[Federal Register Volume 60, Number 170 (Friday, September 1, 1995)]
[Rules and Regulations]
[Pages 45778-45946]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 95-21541]




[[Page 45777]]

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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 Fiscal Year 1996 Rates; Final Rule

Federal Register / Vol. 60, No. 170 / Friday, September 1, 1995 / 
Rules and Regulations


[[Page 45778]]


DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 412, 413, 424, 485, and 489

[BPD-825-FC]
RIN 0938-AG95


Medicare Program; Changes to the Hospital Inpatient Prospective 
Payment Systems and Fiscal Year 1996 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, 1995. We are also 
setting forth rate-of-increase limits as well as policy changes for 
hospitals and hospital units excluded from the prospective payment 
systems. Finally, we are setting forth several requirements concerning 
Essential Access Community Hospitals (EACHs) and Rural Primary Care 
Hospitals (RPCHs), in accordance with provisions of the Social Security 
Act Amendments of 1994.

DATES: Effective Date: This final rule is effective on October 1, 1995, 
except that revised Sec. 412.46 (concerning the physician attestation 
requirement for inpatient claims) is effective September 1, 1995.
    Comments: Comments on revised Sec. 485.645 (concerning the 
requirements for RPCH providers of long-term care services (``swing 
beds'')) will be considered if we receive them at the appropriate 
address, as provided below, no later than 5 p.m. on October 31, 1995. 
We will not consider comments concerning any other issue.

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-825-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 C5-09-26, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    Because of staffing and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file code BPD-825-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) 512-1800 or by faxing to (202) 512-
2250. The cost for each copy is $8.00. 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:
Nancy Edwards, (410) 786-4531, Operating Prospective Payment, DRG, Wage 
Index Issues.
Tzvi Hefter, (410) 786-4529, Capital Prospective Payment, Excluded 
Hospitals, EACH, RPCH.

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 care 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, 1994, we published a final rule with comment period (59 FR 45330) to 
implement changes to the prospective payment system for hospital 
operating costs beginning with Federal fiscal year (FY) 1995.
    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. Major Contents of the Provisions of the June 2, 1995 Proposed Rule

    On June 2, 1995, we published a proposed rule in the Federal 
Register (60 FR 29202) setting forth proposed changes to the Medicare 
hospital inpatient prospective payment systems for both operating costs 
and capital-related costs, as well as changes affecting hospitals 
excluded from those payment systems. The following is a summary of the 
major changes that we proposed to make:
     We proposed changes for FY 1996 DRG classifications and 
relative weighting factors as required by section 1886(d)(4)(C) of the 
Act.
     We proposed to update the wage index for FY 1996. Specific 
issues included allocation of general service salaries and hours to 
excluded areas, and revisions to the wage index based on hospital 
redesignations. 

[[Page 45779]]

     We also proposed revisions to the criteria for seeking 
MGCRB reclassification and discussed comments received on alternative 
labor market areas.
     We discussed several provisions of the regulations in 42 
CFR parts 412, 424, and 485 and set forth certain proposed changes 
concerning the following:

--Payment for transfer cases.
--Rural referral centers.
--Determination of number of beds in determining the indirect medical 
education adjustment.
--Disproportionate share adjustment.
--Essential access community hospitals (EACHs) and rural primary care 
hospitals (RPCHs).
--Rebasing the hospital market baskets.

     We discussed several provisions of the regulations in 42 
CFR part 412 concerning the prospective payment system for capital 
related costs and set forth certain proposed changes concerning the 
following:

--New update framework.
--Specific adjustment for taxes to the capital prospective payment 
system Federal rate.

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

--Requirements for certain long-term care hospitals excluded from the 
prospective payment systems.
--Payment window for preadmission services.
--Criteria for exclusion.
--Request for payment adjustment.

     In the addendum to the proposed rule, we set forth 
proposed changes to the amounts and factors for determining the FY 1996 
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 1996 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 would have on affected 
entities.
     In Appendix B of the proposed rule, we set forth our 
technical appendix on the proposed FY 1996 capital acquisition model.
     In Appendix C to the proposed rule as corrected (60 FR 
39304, August 2, 1995), we included our report to Congress on our 
initial estimate of an update factor for FY 1996 for both hospitals 
included in and hospitals excluded from the prospective payment systems 
as required by section 1886(e)(3)(B) of the Act.
     As required by sections 1886 (e)(4) and (e)(5) of the Act, 
in Appendix D, we provided our recommendation of the appropriate 
percentage change for FY 1996 for the following:

--Large urban area and other area 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 the proposed rule, we discussed in detail the March 1, 
1995 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 patients, 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, 1995 report, which included its 
recommendations, as Appendix E 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 
to the proposed rule. Set forth below in sections II, III, IV, V, VI, 
and VII of this preamble, the addendum to this final rule, and the 
appendices are detailed discussion of the June 2 proposed rule, the 
public comments received in response to the proposed rule, and the 
responses to those comments, as well as the changes we are making.

C. Public Comments Received in Response to the June 2 Proposed Rule

    A total of 2,006 items of correspondence containing comments on the 
proposed rule were received timely. Two issues, physician attestation 
of hospital patient claims and the DRG classification of the procedure 
for insertion of a coronary artery stent, were the subject of write-in 
campaigns. We received close to 1,000 letters on physician attestation 
and over 700 letters on coronary stent. Of the remaining letters, the 
main areas of concern addressed by the commenters were the following:
     The adjustment for taxes to the capital prospective 
payment system Federal rate.
     The new requirements for certain long-term hospitals 
excluded from the prospective payment system.
     The discussion on the definition of a transfer case.

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, 1995, are discussed below.
B. DRG Reclassification

1. General
    Cases are classified into DRGs for payment under the prospective 
payment 

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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 492 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 five 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, bone marrow, and 
lung transplant (DRGs 480, 481, and 495, 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 1996. These proposed changes, the comments we received 
concerning them, our responses to those comments, and the final DRG 
changes, are set forth below.
2. MDC 5 (Diseases and Disorders of the Circulatory System)
    a. Automatic Implantable Cardioverter Defibrillator (AICD) 
Procedures (DRG 116). For several years, we have received 
correspondence regarding 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 Valve Procedures With or Without 
Cardiac Catheterization). However, for discharges occurring before 
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 reclassified to DRG 116 (Other Permanent 
Cardiac Pacemaker Implant or AICD Lead or Generator Procedure). In the 
proposed rule, we presented our analysis of AICD cases based on FY 1994 
MedPAR data. We concluded that these cases continue to be appropriately 
assigned to DRG 116. Therefore, we did not propose any further changes 
to the DRG assignment. We received two public comments on our analysis 
and conclusion.
    Comment: One commenter commended the continued assignment to DRG 
116 of cases in which replacement or implantation of only part of the 
AICD system is performed. However, the other commenter requested that 
we change the DRG assignment for these cases to DRG 115 (Permanent 
Cardiac Pacemaker Implantation with AMI, Heart Failure or Shock). The 
second commenter stated that the resource use of these patients is 
similar to those in DRG 115, even though the patients in DRG 115 have 
much longer lengths of stay.
    Response: Since reassignment of these procedures to DRG 116, we 
have annually analyzed the cases based on the most recent data. Based 
on data in the latest update of the FY 1994 MedPAR file (June 1995), 
the average standardized charge for the 2,569 AICD cases assigned to 
DRG 116 is $27,806. The average standardized charge for all cases in 
DRG 116 is $19,637 and for DRG 115, is $29,086. The $8,169 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. (One 
standard deviation from the mean of the charges for DRG 116 is 
$10,512.) We note that, compared to last year's analysis using FY 1993 
MedPAR data, the average charge for the AICD cases has decreased 
slightly as has the difference in charges between all cases in DRG 116 
and the AICD cases.
    The average length of stay for the AICD cases in DRG 116 is 3.98 
days compared to 5.89 days for all cases in DRG 116. However, the 
length of stay for cases in DRG 115 is 11.8. In general, the patients 
classified to DRG 115 are seriously ill and the long length of stay 
supports this contention. We continue to believe that the AICD patients 
are clinically much more similar to the patients classified to DRG 116 
than to those in DRG 115 and that 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.
    In the September 1, 1994 final rule (59 FR 45346), we stated our 
belief that as new AICD devices were approved by the FDA and entered 
the market, increased competition would result in a decrease in the 
price of the devices and a corresponding drop in the average charge for 
a hospital stay for AICD procedures. Second and third generations of 
several manufacturers' devices are now on the market. In addition, we 
believe that the slight decrease in average charges seen in the FY 1994 
data compared to the FY 1993 data is a direct result of hospitals' 
ability to obtain AICD devices from multiple sources. (The increase in 

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charges for AICD cases between the FY 1992 and FY 1993 data was 
approximately $6,000.) Based on this evidence, we will continue to 
assign the AICD implant cases to DRG 116 for FY 1996. However, we will 
reassess this assignment as a part of our FY 1997 DRG analysis in order 
to verify that the current pattern is maintained.
    b. Sympathectomy Procedures. When performed in connection with a 
principal diagnosis assigned to MDC 5, procedure code 05.24 (presacral 
sympathectomy) is assigned to DRGs 478 and 479 (Other Vascular 
Procedures) 1. However, the four other sympathectomy procedures 
related to MDC 5 diagnoses are classified to DRG 120 (Other Circulatory 
System OR Procedures). In order to improve clinical consistency, we 
proposed to assign procedure code 05.24 to DRG 120 rather than to DRGs 
478 and 479.

    \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 DRG 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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    We received one comment on this proposal, which supported our 
proposed change. Therefore, we are adopting this change as final.
3. MDC 15 (Newborns and Other Neonates with Conditions Originating in 
the Perinatal Period)
    In the September 1, 1994, final rule (59 FR 45341), we stated our 
intention to improve the classification and relative weights of the 
DRGs that apply to newborns, children, and maternity patients. Because 
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. Non-
Medicare discharge records from Maryland and Michigan hospitals were 
used to calculate the original Medicare weights for the DRGs to which 
newborns, children, and maternity patients are classified. Since that 
time, because of the lack of Medicare 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 patients.
    Accordingly, we have acquired hospital claims data representative 
of the total inpatient population for analysis and evaluation. These 
data, collected and formatted by the Urban Institute under contract 
with HCFA (Contract 500-92-0024), represent claims for non-Medicare 
payers from 19 States. The data base contains approximately 17 million 
discharge records. Using these data, we are evaluating possible 
modifications to MDC 15 that would better address the requirements for 
an all-patient population.
    As we have not yet completed this evaluation, we did not propose an 
MDC 15 DRG reclassification structure for FY 1996. However, we did 
propose to adjust the DRG relative weights for 36 Medicare low-volume 
DRGs (defined as those DRGs with fewer than 10 cases). These DRGs are 
generally those assigned to patients age 0-17, many of the neonate and 
newborn MDC 15 DRGs, and one DRG in MDC 14 (Pregnancy, Childbirth and 
Puerperium). The proposed DRG relative weights for these low-volume 
DRGs were calculated based on the non-Medicare data we acquired from 
the 19 States. We note that, based on the June 1995 update to the FY 
1994 MedPAR file, there are only 34 low-volume DRGs in the final 
recalibration.
    During the year, we have received suggestions from the public 
concerning improvements for the neonate DRG classifications. Among 
these suggestions have been recommendations concerning specific 
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). 
Another issue is the assignment to MDC 15 of discharges with a 
principal diagnosis of certain congenital defects regardless of the age 
of the patient. Because the MDC 15 modifications that we are 
considering should resolve these concerns, we did not propose to revise 
the assignment of these diagnoses and conditions. Rather, we indicated 
that we would incorporate the necessary and appropriate assignment of 
these cases with our overall modification of the neonate DRGs.
    Comment: We received two comments on our proposal to base the 
relative weights for low-volume DRGs on all patient data, both of which 
supported our proposal. However, one of these commenters objected to 
the proposed assignment of a weight of 0.1460 to DRG 391 (Normal 
Newborn), the only DRG within MDC 15 for which the proposed relative 
weight decreased compared to the previous year's weights. This 
commenter stated that changes to the relative weight of DRG 391 should 
be postponed until our evaluation of claims data has been completed.
    Response: In previous years, we computed the weight for the low-
volume DRGs by adjusting the original weights of these DRGs as 
calculated based on 1981 bills by the percentage change in the average 
weight of the cases in the remaining DRGs. Thus, the weight for these 
DRGs was not based solely on actual experience and was, in some cases, 
artificially inflated. Using empirical data from more recent actual 
claims resulted in figures that more accurately reflect current 
utilization and resource use. We note that of the final 34 low-volume 
DRGs, only 8 experienced an increase in relative weight based on the 
all-patient data. Of these eight DRGs, four are in MDC 15. The decrease 
in the relative weight for DRG 391 is the one exception within that 
MDC. The decrease in weight is a function of the expanded data base and 
the difference between applying an automatic percentage increase and 
calculating a relative weight using an averaging process as we do for 
the other DRGs. Taking into account the changes in practice for 
treating normal newborns that have taken place over the last several 
years, it is not surprising that the weight for DRG 391 has decreased.
    In any case, we see no reason why we should adjust all the low-
volume weights to the new data except DRG 391. Therefore, we will 
proceed with the proposed methodology for updating these weights.
4. MDC 24 (Multiple Significant Trauma)
    Several years ago, we created a new MDC 24 to classify cases of 
multiple significant trauma. In order to be assigned to this MDC, a 
patient must have a principal diagnosis of trauma and at least two 
significant trauma diagnosis codes from two different body sites 
reported as either principal or secondary diagnoses. We recognize eight 
different body site categories: head, chest, abdomen, kidney, urinary, 
pelvis and spine, upper limb, and lower limb.
    It was brought to our attention that diagnosis code 851.06 
(Cerebral cortex contusion with loss of consciousness of unspecified 
duration) was excluded from the list of diagnoses that count as 
principal or secondary diagnoses in the significant head trauma section 
of MDC 24. Because this code is clinically similar to those already on 
the list of principal or secondary diagnoses that cause assignment to 
DRG 487 (Other Multiple Significant Trauma), we proposed to add this 
diagnosis to the significant head trauma list effective with discharges 
occurring on or after October 1, 1995.
    The one comment we received in response to this proposal stated 
that the change was appropriate. Thus, we have 

[[Page 45782]]
included this change in the final DRG classifications.
5. 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:
     In MDC 2 (Diseases and Disorders of the Eye), we proposed 
to reorder Extraocular Procedures Except Orbit (DRGs 40 and 41) above 
Retinal Procedures (DRG 36).
     In MDC 8 (Diseases and Disorders of the Musculoskeletal 
System and Connective Tissue), we proposed to reorder Major Thumb or 
Joint Procedures or Other Hand or Wrist Procedures with CC (DRG 228) 
above Major Shoulder/Elbow Procedures or Other Upper Extremity 
Procedures with CC (DRG 223).
    We received one comment in support of both surgical hierarchy 
changes. In addition, based on a test of the proposed changes using the 
most recent MedPAR file and the revised GROUPER software, we have found 
that the changes are still supported by the data and no additional 
changes are indicated. Therefore, we are now incorporating the proposed 
surgical hierarchy as final.
6. Refinement of Complications and Comorbidities List
    a. Addition or Deletion of CCs. 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.
    Based upon clinical review by our medical consultants and analysis 
of charge data, we proposed to revise the list of diagnoses that are 
considered CCs as follows:
     We proposed to add diagnosis code 008.49 (Bacterial 
enteritis) to the CC list. This diagnosis would be considered a CC for 
any principal diagnosis not shown in Table 6f, Addition to the CC 
Exclusions List (see discussion of CC Exclusions list in section V of 
the addendum below).
     We proposed to delete diagnosis code 276.8 
(Hypopotassemia) from the CC list. This diagnosis would no longer be 
considered a CC for any principal diagnosis.
    Comment: We received one comment that supported our addition of 
diagnosis code 008.49 to the list of CCs. However, two commenters 
disagreed with our proposal to remove diagnosis code 276.8 from the 
list. The commenters state that hypokalemia, which is one of the 
conditions coded to 276.8, is a serious medical condition that can 
complicate a patient's treatment and increase the length of stay.
    Response: We agree that severe cases of hypokalemia can affect a 
patient's clinical course. However, based on our analyses and the 
judgment of our expert medical advisors, we believe that when a patient 
has a case of hypokalemia severe enough to affect the clinical course 
of treatment, there will be additional manifestations of the condition. 
Thus, we expect that in such cases, in addition to an abnormal 
laboratory report finding of low potassium, the patient will have other 
manifestations of this condition, many of which are coded to diagnoses 
considered to be CCs. Therefore, we believe that a patient with severe 
hypoalemia will be classified to a CC DRG based on his other secondary 
diagnoses. However, an abnormal 

[[Page 45783]]
laboratory finding of low potassium, which is one of the conditions 
coded to 276.8, does not by itself generally result in increased 
resource use.
    Comment: One commenter requested that we add the following 
diagnoses to the CC list:

008.45  Clostridium difficile
331.0  Alzheimer's disease
423.9  Unspecified disease of the pericardium
348.5  Cerebral edema
333.4  Huntington's chorea
458.0  Orthostatic hypotension
458.9  Hypotension, not otherwise specified

    In addition, the commenter suggested that the following diagnoses 
be added as CCs for DRGs 121 and 122 only:

434.xx  Occlusion of cerebral arteries
436  Acute but ill-defined, cerebrovascular disease

    Response: Our analysis of FY 1994 MedPAR data did not support 
granting CC status to these diagnoses. However, we have limited 
Medicare data on several of these codes. We will reevaluate these codes 
as part of our DRG analysis for FY 1997.
    b. CC Exclusion List. 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, 1995, as well 
as the proposed CC changes in Section II.B.6.a. described above. (See 
section II.B.8 for a discussion of the diagnosis coding system 
changes.) The proposed revisions were made in accordance with the 
principles established when we created the CC Exclusions List in 1987.
    Tables 6G and 6H in section V of the addendum to this final rule 
contain the revisions to the CC Exclusions List that will be effective 
for discharges occurring on or after October 1, 1995. Each table shows 
the principal diagnoses with 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 6G--Additions to the CC 
Exclusions List. Beginning with discharges occurring on or after 
October 1, 1995, 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 6H--Deletions from 
the CC Exclusions List. Beginning with discharges occurring on or after 
October 1, 1995, 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, 
plus $6.00 for shipping and handling and on microfiche for $20.50, plus 
$4.00 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; U.S. Department of Commerce; 
5285 Port Royal Road, Springfield, VA 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, 1994, and 1995) and 
those in Tables 6G and 6H 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, 1995.
    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 
current DRG Definitions Manual, Version 13.0, which includes the 
changes set forth in this final rule, is available for $195.00, which 
includes $15.00 for shipping and handling. Manuals may be obtained by 
writing 3M/HIS at: 100 Barnes Road; Wallingford, CT 06492; or by 
calling (203) 949-0303.
7. 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 it would be appropriate to change the procedures 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 prostatic 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, September 1, 1993, and September 1, 
1994, we moved several other procedures from DRG 468 to 477. (See 55 FR 
36135, 56 FR 43212, 57 FR 23625, 58 FR 46279, and 59 FR 45336, 
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. This 
year's review did not identify any necessary changes; therefore, we did 
not propose to move any procedures from DRG 468 or DRG 477 to one of 
the surgical DRGs.
    b. Reassignment of Procedures Among DRGs 468, 476, and 477. 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 

[[Page 45784]]
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 several procedures that are significantly less 
resource intensive than the other procedures assigned to DRG 468. These 
procedures occur in the same ``family'' (that is, they relate to 
procedures on the same body part or system) and at least one of this 
family of codes is already present within DRG 477. Therefore, we 
proposed to move the following procedures to the list of procedures 
that result in assignment to DRG 477:

18.21  Excision of preauricular sinus
18.31  Radical excision of lesion of external ear
18.39  Other excision of external ear
18.5  Surgical correction of prominent ear
18.6  Reconstruction of external auditory canal
18.71  Construction of auricle of ear
18.72  Reattachment of amputated ear
18.9  Other operations of external ear

    We conducted a similar analysis of the procedures that are assigned 
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.
    Comment: We received one comment that objected to our proposed move 
of procedure codes 18.21, 18.31, 18.39, 18.5, 18.6, 18.71, 18.72, 18.9 
from DRG 468 to DRG 477. The commenter did not indicate the basis of 
the objections.
    Response: In analyzing the procedures that produce assignments to 
each of DRG 468, 476, and 477 for possible reassignment, we evaluate 
both average charge and length of stay, as well as clinical evaluation 
to determine the appropriate classification. These procedure codes were 
significantly less resource intensive than other procedures assigned to 
DRG 468, and more closely resembled the average charge and length of 
stay for procedures classified to DRG 477. Our data continue to support 
the reclassification of these procedures to DRG 477. Therefore, we are 
reassigning these procedures from DRG 468 to DRG 477 as proposed.
    All of the reassignments of procedures in DRGs 468 and 477 will be 
effective with discharges occurring on or after October 1, 1995.
8. 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. The ICD-9-CM Coordination and 
Maintenance Committee, a Federal interdepartmental committee formed in 
1985, is 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 FY 1996 coding changes at 
public meetings held on May 5 and December 1 and 2, 1994, and finalized 
the coding changes after consideration of comments received at the 
meetings and in writing within 30 days following the December 1994 
meeting. The initial meeting for consideration of coding issues for 
implementation in FY 1997 was held on May 4, 1995. 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, MD 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 Hospital Policy; Division of 
Prospective Payment System; Room C5-06-27; 7500 Security Boulevard; 
Baltimore, MD 21244-1850.
    The ICD-9-CM code changes that have been approved will become 
effective October 1, 1995. 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 V 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, we 
solicited comments on the proposed DRG classifications only.
    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 
procedure codes that have been replaced by expanded codes or have been 
deleted are in Table 6d (Invalid Procedure Codes). These invalid 
diagnosis and procedure codes will not be recognized by the GROUPER 
beginning with discharges occurring on or after October 1, 1995. The 
corresponding new or expanded codes are included in Tables 6a and 6b. 
Revisions to diagnosis and procedure code titles are in Tables 6e 
(Revised Diagnosis Code Titles) and 6f (Revised Procedure Code Titles), 
which also include the DRG assignments for these revised codes.
    There are three new procedure codes that were previously included 
in codes 

[[Page 45785]]
classified as operating room procedures even though the specific 
procedures specified by the new codes may not be routinely performed in 
an operating room. The three codes are as follows:

48.36  [Endoscopic] polypectomy of rectum
59.72  Injection of implant into urethra and/or bladder neck
92.3  Stereotactic radiosurgery

    In the proposed rule, these three new codes were classified as non-
OR procedures that affect DRG assignment and are indicated as such in 
Table 6b--New Procedure Codes. We will continue to assign these three 
codes to the surgical DRGs to which they are currently assigned.
    Comment: We received over 700 comments requesting that we assign 
cases involving the insertion of a coronary artery stent along with 
percutaneous transluminal coronary angioplasty (PTCA) to a different 
DRG than conventional PTCA. These cases are all currently assigned to 
DRG 112 (Percutaneous Cardiovascular Procedures). The commenters stated 
that hospital costs for inserting coronary stents along with an 
angioplasty are significantly greater than those for conventional 
angioplasty alone and the clinical results of the stent implantation 
are significantly better, leading to a reduction in the need for repeat 
interventions and to improved quality of care. These comments are based 
on two studies that were published in the August 25, 1994, New England 
Journal of Medicine as well the results of an analysis commissioned by 
the manufacturer of one of the two stent devices currently approved by 
the Food and Drug Administration (FDA).
    In this latter analysis, the contractor used the Medicare cases 
reported to DRG 112 in the FY 1994 MedPAR file and information provided 
voluntarily by 19 hospitals on interventional catheter procedures 
performed between July 1, 1994, and September 30, 1994, including 
information on coronary stent implantation. By matching the individual 
hospital data to the MedPAR file, the contractor identified 655 cases 
of PTCA, 68 of which involved insertion of a stent device. The 
following are the findings of the analysis:
     The difference between the average length of stay for the 
stent cases and the non-stent cases is 2.8 days (7.7 days versus 4.9 
days).
     The difference between the average standardized charges 
for stent cases and non-stent cases was approximately $8,500 ($22,500 
versus $14,000).
     The contractor projects that approximately 10 percent of 
the PTCA cases assigned to DRG 112 during FY 1996 will receive a stent, 
resulting in approximately 10,000 stent cases.
    One commenter stated that section 1886(d)(4)(C) of the Act gives 
HCFA the authority to adjust the DRG classifications and relative 
weights annually to ``reflect changes in treatment patterns, 
technology, and other factors that may change the relative use of 
hospital resources.'' Because insertion of the coronary stent is both a 
new technology and a change in treatment patterns, the commenter 
believes that we have a duty to revise the DRG classification for this 
procedure.
    The commenter also noted that we have used this authority in the 
past, citing two other changes made in response to technology changes. 
Effective for discharges occurring in FY 1993, we reclassified certain 
automatic implantable cardiac defibrillator (AICD) cases from DRG 120 
(Other Circulatory System OR Procedures) to DRG 116 (Other Permanent 
Cardiac Pacemaker Implant or AICD Lead or Generator Procedure). (See 57 
FR 39749, September 1, 1992.) The commenter stated that this change was 
made in response to complaints that hospitals were not adequately 
compensated for these procedures. Also, effective for discharges 
occurring in FY 1987, we reclassified all extracorporeal shockwave 
lithotripsy (ESWL) cases to DRG 323 (Urinary Stones with CC and/or 
ESWL) even in the absence of a CC (which would have resulted in 
classification to DRG 324 (Urinary Stones without CC)). (See 51 FR 
31485, September 3, 1986.) The commenter stated that we made this 
change even though we did not conduct an analysis of Medicare data and 
instead relied on an outside source for the analysis. Thus, the 
commenter believes that HCFA could make a change in the assignment of 
stent cases even though HCFA cannot, at this time, conduct a complete 
analysis based on Medicare data. The commenter requested that a 
separate DRG be created for coronary stent implantation and that 
payment be established at a level that is appropriate for the cost of 
the procedure.
    We received one comment supporting our proposed assignment of 
coronary stent implant as non-OR. The commenter stated that the 
published studies that were the basis for FDA approval do not show an 
overwhelming improvement in any clinical event when a stent was used in 
place of balloon PTCA. Thus, the commenter believes that it is obvious 
that coronary stenting is not a ``good buy,'' and further studies are 
needed.
    Response: Currently, the insertion of coronary stents are included 
in the codes for PTCA (procedure codes 36.01, 36.02, and 36.05). That 
is, there is no separate code to indicate that a coronary stent was 
inserted during a PTCA procedure. Therefore, at this time, we cannot 
identify which PTCA cases in the MedPAR file include insertion of a 
stent. Effective October 1, 1995, a new procedure code for insertion of 
a coronary stent (code 36.06) will be introduced. We have designated 
this code as non-OR and have not assigned it to a specific DRG (see 
Table 6b in section V of the addendum to this final rule). However, 
since it is always performed in connection with PTCA, the cases will 
continue to be assigned to DRG 112.
    When a new code is introduced, our longstanding practice is to 
assign it to the same DRG 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 part of DRG 
reclassification and recalibration. We have discussed this policy in 
several previous rules, most recently in the September 1, 1994, final 
rule (59 FR 45340).
    Since coronary angioplasty with stent is currently assigned 
currently to the same DRG as those without stent, this classification 
will continue until data on the new procedure code are available. 
Hospitals will begin coding claims with procedure code 36.06 beginning 
with discharges in FY 1996. Therefore, the resource use and other data 
associated with that code will be available to us for analysis as part 
of the FY 1998 DRG changes. We will evaluate the DRG assignment of 
coronary stent insertion at that time.
    We agree with the commenter who stated that section 1886(d)(4)(C) 
of the Act gives HCFA the authority to adjust DRG classification and 
relative weights. In fact, that section of the law requires that the 
Secretary adjust the DRG classifications and relative weights annually. 
However, we virtually always limit our adjustments to those that are 
supported by Medicare data we have collected through the claims 
submittal process. Although the change in DRG assignment for AICD 
procedures was requested by commenters because they did not believe 
that the payment associated with DRG 120 was adequate compensation, the 
revision in DRG assignment was based on our analysis of the FY 1991 
MedPAR data. In fact, we had conducted other analyses of these cases in 
several previous years that did not support a DRG change. (See final 
rules published September 1, 1989 (54 

[[Page 45786]]
FR 36465), September 4, 1990 (55 FR 36023), and August 30, 1991 (56 FR 
43216).)
    Concerning the change for ESWL cases made effective October 1, 
1986, we note that this revision was made in response to a ProPAC 
recommendation and was based on ProPAC's analysis, which found that 
payment under DRG 324 substantially understated the cost of ESWL. As 
discussed in detail in the September 3, 1986 final rule, a commenter 
had requested that the ESWL cases be assigned to a separate DRG based 
on a study conducted by the National Health Services and Practice 
Pattern Survey (51 FR 31486). Our response was that we are generally 
opposed to the creation of a single procedure DRG and that ``. . . this 
avenue should be employed only if there is substantial evidence of 
inequity through classification in any of the existing clinically 
consistent groupings.'' In addition, we stated that we intended ``. . . 
to monitor ESWL closely as Medicare data become available. If it 
becomes apparent that reclassification is necessary in the future, we 
will consider the alternative of developing a specific DRG for ESWL 
among the options for reclassification.'' We note that, since 1986, the 
assignment of ESWL has never been revised.
    We intend to maintain the non-OR designation of procedure code 
36.06 until we have collected claims data from all hospitals performing 
this procedure, which will be available in 1997. We will carefully 
examine these data as part of our analysis of DRG changes for FY 1998 
and we will discuss our findings in the FY 1998 proposed rule.
9. 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 Medicare DRG system to include 
severity measurements, 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 May 27, 1994, proposed rule, we announced the availability 
of a paper we had prepared that describes our preliminary severity DRG 
classification system as well as the analysis upon which our proposal 
was formulated. Comments were due to HCFA by September 30, 1994. We 
received 99 individual letters commenting on the DRG refinements. Many 
of the commenters supported the change in theory, but there were 
numerous specific comments on the methodology.
    Our plan was to incorporate comments and suggestions we received 
and to consider proposing the complete revised DRG system as part of 
the FY 1996 prospective payment system proposed rule. However, as the 
final rule published on September 1, 1992 (57 FR 39761) indicated, we 
would not propose to make significant changes to the DRG classification 
system unless we were 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 and to account for expected changes in coding practice. In 
addition, we are exploring a means of estimating anticipated case-mix 
change due to changes in coding practice that are a result of DRG 
classification revisions. (See section VII.E of this preamble for a 
more detailed description of this process in response to a ProPAC 
recommendation.) However, since we have not yet resolved these issues, 
we were unable to propose our refined DRG severity system for FY 1996. 
We will continue to analyze the comments we received and validate our 
previous research with later MedPAR data. We remain committed to 
proposing our revised system as soon as possible.
    We received several comments on our plan to introduce refinements 
to the DRG classification to include a measure of severity. In general, 
these comments were supportive of the concept of a severity-adjusted 
DRG system to improve compensation for the treatment of severely ill 
patients.
    Comment: One commenter supported HCFA's decision to postpone a 
final proposal until all related issues were resolved. Another 
commenter stated we should not postpone new refinements on the basis of 
political reasons that arise due to shifts in payments. Other 
commenters, while stating appreciation of our desire to predict 
beforehand the effect of severity changes on coding behavior, urged us 
to resolve the issues regarding the effect of severity-adjusted DRGs on 
case mix, payment, and budget neutrality. One commenter stated we 
should set standards for ``predictive accuracy'' that are reasonable 
and attainable.
    Response: We continue to maintain our position that, until we can 
improve our ability to predict coding changes, or prevent inflationary 
effects of coding change through methodological changes to DRG 
recalibration, we will not propose any significant changes to the DRG 
classification system. However, we note that we have continued to 
evaluate approaches to resolve this issue.
    One approach to improving our ability to predict coding changes is 
to develop a data base of abstracted medical records to be used to 
estimate the real and coding components of case-mix change and to 
forecast future coding improvements. As we stated in the proposed rule 
(60 FR 29247), HCFA has recently implemented a record reabstracting 
process being conducted by two clinical data abstraction centers 
(CDACs) under contract with the Health Standards and Quality Bureau 
(HSQB). This will provide a data base consisting of 30,000 records per 
year. When we have evaluated the results of this reabstracting effort, 
we will determine if it is suitable for predicting coding 

[[Page 45787]]
behavior. We believe we are proceeding at an appropriate pace that will 
result in both reasonable and attainable predictive standards.
    As to the statement that HCFA should not postpone DRG refinements 
because of political reasons due to payment shifts, we note that we are 
constricted by 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 have experienced severe 
inflationary effects in prior years (see the September 1, 1989, final 
rule for a discussion of the inflationary effect of the FY 1987 DRG 
changes (54 FR 36468)), and reiterate our position that it would not be 
prudent payment policy to make changes for which we cannot predict nor 
control the effects.
    Comment: One commenter recommended that HCFA issue a GROUPER that 
includes the severity refinements for review and comment by the 
industry.
    Response: We believe it would be neither cost effective nor 
efficient to issue a GROUPER preliminary to a decision to proceed with 
the severity refinements. Thus, because the severity methodology is 
still in the preliminary planning stages, we have not prepared a public 
use GROUPER for release. The figures used in the initial analysis will 
be subject to change based on more current data and to modification 
based on comments received. At such time as the severity-adjusted 
methodology is officially implemented, a GROUPER will be made 
available. This is consistent with HCFA policy on the availability of 
GROUPER software for other modifications to the DRG classification 
system. We note that we made a complete FY 1992 MedPAR file with the 
current and revised (severity) DRG designations available to the public 
as part of the May 27, 1994 proposed rule (59 FR 27756).
10. Other Issues
    a. Epilepsy (DRGs 24, 25, and 26). Comment: We received two 
comments concerning the classification in DRGs 24, 25, and 26 (Seizure 
and Headache) of patients with intractable epilepsy, specifically those 
admitted for neurodiagnostic monitoring. The commenters believe that a 
revision to the existing DRGs is necessary to account for the greater 
resource use and length of stay for these patients. The commenters 
stated that the financial risk is greatest in DRG 25, the DRG most 
commonly used by specialized centers to evaluate patients, and that 
these patients are typically under age 40.
    The commenters referred to an analysis conducted by HCFA based on 
FY 1993 Medicare data that indicated that the charges for cases 
assigned to DRG 25 were twice as great per patient for intractable 
epilepsy patients with monitoring than for all other patients in that 
DRG. This analysis was discussed in the September 1, 1994, final rule 
(59 FR 45343). Based on these results, the commenters argue that a 
change in the DRG classification system for FY 1996 is imperative, 
using the following criteria to classify patients into a separate DRG:
     A diagnosis of intractable epilepsy (diagnosis codes 345.0 
through 345.9, with a 5th digit of 1); and
     Procedure code 89.19 for video and radio-telemetered 
monitoring.
    In addition, one commenter noted that the relatively low volume of 
cases of intractable epilepsy with telemetered monitoring (fewer than 
500) is not a valid objection to establishing a separate DRG for these 
cases because there are currently over 70 DRGs with 500 or fewer cases.
    Response: The epilepsy treatment community has for some time 
expressed concern that the resources used to treat 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 
addressed the issue of Medicare payment for intractable epilepsy cases 
for the past 4 years. As a result of our previous analyses, we 
concluded that although intractable epilepsy patients incur higher 
average charges than other patients in the same DRGs, there is neither 
sufficient differential in the charges nor sufficient volume to warrant 
a DRG change.
    We updated our most recent study and evaluated the March 1995 
update of the FY 1994 MedPAR file. We identified 2,385 intractable 
epilepsy cases with an average charge of $9,084, compared to an average 
charge of $7,636 for all patients in the same DRGs (that is, DRGs 24, 
25, and, 26).
    We note that, although the incidence of inpatient admissions for 
all cases of epilepsy decreased nearly 30 percent in FY 1993, in FY 
1994 intractable epilepsy inpatient admissions increased by a little 
over 4 percent, with nonintractable epilepsy admissions continuing to 
decrease (down 21 percent). The largest increase in admissions occurred 
in DRG 25, up more than 16 percent. Nonintractable epilepsy cases 
incurred an average charge of $7,458, for 10,536 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                                       
                 DRG                       epilepsy           epilepsy         All epilepsy        All cases    
----------------------------------------------------------------------------------------------------------------
24..................................            $11,083             $8,626             $8,937             $8,649
                                                (1,065)            (7,342)            (8,407)           (58,726)
25..................................              7,471              4,762              5,555              4,946
                                                (1,320)            (3,190)            (4,510)           (22,121)
26..................................                  0            $13,060            $13,060              7,834
                                                    (0)                (4)                (4)               (43)
All cases...........................              9,084              7,458              7,758              7,636
                                                (2,385)           (10,536)           (12,921)           (80,890)
----------------------------------------------------------------------------------------------------------------

    Based on the recommendation of the commenters, we focused our 
analysis on DRG 25, with and without video-telemetered monitoring 
(procedure code 89.19). Our results parallel the expectations of the 
commenters. That is, patients with intractable epilepsy who receive 
monitoring incur charges significantly higher than both intractable 
cases without monitoring and nonintractable cases with monitoring. 
Also, this differential is greatest in DRG 25, with an average charge 
of $11,088 for intractable patients with monitoring compared to $5,397 
for intractable patients not receiving monitoring. We note that the 
number of intractable epilepsy inpatient admissions has increased over 
last year; the number of cases with monitoring has increased almost 34 
percent in DRG 25. Thus, it would appear that access to care is not 
being jeopardized, particularly in this area over which 

[[Page 45788]]
commenters expressed the greatest concern. It is notable, also, that 
the charges for treating intractable epilepsy patients with monitoring 
increased 9 percent, while the cost of treating these patients without 
monitoring decreased 2 percent. The results of our analysis of DRG 25 
are summarized in the following table:

------------------------------------------------------------------------
                                             Intractable  Nonintractable
                    DRG                        epilepsy      epilepsy   
------------------------------------------------------------------------
24 with 89.19..............................     $14,299         $9,826  
                                                  (107)           (35)  
24 without 89.19...........................      10,724          8,620  
                                                  (958)        (7,307)  
25 with 89.19..............................      11,088          7,454  
                                                  (481)           (88)  
25 without 89.19...........................       5,397          4,685  
                                                  (839)        (3,102)  
26 with 89.19..............................           0              0  
                                                    (0)            (0)  
26 without 89.19...........................           0         13,060  
                                                    (0)            (4)  
------------------------------------------------------------------------

    As we did last year, we evaluated the experience of intractable 
epilepsy patients under age 65 in DRG 25. These patients qualify for 
Medicare benefits on the basis of disability rather than age. We 
focused our analysis on DRG 25 because patients admitted for 
neurodiagnostic monitoring must be relatively healthy and, thus, do not 
usually have any complicating conditions. Again, we found that those 
patients under 65 years of age with intractable epilepsy and 
telemetered monitoring (454 cases) incurred higher average charges 
($11,330) than similar patients (27 cases) over 65 ($7,030).
    The results of our analysis of DRG 25 by age category are as 
follows:

------------------------------------------------------------------------
     DRG 25           Age <65       Age 65       All ages    
------------------------------------------------------------------------
All Epilepsy...             $6,002             $4,911             $5,555
                           (2,659)            (1,851)            (4,510)
All Intractable              7,757              5,383              7,470
                           (1,161)              (159)            (1,320)
Intractable                                                             
 with 89.19....             11,330              7,030             11,088
                             (454)               (27)              (481)
Intractable                                                             
 without 89.19.              5,464              5,046              5,397
                             (707)              (132)              (839)
All                                                                     
 Nonintractable              4,643              4,867              4,762
                           (1,498)            (1,692)            (3,190)
Nonintractable                                                          
 with 89.19....              7,679              5,699              7,454
                              (78)               (10)               (88)
Nonintractable                                                          
 without 89.19.              4,476              4,862              4,685
                           (1,420)            (1,682)            (3,102)
------------------------------------------------------------------------

    We also reviewed the intractable cases where sphenoidal electrodes 
were inserted and identified 62 cases, with an average charge of 
$12,220. It is interesting to note that while there was more than a 14 
percent increase in the incidence of these cases, the average charge 
actually decreased. These patients continue to incur higher charges 
than those with video-telemetered monitoring.
    We note that, as a group, the intractable epilepsy cases are not 
the most resource intensive set of cases assigned to DRGs 24, 25, and 
26. The highest volume of epilepsy cases are coded 345.3 (Epilepsy, 
Grand Mal status), with 5,608 cases and an average charge of $12,054. 
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 $13,095, but only 94 cases.
    In response to the commenters' contention that epilepsy centers are 
at financial risk, we also evaluated the distribution of epilepsy cases 
across hospitals. There were 740 hospitals treating intractable 
epilepsy patients: approximately 55 percent treated only one patient; 
an additional 20 percent treated 2 patients; and 7 percent treated 3 
patients. Of the providers treating 10 or more cases of intractable 
epilepsy (7 percent or 52 hospitals), 34 treated more than 20 
intractable cases (approximately 5 percent of the total providers). 
Recognized epilepsy specialty centers accounted for about 3 percent of 
total intractable admissions (24 epilepsy center providers). As in our 
prior analyses, we found that among the high volume hospitals, charges 
for these cases were normally distributed, with only 21 percent 
incurring charges greater than the average charge for intractable 
epilepsy cases with telemetered monitoring, and 33 percent above the 
average for all epilepsy cases. Accounting for those cases that fall 
within the average range, 69 percent of the providers incurred average 
charges below the overall average for intractable cases with 
monitoring, and 61 percent incurred charges below the average for all 
epilepsy cases.
    Of the 30 recognized epilepsy treatment centers, only 24 reported 
any intractable epilepsy discharges in FY 1994. Approximately 71 
percent (17 of 24 centers) treated 10 or more cases. However, of the 
total 2,385 intractable epilepsy cases, only 20 percent (477 cases) 
were treated at epilepsy centers. There were 16 centers (67 percent) 
with average charges at or below the average charge of $9,084 for all 
intractable epilepsy cases; only 8 centers incurred average charges 
above the intractable average charge for treating intractable epilepsy 
cases.
    As we have stated in previous final rules, 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, neither the volume nor the differential in average charges 
is sufficient to justify a separate DRG for these patients.
    Concerning the comment that there are over 70 DRGs with fewer than 
500 cases, we note that the vast majority of these lower volume DRGs 
(59 out of 89 for FY 1994) are for patients age 0 to 17 years, or are 
located in MDC 14 (Pregnancy, Childbirth, and Puerperium) or MDC 15 
(Newborns and Other Neonates with Conditions Originating in the 
Perinatal Period). None of these is reflective of the Medicare 
population, who are primarily 

[[Page 45789]]
age 65 or older. Many of the remaining lower volume DRGs are for cases 
that are generally no longer performed in the hospital inpatient 
setting. That is, they are assigned to surgical procedures that have 
moved from being generally performed in the inpatient setting to being 
performed in an outpatient setting. A few remaining DRGs were 
established during the initial classification of cases and were 
determined to have no other clinically appropriate DRG assignment (for 
example, DRG 43 (Hyphema)). This is not true for epilepsy cases, which 
are clinically similar to other cases in the DRGs to which they are 
currently assigned.
    Comment: One commenter expressed concern that, in order to ensure 
access to care, DRG revisions must occur to account for the higher 
charges incurred by intractable epilepsy patients receiving 
neurodiagnostic monitoring.
    Response: We believe that the increase in the number of intractable 
epilepsy cases overall (up 4 percent) and the 27 percent increase in 
intractable epilepsy admissions for video-telemetered monitoring are 
evidence that access to care is adequate for these patients. Also, 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.
    Comment: One commenter noted that many other payers utilize 
Medicare's DRG classification system, causing an even greater financial 
loss attributable to treating intractable epilepsy patients because of 
an arguably inadequate DRG payment.
    Response: We have regularly cautioned against the use of the DRG 
classification system for populations other than the one for which it 
was designed. Medicare serves a predominantly elderly population, and, 
thus, the assignment of cases reflects the unique needs and conditions 
of this age group. To attempt to classify other populations within this 
structure may result in inappropriate designation of cases. We do not 
believe that we should develop a system that reflects the experience of 
another patient group and expect to apply such categorizations to the 
elderly population. Nor can we assume responsibility for other payers 
who may attempt to use the Medicare classification system for 
populations for which it was not intended.
    b. Cochlear Implants (DRG 49). Comment: We received one comment 
regarding cochlear implants. The commenter expressed concern that the 
proposed weight for DRG 49 (Major Head and Neck Procedures) is 
insufficient to compensate hospitals for the cost of providing the 
cochlear implant to Medicare patients. The commenter is concerned that 
this will exacerbate a growing access problem for those who need the 
device. The commenter stated that several hospitals each year have 
determined that the loss suffered in providing the cochlear implant to 
the Medicare population makes an ongoing cochlear implant program 
unsustainable. The commenter quotes utilization figures for the past 4 
years, indicating a steady decline in Medicare patient volume.
    Because the cochlear implant is a technology-intensive rather than 
a labor-intensive procedure, the commenter believes that the current 
system, designed to encourage hospitals to control their costs, 
suppresses the diffusion of the cochlear implant among the Medicare 
population. In the absence of a payment policy that the commenter 
believes will adequately reimburse technology intensive procedures, 
they requested the following:
     Cochlear implant procedures be placed in DRG 1 (Craniotomy 
Age >17 except for Trauma).
     HCFA allow separate payment of the speech processor which 
is not provided during the hospital stay.
     A separate, temporary DRG be created, with a weight of at 
least 3.0, until such time that a more acceptable policy for 
technology-intensive DRG's is implemented.
    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 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.
    Our latest analysis, using FY 1994 Medicare claims data, identified 
a total of 76 cochlear implant cases. Of these cases, 67 were assigned 
to DRG 49 (9 cases were assigned to DRG 468, Extensive OR Procedure 
Unrelated to Principal Diagnosis), representing 3.3 percent of all 
cases in DRG 49. These 67 cases incurred an average charge of $21,793, 
compared to an average charge of $15,938 for all cases in DRG 49. The 
average charge for cochlear implant cases is down slightly from FY 1993 
claims ($22,386) while the average charge for all cases in DRG 49 shows 
a small increase (up from $15,679). This increase is most likely a 
function of the reclassification, effective October 1, 1993, of the low 
charge procedure, partial glossectomy, from DRG 49 to DRGs 168 and 169 
(Mouth Procedures).
    Although there is a higher charge for the 67 cochlear cases than 
for many of the other cases in DRG 49, we note that the cochlear cases 
are distributed across 44 hospitals, with no more than 6 cases at any 
one hospital. The majority of hospitals (30 of 44 hospitals, or 68 
percent) have only one case.
    We have repeatedly addressed the recommendation that we assign 
cochlear implants to DRG 1, most recently in the September 1994 
prospective payment final rule (59 FR 45342). Our rejection of this 
suggestion continues to be based on our conclusion that the diagnosis 
code 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, the 
clinically appropriate MDC.
    The commenter requested that HCFA allow separate payment of the 
speech processor, which is typically provided to the patient 4 to 6 
weeks after the surgery, thus ``unbundling'' these costs from other 
inpatient supplies and services to be billed by the surgeon or 
audiologist to Medicare Part B. Prior to implementation of the 
prospective payment system, it was a practice for certain nonphysician 
services and supplies furnished to hospital inpatients to be billed 
directly to patients under Medicare Part B. However, with the enactment 
of Public Law 98-21 and the implementation of the prospective payment 
system, several statutory changes concerning the bundling policy were 
made. Specifically, section 1862(a)(14) of the Act provides that, to 
qualify for Medicare payment, all nonphysician services (with limited 
exceptions) furnished to hospital inpatients must be provided directly 
or arranged for by the hospital. Thus, these services become inpatient 
hospital services payable under Medicare Part A. Section 1833(d) of the 
Act, in turn, provides that services payable under 

[[Page 45790]]
Part A may not be paid for under Part B. Therefore, all the services 
provided to a Medicare beneficiary as part of the inpatient hospital 
stay are covered under Part A and may not be billed under Part B. This 
includes the external components of the cochlear device that are 
implanted during an inpatient stay covered under Part A. Therefore, we 
do not allow separate Part B payment for part of the cochlear device.
    In response to the recommendation submitted by the commenter to 
assign cochlear implant cases to a new DRG with a weight of at least 
3.0, we believe the process for assigning cases as well as calculating 
DRG relative weights needs to be clarified. HCFA does not assign 
weights to DRGs arbitrarily, but, rather, calculates the weight for 
each DRG based on the resources necessary to treat patients assigned to 
that DRG relative to all other DRGs. A DRG weight cannot be adjusted or 
a new DRG created without affecting the weight of other DRGs. It would 
be inappropriate and inadvisable for us to create a new DRG with a 
specified weight assigned, as such action would impact the weight and, 
therefore, the payment, for other DRGs. The process by which DRG 
weights are recalibrated is described in detail below in section II.C 
of this preamble.
    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.
    Although some technologies may not be flexible in their costs, and 
thus, not lend themselves readily to cost control techniques, there are 
other areas within the hospital's control that are responsive to cost 
containment. Thus, the incentive to the hospital is to treat a mix of 
patients and to manage its operations in such a way to offset lower 
payment-to-cost cases with those where the payment is in excess of 
cost.
    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.
    In response to the commenter's concern that cochlear implants may 
not be available to Medicare beneficiaries in the future, as stated 
above in section II.B.10.a of this preamble, 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 Sec. 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 number of Medicare beneficiaries it 
will accept for a particular treatment without placing the same 
restriction on the other populations it treats.
    c. Bipolar Hip Replacement (DRG 209). We received a comment 
concerning the DRG assignment of certain cases in MDC 8 (Diseases and 
Disorders of the Musculoskeletal System and Connective Tissue).
    Comment: The commenter believes that cases of bipolar hip 
replacement should be assigned to DRGs 210, 211, and 212 (Hip and Femur 
Procedures Except Major Joint) rather than to its current assignment, 
DRG 209 (Major Joint and Limb Reattachment Procedures of Lower 
Extremity). The commenter stated that procedure code 81.52 (partial hip 
replacement) is very similar to procedure code 79.35 (open reduction of 
fracture of the femur with internal fixation), which is already 
assigned to DRGs 210, 211, and 212. Further, the commenter believes 
that partial hip replacement patients are generally more frail 
individuals as compared to the population that elects total hip 
replacement surgery, and that they should, therefore, not be assigned 
to the same DRG.
    Response: In recent years, we have conducted several analyses of 
the procedures assigned to the surgical DRGs in MDC 8. In the final 
rules dated September 4, 1990 (56 FR 43205) and September 1, 1993 (58 
FR 46286), we addressed two of those analyses in detail. Although the 
specific issues that concern the commenter were not addressed, the 
result of our analyses was to retain the current DRGs 209, and 210, 
211, and 212 classifications. We will, however, reexamine these 
assignments as part of our annual update and revision process for FY 
1997.
    d. Add-On Payment for Blood Clotting for Hemophiliacs. We received 
one comment regarding payment for blood clotting factors administered 
to hemophilia inpatients.
    Comment: The commenter questioned why there was no reference in the 
proposed rules to the continuation of the add-on payment for blood 
clotting factors administered to Medicare hemophilia patients. The 
commenter believes that if this additional payment program is not 
continued, then some other mechanism should be developed to help 
alleviate the financial burden of treating these patients.
    Response: We did not include a discussion of the payment for blood 
clotting factors provided to hemophilia inpatients in the proposed rule 
because the legislation that required this add-on payment expired 
effective with discharges beginning on or after October 1, 1994.
    Section 6011 of the Omnibus Budget Reconciliation Act of 1989 
(Public Law 101-239), as amended by section 13505 of the Omnibus Budget 
Reconciliation Act of 1993 (Public Law 103-66), provided that 
prospective payment hospitals receive an additional payment for blood 
clotting factors furnished to Medicare hospital inpatients who are 
hemophiliacs for discharges occurring on or after June 19, 1990, and 
before October 1, 1994.
    We discussed the issue of payment for Medicare inpatients with 
hemophilia who require blood clotting factors in detail in the 
September 1, 1992 final rule in response to a ProPAC recommendation 
that the add-on payment was no longer necessary. Briefly, ProPAC found 
that, even though hemophiliacs were more costly to treat than the 
average case within a given DRG, there were insufficient data to 
indicate that these differences were due to the administration of the 
clotting factor. In addition, ProPAC found that not only was there a 
low volume of patients receiving the blood clotting factor, there were 
very few hospitals with a significant number of cases. Analyses 
performed by HCFA resulted in similar findings. Thus, we agreed with 
ProPAC's conclusion that this add-on payment for blood clotting factors 
is not necessary.
    e. Stem Cell Transplant. Comment: We received one comment 
requesting that we classify procedure code 41.04 (autologous 
hematopoietic stem cell transplant) as an OR procedure. The code was 
effective beginning October 1, 1994, and was classified as a non-OR 
procedure at that time. The commenter believes that we should 
reconsider this policy based on the resource use associated with stem 
cell transplant. In addition, the commenter 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: As discussed in the September 1, 1994, final rule in 
response to a similar comment, prior to the creation of procedure code 
41.04 for stem cell transplants, this procedure 

[[Page 45791]]
was included in procedure code 99.73 (therapeutic erythrocytapheresis), 
a non-OR procedure (59 FR 45340). As we have noted several times, our 
practice is to assign a new code to the same category as its 
predecessor code. Because we could not separately identify the stem 
cell transplant cases from the other cases coded with 99.73 in order to 
reclassify them and their charges to another DRG, we were unable to 
predict the resources required for this code and unable to calculate 
the new weights of both the DRG in which this code was classified and 
the DRG to which it would be assigned. Therefore, we were prevented 
from redesignating code 41.04 as an OR procedure and assigning it to 
another DRG.
    Although it was requested 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.

