034   13.28   230237............   01.1209   18.78   240071............   01.1252   16.43   240152............   00.9629   15.64   250050............   01.2364   10.90
230128............   01.3674   20.20   230239............   01.1815   15.59   240072............   01.0470   14.61   240153............   01.0283   13.43   250051............   00.9053   09.10
230129............   01.9337   19.47   230241............   01.1452   15.34   240073............   00.9857   11.34   240154............   00.9850   14.51   250057............   01.1384   11.55
230130............   01.6192   20.80   230244............   01.4473   19.18   240075............   01.2235   17.19   240155............   00.9704   13.26   250058............   01.1748   11.42
230132............   01.4471   19.39   230253............   01.2209   16.09   240076............   01.0812   17.80   240157............   01.0271   13.38   250059............   01.0249   10.92
230133............   01.2099   14.69   230254............   01.2119   20.53   240077............   00.9540   12.78   240160............   01.0223   13.44   250060............   00.8086   10.54
230134............   01.2065   14.24   230257............   01.0308   16.29   240078............   01.3986   20.24   240161............   00.9919   12.77   250061............   00.8723   09.07
230135............   01.2848   17.71   230259............   01.2056   18.24   240079............   01.0466   12.37   240162............   01.0410   14.61   250063............   00.8607   10.84
230137............   01.1498   16.37   230264............   01.2863   17.31   240080............   01.4245   19.24   240163............   00.9238   12.90   250065............   00.9000   10.30
230141............   01.6104   19.10   230269............   01.2254   19.90   240082............   01.1766   13.75   240166............   01.1521   14.56   250066............   00.9710   09.70
230142............   01.1810   23.19   230270............   01.2495   18.39   240083............   01.3174   15.80   240169............   00.9629   13.10   250067............   00.9668   11.74
230143............   01.1721   13.64   230273............   01.6929   18.16   240084............   01.3441   15.28   240170............   01.0631   13.78   250068............   00.8967   12.25
230144............   01.1897   19.77   230275............   00.8457   15.29   240085............   00.8935   12.80   240171............   00.9851   13.00   250069............   01.2085   12.00
230145............   01.1687   14.34   230276............   00.9634   14.84   240086............   01.1767   14.11   240172............   01.1034   14.02   250071............   01.0495   10.98
230146............   01.2787   18.56   230277............   01.2058   18.72   240087............   01.0594   13.50   240173............   00.9808   14.21   250072............   01.3428   14.40
230147............   01.5731   18.29   230278............   01.9299   17.95   240088............   01.4614   16.70   240176............   00.9959   11.09   250073............   00.9818   09.92
230149............   01.2363   14.09   240001............   01.5709   19.57   240089............   01.0424   14.41   240179............   00.9910   13.73   250076............   00.9532   09.20
230150............   01.5558   19.01   240002............   01.6583   18.05   240090............   01.0898   13.05   240180............   00.9751   10.20   250077............   00.9312   10.22
230151............   01.3819   18.80   240003............   01.2260   22.55   240091............   01.0285   10.83   240184............   01.0000   10.98   250078............   01.3952   13.14
230153............   01.0545   14.86   240004............   01.4565   19.95   240093............   01.2745   15.33   240187............   01.2855   17.00   250079............   00.8711   12.23
230154............   01.0145   12.31   240005............   00.9226   12.75   240094............   00.9733   15.34   240192............   01.0414   12.40   250081............   01.2179   14.37
230155............   01.1301   12.02   240006............   01.1607   18.19   240096............   01.1233   13.37   240193............   01.1285   14.01   250082............   01.2194   11.07
230156............   01.6572   20.20   240007............   01.0727   14.10   240097............   01.1103   16.27   240196............   00.6073   18.87   250083............   00.9415   11.25
230157............   01.3264   18.63   240008............   01.0423   13.25   240098............   01.0163   13.46   240200............   00.8775   12.53   250084............   01.1268   13.13
230159............   01.3241   17.40   240009............   01.1501   12.81   240099............   01.0446   11.38   240205............   00.9269  .......  250085............   01.0493   11.04
230162............   00.9761   13.97   240010............   01.9877   18.88   240100............   01.2773   16.95   240206............   00.8339  .......  250086............   00.9820   12.08
230165............   01.7408   18.96   240011............   01.1026   14.63   240101............   01.2198   15.26   240207............   01.1892   21.20   250088............   00.9881   13.26
230167............   01.2063   18.27   240013............   01.2265   15.49   240102............   01.0632   12.97   240210............   01.3002   21.21   250089............   01.0398   10.86
230169............   01.3445   19.72   240014............   01.0877   16.06   240103............   01.1255   14.27   250001............   01.5597   13.55   250091............   00.9638   10.48
230171............   01.0360   12.36   240016............   01.3843   14.67   240104............   01.1698   19.04   250002............   00.8108   11.80   250093............   01.1476   11.22
230172............   01.2642   17.17   240017............   01.1252   14.24   240105............   00.9307   13.40   250003............   00.9261   12.12   250094............   01.2731   13.27
230173............   01.2653   17.18   240018............   01.2112   15.09   240106............   01.2288   21.48   250004............   01.4355   13.66   250095............   01.0352   11.59
230174............   01.2966   16.15   240019............   01.3072   18.63   240107............   00.9027   13.16   250005............   00.9909   08.78   250096............   01.1186   14.83
230175............   02.6575   14.97   240020............   01.1766   16.41   240108............   01.0205   10.01   250006............   00.9784   12.45   250097............   01.2120   12.30
230176............   01.2103   20.13   240021............   01.1289   13.70   240109............   00.9590   13.51   250007............   01.2263   15.01   250098............   00.8689   09.46
230178............   01.0454   14.99   240022............   01.0734   15.34   240110............   00.9611   15.47   250008............   00.9896   11.21   250099............   01.2528   11.75
230180............   01.0835   14.16   240023............   01.1016   15.19   240111............   01.0310   11.74   250009............   01.1394   12.14   250100............   01.2444   11.80
230184............   01.1304   14.57   240025............   01.1440   14.38   240112............   00.9869   12.95   250010............   01.0681   10.06   250101............   00.8813   08.70
230186............   01.0962   14.08   240027............   01.0252   11.62   240114............   01.0385   10.60   250012............   00.9557   12.30   250102............   01.4950   13.33
230188............   01.1138   15.94   240028............   01.0995   15.09   240115............   01.6058   21.44   250015............   01.0527   09.37   250104............   01.3329   14.08
230189............   00.9189   13.54   240029............   01.2110   14.23   240116............   00.9244   12.14   250017............   00.9473   13.08   250105............   00.8949   11.28
230190............   01.3785   18.04   240030............   01.3289   15.33   240117............   01.1189   15.35   250018............   00.9046   10.20   250107............   00.9558   13.72
230191............   00.8881   13.06   240031............   01.0538   13.01   240119............   00.8879   14.25   250019............   01.3901   14.82   250109............   00.9646   10.30
230193............   01.2619   16.40   240036............   01.4910   17.88   240121............   00.9040   16.37   250020............   00.9777   08.74   250112............   00.9603   11.79
230194............   01.1983   13.91   240037............   01.1014   15.67   240122............   01.0987   15.27   250021............   00.9506   07.83   250117............   01.0673   12.06
230195............   01.2973   19.72   240038............   01.4942   21.20   240123............   01.0561   13.47   250023............   00.8516   09.86   250119............   01.0942   10.32
230197............   01.2661   17.75   240040............   01.2590   16.06   240124............   01.0496   14.28   250024............   01.0275   07.74   250120............   00.9973   10.44
230199............   01.1337   15.53   240041............   01.2707   13.37   240125............   00.9045   10.46   250025............   01.0231   12.94   250122............   01.2232   15.54
230201............   01.0707   12.87   240043............   01.2186   15.65   240127............   01.0109   11.10   250027............   01.0461   10.39   250123............   01.2141   18.71
230204............   01.2813   19.02   240044............   01.1936   15.06   240128............   01.1627   15.73   250029............   00.9638   10.16   250124............   00.9091   10.51
230205............   01.0786   14.68   240045............   01.0165   16.58   240129............   01.0178   12.94   250030............   00.9948   10.01   250125............   01.3004   14.95
230207............   01.2236   18.62   240047............   01.4158   15.84   240130............   00.9797   13.39   250031............   01.2574   16.18   250126............   01.0603   11.53
230208............   01.2154   13.74   240048............   01.3229   20.23   240132............   01.1820   22.17   250032............   01.2336   14.64   250127............   00.7931  ......
230211............   00.9649   12.38   240049............   01.7181   19.30   240133............   01.1219   15.04   250033............   00.9734   11.82   250128............   00.9379   10.79
230212............   01.0570   18.73   240050............   01.1358   18.32   240135............   00.9489   11.11   250034............   01.4985   11.58   250131............   01.0129   09.78
230213............   01.0874   11.66   240051............   00.9262   15.59   240136............   00.8433   12.11   250035............   00.8653   12.15   250134............   01.0001   11.82
230216............   01.3301   15.22   240052............   01.2101   15.63   240137............   01.1848   14.41   250036............   00.9998   10.69   250136............   00.8317   14.79
230217............   01.1531   16.72   240053............   01.4947   18.22   240138............   00.8944   09.63   250037............   00.9016   08.35   250138............   01.2894   15.41
230219............   01.0251   11.59   240056............   01.2468   19.37   240139............   00.9726   14.31   250038............   00.9956   09.69   250140............   00.9057   08.90
230221............   01.3034   20.08   240057............   01.7397   20.10   240140............   00.9074   11.48   250039............   00.9782   08.23   250141............   01.2843   14.93
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                                                                                          Page 9 of 16                                                                                          
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                                Avg.                                   Avg.                                   Avg.                                   Avg.                                  Avg. 
     Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix   hour 
                      index     wage                         index     wage                         index     wage                         index     wage                         index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
250144............   00.9087  .......  260086............   01.0276   12.04   270003............   01.1922   16.85   280021............   01.1320   13.17   280108............   01.0898   12.16
250145............   00.7431  .......  260089............   01.0034   12.53   270004............   01.6473   16.14   280022............   00.9379   10.81   280109............   00.8498   11.14
250146............   01.0147  .......  260091............   01.6277   18.26   270006............   00.9936   10.56   280023............   01.3529   13.27   280110............   00.9955   10.65
260001............   01.6604   14.89   260092............   01.0280   13.62   270007............   00.9529   11.48   280024............   00.9818   11.66   280111............   01.2937   14.82
260002............   01.3724   19.21   260094............   01.0726   12.66   270009............   01.0682   18.52   280025............   01.0212   10.04   280114............   01.0081   10.45
260003............   01.0283   12.20   260095............   01.3812   15.45   270011............   01.1014   14.76   280026............   01.0488   12.16   280115............   01.0183   12.67
260004............   01.0563   12.94   260096............   01.4996   19.36   270012............   01.4686   16.27   280028............   01.0088   11.92   280117............   01.0867   13.19
260005............   01.5562   17.00   260097............   01.1369   14.13   270013............   01.2710   15.04   280029............   00.8925   09.58   280118............   01.0471   14.77
260006............   01.5091   15.71   260100............   01.0538   12.23   270014............   01.6127   14.95   280030............   01.8580   21.75   280119............   00.8597  ......
260007............   01.3660   15.19   260102............   01.0829   14.83   270016............   00.8137   09.83   280031............   01.0559   12.06   280123............   00.8035   13.91
260008............   01.2489   14.14   260103............   01.3961   16.34   270017............   01.2385   15.69   280032............   01.2486   14.22   290001............   01.6545   20.33
260009............   01.2556   14.91   260104............   01.6527   17.76   270019............   00.9621   10.82   280033............   01.1060   13.61   290002............   00.9094   16.20
260011............   01.5675   16.81   260105............   01.8628   17.57   270021............   01.1288   13.12   280034............   01.1970   13.53   290003............   01.6628   20.74
260012............   01.0755   10.76   260107............   01.4005   16.71   270023............   01.3333   16.04   280035............   00.9221   11.06   290005............   01.2576   18.60
260013............   01.1777   13.00   260108............   01.7809   17.07   270024............   00.9949   12.25   280037............   00.9970   10.57   290006............   01.0379   17.56
260014............   01.7042   17.03   260109............   01.0304   10.83   270026............   00.9248   14.52   280038............   01.0946   12.32   290007............   01.8706   22.26
260015............   01.1455   13.06   260110............   01.6218   13.93   270027............   01.0069   11.19   280039............   01.1507   11.46   290008............   01.2910   19.77
260017............   01.2244   13.75   260111............   00.9167   10.33   270028............   01.0198   14.70   280040............   01.5951   17.67   290009............   01.5071   20.23
260018............   00.9461   08.71   260112............   01.4058   17.17   270029............   01.0302   14.41   280041............   01.0360   10.18   290010............   01.1549   16.04
260019............   01.0189   12.36   260113............   01.1613   11.99   270030............   00.7612  .......  280042............   01.0397   12.52   290011............   00.8724   11.94
260020............   01.6648   18.00   260115............   01.1921   13.38   270031............   00.9294   10.86   280043............   01.1304   13.48   290012............   01.3601   18.32
260021............   01.4508   16.18   260116............   01.1508   12.40   270032............   01.0819   15.20   280045............   01.1224   12.49   290013............   00.9998   15.06
260022............   01.3952   14.44   260119............   01.2581   13.25   270033............   00.9108   14.51   280046............   00.9991   10.16   290014............   01.0364   15.84
260023............   01.2376   14.14   260120............   01.2378   14.81   270035............   01.0176   13.97   280047............   01.0890   14.84   290015............   00.9368   14.63
260024............   01.0546   11.04   260122............   01.1796   12.00   270036............   00.9100   11.20   280048............   01.0516   10.70   290016............   01.2040   13.62
260025............   01.2444   13.10   260123............   01.0269   10.37   270039............   00.9364   17.94   280049............   01.0245   12.20   290018............   01.2698   17.15
260027............   01.5773   17.97   260127............   00.9726   13.39   270040............   01.0843   15.30   280050............   00.9501   11.55   290019............   01.2290   17.04
260029............   01.1914   16.89   260128............   00.9655   08.66   270041............   00.9648   10.47   280051............   00.9747   12.15   290020............   01.2552   16.81
260030............   01.1698   10.05   260129............   01.0658   12.87   270044............   01.2502   12.55   280052............   01.0428   10.45   290021............   01.5764   20.70
260031............   01.4920   17.49   260131............   01.2902   15.02   270046............   00.9153   13.91   280054............   01.2385   15.23   290022............   01.5911   20.10
260032............   01.6988   18.87   260134............   01.2830   13.25   270047............   01.1693   09.98   280055............   00.9076   11.10   290027............   01.0014   16.54
260033............   01.3199   14.53   260137............   01.1775   13.64   270048............   01.1046   13.59   280056............   01.0467   09.44   290029............   00.9610  ......
260034............   01.0194   13.13   260138............   01.8670   18.90   270049............   01.7178   15.71   280057............   01.0131   13.50   290032............   01.3945   19.64
260035............   01.1391   11.06   260141............   01.9337   15.87   270050............   01.0085   15.42   280058............   01.2654   12.49   300001............   01.3455   19.02
260036............   01.0811   14.55   260142............   01.2046   13.51   270051............   01.3094   18.46   280060............   01.5755   17.64   300003............   01.7463   19.71
260037............   01.2491   13.74   260143............   01.0419   10.03   270052............   01.0278   19.34   280061............   01.3448   14.94   300005............   01.2754   17.05
260039............   01.2075   10.70   260146............   01.5253   14.81   270053............   01.1036   08.14   280062............   01.1994   11.55   300006............   01.1294   15.08
260040............   01.4936   14.03   260147............   01.0244   11.64   270055............   00.7054  .......  280064............   01.0401   11.38   300007............   01.1469   19.46
260042............   01.1864   15.65   260148............   00.9992   14.12   270057............   01.1718   15.06   280065............   01.2338   15.65   300008............   01.2678   15.50
260044............   01.0661   13.62   260158............   01.0821   10.90   270058............   00.9589   10.74   280066............   01.0733   10.40   300009............   01.1594   16.54
260047............   01.2906   13.11   260159............   01.1853   18.22   270059............   00.8646   12.91   280068............   00.9019   08.61   300010............   01.2414   16.90
260048............   01.2887   16.57   260160............   01.1296   12.91   270060............   00.9063   11.63   280070............   01.0299   11.22   300011............   01.2946   20.39
260050............   01.0970   12.97   260162............   01.1279   16.85   270063............   00.8744   13.29   280073............   01.0037   13.90   300012............   01.2902   20.73
260051............   01.0865   13.22   260163............   01.1758   12.84   270067............   01.1181  .......  280074............   01.0922   10.62   300013............   01.2111   15.98
260052............   01.2556   15.53   260164............   01.0759   11.11   270068............   00.8709   11.69   280075............   01.2277   11.19   300014............   01.2533   16.93
260053............   01.1325   09.80   260166............   01.2139   17.16   270072............   00.8859   15.52   280076............   01.1028   13.66   300015............   01.1504   16.71
260054............   01.2860   15.62   260172............   00.9927   11.99   270073............   01.1496   10.27   280077............   01.2979   16.26   300016............   01.2402   17.23
260055............   01.0641   12.73   260173............   00.9866   10.22   270074............   00.8792  .......  280079............   00.9470   09.48   300017............   01.1839   18.41
260057............   01.2108   13.64   260175............   01.1904   13.15   270075............   00.9339  .......  280080............   01.2358   10.27   300018............   01.2222   18.26
260059............   01.1143   11.93   260176............   01.5577   15.91   270076............   00.7820  .......  280081............   01.4820   16.98   300019............   01.2465   17.09
260061............   01.1439   09.82   260177............   01.2963   18.12   270079............   00.9326   12.66   280082............   01.2966   10.41   300020............   01.2355   18.13
260062............   01.1626   15.45   260178............   01.5044   19.22   270080............   01.1012   13.18   280083............   01.0266   11.97   300021............   01.1580   14.84
260063............   01.1442   13.06   260179............   01.5327   20.18   270081............   00.9722   10.11   280084............   01.0412   09.83   300022............   01.1177   15.00
260064............   01.3888   15.64   260180............   01.5530   17.26   270082............   00.9105   14.85   280085............   00.8963   13.22   300023............   01.2379   19.05
260065............   01.6791   14.32   260183............   01.6381   15.05   270083............   01.0383   12.97   280088............   01.6715   17.29   300024............   01.2305   15.72
260066............   01.1340   12.15   260186............   01.1666   14.14   270084............   00.9200   13.03   280089............   01.0477   12.85   300028............   01.2066   16.12
260067............   00.9175   12.05   260188............   01.3803   15.00   280001............   01.0424   12.18   280090............   00.9980   11.70   300029............   01.3288   20.57
260068............   01.7843   17.91   260189............   00.8964   09.49   280003............   01.8996   16.43   280091............   01.0891   13.13   300033............   01.0766   13.25
260070............   01.2308   10.32   260190............   01.2074   20.62   280005............   01.4389   16.26   280092............   00.9183   11.14   300034............   01.7985   21.02
260073............   01.0281   10.98   260191............   01.2290   17.70   280009............   01.5319   15.40   280094............   01.1517   12.59   310001............   01.6513   22.19
260074............   01.2161   13.00   260193............   01.2593   16.35   280011............   00.9727   10.71   280097............   00.9670   12.09   310002............   01.7937   22.69
260077............   01.5220   15.46   260195............   01.1421   14.93   280012............   01.2184   12.69   280098............   00.9679   10.10   310003............   01.2115   20.93
260078............   01.1278   13.62   260197............   01.2162   20.81   280013............   02.0045   20.17   280101............   01.1395   12.16   310005............   01.1880   19.16
260079............   01.0065   10.71   260198............   01.2144   14.62   280014............   01.0475   10.76   280102............   00.9671   10.22   310006............   01.2265   19.94
260080............   01.0818   09.00   260200............   01.2021   19.15   280015............   01.1021   13.75   280104............   01.0008   10.12   310008............   01.2993   20.15
260081............   01.4117   17.40   260202............   01.2971   16.81   280017............   01.1136   12.92   280105............   01.2978   14.83   310009............   01.1537   19.28
260082............   01.1213   13.27   260204............   00.8039  .......  280018............   00.9982   11.78   280106............   01.0662   12.09   310010............   01.2724   19.78
260085............   01.5139   17.37   270002............   01.1955   12.64   280020............   01.4322   16.53   280107............   01.0346   10.56   310011............   01.2389   18.15
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                                                                                         Page 10 of 16                                                                                          
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                                Avg.                                   Avg.                                   Avg.                                   Avg.                                  Avg. 
     Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix   hour 
                      index     wage                         index     wage                         index     wage                         index     wage                         index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
310012............   01.5465   21.51   310105............   01.3448   19.91   330012............   01.5891   26.43   330115............   01.2289   13.79   330221............   01.2913   25.37
310013............   01.3011   17.62   310108............   01.3071   19.81   330013............   01.9898   16.97   330116............   00.9711   16.94   330222............   01.2085   14.02
310014............   01.6025   22.63   310110............   01.1805   18.46   330014............   01.4094   25.19   330118............   01.5992   16.45   330223............   01.0718   13.45
310015............   01.6967   23.19   310111............   01.2890   17.97   330016............   01.0313   14.50   330119............   01.7324   27.28   330224............   01.2545   19.36
310016............   01.2159   20.92   310112............   01.2782   18.62   330019............   01.2647   22.80   330121............   01.0075   14.55   330225............   01.1934   23.33
310017............   01.3456   20.37   310113............   01.2519   18.56   330020............   01.0852   14.84   330122............   01.2317   20.97   330226............   01.2692   17.69
310018............   01.2401   24.06   310115............   01.1827   18.93   330023............   01.2029   20.62   330125............   01.6989   18.97   330229............   01.3227   13.56
310019............   01.6525   20.28   310116............   01.2871   19.92   330024............   01.8238   26.75   330126............   01.2026   18.36   330230............   01.5327   24.70
310020............   01.2383   18.05   310118............   01.2884   23.38   330025............   01.1054   14.30   330127............   01.3874   24.83   330231............   01.1566   25.13
310021............   01.3406   18.25   310119............   01.5707   29.97   330027............   01.5406   28.98   330128............   01.4001   25.66   330232............   01.2524   14.83
310022............   01.2341   18.31   310120............   01.0934   17.21   330028............   01.3486   22.68   330132............   01.1440   12.27   330233............   01.5282   27.14
310024............   01.2391   20.74   310121............   01.1299   18.72   330029............   01.1455   15.76   330133............   01.3714   26.33   330234............   02.0317   25.92
310025............   01.1982   19.63   310898............   00.4649  .......  330030............   01.1803   14.98   330135............   01.2404   16.49   330235............   01.1443   16.14
310026............   01.3190   20.21   320001............   01.4446   16.86   330033............   01.1764   13.16   330136............   01.2613   21.77   330236............   01.3346   25.41
310027............   01.3101   18.35   320002............   01.3067   20.26   330034............   01.0194   28.07   330140............   01.6566   16.38   330238............   01.1253   14.95
310028............   01.1788   18.28   320003............   01.2587   13.22   330036............   01.2568   20.09   330141............   01.3119   22.33   330239............   01.2376   13.84
310029............   01.7881   19.95   320004............   01.1565   15.58   330037............   01.0934   13.75   330144............   01.0820   12.78   330240............   01.3190   26.44
310031............   02.5338   22.82   320005............   01.2264   16.12   330038............   01.1641   14.14   330148............   00.9909   13.44   330241............   01.8452   20.10
310032............   01.2716   19.09   320006............   01.3782   13.69   330039............   00.8406   13.46   330151............   01.0970   12.90   330242............   01.3650   19.96
310034............   01.2258   19.42   320009............   01.5065   15.54   330041............   01.3283   24.26   330152............   01.4065   26.08   330245............   01.2193   15.62
310036............   01.2240   17.75   320011............   00.9910   15.41   330043............   01.2503   24.13   330153............   01.6335   16.75   330246............   01.2161   22.72
310037............   01.2157   23.45   320012............   01.0253   14.52   330044............   01.1694   16.27   330154............   01.4930  .......  330247............   00.6932   24.34
310038............   01.7602   21.93   320013............   01.0733   15.84   330045............   01.4054   22.13   330157............   01.2605   15.89   330249............   01.2319   15.40
310039............   01.2973   18.74   320014............   00.9531   13.73   330046............   01.5348   26.37   330158............   01.3217   21.63   330250............   01.2727   16.08
310040............   01.2386   20.49   320016............   01.1396   14.59   330047............   01.2736   15.31   330159............   01.3201   17.51   330252............   00.9592   14.59
310041............   01.2754   20.49   320017............   01.1751   17.22   330048............   01.2376   15.07   330160............   01.4209   24.63   330254............   01.0004   16.38
310042............   01.1754   21.01   320018............   01.4546   16.07   330049............   01.2842   17.67   330161............   00.9498   15.29   330258............   01.3313   23.94
310043............   01.2230   19.18   320019............   01.3944   17.39   330053............   01.1371   13.82   330162............   01.3010   22.13   330259............   01.4230   21.97
310044............   01.3075   18.63   320021............   01.6940   17.70   330055............   01.4247   27.10   330163............   01.1475   15.59   330261............   01.2832   21.92
310045............   01.2990   23.02   320022............   01.2537   16.29   330056............   01.4228   24.73   330164............   01.3340   17.75   330263............   01.0461   15.05
310047............   01.2841   20.46   320023............   01.0782   11.67   330057............   01.6252   16.38   330166............   00.9789   13.39   330264............   01.1798   17.85
310048............   01.2223   15.96   320030............   01.0494   15.83   330058............   01.2703   14.94   330167............   01.5602   26.57   330265............   01.2976   15.23
310049............   01.3084   19.63   320031............   00.9369   12.53   330059............   01.5555   26.37   330169............   01.4141   28.56   330267............   01.3104   21.14
310050............   01.1861   20.08   320032............   00.9493   15.92   330061............   01.3455   21.49   330171............   01.2994   22.03   330268............   01.1163   14.37
310051............   01.2773   21.27   320033............   01.1006   17.04   330062............   01.0580   14.93   330175............   01.0770   13.20   330270............   01.9165   28.16
310052............   01.2164   20.20   320035............   01.3206   13.24   330064............   01.4068   25.74   330177............   01.0088   13.24   330273............   01.3526   20.62
310054............   01.2774   21.28   320037............   01.1547   13.11   330065............   01.1936   16.20   330179............   00.8930   12.97   330275............   01.2280   16.62
310056............   01.1793   17.95   320038............   01.2495   14.38   330066............   01.2270   17.39   330180............   01.1887   14.90   330276............   01.2188   16.70
310057............   01.2752   18.24   320046............   01.0773   15.91   330067............   01.3194   18.82   330181............   01.2338   27.69   330277............   01.1783   15.22
310058............   01.1306   20.45   320048............   01.2160   12.91   330072............   01.3403   26.08   330182............   02.3720   25.91   330279............   01.2887   16.77
310060............   01.1744   15.89   320056............   00.9240  .......  330073............   01.2108   12.91   330183............   01.3597   17.43   330281............   00.5697   20.00
310061............   01.1668   18.39   320057............   01.0162  .......  330074............   01.2561   15.83   330184............   01.3567   22.64   330285............   01.7416   20.83
310062............   01.3150   24.72   320058............   00.7242  .......  330075............   01.0777   15.06   330185............   01.1982   22.90   330286............   01.3414   21.78
310063............   01.3385   20.38   320059............   01.0386  .......  330078............   01.3801   15.94   330186............   01.0663   19.57   330288............   01.0498   15.73
310064............   01.2553   20.41   320060............   00.9193  .......  330079............   01.2608   14.89   330188............   01.2357   16.63   330290............   01.7045   26.56
310067............   01.2814   19.21   320061............   01.3108  .......  330080............   01.3188   23.40   330189............   00.7685   13.00   330293............   01.1864   13.94
310069............   01.1751   18.53   320062............   00.8670  .......  330082............   01.2573   16.58   330191............   01.2977   16.96   330304............   01.2689   24.14
310070............   01.3224   20.67   320063............   01.2952   15.07   330084............   00.9780   15.00   330193............   01.3655   24.94   330306............   01.4100   23.49
310071............   00.7721  .......  320065............   01.1964   15.47   330085............   01.3582   17.69   330194............   01.8291   25.78   330307............   01.2206   16.06
310072............   01.2463   19.27   320067............   00.9066   10.33   330086............   01.2397   22.49   330195............   01.5607   26.38   330308............   01.2850   24.28
310073............   01.4738   20.47   320068............   01.0028   15.10   330088............   01.1084   22.93   330196............   01.3817   24.47   330309............   01.2115   22.70
310074............   01.2517   19.30   320069............   01.0237   12.54   330090............   01.6385   15.36   330197............   01.0509   14.66   330314............   01.2907   21.13
310075............   01.3036   20.76   320070............   00.9179  .......  330091............   01.3756   17.28   330198............   01.3557   26.09   330315............   01.1665   21.49
310076............   01.3534   25.44   320074............   01.1338   17.10   330092............   01.0293   13.86   330199............   01.2843   23.00   330316............   01.2991   23.18
310077............   01.5680   20.76   320076............   01.2003   14.58   330094............   01.1784   14.68   330201............   01.4500   24.55   330327............   00.9253   14.93
310078............   01.2714   22.01   320079............   01.1346   18.51   330095............   01.1935   15.53   330202............   01.4040   25.07   330331............   01.2039   24.80
310081............   01.2509   18.24   320080............   00.5832   12.07   330096............   01.0573   13.82   330203............   01.3484   18.97   330332............   01.2506   22.24
310083............   01.2392   20.23   330001............   01.1722   19.91   330097............   01.1720   14.78   330204............   01.3382   23.41   330333............   01.3116   23.30
310084............   01.1994   18.74   330002............   01.4547   22.56   330100............   00.7032   22.60   330205............   01.2042   17.97   330336............   01.3679   26.05
310085............   01.1133  .......  330003............   01.2847   17.15   330101............   01.7173   30.13   330208............   01.2029   21.83   330338............   01.1671   20.43
310086............   01.1944   19.53   330004............   01.3090   17.83   330102............   01.3050   15.74   330209............   01.2328   18.89   330339............   00.7973   17.43
310087............   01.2491   18.41   330005............   01.7496   18.22   330103............   01.1862   15.52   330211............   01.1984   15.21   330340............   01.1787   24.08
310088............   01.1610   19.42   330006............   01.3397   22.16   330104............   01.3474   24.45   330212............   01.2156   18.85   330350............   01.8045   26.28
310090............   01.2276   20.34   330007............   01.3752   15.51   330106............   01.5766   29.39   330213............   01.1346   15.33   330353............   01.3027   24.98
310091............   01.2150   18.76   330008............   01.1600   15.29   330107............   01.1823   22.28   330214............   01.7349   27.58   330354............   01.4060  ......
310092............   01.3769   18.31   330009............   01.2687   26.03   330108............   01.2065   16.53   330215............   01.1490   15.94   330357............   01.3696   29.57
310093............   01.1876   18.84   330010............   01.2305   14.08   330111............   01.1373   13.22   330218............   01.2150   16.58   330359............   00.9253   19.30
310096............   01.8968   22.27   330011............   01.2148   16.40   330114............   00.9949   15.08   330219............   01.6147   18.45   330372............   01.2703   21.37
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                                                                         Page 11 of 16                                                                                          
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                                Avg.                                   Avg.                                   Avg.                                   Avg.                                  Avg. 
     Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix   hour 
                      index     wage                         index     wage                         index     wage                         index     wage                         index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
330381............   01.2440   23.70   340065............   01.1402   13.03   340160............   01.1146   12.75   360015............   01.4740   17.62   360091............   01.2664   17.38
330383............   01.5047  .......  340067............   01.1674   12.63   340162............   01.1558   16.49   360016............   01.5341   17.05   360092............   01.1787   16.42
330385............   01.4091   29.11   340068............   01.3530   12.17   340164............   01.3548   17.07   360017............   01.7224   18.91   360093............   01.2189   15.15
330386............   01.1674   17.11   340069............   01.7583   17.39   340166............   01.3222   17.47   360018............   01.5058   17.63   360094............   01.1798   18.37
330387............   00.8496   23.22   340070............   01.2688   15.12   340168............   00.5447   14.80   360019............   01.2310   17.21   360095............   01.2746   15.08
330389............   01.8827   27.58   340071............   01.0358   13.49   350001............   01.0315   11.25   360020............   01.4312   16.47   360096............   01.0991   14.95
330390............   01.3011   24.47   340072............   01.1025   13.40   350002............   01.6951   16.15   360021............   01.2185   16.31   360098............   01.3837   17.84
330393............   01.6207   22.84   340073............   01.4664   18.47   350003............   01.1489   14.21   360024............   01.2366   16.75   360099............   01.0624   15.49
330394............   01.4091   16.96   340075............   01.1532   14.80   350004............   01.8730   17.07   360025............   01.1899   17.00   360100............   01.2993   15.02
330395............   01.3622   25.96   340080............   01.1422   09.88   350005............   01.1089   11.21   360026............   01.1855   15.01   360101............   01.7474   19.63
330396............   01.2287   26.91   340084............   01.0553   13.62   350006............   01.2745   17.95   360027............   01.5371   17.37   360102............   01.2642   17.18
330397............   01.5173   26.69   340085............   01.1922   14.33   350007............   01.0060   09.21   360028............   01.3748   15.02   360103............   01.3969   18.47
330398............   01.2377   24.94   340087............   01.1725   14.86   350008............   01.0659   13.30   360029............   01.1187   14.74   360104............   00.9491   16.76
330399............   01.3658   28.62   340088............   01.1225   14.92   350009............   01.1443   14.36   360030............   01.1943   14.51   360106............   01.1455   12.63
340001............   01.3618   17.90   340089............   00.9771   10.77   350010............   01.0952   11.07   360031............   01.2736   16.00   360107............   01.1824   15.07
340002............   01.8293   16.29   340090............   01.0764   14.15   350011............   01.7258   16.96   360032............   01.0786   15.27   360108............   01.0347   13.97
340003............   01.1755   14.86   340091............   01.6452   17.60   350012............   01.0654   11.31   360034............   01.1979   12.84   360109............   01.0463   16.12
340004............   01.4936   15.33   340093............   01.1216   11.99   350013............   01.1237   13.52   360035............   01.4871   18.47   360112............   01.7808   19.41
340005............   01.1924   12.35   340094............   01.3282   15.81   350014............   01.1283   10.67   360036............   01.1922   16.47   360113............   01.3411   17.59
340006............   01.2405   13.41   340096............   01.2409   14.57   350015............   01.6098   15.71   360037............   02.1054   18.67   360114............   01.0986   14.97
340007............   01.1630   13.78   340097............   01.1145   11.48   350016............   00.9575   11.10   360038............   01.4843   16.89   360115............   01.1640   16.96
340008............   01.1836   15.73   340098............   01.6380   16.25   350017............   01.3376   15.09   360039............   01.2818   14.64   360116............   01.0704   14.50
340009............   01.5128   18.76   340099............   01.1377   11.89   350018............   01.1527   09.40   360040............   01.2237   16.01   360118............   01.2778   15.25
340010............   01.3133   14.82   340100............   01.2221  .......  350019............   01.5855   17.49   360041............   01.3449   16.68   360119............   01.2596   17.14
340011............   01.0666   12.63   340101............   01.0389   09.36   350020............   01.3945   16.19   360042............   01.1135   14.26   360120............   00.7469   17.54
340012............   01.1413   14.03   340104............   01.0198   07.49   350021............   01.0494   10.29   360044............   01.0728   14.26   360121............   01.2395   16.08
340013............   01.2006   14.24   340105............   01.3469   17.54   350023............   01.0025   11.13   360045............   01.4747   19.21   360122............   01.3784   16.72
340014............   01.6068   18.81   340106............   01.1325   15.13   350024............   01.1555   09.39   360046............   01.1337   16.35   360123............   01.2396   16.88
340015............   01.2374   14.74   340107............   01.2480   15.74   350025............   00.9831   11.59   360047............   01.0766   12.46   360124............   01.2023   16.36
340016............   01.1048   13.82   340109............   01.3004   14.37   350027............   00.9928   12.22   360048............   01.8291   20.28   360125............   01.1405   14.91
340017............   01.2631   13.87   340111............   01.1326   12.76   350029............   00.8768   09.62   360049............   01.3148   17.96   360126............   01.3140   15.84
340018............   01.1928   13.17   340112............   01.0464   13.95   350030............   01.0239   14.92   360050............   01.1785   12.14   360127............   01.0833   14.17
340019............   01.1077   13.33   340113............   01.9082   18.50   350033............   00.9352   13.57   360051............   01.5018   18.53   360128............   01.1316   13.72
340020............   01.1827   18.53   340114............   01.4397   18.30   350034............   00.9722   12.92   360052............   01.7050   16.61   360129............   01.0195   13.03
340021............   01.3166   13.89   340115............   01.5014   16.58   350035............   00.9150   09.26   360054............   01.2823   14.56   360130............   01.0625   13.04
340022............   01.0900   13.65   340116............   01.7657   19.73   350036............   00.9025   09.81   360055............   01.1928   16.86   360131............   01.2097   15.01
340023............   01.3151   16.32   340119............   01.2890   13.80   350038............   01.0215   15.62   360056............   01.3100   15.51   360132............   01.2467   16.73
340024............   01.2484   13.00   340120............   01.1005   12.06   350039............   01.0200   12.62   360057............   01.0723   12.52   360133............   01.4538   16.50
340025............   01.1576   13.18   340121............   01.0702   12.96   350041............   01.0704   12.85   360058............   01.1505   15.01   360134............   01.5573   17.39
340027............   01.2165   13.68   340122............   01.0063   10.85   350042............   01.0638   12.64   360059............   01.4957   18.80   360135............   01.2170   14.57
340028............   01.4178   15.42   340123............   01.1582   13.69   350043............   01.5278   14.64   360062............   01.5712   17.01   360136............   01.1243   13.87
340030............   01.8722   17.35   340124............   01.0999   13.00   350044............   00.8327   08.90   360063............   01.1058   14.42   360137............   01.5686   18.00
340031............   01.0154   11.45   340125............   01.4091   16.81   350047............   01.1831   15.32   360064............   01.4694   17.62   360139............   00.9743   12.05
340032............   01.2736   16.39   340126............   01.3403   15.76   350049............   01.1917   09.83   360065............   01.2442   15.02   360140............   01.0780   14.54
340034............   01.2686   16.12   340127............   01.2586   15.62   350050............   01.0158   11.38   360066............   01.2236   14.92   360141............   01.4099   18.14
340035............   01.1562   15.17   340129............   01.2571   17.74   350051............   00.9788   12.48   360067............   01.1075   11.39   360142............   01.0062   13.89
340036............   01.1861   15.00   340130............   01.3265   14.86   350053............   00.8959   11.10   360068............   01.5775   18.67   360143............   01.2491   16.84
340037............   01.2293   15.38   340131............   01.3162   15.31   350055............   00.9074   11.18   360069............   01.0213   15.38   360144............   01.2708   18.65
340038............   01.1347   13.31   340132............   01.2827   12.54   350056............   00.9586   11.87   360070............   01.5546   15.73   360145............   01.5305   15.26
340039............   01.2821   16.55   340133............   01.1553   14.11   350058............   01.0392   11.16   360071............   01.2517   14.03   360147............   01.2000   14.87
340040............   01.8061   16.34   340136............   00.9837   16.24   350060............   00.9417   07.24   360072............   01.1876   14.87   360148............   01.1722   14.28
340041............   01.2486   14.67   340137............   01.4444   12.18   350061............   00.9976   12.32   360074............   01.4123   16.37   360149............   01.1040   15.84
340042............   01.1515   13.14   340138............   01.1751   14.43   350063............   00.9146  .......  360075............   01.4347   19.23   360150............   01.2634   16.63
340044............   01.0459   10.39   340141............   01.5719   17.23   350064............   00.7287  .......  360076............   01.3232   15.96   360151............   01.3390   15.61
340045............   01.0286   09.87   340142............   01.2200   14.37   350065............   00.9497   10.34   360077............   01.4129   16.81   360152............   01.4837   16.15
340047............   01.9040   16.64   340143............   01.3553   17.58   350066............   00.6282  .......  360078............   01.2635   17.46   360153............   01.1782   12.99
340048............   01.2550   07.91   340144............   01.2895   17.53   360001............   01.2318   15.77   360079............   01.6716   18.23   360154............   01.0398   11.51
340049............   00.6445   15.08   340145............   01.2739   17.27   360002............   01.1534   14.33   360080............   01.1335   14.11   360155............   01.3267   17.47
340050............   01.1703   14.78   340146............   01.0497   12.17   360003............   01.6359   18.41   360081............   01.3223   17.76   360156............   01.1304   16.04
340051............   01.2070   15.20   340147............   01.3448   15.57   360006............   01.7543   18.70   360082............   01.3216   17.76   360159............   01.2104   16.45
340052............   01.0038   16.81   340148............   01.4339   15.52   360007............   01.0831   15.64   360083............   01.3053   15.20   360161............   01.2553   18.08
340053............   01.5864   17.14   340151............   01.2056   13.47   360008............   01.2059   14.53   360084............   01.6031   16.81   360162............   01.2698   15.67
340054............   01.0825   12.08   340153............   01.9188   19.98   360009............   01.3259   17.41   360085............   01.7507   18.24   360163............   01.7578   18.19
340055............   01.2212   15.33   340154............   00.7612   14.62   360010............   01.1667   14.40   360086............   01.4164   15.83   360164............   00.8600   13.58
340060............   01.1257   14.49   340155............   01.4494   20.53   360011............   01.2476   16.40   360087............   01.3185   15.92   360165............   01.1166   13.53
340061............   01.6405   17.49   340156............   00.8025  .......  360012............   01.2386   17.96   360088............   01.1425   14.18   360166............   01.1834   15.77
340063............   01.0344   11.52   340158............   01.1027   15.90   360013............   01.1028   16.12   360089............   01.0943   15.10   360169............   01.0871   16.28
340064............   01.1708   14.10   340159............   01.1214   14.10   360014............   01.1275   15.02   360090............   01.2463   17.34   360170............   01.1101   16.93
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                                                                                         Page 12 of 16                                                                                          
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                                Avg.                                   Avg.                                   Avg.                                   Avg.                                  Avg. 
     Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix   hour 
                      index     wage                         index     wage                         index     wage                         index     wage                         index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
360172............   01.3501   15.73   370034............   01.1511   11.98   370153............   01.1505   13.77   380064............   01.2983   18.01   390055............   01.6951   19.09
360174............   01.2039   14.63   370035............   01.4865   14.39   370154............   00.9983   11.80   380065............   01.0296   17.02   390056............   01.1105   15.26
360175............   01.1487   15.64   370036............   00.9836   08.68   370156............   01.1475   12.70   380066............   01.3878   15.59   390057............   01.2599   17.60
360176............   01.2231   12.33   370037............   01.5519   15.41   370158............   01.0613   12.52   380068............   01.0179   18.42   390058............   01.3006   16.59
360177............   01.2790   16.76   370038............   00.9814   10.14   370159............   01.3848   14.16   380069............   01.1849   15.99   390059............   01.3068   15.15
360178............   01.2346   14.42   370039............   01.3170   17.93   370161............   01.1867   16.35   380070............   01.1736   18.67   390060............   01.0954   14.69
360179............   01.2754   17.80   370040............   01.0365   09.92   370163............   00.8697   09.85   380071............   01.2557   21.69   390061............   01.3869   17.33
360180............   02.2165   20.03   370041............   00.9739   12.74   370165............   01.1600   10.92   380072............   00.9976   13.01   390062............   01.1690   14.09
360184............   00.6996   14.70   370042............   00.8919   10.84   370166............   01.1736   16.00   380075............   01.4436   18.03   390063............   01.6704   17.69
360185............   01.2021   15.85   370043............   00.9414   10.62   370169............   01.0442   10.00   380078............   01.1587   16.41   390064............   01.4469   15.00
360186............   01.2453   14.82   370045............   01.0557   10.20   370170............   00.9497  .......  380081............   01.0971   15.77   390065............   01.2240   17.69
360187............   01.3438   16.16   370046............   00.9896   12.64   370171............   01.0047  .......  380082............   01.2171   18.63   390066............   01.2517   16.74
360188............   01.0363   14.70   370047............   01.2384   12.34   370172............   00.8760  .......  380083............   01.1325   16.57   390067............   01.7140   17.24
360189............   01.0689   14.46   370048............   01.1242   11.45   370173............   01.3875  .......  380084............   01.2186   19.45   390068............   01.3575   16.97
360192............   01.3454   17.97   370049............   01.3478   14.08   370174............   00.9106  .......  380087............   01.0498   12.17   390069............   01.3063   16.98
360193............   01.2980   14.54   370051............   01.0263   10.47   370176............   01.2597   17.68   380088............   00.9537   14.76   390070............   01.2732   18.91
360194............   01.1427   14.46   370054............   01.2804   14.57   370177............   00.9686   09.39   380089............   01.2716   19.78   390071............   01.0913   11.99
360195............   01.1534   16.45   370056............   01.4467   14.44   370178............   01.0643   11.08   380090............   01.2968   18.73   390072............   01.0770   14.85
360197............   01.1662   15.43   370057............   01.1446   13.92   370179............   00.9625   12.90   380091............   01.1835   22.18   390073............   01.5256   17.40
360200............   01.1548   10.65   370059............   01.2056   12.34   370180............   01.0308  .......  380897............   05.0059  .......  390074............   01.2084   15.50
360203............   01.1387   14.52   370060............   01.1681   11.89   370183............   01.1562   11.67   390001............   01.3124   16.25   390075............   01.3120   14.60
360204............   01.2181   15.73   370063............   01.1628   11.88   370186............   00.9969   09.16   390002............   01.3148   16.65   390076............   01.2692   18.60
360210............   01.1414   17.25   370064............   01.0038   08.92   370189............   01.0572   09.26   390003............   01.2013   15.23   390078............   01.0384   15.47
360211............   01.1987   15.45   370065............   01.0730   13.47   370190............   01.7487   18.02   390004............   01.4003   15.76   390079............   01.7125   15.49
360212............   01.4238   17.91   370069............   01.0292   12.62   380001............   01.2816   17.45   390005............   01.0353   13.42   390080............   01.2033   17.54
360213............   01.0795   14.45   370071............   01.0864   10.25   380002............   01.1913   16.54   390006............   01.7625   16.22   390081............   01.2631   18.98
360218............   01.2589   15.27   370072............   00.9423   11.20   380003............   01.1784   16.59   390007............   01.1940   16.97   390083............   01.1639   20.47
360230............   01.2987   18.07   370076............   01.2221   10.80   380004............   01.7899   20.49   390008............   01.1381   15.38   390084............   01.1674   14.93
360231............   01.1015   14.13   370077............   01.2835   16.00   380005............   01.2162   17.60   390009............   01.6008   16.25   390086............   01.0807   14.19
360232............   01.1465   19.54   370078............   01.6115   15.06   380006............   01.3029   16.06   390010............   01.2451   16.77   390088............   01.2601   18.26
360234............   01.3213   17.45   370079............   00.8642   11.46   380007............   01.7970   20.52   390011............   01.2162   15.72   390090............   01.7269   18.51
360236............   01.2256   16.91   370080............   00.9710   10.78   380008............   01.1211   16.02   390012............   01.1715   18.00   390091............   01.1490   17.98
360238............   00.9264   12.13   370082............   01.1282   11.98   380009............   01.7538   21.31   390013............   01.2003   15.66   390093............   01.1607   14.74
360239............   01.1692   18.24   370083............   01.0320   10.50   380010............   01.0442   19.43   390014............   00.9655   13.70   390095............   01.1991   12.94
360240............   00.6112   13.30   370084............   01.0554   09.02   380011............   01.2294   13.31   390015............   01.1704   11.85   390096............   01.2562   15.43
360241............   00.5726   16.05   370085............   00.9051   12.29   380013............   01.2257   18.80   390016............   01.1675   14.71   390097............   01.3078   19.40
360242............   01.4552  .......  370086............   01.1848   09.55   380014............   01.3465   17.78   390017............   01.1817   13.65   390098............   01.7371   18.83
360243............   00.8582   15.30   370089............   01.2778   11.60   380017............   01.7404   20.25   390018............   01.2110   17.81   390100............   01.6715   17.60
360244............   00.8716   15.00   370091............   01.6302   14.59   380018............   01.7752   17.51   390019............   01.1292   14.54   390101............   01.2777   15.00
360245............   00.9364  .......  370092............   01.1135   11.69   380019............   01.3337   17.00   390022............   01.3753   19.40   390102............   01.3193   19.48
360246............   00.6407  .......  370093............   01.7767   18.82   380020............   01.4155   17.79   390023............   01.2519   18.52   390103............   01.0539   14.93
370001............   01.6763   15.99   370094............   01.4243   16.65   380021............   01.2001   18.54   390024............   00.7670   20.53   390104............   01.0670   14.28
370002............   01.2402   12.02   370095............   00.9144   10.73   380022............   01.1495   18.26   390025............   00.8539   14.06   390106............   00.9835   14.65
370004............   01.3474   12.31   370097............   01.3461   18.53   380023............   01.2610   17.05   390026............   01.2263   18.67   390107............   01.1973   17.38
370005............   01.0827   10.63   370099............   01.2014   12.43   380025............   01.2684   19.95   390027............   01.8636   21.73   390108............   01.3352   18.98
370006............   01.1941   14.06   370100............   01.0390   11.67   380026............   01.3583   15.93   390028............   01.7410   18.13   390109............   01.1639   13.33
370007............   01.1085   12.64   370103............   00.9238   10.13   380027............   01.2532   18.02   390029............   01.6984   20.55   390110............   01.5611   17.01
370008............   01.3576   15.20   370105............   02.0562   13.71   380029............   01.1894   15.62   390030............   01.2226   15.45   390111............   01.7401   24.12
370011............   01.1189   12.74   370106............   01.4740   16.23   380031............   01.0192   15.90   390031............   01.1580   15.93   390112............   01.1451   11.94
370012............   00.8871   10.18   370108............   01.1804   09.27   380033............   01.6618   19.92   390032............   01.1990   16.58   390113............   01.2517   15.48
370013............   01.6817   17.44   370110............   00.9905   12.01   380035............   01.3229   16.28   390035............   01.2759   16.49   390114............   01.0987   19.32
370014............   01.2968   16.19   370112............   01.0335   12.14   380036............   01.0848   16.10   390036............   01.2444   16.78   390115............   01.3002   20.16
370015............   01.2131   13.44   370113............   01.0858   12.37   380037............   01.2695   18.94   390037............   01.2074   17.47   390116............   01.1726   18.88
370016............   01.3651   13.98   370114............   01.5710   14.55   380038............   01.2293   20.44   390039............   01.1180   15.31   390117............   01.1666   14.44
370017............   01.0434   10.30   370121............   01.3260   12.36   380039............   01.2853   17.76   390040............   00.9419   12.20   390118............   01.2353   15.42
370018............   01.3096   15.49   370122............   01.2328   08.56   380040............   01.3016   17.85   390041............   01.2543   17.32   390119............   01.3573   16.18
370019............   01.2298   10.56   370123............   01.2636   13.79   380042............   01.1269   15.46   390042............   01.3018   18.62   390121............   01.2805   16.71
370020............   01.2834   11.37   370125............   01.0162   10.72   380047............   01.6536   16.43   390043............   01.0198   13.85   390122............   01.0573   14.83
370021............   00.9852   09.49   370126............   01.1444   08.72   380048............   01.0343   13.09   390044............   01.5555   16.77   390123............   01.2230   18.51
370022............   01.2994   13.75   370131............   00.9804   11.32   380050............   01.2488   15.78   390045............   01.4370   16.03   390125............   01.2550   13.82
370023............   01.3328   13.57   370133............   01.1332   09.86   380051............   01.5073   17.52   390046............   01.4394   16.75   390126............   01.2706   19.96
370025............   01.3962   13.86   370138............   01.1179   14.59   380052............   01.2272   15.01   390047............   01.6934   22.77   390127............   01.1649   19.13
370026............   01.3733   15.30   370139............   01.0286   11.63   380055............   01.1953   22.55   390048............   01.1651   14.69   390128............   01.1286   17.07
370028............   01.6703   15.88   370140............   01.0181   10.01   380056............   01.1050   14.28   390049............   01.5137   18.00   390130............   01.1470   15.37
370029............   01.2134   11.58   370141............   01.3874   19.42   380060............   01.4527   20.35   390050............   02.0268   19.37   390131............   01.2141   16.10
370030............   01.2926   12.91   370146............   01.1131   10.05   380061............   01.5814   19.88   390051............   02.0948   21.73   390132............   01.1887   19.61
370032............   01.4018   14.36   370148............   01.3470   17.30   380062............   01.1223   12.73   390052............   01.1507   15.00   390133............   01.7111   19.44
370033............   01.1205   10.55   370149............   01.1830   13.75   380063............   01.2123   21.13   390054............   01.1338   12.61   390135............   01.2420   19.44
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                                                                                         Page 13 of 16                                                                                          
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                                Avg.                                   Avg.                                   Avg.                                   Avg.                                  Avg. 
     Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix   hour 
                      index     wage                         index     wage                         index     wage                         index     wage                         index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
390136............   01.2231   15.15   390224............   00.9339   12.60   400102............   01.1571   07.50   420056............   01.1036   12.61   430054............   00.9870   11.56
390137............   01.1502   15.82   390225............   01.2209   15.00   400103............   01.4620   08.99   420057............   01.1808   13.51   430056............   00.8973   09.09
390138............   01.1896   17.08   390226............   01.6978   20.96   400104............   01.2361   07.79   420059............   01.0104   12.84   430057............   00.9116   10.70
390139............   01.4319   22.21   390228............   01.2064   17.13   400105............   01.2043   07.09   420061............   01.2115   14.38   430060............   00.9919   08.54
390142............   01.6525   23.32   390229............   01.5645   17.58   400106............   01.1958   07.10   420062............   01.4202   16.13   430062............   00.8284   10.11
390145............   01.2597   18.61   390231............   01.3312   21.13   400109............   01.5763   08.48   420064............   01.1426   12.20   430064............   01.1199   10.40
390146............   01.2356   15.78   390233............   01.3486   16.52   400110............   01.1548   07.68   420065............   01.3357   15.64   430065............   01.0518   10.46
390147............   01.2429   17.19   390235............   01.8132   22.16   400111............   01.1442   07.53   420066............   00.9708   13.59   430066............   00.9866   11.12
390148............   01.0573   16.31   390236............   01.2367   15.25   400112............   01.1294   06.36   420067............   01.2409   15.33   430073............   01.1130   12.81
390149............   01.2014   16.23   390237............   01.5158   18.07   400113............   01.1748   06.45   420068............   01.2133   14.59   430076............   01.0517   08.42
390150............   01.2188   17.11   390238............   01.1068   16.03   400114............   01.0550   07.83   420069............   01.1289   12.28   430077............   01.5274   14.81
390151............   01.2333   16.00   390242............   01.3139   17.49   400115............   00.9692   06.66   420070............   01.2809   14.64   430079............   00.9599   10.06
390152............   01.0829   15.09   390244............   00.8984   12.14   400117............   01.1822   07.29   420071............   01.3513   15.19   430080............   01.2387   09.20
390153............   01.2559   20.26   390245............   01.3591   21.15   400118............   01.1587   07.27   420072............   00.9360   09.89   430081............   00.9416  ......
390154............   01.1573   13.46   390246............   01.1831   15.09   400120............   01.3381   08.45   420073............   01.3091   17.39   430082............   00.8089  ......
390155............   01.2416   20.35   390247............   01.0548   17.29   400122............   01.0084  .......  420074............   00.9671   10.42   430083............   00.8805  ......
390156............   01.3463   20.78   390249............   01.0225   11.44   400123............   01.1240  .......  420075............   00.9840   12.37   430084............   00.8674  ......
390157............   01.2153   16.84   390256............   01.7622   18.11   400124............   03.0498  .......  420076............   01.2166   20.07   430085............   00.8849  ......
390158............   01.2792   17.26   390258............   01.2902   18.83   410001............   01.3190   21.02   420078............   01.7195   17.31   430086............   00.8381  ......
390159............   01.3235   19.13   390260............   01.2455   16.31   410002............   01.1241   18.61   420079............   01.4784   15.84   430087............   00.9523   08.98
390160............   01.1786   17.04   390262............   01.8505   16.11   410004............   01.4017   18.86   420080............   01.2105   16.23   430088............   00.8629   10.78
390161............   01.1982   13.09   390263............   01.4938   18.44   410005............   01.3471   20.92   420081............   00.8136   17.83   440001............   01.0923   11.94
390162............   01.2774   17.98   390265............   01.2991   16.95   410006............   01.2044   19.91   420082............   01.4316   16.58   440002............   01.5969   14.74
390163............   01.1520   16.65   390266............   01.0944   15.78   410007............   01.6561   19.87   420083............   01.2217   16.12   440003............   01.0918   13.82
390164............   02.0309   18.51   390267............   01.2116   18.58   410008............   01.1989   19.67   420084............   01.0603   11.81   440006............   01.3790   16.17
390166............   01.1026   16.02   390268............   01.2841   18.08   410009............   01.3190   19.81   420085............   01.2758   16.15   440007............   01.0212   10.86
390167............   01.2717   19.78   390270............   01.3192   15.08   410010............   01.0217   23.33   420086............   01.4243   16.19   440008............   00.9794   13.80
390168............   01.1840   16.49   390272............   00.5344   21.19   410011............   01.2093   20.92   420087............   01.6204   15.15   440009............   01.0389   11.29
390169............   01.1978   16.06   390275............   00.4818  .......  410012............   01.6437   18.74   420088............   01.2297   14.81   440010............   00.9651   11.46
390170............   01.8159   19.83   390277............   00.5113   17.97   410013............   01.2298   23.20   420089............   01.3302   19.45   440011............   01.2455   14.86
390171............   01.1343   15.68   390278............   00.8250   15.98   420002............   01.3554   19.58   420091............   00.5742  .......  440012............   01.3188   15.12
390172............   01.2634   18.70   390279............   01.0946  .......  420004............   01.8451   16.90   430004............   01.0741   13.84   440014............   01.0847   11.29
390173............   01.1582   16.62   400001............   01.1952   06.56   420005............   01.1443   12.82   430005............   01.2632   13.13   440015............   01.5392   14.85
390174............   01.6021   22.13   400002............   01.4051   08.59   420006............   01.2294   15.90   430007............   01.1784   11.22   440016............   00.9769   10.44
390176............   01.1447   15.39   400003............   01.1723   08.08   420007............   01.5344   15.37   430008............   01.2470   13.36   440017............   01.5557   16.57
390178............   01.2721   16.67   400004............   01.2055   07.64   420009............   01.2447   14.71   430009............   01.1039   10.57   440018............   01.3772   16.57
390179............   01.2329   21.05   400005............   01.0596   05.93   420010............   01.0667   13.24   430010............   01.1656   08.61   440019............   01.5520   17.86
390180............   01.4620   21.29   400006............   01.1804   06.79   420011............   01.0843   13.76   430011............   01.3343   12.88   440020............   01.1738   16.04
390181............   01.0520   19.17   400007............   01.1941   06.70   420014............   01.0271   11.42   430012............   01.3016   13.57   440022............   01.1395   12.73
390183............   01.1218   26.56   400008............   01.2294   06.13   420015............   01.3035   16.41   430013............   01.2225   14.39   440023............   00.9979   10.57
390184............   01.1498   16.80   400009............   00.9723   06.84   420016............   01.0820   15.23   430014............   01.3146   15.40   440024............   01.2945   14.98
390185............   01.1490   15.23   400010............   00.9425   07.03   420018............   01.5696   16.53   430015............   01.2066   13.41   440025............   01.1031   12.43
390186............   00.9988   15.14   400011............   01.0339   07.66   420019............   01.1579   13.94   430016............   01.7294   16.10   440026............   00.8359   15.50
390189............   01.1270   20.06   400012............   01.1223   07.74   420020............   01.2261   14.85   430018............   00.9495   12.97   440029............   01.2461   14.99
390191............   01.0680   13.79   400013............   01.0714   07.16   420022............   00.9931   15.20   430022............   00.9637   09.90   440030............   01.1295   12.38
390192............   01.1108   15.96   400014............   01.3436   07.22   420023............   01.3521   17.43   430023............   00.9377   08.41   440031............   01.0301   12.09
390193............   01.1718   14.58   400015............   01.3019   09.68   420026............   01.8623   17.53   430024............   00.9725   11.02   440032............   00.9747   10.65
390194............   01.1110   17.87   400016............   01.3266   09.18   420027............   01.3224   14.19   430025............   01.0084   09.69   440033............   01.0740   16.12
390195............   01.7068   20.60   400017............   01.1463  .......  420028............   01.1146   11.11   430026............   00.9375   10.09   440034............   01.4230   17.40
390196............   01.2145  .......  400018............   01.2630   09.43   420029............   01.7591   13.19   430027............   01.7460   15.94   440035............   01.2710   14.48
390197............   01.2696   18.10   400019............   01.5568   08.81   420030............   01.2045   16.33   430028............   01.0503   11.61   440039............   01.5860   17.12
390198............   01.2361   13.92   400021............   01.3669   07.92   420031............   01.0195   10.68   430029............   01.0075   12.71   440040............   00.9527   13.60
390199............   01.2454   14.23   400022............   01.3140   08.71   420033............   01.1522   17.58   430031............   00.9785   10.28   440041............   00.8479   13.66
390200............   01.0135   14.23   400024............   01.0591   07.19   420035............   00.7751   11.27   430033............   01.0808   12.29   440046............   01.3194   13.16
390201............   01.2876   17.68   400026............   00.9117   06.15   420036............   01.2327   14.69   430034............   01.0286   10.85   440047............   00.9167   11.74
390203............   01.2606   19.47   400027............   01.1389   07.18   420037............   01.2485   18.15   430036............   00.9902   08.36   440048............   01.7477   15.49
390204............   01.2923   17.60   400028............   01.0784   06.70   420038............   01.2217   12.41   430037............   00.9860   11.79   440049............   01.6483   15.27
390205............   01.2589   20.89   400029............   01.1183   06.21   420039............   01.1048   13.26   430038............   00.9978   08.43   440050............   01.1715   14.53
390206............   01.3311   18.69   400031............   01.0008   07.72   420040............   01.2006   13.54   430039............   01.0023   09.15   440051............   00.9316   12.36
390209............   01.0001   13.32   400032............   01.1314   07.65   420042............   01.2096   11.67   430040............   00.9160   11.35   440052............   01.1894   13.51
390211............   01.2333   16.85   400044............   01.1746   08.66   420043............   01.2497   15.44   430041............   00.9265   11.35   440053............   01.2488   14.72
390213............   00.9999   13.22   400048............   01.0480   07.77   420044............   01.2167   15.58   430042............   01.1134   15.25   440054............   01.0527   13.96
390215............   01.1275   20.18   400061............   01.5946   11.46   420048............   01.1525   13.91   430043............   01.1510   13.05   440056............   01.0871   11.91
390217............   01.2163   17.46   400079............   01.2811   09.22   420049............   01.2237   14.11   430044............   00.9290   11.74   440057............   01.0223   12.82
390219............   01.2171   16.47   400087............   01.2290   06.69   420051............   01.5551   16.53   430047............   01.1156   11.70   440058............   01.1756   14.16
390220............   01.1604   17.46   400088............   00.5413   06.69   420053............   01.0939   14.06   430048............   01.2381   14.21   440059............   01.1607   12.77
390222............   01.2521   18.22   400094............   01.0012   06.74   420054............   01.2267   16.05   430049............   00.9249   10.80   440060............   01.1756   12.90
390223............   01.6770   20.79   400098............   01.2601   07.55   420055............   01.0766   13.01   430051............   00.9629   11.03   440061............   01.2131   13.36
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                                                                                         Page 14 of 16                                                                                          
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                                Avg.                                   Avg.                                   Avg.                                   Avg.                                  Avg. 
     Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix   hour 
                      index     wage                         index     wage                         index     wage                         index     wage                         index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
440063............   01.5138   16.30   440180............   01.0624   15.21   450076............   01.4717  .......  450181............   00.9547   13.38   450325............   01.2675   08.99
440064............   01.0929   13.98   440181............   01.0104   10.47   450078............   01.0114   12.31   450184............   01.4935   19.07   450327............   01.0103   10.48
440065............   01.1853   15.06   440182............   00.9547   13.66   450079............   01.4787   19.22   450185............   01.0617   08.32   450330............   01.1725   15.70
440067............   01.0909   15.26   440183............   01.5121   16.14   450080............   01.2485   16.13   450187............   01.3045   14.52   450334............   00.9992   11.28
440068............   01.1912   15.49   440184............   01.4429   17.96   450081............   01.1290   11.51   450188............   01.0288   11.94   450337............   01.1923   14.08
440069............   01.1399   13.16   440185............   01.0961   16.67   450082............   00.9955   11.00   450190............   01.1300   18.27   450340............   01.3265   14.37
440070............   01.0038   12.32   440186............   01.1340   18.54   450083............   01.6360   16.05   450191............   01.1515   15.56   450341............   00.9963   14.42
440071............   01.4109   14.79   440187............   01.1847   15.17   450085............   01.1242   12.97   450192............   01.0649   17.15   450346............   01.3544   15.28
440072............   01.3557   15.41   440189............   01.4992   15.23   450087............   01.5114   19.75   450193............   02.0715   18.54   450347............   01.1744   15.06
440073............   01.3107   15.18   440192............   01.1110   13.88   450090............   01.1148   11.65   450194............   01.2566   15.44   450348............   01.0156   10.55
440074............   00.8046   12.15   440193............   01.2560   17.17   450092............   01.2034   13.55   450195............   01.3153   17.30   450349............   01.0999   23.66
440078............   01.0165   11.32   440194............   01.3012   18.28   450094............   01.3955   19.86   450196............   01.4334   14.92   450351............   01.2648   22.84
440079............   00.7294  .......  440196............   00.9401   14.86   450096............   01.4495   16.16   450197............   01.1655   16.99   450352............   01.2137   20.49
440081............   01.1643   12.85   440197............   01.3707   17.37   450097............   01.4276   17.31   450200............   01.4943   13.71   450353............   01.2269   15.17
440082............   01.8429   19.28   440200............   01.1142   16.36   450098............   01.2082   12.67   450201............   00.9942   13.72   450355............   01.0818   12.14
440083............   01.2537   09.96   440203............   00.9909   13.79   450099............   01.2009   17.78   450203............   01.2816   14.24   450358............   02.0420   18.56
440084............   01.1852   10.14   440205............   01.2436   12.39   450101............   01.3497   14.40   450209............   01.4242   15.63   450362............   01.0638   10.60
440087............   01.0430   12.08   440206............   00.9017   07.60   450102............   01.6894   17.28   450210............   01.1084   13.40   450365............   00.9342  ......
440090............   01.0381   12.38   450002............    1.4852   15.52   450104............   01.2719   12.65   450211............   01.3187   13.86   450366............   01.4737   18.29
440091............   01.5433   15.71   450004............   01.1355   11.11   450107............   01.5378   16.81   450213............   01.3555   14.21   450369............   01.1127   11.81
440095............   01.0850   19.37   450005............   01.1381   14.76   450108............   01.0003   11.41   450214............   01.4068   17.51   450370............   01.2119   12.06
440100............   01.1004   12.24   450007............   01.2595   12.30   450109............   01.2410   13.96   450217............   01.0771   10.09   450371............   01.1583   10.89
440102............   01.0834   12.02   450008............   01.3853   14.03   450110............   01.2134   12.04   450219............   01.0450   11.49   450372............   01.3460   16.37
440103............   01.2252   16.56   450010............   01.3300   13.75   450111............   01.2523   17.62   450221............   01.0202   13.07   450373............   01.1579   11.09
440104............   01.5364   16.76   450011............   01.5489   15.71   450112............   01.2629   12.44   450222............   01.6908   22.10   450374............   00.9156   11.01
440105............   01.2990   16.68   450014............   01.1763   12.60   450113............   01.2389   16.17   450224............   01.3697   18.01   450376............   01.4794   10.63
440109............   01.1307   11.86   450015............   01.5321   13.56   450118............   01.4696   15.64   450229............   01.4657   15.37   450378............   01.1011   17.92
440110............   00.9556   13.92   450016............   01.7128   15.62   450119............   01.3313   14.65   450231............   01.5196   16.40   450379............   01.6117   20.14
440111............   01.2167   18.15   450018............   01.5585   18.52   450121............   01.4403   17.44   450233............   00.9976   12.70   450381............   00.9540   10.67
440114............   01.0345   11.65   450020............   01.0135   13.40   450123............   01.0894   19.97   450234............   00.9630   10.46   450388............   01.6240   16.61
440115............   01.0487   13.80   450021............   01.9203   17.49   450124............   01.5053   16.88   450235............   00.9601   11.12   450389............   01.2048   15.78
440120............   01.4662   15.49   450023............   01.3903   13.94   450126............   01.3973   16.17   450236............   01.1377   15.95   450393............   01.2694   18.35
440121............   01.0427   11.93   450024............   01.3328   12.06   450127............   00.9875   09.55   450237............   01.4897   14.79   450395............   01.0482   15.15
440125............   01.4766   15.68   450025............   01.4792   15.27   450128............   01.2480   12.38   450239............   01.1696   12.14   450399............   01.0623   12.15
440130............   01.1075   13.38   450027............   01.4255   18.45   450130............   01.5040   14.99   450241............   00.8530   13.09   450400............   01.1677   14.98
440131............   01.0593   13.10   450028............   01.4607   16.21   450131............   01.2607   19.36   450243............   00.8661   10.77   450403............   01.2575   19.01
440132............   01.1081   12.72   450029............   01.4212   11.79   450132............   01.4931   14.53   450246............   00.9890   13.87   450410............   01.1316   17.45
440133............   01.4572   17.01   450031............   01.6835   16.35   450133............   01.5493   15.33   450249............   00.9424  .......  450411............   00.9843   11.22
440135............   01.4126   18.07   450032............   01.2423   12.31   450135............   01.7031   18.60   450250............   01.0420   15.96   450417............   01.0336   12.26
440136............   01.0683   15.73   450033............   01.6423   14.49   450137............   01.4294   19.17   450253............   01.1271   10.67   450418............   01.3502   15.53
440137............   01.0083   11.27   450034............   01.5042   15.36   450140............   00.7344   16.53   450258............   01.1194   10.75   450419............   01.2377   18.02
440141............   01.1507   11.96   450035............   01.4629   16.70   450142............   01.3689   18.81   450259............   01.1512   17.45   450422............   00.6567   24.82
440142............   01.0831   09.45   450037............   01.5273   16.26   450143............   01.0261   10.41   450264............   00.8325   11.39   450423............   01.2999   21.90
440143............   01.0555   15.56   450039............   01.4288   16.93   450144............   01.1532   14.41   450269............   01.0779   13.62   450424............   01.2514   13.96
440144............   01.1975   17.10   450040............   01.5797   16.30   450145............   00.8863   14.64   450270............   01.0791   08.60   450429............   01.0330   12.10
440145............   01.0549   10.86   450042............   01.6082   15.48   450146............   00.9826   15.24   450271............   01.1263   14.62   450431............   01.5885   16.57
440146............   01.0442   11.21   450043............   01.4527   18.41   450147............   01.3439   17.43   450272............   01.2170   15.57   450438............   01.0871   16.17
440147............   00.8996   14.36   450044............   01.5820   18.55   450148............   01.2056   18.48   450276............   01.0040   08.60   450446............   00.9550   11.85
440148............   01.2025   17.31   450046............   01.3944   12.38   450149............   01.3408   16.76   450278............   01.0542   10.91   450447............   01.3189   16.08
440149............   01.2308   14.70   450047............   01.1025   10.47   450150............   00.9606   12.20   450280............   01.3016   15.64   450450............   01.0270   12.30
440150............   01.2409   16.92   450050............   01.1986   13.96   450151............   01.1414   12.24   450283............   01.0793   11.48   450451............   01.0230   15.22
440151............   01.2861   15.49   450051............   01.5619   17.57   450152............   01.2853   14.87   450286............   01.0253   12.11   450457............   01.6912   16.01
440152............   01.6104   16.13   450052............   01.1098   12.62   450153............   01.5695   16.68   450288............   01.2288   12.61   450460............   01.0144   13.30
440153............   01.2677   14.17   450053............   01.0843   13.58   450154............   01.1379   11.32   450289............   01.3300   15.80   450462............   01.8334   16.67
440154............   00.7575  .......  450054............   01.6881   19.72   450155............   01.0745   14.52   450292............   01.3389   15.96   450464............   00.9903   16.00
440156............   01.4974   18.20   450055............   01.1112   11.31   450157............   01.0363   12.65   450293............   00.9767   14.15   450465............   01.2460   15.09
440157............   01.0485   11.50   450056............   01.6722   16.78   450160............   00.8899   16.67   450296............   01.2584   18.17   450467............   01.0221   12.74
440159............   01.2089   15.33   450058............   01.5129   14.26   450162............   01.2815   16.42   450297............   01.1615   12.08   450469............   01.3061   15.75
440160............   00.8997   12.59   450059............   01.3713   12.34   450163............   01.0847   15.33   450299............   01.4740   16.11   450473............   00.9922   14.40
440161............   01.5923   18.01   450060............   01.3962   20.84   450164............   01.0330   12.98   450303............   00.8879   09.86   450475............   01.1115   12.45
440166............   01.4819   16.87   450063............   01.0607   09.22   450165............   01.0302   14.37   450306............   01.0579   11.18   450484............   01.5588   18.13
440168............   01.0229   13.35   450064............   01.5464   15.22   450166............   01.0477   10.59   450307............   01.0089   12.30   450488............   01.2249   17.64
440170............   01.2998   18.38   450065............   01.0185   14.74   450169............   00.8630   13.97   450309............   01.1017   10.84   450489............   00.9473   14.79
440173............   01.4970   15.75   450068............   01.7532   17.99   450170............   01.0853   12.10   450315............   01.1977   19.49   450497............   01.1786   10.99
440174............   00.9321   13.46   450070............   01.1738   17.31   450176............   01.2754   12.94   450320............   01.4034   19.32   450498............   01.0325   13.08
440175............   01.1861   16.89   450072............   01.2594   16.10   450177............   01.1252   12.06   450321............   00.8596   11.25   450508............   01.6026   15.77
440176............   01.2939   16.07   450073............   01.1636   11.84   450178............   01.1510   14.59   450322............   00.9743   16.67   450514............   01.1170   16.87
440178............   01.2263   18.49   450074............   01.2878   16.43   450179............   00.9523  .......  450324............   01.5460   15.52   450517............   00.9434   11.05
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                                                                                         Page 15 of 16                                                                                          
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                                Avg.                                   Avg.                                   Avg.                                   Avg.                                  Avg. 
     Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix   hour 
                      index     wage                         index     wage                         index     wage                         index     wage                         index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
450518............   01.4144   16.16   450660............   01.5790   18.85   450769............   00.9320   09.57   470013............   01.1467   18.22   490089............   01.0505   14.04
450523............   01.5387   19.98   450661............   01.2547   18.21   450770............   01.0700   12.31   470015............   01.1877   18.87   490090............   01.1894   13.06
450530............   01.3085   23.01   450662............   01.3950   17.00   450771............   01.7568   15.16   470018............   01.1282   18.39   490091............   01.1790   18.85
450534............   00.9786   13.79   450665............   00.9778   10.88   450774............   00.7228  .......  470020............   01.0126   12.85   490092............   01.1790   13.48
450535............   01.1992   14.83   450666............   01.2580   17.39   450775............   01.2516   15.68   470023............   01.2324   16.33   490093............   01.2862   14.17
450537............   01.3952   15.96   450668............   01.5927   17.53   450776............   00.8655  .......  470024............   01.1338   16.25   490094............   01.2211   15.14
450538............   01.1922   19.68   450669............   01.2426   18.67   450777............   01.0269  .......  490001............   01.1182   17.17   490095............   01.2315   15.14
450539............   01.2053   15.30   450670............   01.2996   15.92   450778............   00.8848  .......  490002............   01.0320   13.41   490097............   01.1433   12.72
450544............   01.2967   20.24   450672............   01.6463   18.49   450779............   01.2579  .......  490003............   00.6533   15.73   490098............   01.3158   11.12
450545............   01.2474   16.20   450673............   01.0975   10.02   450780............   01.4717  .......  490004............   01.2171   15.40   490099............   00.9625   13.59
450546............   01.2729   18.68   450674............   00.8239   19.25   450781............   01.4634  .......  490005............   01.4576   15.40   490100............   01.3151   14.13
450547............   01.0006   12.78   450675............   01.3903   18.32   450782............   01.4054  .......  490006............   01.1427   11.75   490101............   01.1133   20.90
450550............   01.0579   19.47   450677............   01.3377   16.32   450783............   01.1067  .......  490007............   02.0127   15.62   490104............   00.9622   14.01
450551............   01.1795   12.60   450678............   01.5651   20.04   450784............   01.0594  .......  490008............   01.0542   20.97   490105............   00.7039   14.74
450558............   01.7511   17.98   450681............   01.5756   15.51   450785............   00.7492  .......  490009............   01.6789   17.21   490106............   00.8313   15.97
450559............   00.8716   11.92   450682............   01.2603   17.44   450786............   00.8128  .......  490010............   01.0908   15.40   490107............   01.2642   19.56
450561............   01.6595   16.21   450683............   01.3244   19.60   450787............   01.0967  .......  490011............   01.3318   16.32   490108............   00.8124   15.00
450563............   01.2509   19.54   450684............   01.2661   17.89   450897............   04.9148  .......  490012............   01.1150   13.90   490109............   00.8790   14.56
450565............   01.3451   13.56   450686............   01.5880   15.55   460001............   01.6481   18.22   490013............   01.1660   13.67   490110............   01.1805   16.71
450570............   01.0638   12.07   450688............   01.3829   17.26   460003............   01.5838   17.26   490014............   01.6015   19.87   490111............   01.1901   14.35
450571............   01.4721   13.89   450690............   01.3692   21.21   460004............   01.7182   18.05   490015............   01.4062   13.85   490112............   01.6117   18.29
450573............   00.9884   11.89   450691............   01.5252   17.57   460005............   01.3774   17.46   490017............   01.3798   15.60   490113............   01.2900   19.16
450574............   01.0190   13.95   450694............   01.2113   16.02   460006............   01.2683   17.00   490018............   01.2067   15.63   490114............   01.0733   13.76
450575............   00.9777   20.31   450696............   01.6328   20.21   460007............   01.3036   16.89   490019............   01.1148   13.78   490115............   01.2167   12.44
450578............   00.9309   14.41   450697............   01.3794   15.11   460008............   01.4573   16.76   490020............   01.1572   13.14   490116............   01.1799   16.33
450580............   01.1561   12.24   450698............   00.9368   10.48   460009............   01.6847   16.97   490021............   01.4354   15.75   490117............   01.0841   11.43
450583............   00.9523   11.81   450700............   00.9251   11.65   460010............   02.0637   18.28   490022............   01.2461   15.68   490118............   01.6559   19.99
450584............   01.1670   10.95   450702............   01.4889   18.28   460011............   01.4136   15.96   490023............   01.2265   15.58   490119............   01.3127   15.33
450586............   01.0115   12.39   450703............   01.4711   19.68   460013............   01.5168   17.24   490024............   01.6107   15.30   490120............   01.3657   15.93
450587............   01.2735   17.28   450704............   01.3988   16.67   460014............   01.0224   11.67   490027............   01.1661   12.49   490122............   01.2879   20.07
450591............   01.1456   13.04   450705............   00.7976   15.32   460015............   01.2597   17.66   490028............   01.3351   17.29   490123............   01.1181   14.53
450596............   01.2539   16.69   450706............   01.2191   21.01   460016............   00.8736   12.40   490030............   01.2487   10.92   490124............   01.1848   15.29
450597............   01.0357   13.57   450709............   01.1547   17.85   460017............   01.3132   15.07   490031............   01.0973   11.91   490126............   01.2602   13.61
450603............   00.8565   13.23   450711............   01.6884   16.47   460018............   00.9433   11.56   490032............   01.6879   18.77   490127............   01.0434   13.33
450604............   01.2523   12.49   450712............   00.9561   12.74   460019............   00.9335   15.01   490033............   01.1437   14.76   490130............   01.2044   14.96
450605............   01.2746   18.23   450713............   01.4165   17.31   460020............   00.9188   12.14   490035............   01.1319   11.43   490131............   00.9682   12.94
450607............   00.9751   14.12   450715............   01.2952   21.28   460021............   01.3942   17.12   490037............   01.1566   11.92   500001............   01.2917   20.32
450609............   00.9014   09.27   450716............   01.2075   16.91   460022............   00.9647   17.88   490038............   01.2792   12.36   500002............   01.4148   17.35
450610............   01.4555   16.09   450717............   01.2316   20.68   460023............   01.1761   18.70   490040............   01.3644   19.78   500003............   01.2762   18.46
450614............   01.0603   11.94   450718............   01.2065   19.69   460024............   00.9286   13.00   490041............   01.2136   14.32   500005............   01.7781   21.33
450615............   00.9577   09.40   450723............   01.2859   17.26   460025............   00.7859   11.54   490042............   01.3582   14.34   500007............   01.3290   18.20
450617............   01.3512   17.98   450724............   01.2170   18.65   460026............   00.9389   17.49   490043............   01.2426   17.27   500008............   01.9169   20.34
450620............   01.1047   08.97   450725............   01.0629   17.55   460027............   00.9938   16.69   490044............   01.3138   15.46   500009............   01.2963   19.68
450623............   01.1715   16.27   450726............   00.9033   11.21   460029............   01.0714   16.94   490045............   01.1785   16.83   500011............   01.3316   18.64
450626............   01.0472   14.93   450727............   00.9057   08.79   460030............   01.1618   19.40   490046............   01.4643   16.26   500012............   01.4961   18.45
450628............   00.9576   11.42   450728............   00.9012   15.06   460032............   00.9842   15.30   490047............   01.0832   14.15   500014............   01.7362   20.69
450630............   01.5476   23.91   450730............   01.4095   19.15   460033............   00.9693   20.50   490048............   01.4868   15.77   500015............   01.3111   20.70
450631............   01.6445   16.88   450732............   01.1562   16.76   460035............   00.9174   14.06   490050............   01.3516   19.03   500016............   01.3511   20.11
450632............   01.0110   09.73   450733............   01.3764   16.49   460036............   00.9084   17.97   490052............   01.5248   14.03   500019............   01.2895   18.38
450633............   01.5521   17.13   450734............   01.4829   15.76   460037............   00.9966   15.82   490053............   01.2446   12.69   500021............   01.4453   18.44
450634............   01.3935   20.07   450735............   00.7508   10.25   460039............   00.9376   19.39   490054............   01.0624   16.12   500023............   01.1876   17.72
450637............   01.4224   18.37   450742............   01.3064   20.55   460041............   01.2061   17.85   490057............   01.4278   15.27   500024............   01.6274   20.14
450638............   01.5916   21.33   450743............   01.4100   18.11   460042............   01.5101   14.92   490059............   01.5179   16.77   500025............   01.8019   20.46
450639............   01.4516   19.76   450745............   00.9354   17.81   460043............   01.4113   19.64   490060............   01.0740   17.38   500026............   01.3594   20.11
450641............   00.9887   10.24   450746............   00.9637   12.33   460044............   01.1434   18.02   490063............   01.5911   21.01   500027............   01.5307   20.29
450643............   01.1398   16.08   450747............   01.3085   15.66   460046............   01.3442   10.37   490066............   01.2283   16.33   500028............   01.1173   13.44
450644............   01.6173   20.13   450749............   01.0665   12.76   460047............   01.6644   17.76   490067............   01.2791   13.99   500029............   00.9747   11.90
450646............   01.5763   18.06   450750............   00.9694   10.69   460049............   01.9396  .......  490069............   01.4003   13.38   500030............   01.3190   20.51
450647............   02.0318   20.54   450751............   01.2886   15.02   460050............   01.1824  .......  490071............   01.4828   17.01   500031............   01.3011   18.25
450648............   01.0958   10.99   450754............   01.0756   10.22   470001............   01.1496   16.20   490073............   01.3416   22.26   500033............   01.2637   16.60
450649............   01.0262   14.87   450755............   01.1690   14.46   470003............   01.9350   18.36   490074............   01.3089   15.43   500035............   01.4790  ......
450651............   01.8330   19.22   450757............   00.9501   13.00   470004............   01.0460   13.47   490075............   01.2759   14.78   500036............   01.2627   16.94
450652............   00.9846   12.60   450758............   01.7735   18.93   470005............   01.1858   17.48   490077............   01.1987   16.35   500037............   01.1291   16.54
450653............   01.2220   16.37   450760............   01.2015   18.66   470006............   01.1347   15.80   490079............   01.3410   13.39   500039............   01.2978   17.66
450654............   00.9821   11.04   450761............   01.1017   12.48   470008............   01.1925   15.30   490083............   00.6488   13.89   500041............   01.2704   20.31
450656............   01.3304   15.64   450763............   01.0954   13.74   470010............   01.0827   16.68   490084............   01.1989   14.87   500042............   01.3475   18.95
450658............   01.0107   11.01   450765............   00.9207   16.55   470011............   01.1194   18.12   490085............   01.1299   11.80   500043............   01.2060   16.80
450659............   01.4508   18.74   450766............   01.9908   20.12   470012............   01.2074   16.76   490088............   01.2351   13.15   500044............   01.9389   19.15
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                                                                                         Page 16 of 16                                                                                          
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                Avg.                                   Avg.                                   Avg.                                   Avg.                                  Avg. 
     Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix    hour        Provider       Case mix   hour 
                      index     wage                         index     wage                         index     wage                         index     wage                         index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
500045............   01.0739   17.28   510007............   01.4253   16.00   520021............   01.2976   16.83   520113............   01.1966   15.62   530029............   00.9396   13.04
500048............   00.9015   14.27   510008............   01.1004   15.33   520024............   01.0624   11.87   520114............   01.1532   12.45   530031............   00.8892   14.78
500049............   01.3088   17.10   510009............   00.9448   10.45   520025............   01.1292   14.34   520115............   01.3112   14.47   530032............   01.1716   16.33
500050............   01.4153   19.09   510012............   01.0852   15.18   520026............   01.0666   15.67   520116............   01.2580   16.13                                       
500051............   01.6700   20.33   510013............   01.1868   14.27   520027............   01.1579   17.08   520117............   01.0787   14.87                                       
500052............   01.2445  .......  510015............   00.9526   12.81   520028............   01.3517   16.26   520118............   00.9850   09.46                                       
500053............   01.2013   17.77   510016............   01.0352  .......  520029............   00.9354   13.66   520120............   01.0571   16.55                                       
500054............   01.8398   19.04   510018............   01.0626   13.12   520030............   01.6664   17.90   520121............   00.9520   13.17                                       
500055............   01.0564   17.78   510020............   01.0647   08.93   520031............   01.0988   13.75   520122............   00.9943   12.50                                       
500057............   01.2990   14.98   510022............   01.6791   17.21   520032............   01.1448   13.19   520123............   01.0391   14.99                                       
500058............   01.5172   17.59   510023............   01.0371   15.15   520033............   01.2270   15.24   520124............   01.1683   13.76                                       
500059............   01.1315   18.35   510024............   01.3722   16.07   520034............   01.1876   16.57   520130............   01.0123   11.54                                       
500060............   01.3508   19.19   510025............   00.9409   10.47   520035............   01.2591   14.62   520131............   01.0303   14.68                                       
500061............   01.0280   17.95   510026............   00.9766   11.32   520037............   01.6237   16.75   520132............   01.1527   12.68                                       
500062............   01.0023   15.69   510027............   01.0563   12.43   520038............   01.3642   16.08   520134............   01.0808   13.78                                       
500064............   01.5743   19.70   510028............   01.1659   15.98   520039............   00.9901   15.17   520135............   00.9964   12.99                                       
500065............   01.3091   16.39   510029............   01.2587   15.48   520040............   01.4144   16.73   520136............   01.5004   17.75                                       
500068............   01.0220   14.82   510030............   01.1214   15.72   520041............   01.2094   13.13   520138............   01.8435   16.70                                       
500069............   01.0579   16.11   510031............   01.3048   14.02   520042............   01.1116   15.88   520139............   01.2228   16.83                                       
500071............   01.3267   18.34   510033............   01.2782   13.79   520044............   01.3439   15.51   520140............   01.4916   17.20                                       
500072............   01.1533   18.80   510035............   00.9768   15.60   520045............   01.6482   16.77   520141............   01.1386   15.13                                       
500073............   01.0024   17.71   510036............   00.9688   11.73   520047............   01.0145   13.50   520142............   00.9936   11.46                                       
500074............   01.1751   13.37   510038............   01.0385   13.84   520048............   01.3800   15.97   520144............   01.0547   14.49                                       
500075............   01.1884   18.49   510039............   01.3972   14.67   520049............   01.9372   15.82   520145............   01.0244   14.95                                       
500076............   01.3655  .......  510043............   01.0465   10.44   520051............   01.8782   17.94   520146............   01.1530   12.32                                       
500077............   01.2936   20.09   510046............   01.2264   15.98   520053............   01.0619   14.07   520148............   01.1038   13.98                                       
500079............   01.2919   17.92   510047............   01.1688   15.81   520054............   01.0483   15.31   520149............   00.9350   11.73                                       
500080............   00.8630   11.55   510048............   01.0872   16.24   520056............   01.3226   17.01   520151............   01.1298   13.70                                       
500084............   01.1314   17.71   510050............   01.2928   14.05   520057............   01.0874   14.88   520152............   01.1347   15.70                                       
500085............   01.0811   15.46   510053............   01.0211   12.15   520058............   01.0794   16.79   520153............   00.9377   11.67                                       
500086............   01.4095   16.28   510055............   01.2080   17.17   520059............   01.2532   16.21   520154............   01.1102   14.96                                       
500088............   01.2673   20.73   510058............   01.2215   15.08   520060............   01.2984   14.92   520156............   01.0594   15.29                                       
500089............   01.0325   13.23   510059............   01.3416   12.84   520062............   01.2040   14.41   520157............   00.9525   12.75                                       
500090............   00.9143   13.62   510060............   01.0639   12.88   520063............   01.1852   15.91   520159............   00.9000   15.47                                       
500092............   01.1567   13.51   510061............   01.0469   12.53   520064............   01.6371   16.58   520160............   01.7820   16.13                                       
500094............   00.9067   13.52   510062............   01.2586   14.06   520066............   01.2621   16.81   520161............   01.0419   14.06                                       
500096............   00.9663   16.16   510063............   01.0303   11.35   520068............   00.9534   14.38   520170............   01.2354   17.02                                       
500097............   01.1483   14.74   510065............   00.9731   11.88   520069............   01.2067   15.49   520171............   01.0135   12.53                                       
500098............   00.8540   14.51   510066............   01.1099   12.88   520070............   01.4192   15.29   520173............   01.1181   17.29                                       
500101............   00.9847   14.48   510067............   01.1714   16.72   520071............   01.1009   15.10   520174............   01.4208   19.12                                       
500102............   00.9810   14.87   510068............   01.0710   14.18   520074............   01.1117   14.32   520176............   00.7514   14.08                                       
500104............   01.2466   18.17   510070............   01.1769   14.68   520075............   01.4765   16.16   520177............   01.5591   17.91                                       
500106............   00.9946   12.54   510071............   01.2708   14.60   520076............   01.1048   14.78   520178............   01.0843   13.06                                       
500107............   01.1132   13.54   510072............   01.0445   12.56   520077............   00.9912   13.17   520180............   00.9439  .......                                      
500108............   01.6213   19.87   510076............   01.0756  .......  520078............   01.4344   14.81   530001............   01.4675   13.50                                       
500110............   01.2021   17.29   510077............   01.1408   13.24   520082............   01.2824   14.80   530002............   01.2050   15.32                                       
500118............   01.1170   18.17   510080............   01.1368   10.05   520083............   01.5777   19.35   530003............   00.9244   08.83                                       
500119............   01.3365   19.79   510081............   00.9892   12.93   520084............   01.0838   15.01   530004............   00.9650   12.56                                       
500122............   01.2708   17.54   510082............   01.0716   10.95   520087............   01.5714   15.92   530005............   01.0990   12.06                                       
500123............   00.9911   13.48   510084............   00.9836   11.33   520088............   01.2573   16.27   530006............   01.1693   14.95                                       
500124............   01.2764   19.76   510085............   01.2709   17.35   520089............   01.5028   17.22   530007............   01.0343   11.54                                       
500125............   00.9832   11.02   510086............   01.0198   12.23   520090............   01.1701   14.69   530008............   01.1909   16.73                                       
500127............   00.5986   14.25   520002............   01.2827   15.62   520091............   01.2712   15.62   530009............   01.0331   14.78                                       
500129............   01.6511   19.35   520003............   01.1234   13.96   520092............   01.1129   15.12   530010............   01.2984   15.83                                       
500132............   00.9546   15.33   520004............   01.2040   15.11   520094............   01.0910   15.78   530011............   01.1439   14.63                                       
500134............   00.7355   16.03   520006............   01.0371   15.92   520095............   01.3730   16.94   530012............   01.6806   15.32                                       
500137............   00.6377   16.87   520007............   01.0579   12.43   520096............   01.5478   15.50   530014............   01.2753   13.81                                       
500138............   12.2535  .......  520008............   01.4766   17.90   520097............   01.2842   16.40   530015............   01.1417   15.80                                       
500139............   01.4098   21.58   520009............   01.6330   16.23   520098............   01.7821   18.16   530016............   01.2002   11.83                                       
500140............   00.9994   14.50   520010............   01.1200   16.81   520100............   01.2514   14.46   530017............   00.9299   13.78                                       
500141............   01.2988   19.75   520011............   01.1716   16.58   520101............   01.1180   14.26   530018............   01.0214   13.10                                       
500143............   00.9927   17.55   520013............   01.3297   16.24   520102............   01.2045   16.89   530019............   00.9986   15.03                                       
500898............   00.7881  .......  520014............   01.2288   14.17   520103............   01.2815   16.41   530022............   01.1653   15.74                                       
510001............   01.6367   15.70   520015............   01.1841   15.42   520107............   01.2815   15.17   530023............   01.0026   15.88                                       
510002............   01.3716   16.27   520016............   01.1230   12.12   520109............   01.0395   14.86   530024............   01.0512   12.11                                       
510004............   00.9755   10.17   520017............   01.2054   15.10   520110............   01.0918   15.27   530025............   01.2808   16.17                                       
510005............   00.9400   13.48   520018............   01.0639   14.58   520111............   01.0981   12.09   530026............   01.1212   13.08                                       
510006............   01.2072   16.70   520019............   01.2859   14.27   520112............   01.1606   16.29   530027............   00.9446   09.41                                       
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NOTE: CASE MIX INDEXES DO NOT INCLUDE DISCHARGES FROM PPS-EXEMPT UNITS.                                                                                                                         
NOTE: CASE MIX INDEXES INCLUDE CASES RECEIVED IN HCFA CENTRAL OFFICE THROUGH JUNE 1994.                                                                                                         


Table 4a.--Wage Index and Capital Geographic Adjustment Factor (GAF) for
                               Urban Areas                              
------------------------------------------------------------------------
     Urban area (Constituent counties or county         Wage            
                    equivalents)                       index      GAF   
------------------------------------------------------------------------
0040Abilene, TX.....................................    0.8892    0.9227
  Taylor, TX                                                            
0060Aguadilla, PR...................................    0.4758    0.6013
  Aguada, PR                                                            
  Aguadilla, PR                                                         
  Moca, PR                                                              
0080Akron, OH.......................................    0.9651    0.9760
  Portage, OH                                                           
  Summit, OH                                                            
0120Albany, GA......................................    0.8821    0.9177
  Dougherty, GA                                                         
  Lee, GA                                                               
0160Albany-Schenectady-Troy, NY.....................    0.8871    0.9212
  Albany, NY                                                            
  Montgomery, NY                                                        
  Rensselaer, NY                                                        
  Saratoga, NY                                                          
  Schenectady, NY                                                       
  Schoharie, NY                                                         
0200Albuquerque, NM.................................    0.9300    0.9515
  Bernalillo, NM                                                        
  Sandoval, NM                                                          
  Valencia, NM                                                          
0220Alexandria, LA..................................    0.8302    0.8804
  Rapides, LA                                                           
0240Allentown-Bethlehem-Easton, PA..................    1.0114    1.0078
  Carbon, PA                                                            
  Lehigh, PA                                                            
  Northampton, PA                                                       
0280Altoona, PA.....................................    0.9203    0.9447
  Blair, PA                                                             
0320Amarillo, TX....................................    0.8582    0.9006
  Potter, TX                                                            
  Randall, TX                                                           
0380Anchorage, AK...................................    1.3228    1.2112
  Anchorage, AK                                                         
0440Ann Arbor, MI...................................    1.2593    1.1710
  Lenawee, MI                                                           
  Livingston, MI                                                        
  Washtenaw, MI                                                         
0450Anniston, AL....................................    0.7959    0.8553
  Calhoun, AL                                                           
0460Appleton-Oshkosh-Neenah, WI.....................    0.8842    0.9192
  Calumet, WI                                                           
  Outagamie, WI                                                         
  Winnebago, WI                                                         
0470Arecibo, PR.....................................    0.3798    0.5153
  Arecibo, PR                                                           
  Camuy, PR                                                             
  Hatillo, PR                                                           
0480Asheville, NC...................................    0.9171    0.9425
  Buncombe, NC                                                          
  Madison, NC                                                           
0500Athens, GA......................................    0.9052    0.9341
  Clarke, GA                                                            
  Madison, GA                                                           
  Oconee, GA                                                            
0520*Atlanta, GA....................................    1.0261    1.0178
  Barrow, GA                                                            
  Bartow, GA                                                            
  Carroll, GA                                                           
  Cherokee, GA                                                          
  Clayton, GA                                                           
  Cobb, GA                                                              
  Coweta, GA                                                            
  De Kalb, GA                                                           
  Douglas, GA                                                           
  Fayette, GA                                                           
  Forsyth, GA                                                           
  Fulton, GA                                                            
  Gwinnett, GA                                                          
  Henry, GA                                                             
  Newton, GA                                                            
  Paulding, GA                                                          
  Pickens, GA                                                           
  Rockdale, GA                                                          
  Spalding, GA                                                          
  Walton, GA                                                            
0560Atlantic City-Cape May, NJ......................    1.0878    1.0593
  Atlantic City, NJ                                                     
  Cape May, NJ                                                          
0600Augusta-Aiken, GA-SC............................    0.8638    0.9046
  Columbia, GA                                                          
  McDuffie, GA                                                          
  Richmond, GA                                                          
  Aiken, SC                                                             
  Edgefield, SC                                                         
0640Austin-San Marcos, TX...........................    0.9113    0.9384
  Bastrop, TX                                                           
  Caldwell, TX                                                          
  Hays, TX                                                              
  Travis, TX                                                            
  Williamson, TX                                                        
0680Bakersfield, CA.................................    1.0883    1.0597
  Kern, CA                                                              
0720*Baltimore, MD..................................    0.9866    0.9908
  Anne Arundel, MD                                                      
  Baltimore, MD                                                         
  Baltimore City, MD                                                    
  Carroll, MD                                                           
  Harford, MD                                                           
  Howard, MD                                                            
  Queen Annes, MD                                                       
0733Bangor, ME......................................    0.9489    0.9647
  Penobscot, ME                                                         
0743Barnstable-Yarmouth, MA.........................    1.3813    1.2476
  Barnstable, MA                                                        
0760Baton Rouge, LA.................................    0.8617    0.9031
  Ascension, LA                                                         
  East Baton Rouge, LA                                                  
  Livingston, LA                                                        
  West Baton Rouge, LA                                                  
0840Beaumont-Port Arthur, TX........................    0.8648    0.9053
  Hardin, TX                                                            
  Jefferson, TX                                                         
  Orange, TX                                                            
0860Bellingham, WA..................................    1.1232    1.0828
  Whatcom, WA                                                           
0870Benton Harbor, MI...............................    0.8172    0.8709
  Berrien, MI                                                           
0875*Bergen-Passaic, NJ.............................    1.1494    1.1000
  Bergen, NJ                                                            
  Passaic, NJ                                                           
0880Billings, MT....................................    0.8718    0.9103
  Yellowstone, MT                                                       
0920Biloxi-Gulfport-Pascagoula, MS..................    0.8245    0.8762
  Hancock, MS                                                           
  Harrison, MS                                                          
  Jackson, MS                                                           
0960Binghamton, NY..................................    0.9183    0.9433
  Broome, NY                                                            
  Tioga, NY                                                             
1000Birmingham, AL..................................    0.8832    0.9185
  Blount, AL                                                            
  Jefferson, AL                                                         
  St. Clair, AL                                                         
  Shelby, AL                                                            
1010Bismarck, ND....................................    0.8616    0.9030
  Burleigh, ND                                                          
  Morton, ND                                                            
1020Bloomington, IN.................................    0.8529    0.8968
  Monroe, IN                                                            
1040Bloomington-Normal, IL..........................    0.8463    0.8920
  McLean, IL                                                            
1080Boise City, ID..................................    0.9032    0.9327
  Ada, ID                                                               
  Canyon, ID                                                            
1123*Boston-Brockton-Nashua, MA-NH..................    1.1733    1.1157
  Bristol, MA                                                           
  Essex, MA                                                             
  Middlesex, MA                                                         
  Norfolk, MA                                                           
  Plymouth, MA                                                          
  Suffolk, MA                                                           
  Worcester, MA                                                         
  Hillsborough, NH                                                      
  Merrimack, NH                                                         
  Rockingham, NH                                                        
  Strafford, NH                                                         
1125Boulder-Longmont, CO............................    0.7979    0.8568
  Boulder, CO                                                           
1145Brazoria, TX....................................    0.8263    0.8775
  Brazoria, TX                                                          
1150Bremerton, WA...................................    0.9647    0.9757
  Kitsap, WA                                                            
1240Brownsville-Harlingen-San Benito, TX............    0.8218    0.8742
  Cameron, TX                                                           
1260Bryan-College Station, TX.......................    0.8673    0.9071
  Brazos, TX                                                            
1280*Buffalo-Niagara Falls, NY......................    0.9183    0.9433
  Erie, NY                                                              
  Niagara, NY                                                           
1303Burlington, VT..................................    0.9939    0.9958
  Chittenden, VT                                                        
  Franklin, VT                                                          
  Grand Isle, VT                                                        
1310Caguas, PR......................................    0.4373    0.5676
  Caguas, PR                                                            
  Cayey, PR                                                             
  Cidra, PR                                                             
  Gurabo, PR                                                            
  San Lorenzo, PR                                                       
1320Canton-Massillon, OH............................    0.8731    0.9113
  Carroll, OH                                                           
  Stark, OH                                                             
1350Casper, WY......................................    0.8444    0.8906
  Natrona, WY                                                           
1360Cedar Rapids, IA................................    0.8457    0.8916
  Linn, IA                                                              
1400Champaign-Urbana, IL............................    0.8848    0.9196
  Champaign, IL                                                         
1440Charleston-North Charleston, SC.................    0.8845    0.9194
  Berkeley, SC                                                          
  Charleston, SC                                                        
  Dorchester, SC                                                        
1480Charleston, WV..................................    0.9022    0.9319
  Kanawha, WV                                                           
  Putnam, WV                                                            
1520*Charlotte-Gastonia-Rock Hill, NC-SC............    0.9598    0.9723
  Cabarrus, NC                                                          
  Gaston, NC                                                            
  Lincoln, NC                                                           
  Mecklenburg, NC                                                       
  Rowan, NC                                                             
  Union, NC                                                             
  York, SC                                                              
1540Charlottesville, VA.............................    0.9360    0.9557
  Albemarle, VA                                                         
  Charlottesville City, VA                                              
  Fluvanna, VA                                                          
  Greene, VA                                                            
1560Chattanooga, TN-GA..............................    0.8959    0.9275
  Catoosa, GA                                                           
  Dade, GA                                                              
  Walker, GA                                                            
  Hamilton, TN                                                          
  Marion, TN                                                            
1580Cheyenne, WY....................................    0.7478    0.8195
  Laramie, WY                                                           
1600*Chicago, IL....................................    1.0666    1.0451
  Cook, IL                                                              
  De Kalb, IL                                                           
  Du Page, IL                                                           
  Grundy, IL                                                            
  Kane, IL                                                              
  Kendall, IL                                                           
  Lake, IL                                                              
  McHenry, IL                                                           
  Will, IL                                                              
1620Chico-Paradise, CA..............................    1.0434    1.0295
  Butte, CA                                                             
1640*Cincinnati, OH-KY-IN...........................    0.9451    0.9621
  Dearborn, IN                                                          
  Ohio, IN                                                              
  Boone, KY                                                             
  Campbell, KY                                                          
  Gallatin, KY                                                          
  Grant, KY                                                             
  Kenton, KY                                                            
  Pendleton, KY                                                         
  Brown, OH                                                             
  Clermont, OH                                                          
  Hamilton, OH                                                          
  Warren, OH                                                            
1660Clarksville-Hopkinsville, TN-KY.................    0.7515    0.8223
  Christian, KY                                                         
  Montgomery, TN                                                        
1680*Cleveland-Lorain-Elyria, OH....................    0.9824    0.9879
  Ashtabula, OH                                                         
  Cuyahoga, OH                                                          
  Geauga, OH                                                            
  Lake, OH                                                              
  Lorain, OH                                                            
  Medina, OH                                                            
1720Colorado Springs, CO............................    0.9194    0.9441
  El Paso, CO                                                           
1740Columbia, MO....................................    0.9212    0.9453
  Boone, MO                                                             
1760Columbia, SC....................................    0.8989    0.9296
  Lexington, SC                                                         
  Richland, SC                                                          
1800Columbus, GA-AL.................................    0.7762    0.8407
  Russell, AL                                                           
  Chattanoochee, GA                                                     
  Harris, GA                                                            
  Muscogee, GA                                                          
1840*Columbus, OH...................................    0.9760    0.9835
  Delaware, OH                                                          
  Fairfield, OH                                                         
  Franklin, OH                                                          
  Licking, OH                                                           
  Madison, OH                                                           
  Pickaway, OH                                                          
1880Corpus Christi, TX..............................    0.8372    0.8854
  Nueces, TX                                                            
  San Patricio, TX                                                      
1900Cumberland, MD-WV...............................    0.8165    0.8704
  Allegany, MD                                                          
  Mineral, WV                                                           
1920*Dallas, TX.....................................    0.9521    0.9669
  Collin, TX                                                            
  Dallas, TX                                                            
  Denton, TX                                                            
  Ellis, TX                                                             
  Henderson, TX                                                         
  Hunt, TX                                                              
  Kaufman, TX                                                           
  Rockwall, TX                                                          
1950Danville, VA....................................    0.8093    0.8651
  Danville City, VA                                                     
  Pittsylvania, VA                                                      
1960Davenport-Rock Island-Moline, IA-IL.............    0.8226    0.8748
  Scott, IA                                                             
  Henry, IL                                                             
  Rock Island, IL                                                       
2000Dayton-Springfield, OH..........................    0.9195    0.9441
  Clark, OH                                                             
  Greene, OH                                                            
  Miami, OH                                                             
  Montgomery, OH                                                        
2020Daytona Beach, FL...............................    0.8605    0.9022
  Flagler, FL                                                           
  Volusia, FL                                                           
2030Decatur, AL.....................................    0.8074    0.8637
  Lawrence, AL                                                          
  Morgan, AL                                                            
2040Decatur, IL.....................................    0.7913    0.8519
  Macon, IL                                                             
2080*Denver, CO.....................................    1.0611    1.0414
  Adams, CO                                                             
  Arapahoe, CO                                                          
  Denver, CO                                                            
  Douglas, CO                                                           
  Jefferson, CO                                                         
2120Des Moines, IA..................................    0.8669    0.9068
  Dallas, IA                                                            
  Polk, IA                                                              
  Warren, IA                                                            
2160*Detroit, MI....................................    1.0916    1.0619
  Lapeer, MI                                                            
  Macomb, MI                                                            
  Monroe, MI                                                            
  Oakland, MI                                                           
  St. Clair, MI                                                         
  Wayne, MI                                                             
2180Dothan, AL......................................    0.7974    0.8564
  Dale, AL                                                              
  Houston, AL                                                           
2190Dover, DE.......................................    0.9103    0.9377
  Kent, DE                                                              
2200Dubuque, IA.....................................    0.7803    0.8438
  Dubuque, IA                                                           
2240Duluth-Superior, MN-WI..........................    0.9262    0.9489
  St. Louis, MN                                                         
  Douglas, WI                                                           
2281Dutchess County, NY.............................    1.0696    1.0472
  Dutchess, NY                                                          
2290Eau Claire, WI..................................    0.8477    0.8930
  Chippewa, WI                                                          
  Eau Claire, WI                                                        
2320El Paso, TX.....................................    0.8618    0.9032
  El Paso, TX                                                           
2330Elkhart-Goshen, IN..............................    0.8698    0.9089
  Elkhart, IN                                                           
2335Elmira, NY......................................    0.8648    0.9053
  Chemung, NY                                                           
2340Enid, OK........................................    0.8213    0.8739
  Garfield, OK                                                          
2360Erie, PA........................................    0.8959    0.9275
  Erie, PA                                                              
2400Eugene-Springfield, OR..........................    1.0585    1.0397
  Lane, OR                                                              
2440Evansville-Henderson, IN-KY.....................    0.9031    0.9326
  Posey, IN                                                             
  Vanderburgh, IN                                                       
  Warrick, IN                                                           
  Henderson, KY                                                         
2520Fargo-Moorhead, ND-MN...........................    0.9217    0.9457
  Clay, MN                                                              
  Cass, ND                                                              
2560Fayetteville, NC................................    0.8655    0.9058
  Cumberland, NC                                                        
2580Fayetteville-Springdale-Rogers, AR..............    0.6933    0.7781
  Benton, AR                                                            
  Washington, AR                                                        
2640Flint, MI.......................................    1.0252    1.0172
  Genesee, MI                                                           
2650Florence, AL....................................    0.7880    0.8495
  Colbert, AL                                                           
  Lauderdale, AL                                                        
2655Florence, SC....................................    0.8620    0.9033
  Florence, SC                                                          
2670Fort Collins-Loveland, CO.......................    0.9817    0.9874
  Larimer, CO                                                           
2680*Ft. Lauderdale, FL.............................    1.0615    1.0417
  Broward, FL                                                           
2700Fort Myers-Cape Coral, FL.......................    0.9619    0.9737
  Lee, FL                                                               
2710Fort Pierce-Port St. Lucie, FL..................    1.0107    1.0073
  Martin, FL                                                            
  St. Lucie, FL                                                         
2720Fort Smith, AR-OK...............................    0.7868    0.8486
  Crawford, AR                                                          
  Sebastian, AR                                                         
  Sequoyah, OK                                                          
2750Fort Walton Beach, FL...........................    0.8897    0.9231
  Okaloosa, FL                                                          
2760Fort Wayne, IN..................................    0.8759    0.9133
  Adams, IN                                                             
  Allen, IN                                                             
  De Kalb, IN                                                           
  Huntington, IN                                                        
  Wells, IN                                                             
  Whitley, IN                                                           
2800*Forth Worth-Arlington, TX......................    0.9741    0.9822
  Hood, TX                                                              
  Johnson, TX                                                           
  Parker, TX                                                            
  Tarrant, TX                                                           
2840Fresno, CA......................................    1.0340    1.0232
  Fresno, CA                                                            
  Madera, CA                                                            
2880Gadsden, AL.....................................    0.8082    0.8643
  Etowah, AL                                                            
2900Gainesville, FL.................................    0.8852    0.9199
  Alachua, FL                                                           
2920Galveston-Texas City, TX........................    1.0089    1.0061
  Galveston, TX                                                         
2960Gary, IN........................................    0.9334    0.9539
  Lake, IN                                                              
  Porter, IN                                                            
2975Glens Falls, NY.................................    0.9273    0.9496
  Warren, NY                                                            
  Washington, NY                                                        
2980Goldsboro, NC...................................    0.8453    0.8913
  Wayne, NC                                                             
2985Grand Forks, ND-MN..............................    0.9109    0.9381
  Polk, MN                                                              
  Grand Forks, ND                                                       
3000Grand Rapids-Muskegon-Holland, MI...............    0.9823    0.9878
  Allegan, MI                                                           
  Kent, MI                                                              
  Muskegon, MI                                                          
  Ottawa, MI                                                            
3040Great Falls, MT.................................    0.8980    0.9290
  Cascade, MT                                                           
3060Greeley, CO.....................................    0.9296    0.9512
  Weld, CO                                                              
3080Green Bay, WI...................................    0.8817    0.9174
  Brown, WI                                                             
3120*Greensboro-Winston-Salem-High..................                    