C. Recalibration of DRG Weights

    We proposed to use the same basic methodology for the FY 1996 
recalibration as we did for FY 1995. (See the September 1, 1994, final 
rule (59 FR 45347).) 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 1994 MedPAR 
file, rather than the FY 1993 MedPAR file. The MedPAR file includes 
fully-coded diagnostic and surgical procedure data for all Medicare 
inpatient hospital bills.
    The proposed recalibrated DRG relative weights were constructed 
from FY 1994 MedPAR data, based on bills received by HCFA through 
December 1994, from all hospitals subject to the prospective payment 
system and short-term acute care hospitals in waiver States. The FY 
1994 MedPAR file at that time included data for approximately 10.9 
million Medicare discharges. The MedPAR file updated through June 1995 
includes data from approximately 11 million discharges and is the file 
used to calculate the weights set forth in Table 5 of the addendum to 
this final rule.
    Although we are using the same basic methodology for recalibration, 
we are making two revisions which are described below. The methodology 
used to calculate the DRG relative weights from the FY 1994 MEDPAR file 
is as follows:
     To the extent possible, all the claims were regrouped 
using the DRG classifications discussed above in section II.B of this 
preamble. As noted in section II.B.4, due to the unavailability of 
final GROUPER software, we must simulate some classification changes to 
approximate the placement of cases under the revised 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. In computing the 
FY 1995 weights, we eliminated all cases outside of 3.0 standard 
deviations from the mean of the log distribution of charges per case 
for each DRG. For the FY 1996 relative weights, we proposed to 
eliminate a case only if it met the current criterion and also was 
outside of 3.0 standard deviations from the mean log of distribution of 
charges per day. We believe that this refinement to the methodology 
reduces the risk of eliminating cases with unusually low or high total 
charges that are nevertheless accurately reported. For example, a case 
with extremely high charges and a corresponding extremely long length 
of stay would be less likely to be eliminated under the revised 
methodology.
    We received no comment on this refinement and we have identified 
the statistical outliers in the final recalibration using this 
methodology.
     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. 
The second revision we proposed to make is in the treatment of transfer 
cases. In past recalibrations, we have counted transfer cases as full 
cases. This may distort the average standardized charges, particularly 
in DRGs with a high percentage of transfer cases, because the charges 
associated with a transfer case often do not reflect the resources 
necessary for a complete course of treatment. Therefore, in calculating 
the proposed FY 1996 relative weights, a transfer case was counted as a 
fraction of a case based on the ratio of its length of stay to the 
geometric mean length of stay of the cases assigned to the DRG. That 
is, a 5-day length of stay transfer case assigned to a DRG with a 
geometric mean length of stay of 10 days was counted as 0.5 of a total 
case.
    We received one comment concerning this methodology, which 
supported our change. Therefore, we have included it in the final 
recalibration.
     We established the relative weight for heart and liver 
transplants (DRGs 103 and 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 that have cases in the FY 
1994 MedPAR file. (Medicare coverage for heart and liver transplants is 
limited to those facilities that have received approval from HCFA as 
transplant centers.) Similarly, we limited the lung transplant cases we 
used to establish the weight for DRG 495 (Lung Transplant) to those 
hospitals that are established lung transplant centers. (As discussed 
in detail in the final notice with comment period of Medicare coverage 
of lung transplants published in the Federal Register on February 2, 
1995 (60 FR 6543), payment for lung transplants is limited to Medicare-
approved facilities, effective July 31, 1995.)
     Acquisition costs for kidney, heart, liver, and lung 
transplants continue to be 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 1996. Using the final 
FY 1994 MedPAR data set, there are 34 DRGs that contain fewer than 10 
cases. As discussed in detail in section II.B.3 of this preamble, we 
computed the 

[[Page 45792]]
weight for the 34 low-volume DRGs using the non-Medicare cases from 19 
States.
    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.
    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 we have done in past years and as discussed in 
section II.A.4.b of the Addendum to this final rule, we are making a 
budget neutrality adjustment to implement that the requirement of 
section 1886(d)(4)(C)(iii) of the Act.
III. Changes to the Hospital Wage Index

A. Background

    Section 1886(d)(3)(E) of the Act requires that, as part of the 
methodology for determining prospective payments to hospitals, the 
Secretary must 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 Metropolitan Statistical Areas (MSAs) issued by the Office of 
Management and Budget (OMB). In addition, as discussed below, 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 1996, 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 1992 (that is, cost reporting periods 
beginning on or after October 1, 1991 and before October 1, 1992). The 
FY 1996 wage index includes wages and salaries paid by a hospital, home 
office salaries, fringe benefits, and certain contract labor costs. The 
current computation for the wage index excludes salaries and wages 
associated with nonhospital-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.
    As discussed in detail below, we proposed to use updated wage data 
to construct the wage index as required by section 1886(d)(3)(E) of the 
Act. Set forth below is a discussion of that update as well as a 
discussion of other wage index issues. In addition, we proposed to 
change certain guidelines for hospital reclassification used by the 
Medicare Geographic Classification Review Board (MGCRB). That change is 
discussed in section III.E of this preamble.

B. FY 1996 Wage Index Update

    We proposed to base the FY 1996 wage index, effective for hospital 
discharges occurring on or after October 1, 1995 and before October 1, 
1996, on the data collected from the Medicare cost report (Worksheet S-
3, Part II) submitted by hospitals for cost reporting periods beginning 
in FY 1992.
    We proposed to use all of the categories of data collected from 
Worksheet S-3, Part II. Therefore, the FY 1996 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 costs and 
hours.
     The exclusion of salaries and hours for nonhospital 
services such as skilled nursing facility services, home health 
services, or other subprovider components that are not subject to the 
prospective payment system.
    Although we did not propose any changes in the reporting of 
hospital wage index data, we received some comments on this issue.
    Comment: One commenter noted that, in early 1995, HCFA distributed 
special audit instructions to the fiscal intermediaries that defined 
``direct patient care'' as ``hands on care.'' The commenter believes 
that the ``hands on'' definition will create problems because it may be 
subject to various interpretations. Also, the commenter objects to a 
recent HCFA statement that ``travel time'' in connection with contract 
labor is excluded in costs and hours if the information is specifically 
identified, but otherwise is included. Again, the commenter believes 
there will be inconsistencies when travel time cannot be identified. 
Rather than continually refining the definition of direct patient care, 
the commenter suggested that we adopt a different approach, such as 
``chargeable services'' or ``services provided in revenue producing 
cost centers.'' In addition, the commenter recommends that HCFA consult 
with industry representatives before any special data requests or audit 
instructions are issued that involve large numbers of hospitals.
    Response: Before FY 1994, the wage index did not include any costs 
associated with contract services because the data collected on 
contract services as part of the 1988 wage survey were unreliable. (See 
the September 1, 1993 final rule, 58 FR 46295.) 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 effective for FY 1990 to collect the data associated 
with any direct patient care service contracts such as service 
contracts for nurses, therapists, and diagnostic imaging technicians. 
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 contract labor definition is limited to those services directly 
related to hands-on patient care. This definition was adopted to 
address the main concern expressed by hospitals with respect to the 
inclusion of contract labor 

[[Page 45793]]
in the wage index, that is, that many hospitals have problems hiring 
nurses in areas experiencing nursing shortages and must rely on 
contract labor sources. We believe that defining direct patient care as 
``chargeable services'' or ``services provided in revenue producing 
cost centers'' would result in confusion on the part of hospitals 
attempting to exclude nonlabor-related expenses such as payments for 
equipment and supplies and nonpatient care contract services such as 
management and housekeeping services.
    Regarding the exclusion of travel time in connection with contract 
labor, we believe that it is appropriate to exclude from the wage data 
those nonlabor costs associated with contract services that are billed 
separately. Contract labor typically involves negotiating a dollar 
amount for labor to be provided. This negotiated amount may include 
other costs involved in providing the labor, such as travel costs for 
lodging, mileage, and time. However, if these nonlabor costs are billed 
separately from the negotiated contract, they are not to be included in 
the contract labor wage data.
    We believe that our definition of direct patient care is accurate 
and clear. Special audit instructions were issued earlier this year 
because we were receiving many inquiries regarding contract labor for 
services such as pharmacy and clinical laboratory. In the instructions, 
which were issued in February 1995, we provided all fiscal 
intermediaries with written guidelines concerning our policy to exclude 
payments and hours not attributable to direct patient care-related 
contract services, which would include pharmacy and clinical laboratory 
services.
    We believe it is appropriate to issue clarifying instructions to 
our fiscal intermediaries on policies without industry input, but we 
agree with the commenter that we should consult with industry 
representatives before making changes in the types of costs that are 
included in the wage index. In fact, virtually all our recent proposals 
were made in response to requests from hospital and industry 
representatives. In addition, we have conducted special surveys and 
task forces to address these issues. One example of our efforts to 
involve industry representatives before making a change in policy is 
the summer 1993 survey concerning which costs should be recognized as 
fringe benefit costs. (See the September 1, 1994 final rule (59 FR 
45356).)
    Comment: The national representative of a group of fiscal 
intermediaries requested that the February 1995 special instruction be 
distributed to all fiscal intermediaries.
    Response: The February 1995 instruction on direct patient care 
related contract services was distributed to all fiscal intermediaries. 
Therefore, there should be consistent application of this policy in 
future data collection.
    Comment: One commenter noted that the wage index for seven out of 
eight MSAs in one State decreased between FY 1995 and the proposed FY 
1996 values while other areas of the country experienced significant 
increases. The commenter suggested that HCFA review in detail those 
MSAs that experience significant increases in their wage index values 
from the prior year in order to maintain consistency and equity of the 
payment system.
    Response: HCFA does review the percent change in the updated wage 
index from the prior year wage index, by MSA and by urban and rural 
hospital location. In addition, we review the wage data for any area 
that experiences a wage index change of 10 percent or more to determine 
the reason for the fluctuation. When necessary, we contact the 
appropriate fiscal intermediary to ensure the validity of the data or 
to obtain an explanation for the change. We note that none of the MSAs 
referred to by the commenter experienced a change of 10 percent or 
more. Therefore, they were not subject to any special review.
    We also analyze the impact of the updated wage index on hospitals 
using categories such as census division, teaching status, and 
geographic reclassification status. This impact analysis is located in 
section VI.C of Appendix A to this final rule. We include this impact 
analysis in both the proposed and final rules.
1. Verification of Wage Data from the Medicare Cost Report
    The data for the FY 1996 wage index were obtained from Worksheet S-
3, Part II, of the HCFA-2552 form submitted and certified for accuracy 
by short-term, acute care hospitals for cost reporting periods 
beginning during FY 1992 (October 1, 1991 through September 30, 1992). 
The wage data are reported electronically to HCFA through the Hospital 
Cost Report Information System (HCRIS). As in past years, we initiated 
an intensive review of the wage data submitted by hospitals and 
performed numerous edits to ensure quality and accuracy. Medicare 
intermediaries were instructed to transmit any revisions in wage data 
made as a result of their review through HCRIS by early January 1995. 
In the proposed rule, we discussed in detail our review of the wage 
data as well as the process that hospitals could use to verify their 
wage data and to submit corrections if necessary (60 FR 29211).
    The wage file used to construct the proposed wage index included 
data obtained in late January 1995 from the HCRIS data base and 
subsequent changes we received from intermediaries through March 21, 
1995. To allow sufficient time to process changes, we instructed 
hospitals to submit requests for corrections to their intermediaries by 
May 15, 1995. To be reflected in the final wage index, wage data 
corrections had to be reviewed, verified, and transmitted to HCFA 
through HCRIS on or before June 15, 1995 (except for tabulation or data 
entry errors). All data elements that failed edits have been resolved 
and are reflected in this final rule.
    Comment: One commenter stated that the fiscal intermediaries should 
not be given as much discretion to make determinations regarding which 
costs should be allowed as wage data for purposes of calculating the 
wage index. The commenter believes that HCFA should clearly define 
allowable items, and intermediaries should be required to use those 
definitions. It is the commenter's opinion that this action would 
greatly improve the comparability of wage data from one MSA to another.
    Response: We promote consistency in the treatment of allowable wage 
costs to the extent possible. We have provided the intermediaries with 
the wage data cost report instructions and guidelines for allowable 
wage data in the desk review, but it is not possible to define every 
allowable wage data item. (See the September 1, 1993 final rule, 58 FR 
46299.) We believe that the fiscal intermediaries are generally in the 
best position to make determinations regarding the appropriateness of a 
particular cost and whether it should be included in the wage index 
data. We note that, effective October 1, 1994, hospital cost reports 
were revised to further promote equitable and consistent treatment of 
wage-related costs (59 FR 45357, September 1, 1994).
    Comment: One commenter is concerned that HCFA's edits are not 
adequate to ensure consistent treatment of the wage data by the fiscal 
intermediaries and to produce wage index values that reflect the true 
labor market situation. The commenter is also concerned about delays in 
making changes to improve the wage index.
    Response: In response to concerns voiced in the past about 
inconsistent treatment of wage data, we have taken steps that we 
believe should eliminate 

[[Page 45794]]
most inconsistencies. Specifically, in November and December of each 
year, the fiscal intermediaries perform desk reviews on the wage data 
reported by each hospital. These reviews are conducted based on 
reasonableness parameters (edits) established by HCFA. HCFA also edits 
the wage data using additional edits, such as comparing each hospital's 
current year wage data to the prior year wage data, comparing each 
hospital's wage data to its MSA's data, and reviewing aggregate data 
such as all hospitals with average hourly wages below the second 
percentile for all hospitals nationally. The FY 1992 data that were 
used to calculate the FY 1996 wage index were subjected to a total of 
55 edits. We have also instructed fiscal intermediaries to contact HCFA 
when questions arise. In addition, if a hospital disagrees with how a 
fiscal intermediary deals with a particular issue, the hospital is 
encouraged to bring it to our attention.
    Regarding the fluctuations in the wage index by area, as discussed 
in a previous response, we analyze the impact of the updated wage index 
and review the data for any area that experienced a wage index value 
change of 10 percent or more to determine the reason for the 
fluctuation. When necessary, we contact the intermediary to determine 
the validity of the data or to obtain an explanation for the change.
    Regarding changes to improve the wage index, we note that the cost 
report form for reporting wage data has been revised effective for FY 
1995 (that is, for cost reporting periods that begin on or after 
October 1, 1994 and before October 1, 1995). Because this revised cost 
report form and instructions are more specific, we expect that the 
reporting of wage data and the review of that data will be more 
consistent across hospitals and fiscal intermediaries. However, because 
of the 4-year time lag between improved data reporting and the use of 
those data in the wage index, there is a necessary delay before the 
changes can affect the wage index.
2. Requests for Wage Data Corrections
    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. As with the 
diskette made available in March 1995, HCFA made the August diskette 
available to hospital associations and the public. The August diskette 
is available only for the limited purpose of identifying any potential 
errors made by HCFA or the intermediary in the entry of the final wage 
data that result from the process described above, not for the 
initiation of new wage data correction requests (60 FR 29212).
    If, after reviewing the data in the August diskette or in this 
final rule, a hospital believes that its wage data are incorrect due to 
a fiscal intermediary or HCFA error in the entry or tabulation of the 
final wage data, it should send a letter to both its fiscal 
intermediary and HCFA. These letters should outline why the hospital 
believes an error exists. These requests must be received by the 
intermediary and HCFA no later than September 21, 1995 to allow 
inclusion in the wage index values effective October 1, 1995. Requests 
should be sent to: Office of Hospital Policy; Attention: Nancy Edwards, 
Director; Division of Prospective Payment System; Room C5-06-27; 7500 
Security Boulevard; Baltimore, Maryland 21244-1850. 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 noted in the proposed rule, after mid-August, we will make 
changes to the hospital wage data only in those very limited situations 
involving an error by the intermediary or HCFA that the hospital could 
not have known about before its review of the August diskette. 
Specifically, neither the intermediary nor HCFA will accept the 
following types of requests in conjunction with this mid-August 
process: requests for wage data corrections that were submitted too 
late to be included in the data transmitted to the HCRIS system on or 
before June 15, 1995; requests for correction of errors made by the 
hospital that were not, but could have been, identified during the 
hospital's review of the March 1995 data; or requests to revisit 
factual determinations or policy interpretations made by the 
intermediary or HCFA during the wage data correction process. Verified 
corrections to the wage index made as a result of an intermediary or 
HCFA error received timely (that is, by September 21, 1995) will be 
effective October 1, 1995.
    We believe the wage data correction process described above 
provides hospitals with sufficient opportunity to bring errors made by 
the hospital during the preparation of Worksheet S-3 to the 
intermediary's attention. Moreover, because hospitals had access to the 
raw wage data in mid-August, they will have had the opportunity to 
detect any data entry or tabulation errors made by the intermediary or 
HCFA before the implementation of the prospective payment rates on 
October 1. We believe that if hospitals avail themselves of these 
opportunities, the wage index implemented on October 1 should be free 
of such errors. Nevertheless, in the unlikely event that such errors 
should occur, we retain the right to make midyear changes to the wage 
index under very limited circumstances.
    Specifically, in accordance with Sec. 412.63(s)(2), we 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 an error in tabulating its data, and (2) that the hospital 
could not have known about the error, or did not have an opportunity to 
correct the error, before the beginning of FY 1996 (that is, by the 
September 21, 1995 deadline). As indicated earlier, since a hospital 
will have the opportunity to verify its data, and the intermediary will 
notify the hospital of any changes, we do not foresee 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. We received several comments concerning the collection and 
verification of the wage data.
    Comment: One commenter is concerned that the definition of ``HCFA 
or intermediary error'' related to requests for wage data corrections 
has been modified to mean only those errors relating to the entry or 
tabulation of the wage data. The commenter also stated that it is not 
clear if this would remove inconsistent applications or interpretations 
of HCFA policy by the intermediary from the definition of an error. The 
commenter disagrees with excluding an inconsistent application of 
policy from the definition of errors.
    Response: In the proposed rule, we stated that, after mid-August, 
we would make changes to the hospital wage data only in those very 
limited situations involving an error by the intermediary or HCFA that 
the hospital could not have known about before its review of the 
diskette we made available in August (60 FR 29212). We specified that 
after the May 15 deadline for submission of requests for corrections, 
hospitals would not be able to request that we reconsider factual 
determinations or policy interpretations made by the intermediary or 
HCFA. We believe that hospitals had sufficient opportunities to raise 
these types of issues, including review of the March 1995 data. Thus, 
after May 15, correctable errors to the wage data are limited to data 
entry or tabulation errors made by HCFA or the intermediary.

[[Page 45795]]

    Comment: One commenter believes that any wage data and wage index 
changes made for one hospital after the final rule is published should 
not have a negative impact on other hospitals. While acknowledging 
budget neutrality limitations, the commenter stated that, last year, 
several MSAs were subject to wage index changes even though only one 
MSA had a hospital that made a mistake in reporting certain data.
    Response: We do not believe it is appropriate to make a ``partial 
correction,'' that is, correcting a hospital's wage data but not 
incorporating the effects of the correction into the wage index value 
for all hospitals in the MSA. We note that we make both types of 
corrections--those that decrease the wage index value of an MSA as well 
as those that result in an increase in the wage index value.
    Comment: One commenter requested that we specify a date by which 
intermediaries must notify hospitals regarding determinations on wage 
data correction requests. The commenter believes the rules should be 
changed to specify a date prior to the June 15 deadline, in order to 
give hospitals the opportunity to appeal the intermediary decision to 
HCFA.
    Response: In order to allow sufficient time to review and process 
the wage data so that the final wage index and prospective payment 
rates can be published by September 1, it is necessary that the 
intermediary transmit any wage data corrections to HCFA through HCRIS 
on or before June 15. The raw hospital wage data become available to 
the public in mid-March, and we allow hospitals 2 months to review 
their wage data and submit wage data corrections, including all 
documentation necessary to support the requested change. We then allow 
the intermediary 1 month in which to review, verify and submit revised 
data in response to these correction requests. We do not believe that 
it would be appropriate to shorten the time available to the 
intermediaries for these determinations.
    In each of the past two years, a commenter has suggested that we 
establish a formal appeals process for disputes over corrections 
submitted by hospitals to intermediaries (58 FR 46301 and 59 FR 45351). 
We continue to believe that a formal appeals process is neither 
necessary nor feasible. We believe that maintaining the current 
timeframes gives hospitals more flexibility in their review. We 
encourage hospitals to submit their wage data correction requests to 
the fiscal intermediary as soon as possible in order to allow the 
intermediary sufficient time to review the request prior to June 15.
    Comment: One commenter requested changes in the format of the wage 
data diskette that we make available to the industry. The commenter 
believes that HCFA should provide additional information on the wage 
data diskette, such as each hospital's MSA, redesignated MSAs, and 
inflation factors. This would allow purchasers of the diskette to group 
hospitals by MSA in order to make comparisons and to verify the 
published wage index.
    Response: The purpose of the diskette that HCFA makes available is 
to allow each hospital to review its wage data in order to verify that 
it is correct before it is used in the calculation of the final wage 
index. We agree with the commenter that the hospital's MSA should be 
included in the diskette and we will revise the format accordingly. 
However, we are unable to add any other data elements to the diskette 
because of space limitations. That is, we would be forced to expand to 
two diskettes, requiring the purchase of both diskettes to obtain all 
wage data. We are, however, considering the possibility of providing 
all of the requested data elements electronically (that is, on-line). 
In the meantime, we note that there is a Payment Impact file available 
for both the proposed and final rules. This file contains the data used 
to estimate payments, and we suggest that members of the public who 
wish to make comparisons order this disk. See our June 2, 1995 proposed 
rule for ordering information (60 FR 29250).
3. Effect of Judicial Reversal of Wage Data Denial
    It has been our longstanding policy to make midyear revisions to 
wage index data prospectively only (see, for example, 49 FR 258 
(January 3, 1984); 54 FR 36478 (September 1, 1989)), and we continue to 
believe that, to the extent that midyear wage data revisions are 
appropriate, those revisions should be made prospectively only. Some 
hospitals whose requests for wage data revisions have been denied by 
HCFA have sought relief in the Federal courts. While no court has yet 
reversed an HCFA decision denying a hospital's wage data revision 
request, these cases have the potential to present the question of what 
effect we would give to such a final judicial decision.
    Because we had not previously addressed this question in any 
rulemaking, we proposed to clarify our position regarding the temporal 
effect of a final judicial decision reversing an HCFA denial of a 
hospital's request for a wage data revision. We proposed to add a new 
Sec. 412.63(s)(5) to clarify that such a decision has limited 
retroactive effect. If a final judicial decision reverses an HCFA 
denial of a hospital's wage data revision request, we proposed to treat 
the hospital as if HCFA's decision on the hospital's wage data revision 
request had been favorable rather than unfavorable. HCFA would pay the 
hospital by applying a revised wage index that reflects the revised 
wage data at issue. The revised wage data would not be considered for 
purposes of revisiting past adjudications of requests for geographic 
reclassification under section 1886(d)(10) of the Act. Under the 
statutory scheme established by Congress, decisions on applications for 
MGCRB reclassification must be finalized prior to the Federal fiscal 
year for which the reclassifications would take effect.
    In some Federal fiscal years, wage data revision requests were 
initially reviewed by the fiscal intermediaries and forwarded to HCFA 
for a determination of whether a revision should be made. In other 
years, the fiscal intermediaries themselves have made determinations on 
wage data revision requests (with input from HCFA when necessary). The 
latter is our current policy. In the foregoing discussion, the phrases 
``HCFA denial of a hospital's wage data revision request'' and ``HCFA 
decision on the hospital's wage data revision request'' mean the 
decision by either HCFA's Office of Hospital Policy or the intermediary 
denying a hospital's request for a wage data revision.
    We considered proposing to apply a strict policy of prospectivity 
to final judicial decisions reversing HCFA denials of wage data 
revision requests--that is, adopting a policy to apply such judicial 
decisions prospectively from the date they are made. While we continue 
to believe that prospective-only changes are most appropriate under a 
prospective rate-setting system such as the hospital inpatient 
prospective payment system, we also recognize that hospitals have 
sought, and will continue to seek, judicial review of unfavorable HCFA 
decisions on hospitals' requests for wage data revisions. Applying a 
policy of strict prospectivity to final judicial decisions reversing 
HCFA denials of wage data revision requests might be viewed, in some 
cases, as frustrating the purpose of judicial review, since such a 
decision might not be made until after the close of the fiscal year or 
years at issue. Therefore, on balance, we believe the better policy is 
the one we proposed, 

[[Page 45796]]
under which we would give effect to a final judicial decision reversing 
a HCFA denial of a hospital's wage data revision request by applying a 
revised wage index that reflects the revised wage data as if HCFA's 
decision had been favorable rather than unfavorable.
    No comments were received on this proposal. Therefore, we will 
implement the change as proposed effective beginning FY 1996, that is, 
October 1, 1995.
4. Computation of the Wage Index
    As noted above, we are basing the FY 1996 wage index on wage data 
reported on the FY 1992 cost report. The final wage index is based on 
data from 5,269 hospitals paid under the prospective payment system and 
short-term, acute care hospitals in waiver States. The method used to 
compute the FY 1996 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, 1991, and before October 1, 
1992.
    Each hospital was assigned to its appropriate urban or rural area 
prior to any reclassifications under section 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 1991 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 these wage data as FY 1992 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 subprovider 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 15, 1991 through 
September 14, 1993, for hospital industry workers from Standard 
Industry Classification 806, Bureau of Labor Statistics Employment and 
Earnings Bulletin. The annual inflation rates used were 5.6 percent for 
FY 1991, 4.8 percent for FY 1992, and 3.6 percent for FY 1993. 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  
------------------------------------------------------------------------
10/14/91......................................     11/15/91     1.059411
11/14/91......................................     12/15/91     1.055280
12/14/91......................................     01/15/92     1.051165
01/14/92......................................     02/15/92     1.047066
02/14/92......................................     03/15/92     1.042983
03/14/92......................................     04/15/92     1.038916
04/14/92......................................     05/15/92     1.034865
05/14/92......................................     06/15/92     1.030830
06/14/92......................................     07/15/92     1.026810
07/14/92......................................     08/15/92     1.022806
08/14/92......................................     09/15/92     1.018818
09/14/92......................................     10/15/92     1.014845
10/14/92......................................     11/15/92     1.011859
11/14/92......................................     12/15/92     1.008881
12/14/92......................................     01/15/93     1.005912
01/14/93......................................     02/15/93     1.002952
02/14/93......................................     03/15/93     1.000000
03/14/93......................................     04/15/93     0.997057
04/14/93......................................     05/15/93     0.994123
05/14/93......................................     06/15/93     0.991197
06/14/93......................................     07/15/93     0.988280
07/14/93......................................     08/15/93     0.985372
08/14/93......................................     09/15/93     0.982472
------------------------------------------------------------------------

    For example, the midpoint of a cost reporting period beginning 
January 1, 1992 and ending December 31, 1992 is June 30, 1992. An 
inflation adjustment factor of 1.026810 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 1992 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 37 
hospitals for which we lacked sufficient documentation to verify data 
that failed edits because the hospitals are no longer participating in 
the Medicare program or are in bankruptcy status. 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 1992 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 $18.9296.
    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: One commenter noted that Flagstaff, Arizona, a new MSA, 
was not designated as an MSA for either wage index or hourly wage 
purposes in the proposed rule. The commenter requested that we reflect 
this change in the final rule.
    Response: After publication of the proposed rule on June 2, Office 
of Management and Budget (OMB) Bulletin Number 95-04 established two 
new MSAs effective June 30, 1995: Flagstaff, Arizona-Utah MSA 
(comprising Coconino County, Arizona and Kane County, Utah) and Grand 
Junction, Colorado MSA (comprising Mesa County, Colorado). The bulletin 
also changed the name of the Hickory-Morganton, North Carolina MSA to 
Hickory-Morganton-Lenoir, North Carolina MSA. These new MSAs and the 
revised designation are incorporated in the final wage index (see 
Tables 4a and 4d).
    Comment: One commenter requested that we establish a wage index 
floor for each of the labor market areas in Puerto Rico equal to the 
level of the wage index at the time Puerto Rico became subject to the 
prospective payment system (October 1, 1987). An alternative proposal 
made by the commenter was to 

[[Page 45797]]
establish a wage index floor based on the current wage index for rural 
Mississippi. The commenter also suggested that, after making either of 
the two recommended wage index changes, we should adjust the Puerto 
Rico standardized amounts to reflect the higher wage index values 
leading to a decrease in the labor share percentage of the Puerto Rico 
standardized amounts.
    Response: At this time, we do not believe it would be appropriate 
to set up a floor level for the wage index. The wage index measures 
relative hospital wage levels, so that labor market areas that 
experience slower wage growth than the national average wage growth (on 
a percentage basis) experience wage index decreases while those who 
experience faster growth receive wage index increases. Since the wages 
in Puerto Rico have increased at a significantly slower level than 
national wages, Puerto Rico's wage index values have decreased 
accordingly. The average hourly wage for rural Puerto Rico has 
increased 51.7 percent (from $5.40 to $8.19) from FY 1984 to FY 1992, 
while the national average hourly wage has increased 94.0 percent (from 
$9.76 to $18.93). Consequently, the wage index for rural Puerto Rico 
has decreased from 0.5536 in FY 1988, which is based on the FY 1984 
data, to 0.4326 in FY 1996, which is based on the FY 1992 wage data.
    While we are concerned about the fall in the wage index values in 
Puerto Rico, the implementation of a wage index floor would create new 
problems. For example, we also must consider that the introduction of a 
wage index floor would have to be executed in a budget neutral manner. 
Thus, any wage index floor would deprive hospitals with wage index 
values above the floor level of their appropriate payment level through 
lower standardized amounts. We will continue to study this issue in the 
hope of finding a solution that is equitable to hospitals in all areas. 
Since we do not believe a wage index floor is appropriate, we will not 
be making any changes to the labor share percentage for Puerto Rico 
standardized amounts.
    Comment: One commenter suggested that we eliminate the Puerto Rico 
Rural Area classification and classify those hospitals to their nearest 
geographic area (that is, one of the urban Puerto Rico areas). The 
commenter's suggestion is based on the belief that there is no 
socioeconomic difference between the rural hospitals and any other 
hospital on the island.
    Response: We do not believe it is appropriate to offer special 
treatment for any rural area. Unless and until we decide to adopt a new 
method for defining labor market areas, we will continue to use rural 
areas for hospitals in counties that are not designated as part of 
MSAs. We note that the Puerto Rico rural wage index value has increased 
since publication of the proposed rule based on corrections we have 
received. The final rural area wage index value is 0.4326, an increase 
of 11 percent over the proposed value of 0.3888, and only a slight 
decrease from the FY 1995 wage index value.

C. Allocation of General Service Salaries and Hours to Areas Excluded 
From the Wage Index

    In constructing the wage index, we exclude the direct wages and 
hours associated with certain subprovider components of the hospital, 
such as skilled nursing facilities and home health agencies. The cost 
reporting form used to collect the FY 1992 wage data also includes 
within the definition of excluded areas any rehabilitation and 
psychiatric distinct part units of the hospital that are excluded from 
the prospective payment system. Thus, the wage index is constructed by 
including only the direct wages and hours associated with those areas 
of the hospital subject to the prospective payment systems. However, 
the general service hours associated with excluded areas are not 
currently excluded from the wage index calculation.
    In the May 26, 1993 proposed rule, we discussed our analysis of our 
first attempt to allocate overhead salaries and hours to areas of the 
hospital that are excluded from the prospective payment system (58 FR 
30237). This analysis was prompted by several suggestions from hospital 
representatives that, in addition to excluding the direct salaries and 
hours for subprovider components of the hospital, HCFA should also 
exclude the general service, or overhead, wages and hours that are 
associated with these areas. For example, we currently include all of 
the wage costs associated with housekeeping in the wage index data, 
even if a facility has excluded subprovider components that receive 
housekeeping services. As we discussed in detail in the May 26, 1993 
proposed rule, we identified several problems with the data collected 
that led us to the conclusion that it would be inappropriate to use the 
data in allocating the overhead wages and hours. Thus, we did not 
allocate general service salaries and hours to the excluded areas of 
hospitals in calculating the FY 1994 wage index.
    In the September 1, 1993 final rule, we indicated that we would 
revisit this issue when the data for cost reporting periods beginning 
in FY 1992 became available (58 FR 46298). We believed that the 
retroactive determination of overhead hours for the FY 1990 cost 
reports may have caused some of the problems with the data. We stated 
that the FY 1992 cost report might allow a more accurate allocation 
since both overhead salaries and overhead hours would be directly 
reported on the cost report.
    In calculating the FY 1996 wage index, we used data for cost 
reporting periods beginning in FY 1992. We received general service 
hour data for 4,356 of the 4,441 hospitals that reported excluded 
salaries. We analyzed these data to determine whether we could 
reasonably allocate the overhead wages and hours to the excluded areas 
of the hospital. First, we determined the total general service wages 
(including fringe benefits) from Worksheet A of the cost report. We 
then developed a ratio of total indirect costs (net of capital costs) 
allocated to the excluded areas of the hospital to total noncapital 
general service costs (using Worksheet B, Parts I, II, and III from the 
cost report). We call this the ``indirect cost ratio.'' We computed the 
general service salaries and hours allocated to the excluded areas by 
multiplying the indirect cost ratio by the total general service 
salaries and by the total general service hours reported by the 
hospital on the cost report.
    For example, if 10 percent of a hospital's total indirect costs 
were allocated to excluded areas, we allocated 10 percent of its 
overhead salaries and 10 percent of its overhead hours to the excluded 
areas.
    In the June 2, 1995 proposed rule (60 FR 29214), we discussed in 
detail our analysis of the general service allocation. We found that 
after we completed the data edits, 4,199 hospitals still had overhead 
allocations. Of these, 71 percent (2,978) had average hourly wages that 
were lower after the overhead allocation was made to the excluded 
areas. The average difference between the pre- and post-allocation 
average hourly wage was -0.14 percent. Eighty-six hospitals had a 
percentage change of more than 10 percent in their average hourly wage, 
of which 45 were decreases. An additional 158 hospitals had a 
percentage change of between 5 and 10 percent, of which 104 were 
decreases. Thirty-seven of 49 rural labor market areas would experience 
decreases in their wage index value if we performed the allocation, 
while 195 of 317 urban areas would experience decreases. The average 
wage index value for all hospitals would decrease 

[[Page 45798]]
0.08 percentage points if we performed the overhead allocation.
    Thus, we again concluded that it would not be appropriate to 
perform the allocation of overhead salaries and hours to excluded areas 
of the hospital in computing the wage index. The data still have the 
same variations that were prevalent when we declined to use this 
methodology in the proposed rule for FY 1994: many hospitals were 
removed due to the edits, many have large swings in their average 
hourly wages, and many more hospitals' average hourly wages would 
decrease as a result of the allocation than would increase, 
particularly for rural hospitals. As we noted in the September 1, 1993 
final rule (58 FR 46297), if these allocations are accurate, it would 
mean that for the majority of hospitals with excluded areas, the 
average hourly wage for the overhead areas (such as laundry and 
housekeeping) is higher than that for patient care areas (such as 
nursing). We do not believe that this could be the case for such a 
large number of hospitals, and we have therefore concluded that the 
reported data regarding overhead hours are inaccurate. As a result, we 
decided not to employ the allocation of general service salaries and 
hours to excluded areas of the hospital in constructing the FY 1996 
wage index.
    We note that hospital representatives that support the allocation 
of overhead salaries to excluded areas do so because they believe that, 
for those hospitals with excluded areas, the current average hourly 
wage is artificially weighted downward. (See the September 1, 1994 
final rule (59 FR 45359).) They believe that the current methodology, 
which removes the higher nursing costs in excluded areas from the 
hospital's direct salaries, but leaves in the lower general services 
salaries, distorts wages downward. The reported data, however, are not 
consistent with this concern.
    While we continue to believe that an allocation of overhead 
salaries and hours to the excluded subprovider components may be 
appropriate, it would not benefit the hospital industry or the Medicare 
program to implement an allocation that is not reliable. Clearly, the 
overhead hours reported by many hospitals did not accurately reflect 
the salaries reported. In addition, we realize that the allocation 
method described above may not necessarily be the most accurate method 
to make this allocation. We invited public comment concerning 
alternative methods that might produce a more accurate and uniform 
allocation method and at the same time impose little or no additional 
reporting burden on the hospital industry. We noted that, under any 
acceptable allocation method, we would require that the method be used 
by all hospitals with excluded areas and that the intermediary be able 
to verify the accuracy of the reported data.
    The cost report effective for FY 1995 (that is, for cost reporting 
periods that begin on or after October 1, 1994 and before October 1, 
1995) will collect overhead data, both paid hours and the related 
salaries, by general service area. These data will be used to construct 
the wage index for FY 1999. We proposed to reevaluate an allocation of 
overhead salaries and hours to excluded areas of the hospital once the 
data from this new cost report are available or possibly earlier if we 
receive comments or suggestions from the public or otherwise determine 
alternative methods to better allocate overhead salaries.
    Comment: Three commenters expressed support for the exclusion of 
overhead salaries and hours associated with excluded areas of the 
hospital and made suggestions regarding allocation methods. One 
commenter stated that HCFA's allocation method had merits in terms of 
modeling the impact and collectability of the data and requested that 
we continue to apply the same methodology in future studies. Another 
commenter suggested that HCFA incorporate in this final rule the 
collection of data on overhead dollars and hours separately and the 
exclusion of overhead salaries and hours associated with excluded 
subprovider components. A third commenter suggested a stepped-down cost 
finding basis for the allocation of salaries and hours from general 
service areas. This commenter believes that the data necessary to 
perform the step-down would be readily available to the intermediary 
and recommended that HCFA add cost center hours to Worksheet B-1 of the 
HCFA 2552-89 to facilitate data collection.
    Response: As discussed above, while we agree with the commenters 
that an allocation of overhead salaries and hours to the excluded 
subprovider components may be appropriate, we believe that it would not 
benefit the hospital industry or the Medicare program to implement at 
this time an allocation that is not reliable.
    Both the commenters who suggested a change in methodology based 
that change on the collection of new data. We do not agree with one 
commenter's suggestion to employ an allocation method based on stepped-
down cost finding as it would impose additional reporting burden on the 
hospital industry. The approach would require a new or revised cost 
reporting form to allocate overhead hours and salaries to all of a 
hospital's cost centers. In addition, hospitals would have to adopt 
uniform statistics for allocating costs to cost centers to ensure data 
comparability. As we noted above, any method we use should impose 
little or no additional reporting burden. At this time, we do not 
believe the merits of an allocation of general service salaries and 
hours to excluded areas warrant the additional reporting burden. We 
have implemented new cost reporting instructions concerning overhead 
data. We will wait to evaluate those data (which will be available for 
the FY 1999 wage index) before imposing any additional data 
collections.

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 for the area to which the hospitals 
are redesignated 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 

[[Page 45799]]
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.
     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 otherwise reduce the rural wage index value, and for urban areas 
whose wage index values are already below the rural wage index and 
would otherwise be reduced by redesignations, 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.
    Comment: We received one comment on our policy of assigning the 
Statewide rural wage index value to MSAs where all of the hospitals 
have been reclassified to another area. The commenter believes that our 
policy is unfair to new hospitals that open in such an MSA, because 
they would be automatically assigned the Statewide rural wage index 
value, which is generally much lower than the pre-reclassified value 
for the MSA. The commenter stated that the Statewide rural wage index 
value would not reflect the labor costs in the labor market in which 
the hospital would be operating. Therefore, the commenter requested 
that we revise this policy and assign the MSA's pre-reclassified wage 
index value to the empty MSA.
    Response: We adopted our current policy in response to comments as 
part of the August 30, 1991 final rule (56 FR 43222). Upon 
reconsideration, we agree with the commenter that the wage levels a new 
hospital must pay may be better reflected by the pre-reclassified wage 
index value for the area than the State-wide rural wage index value. 
Therefore, effective October 1, 1995, we will assign the pre-
reclassified wage index value for an MSA to any MSA where all of the 
hospitals have been reclassified to another area. That value would 
apply as long as the MSA remains empty or until the new hospital has 
reported wage data that are used to calculate a wage index value 
(approximately 4 years). This change has been incorporated into the 
final wage index tables.
    The final revised wage index values for FY 1996 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 1992 wage data. In 
addition, Table 3c (Hospital Case-Mix Indexes for Discharges) includes 
the average hourly wage for each hospital based on the FY 1992 data. 
Hospitals may use the average hourly wage published in this final rule 
for purposes of applying to the MGCRB for wage index reclassifications 
in FY 1997.
    We note that in adjudicating these wage reclassification requests 
during FY 1996, the MGCRB will use the average hourly wages for each 
hospital and labor market area that are reflected in the final FY 1996 
wage index. The FY 1996 wage index values incorporate all hospital 
redesignations for FY 1996. At the time the final wage index was 
constructed, the MGCRB had completed its review. Any changes to the 
wage index that resulted from withdrawals of requests for 
reclassification, wage index corrections, appeals, and the 
Administrator's review process are incorporated into the wage index 
values published in the final rule. For FY 1996, 420 hospitals are 
redesignated for purposes of the wage index (including hospitals 
redesignated under both sections 1886(d)(8)(B) and 1886(d)(10) of the 
Act).
E. Changes to the MGCRB Guidelines

1. Limitations on Hospital Reclassification (Secs. 412.230, 412.232, 
and 412.234)
    a. Elimination of Individual Hospital Reclassification From Rural 
to Other Urban Areas for Purposes of the Standardized Amount. Section 
1886(d)(10)(C)(i)(I) of the Act requires the MGCRB to consider 
applications of hospitals requesting reclassification for purposes of 
the standardized amount. Section 1886(d)(10)(D)(i)(II) of the Act 
requires that the MGCRB utilize guidelines published by the Secretary 
for determining whether the county in which a particular hospital is 
located should be treated as being a part of a particular MSA. 
Accordingly, the MGCRB allows reclassifications for purposes of the 
standardized amount for individual hospitals that meet the guidelines 
under Sec. 412.230, and for groups of rural and urban hospitals that 
represent an entire county and that meet the guidelines under 
Secs. 412.232 and 412.234 respectively.
    As required by section 1886(d)(3)(A)(iii) of the Act, effective for 
discharges occurring on or after October 1, 1994, the average 
standardized amount for hospitals located in a rural area was made 
equal to the average standardized amount for hospitals located in other 
urban areas. The standardized amount effective for those areas is now 
known as the standardized amount for ``other areas.'' Large urban areas 
continue to receive a separate, higher standardized amount. The effect 
of this provision is that in FY 1995 or later, hospitals reclassified 
from rural to other urban areas for purposes of the standardized amount 
receive no increase in their standardized payment amount, since the two 
rates are now the same.
    However, we continue to receive applications from individual 
hospitals seeking to be reclassified from rural to other urban areas 
for the standardized amount because of certain payment advantages that 
accompany the urban designation. When an individual hospital 
reclassifies from a rural to an urban area for purposes of the 
standardized amount, we consider the hospital urban for all purposes 
except the wage index. For some rural hospitals, the urban designation 
enables them to qualify as a disproportionate share hospital (DSH) and 
to receive special payment adjustments. For other 

[[Page 45800]]
rural hospitals that already qualify for DSH payments, the urban 
designation qualifies them for a higher DSH adjustment than they would 
receive as a rural hospital.
    We proposed to provide under new Sec. 412.230(a)(5)(ii) that a 
hospital may not be reclassified for purposes of the standardized 
amount if the area to which the hospital seeks reclassification does 
not have a higher standardized amount than that currently received by 
the hospital. This change would be effective for hospital applications 
due October 2, 1995, requesting reclassification for FY 1997. (Since 
October 1 is a Sunday, the MGCRB will accept applications through 
October 2, 1995.)
    We note that, under this change, individual rural hospitals could 
continue to receive reclassifications to large urban areas, since the 
standardized amount for large urban areas is greater than that of rural 
(or other urban) areas. Also, group applications from all hospitals in 
a rural county for reclassification to urban areas would not be 
affected, since these hospitals are required to meet a different 
``metropolitan character'' criterion under Sec. 412.232(b) and would 
receive the other area's wage index.
    We received 15 comments in response to our proposal to eliminate 
standardized amount reclassifications for individual hospitals from a 
rural area to an other urban area. All of the commenters were opposed 
to our proposed change. Four of the comments we received were from 
individual hospitals that stated that they would no longer qualify for 
higher DSH payments as a result of the change.
    Comment: Several commenters raised questions about whether the 
statute gives us the authority to eliminate standardized amount 
reclassifications from rural to other urban areas and whether we are 
interpreting the MGCRB provisions of the statute correctly. One 
commenter stated that the statute contains no language that modifies or 
limits the areas to which hospitals may seek reclassification, or 
restricts the types of hospitals that may seek changes in the 
standardized amount. The commenter believes that, because section 
1886(d)(10)(C)(i) of the Act provides that the MGCRB shall consider 
applications of hospitals seeking reclassification, rather than stating 
that the MGCRB may consider such applications, the MGCRB is obligated 
to consider applications from hospitals seeking to be reclassified from 
rural areas to other urban areas. The commenter argues that the statute 
gives the Secretary the authority only to establish guidelines for 
evaluating hospital-specific facts, not to preclude specific classes of 
hospitals from being reclassified. Another commenter stated that since 
Congress had not specifically provided in legislation that rural to 
other urban standardized amount reclassification would no longer be 
allowed after the rural and other urban rates were made equal, HCFA 
does not have the statutory authority to make this change.
    Response: We believe the proposed policy of eliminating individual 
hospital reclassifications from rural areas to other urban areas for 
purposes of the standardized amount is fully consistent with the 
language and purpose of the Medicare statute. Although the statute 
states that the MGCRB ``shall'' consider applications for 
reclassification, the statute does not require the Board to consider a 
reclassification request for any purpose whatsoever. Instead, the 
relevant terms of the statute provide that the Board ``shall consider'' 
applications for reclassification ``for purposes of determining * * * 
the hospital's average standardized amount.'' Accordingly, the statute 
requires the Board to consider requests for standardized amount 
reclassification only if the ``purpose'' of the request is for the 
hospital to receive the other area's standardized amount. Since the 
standardized amount for rural areas now equals the standardized amount 
for other urban areas, there is no reason for a rural hospital to be 
reclassified to another urban area ``for purposes of'' the standardized 
amount itself.
    Under the proposed policy, qualifying rural hospitals (and other 
urban hospitals too) may continue to seek standardized amount 
reclassification to large urban areas because large urban areas have a 
different standardized amount (base payment rate). Thus, consistent 
with the statute, the Board ``shall consider'' applications for 
standardized amount reclassification from hospitals seeking to receive 
the other area's (higher) standardized amount. As explained further 
below, we also believe that the proposed change is consistent with the 
purpose of the statute, as well as the language of the statute.
    Comment: Several commenters argued that the proposed policy is 
contrary to the purpose of the geographic reclassification system. Some 
commenters believe that our proposal is contrary to congressional 
intent that geographic reclassification be available to hospitals to 
address competitive inequities. One commenter stated that HCFA had 
previously interpreted the purpose of geographic reclassification as 
addressing those situations where a hospital is more like the hospitals 
in a geographic adjacent area than the hospitals in its own geographic 
area, and that the proposed policy of not allowing rural hospitals to 
be reclassified to other urban areas contravened the agency's 
interpretation of the statute and placed those hospitals at a 
competitive disadvantage. Another commenter stated that we were 
changing our standard as to the purpose of geographic reclassification 
from providing hospitals with a more appropriate geographic 
classification to providing only a more appropriate standardized 
payment rate.
    One commenter suggested that HCFA was interpreting the statute very 
narrowly in this instance, but in other cases, such as allowing rural 
to rural reclassification, HCFA had been more liberal. Another 
commenter acknowledged that the statute addressed only the wage index 
and standardized amount as reasons for reclassification, but said that 
the intent of the MGCRB provisions was to provide an opportunity for 
rural hospitals sharing certain characteristics with urban hospitals to 
partially escape the disadvantage of their rural status. Still another 
commenter believes Congress intended that, if a rural hospital 
satisfied HCFA's criteria for standardized amount reclassification to 
an other urban area, the hospital should be considered urban for 
purposes of disproportionate share payments as well because the 
hospital had proved that it was similar to urban hospitals.
    Response: We believe the proposed policy is fully consistent with 
the purpose of the statute, as well as the language. The geographic 
reclassification process enables hospitals to be reclassified to 
another geographic area for purposes of receiving the other area's 
standardized amount or wage index, the two major components of a 
hospital's prospective payment rate. As indicated in the June 4, 1991 
final rule implementing the reclassification process, ``we believe 
geographic reclassification should be limited to those hospitals which 
are disadvantaged by their current geographic classification because 
they compete with the hospitals that are located in the geographic area 
to which they seek to be reclassified.'' (56 FR 25469.)
    For purposes of determining an appropriate standardized amount, a 
hospital is not disadvantaged by its ``current geographic 
classification'' if the area to which it seeks reclassification has the 
same 

[[Page 45801]]
standardized amount. Rural hospitals requesting reclassification to 
another urban area would receive the same standardized amount. We 
believe it is appropriate to limit reclassifications ``for purposes 
of'' the standardized amount to hospitals seeking reclassification to 
an area with a higher standardized amount. We note that the statute 
confers broad authority on the Secretary to determine the circumstances 
under which reclassification is appropriate.
    In essence, the commenters are arguing that hospitals should be 
allowed to seek reclassification solely for purposes of the DSH 
adjustment. However, the statute specifies only two purposes for which 
hospitals may seek reclassification--the standardized amount and the 
wage index, the two major components that determine a hospital's base 
prospective payment rate. We believe that, if it is appropriate not to 
reclassify a hospital for purposes of the base payment rate itself, as 
contemplated by the statute, it is appropriate not to reclassify the 
hospital solely for purposes of the DSH adjustment to the base payment 
rate.
    In response to the arguments that our proposed policy would place 
rural hospitals unable to receive higher DSH payments at a competitive 
disadvantage, any hospital unable to satisfy the criteria for 
reclassification could claim it was placed at a competitive 
disadvantage. For example, rural hospitals slightly beyond the 
qualifying mileage requirement of 35 miles do not qualify for 
reclassification even if they have costs like those of an urban 
hospital. Almost every rural hospital in the country could argue that 
it shares some characteristics with urban hospitals. However, a rural 
hospital cannot argue now that it is disadvantaged because it is unable 
to receive the standardized amount of an adjacent other urban area.
    Since all hospitals pay for geographic reclassification through the 
budget neutrality process, it is HCFA's responsibility to develop 
guidelines to determine when reclassification is appropriate. We 
believe it is appropriate not to reclassify individual rural hospitals 
to other urban areas for purposes of the standardized amount.
    Comment: Some commenters stated that the proposed change was 
inconsistent with our previous policy of allowing rural hospitals to 
reclassify to other urban areas and considering them urban for all 
purposes (except the wage index). Many of the commenters were concerned 
about the equity of our proposal since rural hospitals located near 
large urban areas could continue to reclassify for the standardized 
amount and receive higher DSH payments if they qualified, but rural 
hospitals located next to other urban areas could not. Some of the 
commenters also stated that since rural hospitals have proved that 
their costs are similar to those of other urban hospitals they should 
be eligible for any payments and adjustments that those hospitals 
receive.
    Response: We believe that our proposed policy is consistent with 
the previous policy of allowing rural hospitals to reclassify to other 
urban areas for purposes of the standardized amount and considering 
such hospitals urban for all purposes, including DSH payments. It is 
important to consider the circumstances underlying each policy. At the 
time the previous policy was implemented, the standardized amount for 
rural areas was different from the standardized amount for other urban 
areas, so it was appropriate to reclassify qualifying rural hospitals 
to other urban areas and to consider them urban for purposes of the 
standardized amount. We decided that, once a hospital was reclassified 
as urban for purposes of the standardized amount, the hospital would 
also be considered to be urban for all purposes (except the wage 
index).
    As this analysis suggests, there is a two-step inquiry in 
determining whether a rural hospital should be considered urban for a 
purpose other than the standardized amount. The first, and threshold, 
question is whether it is appropriate to reclassify the hospital for 
purposes of the standardized amount itself, as contemplated by the 
statutory language? Only if this threshold question is answered 
affirmatively does one reach the second question: should the hospital 
be considered urban for other purposes as well?
    Applying this analysis, rural hospitals seeking standardized amount 
reclassification to other urban areas would now receive the same 
standardized amount. Therefore, as explained earlier, we believe it is 
appropriate not to reclassify these rural hospitals as urban ``for 
purposes of'' the standardized amount. Since there is now no reason to 
consider these hospitals as urban for purposes of the standardized 
amount, we do not reach the second question of whether the hospitals 
should be considered urban for other purposes as well.
    We recognize that there may be some possible inequity between rural 
hospitals seeking reclassification to other urban areas and rural 
hospitals seeking reclassification to large urban areas. However, the 
statute does not mandate that hospitals reclassified as urban for 
purposes of the standardized amount also be considered urban for 
purposes of DSH. We could have decided initially that rural hospitals 
reclassified to large urban areas for purposes of the standardized 
amount would not be considered urban for other purposes. But then 
arguably there would be some inequity between hospitals located in 
urban areas and rural hospitals reclassified as urban for purposes of 
the standardized amount.
    As explained above, we believe the most appropriate policy is to 
first address the threshold question: whether it is appropriate to 
reclassify certain rural hospitals for purposes of the standardized 
amount. If the answer is yes, then we reach the second question: 
whether the hospitals should be considered urban for other purposes. We 
believe that all of our policies are consistent with this analysis.
    Comment: One commenter suggested that we were continuing to allow 
rural hospitals adjacent to large urban areas to seek reclassification 
because the large urban standardized amount is much higher than the 
other standardized amount and few hospitals would be able to qualify 
for such reclassification.
    Response: As stated earlier, we believe, consistent with the 
statutory language and purpose, that it is appropriate for hospitals to 
seek reclassification from rural areas to large urban areas for 
purposes of the standardized amount because the other area has a higher 
standardized amount.
    Comment: Two commenters mentioned the impact that this change would 
have on rural referral centers. One commenter stated that many 
hospitals had voluntarily relinquished their rural referral center 
status in order to qualify for higher DSH payments and that HCFA had 
previously acknowledged the benefit of such reclassification to these 
hospitals. The commenters also stated that 18 hospitals eligible for 
rural referral center status were reclassified to other urban areas in 
FY 1995 and would lose $13.8 million if the proposal were implemented.
    Response: While we recognize that many hospitals voluntarily 
relinquished their rural referral center status in the past to qualify 
for DSH as an urban hospital and we are sympathetic to the financial 
impact that the loss of higher DSH payments will have on these 
hospitals, we believe it is appropriate not to allow these hospitals to 
be reclassified for purposes of the standardized amount to another area 
with the same standardized amount. Eligible hospitals may seek to have 
rural referral center status reinstated. Although these hospitals would 
not be considered urban for purposes of DSH 

[[Page 45802]]
payments, we note that, under section 1886(d)(5)(F)(iv) of the Act, 
rural referral centers receive special treatment for purposes of DSH. 
In addition, we have previously recognized the role that sole community 
hospitals and rural referral centers play in preserving access to care 
for rural Medicare beneficiaries by means of the MGCRB special access 
rule, which waives the mileage requirement for such hospitals seeking 
reclassification. (See 42 CFR 412.230(a)(3).)
    Comment: One commenter claims that our proposed change contravenes 
the rationale behind HCFA's requirement that DSH be included in the 
standardized amount reclassification test. The commenter asserts that 
since HCFA has noted that DSH payments change depending on whether or 
not a hospital is urban or rural and should be included in the 
standardized amount calculation, hospitals that can qualify to 
reclassify based upon including their DSH payments and costs should be 
allowed to do so.
    Response: Again, there is a two-step analysis: first, is it 
appropriate to reclassify rural hospitals to other urban areas (or 
large urban areas) for purposes of the standardized amount; second, if 
the answer to that threshold question is yes, then should the hospitals 
be considered urban for purposes other than the standardized amount? As 
indicated above, we believe it is appropriate not to reclassify a rural 
hospital to an other urban area for purposes of the standardized amount 
because the hospital would receive the same standardized amount. In 
contrast, it is appropriate to reclassify rural hospitals to large 
urban areas for purposes of the standardized amount, and when a rural 
hospital qualifies to be considered urban for purposes of the 
standardized amount, we believe it is appropriate to consider the 
hospital urban for purposes of DSH. Applying this policy in determining 
the geographic area (rural or large urban) to which a hospital should 
be classified for purposes of the standardized amount, we believe that 
applicable DSH payments and costs should be included in the qualifying 
cost test because they reflect the costs and payments of the hospital 
under the alternative scenarios.
    After considering the comments, we have decided to adopt the change 
as proposed.
    b. Reclassification for Purposes of the Wage Index. Section 
1886(d)(10)(C)(i)(II) of the Act requires the MGCRB to consider the 
application of any prospective payment hospital for purposes of 
changing its applicable wage index. Sections 412.230, 412.232, and 
412.234 set forth the types of individual and group reclassifications 
that are currently allowed. An individual rural hospital may reclassify 
to another rural area or to an urban area. An individual urban hospital 
may reclassify to another urban area for purposes of the wage index, 
the standardized amount or both. A rural group may reclassify to an 
urban area and an urban group may reclassify to another urban area, but 
only for purposes of both the wage index and the standardized amount. 
In the proposed rule we stated that we do not believe it is appropriate 
for hospitals to seek reclassification to an area with a lower wage 
index in an effort to use the MGCRB system inequitably (60 FR 29217).
    Therefore, under the proposed rule, a hospital that seeks to 
reclassify for the purpose of the wage index may apply for 
reclassification only to an area that has a higher pre-reclassified 
average hourly wage than the pre-reclassified average hourly wage in 
the hospital's original geographic area. We proposed revisions to 
Secs. 412.230, 412.232, and 412.234 to reflect these changes.
    For group reclassifications, we proposed that either the pre-
reclassified average hourly wage or the standardized amount of the area 
to which the hospitals seek reclassification must be higher than the 
corresponding figure of the area in which the hospitals are located for 
the group to qualify for reclassification. These revisions are 
effective for applications for reclassification due by October 2, 1995, 
for reclassifications effective October 1, 1996. We received two 
comments on our proposal to prohibit a hospital from reclassifying to 
an area in which the pre-reclassification average hourly wage is lower 
than the pre-reclassification average hourly wage in the hospital's 
current area, both of which agreed with our changes. Therefore, we will 
implement this requirement beginning with MGCRB applications due 
October 2, 1995, effective for reclassifications for FY 1997.
    Comment: Although we made no proposal regarding the 108 percent 
criterion, two commenters wrote to state their concern about the impact 
of that criterion in relation to hospital reclassification for wage 
index purposes. The current regulations require that among other 
criteria, a hospital that seeks to be reclassified must have an average 
hourly wage that equals or exceeds 108 percent of the average hourly 
wage of the area in which it is located. One commenter believes that 
this test is inappropriate, especially for hospitals that are the 
predominant wage payers in an area. The commenter states that as a 
hospital's wage influence in a labor market area increases, it becomes 
proportionately less likely to satisfy the 108 percent rule.
    Response: We continue to believe that the 108 percent test is a 
reliable measure for determining whether hospitals are truly aberrant 
within their labor market areas and merit reclassification. We also do 
not believe that it would be appropriate to exclude a hospital from its 
labor market area in order for the hospital to qualify for 
reclassification. Our policy has been that the wage data for all 
hospitals located in a labor market area is to be used when determining 
reclassification qualification. If one hospital is so dominant as to 
affect the labor market area to the extent noted by the commenter, the 
resulting average hourly wage (and thus the wage index value of the 
area) is also affected by that hospital. Removing the dominant 
hospital's data from the hourly wage calculation for purposes of 
meeting the 108 percent test would, in our view, lead to inappropriate 
reclassifications.
2. Hospital Requests for Wage Data from HCFA
    Currently, regulations at Sec. 412.266 provide that a hospital may 
request from HCFA certain wage data that are necessary for a complete 
reclassification application to the MGCRB. The regulations also set 
forth dates by which HCFA must respond to such requests. Before 1994, 
hospitals needed to obtain data on average hourly wages directly from 
HCFA, since the data were not available from any other source. 
Beginning with the May 27, 1994, proposed rule, we have included the 
average hourly wage data for each hospital in the proposed and final 
rules as part of Table 3c. Therefore, hospitals no longer need to 
contact HCFA to obtain the data necessary to apply for 
reclassification. Thus, we are revising Sec. 412.266 to indicate that 
hospitals are to obtain the necessary data from the Federal Register 
document. We received no comments on this change and are adopting it as 
proposed.
3. Elimination of the MGCRB
    As discussed above, under section 1886(d)(10) of the Act, the MGCRB 
is charged with reviewing and making decisions on hospital requests for 
geographic reclassification. Since implementation of this process 5 
years ago, many changes have been made to the criteria that hospitals 
must meet in order to qualify for reclassification. The majority of 
these criteria are now 

[[Page 45803]]
objective standards that are easily assessed. However, the MGCRB 
application process remains essentially unchanged. We solicited 
comments concerning alternatives for revising and simplifying the 
reclassification system (60 FR 29218) including the possibility of 
eliminating the MGCRB and transferring its decisionmaking authority to 
HCFA. In addition, we suggested that if the reclassification process 
was revised and simplified, it might be possible to use more current 
wage data in making reclassification decisions.
    Comment: We received seven comments in response to our suggestion 
that the MGCRB could be eliminated. Five of the commenters were opposed 
to this suggestion and two stated that they were not opposed to such a 
change. One of the latter two commenters agreed with us that the 
criteria for reclassification are essentially mechanical and can be 
applied unambiguously by an administering agency.
    The commenters opposed to the elimination of the MGCRB believe that 
the Board remains the appropriate entity for reviewing reclassification 
applications and should be preserved. Commenters stated that the 
independent administrative review offered by the MGCRB is necessary to 
counterbalance the authority that HCFA holds over the process through 
its implementation of strict numerical standards and the statutory 
prohibition on judicial review of MGCRB and Administrator decisions. 
Several commenters requested that, rather than eliminate the Board 
because of the more mechanical nature of its review, HCFA should 
restructure the qualifying criteria for reclassification to allow the 
MGCRB the ability to consider a wide range of hospital-specific facts 
in determining whether geographic reclassification would be appropriate 
for a particular hospital or group of hospitals.
    One commenter stated that in proposing to use more current wage 
data HCFA must not have examined its own time line. Using more current 
data would require either not allowing hospitals time to review their 
wage data prior to reclassification, or moving the fiscal intermediary 
review of wage data to earlier in the wage data verification process. 
The commenter believes that it is essential not to limit the amount of 
time hospitals have to review their own wage data before it is 
implemented.
    Another commenter noted that it might be possible to improve the 
MGCRB process without transferring the Board's functions to HCFA. The 
commenter stated that they would support a legislative proposal to 
change the March 30 deadline for MGCRB decisions if it would allow for 
the improvement of the process and the use of more accurate data.
    Response: We will take the commenters' suggestions into account as 
we consider whether to pursue statutory changes in the law governing 
the reclassification process. Regarding the comments that eliminating 
the Board would grant too much authority to HCFA, we believe that 
instituting a process in which HCFA rather than the MGCRB makes the 
geographic reclassification decisions would not result in a 
significantly different outcome. This is because of the basically 
objective nature of the current reclassification criteria and provision 
for the Administrator's discretionary review as set forth in the 
regulations at Sec. 412.278(c). In addition, we believe that a process 
that is handled entirely by HCFA could lead to some administrative 
simplification in the application process. We understand the concerns 
about using more recent wage data that has not been thoroughly verified 
through the process described in section III. B of this preamble and 
will bear these concerns in mind as we further analyze potential 
changes.
4. MGCRB Address Change
    The MGCRB has recently moved its offices to a new location. 
Therefore, hospitals that wish to apply to the MGCRB for geographic 
reclassification for FY 1997 should submit their applications to the 
following new mailing address: MGCRB; P.O. Box 31713; Baltimore, MD, 
21207-8713. The address for deliveries is: MGCRB; 7500 Security 
Boulevard; Room C1-09-13; Baltimore, MD 21244-1850.

F. Alternative Labor Market Areas

    In the proposed rule, we summarized our position with regard to 
further research into changing labor market areas and summarized the 
major comments we received in response to last year's proposals for 
potential revisions to labor market areas. There was no consensus among 
the commenters on the potential options for new labor market areas. 
Many individual hospitals that commented expressed dissatisfaction with 
all of the proposals.
    One of the options for revising labor market areas was a blended 
wage index that used the MSA-based system but generally gave a 
hospital's own wages a higher weight than under the current system. 
Under this option the wage index of each hospital would be based on a 
average of that hospital's own average hourly wages and the average 
hourly wages of other hospitals in its labor area (either an MSA or 
Statewide rural area). We stated that while we believed a blended wage 
index might have merit, we were not planning to propose it given the 
generally negative comments we received on changes in the labor market 
areas.
    Comment: We received two comments in response to our summary of 
labor market comments in the proposed rule. One commenter endorsed our 
statement that there was no clear ``best'' labor market option to 
pursue. The commenter also stated that the current wage areas coupled 
with the reclassification process best measures hospital labor market 
areas. The other commenter expressed disappointment that we had decided 
not to endorse an alternative labor market classification system such 
as the blended wage index. This commenter asserted that a blended wage 
index, in which a hospital's wages would generally be given greater 
weight in developing the hospital's wage index than under the current 
system, would not cause hospitals to increase their wages in order to 
increase payments. The commenter also expressed disappointment that we 
did not propose a method for redefining the Boston New England County 
Metropolitan Area (NECMA) which the commenter believes is too large to 
encompass the actual Boston labor market area.
    Response: The Boston NECMA was expanded by OMB as part of its 
revised MSA definitions based on 1990 data. As we noted in the 
September 1, 1993 final rule (58 FR 46292) in response to a similar 
comment, pursuant to our broad discretion under section 1886(d)(3)(E) 
of the Act, we currently define labor market areas for purposes of the 
wage index on the basis of MSAs and NECMAs. Thus, until alternative 
labor market areas are established we believe the MSA definitions 
should be applied consistently for purposes of the wage index. Since 
there does not appear to be a consensus among hospitals on new labor 
market areas, we have not made any proposals in this area. As we stated 
in the proposed rule, we are willing to conduct additional research if 
we receive recommendations of feasible options that we have not 
explored previously.
IV. Other Decisions and Changes to the Prospective Payment System for 
Inpatient Operating Costs

A. Payment for Transfer Cases (Section 412.4)

    The prospective payment system distinguishes between 
``discharges,'' 

[[Page 45804]]
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 before 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 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.
    In the May 27, 1994 proposed rule, we proposed to revise our 
payment methodology for transfer cases. Under the proposal, for the 
first day of a transfer, the per diem amount would be doubled, while a 
flat per diem amount would be paid for each succeeding day, up to the 
full DRG payment (59 FR 27734). We also proposed at that time to change 
our definition of a transfer case to include cases transferred from an 
acute-care setting paid under the prospective payment system to a 
hospital or unit excluded from the prospective payment system. When we 
published the September 1, 1994 final rule with comment period, we 
withdrew these proposals for FY 1995 (59 FR 45362) based on negative 
comments and further analysis. In that final rule, however, we stated 
our intention to continue to evaluate the appropriateness of our 
transfer policy.
    For FY 1996, we again proposed to adopt a graduated per diem 
payment methodology for transfer cases. Again, under this methodology, 
we would pay double the per diem amount for the first day and the per 
diem amount for subsequent days (up to the full DRG amount). We did not 
propose to revise our definition of transfers. However, we noted that 
we were concerned about an accelerating trend toward earlier discharges 
to postacute settings. Therefore, we solicited public comments 
regarding this trend and the implications this has for the design of 
our payment systems. In its March 1, 1995 report, ProPAC supported our 
proposed payment methodology (Recommendation 11) and expressed its 
concern ``about the continuity of care across treatment settings.'' The 
Commission also indicated its willingness to work with the Secretary to 
explore this issue. The following discussion describes our change to 
the transfer payment methodology and some of the issues identified by 
our further analysis of transfer cases.
1. Payment for Transfer Cases
    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 found that among 
cases transferred before reaching the geometric mean length-of-stay, 1-
day stays cost 2.096 times the per diem payment amount for cases in 
nonsurgical DRGs and 2.576 times the per diem for surgical DRGs (based 
on FY 1991 data). Among nonsurgical transfer cases, the costs of 2-day 
stays were about 1.215 times the per diem payment amount, and cases 
transferred after 2 days cost about 10 percent more than the applicable 
per diem amount. Among surgical cases, the costs of stays of 2 or more 
days were actually about 7 percent below the applicable per diem 
amount.
    In order to pay hospitals more appropriately for the treatment they 
furnish to patients before transfer, we proposed to revise 
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 before transfer, up to the full DRG amount. (Our 
concerns about basing the gradation of the per diem scale on the actual 
coefficients as estimated by RAND were described in last year's 
proposed and final rules, as referenced above.) This change will apply 
uniformly for both medical and surgical transfer cases; although 
surgical transfer cases appear to be more costly on average for the 
first day, they are relatively less costly for the second day and 
beyond.
    If the patient is transferred again before final discharge, then, 
under this change, all sending hospitals involved would be paid using 
the graduated per diem methodology rather than the flat per diem rate 
they currently receive. For example, a case transferred from a 
community hospital to a tertiary care hospital for a procedure that is 
not performed at the community hospital, may subsequently be 
transferred back to the community hospital, which ultimately discharges 
the patient home. In such a case, the community hospital and the 
tertiary care hospital would be paid using the transfer payment 
methodology for the first two phases of the hospitalization, and the 
community hospital would also receive a DRG amount for the final phase 
when it discharges the patient. This is our current policy, as well. 
Each phase of the hospitalization is assigned a DRG based on the 
diagnosis and procedures applicable to that particular phase; 
therefore, a different DRG could be assigned to each phase.
    Transfer cases would continue to be eligible for additional 
payments as cost outliers. In the September 1, 1993 final rule, we set 
forth revised qualifying criteria for transfer cases to be eligible for 
cost outlier payments (58 FR 46305). Before that change, transfer cases 
were required to meet the same criteria to qualify for cost outliers as 
were discharges. The revised policy adjusts the outlier threshold for 
transfer cases to reflect the fact that transfer cases were receiving a 
reduced payment amount under the per diem methodology. Last year, when 
we revised the cost outlier qualifying criteria so that it was based on 
a fixed loss threshold, the qualifying criteria for transfers continued 
to reflect the fact that their payment amounts are reduced relative to 
the full DRG amount. Although we did not state this explicitly in the 
September 1, 1994 final rule, it is the policy we have employed, and 
intend to continue to employ, since the fixed loss threshold was 
implemented October 1, 1994. In the proposed rule, we described the 
cost outlier threshold for transfer cases as equal to the fixed loss 
amount (for FY 1995, the prospective payment rate for the DRG plus 
$20,500), divided by the geometric mean for the DRG, multiplied by the 
length of stay before transfer. In order to maintain the correct 
relationship between the payment received under the new graduated per 
diem methodology and the outlier threshold, for FY 1996, the per diem 
outlier threshold should be multiplied by the length of stay before 
transfer plus one day. Of course, the threshold is limited 

[[Page 45805]]
to the prospective payment rate for the DRG plus the fixed loss amount.
    Using the graduated per diem methodology, RAND estimated the 
payment-to-cost ratio of transfer cases that were transferred before 
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 represented a significant improvement over the current 
ratio for transfer cases (0.7224). Using more recent data (FY 1993 
MedPAR) and payment policies (FY 1995), we estimated the improvement in 
the payment-to-cost ratio for transfer cases to be from 0.7548 under 
the current flat per diem policy to 0.9701 under the graduated per diem 
policy.
    Section 109 of the Social Security Act Amendments of 1994 (Public 
Law 103-432), which amended section 1886(d)(5)(I) of the Act, 
authorized the Secretary to make adjustments to the prospective payment 
system standardized amounts so that adjustments to the payment policy 
for transfer cases do not affect aggregate payments. In light of this 
authority, we believe the benefits of the graduated per diem 
methodology now outweigh the concerns that we expressed in the 
September 1, 1994 final rule. Our methodology for applying this 
adjustment was described in section II of the Addendum to the proposed 
rule and is included in this final rule as well.
    Finally, we proposed to revise the DRG recalibration methodology so 
that transfer cases are treated as a proportion of a full case based on 
the transfer payment amount (as discussed above in section II.C of this 
preamble). Specifically, we proposed to weight transfer cases as less 
than a full discharge based on the proportion of the total DRG amount 
the hospital receives under the graduated per diem transfer payment 
methodology. This has the effect of increasing the relative weights of 
the DRGs with a high number of short-stay transfer cases.
    Comment: All of the comments we received regarding our revision to 
the transfer payment methodology were in support of the proposal. 
ProPAC wrote that ``(t)his policy will improve payment equity for 
hospitals that must transfer a large number of patients to other 
hospitals.''
    Response: All of the comments favored our proposal, and we have 
adopted the proposal without change. We appreciate ProPAC's valuable 
contribution to the analysis of the transfer payment methodology. We 
share its conclusion that this change will appropriately benefit 
hospitals that transfer large numbers of patients.
2. Definition of a Transfer Case
    Under current policy, cases that are transferred from an acute-care 
hospital paid under the prospective payment system to another type of 
provider or unit 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.
    As noted above, we are concerned that the current trend of 
declining average lengths of stay as hospitals transfer Medicare 
patients into alternative health care settings (other than acute care) 
in less time may result in a misalignment of payments and costs under 
our existing payment systems. In particular, we are concerned that 
hospitals paid under the prospective payment system may be shifting 
costs (for which they are compensated through the DRG payments) to 
alternative settings, which in turn may be paid on a cost basis.
    In the September 1, 1994 final rule, we explained our rationale for 
proposing to consider patients transferred to excluded hospitals or 
units as transfers rather than discharges. Briefly, our proposal was 
``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.'' (See 59 FR 45364.) We also explained our reason for 
continuing to consider patients going to a skilled nursing facility 
(SNF) as discharges. In that regard, we stated that ``(w)e 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.'' Based 
upon further analysis of patient discharge trends and research on the 
type and outcomes of care provided in SNFs, as well as anecdotal 
evidence drawn from the health care industry, we no longer believe 
there is a clear distinction between the type of care provided in SNFs 
and the type of care provided in hospitals or units excluded from the 
prospective payment system, such as rehabilitation and long-term care 
facilities.
    Therefore, we considered proposing to expand our definition of 
transfers to include not only cases going from one hospital paid under 
the prospective payment system to another but also cases transferred to 
excluded hospitals and units as well as SNFs. However, as discussed 
below, our analysis has identified problems that need to be addressed. 
Nevertheless, once we are convinced these problems can be effectively 
handled, we intend to proceed with implementing policy changes designed 
to remedy this issue.
    First, our analysis (as well as anecdotal evidence) indicates that 
the settings where acute care is now being delivered are rapidly 
expanding and evolving. To the extent that payment is affected by where 
a patient goes after an acute hospitalization, it is critical to 
understand the clinical capabilities of different types of settings, so 
that the incentives created by the payment system do not unduly 
influence the choice of where to send a patient for postacute care. 
That is, all like provider settings should be treated equally in terms 
of payment incentives. Currently, the settings that are considered as 
alternatives to acute care are expanding rapidly, and we want to be 
sure that we do not create unforeseen financial incentives toward one 
alternative over another by any redefinition of transfers.
    In addition, as discussed in last year's final rule, hip 
replacement cases (which, as a group, constitute one of the largest 
sources of Medicare cases moving from acute to postacute settings) 
would be systematically underpaid under either the current or the 
proposed per diem methodology. This is because the cost of the surgery 
including the prosthetic device, which is incurred in the first day or 
two of the stay, constitutes a large percentage of the total cost of 
the stay. A graduated per diem would have to be skewed greatly toward 
the first day to approximate the daily cost distribution.
    We, therefore, solicited public comment with regard to these 
issues. Specifically, we were interested in suggestions on how best to 
adapt our payment methodologies for hospitals and units (both acute 
care paid under the prospective payment system and those excluded from 
this system), SNFs, and home health agencies in response to the 
evolving integrated delivery systems. We were particularly interested 
in comments and suggestions on how to design a comprehensive payment 
system that better matches payments with the costs providers actually 
incur in furnishing care (that is, reducing hospital payments when a 
significant phase of a patient's acute episode is treated in other than 
an acute hospital inpatient setting). A major issue in developing such 
an integrated payment system is to neutralize the incentives that arise 
in terms of where patients are treated. For example, hospitals should 
continue to be adequately compensated for acute inpatient 
hospitalization where appropriate, so that there will not 

[[Page 45806]]
be an adverse incentive to move patients prematurely to alternative 
settings.
    We appreciate the numerous comments we received in response to this 
solicitation. Many of them shed new light on our understanding of the 
complicated issues involved, and will serve to enhance our analysis as 
we grapple with these issues in the future.
    Comment: Many commenters misinterpreted our discussion related to 
the definition of transfer cases as a proposal to expand the definition 
to include patients moving from an acute care hospital to a hospital or 
unit excluded from the prospective payment system or to an SNF.
    Response: We wish to make clear that we did not propose a change to 
the definition of transfers. We identified an expanded definition (one 
that would encompass patients going to SNFs) as one possible approach. 
We went on, however, to discuss why we were not proposing to make such 
a change to the definition at this time. Furthermore, we did not 
suggest that we would pay postacute care providers on the basis of the 
hospital DRGs.
    Comment: The majority of the commenters who discussed an expanded 
definition of transfers as one approach to address the blurring 
distinction between different sites of care were opposed to it. Several 
commenters argued that there remains a clear distinction between the 
care provided in acute care hospitals and that provided by postacute 
care providers, and therefore it would be inappropriate to consider 
these cases as transfers. The point was also raised that defining these 
cases as transfers would create a financial incentive to hold them in 
the acute care hospital longer, in order to avoid a reduction in 
payment. On the other hand, some commenters pointed to ``perverse 
incentives'' under the current system that encourage early discharges.
    Some commenters who argued against last year's proposal wrote to 
support a redefinition of transfers that includes SNFs. These 
commenters indicated they were in favor of an expanded definition if it 
included cases going to SNFs as transfers. Conversely, several 
commenters opposed including cases going to SNFs, arguing that ``HCFA 
will not accomplish its goal since it will effectively remove any 
incentive for hospitals to move patients into a more cost-effective 
setting for subacute care.'' Not surprisingly, opinions on whether any 
redefinition of transfers should include cases going to SNFs divided 
along lines of whether the commenter represented SNFs or excluded 
hospitals.
    Response: We would like to make clear that we recognize the 
importance of rehabilitative care as a necessary and distinct phase of 
the episode of care for many patients. Similarly, we recognize the 
historical distinctions between different providers of postacute care, 
as evidenced, for example, by our different payment policies for 
excluded hospitals and SNFs. Nevertheless, we are convinced these 
distinctions have recently become increasingly ill-defined. Part of the 
difficulty in addressing this issue, however, is that, while some 
providers have taken great strides toward integrating their health care 
delivery systems, many others continue to operate under the more 
traditional approach, with clear distinctions existing between the 
providers at different phases of patients' care.
    We have repeatedly indicated our belief that the incentives created 
by our payment policy should be neutral in terms of the settings where 
patients receive care. That is, the payment received should correspond 
to the costs of the care provided, so that decisions regarding the 
appropriate site of care are based on clinical, not economic, concerns. 
As noted above, our concern stems from increasing indications that in 
certain contexts our present payment system no longer reflects provider 
costs as accurately as it once did. On the other hand, we believe that, 
for the most part, our per diem payment methodology for transfer cases 
does meet this test. Although payments for transfer cases are reduced 
relative to full discharges, they reflect the reduction in resources 
hospitals commit to these cases (particularly under our graduated per 
diem methodology). However, one of the issues of expanding this 
transfer payment methodology to cases going to excluded hospitals and 
units, as well as SNFs, is the underpayment for hip replacements. To 
the extent that the transfer payment is below costs, economic 
considerations are more likely to enter into the decision of when to 
release a patient and to which type of setting.
    Finally, with regard to whether any redefinition of transfers 
should or should not include SNFs, we noted in the proposed rule (and 
reiterated above) that patients appear to be going to SNFs sooner from 
acute care settings. On the whole, the comments we received reinforced 
this belief. We will, however, continue to evaluate this issue.
    Comment: Some commenters indicated that the redefinition of 
transfers should apply only to hospital-based distinct part units or in 
the case of long-term care hospitals, to a ``hospital within a 
hospital,'' where the incentive to transfer early is strongest. In the 
words of two commenters: ``(t)his perverse situation is becoming more 
common as States make it easier for hospitals to circumvent the normal 
health planning process to convert excess acute care beds to cost-
based, distinct part units.''
    Response: We share many of the concerns expressed in these comments 
regarding the special potential for abuse that exists in such 
situations, and have addressed some of the potential abuses inherent in 
the ``hospital within a hospital'' arrangements in section IV of this 
preamble. However, we have historically recognized that many of the 
distinct part unit situations arise from legitimate efficiency 
incentives on the part of hospital administrators. In addition, 
implementing such a proposal would likely multiply the types of 
problems arising in the ``hospital within a hospital'' issue, as 
hospitals devise new relationships for postacute care.
    Comment: It was suggested that, if we redefine transfers to include 
cases moving to excluded hospitals and units as well as SNFs, one State 
should be exempted because, among other reasons, the State's hospitals 
cannot establish exempt units without receiving a State Certificate of 
Need.
    Response: One of the major factors leading us to pursue refinements 
with respect to this issue is the fact that not all areas of the 
country have equal access to postacute care alternatives. Currently, 
among those DRGs experiencing the most dramatic declines in length of 
stay, the relative weights are declining as the resources expended for 
these cases by acute care hospitals around the country decline. 
Because, effective for FY 1996, for purposes of recalibrating the DRGs, 
transfer cases are weighted in proportion to their payments, expanding 
the definition of transfer cases would alleviate some of the downward 
impact these cases have on the DRG weights. Hospitals lacking the 
opportunity to decrease their lengths of stay by transferring patients 
to postacute care settings would thereby benefit.
    Comment: A number of commenters suggested that the appropriate 
means to address the issue of declining lengths of stay was through the 
DRGs and the prospective payment system, not the definition of a 
transfer. One commenter, for example, correctly asserts that the 
reduced resources attributable to cases discharged early from the acute 
hospital would ultimately result in lower DRG weights. Others called 
for the system to be rebased in order to capture the savings from the 
shorter lengths of stay. 

[[Page 45807]]
Many commenters argued that it would be inappropriate to reduce 
payments for cases discharged prior to the mean without simultaneously 
increasing payments for cases discharged after the mean.
    Response: An integral concept of the prospective payment system is 
that a predetermined payment can be made for an identifiable and 
distinct phase of care. To the extent that hospitals can provide this 
acute phase of patients' care at costs below average, they profit under 
this system. In response to this incentive, lengths of stay declined 
dramatically in the first few years after implementation of the 
prospective payment system.
    Our concern regarding the misalignment of payments and costs arises 
when the acute phase of care may no longer be completed within the 
hospital. At that point, it is no longer sufficient to rely on the 
recalibration of the relative weights of the DRGs to correct the 
balance between payments and costs. Recalibration is, by definition, a 
budget neutral process. While payments will decline for the DRGs with 
cases that are being moved earlier out of the hospital, this decline 
will necessarily be offset by relative increases for other DRGs. The 
net result is that total payments systemwide are the same despite the 
cost reductions.
    One way of potentially capturing these reductions would be to 
rebase the standardized amounts using more recent cost data. We are not 
convinced at this time, however, that such a dramatic approach is 
warranted. In addition, due to the need to use audited cost data in any 
such rebasing, it is questionable to what extent rebasing at this time 
would capture these savings, since this trend has apparently begun to 
accelerate only in the last year or two.
    We disagree with the comments that it is inappropriate to reduce 
payments for cases discharged prior to the mean without simultaneously 
increasing payments for cases discharged after the mean. Cases with 
long lengths of stay may be eligible for outlier payments. In addition, 
as we pointed out in last year's final rule, generally fewer than 10 
percent of cases in the DRGs most likely to receive postacute care 
leave the acute care hospital before the geometric mean length of stay, 
minus one day, and would therefore receive payment under the per diem 
methodology (59 FR 45365).
    Comment: Several commenters noted that our current payment 
methodologies are predominately fee-for-service, and that this method 
of paying for health care will become much less prevalent in the near 
future. These commenters suggested that under a Medicare capitated 
payment methodology many of the issues with which we are concerned will 
resolve themselves.
    Response: We agree that issues pertaining to properly allocating 
payments among service providers is significantly a function of our 
fee-for-service payment systems, which are largely required by the 
Medicare law. Nevertheless, given the amount of money currently paid 
through our fee-for-service systems, and the projections from the 
Office of the Actuary regarding the Medicare Trust Fund, the need to 
address this issue is pressing. Therefore, given the uncertainty about 
major legislative changes to our payment systems, we intend to pursue a 
solution that can be implemented relatively soon.
    Comment: In response to our request, we received numerous 
suggestions for alternative approaches to address the evolving 
integration of the various phases of a patient's care across different 
provider settings. In the timeframe we are under to publish this final 
rule, we cannot appropriately analyze and respond to all of them. 
Additional comments we received included the following:
     There is no current infrastructure to accommodate a 
bundled payment system for acute and postacute care.
     HCFA should rely on the utilization review process to 
identify individual abusive providers and deal with them on an 
individual basis.
     HCFA should pursue its stated intention to better 
understand the clinical capabilities of various postacute settings.
     All types of providers of inpatient rehabilitation 
services should be under the same payment system (the Functional 
Related Groups concept was suggested).
     Hospital outpatient services should be included in the 
analysis of postacute care.
     HCFA should establish a commission to consider both the 
financial and clinical aspects of postacute care.
     A new discharge status code should be established for 
patients transferred for subacute, rather than postacute, care.
    A number of revisions to SNF payment policy were also recommended, 
including a more stringent review of cost limit exception requests, a 
cap on exceptions based on like providers, elimination of the 3-day 
hospital stay requirement for Medicare SNF coverage, permitting 
providers to establish multiple distinct parts, and applying the 
hospital-based routine cost limits to freestanding SNFs.
    Response: As noted above, we appreciate the many suggestions we 
received and will take each into consideration as we pursue our 
options. In addition, we anticipate that we will continue to work with 
the hospital industry as we proceed in our efforts to address this 
problem.

B. Physician Attestation (Section 412.46)

    Under current Medicare regulations at Sec. 412.46(a), physicians 
are required to sign an attestation statement for each hospital 
discharge before the claim can be submitted to the intermediary for 
payment. With this attestation, the physician is certifying the 
accuracy of the principal and secondary diagnoses and the major 
procedures performed for each patient during the inpatient stay. 
Because this information dictates which DRG is assigned to a case, it 
is extremely important that it be correct so that proper Medicare 
payment can be made.
    The attestation statement the physicians sign reads as follows:

    I certify that the narrative descriptions of the principal and 
secondary diagnoses and the major procedures performed are accurate 
and complete to the best of my knowledge. (Sec. 412.46(a).)

Although a hospital official is required to certify on each Medicare 
claim form that all the data are correct, when the prospective payment 
system was first implemented, we believed that we needed a clear 
statement for each claim concerning the validity of that data. At the 
time, we believed that the physician was in the best position to attest 
to the information.
    The hospital must also have on file a signed and dated 
acknowledgement from the attending physician that the physician has 
received the following notice:

    Notice to Physicians: Medicare payment to hospitals is based in 
part on each patient's principal and secondary diagnoses and the 
major procedures performed on the patients, as attested to by the 
patient's attending physician by virtue of his or her signature in 
the medical record. Anyone who misrepresents, falsifies, or conceals 
essential information required for payment of Federal funds, may be 
subject to fine, imprisonment, or civil penalty under applicable 
Federal laws. (Sec. 412.46(c)(1).)

We implemented these requirements to ensure a means of holding 
hospitals and physicians accountable for the information they submit on 
the Medicare claims form. At the time, we believed that these 
statements were valuable tools for ensuring the validity of DRG claims.
    Over the years, we have received many complaints from both 
hospitals 

[[Page 45808]]
and physicians concerning the administrative burden of completing the 
attestation and acknowledgement statements. In a final rule with 
comment period published in the Federal Register on March 9, 1994 (59 
FR 11003), we revised the regulations to require that a physician need 
sign the acknowledgement statement only upon receiving admitting 
privileges at a hospital and no longer was required to sign the 
statement every year.
    In practice, review of attestation statements by the Peer Review 
Organizations (PROs) as a part of DRG validation review has resulted in 
less than a 0.01 percent denial rate of sampled claims. Therefore, in 
an effort to reduce burden, we are revising the regulations to 
eliminate the physician attestation requirement.
    We believe that this will reduce the burden on both physicians, who 
must sign an attestation on each of the approximately 11 million 
Medicare inpatient claims a year, and on hospitals, which are 
responsible for obtaining the signatures before they can submit 
completed claims for payment. In addition, the hospital claim form (UB-
92), which must be signed by a hospital representative, contains a 
certification statement that reads as follows:

    Anyone who misrepresents or falsifies essential information 
requested by this form may upon conviction be subject to fine and 
imprisonment under Federal or State law.

Because the hospital remains responsible for certifying that the 
hospital claim is accurate, we believe that we can hold the hospital 
responsible for the accuracy of the diagnostic and procedural 
information. We are revising revise Sec. 412.46 by eliminating 
paragraphs (a), (b), (d), and (e). We note that on January 20, 1995, 
HCFA notified its Regional Offices that the PROs would no longer be 
responsible for performing attestation review.
    Although this revision was not included in the proposed rule, we 
did receive many comments requesting that we eliminate the physician 
attestation requirement. In addition, this change was announced in July 
by Vice President Albert Gore, as one of the Administration's health 
care regulatory reforms.

C. Rural Referral Centers (Section 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 received 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 are the same. However, 
rural referral centers 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 may 
be 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 1994 (October 1, 1993 through September 30, 1994) and 
included bills posted to HCFA's records through December 1994. 
Therefore, in addition to meeting other criteria, we proposed that to 
qualify for initial rural referral center status or to meet the 
triennial review standards for cost reporting periods beginning on or 
after October 1, 1995, a hospital's case-mix index value for FY 1994 
would have to be at least--
     1.3165; 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 the table set forth in the June 2, 
1995 proposed rule at 60 FR 29222.)
    Based on the latest data available (FY 1994 bills received through 
June 1995), the final national case-mix value is 1.3184 and the median 
case-mix values by region are set forth in the table below:

------------------------------------------------------------------------
                                                                Case-mix
                            Region                               index  
                                                                 value  
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)......................     1.2135
2. Middle Atlantic (PA, NJ, NY)..............................     1.2077
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV).......     1.3141
4. East North Central (IL, IN, MI, OH, WI)...................     1.2288
5. East South Central (AL, KY, MS, TN).......................     1.2814
6. West North Central (IA, KS, MN, MO, NE, ND, SD)...........     1.1892
7. West South Central (AR, LA, OK, TX).......................     1.2986
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY).................     1.3630
9. Pacific (AK, CA, HI, OR, WA)..............................     1.3300
------------------------------------------------------------------------

    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 1994 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 

[[Page 45809]]
urban hospitals' cost reporting periods that began during FY 1993 (that 
is, October 1, 1992 through September 30, 1993). 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 or to meet the 
triennial review standards for cost reporting periods beginning on or 
after October 1, 1995, the number of discharges a hospital must have 
for its cost reporting period that began during FY 1994 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 
the table set forth in the June 2, 1995 proposed rule at 60 FR 29222.)
    Based on the latest discharge data available, the final median 
numbers of discharges for urban hospitals by census regions are as 
follows:

------------------------------------------------------------------------
                                                                No. of  
                           Region                             discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).....................       6815 
2. Middle Atlantic (PA, NJ, NY).............................       8618 
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)......       7500 
4. East North Central (IL, IN, MI, OH, WI)..................       7155 
5. East South Central (AL, KY, MS, TN)......................       5582 
6. West North Central (IA, KS, MN, MO, NE, ND, SD)..........       5135 
7. West South Central (AR, LA, OK, TX)......................       4464 
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)................       8179 
9. Pacific (AK, CA, HI, OR, WA).............................       5594 
------------------------------------------------------------------------

    We reiterate that, to qualify for rural referral center status for 
cost reporting periods beginning on or after October 1, 1995, an 
osteopathic hospital's number of discharges for its cost reporting 
period that began during FY 1994 would have to be at least 3,000.
3. Retention of Referral Center Status
    Section 412.96(f) states the general rule 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.
    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 1996 outlined above in this section of the 
preamble), it will retain its status for another 3 years. 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 1996, a hospital must meet 
the criteria in Sec. 412.96(c) for FY 1996 or it must meet the criteria 
for 2 of the last 3 years as follows:

----------------------------------------------------------------------------------------------------------------
                                                                      Use the                                   
                                                                  discharges for                                
                                                  Use hospital's  the hospital's    Use numerical standards as  
 For the cost reporting period beginning during   case-mix index  cost reporting     published in the Federal   
                       FY                             for FY          period                Register on         
                                                                     beginning                                  
                                                                     during FY                                  
----------------------------------------------------------------------------------------------------------------
1995............................................            1993            1993  September 1, 1994.            
1994............................................            1992            1992  September 1, 1993.            
1993............................................            1991            1991  September 1, 1992.            
----------------------------------------------------------------------------------------------------------------

    Example: A hospital with a cost reporting period beginning July 1 
qualified as a referral center effective July 1, 1993. The hospital has 
fewer than 275 beds. Its 3-year status as a referral center is 
protected through June 30, 1996 (the end of its cost reporting period 
beginning July 1, 1995). 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, 1993, July 1, 1994, and July 1, 
1995. The hospital must meet the criteria in effect either for its cost 
reporting period beginning July 1, 1996, 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, 1994, 
the hospital's case-mix index value during FY 1992 must have equaled or 
exceeded the lower of the national or the appropriate regional standard 
as published in the September 1, 1993 final rule with comment period. 
The hospital's total number of discharges during its cost reporting 
year beginning July 1, 1992, must have equaled or exceeded 5,000 or the 
regional standard as published in the September 1, 1993 final rule with 
comment period.
    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 

[[Page 45810]]
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.
    Comment: One commenter noted that the American Osteopathic Hospital 
Association had changed its name to the American Osteopathic Healthcare 
Association and requested that Sec. 412.96(c)(2)(B)(ii) be revised to 
reflect this change.
    Response: Section 412.96(c)(2)(B)(ii) specifies that a rural 
osteopathic hospital that is recognized by the American Osteopathic 
Hospital Association can meet the number of discharges criterion at 
Sec. 412.96(c)(2) if it has at least 3,000 discharges for the 
hospital's most recently completed cost reporting period. As requested, 
we are revising Sec. 412.96(c)(2)(B)(ii) to reflect the organization's 
new name. To qualify as an osteopathic hospital, the hospital must be 
recognized by the American Osteopathic Healthcare Association (or any 
successor organizations).
D. Determination of Number of Beds Used in Calculating the Indirect 
Medical Education Adjustment (Section 412.105)

    In the September 1, 1994 final rule (59 FR 45373), in an effort to 
clarify our policy, we amended the regulations at Sec. 412.105(b), that 
describe how to determine the number of beds in a hospital for purposes 
of the indirect medical education adjustment. At that time, we added 
language to the regulations that specifically excludes ``nursery'' beds 
assigned to newborns ``that are not in intensive care areas'' from the 
bed count. This change was supposed to clarify that, with regard to 
infants, only beds in a nursery used for newborns (see section 2815 of 
the Provider Reimbursement Manual-Part 2) are excluded from the count. 
As we stated in the May 27, 1994 proposed rule (59 FR 27741), we made 
this revision ``to exclude specifically only beds assigned to newborns 
in the nursery'' (emphasis added). Furthermore, when we published the 
final rule, we added the reference to nursery beds directly into the 
text of Sec. 412.105(b) ``(t)o prevent any future confusion about the 
term `newborn' '' (59 FR 45374).
    Although we received no comments in response to the May 27, 1994 
proposed rule as to whether beds occupied by sick infants in areas 
other than a neonatal intensive care area or a nursery could be 
counted, we continue to receive questions on this issue. Therefore, in 
the June 2, 1995 proposed rule, we proposed to revise Sec. 412.105(b) 
to further clarify our bed counting policy. This year, rather than 
specifically identifying intensive care beds occupied by infants as 
eligible to be counted, we proposed to delete that phrase and insert 
the phrase ``beds in the healthy newborn nursery.'' As we stated in the 
June 2 proposed rule, our policy is and has been that only beds in a 
healthy, or regular, baby nursery are excluded from the count. All 
other beds available for occupancy by a newborn are to be counted. We 
received a number of comments on our policy clarification.
    Comment: Several commenters believe that, rather than a policy 
clarification, the proposed language represents a policy shift in how 
we count beds. Several of these commenters indicated that the proposed 
language was not supported within the construct of current regulations 
and manual instructions. Specifically, commenters stated that the 
current Sec. 412.105(b) and the manual instructions at section 
2202.7.II of the Provider Reimbursement Manual-Part 2 (which defines 
intensive care units) indicate that the only beds assigned to infants 
that are to be counted are those in a neonatal intensive care unit.
    Response: This change to the regulation language does not represent 
a policy shift. While the manual section referenced by the commenters 
does distinguish explicitly between neonatal intensive care units and a 
regular well-baby unit, this distinction clearly is not exhaustive of 
all of the possibilities for counting beds assigned to infants. In 
fact, the same manual section goes on to indicate that subintensive 
care type units, that is, those not meeting the criteria for intensive 
care units, are considered as general routine care areas. Although this 
discussion does not specifically mention neonatal subintensive care 
units, we believe it is applicable for these units as well.
    In addition, section 2815 of the Provider Reimbursement Manual-Part 
2 has long included a definition of newborn inpatient days that 
indicates that our policy for including inpatient days attributable to 
sick infants is not restricted to the neonatal intensive care unit in 
describing the days that are to be included in the completion of 
Worksheet D-1 of the Provider Cost Reporting Form 2552.

    ``Newborn inpatient days are the days that an infant occupies a 
newborn bed in the nursery. Include [as inpatient days] an infant 
remaining in the hospital after the mother is discharged who does 
not occupy a newborn bed in the nursery, an infant delivered outside 
the hospital and later admitted to the hospital but not occupying a 
newborn bed in the nursery, or an infant admitted or transferred out 
of the nursery for an illness in inpatient days. Also, include an 
infant born in and remaining in the hospital and occupying a newborn 
bed in the nursery after the mother is discharged in newborn 
inpatient days.''

    Total inpatient days reported on that form exclude those days 
applicable to newborn days. However, as clearly stated, days of care 
for newborns outside the nursery are not considered to be newborn days.
    We believe this decades-old manual instruction (in place since 
1975) supports our position that all references to the exclusion of the 
costs, days, or beds of nursery units refer only to the regular, 
healthy baby nursery, and that the proposed language represents a 
clarification rather than a shift in policy. We recognize that some of 
these references may not have been as precise as they could have been 
when they refer only to ``newborn beds'' or ``nursery beds,'' and this 
imprecision occasionally has led to confusion both within and outside 
the agency. However, where the instructions are specific, these terms 
are sufficiently well-defined so that they can reasonably be 
interpreted to refer only to a regular, healthy baby nursery.
    Comment: Commenters suggested that past practice on the part of 
Medicare's fiscal intermediaries with regard to counting these beds has 
been inconsistent. That is, some intermediaries have allowed hospitals 
to exclude only those days that a newborn is in the nursery, while 
other intermediaries have allowed hospitals to exclude any day a 
newborn is not in a certified-intensive care unit. Therefore, the 
commenters believe it would be improper to begin to exclude them now. 
Commenters questioned whether we would require intermediaries to adjust 
unsettled past cost reports where these beds were excluded incorrectly. 
It was suggested that doing so would constitute retroactive rulemaking.
    Response: We recognize that there have been inconsistencies in the 
application of this policy. We believe this has stemmed from the 
absence of a specific provision in the instructions on the treatment of 
subintensive/intermediate care beds, which this clarification should 
remedy. In light of these previous inconsistencies, we expect that all 
fiscal intermediaries that have not been correctly counting newborn 
beds consistent with our policy, as clarified in this final rule, must 
ensure that they revise their practices effective for cost reporting 
periods beginning on or after October 1, 1995. We expect that those 
fiscal 

[[Page 45811]]
intermediaries that have been applying our policy appropriately will 
continue that practice.
    Comment: Several commenters questioned whether the costs of these 
neonatal intermediate units were included in the calculation of the 
prospective payment system standardized amounts. They stated that 
unless we could demonstrate that the costs of these units were included 
in the base year used to calculate the standardized amounts, there is 
no basis for counting these beds when determining the resident-to-bed 
ratio.
    Response: As indicated above in a previous response to comment, our 
policy to include the days, costs, and beds of these units predates the 
prospective payment system, as well as the base year (1981) that was 
used to set the standardized payment amounts. Consequently, we disagree 
that we should be prohibited from clarifying this policy due to 
apparent inconsistencies in its implementation.
    Comment: Additional comments related specifically to how we 
differentiate between healthy baby nursery beds and special care beds. 
Commenters requested guidance on the status of those beds that are 
occasionally used to treat less healthy newborns, but that are actually 
located within a regular, healthy baby nursery. The commenters noted 
that currently there is no clear definition in the regulations or 
manual instructions that could be used to identify an intermediate 
level of special care between a healthy, or regular, nursery and a 
neonatal intensive care unit. Finally, one commenter suggested that we 
consider licensure criteria for distinguishing between treatment units.
    Response: Our bed counting policy essentially is determined by our 
policies for including or excluding costs and days from the calculation 
of Medicare costs on the cost report. These policies have consistently 
followed the general principle that we do not attribute costs or days 
to individual beds, but rather to units or departments. Therefore, 
individual beds that are occasionally used to treat less healthy 
infants, but that are located within a regular, healthy baby nursery, 
continue to be treated as part of the unit in which they are located, 
that is, as part of the healthy baby nursery. In considering whether 
the beds used to treat sick infants constitute an intermediate neonatal 
care unit, one must consider the cost center concept. Section 2302.8 of 
the Provider Reimbursement Manual-Part 2 describes a cost center ``as 
an organizational unit, generally a department or its subunit, having a 
common functional purpose for which direct and indirect costs are 
accumulated * * *.'' A regular, healthy baby nursery serves as a 
custodian of healthy infants, whereas the intermediate or subintensive 
neonatal care unit provides medical care to sick infants with very 
different types of costs being incurred. Therefore, the appropriate 
cost center with which to count the beds of an intermediate neonatal 
care unit is the Adults and Pediatrics cost center.
    While there is a great deal of variation in the types of units that 
exist to care for infants, the Medicare fiscal intermediaries have been 
required for some time to distinguish between nurseries and 
intermediate units for cost reporting purposes.
    Also, concerning the suggestion that we rely on licensure 
designations to differentiate between units, we do not believe this 
would be a feasible alternative due to variations in licensing criteria 
across the country.
    Comment: A representative of a group of Medicare's fiscal 
intermediaries requested that we retain the language in Sec. 412.105(b) 
specifically including neonatal intensive care beds in the bed count. 
This commenter also pointed out that what we refer to as beds are often 
referred to instead as bassinets, and that we should include both 
phrases in the regulations. Finally, we were asked to clarify our 
policy regarding the counting of beds or bassinets kept in the mother's 
room, for example, in an alternative birthing center.
    Response: We proposed deleting the reference to the inclusion of 
neonatal intensive care unit beds from the regulations because we 
believe that reference led to confusion concerning the beds excluded 
from the hospital bed count. We continue to believe that the proposed 
wording, combined with the policy clarification published in last 
year's proposed and final rules, sufficiently defines our intentions as 
to which beds are to be excluded. We agree that ``bassinets'' should be 
included in the definition for determination of the number of beds. 
Therefore, we are revising Sec. 412.105(b) accordingly.
    With regard to beds placed in the mother's room rather than in a 
healthy baby nursery, these beds or bassinets are not counted in 
addition to the mother's bed already present in that room. We do not 
believe, however, that it is necessary at this time to add a reference 
to this issue in Sec. 412.105. Nevertheless, we will continue to 
evaluate the policy implications of these arrangements in the future.