  Point, NC                                             0.9165    0.9420
  Alamance, NC                                                          
  Davidson, NC                                                          
  Davie, NC                                                             
  Forsyth, NC                                                           
  Guilford, NC                                                          
  Randolph, NC                                                          
  Stokes, NC                                                            
  Yadkin, NC                                                            
3150Greenville, NC..................................    0.8948    0.9267
  Pitt, NC                                                              
3160Greenville-Spartanburg-Anderson, SC.............    0.8883    0.9221
  Anderson, SC                                                          
  Cherokee, SC                                                          
  Greenville, SC                                                        
  Pickens, SC                                                           
  Spartanburg, SC                                                       
3180Hagerstown, MD..................................    0.8947    0.9266
  Washington, MD                                                        
3200Hamilton-Middletown, OH.........................    0.8238    0.8757
  Butler, OH                                                            
3240Harrisburg-Lebanon-Carlisle, PA.................    0.9629    0.9744
  Cumberland, PA                                                        
  Dauphin, PA                                                           
  Lebanon, PA                                                           
  Perry, PA                                                             
3283*Hartford, CT...................................    1.2382    1.1576
  Hartford, CT                                                          
  Litchfield, CT                                                        
  Middlesex, CT                                                         
  Tolland, CT                                                           
3285Hattiesburg, MS.................................    0.6577    0.7506
  Forrest, MS                                                           
  Lamar, MS                                                             
                                                                        
3290Hickory-Morganton, NC...........................    0.7828    0.8456
  Alexander, NC                                                         
  Burke, NC                                                             
  Caldwell, NC                                                          
  Catawba, NC                                                           
3320Honolulu, HI....................................    1.1683    1.1124
  Honolulu, HI                                                          
3350Houma, LA.......................................    0.7769    0.8412
  Lafourche, LA                                                         
  Terrebonne, LA                                                        
3360*Houston, TX....................................    0.9906    0.9936
  Chambers, TX                                                          
  Fort Bend, TX                                                         
  Harris, TX                                                            
  Liberty, TX                                                           
  Montgomery, TX                                                        
  Waller, TX                                                            
3400Huntington-Ashland, WV-KY-OH....................    0.8983    0.9292
  Boyd, KY                                                              
  Carter, KY                                                            
  Greenup, KY                                                           
  Lawrence, OH                                                          
  Cabell, WV                                                            
  Wayne, WV                                                             
3440Huntsville, AL..................................    0.8142    0.8687
  Limestone, AL                                                         
  Madison, AL                                                           
3480*Indianapolis, IN...............................    0.9898    0.9930
  Boone, IN                                                             
  Hamilton, IN                                                          
  Hancock, IN                                                           
  Hendricks, IN                                                         
  Johnson, IN                                                           
  Madison, IN                                                           
  Marion, IN                                                            
  Morgan, IN                                                            
  Shelby, IN                                                            
3500Iowa City, IA...................................    0.9059    0.9346
  Johnson, IA                                                           
3520Jackson, MI.....................................    0.9176    0.9428
  Jackson, MI                                                           
3560Jackson, MS.....................................    0.7551    0.8250
  Hinds, MS                                                             
  Madison, MS                                                           
  Rankin, MS                                                            
3580Jackson, TN.....................................    0.8122    0.8672
  Madison, TN                                                           
3600Jacksonville, FL................................    0.9019    0.9317
  Clay, FL                                                              
  Duval, FL                                                             
  Nassau, FL                                                            
  St. Johns, FL                                                         
3605Jacksonville, NC................................    0.7197    0.7983
  Onslow, NC                                                            
3610Jamestown, NY...................................    0.7531    0.8235
  Chautaqua, NY                                                         
3620Janesville-Beloit, WI...........................    0.8541    0.8976
  Rock, WI                                                              
3640Jersey City, NJ.................................    1.1114    1.0750
  Hudson, NJ                                                            
3660Johnson City-Kingsport-Bristol, TN-VA...........    0.8621    0.9034
  Carter, TN                                                            
  Hawkins, TN                                                           
  Sullivan, TN                                                          
  Unicoi, TN                                                            
  Washington, TN                                                        
  Bristol City, VA                                                      
  Scott, VA                                                             
  Washington, VA                                                        
3680Johnstown, PA...................................    0.8615    0.9029
  Cambria, PA                                                           
  Somerset, PA                                                          
3710Joplin, MO......................................    0.7797    0.8433
  Jasper, MO                                                            
  Newton, MO                                                            
3720Kalamazoo-Battlecreek, MI.......................    1.0471    1.0320
  Calhoun, MI                                                           
  Kalamazoo, MI                                                         
  Van Buren, MI                                                         
3740Kankakee, IL....................................    0.9381    0.9572
  Kankakee, IL                                                          
3760*Kansas City, KS-MO.............................    0.9473    0.9636
  Johnson, KS                                                           
  Leavenworth, KS                                                       
  Miami, KS                                                             
  Wyandotte, KS                                                         
  Cass, MO                                                              
  Clay, MO                                                              
  Clinton, MO                                                           
  Jackson, MO                                                           
  Lafayette, MO                                                         
  Platte, MO                                                            
  Ray, MO                                                               
3800Kenosha, WI.....................................    0.8809    0.9168
  Kenosha, WI                                                           
3810Killeen-Temple, TX..............................    1.0321    1.0219
  Bell, TX                                                              
  Coryell, TX                                                           
3840Knoxville, TN...................................    0.8572    0.8999
  Anderson, TN                                                          
  Blount, TN                                                            
  Knox, TN                                                              
  Loudon, TN                                                            
  Sevier, TN                                                            
  Union, TN                                                             
3850Kokomo, IN......................................    0.9060    0.9346
  Howard, IN                                                            
  Tipton, IN                                                            
3870La Crosse, WI-MN................................    0.8514    0.8957
  Houston, MN                                                           
  La Crosse, WI                                                         
3880Lafayette, LA...................................    0.7975    0.8565
  Acadia, LA                                                            
  Lafayette, LA                                                         
  St. Landry, LA                                                        
  St. Martin, LA                                                        
3920Lafayette, IN...................................    0.8310    0.8809
  Clinton, IN                                                           
  Tippecanoe, IN                                                        
3960Lake Charles, LA................................    0.8237    0.8756
  Calcasieu, LA                                                         
3980Lakeland-Winter Haven, FL.......................    0.8570    0.8997
  Polk, FL                                                              
4000Lancaster, PA...................................    0.9345    0.9547
  Lancaster, PA                                                         
4040Lansing-East Lansing, MI........................    1.0025    1.0017
  Clinton, MI                                                           
  Eaton, MI                                                             
  Ingham, MI                                                            
4080Laredo, TX......................................    0.6967    0.7808
  Webb, TX                                                              
4100Las Cruces, NM..................................    0.8797    0.9160
  Dona Ana, NM                                                          
4120Las Vegas, NV-AZ................................    1.1034    1.0697
  Mohave, AZ                                                            
  Clark, NV                                                             
  Nye, NV                                                               
4150Lawrence, KS....................................    0.8554    0.8986
  Douglas, KS                                                           
4200Lawton, OK......................................    0.8494    0.8942
  Comanche, OK                                                          
4243Lewiston-Auburn, ME.............................    0.9698    0.9792
  Androscoggin, ME                                                      
4280Lexington, KY...................................    0.8433    0.8898
  Bourbon, KY                                                           
  Clark, KY                                                             
  Fayette, KY                                                           
  Jessamine, KY                                                         
  Madison, KY                                                           
  Scott, KY                                                             
  Woodford, KY                                                          
4320Lima, OH........................................    0.8664    0.9065
  Allen, OH                                                             
  Auglaize, OH                                                          
4360Lincoln, NE.....................................    0.8986    0.9294
  Lancaster, NE                                                         
4400Little Rock-North Little Rock, AR...............    0.8323    0.8819
  Faulkner, AR                                                          
  Lonoke, AR                                                            
  Pulaski, AR                                                           
  Saline, AR                                                            
4420Longview-Marshall, TX...........................    0.8803    0.9164
  Gregg, TX                                                             
  Harrison, TX                                                          
  Upshur, TX                                                            
4480*Los Angeles-Long Beach, CA.....................    1.2517    1.1662
  Los Angeles, CA                                                       
4520Louisville, KY-IN...............................    0.9485    0.9644
  Clark, IN                                                             
  Floyd, IN                                                             
  Harrison, IN                                                          
  Scott, IN                                                             
  Bullitt, KY                                                           
  Jefferson, KY                                                         
  Oldham, KY                                                            
4600Lubbock, TX.....................................    0.8644    0.9050
  Lubbock, TX                                                           
4640Lynchburg, VA...................................    0.8310    0.8809
  Amherst, VA                                                           
  Bedford City, VA                                                      
  Bedford, VA                                                           
  Campbell, VA                                                          
  Lynchburg City, VA                                                    
4680Macon, GA.......................................    0.9054    0.9342
  Bibb, GA                                                              
  Houston, GA                                                           
  Jones, GA                                                             
  Peach, GA                                                             
  Twiggs, GA                                                            
4720Madison, WI.....................................    0.9910    0.9938
  Dane, WI                                                              
4800Mansfield, OH...................................    0.8201    0.8730
  Crawford, OH                                                          
  Richland, OH                                                          
4840Mayaguez, PR....................................    0.4533    0.5817
  Anasco, PR                                                            
  Cabo Rojo, PR                                                         
  Hormigueros, PR                                                       
  Mayaguez, PR                                                          
  Sabana Grande, PR                                                     
  San German, PR                                                        
4880McAllen-Edinburg-Mission, TX....................    0.8023    0.8600
  Hidalgo, TX                                                           
4890Medford-Ashland, OR.............................    0.9917    0.9943
  Jackson, OR                                                           
4900Melbourne-Titusville-Palm Bay Fl................    0.8953    0.9271
  Brevard, Fl                                                           
4920*Memphis, TN-AR-MS..............................    0.8508    0.8953
  Crittenden, AR                                                        
  De Soto, MS                                                           
  Fayette, TN                                                           
  Shelby, TN                                                            
  Tipton, TN                                                            
4940Merced, CA......................................    1.0207    1.0141
  Merced, CA                                                            
5000*Miami, FL......................................    0.8570    0.8997
  Dade, FL                                                              
5015*Middlesex-Somerset-Hunterdon, NJ...............    1.1008    1.0680
  Hunterdon, NJ                                                         
  Middlesex, NJ                                                         
  Somerset, NJ                                                          
5080*Milwaukee-Waukesha, WI.........................    0.9326    0.9533
  Milwaukee, WI                                                         
  Ozaukee, WI                                                           
  Washington, WI                                                        
  Waukesha, WI                                                          
5120*Minneapolis-St Paul, MN-WI.....................    1.0844    1.0571
  Anoka, MN                                                             
  Carver, MN                                                            
  Chisago, MN                                                           
  Dakota, MN                                                            
  Hennepin, MN                                                          
  Isanti, MN                                                            
  Ramsey, MN                                                            
  Scott, MN                                                             
  Sherburne, MN                                                         
  Washington, MN                                                        
  Wright, MN                                                            
  Pierce, WI                                                            
  St. Croix, WI                                                         
5160Mobile, AL......................................    0.7603    0.8289
  Baldwin, AL                                                           
  Mobile, AL                                                            
5170Modesto, CA.....................................    1.1348    1.0905
  Stanislaus, CA                                                        
5190*Monmouth-Ocean, NJ.............................    1.0834    1.0564
  Monmouth, NJ                                                          
  Ocean, NJ                                                             
5200Monroe, LA......................................    0.7723    0.8378
  Ouachita, LA                                                          
5240Montgomery, AL..................................    0.8045    0.8616
  Autauga, AL                                                           
  Elmore, AL                                                            
  Montgomery, AL                                                        
5280Muncie, IN......................................    0.9501    0.9656
  Delaware, IN                                                          
5330Myrtle Beach, SC................................    0.7951    0.8547
  Horry, SC                                                             
5345Naples, FL......................................    0.9727    0.9812
  Collier, FL                                                           
5360*Nashville, TN..................................    0.9312    0.9524
  Cheatham, TN                                                          
  Davidson, TN                                                          
  Dickson, TN                                                           
  Robertson, TN                                                         
  Rutherford TN                                                         
  Sumner, TN                                                            
  Williamson, TN                                                        
  Wilson, TN                                                            
5380*Nassau-Suffolk, NY.............................    1.3069    1.2012
  Nassau, NY                                                            
  Suffolk, NY                                                           
5483*New Haven-Bridgeport-Stamford-.................                    
   Danbury-Waterbury, CT                                1.2281    1.1511
  Fairfield, CT                                                         
  New Haven, CT                                                         
5523New London-Norwich, CT..........................    1.2020    1.1343
  New London, CT                                                        
5560*New Orleans, LA................................    0.9499    0.9654
  Jefferson, LA                                                         
  Orleans, LA                                                           
  Plaquemines, LA                                                       
  St. Bernard, LA                                                       
  St. Charles, LA                                                       
  St. James, LA                                                         
  St. John The Baptist, LA                                              
  St. Tammany, LA                                                       
5600*New York, NY...................................    1.4132    1.2672
  Bronx, NY                                                             
  Kings, NY                                                             
  New York, NY                                                          
  Putnam, NY                                                            
  Queens, NY                                                            
  Richmond, NY                                                          
  Rockland, NY                                                          
  Westchester, NY                                                       
5640*Newark, NJ.....................................    1.1128    1.0759
  Essex, NJ                                                             
  Morris, NJ                                                            
  Sussex, NJ                                                            
  Union, NJ                                                             
  Warren, NJ                                                            
5660Newburgh, NY-PA.................................    0.8737    0.9117
  Orange, NY                                                            
  Pike, PA                                                              
5720*Norfolk-Virginia Beach-Newport.................                    