E. Disproportionate Share Adjustment (Section 412.106)

    Section 1886(d)(5)(F) of the Act provides for additional payments 
for hospitals that serve a disproportionate share of low income 
patients. A hospital's disproportionate share adjustment is determined 
by calculating two patient percentages (Medicare Part A/Supplemental 
Security Income (SSI) covered days to total Medicare covered days, and 
Medicaid but not Medicare Part A covered days to total inpatient 
hospital days), adding them together, and comparing that total 
percentage to the hospital's qualifying criteria. These calculations 
are done by HCFA and the fiscal intermediary on a Federal fiscal year 
basis. However, Sec. 412.106(b)(3) currently states that if a hospital 
prefers that HCFA use its cost reporting period instead of the Federal 
fiscal year, it must furnish to its intermediary, in machine-readable 
format as prescribed by HCFA, data on its Medicare Part A patients for 
its cost reporting period. These data take the place of the Federal 
fiscal year MedPAR file data in obtaining the Medicare Part A/SSI 
percentage. To ensure that the hospital is reporting actual Medicare 
Part A patient days, we match the hospital's data to the HCFA MedPAR 
data. In addition, we have required that a hospital accept the 
recalculated percentage, even if it is lower than the Federal fiscal 
year percentage.
    In the last few years, this process has proven to be unsatisfactory 
for several reasons. First, it is an administrative burden for the 
hospital to prepare a tape that includes all its Medicare Part A 
inpatient days. In addition, the hospital's tape data have seldom 
exactly matched the MedPAR data. In that case, we can use only the data 
that match. Finally, and probably often due to this second problem, the 
resulting disproportionate patient percentages are invariably lower 
than the original HCFA determined percentage. We proposed to alleviate 
these problems by continuing to provide hospitals an alternative to 
base their percentage on their cost reporting year, but relieving them 
of the tape requirement.
    Therefore, we proposed that if a hospital wishes a recalculation 
based on its cost reporting period, the hospital would notify HCFA in 
writing of its request that the Medicare Part A/SSI percentage be 
calculated based on its own cost reporting year. The hospital would be 
required to provide HCFA with its name, provider number, and cost 
report period end date. HCFA, in turn, would use all MedPAR records for 
that hospital from the requested time 

[[Page 45812]]
period, as opposed to only those records that matched between the 
MedPAR file and the hospital's tape data. This should provide hospitals 
with more appropriate Medicare Part A/SSI percentages.
    In addition, we proposed to process these requests on a quarterly 
basis. Processing these individual requests for recalculation on a flow 
basis has become an administrative burden on the available HCFA 
computer processing resources. Therefore, we believe it is necessary to 
batch these requests and run the MedPAR data on a set schedule. This 
will be much more efficient and predictable.
    Accordingly, we proposed to revise Sec. 412.106(b)(3) to provide 
that HCFA will accept a hospital's written request, transmitted through 
its fiscal intermediary, for a recalculation of its Medicare Part A/SSI 
percentage based on its cost reporting period. The written request 
should include the hospital's name, provider number, and cost report 
period end date. We would perform a recalculation only once per 
hospital per cost report period, and the resulting percentage becomes 
the hospital's official Medicare Part A/SSI percentage for that period.
    Comment: We received three comments, all of which supported our 
proposal to use the MedPAR file data to recalculate Medicare Part A/SSI 
percentages rather than continuing the requirement that hospitals 
submit a tape of their Medicare Part A data based on their cost 
reporting periods. However, one commenter was concerned that HCFA 
provide an opportunity for hospitals to verify the data, and another 
commenter requested that we add a provision that would hold a hospital 
harmless if the Medicare Part A/SSI percentages decreased when this 
alternative was requested. The latter commenter suggested that a 
hospital affected by the ``hold harmless'' provision be subject to a 
processing fee for the unused cost reporting period.
    Response: Since there was no opposition to the proposed change, we 
are adopting it in this final rule. Because the SSI data used in the 
calculation are protected by the Privacy Act, we cannot provide an 
opportunity for hospitals to verify these data. The data that the 
Social Security Administration (SSA) uses to determine the Medicare 
Part A/SSI percentage are not released to HCFA and therefore we are 
unable to produce these data for hospitals. We must accept the data 
that are officially collected and compiled by the SSA on a monthly 
basis. The SSA is responsible for administering the SSI program and 
keeps track, on a monthly basis, of those individuals who receive SSI 
benefits.
    Concerning the request for a ``hold harmless'' provision, it has 
been our consistent policy that a hospital that requests a 
recalculation of its Medicare Part A/SSI percentage based on its cost 
reporting period must accept the result of that calculation in place of 
the Federal fiscal year calculation. We believe that this policy 
prevents hospitals from taking advantage of the opportunity to request 
this procedure merely so that they can choose the higher percentage. 
Ideally, a hospital will request a recalculation only if it has not 
qualified for a disproportionate share adjustment but believes it is 
close to qualifying.

F. Essential Access Community Hospitals (EACHs) and Rural Primary Care 
Hospitals (RPCHs) (Sections 412.109, 413.70, 424.15, 485.603, 485.606, 
485.614, 485.620, and 485.639, 485.645)

    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.
    Section 102 of the Social Security Act Amendments of 1994, Public 
Law 103-432 (SSAA '94), made significant changes in the provisions of 
the Medicare law governing the EACH/RPCH program. To implement these 
changes, we proposed to revise the regulations as follows:
1. Designation of Urban Hospitals as EACHs (Section 412.109)
    Section 1820(e) of the Act previously provided that only rural 
facilities could be designated as EACHs, and all EACHs were to be paid 
as sole community hospitals (SCHs). Section 102(b)(1) of SSAA '94 
revised section 1820(e) of the Act to allow hospitals located in urban 
areas to be designated as EACHs if they have entered into network 
agreements with RPCHs and meet other applicable requirements. As EACHs, 
these urban facilities may qualify for EACH grants. However, they are 
not eligible for the special payment methodology afforded rural EACHs. 
For payment purposes, rural EACHs are treated as sole community 
hospitals (SCH). Section 1886(d)(5)(D) of the Act was amended to 
clarify that only hospitals designated as EACHs and located in rural 
areas are treated as SCHs for payment purposes. Urban EACHs will 
therefore continue to be paid at the applicable urban rates.
    To implement this provision, we proposed to revise Sec. 412.109 to 
remove the current rural location requirement for EACH designation, and 
to provide that payment as an SCH is limited to EACHs in rural areas. 
As explained below, we also proposed to revise that section to allow a 
State that has received an EACH grant to designate an otherwise 
qualified hospital in an adjoining State as an EACH.
    In conjunction with this change, we proposed to make a technical 
correction to a reference in Sec. 485.603.
    We received no comments in response to these proposals, and are, 
therefore, adopting them as proposed.
2. Designation of EACHs and RPCHs in States Adjoining Grant States 
(Sections 412.109 and 485.606)
    Section 1820(c) of the Act previously provided that hospitals could 
be designated as EACHs only if they were located in States receiving 
EACH grants. Section 1820(i)(2) of the Act did authorize designation of 
RPCHs outside the grant States; however, the number of facilities 
designated under this authority was limited to 15 nationally, and only 
the Secretary, not individual grant States, could make the designation. 
Section 1820(i)(2) of the Act further requires the Secretary, in making 
the special designations, to give preference to facilities that have 
entered into network agreements with other facilities in grant States, 
thus indicating a strong preference for designation of RPCHs in States 
adjoining grant States. Section 102(b)(2) of SSAA '94 amended section 
1820 of the Act to authorize the individual grant States to make 
designations of both EACHs and RPCHs in adjoining States, if the 
facilities so designated are otherwise qualified and have entered into 
network agreements with EACHs or RPCHs in the grant State. The 
legislation does not limit the number of such designations. To 
implement this change, we proposed to revise Secs. 412.109 and 485.606 
to permit these new designations of EACHs and RPCHs by adjacent States 
that have received grants. We proposed that hospitals designated in 
this way will be required to meet other applicable requirements, and we 
plan to make such designations subject to review and 

[[Page 45813]]
approval by the HCFA regional offices on the same basis as designations 
of facilities in the grant State. That is, the designation will not 
result in recognition of a facility as an EACH or RPCH for Medicare or 
Medicaid purposes until HCFA has determined that the requirements are 
met.
    We received no comments in response to these proposals, and are, 
therefore, adopting them as proposed.
3. Designation of EACHs and RPCHs by States That Have Received Grants 
(Sections 412.109 and 485.606)
    Section 1820(a)(1) of the Act establishes a program under which the 
Secretary makes grants available to not more than seven States to carry 
out certain activities, including designating hospitals or facilities 
in the State as either an EACH or an RPCH. Because there is no 
assurance that funding of this grant program will continue, some or all 
of the seven States may not receive grants under section 1820(a)(1) of 
the Act in the future. Since States may not continue to ``receive'' 
grants, we proposed to revise the regulations pertaining to EACHs and 
RPCHs by replacing references to ``States receiving grants'' with 
references to ``States that have received grants'' or ``a State that 
has received a grant,'' as appropriate. Specifically, we proposed to 
revise the designation of EACHs and RPCHs under current Sec. 412.109(b) 
and (c), and Sec. 485.606, respectively, to include these revised 
references. Should the grant program expire, these proposed revisions 
would prevent any uncertainty that may arise as to the status of 
designations made by States that have received grants.
    We received no comments in response to these proposals, and are, 
therefore, adopting them as proposed.
4. Change in Payment for Outpatient RPCH Services (Section 413.70)
    Previously, section 1834(g) of the Act provided that payments to 
RPCHs for outpatient services under the cost-based facility fee plus 
professional charges method were to be determined under section 
1833(a)(2)(B) of the Act. That section states that payment is to be 
made at the lesser of the reasonable cost of the services or the 
customary charges for the services. (This is commonly referred to as 
``LCC,'' that is, the lesser of costs or charges.) Current regulations 
at Sec. 413.70(b)(2)(i) require that payment to RPCHs under the cost-
based facility fee plus professional services be made in accordance 
with the LCC principle. This principle is set forth under Sec. 413.13.
    Section 102(e)(2) of SSAA '94 amended section 1834(g)(1) of the Act 
to provide that payment for outpatient RPCH services under the cost-
based facility fee plus professional charges method are to be 
determined without regard to the amount of the customary charge. To 
implement this change, we proposed to amend Sec. 413.70(b)(2)(i) to 
provide that for payment for RPCH outpatient services made under the 
cost-based RPCH payment plus professional services method, the 
principle of the lesser of costs or charges does not apply.
    We received no comments in response to these proposals, and are, 
therefore, adopting them as proposed.
5. Content of Required Physician Certification (Section 424.15)
    Section 1814(a)(8) of the Act previously provided that Medicare 
Part A could pay for inpatient RPCH services only if a physician 
certified that the services were required to be furnished immediately 
on a temporary, inpatient basis. Section 102(a)(3) of SSAA '94 deleted 
this requirement and provided instead that Medicare Part A will pay for 
the inpatient RPCH services only if a physician certifies that the 
individual may reasonably be expected to be discharged or transferred 
to a hospital within 72 hours after admission to the RPCH. We proposed 
to revise Sec. 424.15 to reflect the new requirement.
    We received no comments in response to this proposal, and are, 
therefore, adopting it as proposed.
6. Length-of-Stay Requirement for RPCHs (Sections 485.614 and 485.620)
    Section 1820(f)(1)(F) of the Act previously allowed all RPCHs to 
keep inpatients no longer than 72 hours before discharging them or 
transferring them to a full-service hospital, unless discharge or 
transfer was precluded by inclement weather or other emergency 
conditions. Section 102(a)(1) of SSAA '94 removed the per-stay 
limitation and substituted for it a provision under which the Secretary 
may terminate the designation of a facility as an RPCH if the Secretary 
finds that the average length of stay in the preceding year exceeded 72 
hours. The provision further states that periods of stay in excess of 
72 hours that occurred because discharge or transfer were precluded by 
inclement weather or other emergency conditions are not to be taken 
into account in computing a facility's average length of stay for this 
purpose.
    To implement this change, we proposed to revise Secs. 485.614 and 
485.620 to delete the current per-stay limitation, and to replace it 
with a requirement for a facility-wide average length of stay that does 
not exceed 72 hours, excluding parts of stays in excess of 72 hours 
that occurred because of inclement weather or other emergencies. In the 
case of a currently participating RPCH, termination of the RPCH 
designation can be made effective only by ending Medicare 
participation. Therefore, we proposed to revise Sec. 489.53 to 
authorize termination of the provider agreement of an RPCH if HCFA 
finds that it does not maintain the required average length of stay.
    We received no comments in response to these proposals, and are, 
therefore, adopting them as proposed.
7. Restriction on Scope of Surgical Services to RPCH Inpatients 
(Section 485.614 and new Section 485.639)
    Before the Social Security Act Amendments of 1994 were enacted, 
there were no explicit restrictions on the type or extent of surgical 
activity that could be performed in a RPCH. These facilities and their 
practitioners were, however, required to conform to applicable State 
licensure and scope of practice laws. Section 102(a)(1) of SSAA '94 
added an explicit restriction on surgical activity by RPCHs. 
Specifically, a State may not designate a facility as an RPCH if the 
facility provides inpatient hospital services consisting of surgery or 
any other service requiring the use of general anesthesia (other than 
surgical procedures specified by the Secretary under section 
1833(i)(1)(A) of the Act), unless the attending physician certifies 
that the risk associated with transferring the patient to a hospital 
for such services outweighs the benefits of transferring the patient to 
a hospital for such services. The procedures specified by the Secretary 
under section 1833(i)(1)(A) of the Act are those that are performed on 
an inpatient basis in a hospital but which also can be performed safely 
on an ambulatory basis in an ambulatory surgical center (ASC) or in a 
hospital outpatient department. Implementing regulations for section 
1833(i)(1)(A) of the Act are set forth at Sec. 416.65. HCFA also 
publishes a list of covered surgical procedures in Addendum A to Part 3 
of the Medicare Carriers Manual.
    To implement this change, we proposed to revise Sec. 485.614 to 
reflect the new statutory provision. We note that the law still does 
not limit the scope of surgical procedures that can be performed for 
RPCH outpatients, and that both hospitals and ASCs, the other two 
facilities in which ASC procedures can be performed, are subject to 
specific health and safety rules on administration of anesthesia and 
performance of the surgery. To ensure 

[[Page 45814]]
adequate health and safety protection for RPCH patients and to apply 
Medicare standards uniformly to ASC-type procedures, we also proposed 
to add, at Sec. 485.639, a new RPCH condition of participation for 
surgical services. We note that the new condition would apply the same 
rules in the RPCH as now apply in an ASC, and that it would apply to 
both inpatient and outpatient surgery. Given the similarities between 
RPCHs and ASCs and the fact that identical procedures can be performed 
in each, we believe uniform health and safety rules are needed.
    We received no comments in response to these proposals, and are, 
therefore, adopting them as proposed.
G. New Provision Subject to Public Comment To Allow Provision of 
Skilled Nursing Facility (SNF) Services by RPCHs (Section 485.645)

    When we issued regulations (Sec. 485.645) to implement the RPCH 
provisions in section 1820 of the Social Security Act (see 58 FR 30630, 
May 26, 1993), we made a number of interpretations or elaborations to 
deal with situations that were not explicitly dealt with by the 
statute. Among them were these two policies: an RPCH with a swing-bed 
agreement could have no more than 12 beds for the use of inpatients 
(Sec. 485.645(a)(1)); and all 12 beds could ``swing,'' that is, could 
be used to furnish both RPCH-level (acute) care as well as a SNF-level 
of care, as the individual patient required.
    Congress changed those policies when it enacted section 102 of the 
Social Security Act Amendments of 1994. First, Congress rejected the 
12-bed limit. Section 102(c) of SSAA '94 amended section 1820(f)(3) of 
the Act to provide instead that in the case of a hospital with a swing-
bed agreement under section 1883 of the Act that applies to become a 
RPCH, the number of beds that the RPCH can use for furnishing SNF-level 
services may not exceed the total number of beds that were licensed 
beds at the time the hospital applies to become an RPCH, minus the 
number of inpatient RPCH beds. (Thus, the number of beds an RPCH may 
have for SNF-level care could be more or fewer than 12.)
    Second, amended section 1820(f)(3) now refers only to ``the number 
of beds used [by the RPCH] for the furnishing of such [SNF-level] 
services.'' This language does not also refer to using those beds to 
furnish such SNF-level services along with RPCH-level services.
    Third, Congress provided that the six RPCH-level beds could not 
also be used to furnish SNF-level services. Specifically, section 
1820(f)(3) now explicitly states that the number of beds an RPCH can 
use for furnishing SNF-level services must be calculated ``minus the 
number of inpatient beds used for providing inpatient [RPCH-level 
(acute)] care.'' The latter indicates that Congress did not anticipate 
the six RPCH-level beds would also be used to furnish SNF-level 
services.
    Further, in section 102(g) of SSAA '94, Congress enacted a number 
of conforming technical amendments to make explicit that various 
provisions applicable to hospitals should also be applicable to RPCHs. 
In doing so, however, it conspicuously failed similarly to amend 
section 1883 of the Act, ``Hospital Providers of Extended Care 
Services.'' That is the provision that permits hospitals to have swing 
beds. Not amending section 1883 is consistent with our conclusion that 
Congress intended to permit certain RPCHs to have a limited number of 
beds for furnishing SNF-level services, but not dual-purpose swing 
beds.
    We believe these Congressional policy changes are based on sound 
policy reasons. First, the six-bed limit for inpatient RPCH-level care 
is reconfirmed. That was a major element in Congress' decision in the 
original legislation to encourage small rural hospitals to convert from 
being full service hospitals to become limited purpose facilities. 
Second, all RPCHs are now treated the same with respect to the limit on 
the number of RPCH-level inpatient beds. Third, hospitals that had 
swing-bed agreements can continue to furnish SNF-level services when 
they become RPCHs, without interfering with the other RPCH provisions.
    As noted, although section 1820 of the Act, as amended by section 
102(c) of SSAA '94, does not provide for an RPCH to continue to use its 
beds interchangeably to provide RPCH-level and SNF-level services, it 
does provide for an existing swing-bed hospital to be designated as an 
RPCH (with up to 6 beds used exclusively for inpatient RPCH-level 
services) and retain its remaining beds to be used exclusively for SNF-
level services. Payment for the RPCH-level care provided by the RPCH 
would be determined in accordance with 42 CFR 413.70(a). In 
establishing the payment methodology for the SNF-level services 
provided by the RPCH, we have concluded that since SNF-level services 
provided by the hospital had previously been paid under the methodology 
specified for swing-bed hospitals at 42 CFR 413.114, it is consistent 
with sound application of these reasonable cost principles to continue 
to pay for those services under that methodology.
    In this final rule, we are revising Sec. 485.645 accordingly to set 
forth the eligibility and payment policies described above. We 
recognize that there may be concerns about the implementation of this 
provision with respect to facilities originally designated as RPCHs 
before the effective date of the new amendments, and are providing a 
60-day public comment period on the Sec. 485.645 changes only. (As 
discussed above in section IV.F of this preamble, the other changes 
needed to implement section 102 of SSAA '94 were included in the 
proposed rule and, in the absence of public comment, are being adopted 
without change.) Because we did not include these changes in the 
proposed rule, we considered delaying the implementation of section 
102(c) further in order to allow time for full notice-and-comment 
rulemaking. However, the statutory effective date is October 31, 1994, 
and several facilities have indicated an interest in being designated 
as RPCHs under the new provisions. Moreover, we believe these changes 
may be necessary to assure access to SNF-level care in rural areas. In 
this context, we believe it would be contrary to the public interest to 
further delay implementation by the amount of time needed for proposed 
rulemaking. We will consider carefully all comments we receive, and 
make any further changes needed as the result of them in a final rule. 
We also are considering whether other, more stringent health and safety 
rules may be needed in light of the new provisions, and may propose 
further changes in this area in the future.
H. Rebasing the Hospital Market Basket

    Our practice has been to update or rebase the market basket about 
every 5 years. Occasionally, we have adjusted this timing to coincide 
with the Department of Commerce, Bureau of Economic Analysis' schedule 
for updating the interindustry model of the United States (U.S.) 
economy, which is released every 5 to 7 years. The interindustry model 
includes detailed cost analyses of the entire U.S. economy including 
the hospital industry. In developing the current market basket, 
effective beginning October 1, 1990, we used 1987 hospital data from 
the American Hospital Association's (AHA's) 1988 Annual Survey for six 
major expense categories (wages and salaries, employee benefits, 
professional fees, depreciation, interest, and a residual ``all other'' 
category). We used AHA's Hospital Administrative Services (HAS) data 
from 1987 to derive the weights for professional liability 

[[Page 45815]]
insurance, food, and pharmaceutical products. Weights for most of the 
remaining subcategories were derived from Department of Commerce, 
Bureau of Economic Analysis data trended forward to 1987. For a 
detailed description of the rebased market basket effective October 1, 
1990, see the September 1, 1990 final rule (55 FR 36043).
    Although it has been 5 years since the most recent rebasing of the 
market basket, in the proposed rule we announced our intention to 
schedule market basket rebasing for FY 1997. We believe that a 1-year 
delay in the usual schedule is advantageous for the following reasons. 
First, it provides an opportunity to review and incorporate two 
important new data sources that are not available at this time. The 
first of these, the FY 1992 and 1993 Medicare cost report data, contain 
more detailed data on labor-related and capital-related costs. We are 
planning on replacing the AHA Annual Survey data with Medicare cost 
report data for the main operating and capital cost weights. In the 
next several months, we are planning to compare and analyze the impact 
of this change to ensure the validity and consistency of the rebased 
market baskets for operating and capital costs. We believe that using 
the Medicare data would be an improvement since these data are reported 
directly to HCFA by Medicare participating hospitals, are readily 
available to us in a timely manner, and would free us from relying on 
data that is collected by outside organizations.
    The second new data source we anticipate obtaining and analyzing is 
the 1992 Bureau of the Census' Assets and Expenditures Survey, which 
will be available later this year. The Census survey will provide much 
more detailed operating and capital cost data, and we anticipate that 
we will be able to use this survey to allocate the main cost category 
weights into more detailed subcategory weights for both operating and 
capital costs.
    In addition to using the market basket to update the payment rates, 
we also use the percentages of the labor-related items (that is, wages 
and salaries, employee benefits, professional fees, business services, 
computer and data processing, blood services, postage, and all other 
labor-intensive services) to determine the labor-related portion of the 
standardized amounts. The labor-related portion of the standardized 
amounts is that portion that is subject to adjustment by the hospital 
wage index. In order to estimate if postponement of the market basket 
rebasing would adversely affect hospital payments due to a potential 
change in the labor-related portion of the payment amounts, we 
conducted an analysis using the 1987 index rebasing methodology (with 
1992 equivalents of the data sources used in 1987). This analysis 
indicates only a minor difference in the 1987 and 1992 AHA cost shares 
for compensation costs, which are the major portion of labor-related 
costs. Therefore, we believe that delaying the market basket rebasing 
until FY 1997 will not disadvantage hospitals and will allow us to use 
more detailed and current data. We did not receive any comments 
opposing this plan, and we intend to rebase the market basket as a part 
of our FY 1997 changes to the prospective payment system.
V. Changes and Clarifications to the Prospective Payment System for 
Capital-Related Costs

A. Update Framework for Prospective Payment System for Inpatient 
Hospital Capital-Related Costs and Possible Revisions to the Federal 
Rate (Section 412.308(c)(1)(ii))

1. Introduction
    For FY 1992 through FY 1995, Sec. 412.308(c)(1) provides that the 
update for the capital prospective payment rates (Federal rate and 
hospital-specific rate) will be based on a 2-year moving average of 
actual increases in Medicare inpatient capital costs per discharge. The 
regulations provide that, beginning in FY 1996, HCFA will determine the 
update in the capital prospective payment rates based on an analytical 
framework that will take into account (1) changes in the price of 
capital (which we will incorporate into a capital input price index), 
and (2) appropriate changes in capital requirements resulting from 
development of new technologies and other factors (such as existing 
hospital capacity and utilization). The objective of the capital update 
framework is to determine a rate of increase in aggregate capital 
prospective payments that, along with a rate of increase in DRG 
operating payments, ensures a flow of capital and operating services 
for efficient and effective care for Medicare patients.
    In the June 2, 1995 proposed rule we presented a formal proposal 
for an update framework for the prospective payment system for hospital 
inpatient capital-related costs (60 FR 29227). The proposal followed a 
series of preliminary models of an update framework in our FY 1992, FY 
1993, FY 1994, and FY 1995 rulemaking documents. We received numerous 
public comments on the proposed framework, and we present our responses 
to those comments below.
    The proposed update framework included a capital input price index 
(CIPI) that parallels the operating input price index. The CIPI 
measures the pure price changes associated with changes in capital-
related costs (prices x ``quantities''). The composition of capital-
related costs is maintained at base-year FY 1987 proportions in the 
CIPI. As such, the composition of capital reflects the underlying 
capital acquisition process. We employ FY 1987 as the base year for 
this preliminary CIPI for consistency with the operating input price 
index. We will periodically update both the operating and the capital 
input price indexes to reflect the changing composition of inputs for 
capital and operating costs.
    The proposed capital update framework, like the operating update 
framework, incorporated several policy adjustments in addition to the 
CIPI. We proposed to adjust the CIPI rate of increase for case-mix 
index-related changes, for intensity, and for error in previous CIPI 
forecasts. We also discussed a possible adjustment for the efficient 
and cost-effective use of capital (such as movable equipment, buildings 
and fixed equipment) in the hospital industry.
    In the proposed framework, we attempted to maximize consistency 
with the current operating framework, in order to facilitate the 
eventual development of a single prospective payment system update 
framework. We also attempted to promote the goals that motivated the 
adoption of the capital prospective payment system, especially the 
goals of promoting more effective and efficient utilization of capital 
resources in the hospital industry and establishing incentives for 
hospitals to make cost-effective decisions regarding acquisition of new 
capital resources.
    We invited comments and recommendations on all aspects of the 
proposed framework. We expressed interest in suggestions regarding the 
CIPI, the proposed policy adjustment factors, and alternative 
methodologies for deriving the factors. We were especially interested 
in comments on a possible efficiency adjustment.
2. ProPAC Recommendation for Updating the Capital Prospective Payment 
System Federal Rate
    In its March 1, 1995 report to Congress, ProPAC recommended the use 
of an update framework that includes a capital market basket component. 
The ProPAC market basket measures 1-year changes in the purchase prices 
of a fixed basket of capital goods purchased by 

[[Page 45816]]
hospitals. The ProPAC framework also includes several policy adjustment 
factors. A forecast error correction factor adjusts payment rates so 
that the effects of past errors are not perpetuated. A financing policy 
adjustment accounts for the effects of substantial deviations from 
long-term trends in interest rates on hospital capital costs. The 
ProPAC capital update framework also includes adjustments for 
scientific and technological advances, productivity, and case-mix 
change similar to those employed in the ProPAC operating update 
framework. ProPAC also recommends the adoption of a single update 
framework for adjusting operating and capital prospective payment rates 
when the transition to full Federal rate capital payments is complete. 
ProPAC believes that using a simplified approach comparing annual price 
changes in capital would facilitate the development of such a unified 
framework.
    Our long-term goal is to develop a single prospective payment 
system update framework. We will soon begin to study development of a 
unified framework. In the meantime, we will continue to maintain as 
much consistency as possible with the current operating framework in 
order to facilitate the eventual development of a unified framework.
    The ProPAC and HCFA update frameworks share certain goals. The goal 
of each framework is to provide a rate of increase in capital 
prospective payments that, along with the rate of increase in operating 
prospective payments, will ensure a flow of capital and operating 
resources that will allow for efficient and effective care for Medicare 
patients. Both frameworks are designed to provide increases for the 
purchase of quality-enhancing new technologies. Both frameworks provide 
for case-mix adjustments to remove the effects of upcoding and to 
adjust for changes in within-DRG severity. Both frameworks also seek to 
encourage efficient capital spending behavior. Although the frameworks 
adopt different methodologies for promoting some of these goals, they 
are compatible to the degree that they share these goals.
    The major difference between the ProPAC and HCFA frameworks 
concerns the purpose and structure of the capital input price index, or 
market basket. ProPAC's framework is based on the premise that capital 
prospective payments are only for future capital purchases and should 
not reflect the vintage nature of capital. Thus, ProPAC's proposed 
capital market basket reflects the projected increase in the purchase 
price of capital goods from one year to the next. HCFA's framework is 
based on the premise that capital prospective payments are for 
hospitals' capital-related expenses, which include the expenses related 
to future capital-related purchases. That is, HCFA's framework 
addresses the input price component of expenses associated with 
hospitals' given stock of capital in a particular fiscal year; ProPAC's 
framework ignores hospitals' present stock of capital and focuses on 
changes in input prices associated with capital purchases that 
hospitals will make in a particular fiscal year.
    The HCFA CIPI projects the price changes associated with the 
accounting or vintage costs of capital assets. The HCFA CIPI is based 
on a definition of capital-related expenses and associated capital-
related prices derived from accounting practice (including required 
HCFA prospective payment system accounting practice) and consistent 
with economic theory. HCFA believes that the concept of capital-related 
prices incorporated into the HCFA CIPI is more appropriate than the 
concept incorporated into the ProPAC market basket because the 
consumption of capital is not just what is purchased in one year. The 
consumption of capital has a time-dimension: Capital is not used up 
immediately but rather over time. This feature of capital is reflected 
in the accounting definition of capital cost, and it should be 
reflected as well in the concept of capital prices in the CIPI. The 
transition from reasonable cost reimbursement to payment under a 
prospective system does not cancel the applicability of general 
accounting practice or the HCFA accounting practice derived from it. 
Thus the concepts of capital-related expenses and capital-related 
prices continue to be appropriate. Furthermore, the base capital rates 
were computed on the basis of accounting costs. HCFA believes that it 
is more consistent to update those rates on the basis of the changes in 
prices associated with those costs rather than on the basis of changes 
in current year purchase prices alone.
    The HCFA CIPI captures the vintage feature of capital price by 
using a vintage average approach, that is, weighted averages of 
purchase prices and interest rates up to and including the current 
year. The use of vintage averages as the measure of price changes 
tracks the flow of consumption of capital. The vintage approach better 
reflects what hospital cash-flow needs are as new assets are brought 
on, since hospitals still bear the costs of older assets as the new 
assets are brought on.
    HCFA believes that the CIPI appropriately reflects the prices 
associated with past and current period purchases of capital. Under the 
HCFA approach, the price change associated with the capital costs for 
any year is a weighted average of the prices associated with 
depreciation, interest and other capital costs for that year. The 
prices associated with the depreciation costs during the year are an 
average of the prorated purchase prices for the assets in use during 
that year (25 years for buildings and fixed equipment, 10 years for 
movable equipment, including current year purchases). The prices 
associated with the interest costs during the year are an average of 
the interest rates on debt instruments in effect during that year (22 
years, including debt instruments that are new in the current year). 
Capital-related costs for insurance have an annual time dimension, and 
therefore the prices associated with those expenses are current year 
prices only.
    In addition to the disagreement over whether the CIPI should 
reflect the vintage nature of capital, HCFA and ProPAC also disagree 
over the treatment of interest. ProPAC proposes to account for interest 
rate changes through a separate financing policy adjustment that would 
account for significant changes in long-term interest rates. This 
adjustment would increase the update in case of significant long-term 
interest rate increases, and decrease the update in cases of 
significant interest rate decreases. (ProPAC has not identified the 
threshold that constitutes ``significant'' interest rate changes.)
    HCFA believes that there must be an interest rate component in a 
capital input price index. Sound accounting practice includes interest, 
along with depreciation, as a component of capital cost. The interest 
and depreciation components of capital cost track the flow of 
consumption of capital inputs. Price is a component factor of cost 
(that is, cost is the product of price and quantity), and capital cost 
has both depreciation and interest components. There must therefore be 
an interest component of capital price just as there is an interest 
component of capital cost.
    Furthermore, ProPAC's treatment of interest assumes that only 
current year interest rate changes need to be measured to capture the 
relevant price effects of interest rate changes. HCFA believes that the 
price aspects of interest costs, like the price aspects of depreciation 
costs, have a time dimension that must be captured in the CIPI. Whether 
the current year interest rate reflects a net lower price of financing 
to the hospital depends not on comparison of the current year's 
interest rate to the previous year's interest rate, 

[[Page 45817]]
but on the effect of the current year interest rate on all the 
hospital's debt instruments. For example, assume that the previous 
year's interest rate was 8 percent, and the current year's interest 
rate is 5 percent. However, as the hospital enters new financing 
arrangements at the current rate of 5 percent, it retires debt 
instruments from 20 years earlier that bore an interest rate of 3 
percent. The price effect of the current year's interest rate is thus 
higher, not lower, as new debt instruments at 5 percent replace old 
debt instruments at 3 percent. HCFA believes it to be a great advantage 
of its CIPI that it directly tracks price effects such as these.
    Finally, the pure price aspects of interest costs (that is, the 
interest rate and the purchase price that is represented in the amount 
of loan principal) are typically beyond the control of the hospital 
industry. To be sure, the actual decision to purchase capital assets or 
acquire debt is a ``quantity'' decision and typically is discretionary 
for a particular span of time. However, in measuring the actual 
expected price per unit of real capital, independently of any 
evaluation of the propriety of any actual purchase decisions, it is 
essential to recognize that the industry has some control over the 
amount of capital it purchases but little or no control over the price 
it pays for capital. Thus, the pure price aspect of interest cost 
changes must be incorporated into the CIPI. Otherwise, the CIPI will 
not accurately reflect the prices faced by hospitals who must borrow to 
finance necessary capital acquisitions. Limitations on the quantity of 
capital are appropriately implemented through policy adjustment 
factors. The ProPAC approach artificially eliminates pure price changes 
related to interest costs from the CIPI and incorporates them into a 
discretionary adjustment factor. The HCFA CIPI retains all price 
components of increases in interest costs as one measure of inflation 
in capital-related expenses. It thereby keeps price and quantity 
aspects distinct, allowing separate analysis of each factor of 
increases in capital expenses.
    We do not agree with the ProPAC that the approach of comparing 
annual price changes in capital is more conducive to a single update 
factor. We believe that price changes in current hospital capital 
expenses are analogous to price changes in current hospital operating 
expenses. The HCFA CIPI measures the price change in capital expenses, 
and is, therefore, the appropriate analog to the input price index used 
to update operating payments under prospective payment. We provide 
further comments on particular ProPAC recommendations in section V.A.3 
of this preamble.
3. Measurement of Capital Input Price Increases
    a. Introduction. HCFA discussed a capital input price index as one 
component in developing future update factors for the Federal rate in 
the September 1, 1992 Federal Register (57 FR 40016). We have presented 
revised versions of the capital input price index in the May 26, 1993 
(58 FR 30448), September 1, 1993 (58 FR 46490), May 27, 1994 (59 FR 
27876), and September 1, 1994 (59 FR 45517) issues of the Federal 
Register.
    In the June 2, 1995 proposed rule (60 FR 29229), we formally 
presented a capital input price index for public comments prior to 
adoption of this final rule. The proposed CIPI parallels the operating 
input price index. Both the CIPI and the operating input price index 
are designed to measure input price changes for hospitals' current year 
expenses, that is, to separate pure price changes from quantity and 
expenditure changes. The operating sector input price index measures 
input price changes for operating-related expenses. The capital input 
price index measures input price changes for capital-related expenses, 
which include depreciation, interest, and other expenses (such as 
insurance related to capital goods).
    b. HCFA Capital Input Price Index Methodology. The CIPI is based on 
the following assumptions:
     The Federal rate is based on the concept of capital-
related expenses of capital assets used for patient care in the fiscal 
year and, therefore, any change in the Federal rate should take into 
account expected changes in the input price aspects of capital-related 
expenses.
     Capital-related expenses are defined as the sum of 
depreciation expense, capital-related interest costs, and other 
capital-related costs, including insurance and leases.
     The input prices related to capital-related expenses are 
typically beyond the control of the hospital industry (that is, the 
hospital is a price-taker, not a price-setter).
    These assumptions lead directly to a definition of a CIPI that 
takes into account the price aspects of changes in depreciation 
expense, interest costs, and other capital-related costs. Thus, the 
CIPI includes three categories of capital-related expenses: 
depreciation, interest, and other capital-related costs (such as 
insurance). Further, the assumptions lead directly to input prices for 
depreciation and interest costs that, unlike operating costs, have a 
time dimension that must be captured in the CIPI.
    Comment: A commenter suggested that the HCFA CIPI is flawed because 
it relies excessively on assumptions that could cause the update to be 
more likely to overstate or understate the true changes in prices than 
an input price index measuring year-to-year changes.
    Response: We believe that the HCFA CIPI appropriately and 
accurately reflects the ``pure'' price change in capital expenses for 
the current year as well as other years or vintages. The CIPI was 
developed based on accepted accounting definitions of capital expenses 
and conceptually sound methodologies using appropriate data. We have 
continually improved the index by using more relevant data, as well as 
implementing comments received on three prior rulemaking documents. The 
assumptions we have made regarding price proxies, base year weights, 
and expected lives have been explained thoroughly and refined in the 
prospective payment system rulemaking documents for the last three 
fiscal years. These assumptions are based on accepted accounting, 
economic, and financial reasoning. Thus, we believe that those 
assumptions lead to valid results.
    Current depreciation costs represent the summed depreciation for 
all purchases of capital assets that are still depreciable in the 
current period. The input prices associated with these depreciation 
expenses are the purchase prices attached to all past and current 
capital purchases for capital still depreciable in the current period. 
A weighted average of these purchase prices thus represents the input 
price associated with depreciation expenses in the current period. 
Thus, the depreciation input price for the current period measures 
price aspects of current depreciation expenses for capital, just as the 
operating input price index for the current period measures price 
aspects of current operating expenses for labor and non-capital goods 
and services. The depreciation input price appropriately differs from 
the operating input price in that the depreciation input price is a 
vintage-weighted composite of all past capital purchase prices, while 
the operating index input price measures purchase prices for current 
periods only.
    Comment: Two commenters contended that HCFA's vintage-weighting 
approach will not provide sufficient updates to allow for replacement 
of capital. They conclude that the CIPI should therefore include only 
increases in current year purchase 

[[Page 45818]]
prices. One of the commenters submitted a detailed technical analysis 
concluding that the HCFA CIPI will allow HCFA to match payment 
increases for depreciation and interest with increases in depreciation 
and interest expenses, but will not allow HCFA to match increases in 
replacement costs of assets. This commenter questioned whether a focus 
solely on depreciation and interest is a necessary requirement for 
prospective payment for capital. The other commenter implied that the 
non-vintage approach will provide sufficient capital reimbursement to 
replace needed capital assets, while the HCFA CIPI looks at the current 
capital stock that has already been acquired and paid for.
    Response: We concur with the comment that the HCFA CIPI captures 
increases in the price component of depreciation expenses, and, under 
reasonable assumption, will match price increases in interest rates. 
The issue of providing for replacement of capital assets is a difficult 
one. We agree with the commenters that an adequate update framework 
should be able to provide updates to payment rates sufficient to fund 
replacement of capital assets, where it is appropriate to do so. We do 
not necessarily believe, however, that it is appropriate for the 
Medicare program to support full replacement of assets where excess 
capital capacity exists.
    As in the case of other issues regarding the update framework, the 
issue of replacement costs has both price and quantity aspects. Full 
replacement cost involves increases reflecting both price and quantity 
sufficient to replace existing assets. In this section, we discuss the 
replacement issue from the price aspect: that is, whether the vintage-
weighting approach in the HCFA CIPI can provide, where appropriate, 
updates sufficient to fund full replacement. In this analysis, we make 
the assumption that it is appropriate to set the policy adjustments 
within the update framework at levels to provide for the quantities 
necessary to provide full replacement. In section V.A. below, we 
discuss our continuing analysis of capital cost increases during the 
period just prior to the implementation of prospective payment for 
capital. During that period, the Medicare program paid for operating 
costs on a prospective basis, but hospitals continued to receive cost-
based payment for capital. That analysis suggests that an excess 
capacity of capital assets over efficient levels may exist. If that is 
the case, then adjustments to provide for less than full replacement of 
capital assets may be appropriate since underused capacity implies 
inefficient use of social resources.
    We do not agree with the suggestion that the HCFA CIPI cannot 
adequately provide for replacement of assets. The HCFA CIPI provides 
increases in the price component of replacement costs for new capital 
by adequately reflecting price increases in capital expenses. 
Medicare's payment for capital has changed from retrospective cost-
based reimbursement to prospective payment for an efficient level of 
capital. However, the concept of paying for capital expenses remains 
the same under capital prospective payment, just as the concept of 
paying for operating expenses has not changed. That is, under 
prospective payment, hospitals will be paid for an efficient level of 
operating and capital expenses.
    The HCFA CIPI provides a conceptually sound measure of price 
changes associated with the capital expenses incurred by hospitals. The 
level of capital expenses incurred by a hospital in a given year is not 
a function merely of the annual percent change in the new capital 
purchase prices, but rather of the purchase prices and interest rates 
associated with all capital assets that are still in use for patient 
care and that are not yet fully depreciated. Because of the vintage 
nature of the CIPI, the percent change in the CIPI can appropriately be 
above, below, or equal to the annual percent change in capital purchase 
prices in any given year.
    Analysis by the HCFA Office of the Actuary suggests that the CIPI 
should provide updates adequate to finance replacement of capital under 
reasonable assumptions about prudent hospital financial management. 
Industry sources and Medicare cost report data indicate that capital is 
not typically paid for in full when it is acquired. Rather, debt 
funding is the major form of capital financing used by hospitals. 
Actual cash outlays for capital thus consist primarily of payments for 
principal and interest on loans. The interest component inherent in the 
capital prospective payment system should cover interest costs for an 
efficient hospital.
    The issue concerning replacement of assets is thus whether the 
depreciation component implicit in the prospective capital payment can, 
assuming an allowance for replacement of the full quantity of assets, 
cover the principal costs of debt for an efficient hospital while 
allowing accumulation of a reserve adequate to provide the necessary 
down payment for future capital purchases. In the early years of debt 
repayment, principal payments are relatively small. During that period, 
the portion of the rate payment related to depreciation in excess of 
principal costs of debt can be accumulated in a sinking fund. Sound 
financial management suggests that payments for capital expenses 
(depreciation and interest) that are in excess of the hospital's actual 
capital cash outlays (principal and interest) be accumulated and 
invested to provide for adequate replacement of assets. In other words, 
prudent hospitals would invest the sinking fund to earn interest. Based 
on examination of historical relationships and projected trends, we 
believe that accumulation of the sinking fund over the life of the 
asset will, on average, provide an adequate amount for asset 
replacement.
    Current interest expenses represent the total interest costs for 
all still-active past debt instruments associated with past and current 
purchases of all capital assets currently used for patient care. The 
input prices associated with these interest expenses are the interest 
rates associated with all past debt instruments that are still active 
in the current period. A weighted average of these interest rates thus 
represents the input price associated with interest expenses in the 
current period. Thus, the interest input price for the current period 
measures price aspects of current interest expenses, just as the 
operating input price index for the current period measures price 
aspects of current operating expenses for labor and non-capital goods 
and services. The interest input price appropriately differs from the 
operating input price in that the interest input price is a vintage-
weighted composite of all interest rates for debt instruments that are 
still active in the current period, while the operating index input 
price measures purchase prices for current periods only.
    Comment: A commenter agreed with HCFA's inclusion of interest in 
the CIPI. However, the commenter did not agree with the HCFA vintage 
approach to determining the interest component. The commenter instead 
recommended measuring annual price changes in financing costs.
    Response: We agree with this commenter that the price increases in 
interest are an integral and accepted component of capital costs and 
therefore should be included in the CIPI. However, we do not believe 
that using annual price changes in interest rates will appropriately 
measure the price change for interest expenses that have a vintage 
nature. The HCFA CIPI measures the price aspects associated with 
current interest expense, which include interest costs for all still-
active past debt instruments appropriately 

[[Page 45819]]
weighted. It would be inappropriate to update the interest expense 
component of the CIPI by the annual change in the current year interest 
rate when current year interest expense reflects interest rates on debt 
in various years, or vintages. Also, using the change in the current 
year interest rate would create a volatile series in the CIPI that 
would lack predictability, as well as inappropriately measure price 
increases in current year interest expense. The HCFA CIPI should 
include a vintage-weighted interest component, appropriately weighted, 
to validly measure price increases in current year interest expense.
    Comment: One commenter stated that once the negative interest 
adjustment proposed by HCFA is eliminated, ProPAC's CIPI and HCFA's 
CIPI show very little difference.
    Response: HCFA has not proposed a negative adjustment for interest, 
but merely requires that the price aspect of interest expense be 
appropriately measured in the CIPI. In the most recent historical and 
forecasted periods, it is true that the interest component is negative; 
however, it is correctly negative because the effect of interest rate 
decreases in recent years has been to decrease the interest price faced 
by hospitals for all the debt instruments that are still in effect. In 
addition, the commenter's contention about the result of removing the 
interest component from the CIPI is erroneous. In many of the years 
from 1979 to 1994, removal of the interest component creates larger 
differences between the HCFA CIPI and the ProPAC CIPI.
    Our original version of the CIPI employed proportional annual 
weights in determining the moving averages of the purchase prices 
associated with depreciation and interest. A commenter on a previous 
version of the CIPI recommended that proportional annual vintage 
weights for capital price proxies be replaced by non-proportional 
annual vintage weights that reflect the relative vintage purchases of 
capital. The commenter pointed out that annual purchases of real 
capital tend to increase over time. As annual purchases of real capital 
increase, the later years in the moving average of depreciation and 
interest costs should be weighted more heavily than the earlier years. 
We agree with this comment. Accordingly, a special data base was 
prepared to provide appropriate historical vintage weights for 
depreciation and interest input prices. The non-proportional vintage 
weights in the CIPI appropriately reflect the relative contributions of 
current capital purchase prices and current interest rates to total 
capital price in the current year.
    Current year other capital-related expenses (for example, 
insurance) have an annual time dimension and, therefore, prices 
associated with these expenses are, like operating input prices, 
current year prices only.
    Comment: One commenter recommended that HCFA use a more recent year 
as the base year for the CIPI to increase consistency with current 
hospital capital expenditure patterns. Another commenter agreed that 
delaying the rebasing will improve the market basket and, therefore, is 
appropriate.
    Response: We agree that using a more recent base year is desirable 
and, as we discussed in the June 2, 1995 (60 FR 29229) proposed rule, 
we have done preliminary research into the effects of changing the base 
year from FY 1987 to FY 1992. The initial results from currently 
available data sources have shown small differences between the FY 1987 
and FY 1992 base year weights, resulting in a minimal effect on the 
CIPI. We intend to use expanded capital-related data in the FY 1992 and 
FY 1993 Medicare cost reports in the rebasing effort. The expanded 
capital-related data is available beginning with FY 1992 cost reports; 
therefore, we are examining the data thoroughly for reliability and 
accuracy using FY 1993 as a validity check. To ensure that the data is 
reasonable, we plan to compare data from other sources, some of which 
are not available at this time, to the expanded capital-related data in 
the Medicare cost reports. Exercising this added discretion before 
using the expanded capital Medicare data will not only produce more 
representative and reliable data, but would also ensure that the data 
are less subject to interpretation and error. It is for these reasons 
that we delayed the rebasing originally planned for FY 1996.
    The FY 1987 composite data base starts with financial variables 
from the American Hospital Association (AHA) Panel Survey. These data 
are augmented by data from the Medicare cost reports and from the 
Department of Commerce Capital Expenditure Survey. The composite data 
base provides annual estimates of nominal purchases for building and 
fixed equipment and for movable equipment. Leasing amounts were 
distributed among building and fixed equipment and movable equipment 
nominal purchases by first computing the percentage of total owner-
operated nominal purchases attributable to each type of equipment, and 
then applying these percentages to total leasing amounts. Nominal 
purchases were then converted to annual real (that is, constant dollar) 
purchases by dividing nominal expenditures by an appropriate purchase 
price proxy.
    Expected life for building and fixed equipment and for movable 
equipment were derived from Medicare cost reports by dividing the book 
value of assets by current year depreciation amounts. The relative 
distribution of real capital purchases within the respective life for 
building and fixed equipment (25 years) and for movable equipment (10 
years) were derived from the special data base. These relative 
distributions are shown in Table 1. Relative distributions for a number 
of different time periods were averaged to obtain the distributions in 
Table 1. These distributions were all very similar regardless of the 
periods chosen and, therefore, we selected an average of the 
distributions in order to simplify the calculations.

      Table 1.--Relative Weights for Capital-Related Price Proxies      
                                                                        
                                                                        
Building and Fixed Equipment Expected Life: 25 years:                   
1............................................................      0.015
2............................................................      0.019
3............................................................      0.022
4............................................................      0.024
5............................................................      0.023
6............................................................      0.022
7............................................................      0.020
8............................................................      0.021
9............................................................      0.025
10...........................................................      0.030
11...........................................................      0.033
12...........................................................      0.034
13...........................................................      0.034
14...........................................................      0.035
15...........................................................      0.038
16...........................................................      0.043
17...........................................................      0.049
18...........................................................      0.053
19...........................................................      0.056
20...........................................................      0.057
21...........................................................      0.060
22...........................................................      0.066
23...........................................................      0.071
24...........................................................      0.075
25...........................................................      0.077
------------------------------------------------------------------------
  Total......................................................      1.000
========================================================================
Movable Equipment Expected Life: 10 years:                              
1............................................................      0.064
2............................................................      0.072
3............................................................      0.077
4............................................................      0.085
5............................................................      0.095
6............................................................      0.101
7............................................................      0.109
8............................................................      0.122
9............................................................      0.132
10...........................................................      0.142
------------------------------------------------------------------------
  Total......................................................      1.000
========================================================================

[[Page 45820]]
                                                                        
Interest Expected Life: 22 years:                                       
1............................................................      0.007
2............................................................      0.009
3............................................................      0.010
4............................................................      0.011
5............................................................      0.013
6............................................................      0.015
7............................................................      0.017
8............................................................      0.020
9............................................................      0.023
10...........................................................      0.027
11...........................................................      0.032
12...........................................................      0.038
13...........................................................      0.043
14...........................................................      0.050
15...........................................................      0.057
16...........................................................      0.064
17...........................................................      0.074
18...........................................................      0.083
19...........................................................      0.090
20...........................................................      0.098
21...........................................................      0.105
22...........................................................      0.114
------------------------------------------------------------------------
  Total......................................................      1.000
Source: Health Care Financing Administration, Office of the Actuary     
  (Medicare Cost Reports, AHA Panel Survey, Securities Data Inc.)       


    Table 2 shows the historical, annual percentage changes in the 
capital-related price proxies employed in the CIPI prior to vintage-
weighting. These proxies are as follows: the institutional construction 
index maintained by Boeckh for the unit prices of fixed assets; the 
machinery and equipment component of the Producer Price Index (PPI-11) 
for movable equipment; the average yield on domestic municipal bonds 
from the Bond Buyer index of 20 bonds (Muni); the average yield on 
Moody's corporate bonds (AAA); a composite of Muni and AAA indexes 
(Combined Muni/AAA); and the residential rent component of the Consumer 
Price Index (CPI Rent) for other capital costs.
    We previously used the Engineering News-Record (ENR) building cost 
index as a price proxy for the unit price of fixed assets. However, we 
believe that the Boeckh institutional construction index is more 
applicable to the industry. The variation between the two indexes is 
minimal.
    We applied the relative vintage depreciation weights from Table 1 
to the appropriate non-vintage weighted historical, annual index levels 
(base year FY 1987) of depreciation price proxies to generate the 
current year, vintage-weighted component index levels for the CIPI 
depreciation sector. The annual percentage change between the non-
vintage weighted historical, annual depreciation index levels are 
listed in Table 2. The annual percentage changes between the annual, 
vintage-weighted depreciation component index levels (base year FY 
1987) are listed in Table 3. For example, the FY 1996 movable equipment 
index component percentage change of 1.8 percent in Table 3 was 
computed as the percentage change between the FY 1995 and FY 1996 
vintage-weighted movable equipment component index levels. The FY 1996 
movable equipment component index (base year FY 1987) represents the 
weighted-average of the index levels in the movable equipment price 
proxy (PPI-11 in Table 2) for the previous 10 years (that is, FY 1987 
through 1996), weighted by the relative vintage weights listed for 
movable equipment in Table 1. These calculations are slightly different 
than prior versions of the CIPI in the Federal Register, and reflect a 
more refined weighting methodology.

Table 2.--Annual Percent Changes for Non-Vintage Weighted Capital Input Price Proxies, Fiscal Years 1949 to 2000
[Proxy name--BOECKH--institutional construction, PPI-11-machinery and equipment, Muni--average yield on domestic
municipal bonds--bond buyer (20 bonds), AAA--average yield on moody's AAA corporate bonds, CPI rent (all urban)--
                                                residential rent]                                               
----------------------------------------------------------------------------------------------------------------
                                                                                          Combined              
            Fiscal year                BOECKH       PPI-11        Muni         AAA        Muni/AAA     CPI rent 
----------------------------------------------------------------------------------------------------------------
1949..............................          3.3          7.4         -4.4         -3.1         -4.2          4.4
1950..............................          1.4          0.5         -9.4         -4.2         -8.4          3.9
1951..............................          8.6         13.6         -5.8          7.1         -3.4          3.7
1952..............................          3.7          1.6         12.9          5.7         11.4          4.2
1953..............................          3.5          0.8         25.9          7.3         22.2          4.7
1954..............................          1.5          2.7         -8.2         -6.3         -7.9          4.8
1955..............................          1.8          1.9         -0.4          1.1         -0.1          1.4
1956..............................          4.8          7.5          7.8          7.6          7.8          1.7
1957..............................          3.6          8.0         24.0         18.0         23.0          1.9
1958..............................          1.8          3.2         -3.7         -1.1         -3.3          1.9
1959..............................          3.1          1.6         11.5         13.3         11.8          1.3
1960..............................          2.7          1.5          1.7          4.9          2.3          1.6
1961..............................          1.1         -0.3         -3.1         -3.2         -3.2          1.3
1962..............................          2.2          0.0         -6.4          0.8         -5.1          1.3
1963..............................          2.3          0.0         -3.4         -2.8         -3.3          1.0
1964..............................          2.8          0.9          3.2          3.3          3.2          1.0
1965..............................          3.1          0.6         -0.5          1.6         -0.1          1.0
1966..............................          3.8          2.7         16.5         11.0         15.4          1.2
1967..............................          5.3          3.8          2.4          8.3          3.5          1.7
1968..............................          7.3          2.8         14.7         14.5         14.6          2.4
1969..............................          8.4          3.3         21.5          9.8         19.2          2.8
1970..............................          7.0          4.2         22.2         18.0         21.4          4.1
1971..............................          8.7          4.2        -13.9         -4.9        -12.3          4.7
1972..............................          8.0          2.2         -5.8         -3.8         -5.4          3.6
1973..............................          6.0          2.6         -1.8          0.8         -1.3          4.0
1974..............................          8.0          9.9         12.6         12.5         12.6          4.9
1975..............................         11.1         19.5         19.2          7.9         16.9          5.2
1976..............................          7.6          6.7         -1.2         -3.2         -1.5          5.3
1977..............................          8.5          6.0        -15.8         -6.4        -14.1          5.8
1978..............................          6.6          7.6          1.1          5.6          2.0          6.7
1979..............................          7.5          8.7          7.3          8.9          7.6          7.1
1980..............................          8.6         11.5         26.9         22.9         26.1          8.6
1981..............................          9.8         10.6         32.9         20.7         30.5         8.8 

[[Page 45821]]
                                                                                                                
1982..............................          9.6          7.1         16.2          5.5         14.2          8.0
1983..............................          7.0          3.2        -22.5        -17.7        -21.7          6.3
1984..............................          5.2          2.3          4.8          6.9          5.1          5.0
1985..............................          2.0          2.2         -5.3         -7.1         -5.6          5.9
1986..............................          1.6          1.5        -18.1        -19.6        -18.4          6.2
1987..............................          2.1          1.5         -5.5         -5.3         -5.5          4.5
1988..............................          2.3          2.2          7.1          9.9          7.6          3.8
1989..............................          3.6          3.5         -6.7         -4.8         -6.3          3.8
1990..............................          2.5          3.1         -1.2         -2.0         -1.3          4.2
1991..............................          2.7          2.2         -2.7         -2.6         -2.7          3.9
1992..............................          3.1          0.5         -7.4         -8.2         -7.5          2.6
1993..............................          2.4          0.4        -10.6         -8.9        -10.3          2.4
1994..............................          2.8          0.8          0.0          0.2          0.0          2.3
1995..............................          3.1          1.4          6.2          8.1          6.5          2.7
1996..............................          2.8          3.0         -6.9         -6.0         -6.7          3.0
1997..............................          3.4          2.4          4.2          1.5          3.7          2.2
1998..............................          3.4          2.5         -2.3          1.3          2.1          3.6
1999..............................          3.2          2.4         -1.3         -0.6         -1.2          2.5
2000..............................          3.2          2.5          0.5          0.6          0.5         2.7 
----------------------------------------------------------------------------------------------------------------
Source: DRI/McGraw-Hill HCC, 2nd Qtr 1995; @USSIM/TRENDLONG0595; @CISSIM/CCONTROL952.                           
Released By: HCFA, OACT, Office of National Health Statistics.                                                  



    Table 3.--HCFA Capital Input Price Index Percent Changes, Total and Components, Fiscal Years 1979 to 2000   
----------------------------------------------------------------------------------------------------------------
                                                              Depreciation                                      
                                                ---------------------------------------                         
            Fiscal year                Total                    Building                  Interest      Other   
                                                    Total      and fixed     Movable                            
                                                               equipment    equipment                           
----------------------------------------------------------------------------------------------------------------
Weights (FY1987)..................       1.0000       0.6510       0.3054       0.3456       0.3274       0.0216
                                                                                                                
----------------------------------------------------------------------------------------------------------------
                                                                                                                
                                                 Price Changes                                                  
----------------------------------------------------------------------------------------------------------------
1979..............................          5.6          7.4          6.9          7.7          2.6          7.1
1980..............................          7.1          7.9          7.2          8.6          5.6          8.6
1981..............................          8.8          8.4          7.6          9.1          9.5          8.8
1982..............................          9.3          8.5          7.9          9.0         10.6          8.0
1983..............................          6.7          8.0          7.8          8.1          4.7          6.3
1984..............................          6.3          7.2          7.5          6.9          4.8          5.0
1985..............................          5.1          6.2          6.7          5.7          3.3          5.9
1986..............................          3.7          5.5          6.1          5.0          0.4          6.2
1987..............................          3.1          4.9          5.6          4.3         -0.5          4.5
1988..............................          3.0          4.5          5.3          3.8          0.1          3.8
1989..............................          2.7          4.3          5.1          3.6         -0.7          3.8
1990..............................          2.4          3.9          4.8          3.2         -1.0          4.2
1991..............................          2.1          3.6          4.5          2.7         -1.3          3.9
1992..............................          1.7          3.2          4.3          2.1         -2.1          2.6
1993..............................          1.3          2.9          4.1          1.8         -2.9          2.4
1994..............................          1.3          2.8          4.0          1.6         -2.7          2.3
1995..............................          1.5          2.7          3.9          1.6         -1.9          2.7
1996..............................          1.5          2.8          3.8          1.8         -2.5          3.0
1997..............................          1.7          2.8          3.7          1.9         -2.0          2.2
1998..............................          1.9          2.8          3.6          2.0         -1.5          3.6
1999..............................          1.9          2.8          3.5          2.0         -1.4          2.5
2000..............................          1.9          2.8          3.5          2.0         -1.2         2.7 
----------------------------------------------------------------------------------------------------------------
Source: DRI/McGraw-Hill HCC, 2nd Qtr 1995; @USSIM/TRENDLONG0595;                                                
@CISSIM/CONTROL952.                                                                                             
Released By: HCFA, OACT, Office of National Health Statistics.                                                  

    As we have discussed in connection with previous versions of the 
CIPI, stability is an important criterion for evaluating such an index. 
Stability is an inherent characteristic of capital because of its 
vintage nature; since capital assets are consumed over time, they are 
replaced at a relatively slow rate. An input price index for capital 

[[Page 45822]]
should reflect the relative stability of capital assets themselves. 
Furthermore, excessive volatility in a price index deprives the index 
of predictability, thus inhibiting the ability of institutions to plan 
for changes in capital payments resulting from changes in the CIPI. We 
graphically demonstrated (using the projections available at that time) 
the stability of the annual HCFA vintage-weighted CIPI compared to 
annual changes in non-vintage-weighted capital purchase prices in 
Figures 1 and 2 in our discussion of May 27, 1994 (59 FR 27882).
    ProPAC recommends a capital input price index based on annual 
changes in current capital purchase prices excluding consideration of 
weighted historical capital purchase prices (that is, not vintage 
weighted). We previously argued that the ProPAC index was not 
consistent with the operating input price index that is currently used 
to assist in updating DRG payment rates. We would add that the greater 
volatility in annual purchase prices would introduce an unacceptable 
degree of volatility in prospective capital payments and does not 
reflect the inherent stability that comes from the vintage nature of 
capital.
    Comment: One commenter contended that the HCFA CIPI is excessively 
complicated, considering that its purpose is to update just a small 
portion (approximately 10 percent) of payments to hospitals for 
inpatient services. The commenter recommended that a simpler approach 
be adopted.
    Response: Capital expenses for prospective payment hospitals are 
expected to be about $7.8 billion in FY 1996, a significant amount that 
warrants an appropriate input price index. While the HCFA CIPI does 
include vintage-weighting of both depreciation and interest prices, the 
HCFA CIPI is actually a simplification of the complicated capital 
accumulation process it is measuring. It would not be appropriate to 
accept an index that does not measure capital prices as well just 
because it is simpler. The HCFA CIPI is complicated only to the point 
that it accurately measures price increases for capital purchased in a 
financial world that is itself inherently complicated by the vintage 
nature of capital. Despite its necessary complexities, the HCFA CIPI 
provides an accurate, less volatile measure of price increases than 
annual price changes, providing hospitals with the ability to plan for 
changes in capital payments. As stated earlier, the vintage nature of 
capital requires that the index reflect the stability of capital 
assets.
    Another commenter on a previous version of the CIPI recommended 
that data from Securities Data Corporation be incorporated into the 
CIPI interest computations. This source provides information on 
hospital issuances of municipal and commercial bonds. From this data 
base, we incorporated information showing that the average expected 
life of hospital bond debt instruments (that is, the time interval 
between the issue date and the maturation date) was about 13 years for 
municipal serial bonds and about 25 years for municipal term bonds. The 
weighted average life for the 2 types of bonds was 22 years.
    The relative nominal capital purchases within various 22-year 
periods provided appropriate vintage weights for annual changes in 
interest rates. Not all capital purchases are funded by debt. Medicare 
cost reports suggest that about 80 percent of new capital acquisitions 
are financed by debt and about 20 percent by equity financing. However, 
if the proportion of total purchases financed by debt does not change 
substantially from year to year, then it is irrelevant whether we use 
the full amount or a constant proportion of the full amount of nominal 
capital acquisitions as weights for relative amounts of the debt 
instruments still active in the current period.
    A third commenter on a previous version of the CIPI recommended 
that we investigate the effects on interest rate changes of changing 
structures of hospital bond ratings. If bond ratings are deteriorating, 
hospitals incur higher interest rate charges; if bond ratings improve, 
hospitals incur lower interest rates. Our CIPI currently recognizes 
only changes in pure interest rates and does not recognize changes in 
effective interest rates due to changes in bond ratings.
    We reviewed a hospital municipal-bond data base from Securities 
Data Corporation to examine that issue. The data showed that serial 
bonds continue to dominate short-term financing and that term bonds 
dominate long-term financing. We classified all bond amounts by ratings 
found in the data base for years 1980 to 1993. The distribution of 
those issues described with a Moody's Quality Rating, shown in Table 4 
(portions are applied to dollar amount of debt issued), indicates a 
trend toward higher quality issues since 1984. Although the annual, 
aggregate issue amounts in Moody's quality range Aaa through A have 
remained approximately constant since 1980, issue amounts in the 
highest quality band have become substantially higher since inception 
of the prospective payment system. Both issue amounts in the Aaa-Aa3 
ranges and those in the Aaa-A range are greater in 1993 than at any 
time since 1980. We conclude there is not sufficient evidence to 
justify a component for deteriorating bond ratings in the CIPI.

  Table 4.--Percent Distribution of Hospital Municipal Bond Amounts by  
                        Moody's Quality Rating.*                        
------------------------------------------------------------------------
                               Pre-          Post-prospective payment   
                            prospective               system            
                          payment system -------------------------------
                         ----------------    1984-1988       1989-1993  
                             1980-1983   -------------------------------
                         ----------------                               
                             (percent)       (percent)       (percent)  
------------------------------------------------------------------------
Aaa-Aa3.................             7.1            36.8            49.0
Aa-A....................            50.6            24.1            21.7
Baa1-Ba.................             9.6             3.6             8.0
Not Rated...............            31.0            32.7            17.9
------------------------------------------------------------------------
* Distributions do not sum to 100 percent due to a residual category of 
  missing data.                                                         
Notes:                                                                  
(1) Aggregate issues from Aaa-A have remained fairly constant since     
  1980.                                                                 
(2) Issue amounts in the highest quality band have become substantially 
  higher since inception of the prospective payment system.             
(3) Both issue amounts in the Aaa-Aa3 ranges and those in the Aa-A      
  ranges are greater in 1993 than at any time since 1980.               


[[Page 45823]]

    Relative vintage interest weights derived from our procedure are 
shown in Table 1. When combined with index levels (base year FY 1987) 
of annual, non-vintage weighted interest rate proxies, the relative 
interest weights provide current year, vintage-weighted component index 
levels for interest rates in the CIPI. The annual percentage change 
between the non-vintage-weighted historical, annual interest index 
levels are listed in Table 2. The annual percentage change between the 
annual, vintage-weighted interest component index levels (base year FY 
1987) are listed in Table 3. Thus, for example, the interest rate 
component change of -2.5 percent in Table 3 for FY 1996 represents the 
annual percentage change between the 1995 and 1996 vintage-weighted 
interest component index levels. The 1996 interest component index 
level (base year FY 1987) is computed as the vintage-weighted average 
of the previous 22 years in the interest rate proxy index level 
(Combined Muni/AAA) in Table 2, weighted by the interest weights listed 
in Table 1. We use an index level for a combined municipal and AAA 
commercial bond interest rate (percent changes shown in Table 2 as 
Combined Muni/AAA), giving the municipal rate an 85 percent weight and 
the AAA rate a 15 percent weight, reflecting the relative hospital 
debts of the government/non-profit hospital sector and the for-profit 
sector.
    Although Medicare cost reports show that only 60 percent of current 
hospital debt is in the form of notes or bonds (about 40 percent is in 
the form of mortgages), we assumed that the relative annual weights for 
all debt and the relative annual changes in interest rates for all debt 
were the same as bond-related weights and price changes. We are still 
searching for an appropriate source of information on hospital 
commercial mortgage data. We do not expect that the discovery of such 
data will materially alter our current conclusions about trends in 
effective interest rates over time.
    c. Projection of the CIPI for Fiscal Year 1996. DRI projects a 1.5 
percent increase in the CIPI for FY 1996 (Table 3). This is the outcome 
of a 2.8 percent increase in projected weighted depreciation prices in 
FY 1996, partially offset by a 2.5 percent decline in vintage-weighted 
interest rates in FY 1996.
    d. ProPAC Input Price Index. 
    i. Introduction. Three major differences distinguish ProPAC's CIPI 
from HCFA's CIPI:
     The ProPAC CIPI measures changes in capital asset purchase 
prices in the year the asset is purchased (that is, not vintage-
weighted). HCFA's CIPI is designed to measure changes in a vintage-
weighted composite of capital asset purchase prices.
     The ProPAC CIPI uses the Marshall and Swift hospital 
equipment index as the movable equipment purchase price proxy while 
HCFA uses the Producer Price Index for machinery and equipment.
     The ProPAC CIPI has no interest component. ProPAC treats 
interest rate changes as an optional separate update policy adjustment 
factor.
    Through 1996, for example, ProPAC expects that long term interest 
rates will remain relatively stable and, therefore, believes that it is 
not appropriate to adjust capital input prices for forecasted changes 
in interest rates in the target year.
    HCFA incorporates a vintage-weighted composite of interest rates in 
its CIPI for the target year.
    ii. Depreciation. ProPAC states that its CIPI is analogous to the 
prospective payment operating price index. We disagree. The components 
of the operating index represent price changes in ongoing hospital 
expenses for labor and non-capital goods and services. The analogous 
capital expenses in this context are current depreciation costs, 
interest costs, and other capital-related expenses (such as insurance). 
Current depreciation and interest costs, according to HCFA, IRS, and 
accounting principles, are a cumulative composite of segments of 
expenses incurred in current and prior periods. Current interest costs 
are a cumulative composite of segments of past and current year debt 
costs. Since both depreciation and interest costs have a vintage 
component, the price aspect of these costs must have a vintage 
component as well. The HCFA CIPI attempts to capture these vintage 
components.
    Differences between HCFA and ProPAC with respect to choices for 
annual non-vintage-weighted rates of change in alternative price 
proxies for movable equipment are small for much of the historical 
period. (We illustrated this fact in Figure 8 (Inset) in the May 27, 
1994 proposed rule (59 FR 27890), using earlier projections.) As noted 
in our September 1, 1992 final rule, one basic criterion for accepting 
price proxies is public availability of documentation on data sources 
and methodology (57 FR 40018-40019). Despite repeated efforts, neither 
we nor Data Resources Inc. have been able to obtain documentation on 
the movable price proxy recommended by ProPAC (Marshall and Swift 
hospital equipment index) that explains how it is derived and what 
sampling frame and sampling error attach to the estimates. In the 
absence of such information we cannot adopt the ProPAC alternative.
    HCFA's assumption is that prices for movable equipment purchased by 
hospitals change at about the same rate as prices for machinery and 
equipment generally. This assumption is justified in part by the fact 
that not all movable equipment purchased by hospitals is medical 
equipment; it stands to reason that the prices for non-medical movable 
equipment purchased by hospitals, such as automobiles, desks, chairs, 
etc., would change at about the same rate as prices for all machinery 
and equipment. To examine this assumption further, we measured the rate 
of change in the HCFA movable price proxy relative to prices for 
medical equipment only by preparing a composite index of medical prices 
from the Bureau of Labor Statistics Producer Price Index (PPI) for two 
commodity categories--medical instruments/equipment and X-ray/electro-
medical equipment. The two PPI commodity indexes were then merged using 
their respective PPI weights. Price changes for this index are not 
available for years prior to 1984. Annual price changes for medical 
equipment follow the annual HCFA price proxy more closely than the 
ProPAC price proxy for most of the historical period. We will continue 
to monitor trends in these indexes to ensure that appropriate price 
proxies are incorporated in the CIPI.
    iii. Interest. ProPAC has proposed to project annual interest rates 
to future periods and then to decide whether to allow an add-on to the 
Federal capital rate depending on the magnitude of the projection. 
ProPAC has presented no objective criteria for determining when an 
interest adjustment is appropriate. We previously noted that a single-
year projection for interest rates is conceptually inappropriate since 
interest costs must be vintage-weighted. In addition to this conceptual 
problem, the ProPAC approach is impractical because future annual 
interest rates are volatile, vulnerable to unpredictable market forces, 
and subject to exogenous influences (such as Federal Reserve Board 
decisions) that are difficult to anticipate. Thus, any projection of 
future annual interest rates is likely to be inaccurate, resulting in 
underpayment or overpayment of the Federal capital rate relative to the 
capital-related expenses that the rate is supposed to reflect. The 
resulting uncertainty in payments under future Federal capital rates 
further complicates future capital expenditure decisions by hospitals. 
On the other hand, the 

[[Page 45824]]
projected HCFA CIPI interest component for the target year is the 
weighted average change over 22 years of interest rate history, of 
which 20 years experience in the non-vintage weighted price proxy is 
appropriately historical. The projected annual, non-vintage weighted 
experience in the price proxy for the most recent 2 years may be as 
inaccurate as any ProPAC projection, but any error will have minimal 
effects on Federal rates due to the appropriately weighted effect of 
the historical data in the HCFA CIPI. This stability in the interest 
rate component of the HCFA CIPI provides hospital planners with a 
degree of certainty about future Federal rate payments, other things 
remaining equal.
    iv. The Composite CIPI. Annual percentage changes in the historical 
and projected HCFA and ProPAC CIPIs differ markedly as shown in Table 
5. The 2.9 percent increase for the ProPAC capital market basket in 
Table 5 for FY 1996 is lower than the 4.1 percent increase presented in 
ProPAC's March 1995 Report and Recommendation to the Congress. In the 
ProPAC March report, ProPAC used the 4th quarter 1994 DRI forecasts, 
while the figure in this final rule represents 2nd quarter 1995 DRI 
forecasts. Between 4th quarter 1994 and 2nd quarter 1995, DRI revised 
its forecast downward by 1.2 percentage points to reflect slower price 
growth in 1996 than originally expected. A lower forecast for the 
movable equipment price proxy (Marshall and Swift) was responsible for 
roughly 60 percent of the 1.2 percentage point decline between 
forecasts. The remaining 40 percent of the decline was the result of 
lower forecasts in the fixed equipment price proxy (Boeckh) and the 
other capital-related expenses price proxy (CPI-residential rent), 
which accounted for roughly 23 percent and 12 percent, respectively. We 
emphasize that the later forecast was not available when ProPAC 
released its March report.
    The ProPAC CIPI is much more volatile than the HCFA CIPI in the 
historical period through 1994 because it does not reflect vintage-
weighted capital input price factors for depreciation. Further, the 
ProPAC CIPI omits conceptually relevant interest rates. The cumulative 
effect of declining interest rates for all debt instruments in recent 
years has driven the rate of change in the HCFA vintage-weighted 
interest rate component downward, a trend projected by DRI into future 
rate years. The declining interest rate component appropriately brings 
the HCFA CIPI below the ProPAC CIPI in the projection period. Other 
things being equal, the ProPAC index would result in overpayment 
through the Federal rate because anticipated actual capital-related 
expenses will be less than ProPAC projects due to the effects of lower 
interest rates on capital-related expenses.

 Table 5.--Annual Percent Changes in HCFA Capital Input Price Index and 
             the ProPAC Capital Market Basket, 1979 to 2000             
------------------------------------------------------------------------
                                                        HCFA            
                                                       capital   ProPAC 
                     Fiscal year                        input    capital
                                                        price    market 
                                                        index    basket 
------------------------------------------------------------------------
1979................................................       5.6       8.3
1980................................................       7.1       9.2
1981................................................       8.8      10.0
1982................................................       9.3       7.7
1983................................................       6.7       4.6
1984................................................       6.3       3.9
1985................................................       5.1       2.2
1986................................................       3.7       1.7
1987................................................       3.1       2.1
1988................................................       3.0       3.5
1989................................................       2.7       4.6
1990................................................       2.4       2.3
1991................................................       2.1       3.0
1992................................................       1.7       2.2
1993................................................       1.3       2.1
1994................................................       1.3       2.8
1995................................................       1.5       3.4
1996................................................       1.5       2.9
1997................................................       1.7       3.4
1998................................................       1.9       3.3
1999................................................       1.9       3.2
2000................................................       1.9      3.4 
------------------------------------------------------------------------
Source: DRI/McGraw-Hill HCC, 2nd Qtr 1995; @USSIM/TRENDLONG0595; @CISSIM/
  CONTROL952.                                                           
Released By: HCFA, OACT, Office of National Health Statistics.          

    ProPAC believes that Medicare program payments should reflect both 
savings from low interest rate levels on new debt instruments and the 
additional costs of high interest rate levels. As explained above, the 
Commission has proposed accomplishing this through an interest policy 
adjustment. However, ProPAC has neither presented a threshold level for 
making an interest adjustment nor established a process for determining 
the amount of the adjustment. The HCFA CIPI, on the other hand, 
automatically registers the price effects of interest rate changes on 
new debt instruments that carry over into future periods, although 
those effects are appropriately registered only very gradually.
    When interest rate levels decline, hospitals may refinance their 
existing debt. Refinancing has a price effect as new debt instruments 
with lower prices (interest rate levels) replace older debt instruments 
with higher prices (interest rate levels). ProPAC believes its interest 
policy adjustment can and should capture this behavior. In this way, 
Medicare can share in the savings from refinancing. The HCFA CIPI does 
not now automatically register the price effects of refinancing. 
Whether to do so or not is a policy judgment concerning whether HCFA 
should share in refinancing savings or allow hospitals to realize the 
full effects of refinancing. A refinancing adjustment would not only 
reflect actual hospital behavior, but would also add to the existing 
incentives of a rate-based system for hospitals to replace high 
interest debt instruments with lower interest debt instruments. 
However, the absence of a refinancing adjustment could allow individual 
hospitals to refinance and keep the savings, just as individual 
hospitals who become relatively more efficient in furnishing care for 
specific DRGs are rewarded for the more efficient behavior.
    Since refinancing is a price matter, the adjustment would 
appropriately be on the price side of the framework, rather than on the 
policy adjustment side, which deals with quantities. However, the 
adjustment would not be included directly within the CIPI because the 
price effect of refinancing involves a shift in the vintage weights 
applied to index levels. That is, interest expense associated with 
prices (interest rate levels) in the year the debt is originated would 
be shifted to reflect interest expense associated with prices in the 
year the debt is refinanced. This essentially would reduce the relative 
vintage weights for interest in the CIPI (Table 1) in some years and 
increase the relative vintage weights for interest in other years. Yet 
by definition, the fixed-weight CIPI holds all weights constant. 
However, a discretionary adjustment could be made on the relative 
vintage weights. This is analogous to the separate adjustments for real 
case-mix changes in the update framework.
    In the June 2, 1995 proposed rule we invited comments on whether to 
incorporate a refinancing adjustment within the HCFA framework. A 
refinancing adjustment would present specific problems because HCFA has 
not been able to obtain data to accurately determine refinancing 
amounts. Whether HCFA can ultimately propose a refinancing adjustment 
depends upon whether the necessary data can be obtained.
    Comment: Two commenters stated that a proposed refinancing 
adjustment is not necessary. One commenter indicated that hospitals 
should be rewarded by keeping savings from 

[[Page 45825]]
efficient behavior such as refinancing high interest debt. The other 
commenter indicated that it would not be proper for hospitals to be 
penalized or rewarded based on a theoretical refinancing threshold that 
would trigger an adjustment.
    Response: These comments are useful in analyzing the merits and 
technical difficulties of including a refinancing adjustment in the 
HCFA update framework. We are continuing to determine whether a 
refinancing adjustment is appropriate, and, if so, how to implement 
one. We will provide any additional findings in upcoming notices. We 
encourage comments and suggestions, like those we have received, or 
recommendations of any studies or data sources that would be useful in 
assessing and/or implementing a refinancing adjustment.
4. Case-Mix Adjustment and Adjustment for Forecast Error
    We proposed that the update framework contain adjustments for 
changes in the case-mix index and for forecast error.
    The case-mix index (CMI) is the measure of the average DRG weight 
for cases paid under the prospective payment system. Because the DRG 
weight determines the prospective payment for each case, any percentage 
increase in the CMI corresponds to an equal percentage increase in 
hospital payments.
    The CMI can change for any of several reasons: because the average 
resource use of Medicare patients changes (``real'' case-mix change); 
because changes in hospital coding of patient records result in higher 
weight DRG assignments (``coding effects''); and because the annual DRG 
reclassification and recalibration changes may not be budget neutral 
(``reclassification effect''). We define real case-mix change as actual 
changes in the mix (and resource requirements) of Medicare patients as 
opposed to changes in coding behavior that result in assignment of 
cases to higher-weighted DRGs but do not reflect higher resource 
requirements. In the update framework for the prospective payment 
system for operating costs, we adjust the update upwards to allow for 
real case-mix change, but remove the effects of coding changes on the 
CMI. We also remove the effect on total payments of prior changes to 
the DRG classifications and relative weights, in order to retain budget 
neutrality for all CMI-related changes other than patient severity. 
(For example, we adjusted for the effects of the FY 1992 DRG 
reclassification and recalibration as part of our FY 1994 update 
recommendation.) The operating adjustment consists of a reduction for 
total observed case-mix change, an increase for the portion of case-mix 
change that we determine is due to real case-mix change rather than 
coding modifications, and an adjustment for the effect of prior DRG 
reclassification and recalibration changes. We proposed to adopt this 
CMI adjustment as well in the capital update framework.
    For FY 1996, we are projecting a 0.8 percent increase in the case-
mix index. We estimate that real case-mix increase will equal projected 
case-mix increase in FY 1996. We do not anticipate any changes in 
coding behavior in our projected case-mix change. The proposed net 
adjustment for case-mix change in FY 1996 is therefore 0.0 percentage 
points.
    The -1.0 percent figure used in the ProPAC framework represents 
ProPAC's projection for observed case-mix change. ProPAC projects a 0.8 
percent increase in real case-mix change across DRGs and a 0.2 percent 
increase in within-DRG complexity. ProPAC's net adjustment for case mix 
is therefore zero.
    We estimate that FY 1994 DRG reclassification and recalibration 
resulted in a 0.3 percent increase in the case mix when compared with 
the case-mix index that would have resulted if we had not made the 
reclassification and recalibration changes to the DRGs. ProPAC does not 
make an adjustment for DRG reclassification and recalibration in its 
update recommendation.
    The current operating update framework contains an adjustment for 
forecast error. The input price index forecast is based on historical 
trends and relationships ascertainable at the time the update factor is 
established for the following year. In any given year there can be 
unanticipated price fluctuations that can result in differences between 
the actual increase in prices faced by hospitals and the forecast used 
in calculating the update factors. We continue to believe that the 
capital update framework should include a forecast error adjustment 
factor. In setting a prospective payment rate under the proposed 
framework, we proposed to make an adjustment for forecast error only if 
our estimate of the capital input price index rate of increase for any 
year is off by 0.25 percentage points or more. There is a 2-year lag 
between the forecast and the measurement of the forecast error. Thus, 
for example, we would adjust for a forecast error made in FY 1996 
through an adjustment to the FY 1998 update.
    We received no comments on our proposed adjustments for case-mix 
increase and for forecast error. In this final rule, we are therefore 
adopting those adjustments as proposed.
5. Policy Adjustment Factors
    The capital input price index measures the pure price changes 
associated with changes in capital-related costs (prices  x  
``quantities''). The composition of capital-related costs is maintained 
at base-year 1987 proportions in the capital input price index. We 
proposed to address appropriate changes in the amount and composition 
of capital stock through the policy adjustment factors.
    The current update framework for the prospective payment system for 
operating costs includes factors designed to adjust the input price 
index rate of increase for policy considerations. Under the revised 
operating framework, we adjust for service productivity (the efficiency 
with which providers produce individual services such as laboratory 
tests and diagnostic procedures) and intensity (the amount of services 
used to produce a discharge). The service productivity factor for the 
operating update framework reflects a forward-looking adjustment for 
the changes that hospitals can be expected to make in service-level 
productivity during the year. A hospital retains any productivity 
increases above the average.
    The intensity factor for the operating update framework reflects 
how hospital services are utilized to produce the final product, that 
is, the discharge. This component accounts for changes in the use of 
quality-enhancing services, changes in within-DRG severity, and 
expected modification of practice patterns to remove cost-ineffective 
services. We proposed that the intensity adjustment factor in the 
operating framework be adopted in the capital update framework. Under 
the operating update framework, we calculate case-mix constant 
intensity as the change in total charges per admission, adjusted for 
price level changes (the CPI hospital component) and changes in real 
case mix. The use of total charges in the calculation of the proposed 
intensity factor makes it a total intensity factor, that is, charges 
for capital services are already built into the calculation of the 
factor. We therefore proposed to incorporate the intensity adjustment 
from the operating update framework into the capital update framework. 
In the absence of reliable estimates of the proportions of the overall 
annual intensity increases that are due, respectively, to ineffective 
practice 

[[Page 45826]]
patterns and to the combination of quality-enhancing new technologies 
and within-DRG complexity, we proposed to assume, as in the revised 
operating update framework, that one-half of the annual increase is due 
to each of these factors. The proposed capital update framework would 
thus provide an add-on to the input price index rate of increase of 
one-half of the estimated annual increase in intensity to allow for 
within-DRG severity increases and the adoption of quality-enhancing 
technology.
    Comment: Several commenters objected that we derive the estimate of 
allowable intensity as a function of observed intensity, so that any 
level of intensity is presumptively 100 percent too high.
    Response: Our analysis does derive allowable intensity from 
observed intensity. However, we do not believe that doing so involves 
an assumption that any level of intensity increase is 100 percent too 
high. In our analysis, and in determining the level of the intensity 
adjustment in the framework, we assume that half of observed intensity 
is due to the combination of quality-enhancing new technology and 
within-DRG complexity, and half to ineffective practice patterns. We 
adopted this assumption in the absence of any estimates of the 
comparative contributions of those factors to the observed level of 
intensity increases. Under such circumstances, we believe the 
assumption that half of observed intensity is allowable to be 
reasonable because it minimizes error.
    We have decided to adopt the intensity measure as proposed. For FY 
1996, we have developed a Medicare-specific intensity measure based on 
a 5-year average using FY 1990-1994. In determining case-mix constant 
intensity, we found that observed case-mix increase was 2.2 percent in 
FY 1990, 2.8 percent in FY 1991, 1.5 percent in FY 1992, 0.8 percent in 
FY 1993, and 0.8 percent in FY 1994. For FY 1990 through FY 1992, we 
estimate that 1.0 to 1.4 percent of the case-mix increase was real. 
(This estimate is supported by past studies of case-mix change by the 
RAND Corporation. The most recent study was ``Has DRG Creep Crept Up? 
Decomposing the Case Mix Index Change Between 1987 and 1988'' by G.M. 
Carter, J.P. Newhouse, and D.A. Relles, R-4098-HCFA/ProPAC (1991). The 
study suggested that real case-mix change was not dependent on total 
change, but was rather a fairly steady 1.0 to 1.5 percent per year. We 
use 1.4 percent as the upper bound because the RAND study did not take 
into account that hospitals may have induced doctors to document 
medical records more completely in order to improve payment.) We 
assumed that all of the observed case-mix increase of 0.9 percent for 
FY 1993 and 0.8 percent for FY 1994 was real. (This assumption is 
consistent with the FY 1996 CMI projections described above.) If we 
assume that real case-mix increase was 1.0 percent per year during FY 
1990 through FY 1992 (but 0.9 percent in FY 1993 and 0.8 percent in FY 
1994), case-mix constant intensity declined by an average 1.2 percent 
during FY 1990 through FY 1994, for a cumulative decrease of 6.1 
percent. If we assume that real case-mix increase was 1.4 percent per 
year during FY 1990 through FY 1992 (but 0.9 percent in FY 1993 and 0.8 
percent in FY 1994), case-mix constant intensity declined by an average 
1.5 percent during FY 1990 through FY 1994, for a cumulative decrease 
of 7.2 percent. Since we estimate that intensity has declined during 
the FY 1990-1994 period, the intensity adjustment for FY 1996 is 0.0 
percent.
    In our discussion of a possible efficiency adjustment, we suggested 
that such an adjustment should take into account two considerations. 
One is that capital inputs, unlike operating inputs, are generally 
fixed in the short run. The productivity target in the revised 
operating framework operates on a short-term, year-to-year basis. 
Targets for capital efficiency and cost-effectiveness, however, must 
operate on a longer term basis. The other consideration is that, prior 
to the adoption of the capital prospective payment system, Medicare 
payment policy for capital-related costs, as well as the policies of 
other payers, did not provide sufficient incentives for efficient and 
cost-effective capital spending. Economic theory suggests that an 
industry with a guaranteed return on capital (such as the hospital 
industry prior to prospective payment for capital-related costs) would 
have a tendency to be overly capitalized relative to more competitive 
industries. This is because the incentive for firms in such an industry 
is to compete on the basis of more capital-intensive production 
processes than firms in other industries. As a result, capital costs 
per case, and therefore base year prospective capital rates, may be 
higher than would have been consistent with capital acquisition policy 
in more efficiency-oriented markets. A guiding principle in devising an 
efficiency adjustment is therefore that Medicare capital prospective 
payment rates should not provide for maintenance of capital in excess 
of the level that would be produced in an efficiency-oriented 
competitive market.
    To examine this issue, we analyzed the change in actual Medicare 
capital cost per case for FY 1986 through FY 1992 in relation to the 
change in the capital input price index (which accounts for change in 
the input prices for capital-related costs), and the other adjustment 
factors that we were then proposing to include in the framework. (The 
other adjustment factors are the increase in real case mix and the 
increase in intensity due to quality-enhancing technological change and 
within-DRG complexity.) We found rates of increase in actual spending 
per case that exceeded the rate of increase attributable to inflation 
in capital input prices, quality-enhancing intensity increases, and 
real case-mix growth.
    Our analysis was designed to examine whether hospitals had in fact 
responded to the incentives of the cost-based payment system for 
capital by expanding beyond what was necessary for efficient and cost-
effective delivery of services. The analysis confirmed that volume and 
intensity of capital acquisition far outpaced the increase in capital 
input prices during the years between the implementation of the 
prospective payment system for operating costs and the introduction of 
the capital prospective payment system. Even accounting for real CMI 
increases and increases in intensity attributable to cost-increasing 
but quality-enhancing new technologies, there remains a large excess of 
capital-related spending.
    The following table shows the results of our most recent analysis, 
based on the most current data available and the most recent 
projections. Differences between this table and the tables in previous 
discussions in the Federal Register reflect updated figures for average 
capital cost per case increases, based on the most recent data and 
projections, and our revised CIPI. This analysis encompasses all but 1 
year of the period from the implementation of the prospective payment 
system for operating costs to the implementation of the prospective 
payment system for capital costs. (For FY 1984, sufficient data is not 
available to compute capital cost per case increases and intensity 
increases.) The results of the analysis in Table 6 are substantially 
similar to the results of previous analyses. In Table 6, real case-mix 
increase is assumed to be 1.0 percent annually.

                                                                        

[[Page 45827]]
     Table 6.--Cumulative Percentage Change in Capital-Related Cost per Case Due to Inflation, Real CMI, and    
                                              Intensity, 1985-1992                                              
----------------------------------------------------------------------------------------------------------------
                                                                                          Percent               
                Year                  CIPI \1\    Real CMI     Allowable    Resulting   change cost/   Residual 
                                                     \2\       intensity     increase     case \5\       \6\    
------------------------------------------------------------------\3\----------\4\------------------------------
1985...............................         5.1         1.0           3.7         10.1         12.5          2.2
1986...............................         3.7         1.0           2.1          6.9         19.9         12.2
1987...............................         3.1         1.0           2.5          6.7         14.9          7.6
1988...............................         3.0         1.0           1.5          5.5          7.1          1.5
1989...............................         2.7         1.0           0.5          4.3          7.8          3.4
1990...............................         2.4         1.0           0.2          3.6          6.9          3.1
1991...............................         2.1         1.0           0.1          3.2          5.5          2.3
1992...............................         1.7         1.0           0.1          2.8          4.6          1.8
Cumulative (compounded)............  ..........  ..........  ............         52.0        111.3        39.0 
----------------------------------------------------------------------------------------------------------------
\1\ Figures from Table 1, section V.A.3 of this preamble.                                                       
\2\ Assuming that real CMI increase is 1.0 percent annually.                                                    
\3\ One half of observed intensity increase, as determined by the joint operating/capital intensity measure.    
\4\ The increase attributable to inflation, real CMI, and allowable intensity, calculated as the product of the 
  rates of increase of those factors (that is, 1.031  x  1.01  x  1.025 = 1.067 for 1987).                      
\5\ Figures supplied by HCFA's Office of the Actuary.                                                           
\6\ The actual increase in average cost per case divided by the increase attributable to inflation, real CMI,   
  and allowable intensity (that is, 1.149 /1.067 = 1.076, a 7.6 percent residual for 1987).                     


    We believe that an adjustment for capital efficiency and cost-
effectiveness should take into account the efficiency and effectiveness 
of the capital resources present in the base year for the capital 
prospective payment system. We do not believe that Medicare capital 
payment rates should provide for maintenance of capital in excess of 
the level that would be produced in an efficiency-oriented competitive 
market. A capital efficiency adjustment should be designed to give 
hospitals an incentive to reduce inefficiency and ineffectiveness in 
capital resources. The analysis in Table 6 suggests that, in order to 
restore the Federal rate to the level at which it would have been if 
capital costs had not been excessive in the years before the 
implementation of capital prospective payment, a cumulative reduction 
in the rate of as much as 28.1 percent (1.52/2.113=0.7194, or -28.1 
percent) would be necessary.
    We stated in the proposed rule that we were considering a range of 
options for such an efficiency adjustment. In particular, we have 
considered whether to provide, in the design of such an adjustment, for 
eventually reducing the rate by the entire 28.1 percent suggested by 
the above analysis. Alternatively, the eventual reduction to the rate 
could reflect some part, but not all, of the excess of actual capital 
cost increases over the identified factors. We have also considered the 
appropriate rate at which an adjustment based on the above analysis 
should be applied to the update factors. On the assumption that the 
updates to the rate should be reduced by the full 28.1 percent, such an 
adjustment could be accomplished over a shorter or longer period of 
time. For example, HCFA could adjust the updates to the rate over a 
period of 20 years at the rate of 1.4 percent per year. Similarly, the 
adjustment could be made over 5 years at the rate of 5.6 percent per 
year.
    We proposed that HCFA have the discretion to apply an efficiency 
adjustment to the capital input price rate of change in determining the 
annual update factor. We invited comment on the advisability of such an 
adjustment, on the proportion of the residual that should be employed 
in adjustments to the update, and on the rate at which such an 
adjustment should be applied. We also solicited information on possible 
sources of data that would be useful in developing or refining such an 
adjustment, and on the possible effects of such an adjustment on 
various segments of the hospital industry.
    Comment: Many commenters objected to a possible efficiency 
adjustment. Several commenters asserted that such an adjustment would 
be punitive because it would inappropriately punish hospitals for 
behavior in response to the incentives of the cost-based system. One of 
those commenters recommended that HCFA adopt positive incentives to 
motivate future behavior rather than an adjustment based on past 
behavior.
    Response: We do not believe that an efficiency adjustment based on 
the analysis we have presented would necessarily be punitive. Hospitals 
received reasonable cost payments based on the costs we examined during 
the period just prior to the introduction of prospective payment for 
capital. We believe that the capital rates should not permanently 
reflect a level of cost in excess of an efficient use of capital 
inputs. However, we also believe that an adjustment to return the rates 
to a level reflecting greater efficiency in capital resources should 
not necessarily involve a drastic and precipitous reduction of the 
rates. We note for example, that with the expiration in FY 1996 of the 
requirement that capital prospective payments equal 90 percent of what 
would have been payable on a reasonable cost basis, the Federal rate is 
projected to increase by 22.59 percent. Thus, a substantial efficiency 
adjustment could be made without a net reduction in the Federal rate.
    Comment: One commenter objected that the assumptions behind the 
analysis were not identified. Other commenters argued the analysis 
behind the proposed adjustment did not sufficiently account for the 
costs of quality improvements and other factors such as the need for 
design changes and features that attract patients. Several commenters 
objected that the analysis provided no empirical evidence that 
inefficiency accounts for capital expenses in excess of the expected 
levels.
    Response: We attempted to explain all the assumptions behind our 
analysis. The basic assumption, which derives from economic theory, is 
simply that cost-based payment for capital, or any input, provides an 
incentive for the use of inefficiently high levels of that input. We 
also presented the available empirical data concerning capital cost per 
case increases during the period prior to the introduction of 
prospective payment for capital. The result of comparing actual capital 
cost increases during that period with the identifiable factors that 
contribute to cost increases, is consistent with that assumption: Cost 

[[Page 45828]]
increases exceeded the level that can be accounted for on the basis of 
price increases, intensity increases, and case-mix increases. We 
believe the factors that we have identified already account for quality 
increases, design changes, and the other factors mentioned by 
commenters. Our intensity measure, for example, accounts for any factor 
that affects the level of hospital charges. Presumably, hospitals 
account for the costs, including quality improvements and design 
changes to attract patients, that they face when they set the level of 
charges. As we discuss below, a large residual remains even when we 
allow for all the measured intensity changes during the period we 
examined. We believe that this analysis is certainly suggestive of a 
significant measure of inefficiency in capital costs in the pre-
prospective payment period.
    Comment: Several commenters from states with certificate of need 
(CON) requirements argued that those requirements prevent inefficient 
capital purchases.
    Response: Our analysis was based on national figures, and it did 
not consider regional differences, such as the existence of CON 
requirements in various States, since we are evaluating an efficiency 
adjustment in the Federal rate.
    Comment: Several commenters objected that rate reductions of the 
size contemplated in the discussion of a possible efficiency adjustment 
would jeopardize the ability of many hospitals to meet obligations 
entered under the existing rate levels. One commenter objected that the 
proposed 27.7 percent reduction in capital payments would have a 
devastating impact on hospitals.
    Response: We did not suggest that capital payments would be reduced 
by 27.7 percent. Our proposal, in fact, called for a 20.5 percent 
increase in payments in FY 1996 compared to FY 1995. We did suggest 
that the rate of increase in the rates, and hence in payments, might 
appropriately be reduced by an adjustment to account for inefficiency 
in the level of costs on which the rates were based.
    Comment: One commenter contended that the prospective payment 
system already has sufficient measures to promote efficiency and 
restrain the growth in capital expenditure.
    Response: We agree that there are substantial incentives under the 
capital prospective payment system to promote efficiency and to 
restrain the growth of capital expenditures. However, the existence of 
these incentives does not resolve the problem that motivated our 
discussion of a possible efficiency adjustment. That problem is that 
the level of the capital prospective rates may reflect an inefficiently 
high level of capital costs. We do believe that the rates should not 
permanently reflect a level of capital costs in excess of an efficient 
use of capital inputs.
    Comment: Several commenters objected that the estimate of 
inefficiency partially derives ``efficient'' capital growth due to 
allowable intensity as a function of observed intensity, so that any 
level of intensity is presumptively 100 percent too high.
    Response: Our analysis does derive allowable intensity from 
observed intensity. However, we do not believe that doing so involves 
an assumption that any level of intensity increase is 100 percent too 
high. In our analysis, and in determining the level of the intensity 
adjustment in the framework, we assume that half of observed intensity 
is due to the combination of quality-enhancing new technology and 
within-DRG complexity, and half to ineffective practice patterns. We 
adopted this assumption in the absence of any estimates of the 
comparative contributions of those factors to the observed level 
intensity increases. This assumption does not undermine the validity of 
our analysis of capital cost increases before the introduction of the 
capital prospective payment system. On the contrary, varying our 
assumption about the level of allowable intensity increases yields 
substantially the same result. If we allow 100 percent of observed 
intensity increases, there remains a residual of 25.7 percent, as the 
following table shows:

     Table 7.--Cumulative Percentage Change in Capital-Related Cost per Case Due to Inflation, Real CMI, and    
                                              Intensity, 1985-1992                                              
----------------------------------------------------------------------------------------------------------------
                                                                                          Percent               
                Year                  CIPI \1\    Real CMI     Allowable    Resulting   change cost/   Residual 
                                                     \2\       intensity     increase     case \5\       \6\    
------------------------------------------------------------------\3\----------\4\------------------------------
1985...............................         5.1         1.0           7.4         14.0         12.5         -1.3
1986...............................         3.7         1.0           4.1          9.0         19.9         10.0
1987...............................         3.1         1.0           5.0          9.3         14.9          5.1
1988...............................         3.0         1.0           2.9          7.0          7.1          0.1
1989...............................         2.7         1.0           1.0          4.8          7.8          2.9
1990...............................         2.4         1.0           0.4          3.8          6.9          2.9
1991...............................         2.1         1.0           0.1          3.2          5.5          2.3
1992...............................         1.7         1.0           0.2          2.9          4.6          1.7
Cumulative (compounded)............  ..........  ..........  ............         68.0        111.3        25.7 
----------------------------------------------------------------------------------------------------------------
\1\ Figures from Table 1, section V.A.3 of this preamble.                                                       
\2\ Assuming that real CMI increase is 1.0 percent annually.                                                    
\3\ Total observed intensity increase, as determined by the joint operating/capital intensity measure.          
\4\ The increase attributable to inflation, real CMI, and allowable intensity, calculated as the product of the 
  rates of increase of those factors (that is, 1.031  x  1.01  x  1.05 = 1.093 for 1987).                       
\5\ Figures supplied by HCFA's Office of the Actuary.                                                           
\6\ The actual increase in average cost per case divided by the increase attributable to inflation, real CMI,   
  and allowable intensity (that is, 1.149/1.093 = 1.051, a 5.1 percent residual for 1987).                      

    Therefore, even under the assumption that all intensity increases 
are allowable, this analysis suggests that, in order to restore the 
Federal rate to the level at which it would have been if capital costs 
had not been excessive in the years before the implementation of 
capital prospective payment, a cumulative reduction in the rate of as 
much as 20.5 percent (1.68/2.113=0.7951, or -20.5 percent) would be 
necessary.
    Comment: One commenter denied that cost-based payment for capital 
would influence the decision to purchase capital assets. According to 
the commenter, the decision to add capital resources is driven 
primarily by patient care needs, and not by the availability of 
additional reimbursement. At the same time, the 

[[Page 45829]]
commenter asserted that low payment rates for capital often force 
hospitals to defer needed capital investments.
    Response: The commenter's assertion that cost-based payment would 
not influence the decision to purchase capital assets is inconsistent 
with widely accepted economic theory. Several other commenters, in 
fact, agreed that economic theory does suggest incentives for overuse 
of capital under cost-based reimbursement.
    Comment: Several commenters agreed that economic theory would 
suggest incentives for the overuse of capital during a period in which 
capital was paid on a cost basis while operating costs were paid on the 
basis of a prospective rate. However, the commenters contended that 
economic theory would also suggest that, if hospitals overpurchased 
capital, they conversely had to underemploy operating inputs. As a 
result, the commenters believe that reductions to the capital Federal 
rate to account for the inefficient overuse of capital should be 
matched by increases in the operating rates to account for inefficient 
underutilization of operating inputs.
    Response: We agree with the commenters that the conjunction of 
rate-based payment for operating costs and cost-based payment for 
capital encouraged hospitals to substitute capital inputs for labor and 
other operating inputs. However, we do not agree that an inefficiently 
high level of capital inputs under those conditions necessarily implies 
an inefficiently low level of operating inputs. Rather, the conjunction 
of rate-based payment for operating costs and cost-based payment for 
capital could also lead to the substitution of inefficient capital 
inputs for inefficient operating inputs. Indeed, our previous analysis 
of efficient operating costs for hospitals during FY 1985 through FY 
1991 (57 FR 40014), indicates that operating prospective payments 
during that period were sufficient for the efficient and cost-effective 
delivery of quality care. In conjunction with the analysis of capital 
spending during FY 1985 to FY 1992, these results suggest that 
hospitals may indeed have responded to the existing incentives by 
substituting an inefficiently high level of capital inputs for 
inefficient operating inputs. Under these circumstances, it would not 
be appropriate to increase operating rates in conjunction with a 
decrease in capital rates. Decreased capital rates, along with the 
existing level of operating rates, would provide the appropriate 
incentives for hospitals to achieve efficient levels of both capital 
and operating inputs.
    Comment: One commenter objected that it is inappropriate to 
evaluate hospital behavior during a period of cost-based reimbursement 
for capital on the basis of standards characteristic of a more 
efficiency-oriented market system. Prior to the capital prospective 
payment system, hospitals operated within a system that did not reward 
efficiency. Providers should not be penalized by reducing future rates 
to account for their response to poor incentives in the past.
    Response: We understand the commenter's concern about the use of a 
retrospective standard. At the same time, we do not believe that the 
Medicare program should necessarily base payments permanently on rates 
that reflect a known level of inefficiency in the use of capital 
inputs. We believe a solution that is fair both to hospitals and to the 
Medicare program can be found within the available range of options. As 
we have stated, an efficiency adjustment need not remove all the 
identified residual from the rates, nor need it do so precipitously.
    Comment: One commenter argued that, since capital expenditures are 
associated with binding legal contracts that fix payments for capital 
assets, hospitals would actually be forced to reduce costs in areas 
other than capital in response to reductions in capital rates. The 
result, according to the commenter, would not be capital efficiency, 
but inefficiently low levels of spending in other areas. In addition, 
the commenter contended that rate reductions would result in 
inefficiencies on the capital side as hospitals delayed needed capital 
improvements.
    Response: Implementation of an inefficiency adjustment would not 
necessarily produce an actual decrease in Medicare payments for 
capital. Rather, an efficiency adjustment could be implemented 
gradually so that the rate of increase in the rates and payments is 
reduced. Under those circumstances, the consequences that the commenter 
describes would not arise.
    Comment: Several commenters suggested that the excess of actual 
capital costs over the levels accounted for in our analysis may be the 
result of substitution of debt financing for equity. Such substitution 
may have occurred as a response to negative margins under the 
prospective payment system. Debt financing may have increased capital 
costs, and the commenters urged that we test this possibility 
empirically.
    Response: Cost report data (along with data from other sources) 
suggest that hospitals steadily have financed approximately 80 percent 
of their capital acquisitions by debt, and the remaining 20 percent by 
equity. We have seen no evidence that these proportions have been 
changing in recent years. We will continue to monitor the data, 
however.
    Comment: ProPAC expressed concern about implementing a retroactive 
standard of efficient capital spending, and about the absence of a 
widely accepted definition of hospital efficiency.
    Response: We recognize that there is not a widely accepted 
definition of hospital efficiency. However, we believe that the 
analysis we have presented suggests a significant measure of 
inefficiency in capital costs in the pre-prospective payment period. 
Nevertheless, we have decided not to implement an efficiency adjustment 
at this time. We will, however, continue to study the issue and attempt 
to refine the analysis we have presented. We continue to believe that 
an adjustment for capital efficiency, parallel to the productivity 
adjustment employed in the operating framework, would be an appropriate 
feature of the capital framework.
6. FY 1996 Update Factor
    Table 8 summarizes HCFA's FY 1996 update factor under the framework 
adopted in this final rule, in comparison with the recommendation of 
ProPAC.
    In its March 1995 report to Congress ProPAC recommended a 4.1 
percent update for FY 1996. Based on more recent projections, ProPAC's 
recommended update would be 2.9 percent. On the basis of the 
projections and data available for this final rule, HCFA's update is 
1.2 percent. As Table 5 shows, the different update methodologies 
adopted by ProPAC and HCFA, respectively, can be expected to result in 
higher ProPAC update recommendations during some years, and higher HCFA 
update recommendations during other years.