   News, VA-NC                                          0.8313    0.8812
  Currituck, NC                                                         
  Chesapeake City, VA                                                   
  Gloucester, VA                                                        
  Hampton City, VA                                                      
  Isle of Wight, VA                                                     
  James City, VA                                                        
  Mathews, VA                                                           
  Newport News City, VA                                                 
  Norfolk City, VA                                                      
  Poquoson City, VA                                                     
  Portsmouth City, VA                                                   
  Suffolk City, VA                                                      
  Virginia Beach City, VA                                               
  Williamsburg City, VA                                                 
  York, VA                                                              
5775*Oakland, CA....................................    1.4658    1.2994
  Alameda, CA                                                           
  Contra Costa, CA                                                      
5790Ocala, FL.......................................    0.8781    0.9148
  Marion, FL                                                            
5800Odessa-Midland, TX..............................    0.8399    0.8874
  Ector, TX                                                             
  Midland, TX                                                           
5880Oklahoma City, OK...............................    0.8460    0.8918
  Canadian, OK                                                          
  Cleveland, OK                                                         
  Logan, OK                                                             
  McClain, OK                                                           
  Oklahoma, OK                                                          
  Pottawatomie, OK                                                      
5910Olympia, WA.....................................    1.1129    1.0760
  Thurston, WA                                                          
5920Omaha, NE-IA....................................    0.9796    0.9860
  Pottawattamie, IA                                                     
  Cass, NE                                                              
  Douglas, NE                                                           
  Sarpy, NE                                                             
  Washington, NE                                                        
5945*Orange County, CA..............................    1.0005    1.0003
  Orange, CA                                                            
5960*Orlando, FL....................................    0.9443    0.9615
  Lake, FL                                                              
  Orange, FL                                                            
  Osceola, FL                                                           
  Seminole, FL                                                          
5990Owensboro, KY...................................    0.7842    0.8466
  Daviess, KY                                                           
6015Panama City, FL.................................    0.7538    0.8240
  Bay, FL                                                               
6020Parkersburg-Marietta, WV-OH.....................    0.7963    0.8556
  Washington, OH                                                        
  Wood, WV                                                              
6080Pensacola, FL...................................    0.8232    0.8753
  Escambia, FL                                                          
  Santa Rosa, FL                                                        
6120Peoria-Pekin, IL................................    0.8436    0.8901
  Peoria, IL                                                            
  Tazewell, IL                                                          
  Woodford, IL                                                          
6160*Philadelphia, PA-NJ............................    1.1129    1.0760
  Burlington, NJ                                                        
  Camden, NJ                                                            
  Gloucester, NJ                                                        
  Salem, NJ                                                             
  Bucks, PA                                                             
  Chester, PA                                                           
  Delaware, PA                                                          
  Montgomery, PA                                                        
  Philadelphia, PA                                                      
6200*Phoenix-Mesa, AZ...............................    1.0077    1.0053
  Maricopa, AZ                                                          
  Pinal, AZ                                                             
6240Pine Bluff, AR..................................    0.8604    0.9022
  Jefferson, AR                                                         
6280*Pittsburgh, PA.................................    0.9825    0.9880
  Allegheny, PA                                                         
  Beaver, PA                                                            
  Butler, PA                                                            
  Fayette, PA                                                           
  Washington, PA                                                        
  Westmoreland, PA                                                      
6323Pittsfield, MA..................................    1.1313    1.0882
  Berkshire, MA                                                         
6360Ponce, PR.......................................    0.4518    0.5804
  Guayanilla, PR                                                        
  Juana Diaz, PR                                                        
  Penuelas, PR                                                          
  Ponce, PR                                                             
  Villalba, PR                                                          
  Yauco, PR                                                             
6403Portland, ME....................................    0.9448    0.9619
  Cumberland, ME                                                        
  Sagadahoc, ME                                                         
  York, ME                                                              
6440*Portland-Vancouver, OR-WA......................    1.1181    1.0794
  Clackamas, OR                                                         
  Columbia, OR                                                          
  Multnomah, OR                                                         
  Washington, OR                                                        
  Yamhill, OR                                                           
  Clark, WA                                                             
6483*Providence-Warwick, RI.........................    1.1136    1.0765
  Bristol, RI                                                           
  Kent, RI                                                              
  Newport, RI                                                           
  Providence, RI                                                        
  Washington, RI                                                        
6520Provo-Orem, UT..................................    0.9957    0.9971
  Utah, UT                                                              
6560Pueblo, CO......................................    0.8014    0.8593
  Pueblo, CO                                                            
6580Punta Gorda, FL.................................    0.8677    0.9074
  Charlotte, FL                                                         
6600Racine, WI......................................    0.8328    0.8822
  Racine, WI                                                            
6640Raleigh-Durham-Chapel Hill, NC..................    0.9625    0.9742
  Chatham, NC                                                           
  Durham, NC                                                            
  Franklin, NC                                                          
  Johnston, NC                                                          
  Orange, NC                                                            
  Wake, NC                                                              
6660Rapid City, SD..................................    0.8110    0.8664
  Pennington, SD                                                        
6680Reading, PA.....................................    0.9158    0.9415
  Berks, PA                                                             
6690Redding, CA.....................................    1.1310    1.0880
  Shasta, CA                                                            
6720Reno, NV........................................    1.1080    1.0728
  Washoe, NV                                                            
6740Richland-Kennewick-Pasco, WA....................    0.9648    0.9758
  Benton, WA                                                            
  Franklin, WA                                                          
6760Richmond-Petersburg, VA.........................    0.9291    0.9509
  Charles City County, VA                                               
  Chesterfield, VA                                                      
  Colonial Heights City, VA                                             
  Dinwiddie, VA                                                         
  Goochland, VA                                                         
  Hanover, VA                                                           
  Henrico, VA                                                           
  Hopewell City, VA                                                     
  New Kent, VA                                                          
  Petersburg City, VA                                                   
  Powhatan, VA                                                          
  Prince George, VA                                                     
  Richmond City, VA                                                     
6780*Riverside-San Bernardino, CA...................    1.1660    1.1109
  Riverside, CA                                                         
  San Bernardino, CA                                                    
6800Roanoke, VA.....................................    0.8364    0.8848
  Botetourt, VA                                                         
  Roanoke, VA                                                           
  Roanoke City, VA                                                      
  Salem City, VA                                                        
6820Rochester, MN...................................    1.0516    1.0351
  Olmsted, MN                                                           
6840*Rochester, NY..................................    0.9808    0.9868
  Genesee, NY                                                           
  Livingston, NY                                                        
  Monroe, NY                                                            
  Ontario, NY                                                           
  Orleans, NY                                                           
  Wayne, NY                                                             
6880Rockford, IL....................................    0.8670    0.9069
  Boone, IL                                                             
  Ogle, IL                                                              
  Winnebago, IL                                                         
6895Rocky Mount, NC.................................    0.8606    0.9023
  Edgecombe, NC                                                         
  Nash, NC                                                              
6920*Sacramento, CA.................................    1.2292    1.1518
  El Dorado, CA                                                         
  Placer, CA                                                            
  Sacramento, CA                                                        
6960Saginaw-Bay City-Midland, MI....................    0.9376    0.9568
  Bay, MI                                                               
  Midland, MI                                                           
  Saginaw, MI                                                           
6980St. Cloud, MN...................................    0.9549    0.9689
  Benton, MN                                                            
  Stearns, MN                                                           
7000St. Joseph, MO..................................    0.8602    0.9020
  Andrews, MO                                                           
  Buchanan, MO                                                          
7040*St. Louis, MO-IL...............................    0.9110    0.9382
  Clinton, IL                                                           
  Jersey, IL                                                            
  Madison, IL                                                           
  Monroe, IL                                                            
  St. Clair, IL                                                         
  Franklin, MO                                                          
  Jefferson, MO                                                         
  Lincoln, MO                                                           
  St. Charles, MO                                                       
  St. Louis, MO                                                         
  St. Louis City, MO                                                    
  Warren, MO                                                            
7080Salem, OR.......................................    0.9552    0.9691
  Marion, OR                                                            
  Polk, OR                                                              
7120Salinas, CA.....................................    1.3750    1.2437
  Monterey, CA                                                          
7160*Salt Lake City-Ogden, UT.......................    0.9542    0.9684
  Davis, UT                                                             
  Salt Lake, UT                                                         
  Weber, UT                                                             
7200San Angelo, TX..................................    0.7132    0.7934
  Tom Green, TX                                                         
7240*San Antonio, TX................................    0.8266    0.8777
  Bexar, TX                                                             
  Comal, TX                                                             
  Guadalupe, TX                                                         
  Wilson, TX                                                            
7320*San Diego, CA..................................    1.2060    1.1369
  San Diego, CA                                                         
7360*San Francisco, CA..............................    1.4120    1.2665
  Marin, CA                                                             
  San Francisco, CA                                                     
  San Mateo, CA                                                         
7400*San Jose, CA...................................    1.4272    1.2758
  Santa Clara, CA                                                       
7440*San Juan-Bayamon, PR...........................    0.4367    0.5670
  Aguas Buenas, PR                                                      
  Barceloneta, PR                                                       
  Bayamon, PR                                                           
  Canovanas, PR                                                         
  Carolina, PR                                                          
  Catano, PR                                                            
  Ceiba, PR                                                             
  Comerio, PR                                                           
  Corozal, PR                                                           
  Dorado, PR                                                            
  Fajardo, PR                                                           
  Florida, PR                                                           
  Guaynabo, PR                                                          
  Humacao, PR                                                           
  Juncos, PR                                                            
  Los Piedras, PR                                                       
  Loiza, PR                                                             
  Luguillo, PR                                                          
  Manati, PR                                                            
  Naranjito, PR                                                         
  Rio Grande, PR                                                        
  San Juan, PR                                                          
  Toa Alta, PR                                                          
  Toa Baja, PR                                                          
  Trujillo Alto, PR                                                     
  Vega Alta, PR                                                         
  Vega Baja, PR                                                         
  Yabucoa, PR                                                           
7460San Luis Obispo-Atascadero-.....................                    
  Paso Robles, CA                                       1.2413    1.1595
  San Luis Obispo, CA                                                   
7480Santa Barbara-Santa Maria-Lompoc, CA............    1.1515    1.1014
  Santa Barbara, CA                                                     
7485Santa Cruz-Watsonville, CA......................    1.0005    1.0003
  Santa Cruz, CA                                                        
7490Santa Fe, NM....................................    1.0782    1.0529
  Los Alamos, NM                                                        
  Santa Fe, NM                                                          
7500Santa Rosa, CA..................................    1.3021    1.1981
  Sonoma, CA                                                            
7510Sarasota-Bradenton, FL..........................    0.9701    0.9794
  Manatee, FL                                                           
  Sarasota, FL                                                          
7520Savannah, GA....................................    0.9447    0.9618
  Bryan, GA                                                             
  Chatham, GA                                                           
  Effingham, GA                                                         
7560Scranton--Wilkes-Barre--Hazleton, PA............    0.8638    0.9046
  Columbia, PA                                                          
  Lackawanna, PA                                                        
  Luzerne, PA                                                           
  Wyoming, PA                                                           
7600*Seattle-Bellevue-Everett, WA...................    1.1018    1.0686
  Island, WA                                                            
  King, WA                                                              
  Snohomish, WA                                                         
7610Sharon, PA......................................    0.8925    0.9251
  Mercer, PA                                                            
7620Sheboygan, WI...................................    0.8046    0.8617
  Sheboygan, WI                                                         
7640Sherman-Denison, TX.............................    0.8836    0.9187
  Grayson, TX                                                           
7680Shreveport-Bossier City, LA.....................    0.9036    0.9329
  Bossier, LA                                                           
  Caddo, LA                                                             
  Webster, LA                                                           
7720Sioux City, IA-NE...............................    0.8492    0.8941
  Woodbury, IA                                                          
  Dakota, NE                                                            
7760Sioux Falls, SD.................................    0.8658    0.9060
  Lincoln, SD                                                           
  Minnehaha, SD                                                         
7800South Bend, IN..................................    0.9621    0.9739
  St. Joseph, IN                                                        
7840Spokane, WA.....................................    1.0505    1.0343
  Spokane, WA                                                           
7880Springfield, IL.................................    0.8725    0.9108
  Menard, IL                                                            
  Sangamon, IL                                                          
7920Springfield, MO.................................    0.7887    0.8500
  Christian, MO                                                         
  Greene, MO                                                            
  Webster, MO                                                           
8003Springfield, MA.................................    1.0560    1.0380
  Hampden, MA                                                           
  Hampshire, MA                                                         
8050State College, PA...............................    0.9903    0.9933
  Centre, PA                                                            
8080Steubenville-Weirton, OH-WV.....................    0.8367    0.8851
  Jefferson, OH                                                         
  Brooke, WV                                                            
  Hancock, WV                                                           
8120Stockton-Lodi, CA...............................    1.1450    1.0972
  San Joaquin, CA                                                       
8140Sumter, SC......................................    0.8016    0.8595
  Sumter, SC                                                            
8160Syracuse, NY....................................    0.9733    0.9816
  Cayuga, NY                                                            
  Madison, NY                                                           
  Onondaga, NY                                                          
  Oswego, NY                                                            
8200Tacoma, WA......................................    0.9647    0.9757
  Pierce, WA                                                            
8240Tallahassee, FL.................................    0.8411    0.8883
  Gadsden, FL                                                           
  Leon, FL                                                              
8280 *Tampa-St. Petersburg-Clearwater, FL...........    0.9402    0.9587
  Hernando, FL                                                          
  Hillsborough, FL                                                      
  Pasco, FL                                                             
  Pinellas, FL                                                          
8320Terre Haute, IN.................................    0.8593    0.9014
  Clay, IN                                                              
  Vermillion, IN                                                        
  Vigo, IN                                                              
8360Texarkana, AR-Texarkana, TX.....................    0.8091    0.8650
  Miller, AR                                                            
  Bowie, TX                                                             
8400Toledo, OH......................................    0.9954    0.9968
  Fulton, OH                                                            
  Lucas, OH                                                             
  Wood, OH                                                              
8440Topeka, KS......................................    0.9884    0.9920
  Shawnee, KS                                                           
8480Trenton, NJ.....................................    1.0251    1.0171
  Mercer, NJ                                                            
8520Tucson, AZ......................................    0.9393    0.9580
  Pima, AZ                                                              
8560Tulsa, OK.......................................    0.8223    0.8746
  Creek, OK                                                             
  Osage, OK                                                             
  Rogers, OK                                                            
  Tulsa, OK                                                             
  Wagoner, OK                                                           
8600Tuscaloosa, AL..................................    0.8167    0.8705
  Tuscaloosa, AL                                                        
8640Tyler, TX.......................................    0.9650    0.9759
  Smith, TX                                                             
8680Utica-Rome, NY..................................    0.8516    0.8958
  Herkimer, NY                                                          
  Oneida, NY                                                            
8720Vallejo-Fairfield-Napa, CA......................    1.2534    1.1673
  Napa, CA                                                              
  Solano, CA                                                            
8735Ventura, CA.....................................    1.0005    1.0003
  Ventura, CA                                                           
8750Victoria, TX....................................    0.8703    0.9093
  Victoria, TX                                                          
8760Vineland-Millville-Bridgeton, NJ................    1.0294    1.0200
  Cumberland, NJ                                                        
8780Visalia-Tulare-Porterville, CA..................    1.0300    1.0204
  Tulare, CA                                                            
8800Waco, TX........................................    0.8029    0.8604
  McLennan, TX                                                          
8840*Washington, DC-MD-VA-WV........................    1.1096    1.0738
  District of Columbia, DC                                              
  Calvert, MD                                                           
  Charles, MD                                                           
  Frederick, MD                                                         
  Montgomery, MD                                                        
  Prince Georges, MD                                                    
  Alexandria City, VA                                                   
  Arlington, VA                                                         
  Clarke, VA                                                            
  Culpepper, VA                                                         
  Fairfax, VA                                                           
  Fairfax City, VA                                                      
  Falls Church City, VA                                                 
  Fauquier, VA                                                          
  Fredericksburg City, VA                                               
  King George, VA                                                       
  Loudoun, VA                                                           
  Manassas City, VA                                                     
  Manassas Park City, VA                                                
  Prince William, VA                                                    
  Spotsylvania, VA                                                      
  Stafford, VA                                                          
  Warren, VA                                                            
  Berkeley, WV                                                          
  Jefferson, WV                                                         
8920Waterloo-Cedar Falls, IA........................    0.8643    0.9050
  Black Hawk, IA                                                        
8940Wausau, WI......................................    0.9802    0.9864
  Marathon, WI                                                          
8960West Palm Beach-Boca Raton, FL..................    1.0005    1.0003
  Palm Beach, FL                                                        
9000Wheeling, OH-WV.................................    0.7662    0.8333
  Belmont, OH                                                           
  Marshall, WV                                                          
  Ohio, WV                                                              
9040Wichita, KS.....................................    0.9987    0.9991
  Butler, KS                                                            
  Harvey, KS                                                            
  Sedgwick, KS                                                          
9080Wichita Falls, TX...............................    0.7906    0.8514
  Archer, TX                                                            
  Wichita, TX                                                           
9140Williamsport, PA................................    0.8425    0.8893
  Lycoming, PA                                                          
9160Wilmington-Newark, DE-MD........................    1.0716    1.0485
  New Castle, DE                                                        
  Cecil, MD                                                             
9200Wilmington, NC..................................    0.9138    0.9401
  New Hanover, NC                                                       
  Brunswick, NC                                                         
9260Yakima, WA......................................    0.9541    0.9665
  Yakima, WA                                                            
9270Yolo, CA........................................    1.1844    1.1229
  Yolo, CA                                                              
9280York, PA........................................    0.9003    0.9306
  York, PA                                                              
9320Youngstown-Warren, OH...........................    0.9422    0.9600
  Columbiana, OH                                                        
  Mahoning, OH                                                          
  Trumbull, OH                                                          
9340Yuba City, CA...................................    1.0192    1.0131
  Sutter, CA                                                            
  Yuba, CA                                                              
9360Yuma, AZ........................................    0.8675    0.9072
  Yuma, AZ                                                              
------------------------------------------------------------------------


Table 4b.--Wage Index and Capital Geographic Adjustment Factor (GAF) for
                               Rural Areas                              
------------------------------------------------------------------------
                                                        Wage            
                   Nonurban area                       index       GAF  
------------------------------------------------------------------------
Alabama.............................................    0.7009    0.7840
Alaska..............................................    1.2592    1.1710
Arizona.............................................    0.8278    0.8786
Arkansas............................................    0.6848    0.7716
California..........................................    1.0005    1.0003
Colorado............................................    0.7979    0.8568
Connecticut.........................................    1.2234    1.1481
Delaware............................................    0.8430    0.8896
Florida.............................................    0.8570    0.8997
Georgia.............................................    0.7564    0.8260
Hawaii..............................................    0.9521    0.9669
Idaho...............................................    0.8380    0.8860
Illinois............................................    0.7364    0.8110
Indiana.............................................    0.7948    0.8545
Iowa................................................    0.7270    0.8039
Kansas..............................................    0.7270    0.8039
Kentucky............................................    0.7487    0.8202
Louisiana...........................................    0.7358    0.8105
Maine...............................................    0.8414    0.8885
Maryland............................................    0.8500    0.8947
Massachusetts.......................................    1.0744    1.0504
Michigan............................................    0.8695    0.9087
Minnesota...........................................    0.8129    0.8677
Mississippi.........................................    0.6577    0.7506
Missouri............................................    0.7291    0.8054
Montana.............................................    0.8146    0.8690
Nebraska............................................    0.7282    0.8048
Nevada..............................................    0.9078    0.9359
New Hampshire.......................................    0.9766    0.9839
New Jersey\1\.......................................                    
New Mexico..........................................    0.8071    0.8635
New York............................................    0.8737    0.9117
North Carolina......................................    0.7828    0.8456
North Dakota........................................    0.7347    0.8097
Ohio................................................    0.8238    0.8757
Oklahoma............................................    0.6842    0.7711
Oregon..............................................    0.9227    0.9464
Pennsylvania........................................    0.8588    0.9010
Puerto Rico.........................................    0.4364    0.5668
Rhode Island\1\.....................................                    
South Carolina......................................    0.7645    0.8320
South Dakota........................................    0.6953    0.7797
Tennessee...........................................    0.7435    0.8163
Texas...............................................    0.7510    0.8219
Utah................................................    0.8867    0.9210
Vermont.............................................    0.9158    0.9415
Virginia............................................    0.7807    0.8441
Washington..........................................    0.9647    0.9757
West Virginia.......................................    0.8120    0.8671
Wisconsin...........................................    0.8328    0.8822
Wyoming.............................................    0.7977    0.8566
------------------------------------------------------------------------
\1\All counties within the State are classified urban.                  