                                                                                                                

[[Page 45830]]
   Table 8.--HCFA's FY 1996 Update Factor and ProPAC's Recommendations  
------------------------------------------------------------------------
                                       HCFA update           ProPAC     
                                          factor         recommendation 
------------------------------------------------------------------------
Capital input price index.........                1.5                2.9
Policy adjustment factors:                                              
    Productivity..................  .................              (\1\)
    Efficiency....................              (\2\)  .................
Intensity:........................                0.0  .................
    Science and technology........  .................              (\1\)
    Intensity.....................  .................              (\3\)
    Real within DRG change........  .................              (\4\)
                                   -------------------------------------
        Subtotal..................                0.0                0.0
Case mix adjustment factors:                                            
    Projected case Mix change.....               -0.8               -1.0
    Real across DRG change........                0.8                0.8
    Real within DRG change........              (\5\)                0.2
                                   -------------------------------------
        Subtotal..................                0.0                0.0
Effect of FY 1994 reclassification                                      
 and recalibration................               -0.3  .................
Forecast error correction.........                0.0                0.0
                                   -------------------------------------
        Total update..............                1.2                2.9
------------------------------------------------------------------------
\1\ Adjustments for scientific and technological advance and            
  productivity offset each other. No specific values were recommended.  
\2\ Efficiency adjustment may be adopted after public comment.          
\3\ Included in ProPAC's Productivity Measure.                          
\4\ Included in ProPAC's Case Mix Adjustment.                           
\5\ Included in HCFA'S Intensity Factor.                                


7. Possible Adjustments to the Federal Rate and the Hospital-Specific 
Rates
    In the June 2, 1995 proposed rule, we discussed the effects of the 
expiration of the statutory budget neutrality provision on rates and 
aggregate payments under the capital-prospective payment system. Under 
that provision, we set the capital-prospective payment system rates 
during FY 1992 through FY 1995 so that payments would equal 90 percent 
of estimated Medicare payments that would have been made on a 
reasonable cost basis for the fiscal year. As a result of the 
provision's expiration, both the capital-prospective payment system 
rates and payments under the transition system will increase 
significantly. The proposed FY 1996 Federal rate was 21.3 percent 
higher than the FY 1995 Federal rate. We estimated that payments under 
the proposed rule would increase by 20.45 percent in FY 1996 compared 
to FY 1995, and that FY 1996 payments would exceed projected FY 1996 
Medicare hospital inpatient capital costs by 4.52 percent.
    In the proposed rule, we presented a discussion of possible 
revisions to the capital-prospective payment rates that would moderate 
these substantial increases in payments. These revisions could be made 
in conjunction with, or in place of, an update framework adjustment to 
account for possible inefficiency in capital spending prior to the 
capital-prospective payment system base period. While these possible 
revisions to the rate are not, strictly speaking, elements of the 
update framework, we presented them within the context of the proposed 
update framework in order to allow commenters the opportunity to 
consider all the possible rate revisions that might affect the future 
levels of rates and payments. We solicited comment on whether to make 
any of the possible revisions that we discussed. We expressed our 
belief that reductions in Medicare spending should be addressed in the 
context of health care reform.
    Under Sec. 412.308 of the regulations, HCFA determined the standard 
Federal rate, which is used to determine the Federal rate for each 
fiscal year, on the basis of an estimate of the FY 1992 national 
average Medicare capital cost per discharge. The FY 1992 national 
average Medicare capital cost per discharge was estimated by updating 
the FY 1989 national average Medicare capital cost per discharge by the 
estimated increase in Medicare inpatient capital cost per discharge. As 
we discussed in the August 30, 1991 capital prospective payment system 
final rule (56 FR 43366-43384), HCFA used the July 1991 update of HCRIS 
data to estimate an FY 1989 national average Medicare cost per case of 
$527.22. HCFA then updated that amount to FY 1992 by using an actuarial 
projection of a 31.3 percent increase in Medicare capital cost per 
discharge from FY 1989 to FY 1992. The standard Federal rate was thus 
based on an estimated FY 1992 national average Medicare capital cost 
per discharge of $692.24 (before the application of a transfer 
adjustment and a payment parameter adjustment).
    Section 13501(a)(3) of Public Law 103-66 amended section 
1886(g)(1)(A) of the Social Security Act to require that, for 
discharges occurring after September 30, 1993, the unadjusted standard 
Federal rate be reduced by 7.4 percent. As we discussed in the 
September 1, 1993 final rule for FY 1994 (58 FR 46316), the purpose of 
that reduction was to reflect revised inflation forecasts, as of May 
1993, for the increases in Medicare capital cost per discharge during 
FY 1989 through FY 1992. By that time, the estimate of increases in 
Medicare inpatient capital costs per discharge from FY 1989 through FY 
1992 had declined from 31.3 percent to 21.57 percent. The 7.4 percent 
reduction to the Federal rate was calculated to account for these 
revised forecasts (1.2157/1.313=.926, a 7.4 percent decrease). That 
provision of Public Law 103-66 also required that, for cost reporting 
periods beginning on or after October 1, 1993, the Secretary 
redetermine which hospital payment methodology should be applied under 
the capital prospective payment system transition rules to take into 
account the 7.4 percent reduction to the Federal rate.
    As a result of the reduction required by Public 103-66, the 
standard Federal rate is now based on an estimated FY 1992 Medicare 
inpatient capital cost per case of $641.01 ($692.24 x 0.926). At the 

[[Page 45831]]
time of the Public Law 103-66 reduction to the Federal rate, actual 
cost report data on the FY 1992 Medicare capital cost per discharge 
were not yet available. The reduction was based on cost report data for 
FY 1990 and FY 1991, and a revised projection of the rate of increase 
in Medicare capital costs per discharge during FY 1992.
    We now have extensive cost report data for FY 1992. The December 
1994 update of HCRIS data showed an audit-adjusted FY 1992 Medicare 
inpatient capital cost per discharge of $593.15, or 7.47 percent lower 
than the estimate (reflecting the 7.4 percent reduction mandated by 
Public Law 103-66) on which the Federal rate is currently based. We do 
not believe that the Federal rate should necessarily remain at a level 
that reflects a known over-estimation of base year costs. We therefore 
invited comment on the appropriateness of an estimated 7.47 percent 
reduction to the unadjusted standard Federal rate to account for that 
over-estimation. (The June 1995 update of HCRIS data shows an audit-
adjusted FY 1992 Medicare inpatient capital cost per discharge of 
$596.28, or 6.98 percent lower than the estimate on which the Federal 
rate is currently based.)
    Under Sec. 412.328, HCFA determined the FY 1992 hospital-specific 
rate by using a process similar to the process for determining the FY 
1992 Federal rate. The intermediary determined each hospital's 
allowable Medicare inpatient capital cost per discharge for the 
hospital's latest cost reporting period ending on or before December 
31, 1990. The intermediary then updated each hospital's FY 1990 
allowable Medicare capital cost per discharge to FY 1992 based on the 
estimated increase in Medicare inpatient capital cost per case. As in 
the case with the Federal rate updates, current data demonstrate that 
the estimates used to update the hospital specific rates from FY 1990 
to FY 1992 were overstated. On the basis of the data available in the 
proposed rule, we indicated that we were also considering whether to 
correct for the original rate of increase estimates by prospectively 
decreasing the hospital-specific rates by 8.27 percent. Such a 
reduction would not apply to hospital-specific rates that have been 
redetermined for a later cost reporting period. This is because the 
rate of increase estimates were not employed for redeterminations after 
FY 1992.
    Finally, we suggested that the analysis of capital cost increases 
prior to the implementation of the prospective payment system for 
capital-related costs could be the basis for an immediate adjustment to 
the Federal rate to compensate for the effects of the expiration of 
budget neutrality. At the time of the proposed rule, the available data 
suggested that a reduction to the Federal rate of up to 27.7 percent 
would be necessary to restore the rate to the level at which it would 
have been if capital costs had not exceeded the level that can be 
accounted for on the basis of known factors. (As discussed in section 
V.A.5 above, the current data suggest that a reduction of up to 28.1 
percent would be necessary to restore the Federal rate to that level.) 
Such an adjustment could be accomplished gradually over a number of 
years within the context of the update framework. We suggested in the 
proposed rule that some large part of the residual could be removed 
from the rate in a single adjustment. For example, we suggested that 
retaining the FY 1995 budget neutrality adjustment of 0.8432 in the 
standard Federal rate would have the effect of recapturing a large part 
of the residual of capital cost increase over the identifiable factors. 
The remainder of the residual, if appropriate, could be removed from 
the rate on a gradual basis through an adjustment to the update factor, 
as discussed in section V.A.6 above. We therefore requested comments on 
the appropriateness of such measures, particularly on the 
appropriateness of retaining the FY 1995 budget neutrality adjustment 
in the rate as an efficiency measure.
    Comment: Many commenters objected to possible measures to reduce 
the Federal rate. Some commenters contended that the error in 
forecasting the FY 1992 cost per case likely resulted from a 
substantial decline in the rate of growth in capital expenditures as 
hospitals anticipated the introduction of prospective payment for 
capital. Under these circumstances, the commenters contended, reduction 
to the rates would punish providers for responding to the new 
incentives of prospective payment.
    Response: Current cost report data show a modest decline in the 
rate of increase in Medicare capital cost per case immediately before 
the introduction of the capital prospective payment system. (See Table 
6 above.) From the information at our disposal, however, it is 
impossible to determine the degree to which this modest decline is due 
to behavioral changes induced by anticipation of prospective payment 
for capital as opposed to other factors. For example, during the last 
years under reasonable cost payment, the payment for capital costs was 
discounted; that is, the program paid 85 percent of Medicare capital 
costs. It is likely that the discounting of reasonable cost payment 
contributed to the modest decrease in the rate of increase in capital 
cost during that time. In any event, we intended to base the Federal 
capital rate on the FY 1992 Medicare capital cost per case. We do not 
believe it is reasonable to expect that the rate permanently reflect 
the level of cost that would have existed if the poor incentives that 
existed prior to the implementation of capital prospective payment had 
remained in place.
    Comment: Other commenters contended that continued retrospective 
lookbacks to FY 1992 are inappropriate in a prospective payment system.
    Response: The core notion of prospective payment is that the 
payment rate be set in advance of the actual payment. None of the 
measures that we discussed would violate that principle. In each case, 
rate revisions would apply prospectively, that is, only to payments in 
the future. Under a prospective system, prior period rates are the 
basis for determining rates in subsequent years. However, we believe 
that future rates should not be based permanently on initial estimates 
that we now know to be incorrect. Our intention was always to base the 
capital rates on FY 1992 costs per case. At the time of the final rule 
establishing the prospective payment system for capital-related costs, 
we estimated FY 1992 costs on the basis of the best data and 
projections then available.
    Comment: Several commenters argued that retaining the FY 1995 
budget neutrality adjustment in the rate would disadvantage hospitals 
after they have responded to the incentives under the capital 
prospective payment system.
    Response: The purpose of retaining the FY 1995 budget neutrality 
adjustment in the rate would be to address a known overestimation in 
the costs used to establish the rate, and possibly excessive costs that 
may be inappropriate to include permanently in the rate. While it is 
true that hospitals should be able to gain from responding to the 
incentives of prospective payment, it does not follow that this should 
include permanent benefit from excessively high rate levels.
    Comment: Several commenters contended that it would be illegal for 
HCFA to retain the FY 1995 budget neutrality adjustment in the base 
rate. These commenters observed that Congress mandated the sunset of 
budget neutrality for capital, and asserted that retaining the budget 
neutrality adjustment in the rate was a covert way of attempting to 
extend the provision beyond the statutory sunset.
    Response: The purpose of the measure we discussed would not be to 
extend the budget neutrality provision. Rather 

[[Page 45832]]
it would be to set the rate at an appropriate level in the light of 
information that is now available concerning cost increases in the 
years up to and including FY 1992. Retaining the budget neutrality 
adjustment factor would simultaneously address our original 
overestimation of FY 1992 costs and some significant proportion of the 
inefficiency represented in the FY 1992 cost per case. The use of the 
FY 1995 budget neutrality adjustment factor would merely accomplish a 
major rate revision in a manner that provides substantial stability in 
the level of payments. As such, the adjustment would not be a budget 
neutrality adjustment per se, but rather an adjustment to address past 
estimates. Section 1886(g) of the Social Security Act confers broad 
authority on the Secretary to establish a prospective payment system 
for capital-related costs.
    Comment: A number of commenters contended that the reductions 
discussed in the proposed rule would jeopardize the ability of many 
hospitals to meet current obligations and reduce their ability to meet 
future capital needs.
    Response: The measures discussed in the proposed rule would not 
necessarily result in actual reductions in capital payments compared to 
the level of FY 1995. For example, the reduction to account for the 
overestimation of FY 1992 costs per case would still allow annual 
increases in rates and payments of over 10 percent in FY 1996, and 
approximately 3 to 5 percent per year through the rest of the 
transition.
    Comment: One hospital association observed that Congress may choose 
to enact one or more of the measures discussed in the proposed rule. 
The commenter suggested that any measures to reduce the growth of 
Medicare expenditures would create the need for HCFA to increase the 
protections for hospitals that undertake major capital projects during 
the transition period to fully prospective capital payment. The 
commenter emphasized that its recommendation was budget neutral.
    Response: We do not yet know what if any action Congress will take 
with respect to the capital prospective payment system. Thus, it would 
be premature to consider proposals that, under a budget neutrality 
provision, would involve redistribution of funds from hospitals 
generally to those hospitals that might benefit from expanded 
exceptions protection.
    Comment: Several commenters contended that it would be illegal for 
HCFA to implement any of the identified reductions to the rates 
(including an efficiency adjustment). Two commenters characterized the 
rate reduction options as thinly disguised attempts to rebase 
hospitals' base year capital costs, and asserted that Congress has not 
given the Secretary of Health and Human Services the authority to 
rebase hospital capital costs. One commenter stated that the rate 
revisions discussed in the proposed rule would violate a fundamental 
principle of prospective payment: that the system provide certain and 
predictable payment rates.
    Response: Section 1886(g) of the Social Security Act requires 
payment for capital-related costs under a prospective payment system 
``established by the Secretary.'' (Emphasis added.) The statute 
prescribes only that the system provide for payment on a per discharge 
basis, employ appropriate weighting of payment rates by classification 
of discharge, and reduce payments during FY 1992 through FY 1995 by an 
amount estimated to equal 10 percent of what would have been paid on 
the basis of reasonable costs. The statute gives the Secretary wide 
discretion in determining the particular features of the system, 
including the appropriate level of payment rates. We believe that any 
rate revision implemented prospectively would satisfy the principle of 
certainty and predictability under a prospective system.
    Comment: One commenter argued that reducing the rate to account for 
overestimation of FY 1992 cost per case amounts to rebasing the capital 
rates from FY 1989 to FY 1992. The commenter contended that such a 
measure would amount to more than a technical correction and would, in 
fact, require revisiting the entire discussion that gave rise to 
prospective payment for capital. Finally, the commenter objected that 
there is no evidence that FY 1992 represents a typical year in capital 
spending as opposed to a ``trough'' in capital expenses.
    Response: The methodology that we adopted in the September 1, 1992 
final rule provided for using the FY 1989 cost per case as the basis 
for estimating the FY 1992 cost per case. We used FY 1989 as the basis 
for estimating because it was at that time the most recent year for 
which substantial cost report information was available. Thus FY 1992, 
not FY 1989, has always been the base year for the rate. The issue is 
not rebasing the rate but only the appropriateness of addressing 
previous estimates of base year costs. We believe that the commenter's 
concern about whether FY 1992 was a ``trough'' year in capital spending 
is misguided. The Medicare accounting rules, which were used to 
determine the capital costs on which the capital Federal rate is based, 
count depreciation costs for all capital still in use and interest on 
loans for depreciable assets. Current year purchases thus have only a 
small effect on the accounting of capital costs for the year. Capital 
costs for FY 1992 include depreciation and interest costs related to 
capital purchases over many previous years. There is no evidence that 
the period up to FY 1992 represented a ``trough'' in capital spending.
    Comment: One commenter objected that making the rate reductions 
under consideration would be inconsistent with HCFA's refusal over the 
years to ``make up'' for shortfalls in actual outlier payments compared 
to estimates.
    Response: We believe that we have been completely consistent in our 
policies regarding rate-setting and issues of revising prior year 
payments under the prospective payment system. As discussed earlier, we 
believe that prospective adjustments to the rates may be appropriate to 
address errors in estimating base year costs that would otherwise be 
built into the rates for future fiscal years. In contrast, any 
difference between actual outlier payments and estimated outlier 
payments are not built into the rates for future years; thus, for 
example, if actual outlier payments in a fiscal year were 4.0 percent 
rather than the projected 5.1 percent, the 1.1 percent difference does 
not mean that prospective payment rates would be 1.1 percent lower than 
if we had accurately projected outliers.
    The case of the outlier offset cited by the commenter is more 
analogous to the budget neutrality adjustments under the capital 
prospective system than it is to the reductions to the base capital 
rate that we discussed. In the cases of outliers and budget neutrality, 
temporary annual adjustments to the rates have been made to meet 
certain payment targets (that is, a designated percentage of outlier 
payments, in the one case, and 90 percent of what would have been paid 
for capital costs on a reasonable cost basis, in the other). In both 
cases, we have refused to make any changes in the level of the rates or 
payments during subsequent years to account for differences between 
actual and estimated payments. Thus, we have not decreased subsequent 
year payments to account for actual payments that have apparently 
exceeded the payment target of 90 percent of estimated capital costs 
under the expiring budget neutrality provision. We do, however, examine 
past experience for purposes of refining the estimation methodology 
used to set the outlier offsets and budget neutrality adjustments for 
subsequent years. 

[[Page 45833]]

    As in the case of outlier payments and budget neutrality, none of 
the rate changes that we discussed in the proposed rule would ``make 
up'' for past payments. In making any of those revisions, we would 
instead be employing better data that is now available in order to set 
the permanent base rate more accurately for future years.
    Comment: ProPAC commented that the large increase in rates with the 
expiration of budget neutrality raises two sets of questions. First, it 
raises the issue of an appropriate update mechanism, about which HCFA 
and ProPAC have conducted a vigorous discussion. (See section V.A 
above.) The second and perhaps more important issue is the need to 
determine the appropriate base rate to which the update is to be 
applied. ProPAC believes that, because updates during the first four 
years of the prospective payment system were based on historical cost 
increases rather than on an analytical framework reflecting current 
factors, the updated payment rates grew more rapidly than estimated 
reasonable costs. The result was a widening gap between the updated 
base rate and the rates actually used for payment under the budget 
neutrality provision. The expiration of budget neutrality thus results 
in a 21 percent increase in both rates and payments. ProPAC believes 
that the appropriate level of the base payment rate is an issue that 
merits attention by the Secretary and Congress. The Commission 
identifies several possible approaches to setting the base rate at an 
appropriate level, including those identified in this year's proposed 
rule. They identify one approach that we did not discuss: updating 
actual FY 1992 costs to FY 1996 on the basis of an analytical 
framework, rather than actual cost increases.
    Response: We agree with ProPAC that the appropriate level of the 
capital base payment rate is an important issue. We presented the 
discussion of possible rate revisions in the proposed rule precisely in 
order to initiate a discussion of that issue.
    Comment: Several commenters contended that rate revisions with the 
potential magnitude of those discussed in the proposed rule should not 
be implemented through rulemaking. The commenters argued that proposals 
of this scope should require enabling legislation.
     Response: We do not believe that it would be inappropriate for 
HCFA to implement rate revisions of the kind under discussion after 
appropriate notice and comment rulemaking. As we have previously 
stated, the statute gives the Secretary broad discretion in the design 
of the system in general and in the determination of the appropriate 
rate level in particular. Nevertheless, it is clear that Congress will 
be considering major changes in the Medicare program, including 
substantial budget savings proposals, during the coming months. Under 
the circumstances, we have decided not to proceed at this time with any 
possible capital rate revisions through the rulemaking process while 
Congress considers whether to include any such measures within more 
comprehensive legislation dealing with Medicare and the Federal budget.

B. Adjustment to the Capital Prospective Payment System Federal Rate 
for Capital-Related Taxes

    In our June 2, 1995 proposed rule, we discussed an adjustment to 
the capital prospective payment system for capital-related tax costs. 
As we noted in that discussion, such an adjustment would be designed to 
remove a possible inequity in the capital prospective payment system. 
While capital-related taxes constitute a cost imposed on an 
identifiable group of hospitals, those costs are currently reflected in 
the Federal capital rate paid to all hospitals. Since the inception of 
the prospective payment system for capital-related costs, several 
commenters have pointed out that all hospitals are thus being 
reimbursed for costs that only some hospitals pay.
    In the proposed rule, we presented a proposal for an adjustment for 
capital-related tax costs. However, we noted in the proposed rule that 
introducing an adjustment posed several serious problems which we had 
not been able to resolve. These issues involve equity to hospitals that 
may become subject to capital-related taxes in the future. They also 
involve our responsibility to protect the Medicare Trust Fund from 
possible manipulation as well as from any new open-ended commitments to 
increase Medicare payments. We presented a formal proposal in order to 
facilitate discussion of the merits of implementing a special tax 
adjustment. We believed that presentation and analysis of a proposal 
provided the best opportunity for a full and public discussion of all 
the issues surrounding a possible adjustment for capital-related tax 
costs. We presented our proposal in the hope that the process of public 
comment would produce a solution that could simultaneously protect the 
Trust Fund and satisfy the equity concerns of all hospitals.
    In order to facilitate discussion of the issues surrounding the 
treatment of capital-related taxes, we proposed to provide for a 
special adjustment for the capital-related tax costs of hospitals that 
paid such taxes for cost reporting periods beginning in FY 1992. The 
tax costs of those hospitals were included in the computation of the 
capital Federal rate. Under our proposal, hospitals that began 
operation after FY 1992 would also be eligible for an adjustment. We 
further proposed an adjustment of the Federal rate to offset the amount 
of capital-related tax costs originally included in the computation of 
the rate. In this way, adoption of the tax adjustment would be budget 
neutral: Aggregate capital payments would neither increase nor decrease 
merely because of the tax adjustment.
    For those hospitals that would be eligible for an adjustment, we 
proposed to apply a hospital-specific Medicare tax cost per discharge 
amount to the Federal rate portion of each payment for each discharge 
from the hospital, beginning October 1, 1995. Under our proposal, the 
hospital-specific Medicare tax cost per discharge was to be determined 
on the basis of the updated FY 1992 base year cost.
    Some of the serious issues that arose in connection with the 
implementation of a tax adjustment concern hospitals whose tax-paying 
status has changed since FY 1992. Some hospitals that paid capital-
related taxes in FY 1992 may no longer be subject to such taxes (for 
example, because they converted to non-proprietary status in a taxing 
jurisdiction that does not tax non-proprietary hospitals). Other 
hospitals may have been in operation during FY 1992, but have only 
become subject to tax payments since that time, either by a change in 
status (that is, from non-proprietary to proprietary) or by the action 
of State or local authorities to impose capital-related taxes on 
entities that had not previously been subject to such taxes.
    Hospitals that subsequently become subject to taxes through the 
action of State or local authorities pose the most serious issues of 
equity and protection of the Trust Fund. On the one hand, it may seem 
unfair to prohibit hospitals on whom a tax cost is imposed after FY 
1992 from receiving an adjustment available to hospitals on whom a tax 
cost was imposed in FY 1992. On the other hand, a capital Federal rate 
tax adjustment should not be vulnerable to possible efforts by state or 
local authorities to gain revenues from increased Medicare payments to 
hospitals. Nor should a tax adjustment provide an open-ended commitment 
to increase the overall level of Medicare capital payments as State and 
local 

[[Page 45834]]
governments extend taxation to previously tax-exempt facilities. The 
capital Federal rate tax adjustment that we proposed reflected only the 
FY 1992 capital-related tax costs included in the original computation 
of the Federal rate. It could not reflect costs imposed on hospitals by 
the extension of State and local capital-related taxes after FY 1992. 
Therefore, in the absence of some additional budget neutrality 
provision, extending the tax adjustment to hospitals that become 
subject to capital-related taxes after FY 1992 could significantly 
increase the overall level of Medicare capital payments.
    We proposed that hospitals would not qualify for the adjustment if 
they became subject to tax payments because of state or local action to 
change tax laws (for example, by extending taxation to non-proprietary 
hospitals) since FY 1992. We did so both to prevent the possibility 
that State and local authorities could inappropriately gain revenues 
through increased Medicare payments, and to prevent the adoption of a 
tax adjustment from producing large increases in Medicare capital 
payments if additional jurisdictions impose taxes on non-proprietary 
hospitals. We recognized, however, that this policy might be viewed as 
penalizing newly taxed hospitals for changes in circumstances over 
which they have no control. We invited comment on the appropriateness 
of this proposal, which raised issues of equity between hospitals 
subject to capital-related taxes in FY 1992 and those newly subject to 
such taxes after FY 1992. We specifically invited suggestions and 
comments on other approaches to dealing with the situation of hospitals 
that become subject to taxes after FY 1992. We stated our belief that 
any proposal to deal with the situation of such hospitals should 
protect the Medicare Trust Fund against an open-ended commitment to 
increase Medicare payments in order to reimburse hospitals for 
Medicare's share of newly imposed capital-related tax obligations.
    In particular, we invited comment on the possibility of providing 
an adjustment to such hospitals on a budget-neutral basis. Under such 
an approach, an annual tax adjustment budget neutrality factor would be 
applied to the Federal rate to account for the estimated cost of the 
tax adjustment over and above the costs attributable to capital-related 
taxes in the FY 1992 base year. In this way, aggregate payments, 
including tax adjustments to hospitals that have become subject to 
taxes since FY 1992, would not exceed the amount of payments in the 
absence of extending the adjustment to such hospitals. Such an approach 
would prevent the tax adjustment from becoming an open-ended drain on 
the Medicare Trust Fund. However, such an approach necessarily involves 
reducing the Federal rate beyond the level accounted for by the 
capital-related tax costs originally included in the rate computation. 
In other words, such a budget neutrality adjustment would reduce the 
amount of other capital-related costs incorporated in the original rate 
computation. Under such an approach, the reductions in payments to 
hospitals that do not pay taxes would exceed the amount of capital-
related taxes included in the original rate computation; arguably, 
then, this approach would inappropriately disadvantage hospitals that 
do not pay capital-related taxes.
    With regard to the situation of other hospitals whose tax status 
has changed since FY 1992, we stated our belief that hospitals that are 
no longer subject to capital-related taxes should not receive an 
adjustment to their capital Federal rate payments. Therefore, we 
proposed that a hospital (or a related organization) must be directly 
subject to capital-related taxes in order to qualify for the capital 
Federal rate tax adjustment.
    In addition, we proposed that no adjustment would be made for 
hospitals whose status changed from non-proprietary to proprietary 
after FY 1992. The decision to change status to a proprietary hospital 
is a voluntary decision of the hospital's management, and we therefore 
believe that an adjustment to allow special payment for additional 
taxes that result from such a decision is not warranted.
    However, we also proposed that hospitals that were not in operation 
in FY 1992 should be able to qualify for the adjustment. We therefore 
provided that intermediaries should accept data on capital-related tax 
payments from hospitals that have begun operation since FY 1992. Such 
hospitals were to contact their intermediaries as soon as possible, but 
in any case no later than July 31, 1995, to submit the appropriate data 
and documentation.
    Comment: In Opposition: We received comments opposed to the 
proposed property tax adjustment from six associations representing a 
large number of hospitals and from two individual providers. These 
commenters were opposed to a tax adjustment for several related 
reasons. Several commenters argued that tax-exempt hospitals incur 
substantial costs for services they must provide to maintain tax-exempt 
status. They pointed out that the Internal Revenue Code requires tax-
exempt hospitals to satisfy a community benefit standard. This standard 
requires the operation of a full-time emergency room open to all 
persons without regard to their ability to pay. It also requires 
provision of care for every person in the community regardless of 
ability to pay. The commenters asserted that costs faced by hospitals 
to provide these services may be higher than property tax levels. They 
objected that our proposal did not offer any special adjustment to 
compensate for the cost of community benefit services.
    One commenter characterized the proposal as an attempt to address a 
perceived inequity for one group of hospitals that in turn creates new 
inequities for many other hospitals. In particular, the commenter 
objected to our suggestion that extending the adjustment to hospitals 
newly subject to taxes could be financed by further reducing the 
Federal rate paid to all hospitals. The commenter suggested that, in 
light of the acknowledged problems in treating all hospitals equitably 
in implementing an adjustment, the most equitable solution would be to 
maintain the integrity of the prospective payment system by refusing to 
provide special treatment for this cost.
    Another commenter objected that the proposed tax adjustment would 
shift payments from hospitals that exist to serve the needs of the 
community to those whose primary purpose is to return a profit to its 
shareholders. The commenter expressed concern that this shift could 
aggravate existing access problems.
    Several commenters objected to the proposal based on reasons 
related to Medicare reimbursement principles. One commenter argued that 
the proposed tax adjustment contradicted an established policy of the 
Medicare program, that organizational decisions made by a hospital 
should not affect payments. Another commenter contended that the 
proposed adjustment would subsidize the decision to become a for-profit 
entity. The same commenter termed the proposed adjustment a return to a 
cost-based reimbursement system, and thus a retreat from the principles 
of prospective payment. Another commenter contended that tinkering with 
a prospective payment system to reflect a specific component of cost 
may invite requests for further adjustments. One commenter specifically 
requested that we provide an adjustment for capital-related interest 
costs in the same manner as we proposed to adjust for capital-related 
property taxes. 

[[Page 45835]]

    Several commenters raised questions of fairness among tax-paying 
and tax-exempt providers. The commenter contends that for-profit 
hospitals do not share equally in the burden of providing care to 
indigent patients. Furthermore, payment reductions will affect the 
ability of the non-profit hospitals to maintain current service levels 
to Medicare beneficiaries.
    Several commenters recommended either that we drop the proposal to 
institute a capital-related property tax adjustment, or that we 
introduce a tax adjustment only in conjunction with an adjustment for 
the costs of charity care.
    In Favor: We also received numerous comments in favor of the 
proposed adjustment for capital-related property taxes. Most comments 
(129) came from tax-paying proprietary hospitals who supported the tax 
adjustment as proposed. Another 38 commenters supported the concept of 
the proposed rule, but advocated revisions to the proposal, such as 
expansion of the eligibility criteria.
    Two hospital associations responded generally in favor of the 
proposed adjustment, but also requested some modifications of the 
proposed provisions. In particular, those commenters requested the 
inclusion of hospitals that did not pay property taxes in 1992, but are 
now paying property taxes. To prevent gaming, the commenters suggested 
the adoption of a 3-year waiting period before hospitals newly subject 
to taxes could become eligible for an adjustment. To protect the Trust 
Fund, the commenters recommended that future capital rate updates be 
reduced to provide the funds for extending the adjustment to hospitals 
newly subject to taxes. The commenters also suggested that hospitals 
should only qualify for an adjustment if they pay bona-fide taxes that 
apply to all businesses in an area.
    Other commenters contended that we should include taxes paid on 
leased property or equipment in the adjustment, at least in cases where 
the lease provided for direct payment to taxing authorities. One 
commenter agreed that a level playing field exists for leases on fixed 
equipment, but recommended that an adjustment be provided for taxes 
paid on leased facilities. Another commenter requested that we allow an 
adjustment for municipal hospitals that have city services allocated to 
their facility rather than a direct property tax bill.
    Two commenters pointed out that they provide charity care and 
community services, as the tax-exempt hospitals do, but they must also 
pay taxes.
    Response: We have decided not to proceed with implementation of a 
tax adjustment at this time. Two considerations motivated this 
decision. First, we have not been able to resolve the problems with 
implementing a tax adjustment that we identified in the proposed rule. 
Those commenters in favor of an adjustment did suggest several means 
for preventing gaming by states and to protect the Medicare Trust Fund 
from expenditure increases. Several of the suggestions for preventing 
gaming have some merit. We agree with the commenters, for example, that 
requiring hospitals newly subject to taxes to wait 3 years before 
qualifying for an adjustment may reduce the possibilities for gaming. 
At the same time, we are concerned that some of their other 
suggestions, such as the adoption of rules to determine bona fide 
taxes, would prove difficult to administer. Even if these measures 
could prevent gaming, however, we have not been able to determine a 
method for protecting the Trust Fund that does not create possible new 
inequities. Commenters in favor of a tax adjustment have suggested 
reducing future rate updates by an amount sufficient to fund the 
extension of adjustments to hospitals newly subject to taxes. Under 
such a measure, however, hospitals that do not pay taxes would 
necessarily receive lower payments than they would in the absence of a 
tax adjustment. (Even some hospitals that pay taxes would receive lower 
payments, if the amount of the Federal rate reduction exceeds the 
amount of the hospital-specific adjustment.) If the problem that 
motivated our consideration of an adjustment is an inequity, such a 
measure would certainly create an inequity as well. As several 
commenters noted, it would not be appropriate to proceed with a 
proposal that replaces one possible inequity with another.
    The second consideration in our decision not to implement a tax 
adjustment at this time is that, in the light of the comments, we 
believe the proposed adjustment may be incompatible with a prospective 
payment system for capital-related costs. Prospective payment involves 
an averaging system under which differences in costs among hospitals 
are generally not accorded special treatment. Many hospitals and groups 
of hospitals can cite costs which may be unique to them. Among the 
commenters on the proposed adjustment, for example, some claimed that 
capital-related tax costs deserve special treatment because they are 
unique to one group, while others cited charity care as a unique cost 
to another group of hospitals. By ignoring such differences, a 
prospective system provides incentives for realizing greater efficiency 
in the provision of services than can be achieved under a cost-based 
payment system. Such a system is not inequitable as long as it is 
consistent in rejecting special treatment for specific costs.
    It is true, as the commenters in favor of a tax adjustment pointed 
out, that the prospective system does provide adjustments for several 
costs. For example, adjustments are provided under both the operating 
and capital systems to those hospitals that have graduate medical 
education programs for the costs associated with that activity. 
However, the adjustment for the indirect cost of graduate medical 
education (as well as the disproportionate share adjustment) ultimately 
reflects a decision specifically to encourage the activity associated 
with those costs. As several commenters pointed out, adoption of a tax 
adjustment would have amounted to subsidizing a decision about hospital 
organizational structure (that is, the choice of proprietary status). 
While many nonproprietary hospitals would have qualified for a tax 
adjustment, our final data showed that those hospitals would have 
received, on average, a capital-related tax adjustment of $6.42 per 
discharge. As a result, tax-paying nonproprietary hospitals would, on 
average, have gained only slightly more from the tax adjustment than 
they would have lost from the reduction to the Federal rate. This is 
because the amounts that voluntary hospitals pay in taxes is relatively 
small. In contrast, tax-paying proprietary hospitals would have 
received, on average, a tax adjustment of $70.47 per discharge. As a 
result, those hospitals would have gained much more from the adjustment 
than they would have lost from the reduction to the Federal rate. A tax 
adjustment would have subsidized proprietary hospitals that pay 
capital-related taxes at the expense of all other groups. Therefore, we 
believe that the proposed tax adjustment may not be consistent with the 
principles behind prospective payment.
    We recognize that many hospitals that might have benefited from the 
implementation of a tax adjustment have been inconvenienced by the time 
and effort required to comply with our requests for documentation of 
their tax costs. Because of our decision, those hospitals will now 
receive no benefit in return for complying with our requests. We regret 
that it was not possible to 

[[Page 45836]]
make a final determination about the merits of implementing a tax 
adjustment before proceeding with data collection and verification. It 
was necessary to collect and verify data on tax costs in order to 
determine the dimensions of the issue before proceeding with any 
proposal to make an adjustment. Without verified data, we would not 
have been able to inform interested parties of the estimated size of 
the change in payments for hospitals that do not pay taxes. Once we 
published the proposal, it was necessary to complete data collection 
and verification in order to be prepared for possible implementation of 
the adjustment following comments. On the one hand, then, we could not 
proceed with a proposal without data. On the other hand, we also could 
not decide to implement the proposal in the final rule simply because 
the data had been collected. It would be inconsistent with the 
integrity of the rulemaking process to allow preparations necessary for 
the possible implementation of a proposal to dictate the results of the 
notice and comment process.
    The issue of taking capital-related tax payments into account when 
determining capital-related prospective payments is an important one in 
the effort to create a payment system that is both fair and feasible. 
Providers that submitted data needed in the analysis of this issue and 
for the design of a payment system made an indispensable contribution 
toward informing the debate, influencing the formulation of this 
important public policy, and reaching the decision that the proposed 
change in the capital-related prospective payment system should not be 
made at this time.
    As noted, we received numerous other comments about the specific 
features of a possible tax adjustment. Since we have decided not to 
proceed with such an adjustment, we will not respond to those comments 
at this time.
VI. Changes for Hospitals and Units Excluded From the Prospective 
Payment Systems

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

1. Effect of Change of Ownership on Exclusion of Long-Term Care 
Hospitals
    As discussed in the June 2, 1995 proposed rule, some questions have 
arisen as to whether a hospital's compliance with the length-of-stay 
requirement for long-term care (LTC) hospitals is affected by its sale 
to a new owner. After reviewing this issue, we concluded that if a 
change of ownership occurs at the start of a cost reporting period, or 
at any time during the 6 months immediately preceding the start of that 
period, the hospital should not be required to begin a new qualifying 
period. Therefore, we proposed to clarify current regulations by 
specifying under Sec. 412.23(e)(2) that if a hospital undergoes a 
change of ownership at the start of a cost reporting period, or at any 
time within the preceding 6 months, it may be excluded from the 
prospective payment system as an LTC hospital if it is otherwise 
qualified and maintained an average length of stay in excess of 25 
days, under both current and previous ownership, for that 6-month 
period (60 FR 29244). To qualify for the exclusion, the hospital must 
have been continuously in operation for all of the qualifying period 
and participated continuously in Medicare as a hospital. That is, 
periods during which the hospital was closed or did not participate in 
Medicare could not be counted toward the required experience.
    We received no public comments on this proposal and are, therefore, 
adopting the regulations as proposed.
2. Revised Criterion on Purchase of Services by LTC ``Hospitals Within 
Hospitals''
    Recently, some entities began to organize themselves under what 
they 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 seeks to obtain 
an exclusion from the prospective payment systems. As explained in the 
rulemaking documents for FY 1995, we believe it would be inappropriate 
to extend the LTC hospital exclusion to what is for all practical 
purposes a LTC hospital unit.
    To avoid granting LTC hospital exclusions inappropriately to 
hospital units while still allowing adequate flexibility for legitimate 
networking and sharing of services, we set forth additional exclusion 
criteria for these ``hospitals within hospitals'' in our September 1, 
1994 final rule (59 FR 45389-45393). These regulations provide that, in 
addition to meeting the other LTC hospital exclusion requirements set 
forth in Sec. 412.23, 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 must 
have a separate governing body, a separate chief medical officer, a 
separate medical staff, and a separate chief executive officer. These 
criteria are stated in regulations at Secs. 412.23(e)(3)(i)(A) through 
412.23(e)(3)(i)(D). In addition, the hospital must either perform most 
basic hospital functions without any assistance from the hospital with 
which it shares space (or from a third entity that controls both) 
(Sec. 412.23(e)(3)(i)(E)) or receive at least 75 percent of its 
inpatient referrals from a source other than the other hospital during 
the period used to demonstrate compliance with the length-of-stay 
criterion (Sec. 412.23(e)(3)(ii)). The criterion under 
Sec. 412.23(e)(3)(i)(E) does permit a hospital seeking exclusion to 
obtain certain services from a hospital occupying space in the same 
building, including food and dietetic services and housekeeping, 
maintenance, and other services necessary to maintain a clean and safe 
physical environment.
    Since publication of the September 1, 1994 final rule, hospital 
representatives have stated that there are some situations in which 
basic hospital services other than those related to dietetic, 
housekeeping and maintenance functions could be furnished in a more 
cost-effective manner, or more conveniently for patients, if they were 
provided by the hospital in which the LTC hospital is located. As 
discussed in the June 2, 1995 proposed rule, we recognize the need to 
allow LTC hospitals within hospitals greater discretion to purchase 
services like these from their ``host'' facilities, when it is done in 
a cost-effective and convenient way. However, it is also important that 
the LTC hospital exclusion criteria be clear and definite enough to 
limit LTC exclusions to bona fide separate hospitals. To balance these 
competing objectives, we proposed to revise the exclusion criteria to 
describe the scope of services that can be obtained from the host 
hospital in financial terms, rather than by type of service (60 FR 
29244).
    Under our proposal, an otherwise qualified hospital could obtain a 
LTC hospital exclusion if the operating cost of services that it 
furnishes directly or obtains from a source other than the hospital 
with which it shares a building or campus (or from a third entity which 
controls both hospitals) constitutes at least 85 percent of its total 
inpatient operating costs. This test would be applied with respect to 
the cost 

[[Page 45837]]
reporting period or other time period used to establish the hospital's 
compliance with the length of stay criterion. (If a period other than a 
full cost reporting period is used, the LTC hospital must provide HCFA 
with verifiable information on its costs for that part of the period.)
    We proposed a criterion of 85 percent of total inpatient operating 
costs as an appropriate test of separateness based on the level of 
dietetic, housekeeping, and maintenance expenses incurred by a small 
sample of LTC hospitals for which we have readily available data. Our 
review showed that these expenses generally ranged from 5 to 17 percent 
of total inpatient operating costs for the periods under review. By 
setting the maximum acceptable level at 15 percent, we believe that we 
would allow hospitals an adequate margin for purchase of a limited 
range of services, without encouraging a level of dependence that calls 
into question the LTC hospital's status as a separate institution.
    To implement this policy, we proposed to specify under 
Sec. 412.23(e)(3)(i)(E) that the costs of any services a hospital 
obtains under contract or other agreements with a hospital occupying 
space in the same building or campus, or with a third entity that 
controls both hospitals, may not exceed 15 percent of the hospital's 
total inpatient operating costs, as defined under Sec. 412.2(c). Thus, 
a LTC hospital would be permitted to obtain dietetic, housekeeping, 
maintenance or other services from another hospital with which it 
shares a building or campus (or from a controlling third entity), 
provided that the aggregate cost of these services is no more than 15 
percent of its total inpatient operating costs.
    Public comments on this proposal are addressed below.
    Comment: One commenter objected to an exclusion criterion for LTC 
hospitals within hospitals that is stated in terms of the cost, rather 
than the type, of services purchased from the host facility. This 
commenter stated that hospitals within hospitals are units of acute 
care hospitals and should be treated as such. The commenter also stated 
that the proposed criterion will further complicate an already complex 
system, encourage more facilities to reorganize themselves in an 
attempt to gain exclusions from the prospective payment system, and 
increase Medicare administrative costs. For all of these reasons, the 
commenter recommended that we not only abandon the proposed change but 
also revise the regulations to prohibit LTC hospitals within hospitals 
from being excluded from the prospective payment system.
    Response: Although we share the commenter's concern about possible 
abuse of the exclusion provisions, we do not believe that either our 
current regulations or our proposals encourage inappropriate 
exclusions. On the contrary, the current regulations provide reasonable 
assurance that facilities excluded as LTC hospitals are functioning as 
separate hospitals, and we believe that our proposed changes will 
preserve our ability to achieve this result. Moreover, we expect that 
the shift from a type-based to a volume-based standard will reduce, 
rather than add to, the complexity and cost of our regulations. Thus, 
we do not agree that it is necessary to prohibit all LTC hospitals 
within hospitals from being excluded from the prospective payment 
system, nor do we believe that the proposed changes will encourage more 
facilities to pursue exclusions. For these reasons, we did not adopt 
this commenter's suggestions.
    Comment: One commenter stated that hospitals within hospitals 
typically are set up to serve only the LTC needs of patients of the 
host hospital, and are unlikely to receive referrals from other 
sources. A hospital of this type also may have a low occupancy level, 
thus leading to very high per-stay costs, which will be paid for by 
Medicare. To prevent this situation from occurring, the commenter 
recommended that the 75 percent alternative criterion in 
Sec. 412.23(e)(3)(ii) be made a basic requirement for exclusion. Under 
this commenter's recommendation, a hospital within a hospital would be 
excluded as a LTC hospital only if it met the 75 percent criterion and 
also provided all basic services without assistance from the host 
hospital. The commenter argued that this approach will limit the 
exclusion of LTC hospitals within hospitals to those that meet 
legitimate community needs.
    Response: Although we agree that an approach of this kind might 
help to prevent abuse of the exclusion provisions, we are concerned 
that such a standard might deny exclusion to some legitimately separate 
institutions. We believe that the revised criteria are sufficiently 
rigorous to identify only situations when exclusion is appropriate, yet 
flexible enough to recognize legitimate variations in the ways 
hospitals obtain needed services and supplies. Therefore, we did not 
adopt this comment.
    Comment: Several commenters expressed support for our proposal to 
focus on the volume, rather than the type, of services purchased from 
the host hospital. However, these commenters also stated that a 
criterion set at 15 percent of total inpatient operating costs is too 
restrictive. One commenter favored setting the criterion at 25 percent 
of the LTC hospital's total inpatient operating costs, with an 
exception for higher levels of purchases where the LTC hospital can 
show that obtaining services in this way is cost-effective. Another 
commenter suggested setting the criterion at 35 percent of total 
inpatient operating costs. Still another commenter favored retaining 
the requirement that hospitals provide most basic hospital services but 
allowing some percentage of basic hospital services, as measured by 
cost, to be purchased from the host hospital.
    Several commenters expressed concern about the range of costs 
considered in arriving at the 15 percent figure. One commenter stated 
that the 15 percent threshold is too low because it does not include 
those services that were prohibited in the prior years, and recommended 
eliminating any limit on the type or cost of services that a LTC 
hospital can purchase from its host hospital. Another commenter asked 
for more detailed information on how the 15 percent figure was derived 
and how the measurement will be implemented. The commenter believes the 
15 percent figure is necessarily too low since several categories of 
costs (telephone, administrative and general, laundry and linen, social 
services, and physical, recreational, and respiratory therapy costs) 
were not included in the costs sampled to arrive at that figure. One 
commenter stated that the methodology used to arrive at the 15 percent 
figure appears to be inadequate, in that it assessed only dietetic, 
housekeeping, and maintenance expenses, and did not take into account 
services such as hyperbaric oxygen therapy, surgical services, physical 
therapy, and security, which can often be obtained most cost-
effectively from the host hospital. Because of concern about these 
issues, the commenter recommended that we revise the regulations to 
base exclusion on the level of patient needs, rather than the volume of 
costs, met by services obtained from the host hospital. Two commenters 
recommended that the regulations be revised to state that the inpatient 
operating costs to which the 15 percent criterion is applied will not 
include any costs of leased space or of equipment rental, maintenance, 
or utilities for the space.
    Finally, one commenter noted that some new hospitals have 
structured their operations for their initial 6-month period of 
operation to comply with the requirement that they furnish basic 

[[Page 45838]]
hospital services without assistance from the host facility, and have 
not held the inpatient operating costs of services purchased from the 
host hospital within the 15 percent ceiling allowed by the proposed 
regulations. The commenter stated that by shifting to a cost-based 
standard, we would in effect be denying exclusion to facilities that 
operated in compliance with the exclusion criteria in effect when they 
began to provide services. To avoid this scenario, the commenter 
suggested that we delay the effective date of the 15 percent rule by an 
additional year (that is, until cost reporting periods beginning on or 
after October 1, 1996) for hospitals meeting the criterion related to 
provision of basic hospital services without assistance from the host 
hospital.
    Response: These comments appear to reflect some misunderstanding of 
the purpose of our proposed change to an exclusion criterion based on 
volume of services (as measured by costs) rather than type of services. 
The purpose of the proposal is not to identify the most cost-effective 
way for a hospital within a hospital to obtain services, but to 
describe a pattern of functioning that provides reasonable assurance 
that a facility seeking to be excluded from the prospective payment 
system as a LTC hospital actually functions as a separate hospital. 
Clearly, when a facility operates within another institution, it may be 
more cost-effective in many cases to obtain services from the 
surrounding institution. It may be even more cost-effective to 
integrate the governance and medical direction of the hospital and the 
entity. A hospital component that wishes to organize itself in this way 
may do so, but it would not constitute a separate hospital under 
section 1886(d)(1)(B) of the Act, which provides for the exclusion of 
LTC hospitals, but not LTC units, from the prospective payment system.
    In assessing the level of dietetic, housekeeping, and maintenance 
expenses incurred by a sample of LTC hospitals, our goal was not to set 
the criterion at a level that could easily be met by all potential 
hospitals within hospitals, but to assess the proportion of costs that 
a separate hospital may need to spend for the range of services it can 
buy under current exclusion rules. Thus, our intent was to devise a 
criterion that would properly assess the level of independence of a 
hospital within a hospital, but would allow more discretion as to the 
types of services to be supplied by the host facilities. We recognize 
that not all hospitals located within hospitals may be able to meet the 
criterion, and that in some cases hospitals may need to reduce their 
level of purchases from host facilities to qualify for exclusion under 
the criterion.
    In response to the comments asking for the basis for establishing 
the threshold at 15 percent, the proposed 15 percent criterion was 
based on our analysis of the best available data. The Hospital Cost 
Report Information System (HCRIS), the automated cost report data base 
submitted by the fiscal intermediaries, does not contain cost data for 
the specific general service cost centers, such as dietary, 
housekeeping and maintenance costs, that represent a large portion of 
the costs of shared services. As a result, we instead analyzed cost 
report data from the hard copies of cost reports that we had on file. 
Specifically, we analyzed data for LTC hospitals that had requested a 
review of costs in relation to the TEFRA limits. This data showed that 
the aggregate of these specific operating costs, in comparison to total 
operating costs, ranged from a low of 5 percent to a high of 17 
percent. Based on this range, we concluded that 15 percent was a 
reasonable level at which to establish the standard, as we proposed in 
our June 2, 1995 rule.
    In response to public comments on this proposal, we conducted 
further analysis of the cost reports aimed at estimating more precisely 
the proportion of total inpatient operating costs that is attributable 
to basic hospital services. To do so, we refined our analysis to 
include additional costs (that is, maintenance and repairs, operation 
of plant, and laundry and linen services), to account for ancillary 
costs of inpatient hospital services, and to exclude ancillary costs 
related to nonhospital components of the institution, such as distinct 
part skilled nursing facilities. The new analysis indicated a range of 
7 percent to 27 percent, with an average of slightly below 15 percent.
    Thus, based on this analysis, we continue to believe that a 15 
percent standard represents a valid and reasonable basis for 
identifying hospitals within hospitals that actually function 
independently. However, we are concerned that some hospitals that have 
been excluded appropriately under criteria related to the types of 
services they provide independently from their hosts may not be able to 
meet the new criterion by the time it becomes effective (that is, by 
the start of cost reporting periods beginning on or after October 1, 
1995). To avoid this problem as well as to widen, as appropriate, the 
range of compliance options available to hospitals within hospitals, we 
have decided to make the 15 percent standard an alternative to, rather 
than a replacement for, our current criterion on provision of basic 
hospital services. This approach will enable hospitals the flexibility 
to buy whatever services they wish from the host, subject to the 15 
percent limit, but will not require hospitals that qualify for 
exclusion under current rules to alter their operations to meet a new 
requirement. We note that because we are making the 15 percent rule an 
alternative to the current criterion rather than a replacement for it, 
a new hospital that has organized itself to meet the current 
requirements will not be disadvantaged. Thus, there is no need to delay 
application of the 15 percent rule.
    With respect to the costs to which the 15 percent criterion will 
apply, we are clarifying proposed Sec. 412.23(e)(3) to state that the 
criterion apply to total inpatient operating costs, as defined under 
Sec. 412.2(c), except that, for purposes of the prospective payment 
system exclusion provisions, the costs of preadmission services are 
those specified at Sec. 413.40(c)(2), not those described in 
Sec. 412.2(c). Costs incurred under leases or rental agreements are 
taken into account only to the extent they fall within the 
Sec. 412.2(c) definition of operating costs.
    Finally, concerning the suggestion on patient needs, we note that 
those needs often can be defined only subjectively, and we believe that 
any test or measurement used for exclusion should be an objective one 
that is susceptible to verification by both the provider and HCFA. 
Thus, we did not adopt this suggestion.
    Comment: One commenter stated that current rules relating to the 
types of services obtained by an LTC hospital within a hospital from 
its host are clear and adequate for distinguishing a separate hospital 
from a hospital unit, and that a separate rule relating to the volume 
of services is not needed. This commenter suggested that instead of 
shifting to a volume-based standard, another way to allow greater 
flexibility for cost-effective purchasing from the host hospital would 
be to allow specific types of basic hospital services, such as 
laboratory services, to be purchased from the host facility. Another 
commenter recommended that the 15 percent limitation be applied only to 
basic hospital services as defined under current regulations, and that 
an LTC hospital within a hospital be allowed to buy other services 
without limitation from the host hospital.
    Response: We agree that either proposed approach would increase 
hospital flexibility. However, the types of services available from 
host facilities 

[[Page 45839]]
and from other sources vary from one community to another, and from 
hospital to hospital within a community, and it would be difficult to 
specify a range of basic hospital services that could acceptably be 
obtained from the host facility in all cases, without permitting so 
many types of services to be obtained from the host facility that the 
criterion would no longer be a useful measure of independent 
functioning. With regard to the second comment, we are concerned that 
applying the 15 percent criterion only to basic hospital services would 
effectively lower the level of independent functioning necessary for a 
hospital to qualify for exclusion, relative to our current 
requirements, and thus might permit inappropriate exclusions. 
Therefore, we are not adopting either of these suggestions.
    Comment: A commenter suggested that the creation of a hospital 
within a hospital is potentially abusive only where the LTC hospital is 
operated by a corporation owned and controlled by the host hospital, or 
by a third entity that controls both the host and the LTC hospitals. 
The commenter recommended that the 15 percent rule be applied only 
where operational control of this kind exists.
    Response: We do not agree with this commenter that simply 
satisfying the structural criteria (those related to having a separate 
governing body, medical staff, chief executive officer, and chief 
medical officer) and average length of stay criteria should be 
sufficient to support exclusion of an LTC hospital within a hospital. 
On the contrary, we believe it is essential for such an entity to show 
that it actually functions as a separate hospital. If the two 
facilities meet only the separate control criteria but the LTC facility 
either receives fewer than 75 percent of its inpatients from sources 
other than the host or receives more services, or different types of 
services, from the host than allowed under our regulations, we question 
the validity of excluding the facility from the prospective payment 
system as a separate LTC hospital. Under these circumstances, the 
facility would in reality be a unit of the host hospital. Therefore, we 
did not adopt this comment.
    Comment: Two commenters stated that the regulations on hospitals 
within hospitals should be revised to apply only when an LTC hospital 
wishes to share a building or campus with a prospective payment 
hospital, not to comparable situations involving a long-term care 
hospital and a rehabilitation hospital.
    Response: Although the ``hospital within a hospital'' rules were 
designed primarily in response to situations involving LTC and 
prospective payment hospitals, the possibility of inappropriate 
exclusion of a hospital unit can also arise if an excluded hospital 
such as a psychiatric or rehabilitation hospital seeks to set up an LTC 
hospital within itself. In both situations, our concern is that an 
entity that is in essence a hospital unit may seek to obtain an 
inappropriate exclusion from the prospective payment system. Section 
1886(d)(1)(B) of the Act provides for exclusion of LTC hospitals but 
not of LTC units. Because newly created hospitals within hospitals are 
eligible for a separate TEFRA target rate and may be eligible for a new 
hospital exemption from the rate-of-increase ceiling under 
Sec. 413.40(f), we believe it is important to prevent inappropriate 
exclusions in all circumstances, not merely those involving prospective 
payment hospitals. Thus, we do not believe it is appropriate to limit 
the criteria as the commenter suggested.
    Comment: One commenter recommended that we revise the regulations 
to include a ``grandfather'' clause under which LTC hospitals within 
hospitals that were excluded from the prospective payment system before 
October 1, 1994, would not need to meet the current exclusion criteria 
in order to continue to qualify for exclusion.
    Response: The adoption of the 15 percent criterion as an 
alternative to the existing exclusion criteria under Sec. 412.23(e) 
gives hospitals within hospitals three alternatives for showing that 
they function as separate hospitals. Moreover, Sec. 412.23(e)(4) 
specifies that the criteria concerning the performance of basic 
hospital functions (under Sec. 412.23(e)(3)) do not apply to any 
previously excluded hospital until the hospital's first cost reporting 
period beginning on or after October 1, 1995. In view of the three 
options available to hospitals for establishing eligibility to be 
excluded from the prospective payment system, and the delayed effective 
date already provided for in regulations, we believe we have 
established equitable policies for previously excluded LTC hospitals 
within hospitals. Thus, a grandfather clause is unnecessary. Moreover, 
we are concerned that indefinitely exempting a set of previously 
excluded hospitals from the regulations would be both inequitable to 
newer hospitals, and difficult to administer, since similar facilities 
would be subject to different payment rules, based only on their 
initial date of exclusion. Finally, it would be contrary to the 
statutory scheme to exclude LTC units from the prospective payment 
system. Thus, we have not adopted this suggestion.
    Comment: One commenter asked whether the revised criterion on 
purchase of services would apply to the initial qualifying period of 6 
months that is used to establish length of stay for a new LTC hospital.
    Response: As stated in proposed Sec. 412.23(e)(3)(i)(E), the new 
criterion on purchase of services applies to the same period of at 
least 6 months used to determine compliance with the length-of-stay 
criterion in Sec. 412.23(e)(2).
    Comment: One commenter stated that if an acute care hospital is 
allowed to set up a LTC hospital within a hospital, it may have a 
financial incentive to discharge patients prematurely from the acute 
hospital to the long-term care hospital. The commenter suggested that 
we adopt further regulations limiting the acute care hospital's ability 
to discharge a patient to a LTC hospital that it owns or controls.
    Response: We understand and share this commenter's concern, and the 
LTC exclusion criteria are designed to prevent inappropriate 
exclusions. However, HCFA has no authority to restrict the range of 
hospitals to which a patient may be referred following discharge from 
acute care. We intend to review this issue, and may propose further 
payment changes to avoid financial incentives for inappropriate 
placement of patients.