Table 4c.--Wage Index and Capital Geographic Adjustment Factor (GAF) for
                     Hospitals That Are Reclassified                    
------------------------------------------------------------------------
                                                        Wage            
              Area reclassified to...                  index       GAF  
------------------------------------------------------------------------
Albuquerque, NM.....................................    0.9300    0.9515
Alexandria, LA......................................    0.8302    0.8804
Amarillo, TX........................................    0.8582    0.9006
Anchorage, AK.......................................    1.3228    1.2112
Appleton-Oshkosh-Neenah, WI.........................    0.8842    0.9192
Asheville, NC.......................................    0.9171    0.9425
Atlanta, GA.........................................    1.0261    1.0178
Baton Rouge, LA.....................................    0.8617    0.9031
Benton Harbor, MI...................................    0.8172    0.8709
Benton Harbor, MI (Rural Michigan Hosp.)............    0.8695    0.9087
Bergen-Passaic, NJ..................................    1.1494    1.1000
Biloxi-Gulfport-Pascagoula, MS......................    0.7954    0.8549
Birmingham, AL......................................    0.8832    0.9185
Bismarck, ND........................................    0.8616    0.9030
Boise City, ID......................................    0.9032    0.9327
Boston-Brockton-Nashua, MA-NH.......................    1.1733    1.1157
Brazoria, TX........................................    0.8263    0.8775
Bremerton, WA.......................................    0.8591    0.9012
Bremerton, WA (Rural Wahington Hosp.)...............    0.9647    0.9757
Bryan-College Station, TX...........................    0.8673    0.9071
Casper, WY..........................................    0.8444    0.8906
Charlotte-Gastonia-Rock Hill, NC-SC.................    0.9598    0.9723
Charlottesville, VA.................................    0.9201    0.9446
Chattanooga, TN-GA..................................    0.8959    0.9275
Chicago, IL.........................................    1.0666    1.0451
Cincinnati, OH-KY-IN................................    0.9451    0.9621
Cleveland-Lorain-Elyria, OH.........................    0.9824    0.9879
Columbia, MO........................................    0.9076    0.9358
Columbus, GA-AL.....................................    0.7762    0.8407
Columbus, OH........................................    0.9760    0.9835
Cumberland, MD-WV...................................    0.8165    0.8704
Dallas, TX..........................................    0.9521    0.9669
Davenport-Rock Island-Moline, IA-IL.................    0.8226    0.8748
Dayton-Springfield, OH..............................    0.9195    0.9441
Denver, CO..........................................    1.0611    1.0414
Des Moines, IA......................................    0.8533    0.8971
Detroit, MI.........................................    1.0916    1.0619
Dothan, AL..........................................    0.7974    0.8564
Duluth-Superior, MN-WI..............................    0.9262    0.9489
Dutchess County, NY.................................    1.0539    1.0366
Eau Claire, WI......................................    0.8477    0.8930
El Paso, TX.........................................    0.8618    0.9032
Eugene-Springfield, OR..............................    1.0585    1.0397
Fargo-Moorhead, ND-MN...............................    0.9051    0.9340
Fayetteville, NC....................................    0.8385    0.8864
Flint, MI...........................................    1.0252    1.0172
Florence, AL........................................    0.7880    0.8495
Florence, SC........................................    0.8620    0.9033
Fort Lauderdale, FL.................................    1.0370    1.0252
Fort Pierce-Port St. Lucie, FL......................    1.0107    1.0073
Fort Smith, AR-OK...................................    0.7868    0.8486
Fort Walton Beach, FL...............................    0.8744    0.9122
Fort Wayne, IN......................................    0.8759    0.9133
Fort Worth-Arlington, TX............................    0.9741    0.9822
Gadsden, AL.........................................    0.8082    0.8643
Gainesville, FL.....................................    0.8852    0.9199
Glens Falls, NY.....................................    0.9273    0.9496
Grand Forks, ND-MN..................................    0.9109    0.9381
Great Falls, MT.....................................    0.8980    0.9290
Greeley, CO.........................................    0.9125    0.9392
Greenville-Spartanburg-Anderson, SC.................    0.8883    0.9221
Harrisburg-Lebanon-Carlisle, PA.....................    0.9629    0.9744
Hartford, CT........................................    1.2226    1.1476
Houston, TX.........................................    0.9906    0.9936
Huntington-Ashland, WV-KY-OH........................    0.8983    0.9292
Huntsville, AL......................................    0.7942    0.8540
Indianapolis, IN....................................    0.9898    0.9930
Jackson, MS.........................................    0.7551    0.8250
Jackson, TN.........................................    0.8122    0.8672
Johnson City-Kingsport-Bristol, TN-VA...............    0.8621    0.9034
Joplin, MO..........................................    0.7797    0.8433
Kalamazoo-Battlecreek, MI...........................    1.0471    1.0320
Kansas City, KS-MO..................................    0.9473    0.9636
Knoxville, TN.......................................    0.8572    0.8999
Lafayette, LA.......................................    0.7975    0.8565
Lansing-East Lansing, MI............................    1.0025    1.0017
Las Cruces, NM......................................    0.8797    0.9160
Las Vegas, NV-AZ....................................    1.1034    1.0697
Lexington, KY.......................................    0.8433    0.8898
Lima, OH............................................    0.8664    0.9065
Lincoln, NE.........................................    0.8765    0.9137
Little Rock-North Little Rock, AR...................    0.8323    0.8819
Longview-Marshall, TX...............................    0.8586    0.9009
Los Angeles-Long Beach, CA..........................    1.2517    1.1662
Louisville, KY-IN...................................    0.9485    0.9644
Lubbock, TX.........................................    0.8644    0.9050
Macon, GA...........................................    0.8647    0.9052
Madison, WI.........................................    0.9910    0.9938
Mansfield, OH.......................................    0.8201    0.8730
Mansfield, OH (Rural Ohio only).....................    0.8238    0.8757
Medford-Ashland, OR.................................    0.9917    0.9943
Memphis, TN-AR-MS...................................    0.8386    0.8864
Merced, CA..........................................    1.0207    1.0141
Middlesex-Somerset-Hunterdon, NJ....................    1.0770    1.0521
Milwaukee-Waukesha, WI..............................    0.9326    0.9533
Minneapolis-St. Paul, MN-WI.........................    1.0844    1.0571
Modesto, CA.........................................    1.1348    1.0905
Monroe, LA..........................................    0.7723    0.8378
Montgomery, AL......................................    0.8045    0.8616
Nashville, TN.......................................    0.9176    0.9428
New London-Norwich, CT..............................    1.2020    1.1343
New Orleans, LA.....................................    0.9499    0.9654
New York, NY........................................    1.4132    1.2672
Newark, NJ..........................................    1.0848    1.0573
Newburgh, NY-PA.....................................    0.9454    0.9623
Oakland, CA.........................................    1.4658    1.2994
Oklahoma City, OK...................................    0.8460    0.8918
Omaha, NE-IA........................................    0.9796    0.9860
Orange County, CA...................................    1.5215    1.3330
Peoria-Pekin, IL....................................    0.8436    0.8901
Philadelphia, PA-NJ.................................    1.1129    1.0760
Pittsburgh, PA......................................    0.9825    0.9880
Portland-Vancouver, OR-WA...........................    1.1181    1.0794
Provo-Orem, UT......................................    0.9601    0.9725
Raleigh-Durham-Chapel Hill, NC......................    0.9625    0.9742
Roanoke, VA.........................................    0.8364    0.8848
Rochester, MN.......................................    1.0376    1.0256
Rockford, IL........................................    0.8670    0.9069
Rocky Mount, NC.....................................    0.8606    0.9023
Saginaw-Bay City-Midland, MI,.......................    0.9376    0.9568
St. Cloud, MN.......................................    0.9549    0.9689
St. Louis, MO-IL....................................    0.9110    0.9382
Salem, OR...........................................    0.9552    0.9691
Salt Lake City-Ogden, UT............................    0.9542    0.9684
San Francisco, CA...................................    1.4120    1.2665
San Jose, CA........................................    1.4272    1.2758
Sarasota-Bradenton, FL..............................    0.9701    0.9794
Scranton-Wilkes-Barre-Hazelton, PA..................    0.8638    0.9046
Seattle-Bellevue-Everett, WA........................    1.0826    1.0559
Sherman-Denison, TX.................................    0.8836    0.9187
Sioux City, IA-NE...................................    0.8340    0.8831
Sioux Falls, SD.....................................    0.8658    0.9060
South Bend, IN......................................    0.9621    0.9739
Springfield, IL.....................................    0.8725    0.9108
Syracuse, NY........................................    0.9733    0.9816
Tampa-St. Petersburg-Clearwater, FL.................    0.9402    0.9587
Texarkana, TX-Texarkana, AR.........................    0.8091    0.8650
Topeka, KS..........................................    0.9884    0.9920
Trenton, NJ.........................................    1.2495    1.1648
Tucson, AZ..........................................    0.9393    0.9580
Tulsa, OK...........................................    0.8223    0.8746
Tyler, TX...........................................    0.9245    0.9477
Ventura, CA.........................................    1.2807    1.1846
Waco, TX............................................    0.8029    0.8604
Washington, DC-MD-VA-WV.............................    1.1096    1.0738
Waterloo-Cedar Falls, IA............................    0.8643    0.9050
Wausau, WI..........................................    0.9385    0.9575
Wichita, KS.........................................    0.9694    0.9789
Rural Alabama.......................................    0.7009    0.7840
Rural Louisiana.....................................    0.7358    0.8105
Rural Missouri......................................    0.7291    0.8054
Rural New Hampshire.................................    0.9766    0.9839
Rural Ohio..........................................    0.8238    0.8757
Rural Virginia......................................    0.7807    0.8441
Rural West Virginia.................................    0.8120    0.8671
Rural Wyoming.......................................    0.7977    0.8566
------------------------------------------------------------------------


             Table 4d.--Average Hourly Wage for Urban Areas             
------------------------------------------------------------------------
                                                                Average 
                         Urban area                              hourly 
                                                                 wage   
------------------------------------------------------------------------
Abilene, TX..................................................    16.2390
Aguadilla, PR................................................     8.6888
Akron, OH....................................................    17.2298
Albany, GA...................................................    16.1099
Albany-Schenectady-Troy, NY..................................    16.1998
Albuquerque, NM..............................................    16.9834
Alexandria, LA...............................................    15.1620
Allentown-Bethlehem-Easton, PA-NJ............................    18.4715
Altoona, PA..................................................    16.8070
Amarillo, TX.................................................    15.6736
Anchorage, AK................................................    24.0896
Ann Arbor, MI................................................    22.9974
Anniston, AL.................................................    14.5345
Appleton-Oshkosh-Neenah, WI..................................    16.1474
Arecibo, PR..................................................     6.9358
Asheville, NC................................................    16.7477
Athens, GA...................................................    16.5317
Atlanta, GA..................................................    18.7400
Atlantic City-Cape May, NJ...................................    19.8657
Augusta-Aiken, GA-SC.........................................    15.7746
Austin-San Marcos, TX........................................    16.6425
Bakersfield, CA..............................................    19.8748
Baltimore, MD................................................    18.0181
Bangor, ME...................................................    17.3289
Barnstable-Yarmouth, MA......................................    25.2260
Baton Rouge, LA..............................................    15.7376
Beaumont-Port Arthur, TX.....................................    15.7934
Bellingham, WA...............................................    20.5119
Benton Harbor, MI............................................    14.8759
Bergen-Passaic, NJ...........................................    21.0835
Billings, MT.................................................    15.9221
Biloxi-Gulfport-Pascagoula, MS...............................    15.0572
Binghamton, NY...............................................    16.7713
Birmingham, AL...............................................    16.1296
Bismarck, ND.................................................    15.7353
Bloomington, IN..............................................    15.5760
Bloomington-Normal, IL.......................................    15.4563
Boise City, ID...............................................    16.4944
Boston-Brockton-Nashua, MA-NH................................    21.4264
Boulder-Longmont, CO.........................................    17.9719
Brazoria, TX.................................................    15.9482
Bremerton, WA................................................    17.6611
Brownsville-Harlingen-San Benito, TX.........................    15.0080
Bryan-College Station, TX....................................    15.8389
Buffalo-Niagara Falls, NY....................................    16.7713
Burlington, VT...............................................    18.1518
Caguas, PR...................................................     7.9854
Canton-Massillon, OH.........................................    15.9456
Casper, WY...................................................    15.3186
Cedar Rapids, IA.............................................    15.4439
Champaign-Urbana, IL.........................................    16.1590
Charleston-North Charleston, SC..............................    16.1537
Charleston, WV...............................................    16.4759
Charlotte-Gastonia-Rock Hill, NC-SC..........................    17.4798
Charlottesville, VA..........................................    17.0943
Chattanooga, TN-GA...........................................    16.3611
Cheyenne, WY.................................................    13.6561
Chicago, IL..................................................    19.4782
Chico-Paradise, CA...........................................    19.0544
Cincinnati, OH-KY-IN.........................................    17.2605
Clarksville-Hopkinsville, TN-KY..............................    13.7237
Cleveland-Lorain-Elyria, OH..................................    17.9419
Colorado Springs, CO.........................................    16.7908
Columbia, MO.................................................    16.8243
Columbia, SC.................................................    16.4154
Columbus, GA-AL..............................................    14.1755
Columbus, OH.................................................    17.8234
Corpus Christi, TX...........................................    15.2899
Cumberland, MD-WV............................................    14.7426
Dallas, TX...................................................    17.3874
Danville, VA.................................................    14.7798
Davenport-Moline-Rock Island, IA-IL..........................    15.0227
Dayton-Springfield, OH.......................................    17.1168
Daytona Beach, FL............................................    15.7149
Decatur, AL..................................................    14.7445
Decatur, IL..................................................    14.4506
Denver, CO...................................................    19.3789
Des Moines, IA...............................................    15.8324
Detroit, MI..................................................    19.9346
Dothan, AL...................................................    14.5621
Dover, DE....................................................    16.6236
Dubuque, IA..................................................    14.2498
Duluth-Superior, MN-WI.......................................    16.8727
Dutchess County, NY..........................................    19.5331
Eau Claire, WI...............................................    15.3631
El Paso, TX..................................................    15.7386
Elkhart-Goshen, IN...........................................    15.8850
Elmira, NY...................................................    15.7932
Enid, OK.....................................................    14.9984
Erie, PA.....................................................    16.3613
Eugene-Springfield, OR.......................................    19.3300
Evansville, Henderson, IN-KY.................................    16.4926
Fargo-Moorhead, ND-MN........................................    16.8334
Fayetteville, NC.............................................    15.8069
Fayetteville-Springdale-Rogers, AR...........................    12.6619
Flint, MI....................................................    18.8129
Florence, AL.................................................    13.9337
Florence, SC.................................................    15.7220
Fort Collins-Loveland, CO....................................    17.9280
Fort Lauderdale, FL..........................................    19.3863
Fort Myers-Cape Coral, FL....................................    17.5672
Fort Pierce-Fort St. Lucie, FL...............................    18.2169
Fort Smith, AR-OK............................................    14.3610
Fort Walton Beach, FL........................................    16.2490
Fort Wayne, IN...............................................    15.9958
Fort Worth-Arlington, TX.....................................    17.7622
Fresno, CA...................................................    18.8835
Gadsden, AL..................................................    14.7595
Gainesville, FL..............................................    16.1250
Galveston-Texas City, TX.....................................    18.5274
Gary, IN.....................................................    17.6879
Glens Falls, NY..............................................    16.6860
Goldsboro, NC................................................    15.4377
Grand Forks, ND-MN...........................................    16.5506
Grand Rapids-Muskegon-Holland, MI............................    17.9395
Great Falls, MT..............................................    15.7811
Greeley, CO..................................................    16.9775
Green Bay, WI................................................    16.1023
Greensboro-Winston-Salem-High Point, NC......................    16.7379
Greenville, NC...............................................    16.3414
Greenville-Spartanburg-Anderson, SC..........................    16.2233
Hagerstown, MD...............................................    16.3387
Hamilton-Middletown, OH......................................    16.0265
Harrisburg-Lebanon-Carlisle, PA..............................    17.5548
Hartford, CT.................................................    22.6120
Hattiesburg, MS..............................................    13.1174
Hickory-Morganton, NC........................................    15.9128
Honolulu, HI.................................................    21.3363
Houma, LA....................................................    14.1874
Houston, TX..................................................    18.0712
Huntington-Ashland, WV-KY-OH.................................    16.4056
Huntsville, AL...............................................    14.8690
Indianapolis, IN.............................................    18.0754
Iowa City, IA................................................    16.5438
Jackson, MI..................................................    16.7570
Jackson, MS..................................................    13.6437
Jackson, TN..................................................    14.8324
Jacksonville, FL.............................................    16.4719
Jacksonville, NC.............................................    13.1433
Jamestown, NY................................................    13.7544
Janesville-Beloit, WI........................................    15.5973
Jersey City, NJ..............................................    20.2964
Johnson City-Kingsport-Bristol, TN-VA........................    15.7450
Johnstown, PA................................................    15.7335
Joplin, MO...................................................    14.1549
Kalamazoo-Battle Creek, MI...................................    19.1226
Kankakee, IL.................................................    17.1314
Kansas City, KS-MO...........................................    17.3002
Kenosha, WI..................................................    16.0882
Killeen-Temple, TX...........................................    18.8494
Knoxville, TN................................................    15.6535
Kokomo, IN...................................................    16.5463
LaCrosse, WI-MN..............................................    15.5484
Lafayette, LA................................................    14.4264
Lafayette, IN................................................    15.1766
Lake Charles, LA.............................................    15.0433
Lakeland-Winter Haven, FL....................................    15.7741
Lancaster, PA................................................    17.0658
Lansing-East Lansing, MI.....................................    18.3091
Laredo, TX...................................................    12.7235
Las Cruces, NM...............................................    16.0660
Las Vegas, NV-AZ.............................................    20.1498
Lawrence, KS.................................................    15.6222
Lawton, OK...................................................    15.5118
Lewiston-Auburn, ME..........................................    17.7114
Lexington, KY................................................    15.3464
Lima, OH.....................................................    15.8233
Lincoln, NE..................................................    16.4101
Little Rock-North Little Rock, AR............................    15.2008
Longview-Marshall, TX........................................    16.0767
Los Angeles-Long Beach, CA...................................    22.8625
Louisville, KY-IN............................................    17.3214
Lubbock, TX..................................................    15.7866
Lynchburg, VA................................................    15.1754
Macon, GA....................................................    16.5340
Madison, WI..................................................    18.0981
Mansfield, OH................................................    14.9778
Mayaguez, PR.................................................     8.2780
McAllen-Edinburg-Mission, TX.................................    14.6517
Medford-Ashland, OR..........................................    17.6815
Melbourne-Titusville-Palm Bay, FL............................    16.3510
Memphis, TN-AR-MS............................................    15.5377
Merced, CA...................................................    17.9988
Miami, FL....................................................    18.6138
Middlesex-Somerset-Hunterdon, NJ.............................    19.4924
Milwaukee-Waukesha, WI.......................................    17.0313
Minneapolis-St. Paul, MN-WI..................................    19.8042
Mobile, AL...................................................    14.0947
Modesto, CA..................................................    20.7245
Monmouth-Ocean, NJ...........................................    19.7865
Monroe, LA...................................................    13.9777
Montgomery, AL...............................................    14.6928
Muncie, IN...................................................    17.3507
Myrtle Beach, SC.............................................    14.5213
Naples, FL...................................................    17.7633
Nashville, TN................................................    17.0052
Nassau-Suffolk, NY...........................................    25.0266
New Haven-Bridgeport-Stamford-Danbury-Waterbury, CT..........    22.7334
New London-Norwich, CT.......................................    21.7403
New Orleans, LA..............................................    17.3485
New York, NY.................................................    25.6680
Newark, NJ...................................................    21.9178
Newburgh, NY-PA..............................................    18.6175
Norfolk-Virginia Beach-Newport News, VA-NC...................    15.1815
Oakland, CA..................................................    26.7287
Ocala, FL....................................................    16.0357
Odessa-Midland, TX...........................................    15.3382
Oklahoma City, OK............................................    15.4498
Olympia, WA..................................................    20.3246
Omaha, NE-IA.................................................    17.8896
Orange County, CA............................................    22.4725
Orlando, FL..................................................    17.2448
Owensboro, KY................................................    14.3219
Panama City, FL..............................................    13.7657
Parkersburg-Marietta, WV-OH..................................    14.5430
Pensacola, FL................................................    15.0335
Peoria-Pekin, IL.............................................    15.4069
Philadelphia, PA-NJ..........................................    20.3573
Phoenix-Mesa, AZ.............................................    18.4023
Pine Bluff, AR...............................................    15.7140
Pittsburgh, PA...............................................    17.9430
Pittsfield, MA...............................................    20.6597
Ponce, PR....................................................     8.2504
Portland, ME.................................................    17.3007
Portland-Vancouver, OR-WA....................................    20.4201
Providence-Warwick, RI.......................................    20.3374
Provo-Orem, UT...............................................    18.1838
Pueblo, CO...................................................    14.6354
Punta Gorda, FL..............................................    16.4253
Racine, WI...................................................    15.7220
Raleigh-Durham-Chapel Hill, NC...............................    17.5768
Rapid City, SD...............................................    14.8116
Reading, PA..................................................    16.7253
Redding, CA..................................................    20.6553
Reno, NV.....................................................    20.2340
Richland-Kennewick-Pasco, WA.................................    17.6199
Richmond-Petersburg, VA......................................    16.9685
Riverside-San Bernardino, CA.................................    21.4766
Roanoke, VA..................................................    15.0995
Rochester, MN................................................    19.2043
Rochester, NY................................................    17.9126
Rockford, IL.................................................    15.8339
Rocky Mount, NC..............................................    15.6891
Sacramento, CA...............................................    22.4479
Saginaw-Bay City-Midland, MI.................................    17.0878
St. Cloud, MN................................................    17.4385
St. Joseph, MO...............................................    15.7097
St. Louis, MO-IL.............................................    16.6369
Salem, OR....................................................    17.4562
Salinas, CA..................................................    25.1117
Salt Lake City-Ogden, UT.....................................    17.4211
San Angelo, TX...............................................    13.0251
San Antonio, TX..............................................    15.0956
San Diego, CA................................................    22.0249
San Francisco, CA............................................    25.7496
San Jose, CA.................................................    26.0635
San Juan-Bayamon, PR.........................................     7.9754
San Luis Obispo-Atascadero-Paso Robles, CA...................    22.6693
Santa Barbara-Santa Maria-Lompoc, CA.........................    21.0302
Santa Cruz-Watsonville, CA...................................    24.7020
Santa Fe, NM.................................................    19.6904
Santa Rosa, CA...............................................    23.5918
Sarasota-Bradenton, FL.......................................    17.7033
Savannah, GA.................................................    17.2535
Scranton-Wilkes Barre-Hazleton, PA...........................    15.6190
Seattle-Bellevue-Everett, WA.................................    20.1224
Sharon, PA...................................................    16.2992
Sheboygan, WI................................................    14.6933
Sherman-Denison, TX..........................................    16.1308
Shreveport-Bossier City, LA..................................    16.5027
Sioux City, IA-NE............................................    15.5079
Sioux Falls, SD..............................................    15.8117
South Bend, IN...............................................    17.5707
Spokane, WA..................................................    19.1855
Springfield, IL..............................................    15.9339
Springfield, MO..............................................    14.4034
Springfield, MA..............................................    19.2856
State College, PA............................................    18.0846
Steubenville-Weirton, OH-WV..................................    15.2796
Stockton-Lodi, CA............................................    20.9108
Sumter, SC...................................................    14.6395
Syracuse, NY.................................................    17.7747
Tacoma, WA...................................................    19.0089
Tallahassee, FL..............................................    15.3608
Tampa-St. Petersburg-Clearwater, FL..........................    17.1686
Terre Haute, IN..............................................    15.6927
Texarkana, TX-Texarkana, AR..................................    14.4473
Toledo, OH...................................................    18.4170
Topeka, KS...................................................    18.0500
Trenton, NJ..................................................    18.7216
Tucson, AZ..............