B. Clarifying Changes for Excluded Hospitals and Units (Secs. 412.23, 
412.29, 412.30 and 412.130)

    For clarity, we proposed to revise Sec. 412.23(e)(3) to state more 
clearly that a hospital sharing space with another can qualify for 
exclusion only if it meets all of the requirements of paragraphs 
(e)(3)(i)(A) through (e)(3)(i)(D) of that section and, in addition, 
those in either paragraph (e)(3)(i)(E), which deals with separate 
performance of services, or Sec. 412.23(e)(3)(ii), which deals with the 
source of the hospital's patients.
    In addition, we proposed to restate the rules in Secs. 412.29 and 
412.30 to differentiate more clearly between criteria that apply when a 
hospital seeks exclusion of a rehabilitation unit that is created 
through an addition to its existing bed capacity, and the criteria that 
apply when a hospital seeks exclusion of a unit that has been created 
by converting existing bed capacity from other uses. We also proposed 
to clarify the rules that apply when a hospital expands an existing 
rehabilitation unit by increasing its bed capacity or by converting 
existing capacity. These 

[[Page 45840]]
revisions were developed in response to complaints from some hospital 
representatives that the current regulations do not state our criteria 
clearly. We emphasized that these proposals merely restate, and do not 
change, existing rules. In conjunction with this proposed change, we 
also stated that we would make a technical change to a reference in 
Sec. 412.130.
    Comment: One commenter objected to the provision of 
Sec. 412.30(c)(1)(ii) under which the beds a hospital seeks to add to 
its existing rehabilitation unit will be considered new only if over 50 
percent of the beds represent newly licensed and certified beds. The 
commenter stated that this represents a substantive change in the rules 
which inappropriately restricts the ability of a hospital to convert 
acute care capacity to uses excluded from the prospective payment 
system.
    Response: As the commenter noted, Sec. 412.30(b) does not deal 
explicitly with situations in which a hospital seeks to expand an 
excluded rehabilitation unit by adding bed capacity that is made up 
partly of newly licensed capacity and partly of existing capacity. One 
purpose of the revision was to clarify our policy on this issue. 
However, Sec. 412.30(a)(2) does state explicitly that ``a unit that 
includes some beds that were previously licensed and certified and some 
new beds is recognized as new only if more than one half of the beds 
are new.'' Thus, the revision merely restates a current rule as to what 
will be considered ``new'' when an existing facility adds a mixture of 
newly licensed and existing capacity.

C. Changes to the Regulations Addressing Limitations on Reimbursable 
Costs (Secs. 413.30 (e) and (f), and 413.35(b))

    We proposed to remove obsolete material from the regulations. 
Specifically, we proposed to remove Sec. 413.30 (e)(1), (e)(3), and 
(e)(4), since sole community hospitals, risk-basis HMOs, and rural 
hospitals with less than 50 beds are included under 42 CFR part 412, 
which governs the prospective payment system for operating costs. In 
addition, we proposed to remove Sec. 413.30(f)(5), (f)(6), (f)(7) (a 
reserved paragraph), and (f)(9), concerning exceptions for hospital 
routine care, essential community hospital services, and hospital case-
mix changes for cost reporting periods beginning before October 1, 
1983. In conjunction with these proposed changes, we stated that we 
would incorporate the exemption requirements for new providers into 
paragraph (e) of Sec. 413.30, redesignate subparagraphs under paragraph 
(f) of Sec. 413.30, and make technical changes to references in 
Secs. 413.30(f) and 413.35(b)(2).
    We received no comments on these proposals, and are therefore 
adopting the changes as proposed.
D. Payment Window for Hospitals and Hospital Units Excluded from the 
Prospective Payment Systems (Sec. 413.40(c))

    On January 12, 1994, we published an interim final rule with 
comment period to specify that inpatient hospital operating costs 
include costs of certain preadmission services furnished by the 
hospital (or by an entity that is wholly owned or operated by the 
hospital) to the patient up to 3 days before the date of the patient's 
admission to the hospital (59 FR 1654). The interim final rule 
implemented section 4003 of the Omnibus Budget Reconciliation Act of 
1990 (Public Law 101-508), which amended section 1886(a)(4) of the Act. 
Because the definition of inpatient operating costs in section 
1886(a)(4) of the Act applies to both prospective payment system 
hospitals and hospitals excluded from the system, the January 12, 1994 
interim final rule revised the regulations governing excluded hospitals 
as well as those governing prospective payment hospitals. Specifically, 
we revised Sec. 413.40(c)(2) of the regulations to reflect the 3-day 
payment window as required by the statute. We received 11 comments in 
response to this issue. Although we stated in the proposed rule that we 
intended to address these comments in this final rule, we have revised 
our plans. We will instead issue the final rule addressing the 3-day 
payment window as a separate document to be published in the Federal 
Register.
    On October 31, 1994, Congress enacted the Social Security Act 
Amendments of 1994. Section 110 of that legislation amended section 
1886(a)(4) of the Act to state that, for hospitals excluded from the 
prospective payment system, the preadmission services to be included 
are those furnished during the 1 day (not 3 days) before a patient's 
admission.
    To implement this provision, we proposed to revise 
Sec. 413.40(c)(2) to provide for a 1-day payment window for hospitals 
and hospital units excluded from the prospective payment system. We 
note that the term ``day'' refers to the calendar day immediately 
preceding the date of admission, not the 24-hour time period that 
immediately precedes the hour of admission.
    We received no comments on this proposal, and are therefore 
adopting the changes as proposed.

E. Ceiling on the Rate of Increase in Hospital Inpatient Costs 
(Sec. 413.40(e) and (g))

    We proposed to revise Sec. 413.40(e)(1) to clarify that a request 
for a payment adjustment must be received by a hospital's fiscal 
intermediary no later than 180 days from the date of the notice of 
program reimbursement (NPR). Currently, this section states that a 
request must be ``made'' rather than ``received.'' We have consistently 
interpreted the word ``made'' to mean ``received by the fiscal 
intermediary'' since the original regulation was promulgated (47 FR 
43282, September 30, 1982). However, use of the word ``made'' in 
Sec. 413.40(e)(1) has resulted in varying interpretations of the timely 
filing requirement by hospitals and their fiscal intermediaries. In the 
interest of a uniform and consistent application of our policy, we 
proposed to clarify the regulation by substituting ``received by the 
hospital's fiscal intermediary'' for ``made'' in Sec. 413.40(e)(1).
    In Sec. 413.40(g)(1), we proposed to clarify the determination of 
the amount of payment made to a hospital that receives a TEFRA 
adjustment. Since October 1, 1991, a hospital with operating costs in 
excess of its ceiling has been paid the ceiling plus an additional 
amount, as provided at Sec. 413.40(d)(3). For these cost reporting 
periods, a hospital receives some payment for costs in excess of the 
ceiling. We also proposed to add a sentence to clarify that the amount 
of payment made after a TEFRA adjustment may not exceed the difference 
between a hospital's operating costs and the payment previously 
allowed.
    Comment: We received two comments requesting that the postmark date 
of the request be used as the determinant of whether the comment is 
received timely. One commenter expressed concern about problems with 
the intermediary's delivery procedures and delays in the mail room. 
Both commenters requested that we use the postmark date to determine 
timely filing of an exception request because it provides 
``incontrovertible proof'' that a request was made timely and is 
consistent with a final rule published in the Federal Register on June 
27, 1995 (60 FR 33137) with regard to timely filing of the cost report.
    One of the commenters also objected to our proposed policy of using 
the receipt date by the intermediary, stating that HCFA often takes 18 
months or longer to respond to exception requests. The commenter added 
that a request based on sound merits should be 

[[Page 45841]]
considered whether it is received on the 180th or 181st day after the 
notice of program reimbursement.
    Response: The commenter's statement regarding the use of a postmark 
date for determining whether cost reports are considered timely filed 
is based on language from our response to a comment in a final 
regulation published in the Federal Register on June 27, 1995 (60 FR 
33139) that extended the due dates for filing cost reports to five 
months from the end of the cost reporting period. In that response, we 
explained that we use the postmark date in the cost report context in 
accordance with section 2219.4C of the Medicare Intermediary Manual.
    In the appeals context, however, there are certain statutes and 
regulations that impact on our decision as to when payment exceptions 
must be requested to be considered timely. While section 1886(b)(4)(A) 
of the Act, which provides the Secretary with the authority to grant 
exceptions to the per discharge limit, does not specify requirements 
with regard to timely filing of an exception request, we believe it is 
appropriate to examine section 1878 of the Act. That section addresses 
timely filing of a hearing request with the Provider Reimbursement 
Review Board (PRRB). Such a request, like an exception request, 
involves a provider seeking reimbursement in addition to that set forth 
in its notice of program reimbursement. For that reason, we believe 
that our policy with regard to the timely filing of an exception 
request should be consistent with section 1878 of the Act.
    Section 1878(a)(3) of the Act states that if a provider files a 
request for a hearing within 180 days after notice of the 
intermediary's final determination, the provider can obtain a hearing 
with the PRRB. We note that Black's Law Dictionary defines the term 
``file'' as follows:

    To deposit in the custody or among the records of a court. To 
deliver an instrument or other paper to the proper officer or 
official for the purpose of being kept on file by him as a matter of 
record or reference in the proper place.

    Accordingly, we are continuing to use the date received by the 
intermediary to determine timely filing of an adjustment request by a 
provider. Under this policy, intermediaries will date stamp requests 
upon receipt, and we will consider the date stamped on the exception 
request by the intermediary as the receipt date to determine timely 
filing, unless the provider demonstrates that the intermediary received 
the request on some other date. For example, a provider may mail 
through an overnight delivery service a request that is not stamped 
until the day after delivery. Where the provider can show that it was 
delivered on the previous day the request will be considered timely.
    With regard to the comment that HCFA often takes 18 months or 
longer to respond to exception requests, we regret these delays, which 
have resulted from the significant volume of exception requests we have 
received. We are making efforts to reduce the backlog and expedite 
processing of exception requests. However, we do not agree that all 
exception requests should be evaluated on their merits regardless of 
whether they are received on the 180th or 181st day after the NPR. To 
ensure effective administration of the program, intermediaries must 
consistently apply the timely filing requirements.
    Comment: One commenter interprets our proposal to clarify that the 
amount of payment made after a TEFRA adjustment may not exceed the 
difference between a hospital's operating costs and the payment 
previously allowed to mean that the TEFRA penalty payment would not 
apply.
    Response: The commenter's interpretation is not correct. Our 
proposal was intended only to ensure that total payments to an excluded 
hospital or unit that receives an exception do not exceed total 
inpatient operating costs. Currently, hospitals with costs above the 
TEFRA limit receive their per discharge limit plus 50 percent of costs 
in excess of the limit, up to 110 percent of the target amount. If the 
hospital receives an adjustment to its TEFRA target amount, the amount 
of penalty payment is recalculated based on the adjusted target amount. 
Under our policy, the hospital could continue to receive the TEFRA 
penalty payment and any additional adjustment amounts, but only up to 
its total inpatient operating costs. Accordingly, the total payment 
would not exceed total inpatient operating costs.

VII. ProPAC Recommendations

    As required by law, we reviewed the March 1, 1995 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 1, 4, and 5, concerning the 
update factors for inpatient operating costs, the update factor for 
hospitals paid on the basis of hospital-specific rates, and the update 
factor for hospitals excluded from the prospective payment system and 
distinct-part units, respectively, are discussed in Appendix C to this 
final rule. Recommendations 2 and 3, concerning the update factors for 
inpatient capital costs and the single operating and capital update 
factor, respectively, are discussed in Section V of this final rule. 
Recommendation 11, concerning improving Medicare transfer payment 
policy, is discussed in section IV.A of the preamble. The remaining 
recommendations on which we received comments are discussed below.
A. Update to the Composite Rate for Dialysis Services (Recommendation 
6)

    Recommendation: For FY 1996, the composite rate for dialysis 
services should be updated to account for the following:
     The projected increase in the market basket index for 
dialysis services, currently estimated at 3.7 percent;
     A net adjustment of zero percentage points for scientific 
and technological advances and productivity; and
     A negative discretionary adjustment of 3.7 percentage 
points to reflect the relationship between payments and estimated 
fiscal year 1995 costs.
    This would result in an update of zero percent.
    Response in the Proposed Rule: We agree with ProPAC's 
recommendation not to propose a payment rate increase for dialysis 
services. ProPAC's cost analysis indicates that, in aggregate, Medicare 
payments to independent dialysis facilities were about 12 percent 
higher than their Medicare allowable costs, and thus there is no basis 
to increase the composite rate. Furthermore, ProPAC concludes that 
without documented explanations for reported higher costs in hospital-
based facilities, it cannot justify a differential update for these 
facilities.
    ProPAC's analysis of the 1993 unaudited cost data shows that 
Medicare allowable costs for independent facilities are less than their 
payment rate. Since 1983, the number of independent facilities has 
continued to increase in response to growing patient demand, even 
though payment rates have remained constant. As noted by ProPAC, the 
margin between 

[[Page 45842]]
independent facilities' composite payment rates and their Medicare 
allowable costs continues to decrease. Because of this trend, we will 
closely monitor the costs of dialysis treatments as reported by 
facilities on their cost reports. Further, if Medicare's conditions of 
coverage are revised to include an adequacy of dialysis standard, we 
will examine the need to adjust composite payment rates. The current 
composite payment rates are mandated by statute.
    To improve the quality of the cost report data and to address 
concerns about the cost report, we have revised the independent 
facilities' cost report, Form HCFA 265-94. The new cost report 
eliminates the allocation of the facility's overhead to the drug 
recombinant human erythropoietin (EPO). In addition, we are revising 
the independent cost reports edits. These edits would screen cost 
report data to ensure that data elements outside edit ranges are 
investigated by intermediaries.
    Comment: One commenter asserted that the difference in cost levels 
between freestanding facilities and hospital-based renal facilities is 
obvious; hospital-based renal facilities treat a more resource 
intensive and complicated patient base. The commenter recommended 
updating the composite payment rates using the hospital market basket 
index.
    Response: ProPAC addressed this issue in its report. Its analysis 
did not attribute the difference in cost to factors such as patient 
mix, for which the composite payment rate system should compensate 
renal facilities. Rather, it showed that the higher cost per treatment 
in hospital-based facilities was due to higher labor expenses and the 
method by which costs are allocated between inpatient and outpatient 
departments. Differences between independent and hospital-based 
facilities in quality of care and patient outcomes have not been 
demonstrated. Patient data showed in the aggregate that there is no 
difference between hospital and independent renal patient medical 
populations. For renal facilities treating an atypical patient 
population, there is an exception process. This process gives renal 
facilities an opportunity, on a case by case basis, to demonstrate that 
their payment rates should be adjusted to account for higher costs 
attributable to differences in patient mix.
    Comment: ProPAC commends the Secretary's efforts to improve the 
quality of cost report data by eliminating the allocation of 
facilities' overhead to the drug recombinant human erythropoietin (EPO) 
and by revising the independent cost report edits to screen cost report 
data more effectively. The Commission believes, however, that annual 
audits are necessary to develop the quality data needed to monitor 
dialysis costs over time and to ensure that payments for dialysis 
services are updated appropriately.
    Response: Audits are important to ensure the quality of cost 
reporting data and would improve the quality of the data. However, 
audits are expensive for HCFA and for renal facilities, and they only 
correct the data being audited. The best way to improve the quality of 
cost data is through education, such as that being conducted by the 
National Renal Administrator Association. We are in the process of 
developing a national standard to measure the adequacy of dialysis. We 
will conduct audits once this standard is implemented. These audits 
should then document the costs associated with improved dialysis care.

B. Level of the Indirect Medical Education (IME) Adjustment to 
Prospective Payment System Operating Payments (Recommendation 7)

    Recommendation: For FY 1996, the IME adjustment to prospective 
payment system operating payments should be reduced by 13 percent, from 
a 7.7 percent to a 6.7 percent increase for every 10 percent increment 
in teaching intensity. Ultimately, the IME adjustment should be reduced 
by about 40 percent, to a 4.5 percent increase for every 10 percent 
increment in teaching intensity.
    Response in the Proposed Rule: ProPAC's IME estimate of 4.5 percent 
represents a significant acceleration in the downward trend of its 
estimates in the last several years (5.7 percent in 1992, 5.4 percent 
in 1993, and 5.2 percent in 1994). Coupled with FY 1993 cost report 
data showing major teaching hospitals' Medicare operating margins 
(difference between payments and costs as a percentage of payments) 
rising to over 11 percent, this declining IME estimate adds to the 
argument that the current adjustment is too high. Legislation would be 
required to reduce the IME adjustment. However, savings proposals of 
this sort would only be appropriate in the context of health care 
reform.
    Comment: ProPAC's comment largely reiterated the discussion 
contained in its March 1995 report. ProPAC did indicate that, contrary 
to our assertion that its IME estimate of 4.5 percent represents an 
acceleration in the downward trend of its recent estimates, this 
apparent downward trend reflects its ``continuing efforts to improve 
both the methods used to analyze this relationship and the accuracy of 
the resulting estimates.'' The Commission's comment goes on to indicate 
that, applying its current estimating methodology to prior year's data, 
``the results do not vary much from the current 4.5 percent estimate.
    Response: We agree that, in our June 2, 1995 response to ProPAC's 
recommendation, we may have misinterpreted ProPAC's most recent IME 
estimates as indicating an accelerating downward trend. Upon further 
discussion with ProPAC, it appears that, rather than a declining 
relationship over time, the decline in the most recent estimate results 
from a change in how ProPAC controls for cost differences resulting 
from hospital location (that is, large urban, other urban or rural). 
Specifically, in its most recent estimate, ProPAC included dummy 
variables in the regression to indicate that a hospital is located in a 
large or other urban area, rather than standardizing the dependent 
variable costs per discharge for differences in the standardized 
amounts.

C. Making DRG Payment Rates More Accurate (Recommendation 9)

    Recommendation: The Secretary should implement, as soon as 
practicable, the DRG severity refinements developed by HCFA. At the 
same time, she should improve the accuracy of basic DRG payment rates 
and outlier payments by changing the methods used to calculate the DRG 
relative weights. The weights should be based on the national average 
of hospital-specific relative values for all cases in each DRG, rather 
than the national average standardized charge per case.
    Response in the Proposed Rule: In the May 27, 1994 proposed rule 
(59 FR 27716), we announced the availability of a paper we prepared 
that describes our preliminary severity DRG classification system and 
the analysis upon which our proposal was formulated. Based on the 100 
comments we received on that paper, we are further analyzing and 
adjusting the severity DRG classifications. We are also examining the 
stability of the severity classifications over time. We agree with the 
Commission's judgment that adopting the severity DRGs would tend to 
reduce current discrepancies between payments and costs for individual 
cases and thereby improve payment equity among hospitals. We therefore 
remain committed to implementing the severity DRG classification system 
as soon as possible. (See discussion in Section II.B of this preamble.) 


[[Page 45843]]

    We also agree with the Commission that basing DRG weights on 
standardized charges results in weights that are somewhat distorted as 
measures of the relative costliness of treating a typical case in each 
DRG. The Commission notes several sources of distortion, including the 
following: systematic differences among hospitals in cost-to-charge 
ratios; variation in mark-ups for services across hospitals; variation 
among DRGs in the average mark-up implicit in case level charges; 
standardization factors that inaccurately represent cost differences 
among hospitals; and the absence of adjustments to account for factors 
such as variations in practice patterns and efficiency. We recognize 
that the hospital-specific relative value method of setting weights may 
reduce or eliminate distortions from these sources, and we are studying 
its effect on DRG weights and hospital payments.
    The Commission also addresses two issues regarding current outlier 
financing policies: (1) how to account for outlier payments in setting 
a DRG weight that accurately reflects the relative costliness of 
treatment for typical cases; and (2) how to finance outlier payments so 
that the burden of treating such cases is spread fairly among all 
hospitals. We are studying these issues and look forward to working 
with ProPAC to find solutions.
    Because the effects on DRG weights of implementing DRG severity 
refinements and changing the methods used to calculate DRG relative 
weights are interactive, we believe that appropriate changes should be 
adopted concurrently. However, as stated in the final rule published on 
September 1, 1992 (57 FR 39761) and in subsequent rules, as well as in 
this rule, we would not 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. (See comment and 
response following Recommendation 10 below).
D. Improving Annual Update Policies (Recommendation 10):

    Recommendation: The Secretary should be given authority to adjust 
the standardized amounts if anticipated coding improvements would 
increase aggregate payments by more than 0.25 percent during the coming 
year. This adjustment should be separate from the annual update. It 
should be based on findings from empirical analysis of the new HCFA 
data base of reabstracted medical records. Once sufficient data are 
available, the Secretary should also make a correction if there is more 
than a 0.1 percentage point error in a previous adjustment.
    Response in the Proposed Rule: We agree with ProPAC that 
anticipated coding changes should be taken into account and that the 
most appropriate method for recognizing valid increases in case mix as 
a result of improved coding practices is within the framework of the 
standardized payment amount. We acknowledge, with ProPAC, that shifts 
in the mix of cases among DRGs may result from changes in practice 
patterns, new technology, or variations in the incidence of illness, as 
well as changes in the coding of diagnoses and procedures.
    As ProPAC states, under section 1886(d)(4)(C) of the Act, we are 
required to make DRG reclassification and recalibration changes in a 
budget neutral manner. To meet this requirement, we normalize the DRG 
relative weights so that, for the discharges in the data base, the 
average DRG weights before and after reclassification and recalibration 
are equal. The recalibration of the DRG weights is accompanied by a 
budget neutrality adjustment to the standardized payment amount to 
ensure that estimated aggregate payments remain unchanged.
    We share ProPAC's concern that introduction of any major 
modification to the DRG classification system will result in major 
shifts in the distribution of cases among the DRGs. Because the 
severity refinements to the DRGs would create many new DRGs with 
relatively high weights, there will be increased incentive to hospitals 
to report those secondary diagnoses that result in assignment to the 
higher weighted DRG. We agree with ProPAC that this is not 
inappropriate and is indeed anticipated. We further agree that we need 
to ensure that hospitals are fairly compensated for increases in costs 
that reflect real increases in the level of severity of illness of 
their patient population.
    In order to protect the Medicare program from payment increases 
that are a consequence of improved coding practices that do not reflect 
a real increase in case mix, we have developed a methodology that would 
recalibrate the DRG relative weight to 1.0 each year, thus eliminating 
the normalization process and the concomitant inflationary adjustment 
to the DRG weights. This would prohibit upcoding and other coding 
improvements from having an impact on the DRG relative weight. To 
account for real case-mix increases, we have recommended an annual 
upward adjustment to the standardized amounts equal to the lesser of 
the total observed case-mix increase or 1.0 percent. Anticipated case-
mix change due to upcoding would be accounted for through a prospective 
adjustment to the standardized amounts. This adjustment would be for 
one year at a time and would not be cumulative.
    ProPAC recommends that an ongoing data base of reabstracted medical 
records be used to estimate the real and coding components of case-mix 
change and provide the basis for forecasting future coding changes. 
HCFA has recently implemented a record reabstracting process being 
conducted by two clinical data abstraction centers (CDACs) under 
contract with the Health Standards and Quality Bureau (HSQB). The CDACs 
will review a national random sample of 30,000 records per year from 
the National Case History file, gathered on a monthly basis. Registered 
Record Administrators (RRAs) and Associate Record Technicians (ARTs) 
will reabstract the medical record and perform complete record medical 
coding, which will be stored with the original coding.
    We will evaluate the results of this reabstracting process before 
making a decision to base adjustments for anticipated coding changes 
only on this data base. Our estimate of an annual real case-mix 
increase of 1.0 percent is supported by past studies of case-mix change 
by the Rand Corporation. The most recent study by RAND, ``Has DRG Creep 
Crept Up? Decomposing the Case Mix Index Change Between 1987 and 
1988'', by G.M. Carter, J.P. Newhouse and D.A. Relles, R-4098-HCFA/
ProPAC (1991), uses medical records from those Federal fiscal years, 
using consistent standards, to determine real case-mix change.
    As we pursue options and alternatives to payment adjustments to 
account for real case-mix increases, we will take into consideration 
ProPAC's recommendations to limit adjustments to those occasions in 
which coding changes would increase aggregate payments by more than 
0.25 percent or when forecasts differ from observed, actual experience 
by more than 0.1 percent. We note, also, that we are considering a 
number of related modifications to the calculation of the DRG relative 
weights that will have an impact on the prospective payment rates. (See 
response to ProPAC Recommendation 9, above.)
    Comment: In its comment on our response to ProPAC Recommendation 9 

[[Page 45844]]
    and 10 (Improvements in the DRG Payment Rates and Annual Update 
Policies), the Commission indicated that it continues to believe that 
refinements to the DRG definitions and relative weights should be 
implemented as soon as possible. While the Commission agrees that 
adopting the refined DRGs could lead to changes in hospital coding 
behavior, it states that recalibrating the weights annually to 1.0 in 
not necessary to protect Medicare from the effects of coding change. 
ProPAC believes this may actually interfere with reducing the program's 
financial risk if it is perceived as an arbitrary means of reducing 
spending. Additionally, it does not believe that limiting future 
increases in payments to the lesser of the measured real change or 1.0 
percent is plausible if the real change turns out to be higher.
    The Commission, although stating appreciation of our desire to 
evaluate the new reabstracted data base, states that this data base 
exceeds the size and representativeness of any data base previously 
used to determine adjustments for coding change. ProPAC reiterates its 
recommendation that an adjustment, separate from the annual update, be 
applied in situations when changes in coding, anticipated in response 
to major revisions in the DRG definitions or the relative weights, are 
expected to lead to an increase in aggregate payments of at least 0.25 
percent. The projected effect of changes in coding would be based on 
empirical analysis of the reabstracted medical records available to 
HCFA, and corrections would be made when significant forecast errors 
are detected.
    Response: Although we agree with the Commission that these policy 
changes will improve equitable payment across hospitals, we believe it 
would be irresponsible for HCFA to implement the severity adjustment to 
the DRGs before we are able to predict or control the impact of coding 
changes on final DRG assignment and, thus, on payment. We do not agree 
that recalibration of the DRG relative weights to 1.0 will be perceived 
as arbitrary. With sufficient understanding of the rationale and 
results, as well as of the other modifications to the payment rate and 
DRG weights, the health care community should appreciate our efforts to 
identify and measure real case-mix increases. Nor do we agree that our 
rationale for limiting adjustments to the standardized amounts for real 
change in case mix to the lesser of the measured real change or 1.0 
percent is not plausible. As stated in the proposed rule (60 FR 29247), 
our estimate of annual real case-mix increase of 1.0 percent is 
supported by past studies of case-mix change by RAND. We are willing to 
re-examine this issue, if empirical evidence provided through analysis 
of the reabstracted data from the clinical data abstraction centers 
(CDACs) demonstrates that real case-mix change is significantly more or 
less than 1.0 percent.
    As discussed in section II.B. of this preamble, collection of data 
from the CDACs has recently been implemented, and we will evaluate the 
results of this reabstracting process. Only through this evaluation 
will we be able to confirm the reliability and validity of these data 
as a basis for predicting case-mix increases. We will consider ProPAC's 
recommendations to adjust the standardized amount only when coding 
changes increase aggregate payments by more than 0.25 percent. However, 
we believe it is prudent and responsible policy to defer DRG changes, 
as well as adjustments in anticipation of coding changes, until such 
adjustments can be based on empirical analysis of the reabstracted 
medical records. As noted by ProPAC in its recommendations, the current 
statute prevents us from making any adjustment to the standardized 
amount to account for coding improvements.
VIII. Other Required Information

A. Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995, agencies are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     Whether the information collection is necessary and useful 
to carry out the proper functions of the agency;
     The accuracy of the agency's estimate of the information 
collection burden;
     The quality, utility, and clarity of the information to be 
collected; and
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
Therefore, we are soliciting public comment on each of these issues for 
the two information collection requirements discussed below.
    As discussed in detail in section IV.B of this preamble, we are 
eliminating the requirement under Sec. 412.46(a) that a physician sign 
an attestation statement for each Medicare patient discharged from a 
hospital. When the prospective payment system for hospitals was 
established in 1983, we believed that the physician attestation 
statement was a valuable tool for ensuring the validity of DRG claims. 
Over the years, however, we have received many complaints from both 
hospitals and physicians concerning the administrative burden of 
completing the attestation statements. Moreover, in practice, review of 
attestation statements by the Peer Review Organizations (PROs) as a 
part of DRG validation review has resulted in less than a 0.01 percent 
denial rate of sampled claims. Therefore, we believe it is now 
appropriate to eliminate the physician attestation requirement. Also, 
we note that the Administration has identified the elimination of 
physician attestation as one of its health care regulatory reforms.
    This change would reduce significantly the paperwork and 
information collection burden on physicians and hospitals. We estimate 
that currently physicians spend about 192,000 hours per year completing 
attestations. This estimate is based on 11,500,000 hospital inpatient 
claims per year and 1 minute of physician time per claim. In addition, 
any time that hospitals spend following up on overdue and unsigned 
attestations would also be saved.
    The only remaining requirement under Sec. 412.46 is that a hospital 
have on file a signed statement from each attending physician 
acknowledging that he or she has received a notice from the hospital 
explaining the penalties applicable for misrepresenting, falsifying, or 
concealing essential information required for payment. We estimate that 
this requirement imposes on physicians and hospitals a shared one-time 
burden of 5 minutes for acknowledgement for each physician that gains 
admitting privileges. We further estimate that no more than 1-2 percent 
of the nation's roughly 700,000 active physicians gain admitting 
privileges at a hospital each year, resulting in an estimated annual 
burden of approximately 1,200 hours.
    Under Sec. 412.106(b)(3), for purposes of the DSH adjustment, a 
hospital's Medicare Part A/SSI percentage may be calculated based on 
its cost reporting period rather than the Federal fiscal year. (See 
section IV.E of the preamble.) Under current policy, a hospital must 
submit, in machine-readable format, data on its Medicare Part A 
patients for its cost reporting period. As discussed in detail in the 
preamble, this process has not resulted in accurate recalculations of 
the disproportionate 

[[Page 45845]]
patient percentages, and thus requiring hospitals to submit data has 
not proven useful or necessary. Therefore, we are revising this 
requirement to provide that hospitals need only make a written request 
for the recalculation and need not submit the data. We estimate that 
the current burden associated with submitting the data is approximately 
24 hours per request. Under the revision, we estimate a burden of 1 
hour per request. Based on an estimate of 12 requests per year, the 
total burden will be 12 hours, in comparison to the current total 
burden of approximately 288 hours.
    These information collection and recordkeeping requirements are not 
effective until they have been approved by OMB. A notice will be 
published in the Federal Register when approval is obtained. 
Organizations and individuals desiring to submit comments on these 
information collection and recordkeeping requirements should direct 
them to the Office of Management and Budget, Human Resources and 
Housing Branch, Room 10235, New Executive Office Building, Washington, 
D.C., 20503, Attention: Allison Eydt, HCFA Desk Officer.

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 June 
2, 1995 proposed rule, we published a list of data sets that are 
available for purchase (60 FR 29249). We received no comments 
concerning this process.

C. Waiver of Notice of Proposed Rulemaking and 30-Day Delay in the 
Effective Date for the Elimination of the Physician Attestation 
Requirement

    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 because the delay involved 
in prior notice and comment procedures for the new provisions of this 
rule would be contrary to the public interest.
    One provision of this rule that was not part of our June 2, 1995 
proposed rule is the elimination of the requirement in 42 CFR 
Sec. 412.46(a) that a physician sign an attestation statement for each 
Medicare patient discharged from a hospital. Although this change was 
not part of the proposed rule, we received close to 1,000 letters from 
physicians and hospitals requesting that we eliminate the physician 
attestation requirement. As discussed above, this change will reduce 
significantly the paperwork and information collection burden on 
physicians and hospitals. We believe that it is appropriate to 
implement this revision as part of this final rule as the most 
expeditious means of removing this burden on physicians and hospitals. 
Thus, particularly in view of the many unsolicited letters we have 
already received on this subject, we find that the delay involved in 
prior notice and comment would be contrary to the public interest. 
Therefore, we have concluded that it is appropriate to implement the 
revisions to Sec. 412.46 as final in this instance.
    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 in the public interest for the elimination of 
the physician attestation requirement to take effect as soon as 
possible. A 30-day delay in the effective date would only extend 
unnecessarily an onerous requirement on physicians and hospitals. 
Therefore, we believe that a 30-day delay in the effective date for 
this provision would be contrary to the public interest, and we find 
good cause to waive the usual 30-day delay in the effective date.

D. Waiver of Notice of Proposed Rulemaking for Allowing the Provision 
of Skilled Nursing Facility (SNF) Services by Rural Primary Care 
Hospitals (RPCHs)

    In addition to the elimination of the physician attestation 
requirement under Sec. 412.46, this final rule contains one other 
provision that was not included in the June 2, 1995 proposed rule. 
Specifically, the proposed rule did not include the changes contained 
in this final rule to Sec. 485.645, Special requirements for RPCH 
providers of long-term care services (``swing beds''). As noted above, 
we ordinarily publish a notice of proposed rulemaking for a substantive 
rule to provide a period of public comment. Again, however, we may 
waive that procedure if we find good cause that prior notice and 
comment are impractical, unnecessary, or contrary to public interest.
    As explained in detail in section IV.G of this preamble, effective 
October 31, 1994, section 102(c) of the Social Security Act Amendments 
of 1994 (SSAA '94) allows a hospital with a swing-bed agreement in 
effect when it applies for RPCH designation to maintain as many beds 
for the furnishing of SNF-level services as it had on its hospital 
license when it applied to the State for designation as a RPCH, minus 
the number of inpatient beds (not to exceed six) used for the provision 
of RPCH inpatient care. The new legislation further states that the 
number of beds the facility uses for SNF-level care is not to include 
any beds of a unit of the facility that is licensed as a distinct-part 
SNF at the time the facility applies to the State for designation as a 
RPCH. To implement this provision, we are amending Sec. 485.645 to 
reflect the new statutory language. We also are providing that swing-
bed RPCHs that applied for RPCH designation before October 31, 1994, 
may either continue to provide care in accordance with the prior 
provisions of the regulations or request redesignation under the new 
provisions.
    The regulations published in final in this rule implement the 
provisions of section 102(c) of SSAA '94 as the statute intends. The 
statutory effective date of the provisions of section 102(c) is October 
31, 1994, and several facilities have indicated an interest in being 
designated as RPCHs under the new provisions. Moreover, we believe 
these changes may be necessary to assure access to SNF-level care in 
rural areas. Thus, we believe that it is both unnecessary and contrary 
to the public interest to delay implementation of these provisions 
until the process of publishing both a proposed and a final rule can be 
completed. Therefore, we find good cause to waive proposed rulemaking 
for the revised requirements set forth under Sec. 485.645 and to issue 
these regulations as final. However, we are providing a 60-day period 
for public comment, as indicated at the beginning of this rule, on the 
changes to Sec. 485.645.

E. 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 

[[Page 45846]]
changes to the revised requirements under Sec. 485.645 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 June 2, 1995 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 424

    Emergency medical services, Health facilities, Health professions, 
Medicare.

42 CFR 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

    2. Section 412.4 is amended as follows:
    a. In the first sentence of paragraph (d)(1), the phrase ``is paid 
a per diem rate'' is removed and the phrase ``is paid a graduated per 
diem rate'' is added in its place.
    b. In paragraph (d)(1), a new sentence is added at the end of the 
paragraph.
    The addition reads as follows:


Sec. 412.4  Discharges and transfers.

* * * * *
    (d) Payment to a hospital transferring an inpatient to another 
hospital. (1) * * * Payment is graduated by paying twice the per diem 
amount for the first day of the stay, and the per diem amount for each 
subsequent day, up to the limit as described in paragraph (d)(1) of 
this section.
* * * * *
Subpart B--Hospital Services Subject to and Excluded from the 
Prospective Payment Systems for Inpatient Operating Costs and 
Inpatient Capital-Related Costs

    3. Section 412.23 is amended as follows:
    a. Paragraphs (e)(2) and (e)(3) are revised.
    b. In paragraph (e)(4), the phrase ``in paragraphs (e)(3) of this 
section'' is removed and the phrase ``in paragraph (e)(3) of this 
section'' is added in its place.
    The revisions read as follows:


Sec. 412.23  Excluded hospitals: Classifications.

* * * * *
    (e) Long-term care hospitals. * * *
    (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;
    (ii) If a change in the hospital's average length of stay is 
indicated, as computed by the same method for the immediately preceding 
6-month period; or
    (iii) If a hospital has undergone a change of ownership (as 
described in Sec. 489.18 of this chapter) at the start of a cost 
reporting period or at any time within the preceding 6 months, the 
hospital may be excluded from the prospective payment system as a long-
term care hospital for a cost reporting period if, for the 6 months 
immediately preceding the start of the period (including time before 
the change of ownership), the hospital has the required average length 
of stay, continuously operated as a hospital, and continuously 
participated as a hospital in Medicare.
    (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 the following 
criteria:
    (i) 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.
    (ii) 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.
    (iii) 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.
    (iv) 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 office 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.
    (v) Performance of basic hospital functions. The hospital meets one 
of the following criteria:
    (A) The hospital performs the basic 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.
    (B) For the same period of at least 6 months used to determine 
compliance with the length-of-stay criterion in paragraph (e)(2) of 
this section, the cost of the services that the hospital obtained under 
contracts or other agreements 

[[Page 45847]]
with the hospital occupying space in the same building or on the same 
campus, or with a third entity that controls both hospitals, is no more 
than 15 percent of the hospital's total inpatient operating costs, as 
defined in Sec. 412.2(c). For purposes of this paragraph, however, the 
costs of preadmission services are those specified under 
Sec. 413.40(c)(2) rather than those specified under Sec. 412.2(b)(5).
    (C) For the same 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 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. In Sec. 412.29, the introductory text is republished, and 
paragraph (a) is revised to read as follows:


Sec. 412.29  Excluded rehabilitation units: Additional requirements.

    In order to be excluded from the prospective payment systems, a 
rehabilitation unit must meet the following requirements:
    (a) Have met either the requirements for--
    (1) New units under Sec. 412.30(a); or
    (2) Converted units under Sec. 412.30(b).
* * * * *
    5. Section 412.30 is amended as follows:
    a. Paragraph (a) is revised.
    b. Paragraphs (b) and (c) are redesignated as paragraphs (c) and 
(d).
    c. A new paragraph (b) is added.
    d. Redesignated paragraph (c) is revised.
    e. In redesignated paragraph (d), the phrase ``under paragraph (b) 
of this section,'' is removed and the phrase ``under paragraph (c) of 
this section,'' is added in its place.
    The revisions and addition read as follows:


Sec. 412.30  Exclusion of new rehabilitation units and expansion of 
units already excluded.

    (a) New units. (1) A hospital unit is considered a new unit if the 
hospital--
    (i) Has not previously sought exclusion for any rehabilitation 
unit; and
    (ii) Has obtained approval, under State licensure and Medicare 
certification, for an increase in its hospital bed capacity that is 
greater than 50 percent of the number of beds in the unit.
    (2) A hospital that seeks exclusion of a new rehabilitation unit 
may provide a written certification that the inpatient population the 
hospital intends the unit to serve meets the requirements of 
Sec. 412.23(b)(2) instead of showing that the unit has treated such a 
population during the hospital's most recent cost reporting period.
    (3) The written certification described in paragraph (a)(2) of this 
section is effective for the first full cost reporting period during 
which the unit is used to provide hospital inpatient care. If the 
hospital has not previously participated in the Medicare program as a 
hospital, the written certification also is effective for any cost 
reporting period of not less than 1 month and not more than 11 months 
occurring between the date the hospital began participating in Medicare 
and the start of the hospital's regular 12-month cost reporting period.
    (4) A hospital that has undergone a change of ownership or leasing 
as defined in Sec. 489.18 of this chapter is not considered to have 
participated previously in the Medicare program.
    (b) Converted units. A hospital unit is considered a converted unit 
if it does not qualify as a new unit under paragraph (a) of this 
section. A converted unit must have treated, for the hospital's most 
recent 12-month cost reporting period, an inpatient population of which 
at least 75 percent required intensive rehabilitation services for the 
treatment of one or more conditions listed under Sec. 412.23(b)(2).
    (c) Expansion of excluded rehabilitation units.
    (1) New bed capacity. The beds that a hospital seeks to add to its 
excluded rehabilitation unit are considered new beds only if--
    (i) The hospital's State-licensed and Medicare-certified bed 
capacity increases at the start of the cost reporting period for which 
the hospital seeks to increase the size of its excluded rehabilitation 
unit, or at any time after the start of the preceding cost reporting 
period; and
    (ii) The number of beds the hospital seeks to add to its excluded 
rehabilitation unit is greater than 50 percent of the number of beds by 
which the hospital's State licensed and Medicare certified bed capacity 
increased under paragraph (c)(1)(i) of this section.
    (2) Conversion of existing bed capacity.
    (i) Bed capacity is considered to be existing bed capacity if it 
does not meet the definition of new bed capacity under paragraph (c)(1) 
of this section.
    (ii) A hospital may increase the size of its excluded 
rehabilitation unit through conversion of existing bed capacity only if 
it shows that, for all of the hospital's most recent cost reporting 
period of at least 12 months, the beds have been used to treat an 
inpatient population meeting the requirements of Sec. 412.23(b)(2).
* * * * *

Subpart C--Conditions for Payment Under the Prospective Payment 
Systems for Inpatient Operating Costs and Inpatient Capital-Related 
Costs

    6. Section 412.46 is revised to read as follows:


Sec. 412.46  Medical review requirements: Physician acknowledgement.

    (a) Basis. Because payment under the prospective payment system is 
based in part on each patient's principal and secondary diagnoses and 
major procedures performed, as evidenced by the physician's entries in 
the patient's medical record, physicians must complete an 
acknowledgement statement to this effect.
    (b) Content of physician acknowledgement statement. When a claim is 
submitted, the hospital must have on file a signed and dated 
acknowledgement from the attending physician that the physician has 
received the following notice:

    Notice to Physicians: Medicare payment to hospitals is based in 
part on each patient's principal and secondary diagnoses and the 
major procedures performed on the patient, as attested to by the 
patient's attending physician by virtue of his or her signature in 
the medical record. Anyone who misrepresents, falsifies, or conceals 
essential information required for payment of Federal funds, may be 
subject to fine, imprisonment, or civil penalty under applicable 
Federal laws.

    (c) Completion of acknowledgement. The acknowledgement must be 
completed by the physician at the time that the physician is granted 
admitting privileges at the hospital, or before or at the time the 
physician admits his or her first patient. Existing acknowledgements 
signed by physicians already on staff remain in effect as long as the 
physician has admitting privileges at the hospital.

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

    7. In Sec. 412.63, a new paragraph (s)(5) is added to read as 
follows:
Sec. 412.63  Federal rates for inpatient operating costs for fiscal 
years after Federal fiscal year 1984.

* * * * *
    (s) * * *
    (5) If a judicial decision reverses a HCFA denial of a hospital's 
wage data revision request, HCFA pays the 

[[Page 45848]]
hospital by applying a revised wage index that reflects the revised 
wage data as if HCFA's decision had been favorable rather than 
unfavorable.

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


Sec. 412.92  [Amended]

    8. In paragraph (b)(5) of Sec. 412.92, remove the phrase ``under 
Sec. 413.30(e)(1) of this chapter'', wherever it appears.
    9. In Sec. 412.96, the first sentence of paragraph (c)(2)(ii) is 
revised to read as follows:


Sec. 412.96  Special treatment: Referral centers.

* * * * *
    (c) * * *
    (2) * * *
    (ii) For cost reporting periods beginning on or after January 1, 
1986, an osteopathic hospital, recognized by the American Osteopathic 
Healthcare Association (or any successor organization), that is located 
in a rural area must have at least 3,000 discharges during its most 
recently completed cost reporting period to meet the number of 
discharges criterion. * * *
* * * * *
    10. In Sec. 412.105, paragraph (b) is revised 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 
beds or bassinets in the healthy newborn nursery, custodial care beds, 
or beds in excluded distinct part hospital units, and dividing that 
number by the number of days in the cost reporting period.
* * * * *
    11. In Sec. 412.106, paragraph (b)(3) is revised to read as 
follows:


Sec. 412.106 Special treatment: Hospitals that serve a disproportionate 
share of low-income patients.

* * * * *
    (b) * * *
    (3) First computation: Cost reporting period. If a hospital prefers 
that HCFA use its cost reporting period instead of the Federal fiscal 
year, it must furnish to HCFA, through its intermediary, a written 
request including the hospital's name, provider number, and cost 
reporting period end date. This exception will be performed once per 
hospital per cost reporting period, and the resulting percentage 
becomes the hospital's official Medicare Part A/SSI percentage for that 
period.
* * * * *
    12. Section 412.109 is amended as follows:
    a. Paragraph (a) is revised.
    b. Paragraphs (b) through (e) are redesignated as paragraphs (c) 
through (f).
    c. A new paragraph (b) is added.
    d. Redesignated paragraphs (c)(1), (c)(2)(ii), (d) introductory 
text, and (d)(1) are revised.
    e. The paragraph heading of redesignated paragraph (e) and 
redesignated paragraph (e)(1) are revised.
    The revisions and addition read as follows:


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

    (a) General rule. For payment purposes, HCFA treats as a sole 
community hospital any hospital that is located in a rural area as 
described in paragraph (b) of this section and that HCFA designates as 
an EACH under the criteria in paragraph (c) of this section. The 
payment methodology for sole community hospitals is set forth at 
Sec. 412.92(d).
    (b) Location in a rural area. For purposes of this section, a 
hospital is located in a rural area if it--
    (1) Is located outside any area that is a Metropolitan Statistical 
Area as defined by the Office of Management and Budget or that has been 
recognized as urban under Sec. 412.62;
    (2) Is not deemed to be located in an urban area under Sec. 412.63;
    (3) Is not classified as an urban hospital for purposes of the 
standardized payment amount by HCFA or the Medicare Geographic 
Classification Review Board; or
    (4) Is not located in a rural county that has been redesignated to 
an adjacent urban area under Sec. 412.232.
    (c) Criteria for HCFA designation. (1) HCFA designates a hospital 
as an EACH if the hospital is located in a State that has received a 
grant under section 1820(a)(1) of the Act or in an adjacent State and 
is designated as an EACH by the State that has received the grant.
* * * * *
    (2) * * *
    (ii) Is not eligible for State designation solely because the 
hospital is located in a rural area, has fewer than 75 beds and is 
located 35 miles or less from any other hospital; and
* * * * *
    (d) Criteria for State designation. A State that has received a 
grant under section 1820(a)(1) of the Act may designate as an EACH any 
hospital in the State or in an adjoining State that meets the criteria 
of this paragraph (d).
    (1) Geographic location. The hospital meets one of the following 
requirements:
    (i) If it is located in a rural area as described in paragraph (b) 
of this section, the hospital is located more than 35 miles from any 
hospital that either has been designated as an EACH, or has been 
classified as a rural referral center under Sec. 412.96.
    (ii) The hospital meets other criteria relating to geographic 
location, imposed by the State with HCFA's approval.
* * * * *
    (e) Adjustment to the hospital-specific rate for rural EACH's 
experiencing increased costs--(1) General rule. HCFA increases the 
applicable hospital-specific rate of an EACH that it treats as a sole 
community hospital if, during a cost reporting period, the hospital 
experiences an increase in its Medicare inpatient operating costs per 
discharge that is directly attributable to activities related to its 
membership in a rural health network.
* * * * *
Subpart H--Payments to Hospitals Under the Prospective Payment 
Systems


Sec. 412.130  [Amended]

    13. In paragraph (a)(3) of Sec. 412.130, remove the reference 
``Sec. 412.30(b)'' wherever it appears and add, in its place, the 
reference ``Sec. 412.30(c)''.

Subpart L--The Medicare Geographic Classification Review Board

    14. In Sec. 412.230, paragraph (a)(1) is revised and a new 
paragraph (a)(5) is added to read as follows:


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

    (a) General--(1) Purpose. Except as provided in paragraph (a)(5) of 
this section, an individual hospital may be redesignated from a rural 
area to an urban area, from a rural area to another rural area, or from 
an urban area to another urban area for the purposes of using the other 
area's standardized amount for inpatient operating costs, wage index 
value, or both.
* * * * *
    (5) Limitations on redesignation. The following limitations apply 
to redesignation:
    (i) An individual hospital may not be redesignated to another area 
for purposes of the wage index if the pre-

[[Page 45849]]
reclassified average hourly wage for that area is lower than the pre-
reclassified average hourly wage for the area in which the hospital is 
located.
    (ii) A hospital may not be redesignated for purposes of the 
standardized amount if the area to which the hospital seeks 
redesignation does not have a higher standardized amount than the 
standardized amount the hospital currently receives.
    (iii) A hospital may not be redesignated to more than one area.
* * * * *
    15. In Sec. 412.232, a new paragraph (a)(4) is added to read as 
follows:


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

    (a) * * *
    (4) The hospitals may be redesignated only if one of the following 
conditions is met:
    (i) The pre-reclassified average hourly wage for the area to which 
they seek redesignation is higher than the pre-reclassified average 
hourly wage for the area in which they are currently located.
    (ii) The standardized amount for the area to which they seek 
redesignation is higher than the standardized amount for the area in 
which they are located.
* * * * *
    16. In Sec. 412.234, a new paragraph (a)(4) is added to read as 
follows:


Sec. 412.234  Criteria for all hospitals in an urban county seeking 
redesignation to another urban area.

    (a) * * *
    (4) The hospitals may be redesignated only if one of the following 
conditions is met.
    (i) The pre-reclassified average hourly wage for the area to which 
they seek redesignation is higher than the pre-reclassified average 
hourly wage for the area in which they are currently located.
    (ii) The standardized amount for the area to which they seek 
redesignation is higher than the standardized amount for the area in 
which they are currently located.
* * * * *
    17. Section 412.266 is revised to read as follows:


Sec. 412.266  Availability of wage data.

    A hospital may obtain the average hourly wage data necessary to 
prepare its application to the MGCRB from Federal Register documents 
published in accordance with the provisions of Sec. 412.8(b).

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

    18. In Sec. 412.308, a new paragraph (b)(3) is added and paragraph 
(c)(1)(ii) is revised to read as follows:


Sec. 412.308  Determining and updating the Federal rate.

* * * * *
    (b) * * *
    (3) Effective FY 1996, the standard Federal rate used to determine 
the Federal rate each year under paragraph (c) of this section is 
reduced by 0.28 percent to account for the effect of the revised policy 
for payment of transfers under Sec. 412.4(d).
    (c) * * *
    (1) * * *
    (ii) Effective FY 1996. Effective FY 1996, the standard Federal 
rate is updated based on an analytical framework. The framework 
includes a capital input price index, which measures the annual change 
in the prices associated with capital-related costs during the year. 
HCFA adjusts the capital input price index rate of change to take into 
account forecast errors, changes in the case mix index, the effect of 
changes to DRG classification and relative weights, and allowable 
changes in the intensity of hospital services.
* * * * *
    19. In Sec. 412.328, a new paragraph (e)(4) is added to read as 
follows:


Sec. 412.328  Determining and updating the hospital-specific rate.

* * * * *
    (e) * * *
    (4) Effective FY 1996, the intermediary reduces the updated amount 
determined in paragraph (d) of this section by 0.28 percent to account 
for the effect of the revised policy for payment of transfers under 
Sec. 412.4(d).
* * * * *
    B. Part 413 is amended as follows:

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR 
END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED 
PAYMENT RATES FOR SKILLED NURSING FACILITIES

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

    Authority: Secs. 1102, 1122, 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, 1320a-1, 1395f(b), 1395g, 1395l (a), (i), and (n), 
1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww).

Subpart C--Limits on Cost Reimbursement

    2. Section 413.30 is amended as follows:
    a. Paragraph (e) is revised.
    b. In paragraph (f) introductory text, the first sentence is 
revised.
    c. Paragraphs (f)(5), (f)(6), (f)(7), and (f)(9) are removed and 
paragraph (f)(8) is redesignated as paragraph (f)(5).
    The revisions read as follows:


Sec. 413.30  Limitations on reimbursable costs.

* * * * *
    (e) Exemptions. Exemptions from the limits imposed under this 
section may be granted to a new provider. A new provider is a provider 
of inpatient services that has operated as the type of provider (or the 
equivalent) for which it is certified for Medicare, under present and 
previous ownership, for less than three full years. An exemption 
granted under this paragraph expires at the end of the provider's first 
cost reporting period beginning at least two years after the provider 
accepts its first patient.
    (f) Exceptions. Limits established under this section may be 
adjusted upward for a provider under the circumstances specified in 
paragraphs (f)(1) through (f)(5) of this section. * * *
* * * * *


Sec. 413.35  [Amended]

    3. In paragraph (b)(2) of Sec. 413.35, remove the reference 
``Sec. 413.30(e)(2)'' wherever it appears in the paragraph and add, in 
its place, the reference ``Sec. 413.30(e)''.
    4. Section 413.40 is amended as follows:
    a. In Sec. 413.40(c)(2), remove the phrase ``during the 3 days'' 
wherever it appears in the paragraph and add, in its place, the phrase 
``on the calendar day''.
    b. Paragraph (e)(1) is revised.
    c. A new sentence is added at the end of paragraph (g)(1).
    The revision and addition read as follows:


Sec. 413.40  Ceiling on the rate of increase in hospital inpatient 
costs.

* * * * *
    (e) Hospital requests regarding adjustments to the payment allowed 
under the rate-of-increase ceiling--(1) Timing of application. A 
hospital may request an adjustment to the rate-of-increase ceiling 
imposed under this section. The hospital's request must be received by 
the hospital's fiscal intermediary no later than 180 days after the 
date on the intermediary's initial notice of amount of program 
reimbursement (NPR) for the cost 

[[Page 45850]]
reporting period for which the hospital requests an adjustment.
* * * * *
    (g) * * *
    (1) * * * The amount of payment made to a hospital after an 
adjustment under paragraph (e) of this section may not exceed the 
difference between the hospital's operating costs and the payment 
previously allowed.
* * * * *

Subpart E--Payments to Providers

    5. In Sec. 413.70, the first sentence of paragraph (b)(2)(i) is 
revised to read as follows:


Sec. 413.70  Payment for services of an RPCH.

* * * * *
    (b) * * *
    (2) * * * (i) RPCH services. Payment under this method for 
outpatient RPCH services is equal to the amounts described in section 
1833(a)(2)(B) of the Act (which describes amounts paid for hospital 
outpatient services) and subject to the applicable principles of cost 
reimbursement in this part and in part 405, subpart D of this chapter, 
except for the principle of the lesser of costs or charges in 
Sec. 413.13. * * *
* * * * *
    C. Part 424 is amended as follows:

PART 424--CONDITIONS FOR MEDICARE PAYMENT

    1. The authority citation for part 424 continues to read as 
follows:

    Authority: Secs. 216(j), 1102, 1814, 1815(c), 1835, 1842(b), 
1861, 1866(d), 1870(e) and (f), 1871, 1872 and 1883(d) of the Social 
Security Act (42 U.S.C. 416(j), 1302, 1395f, 1395g(c), 1395n, 
1395u(b), 1395x, 1395cc(d), 1395gg(e) and (f), 1395hh, 1395ii and 
1395tt(d)).

Subpart B--Physician Certification Requirements

    2. In Sec. 424.15, paragraph (a) is revised to read as follows:


Sec. 424.15  Requirements for inpatient RPCH services.

    (a) Content of certification. Medicare Part A pays for inpatient 
RPCH services only if a physician certifies that the individual may 
reasonably be expected to be discharged or transferred to a hospital 
within 72 hours after admission to the RPCH.
* * * * *
    D. Part 485 is amended as follows:

PART 485--CONDITIONS OF PARTICIPATION: SPECIALIZED PROVIDERS

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

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

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


Sec. 485.603  [Amended]

    2. In paragraph (a)(2)(i) of Sec. 485.603, remove the reference 
``Sec. 412.109(c)'' wherever it appears in the paragraph and add, in 
its place, the reference ``Sec. 412.109(d)''.
    3. In Sec. 485.606, paragraphs (a)(1), (b)(1), (b)(3), the 
paragraph heading of paragraph (c), (c)(1) introductory text, 
(c)(1)(i), (c)(2) introductory text, and (c)(2)(ii) are revised to read 
as follows:


Sec. 485.606  Designation of RPCHs.

    (a) Criteria for State designation--(1) A State that has received a 
grant under section 1820(a)(1) of the Act may designate as an RPCH any 
hospital that--
    (i) Is located in the State that has received the grant, or is 
located in an adjoining State and is a member of a rural health network 
that also includes one or more facilities located in the State that has 
received the grant;
    (ii) Meets the RPCH conditions of participation in this subpart F; 
and
    (iii) Applies to the State that has received the grant for 
designation as an RPCH.
* * * * *
    (b) Criteria for HCFA designation--(1) HCFA designates a hospital 
as an RPCH if the hospital is designated as an RPCH by the State in 
which it is located or by an adjoining State that has received a grant.
* * * * *
    (3) HCFA may also designate not more than 15 hospitals as RPCHs if 
the hospitals are not located in States that have received grants under 
section 1820(a)(1) of the Act and meet the requirements of paragraph 
(c)(1) of this section.
    (c) Special rule: Hospitals not designated by a State as RPCHs--(1) 
HCFA may designate not more than 15 hospitals as RPCHs under this 
paragraph (c)(1). These hospitals must be located in a State that has 
not received a grant under section 1820(a)(1) of the Act, must not have 
been designated as RPCHs by a State that has received a grant under 
paragraph (a)(1) of this section, and must meet the requirements with 
regard to location, participation in the Medicare program, and 
emergency services as defined in Secs. 485.610, 485.612, and 485.618, 
respectively. In designating a hospital as an RPCH under this paragraph 
(c)(1), HCFA--
    (i) Gives preference to a hospital that has entered into an 
agreement with a rural health network as defined in Sec. 485.603 that 
is located in a State that has received a grant under section 
1820(a)(1) of the Act; and
* * * * *
    (2) HCFA may designate a hospital as an RPCH if the hospital is 
located in a State that has received a grant under section 1820(a)(1) 
of the Act and is not eligible for State designation under paragraph 
(a) of this section solely because the hospital--
* * * * *
    (ii) Has more than six inpatient beds or does not maintain an 
average length of stay for inpatients not greater than 72 hours for 
each 12-month cost reporting period, excluding periods of stays that 
exceeded 72 hours because transfer was precluded because of inclement 
weather or other emergency conditions, as described in Sec. 485.620; or
* * * * *
    4. Section 485.614 is revised to read as follows:


Sec. 485.614  Condition of participation: Termination of inpatient care 
services.

    (a) General rule. The hospital has ceased providing inpatient 
hospital care or has agreed to cease providing inpatient hospital care 
upon approval of its application for designation as an RPCH except to 
the extent permitted under paragraph (b) of this section.
    (b) Limitations on inpatient care--(1) If the RPCH does not have a 
swing-bed agreement under Sec. 485.645, it provides not more than six 
inpatient beds for providing inpatient RPCH care to patients, but only 
if--
    (i) The patient requires stabilization before discharge or transfer 
to a hospital;
    (ii) The patient's attending physician certifies that the patient 
may reasonably be expected to be discharged or transferred to a 
hospital within 72 hours of admission to the facility; and
    (iii) The RPCH complies with the limitation on inpatient surgery 
set forth in paragraph (b)(3) of this section.
    (2) If the RPCH has a swing-bed agreement under Sec. 485.645, it 
provides inpatient RPCH care as described under paragraph (b)(1) of 
this section and, under the swing-bed agreement, provides posthospital 
SNF care.
    (3) The RPCH does not provide any inpatient hospital services 
consisting of surgery or any other service requiring the use of general 
anesthesia (other than surgical procedures specified by HCFA under 
Sec. 416.65 of this chapter), unless the attending physician certifies 
that the risk associated with transferring the 

[[Page 45851]]
patient to a hospital for such services outweighs the benefits of 
transferring the patient to a hospital for such services.
    (c) Exception for RPCHs designated by HCFA. If an RPCH is 
designated by HCFA under the specific criteria in Sec. 485.606(c), the 
RPCH is not subject to the requirements in this section.
    5. In Sec. 485.620, paragraph (b) is revised to read as follows:


Sec. 485.620  Condition of participation: Number of beds and length of 
stay.

* * * * *
    (b) Standard: Length of stay. The RPCH maintains an average length 
of stay for inpatients that is not greater than 72 hours for each 12-
month cost reporting period. In determining the average length of stay, 
periods of stay of inpatients in excess of 72 hours are not taken into 
account to the extent such periods exceed 72 hours because transfer to 
a hospital is precluded because of inclement weather or other emergency 
conditions.
    6. A new Sec. 485.639 is added to read as follows:


Sec. 485.639  Condition of participation: Surgical services.

    Surgical procedures must be performed in a safe manner by qualified 
practitioners who have been granted clinical privileges by the 
governing body of the RPCH in accordance with the designation 
requirements under paragraph (a) of this section.
    (a) Designation of qualified practitioners. The RPCH designates the 
practitioners who are allowed to perform surgery for RPCH patients, in 
accordance with its approved policies and procedures, and with State 
scope of practice laws. Surgery is performed only by--
    (1) A doctor of medicine or osteopathy, including an osteopathic 
practitioner recognized under section 1101(a)(7) of the Act;
    (2) A doctor of dental surgery or dental medicine; or
    (3) A doctor of podiatric medicine.
    (b) Anesthetic risk and evaluation. A qualified practitioner, as 
described in paragraph (a) of this section, must examine the patient 
immediately before surgery to evaluate the risk of anesthesia and of 
the procedure to be performed. Before discharge from the RPCH, each 
patient must be evaluated for proper anesthesia recovery by a qualified 
practitioner as described in paragraph (a) of this section.
    (c) Administration of anesthesia. The RPCH designates the person 
who is allowed to administer anesthesia to RPCH patients in accordance 
with its approved policies and procedures and with State scope of 
practice laws.
    (1) Anesthetics must be administered only by--
    (i) A qualified anesthesiologist;
    (ii) A doctor of medicine or osteopathy other than an 
anesthesiologist, including an osteopathic practitioner recognized 
under section 1101(a)(7) of the Act;
    (iii) A doctor of dental surgery or dental medicine;
    (iv) A doctor of podiatric medicine;
    (v) A certified registered nurse anesthetist, as defined in 
Sec. 410.69(b) of this chapter;
    (vi) An anesthesiologist's assistant, as defined in Sec. 410.69(b) 
of this chapter; or
    (vii) A supervised trainee in an approved educational program, as 
described in Secs. 413.85 or 413.86 of this chapter.
    (2) In those cases in which a certified registered nurse 
anesthetist administers the anesthesia, the anesthetist must be under 
the supervision of the operating practitioner. An anesthesiologist's 
assistant who administers anesthesia must be under the supervision of 
an anesthesiologist.
    (d) Discharge. All patients are discharged in the company of a 
responsible adult, except those exempted by the practitioner who 
performed the surgical procedure.
    7. In Sec. 485.645, the introductory text and paragraph (a) are 
revised, paragraph (b) is redesignated as paragraph (c), and a new 
paragraph (b) is added to read as follows:


Sec. 485.645  Special requirements for RPCH providers of long-term care 
services.

    An RPCH that has a Medicare provider agreement to participate in 
Medicare as an RPCH must meet the following requirements in order to be 
granted an approval from HCFA to provide post-hospital SNF care, as 
specified in Sec. 409.30 of this chapter, and to be paid for SNF-level 
services, in accordance with paragraph (b) of this section.
    (a) Eligibility. An RPCH must meet the following eligibility 
requirements:
    (1) Effective October 31, 1994, if an RPCH meets all other 
requirements of this section, and applies for approval as a provider of 
post-hospital SNF care, the RPCH uses no more beds for providing post-
hospital SNF care than the total number of licensed hospital inpatient 
beds at the time it applied to the State for RPCH designation, minus 
the number of beds, not to exceed six, used for providing inpatient 
RPCH care in accordance with Sec. 485.620(a).
    (2) (i) Notwithstanding paragraph (a)(1) of this section, a 
hospital that applied for RPCH status before October 31, 1994, and was 
designated by the State (or HCFA), and that applied for swing-bed 
approval before October 31, 1994, and received approval from HCFA, may 
continue in that status under the same terms, conditions, and 
limitations that were applicable at the time those approvals were 
granted.
    (ii) An RPCH that was granted swing-bed approval under paragraph 
(a)(2)(i) of this section may request that its application to be an 
RPCH and a swing-bed provider be re-evaluated under paragraph (a)(1) of 
this section. If this request is approved, the approval is effective 
not earlier than October 1994. As of the date of approval, the RPCH no 
longer has any status under paragraph (a)(2)(i) of this section, and 
may not request re-instatement under paragraph (a)(2)(i) of this 
section.
    (3) Beds used for post-hospital SNF care in a separately 
participating ``distinct part'' unit may not be included in any 
determination under this section.
    (b) Payment. Payment for inpatient RPCH services to an RPCH that 
has qualified as an RPCH under the provisions in paragraph (a) of this 
section is made in accordance with Sec. 413.70(a) of this chapter. 
Payment for post-hospital SNF-level of care services is made in 
accordance with the payment provisions in Sec. 413.114 of this chapter.
* * * * *
    E. Part 489 is amended as follows:

PART 489--PROVIDER AGREEMENTS AND SUPPLIER APPROVAL

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

    Authority: Secs. 1102, 1819, 1861, 1864(m), 1866, and 1871 of 
the Social Security Act (42 U.S.C. 1302, 1395i-3, 1395x, 1395aa(m), 
1395cc, and 1395hh).

Subpart E--Termination of Agreement and Reinstatement After 
Termination

    2. In Sec. 489.53, a new paragraph (a)(14) is added to read as 
follows:


Sec. 489.53  Termination by HCFA.

    (a) * * *
    (14) In the case of a rural primary care hospital as defined in 
part 485, subpart F of this chapter, the rural primary care hospital 
maintains an average length of stay for inpatients in its most recent 
12-month cost reporting period that is in excess of 72 hours. In 
determining the length of stay of a rural primary care hospital for 
purposes of this paragraph, HCFA does not take into account periods of 
stay in excess of 72 hours that occurred because transfer to a hospital 


[[Page 45852]]
was precluded because of inclement weather or other emergency 
conditions.
* * * * *
(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, 1995.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
    Dated: August 23, 1995.
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, 1995 and Update Factors and Rate-of-Increase 
Percentages Effective With Cost Reporting Periods Beginning On or After 
October 1, 1995

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, 1995, except for 
sole community hospitals and hospitals located in Puerto Rico, each 
hospital's payment per discharge under the prospective payment system 
will be 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. For hospitals in Puerto Rico, the payment per 
discharge is based on the sum of 75 percent of a Puerto Rico rate and 
25 percent of a national rate (section 1886(d)(9)(A) of the Act).
    As discussed below in section II, we are making changes to 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 
determining 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 1996

    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. Below, we discuss the manner in which we are changing some of 
the factors used for determining the prospective payment rates. The 
Federal and Puerto Rico rate changes are effective for discharges 
occurring on or after October 1, 1995. As required by section 
1886(d)(4)(C) of the Act, we must also adjust the DRG classifications 
and weighting factors for discharges in FY 1996.
    In summary, the standardized amounts set forth in Tables 1a, 1b, 
and 1c of section V of this addendum reflect--
     Updates of 1.5 percent for all areas (that is, the market 
basket percentage increase of 3.5 percent minus 2.0 percentage points);
     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 large 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 1995 budget 
neutrality factor and applying a revised factor;
     An adjustment to apply the revised outlier offset by 
removing the FY 1995 outlier offsets and applying a new offset; and
     An adjustment to apply a budget neutrality factor for the 
change in the payment methodology for transfer cases.

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 1996 were made. That is, the standardization adjustments 
reflected in the FY 1996 standardized amounts are the same as those 
reflected in the FY 1995 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 (as estimated by the Secretary from time to time) 
of costs that are wages and wage-related costs. Beginning 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 Large Urban and Other Averages Within Geographic Areas
    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 

[[Page 45853]]
hospitals located in large urban areas and one for hospitals located in 
other areas. In addition, under sections 1886(d)(9)(B)(iii) and (C)(i) 
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 ``urban areas'' as those 
areas within a Metropolitan Statistical Area (MSA). A ``large urban 
area'' is defined 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 1994 population estimates published by the Bureau of the 
Census, 57 areas meet the criteria to be defined as large urban areas 
for FY 1996. These 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 will 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 standardized amount (as set forth in Table 1a). The 
national average standardized amount for Puerto Rico is set forth in 
Table 1c. Table 1c also includes the standardized amounts that will be 
applicable to most hospitals in Puerto Rico.
    We note that on June 30, 1995, the Office of Management and Budget 
announced the designation of the Flagstaff, Arizona-Utah MSA and the 
Grand Junction, Colorado MSA.
3. Updating the Average Standardized Amounts
    In accordance with section 1886(d)(3)(A)(iv) of the Act, we are 
updating the large urban and the other areas average standardized 
amounts for FY 1996 using the applicable percentage increases specified 
in section 1886(b)(3)(B)(i) of the Act. Section 1886(b)(3)(B)(i)(XI) of 
the Act specifies that, for hospitals in all areas, the update factor 
for the standardized amounts for FY 1996 is the market basket 
percentage increase minus 2.0 percentage points.
    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 forecast of the hospital market 
basket increase for FY 1996 is 3.5 percent. For FY 1996, this yields an 
update to the average standardized amounts of 1.5 percent (3.5 percent 
minus 2.0 percent).
    As in the past, we are adjusting the FY 1995 standardized amounts 
to remove the effects of the FY 1995 geographic reclassifications and 
outlier payments before applying the FY 1996 updates. That is, we are 
increasing the standardized amounts to restore the reductions that were 
made for the effects of geographic reclassification and outliers. After 
including the FY 1996 offsets to the standardized amounts for outliers 
and geographic reclassification, we estimate that there will be an 
actual increase of 1.2 percent to the large urban and other area 
standardized amounts.
    Beginning in FY 1995, we revised the national average standardized 
amounts based on national average labor/nonlabor shares. In FY 1996, we 
will continue to adjust the labor and nonlabor proportions of the 
standardized amount to reflect 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. 
(We are revising the Puerto Rico standardized amounts by the average 
labor share in Puerto Rico of 82.8 percent.)
    Although the update factor for FY 1996 is set by law, we were 
required by section 1886(e)(3)(B) of the Act to report to Congress on 
our initial recommendation of update factors for FY 1996 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, as 
revised in the correction notice published on August 2, 1995 (60 FR 
39305). That recommendation was based on an earlier forecast of the 
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 C to this final rule.
    Comment: One commenter urged that an add-on adjustment of not less 
than 7 percent be made to the Puerto Rico standardized amounts to 
account for the penalty resulting from the use of temporary cost 
allocation methods by government hospitals in Puerto Rico with a 
noncharge structure.
    Response: At this time, we do not believe it is appropriate to 
adjust the standardized amounts of Puerto Rico for those government 
hospitals with a noncharge structure. However, as noted in section 
III.B.4, we will continue to study the issue of payments to Puerto 
Rico.
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 ensures 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.
    Section 1886(d)(3)(E) of the Act specifies that the hospital wage 
index must be updated 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 ensures 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 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 budget neutral, we compared 
aggregate payments using the FY 1995 relative weights and the wage 
index effective October 1, 1994, to aggregate payments using the FY 
1996 relative weights and wage index. The same methodology was used for 
the FYs 

[[Page 45854]]
1993, 1994, and 1995 budget neutrality adjustment. Based on this 
comparison, we computed a proposed budget neutrality adjustment factor 
equal to 0.999174. Based on the final FY 1996 relative weights and wage 
index, the final budget neutrality adjustment factor is equal to 
0.999306. This budget neutrality adjustment factor is applied to the 
standardized amounts without removing the effects of the FY 1995 budget 
neutrality adjustment. We do not remove the prior budget neutrality 
adjustment because estimated aggregate payments after the changes in 
the DRG relative weights and wage index should equal estimated 
aggregate payments prior to the changes. If we removed the prior year 
adjustment, we would not satisfy this condition.
    In addition, we will apply the same FY 1996 adjustment factor to 
the hospital-specific rates that are effective for cost reporting 
periods beginning on or after October 1, 1995, 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 FY 1996 
DRG weights and updated wage index. (See the discussion in the 
September 4, 1990 final rule (55 FR 36073).)
    Section 1886(d)(5)(I) of the Act, as amended by section 109 of the 
Social Security Act Amendments of 1994 (Public Law 103-432), authorizes 
the Secretary to make adjustments to the prospective payment system 
standardized amounts so that adjustments to the payment policy for 
transfer cases do not affect aggregate payments. As discussed in 
section IV.A of the preamble of this final rule, we are revising our 
payment methodology for transfer cases, so that we will pay double the 
per diem amount for the first day of a transfer case, and the per diem 
amount for each day after the first, up to the full DRG amount. For the 
data that we analyzed, this would result in additional payments for 
transfer cases of $159 million. To implement this change in a budget 
neutral manner, we adjusted the standardized amounts by applying a 
budget neutrality adjustment of 0.997583 in the proposed rule. The 
final budget neutrality adjustment factor for this transfer change is 
equal to 0.997575. This adjustment will be applied on a one-time basis 
to the FY 1996 standardized amounts. After FY 1996, there will be no 
need for a further budget neutrality adjustment unless or until we make 
further changes to the transfer payment methodology.
    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), a hospital may be reclassified for purposes of the 
standardized amount or the wage index, or both.
    Under section 1886(d)(8)(D) of the Act, the Secretary is required 
to adjust the standardized amounts so as to ensure that estimated 
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 are equal to the estimated aggregate prospective 
payments that would have been made absent these provisions. In the 
proposed rule, we applied an adjustment of 0.994125 to ensure that the 
effects of reclassification are budget neutral. The final budget 
neutrality adjustment factor is 0.994011.
    The adjustment factor is applied to the standardized amounts after 
removing the effects of the FY 1995 budget neutrality adjustment 
factor. We note that the proposed FY 1996 adjustment reflected wage 
index and standardized amount reclassifications approved by the MGCRB 
or the Administrator as of March 14, 1995. The final budget neutrality 
adjustment factor reflects the effects of all reclassification 
decisions and changes in these decisions resulting from appeals and 
reviews of the MGCRB decisions for FY 1996 or from requests for 
withdrawal of a reclassification.
    c. Outliers.
    Section 1886(d)(5)(A) of the Act provides that, in addition to the 
basic prospective payment rates, for discharges occurring before 
October 1, 1997, payments must be made for discharges involving day 
outliers and may be made for cost outliers. Section 1886(d)(3)(B) of 
the Act requires the Secretary to adjust both the large urban and other 
areas national 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 large 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, under section 
1886(d)(5)(A)(iv) of the Act, estimated 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 DRG prospective 
payment rates.
    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 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)), will be 75 percent in FY 1995, 50 percent in FY 1996, 
and 25 percent in FY 1997. For discharges occurring after September 30, 
1997, the Secretary will no longer pay for day outliers under the 
provisions of section 1886(d)(5)(A)(i) of the Act.
    i. FY 1996 Outlier Thresholds.
    For FY 1995, the day outlier threshold is the geometric mean length 
of stay for each DRG plus the lesser of 22 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 47 percent in FY 1995. The fixed loss cost outlier threshold 
is equal to the prospective payment for the DRG plus $20,500 ($18,800 
for hospitals that have not yet entered the prospective payment system 
for 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 80 percent. We applied an outlier adjustment to the FY 
1995 standardized amounts of 0.948940 for the large urban and other 
areas rates and 0.9414 for the capital Federal rate.
    For FY 1996, we proposed to set the day outlier threshold at the 
geometric mean length of stay for each DRG plus the lesser of 23 days 
or 3.0 standard deviations. We also proposed to reduce the marginal 
cost factor for each outlier day from 47 percent to 45 percent in FY 
1996. 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 23 days or 3.0 standard deviations. However, based on updated 
simulations, we are establishing in this final rule a marginal cost 
factor of 44 percent for each outlier day in FY 1996. We estimate that 
these policies will reduce the proportion of outlier payments paid to 
day outliers to approximately 16 percent in accordance with section 
1886(d)(5)(A) of the Act.
    We proposed a fixed loss cost outlier threshold in FY 1996 equal to 
the prospective payment rate for the DRG plus $16,700 ($15,200 for 
hospitals that have not yet entered the prospective 

[[Page 45855]]
payment system for capital-related costs). In addition, we proposed to 
maintain the marginal cost factor for cost outliers at 80 percent. In 
this final rule, based on updated simulations, we are establishing a 
fixed loss cost outlier threshold in FY 1996 equal to the prospective 
payment rate for the DRG plus $15,150 ($13,800 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 1996, as proposed.
    As provided in section 1886(d)(5)(A)(iv) of the Act, we calculated 
outlier thresholds so that estimated outlier payments equal 5.1 percent 
of estimated total payments based on DRGs. The model that we use to 
determine the outlier thresholds necessary to meet the estimated 
outlier payment percentage for FY 1996 uses the June 1995 update of the 
FY 1994 MedPAR file and the July 1995 update of the provider-specific 
file used in the PRICER program, which contains information on 
hospital-specific payment parameters (such as the cost-to-charge 
ratios).
    In simulating 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), prior to 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 1994 charge data by a charge 
inflation factor for 2 years in order to estimate FY 1996 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 1996 outlier thresholds, we used a cost 
inflation factor of 1.02009. In setting the final FY 1996 outlier 
thresholds, we used a cost inflation factor of 1.00871. The difference 
is attributable to the use of the cost per case increase in cost 
reporting periods beginning in FY 1993 (referred to as PPS-X data) in 
setting the final FY 1996 outlier thresholds instead of the average 
increase in cost per case for cost reporting periods beginning in FY 
1991 (PPS-VIII) through PPS-X. This modification was introduced after a 
review of the cost per case increase for 2700 hospitals in cost 
reporting periods beginning in FY 1994 (PPS-XI). The cost per case 
increase from PPS-X to PPS-XI was much closer to the increase from PPS-
IX to PPS-X than the average increase between PPS-VIII through PPS-X. 
We believe it is more appropriate to use the increase from PPS-IX to 
PPS-X as our cost inflation factor in setting the final FY 1996 outlier 
thresholds. 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 
lower percentage of outlier payments for capital-related costs than for 
operating costs. We estimate the final thresholds for FY 1996 will 
result in outlier payments equal to 5.1 percent of operating DRG 
payments and 4.6 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 will 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 1996 standardized amounts to account for the 
estimated proportion of outliers payments. The proposed outlier 
adjustment factors applied to the standardized amounts and the capital 
Federal rate for FY 1996 were as follows:

------------------------------------------------------------------------
                                                                Capital 
                Operating standardized amounts                  Federal 
                                                                  rate  
------------------------------------------------------------------------
0.949054.....................................................     0.9526
------------------------------------------------------------------------

    The final outlier adjustment factors applied to the standardized 
amounts and the capital Federal rate for FY 1996 are as follows:

------------------------------------------------------------------------
                                                                Capital 
                Operating standardized amounts                  Federal 
                                                                  rate  
------------------------------------------------------------------------
0.948950.....................................................     0.9536
------------------------------------------------------------------------

    As in the proposed rule, we apply the final outlier adjustment 
factors after removing the effects of the FY 1995 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. Effective October 1, 
1995, these Statewide average ratios will replace the ratios published 
in the September 1, 1994 final rule (59 FR 45480). 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 0.25218 or greater than 1.32569 and capital 
cost-to-charge ratios lower than 0.012998 or greater than 0.21483. 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 1996.
    iii. FY 1994 and FY 1995 Outlier Payments.
    In the proposed rule, we estimated that actual FY 1994 outlier 
payments were approximately 3.5 percent of total DRG payments (60 FR 
29260). Our estimates of actual outlier payments and actual total DRG 
payments were computed by simulating payments using actual FY 1994 bill 
data available at the time of the proposed rule. Our current estimate 
remains the same; that is, we estimate that actual FY 1994 outlier 
payments were approximately 3.5 percent of actual total DRG payments. 
These estimates are based on simulations using the July 1995 update of 
the provider-specific file and the June 1995 update of the MedPAR file.
    In setting outlier policies for 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. This refinement 
was made in order to improve our estimation methodology. We believe 
that actual FY 1994 outlier payments as a percentage of actual total 

[[Page 45856]]
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 used 
to estimate FY 1994 outlier payments (based on the best available data) 
appears to have been overstated. For FY 1995, we used a cost inflation 
factor of 2.5 percent. Based on more recent data, we are using a cost 
inflation factor of 0.871 percent to calculate outlier payments for FY 
1996. Also, although we estimate that FY 1994 outlier payments will 
approximate 3.5 percent of 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 forecast is 2.5 percent. Thus, the net effect is that 
total FY 1994 payments are higher than they would have been if the 
market basket rate of increase and the outlier percentage were 
estimated with precise accuracy.
    In the proposed rule (60 FR 29260), we estimated that actual FY 
1995 outlier payments would be approximately 4.2 percent of actual FY 
1995 total DRG payments. We currently estimate that FY 1995 outlier 
payments will approximate 4.0 percent of total DRG payment. This 
current estimate is based on simulations using the July 1995 update of 
the provider-specific file and the June 1995 update of the FY 1994 
MedPAR file.
    We believe that there are two main reasons why our current estimate 
of FY 1995 outlier payments is below 5.1 percent. First, in setting the 
outlier thresholds for FY 1995, we used 2.5 percent as our cost 
inflation factor to inflate FY 1993 bills to FY 1995 levels. Our 
current estimate of cost inflation is 0.871 percent. Thus, the rate of 
increase in costs continues to slow. We note that this factor is 
reflected in the estimation methodology used to set thresholds. Thus, 
the final FY 1996 cost outlier threshold is lower than the proposed 
cost outlier threshold.
    Second, in setting the outlier thresholds for FY 1995, we used 
cost-to-charge ratios that had a mean value of 0.618. Our current 
estimate of cost-to-charge ratios for FY 1995 is down to 0.600. Thus, 
not only are costs not rising as fast as we estimated, but they also 
make up a lower percentage of charges than we estimated in setting FY 
1995 thresholds. We are continuing to explore better ways to forecast 
the changes in cost inflation.
    Comment: We received a number of comments expressing concern that 
the projected percentages of outlier payments for FYs 1994 and 1995 are 
lower than estimated when we set the thresholds. Some of the commenters 
requested that any difference between outlier payments and the amount 
set aside be used to offset the amount required in the next year. Other 
commenters requested that we monitor outlier payments during a fiscal 
year, so that we can change the thresholds in the middle of the year 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), FY 1994 (58 FR 46347), and FY 1995 (59 FR 
45404). In accordance with section 1886(d)(5)(A)(iv) of the Act, we set 
the FY 1994 and FY 1995 outlier thresholds so that the estimated 
proportion of outlier payments relative to total DRG payments is 5.1 
percent. We used the most recent Medicare discharge and hospital-
specific data available to estimate payments. This is necessarily a 
prospective process and the resulting estimate may prove to be 
inaccurate.
    We believe that it would be inappropriate to revise in midyear any 
of the payment policies based on estimates. These policies include not 
only the outlier thresholds, but also factors such as the market basket 
rate of increase used to establish the update factors, the 
recalibration of the DRG weights, and the various required budget 
neutrality provisions. We also believe it would be inappropriate to 
reduce the standardized amounts to account for outlier cases in a 
fiscal year by an amount that differs from the estimated proportion of 
outlier payments in that fiscal year. Section 1886(d)(3)(B) of the Act 
requires the Secretary to ``reduce each of the standardized amounts * * 
* by the factor equal to the proportion of payments under this 
subsection (as estimated by the Secretary) based on DRG prospective 
payment amounts which are additional payments described in paragraph 
(5)(A) (relating to outlier payments).'' (Emphasis added.) Thus, if we 
estimate that outlier payments will be 5.1 percent of total DRG 
payments in an upcoming fiscal year, we must reduce the standardized 
amounts by an ``equal'' percentage, not by some lower or higher 
percentage.
    We believe the more appropriate action is to continue to examine 
the outlier policy and try to refine the methodology for setting 
outlier thresholds. To that end, as we did in FY 1995, we have 
attempted to improve our outlier projections in FY 1996. Normally, we 
would use the average increase in cost per case between PPS-VIII and 
PPS-X as the cost inflation factor in setting the FY 1996 outlier 
thresholds. However, as noted above, after reviewing the preliminary 
data for 2700 hospitals from PPS-XI, we found the cost per case 
increase of PPS-XI data to be much closer to the PPS-X data than the 
PPS-VIII data, indicating a continued downward trend in the rate of 
increase in hospital costs. Thus, for FY 1996, we have decided to use 
solely the PPS-X cost per case increase of 0.871 percent.

B. Adjustments for Area Wage Levels and Cost of Living

    The adjusted standardized amounts are divided into labor and 
nonlabor portions. Tables 1a, 1b, and 1c, as set forth in this 
addendum, contain the labor-related and nonlabor-related shares used to 
calculate the prospective payment rates for hospitals located in the 50 
States, the District of Columbia, and Puerto Rico. This section 
addresses two types of adjustments to the standardized amounts that are 
made in determining the prospective payment rates as described in this 
addendum.
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 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 to this final rule, 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 1996, 
we are adjusting the payments for hospitals in Alaska and Hawaii by 
multiplying the nonlabor portion of the standardized amounts by the 
appropriate adjustment factor contained in the table below.

                                                                        

[[Page 45857]]
       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 . . . . . . . . . . ...........................  1.20 
  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 to this final rule, we 
have developed a classification system for all hospital discharges, 
assigning them into DRGs, and have calculated relative weights for each 
DRG that reflect the resource utilization of cases in each DRG relative 
to Medicare cases in other DRGs.
    Table 5 of section V of this addendum contains the relative weights 
that we will use for discharges occurring in FY 1996. These factors 
have been recalibrated as explained in section II.C of the preamble to 
this final rule.

D. Calculation of Prospective Payment Rates for FY 1996

General Formula for Calculation of Prospective Payment Rates for FY 
1996

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 updated FY 1982 hospital-
specific rate, or 100 percent of the updated 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 national 
large urban standardized amount and the national other standardized 
amount.
1. Federal Rate
    For discharges occurring on or after October 1, 1995 and before 
October 1, 1996, except for sole community hospitals and hospitals in 
Puerto Rico, the hospital's payment is based exclusively on the Federal 
rate. Section 1866(d)(1)(A)(iii) of the Act provides that the Federal 
rate is comprised of 100 percent of the Federal national rate except 
for those hospitals 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. Based on the final rates, for 
discharges occurring on or after October 1, 1995, 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 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 
1996.
    We are increasing the hospital-specific rates by 1.5 percent (the 
hospital market basket percentage increase minus 2.0 percentage points) 
for sole community hospitals located in all areas in FY 1996. Section 
1886(b)(3)(C)(ii) of the Act provides that the update factor applicable 
to the hospital-specific rates for sole community hospitals equals the 
update factor provided under section 1886(b)(3)(B)(ii) of the Act, 
which, for FY 1996, is the market basket rate of increase minus 2.0 
percentage points.
    b. Calculation of Hospital-Specific Rate.
    For sole community hospitals, the applicable FY 1996 hospital-
specific rate will be calculated by multiplying a hospital's hospital-
specific rate for the preceding fiscal year by the applicable update 
factor (1.5 percent), which is the same as the update for all 
prospective payment hospitals. In addition, the hospital-specific rate 
will be adjusted by the budget neutrality adjustment factor (that is, 
0.999306) as discussed in section II.A.4.a of this addendum. This 
resulting rate will be used in determining under which rate a sole 
community hospital is paid for its discharges beginning on or after 
October 1, 1995, 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, 1995 
and Before October 1, 1996
    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. 

[[Page 45858]]

    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 1996

    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 hospital's historical costs for capital.
    The basic methodology for determining Federal capital prospective 
rates is set forth at Secs. 412.308 through 412.352. Below we discuss 
the factors that we used to determine the Federal rate and the 
hospital-specific rates for FY 1996. The rates will be effective for 
discharges occurring on or after October 1, 1995.
    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 update the standard Federal rate, as 
provided in Sec. 412.308(c)(1), to account for capital input price 
increases and other factors. 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. Section 412.308(c)(3) further 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 required 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. As discussed below, that provision has now expired.
    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. 
For FY 1992 through FY 1995, the hospital-specific rate was also 
adjusted by a 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. With the expiration of the budget neutrality provision, the model 
is still used to estimate the exceptions payment adjustment and other 
factors. 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 1995, the Federal rate was $376.83. In the proposed rule, we 
stated that the proposed FY 1996 Federal rate was $457.11. In this 
final rule, we are establishing an FY 1996 Federal rate of $461.96.
    In the discussion that follows, we explain the factors that were 
used to determine the FY 1996 Federal rate. In particular, we explain 
why the FY 1996 Federal rate has increased 22.59 percent compared to 
the FY 1995 Federal rate. We also explain that aggregate payments for 
capital in FY 1996 are estimated to increase by 20.56 percent.
    The major factor contributing to the increase in the FY 1996 rate 
in comparison to FY 1995 is the expiration of the budget neutrality 
requirement. Section 412.352 required that estimated payments each year 
from FY 1992 through FY 1995 for capital costs equal 90 percent of the 
amount that would have been payable that year on a reasonable cost 
basis. Accordingly, each year from FY 1992 through FY 1995, we applied 
an adjustment to the Federal rate and the hospital-specific rate so 
that estimated capital prospective payments would equal 90 percent of 
estimated Medicare hospital inpatient capital-related costs.
    Based on the most recent data, we now estimate that capital 
payments equalled 95.77 percent of reasonable costs in FY 1992, 90.99 
percent of reasonable costs in FY 1993, 90.43 percent of reasonable 
costs in FY 1994, and 90.58 percent of reasonable costs in FY 1995. 
Thus, the data indicate that the budget neutrality adjustment for FY 
1992 was not sufficient to meet the 90-percent target and, 
consequently, the Federal rate for FY 1992 was higher than it should 
have been. For FY 1993, FY 1994 and FY 1995, however, our estimates are 
that payments exceeded the budget neutrality target by less than one 
percentage point. We do not retroactively adjust the budget neutrality 
factor and the Federal rate for previous years to account for revised 
estimates. For FY 1996, we estimate that payments will exceed costs by 
3.97 percent as a result of the expiration of the budget neutrality 
provision.
    As we explain in section III.A.8 below, the predominant factor in 
the 22.59 percent increase in the Federal rate, as well as the 20.56 
percent increase in payments, is the expiration 

[[Page 45859]]
of the budget neutrality provision. For FY 1995, the budget neutrality 
adjustment was 0.8432, a 15.68 percent reduction to the rates. The 
expiration of that provision alone accounts for an 18.6 percent 
increase (1.00/.8432 = 1.186, or 18.6 percent) in the rate. The FY 1996 
update factor and changes in the outlier and exceptions factors also 
contribute to the increase in the rate. The factors contributing to the 
increase in the rate were partially offset by a special adjustment to 
the rate to account for the effects of the new transfer policy, and by 
the effect of the DRG/GAF reduction factor.
    Total payments to hospitals under the prospective payment system 
are relatively insensitive even to changes of such magnitude in the 
capital Federal rate. Since capital payments constitute about 10 
percent of hospital payments, a 1 percent change in the capital Federal 
rate yields only about 0.1 percent change in actual payments to 
hospitals. Therefore, the large increase in the FY 1996 Federal rate 
can be expected to increase total payments to hospitals under the 
prospective payment system by only about 2.06 percent.
1. Special Federal Rate Adjustment for the Effects of the New Transfer 
Payment Policy
    Section 412.312(d) provides that payment under the capital 
prospective payment system for transfer cases is made under the same 
rules governing transfer payments under the operating prospective 
payment system. Transfer cases under the prospective payment system for 
capital-related costs have been paid on a per diem basis, using the 
full prospective payment amount for the DRG (both Federal rate and 
hospital-specific rate, if appropriate) divided by the geometric mean 
length of stay for the DRG, but not to exceed the full prospective 
payment. Section IV.A of the preamble describes the implementation of a 
graduated per diem payment methodology for transfer cases. Beginning in 
FY 1996, we will pay double the per diem amount for the first day and 
the per diem amount for subsequent days, up to the full prospective 
payment amount. Section 109 of the Social Security Amendments of 1994 
(Public Law 103-432) authorizes the Secretary to make adjustments to 
the operating prospective payment system rates so that adjustments to 
the payment policy for transfer cases do not affect aggregate payments. 
Section II of the addendum describes the methodology for making the 
adjustment to the operating rates.
    In order to maintain consistency with the prospective payment 
system for operating costs, we believe that a parallel adjustment to 
the Federal capital rate and the hospital-specific capital rates is 
warranted. In this way, revision of the payment policy for transfer 
cases will not affect aggregate payments under the prospective payment 
system for capital-related costs. We describe the methodology for 
making this adjustment in Appendix B of this final rule. Following that 
methodology, we have determined that a special adjustment of .9972 
(-0.28 percent) to the standard Federal rate and the hospital-specific 
rates is required.

2. Standard Federal Rate Update

    Section 412.308(c)(1)(ii) provides that, effective FY 1996, the 
standard Federal rate is updated on the basis of an analytical 
framework that takes into account changes in a capital input price 
index and other factors. We discuss the analytical framework and the 
derivation of the final FY 1996 update factor under that framework in 
section V.A of the preamble to this final rule. The final update factor 
for FY 1996 is 1.2 percent.
3. 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, 50 
percent for cost reporting periods beginning in FY 1996 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 total DRG 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, 1994 final rule, we estimated that outlier 
payments for capital in FY 1995 would equal 5.86 percent of inpatient 
capital-related payments based on the Federal rate. Accordingly, we 
applied an outlier adjustment factor of 0.9414 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 4.64 percent of 
inpatient capital-related payments based on the Federal rate in FY 
1996. We are, therefore, applying an outlier adjustment factor of 
0.9536 to the Federal rate. Thus, estimated capital outlier payments 
for FY 1996 represent a lower percentage of total capital payments than 
in FY 1995.
    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 1996 is 1.0129 (.9536/.9414). Thus, the outlier 
adjustment increases the FY 1996 Federal rate by 1.29 percent (1.0129-
1) compared with the FY 1995 outlier adjustment.
4. Budget Neutrality Adjustment Factor for Changes in DRG 
Classifications 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 DRG 
reclassification and recalibration 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 use 
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 use 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 use these figures to compute the 
adjustment required to maintain budget neutrality for changes in DRG 
weights and in the geographic adjustment factor.
    For FY 1995, we calculated a GAF/DRG budget neutrality factor of 
0.9998. In the proposed rule for FY 1996, we proposed a GAF/DRG budget 
neutrality factor of 0.9993. In this final rule, based on calculations 
using updated data, we 

[[Page 45860]]
are applying a factor of 0.9994 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 estimated aggregate payments each 
year be no more than they would have been in the absence of the annual 
DRG reclassification and recalibration and changes in the geographic 
adjustment factor. The incremental change in the adjustment from FY 
1995 to FY 1996 is 0.9994. The cumulative change in the rate due to 
this adjustment is 1.0025 (the product of the incremental factors for 
FY 1993, FY 1994, FY 1995, and FY 1996: .9980  x  1.0053  x  .9998  x  
.9994 = 1.0025).
    This factor accounts for DRG reclassifications and recalibration 
and for changes in the geographic adjustment factor. It also 
incorporates the effects on the geographic adjustment factor of FY 1996 
geographic reclassification decisions made by the MGCRB compared to FY 
1995 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.
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. We use the model originally 
developed for determining the budget neutrality adjustment factor to 
estimate payments under the exceptions payment process and to determine 
the exceptions payment adjustment factor. We describe that model in 
Appendix B to this final rule.
    For FY 1995, we estimated that exceptions payments would equal 2.66 
percent of aggregate payments based on the Federal rate and the 
hospital-specific rate. Therefore, we applied an exceptions reduction 
factor of 0.9734 (1-.0266) in determining the Federal rate. For FY 
1996, we estimated in the June 2, 1995, proposed rule that exceptions 
payments would equal 1.60 percent of aggregate payments based on the 
Federal rate and the hospital-specific rate. Therefore, we proposed to 
apply an exceptions reduction factor of 0.9840 (1-0.0160) to determine 
the FY 1996 Federal rate. For this final rule, we estimate that 
exceptions payments for FY 1996 will equal 1.51 percent of aggregate 
payments based on the Federal rate and the hospital-specific rate. We 
are, therefore, applying an exceptions payment reduction factor of 
0.9849 to the Federal rate for FY 1996.
    The final exceptions reduction factor for FY 1996 is thus 1.18 
percent higher than the factor for FY 1995, and 0.09 percent higher 
than the factor in the FY 1996 proposed rule. The reduced level of 
estimated exceptions payments for FY 1996 compared to FY 1995 is a 
result of the significant increases in the capital rates and in 
aggregate capital payments.
    The exceptions reduction factors are not built permanently into the 
rates; that is, the factors are not applied cumulatively in determining 
the Federal rate. Therefore, the net adjustment to the FY 1996 Federal 
rate is .9849/.9734, or 1.0118.
6. Expiration of Budget Neutrality Provision
    For FY 1992 through FY 1995, Sec. 412.352 required that the Federal 
rate also be adjusted by a budget neutrality factor so that estimated 
aggregate payments for inpatient hospital capital costs would 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. That provision has now expired. The expiration of the budget 
neutrality provision is the predominant factor in the 22.59 percent 
increase in the Federal rate, as well as the 20.56 percent increase in 
payments.
    For FY 1995, the budget neutrality adjustment was 0.8432, a 15.68 
percent reduction to the rates. The budget neutrality factors were not 
built permanently into the rates; that is, the factors were not applied 
cumulatively in determining the Federal rate. With the expiration of 
the budget neutrality provision, the net adjustment to the rate is thus 
1.186 (1.00/.8432=1.186), or 18.6 percent. The expiration of the 
provision, therefore, accounts for an 18.6 percent increase in the 
rate.
7. Standard Capital Federal Rate for FY 1996
    For FY 1995, the capital Federal rate was $376.83. With the changes 
we proposed to the factors used to establish the Federal rate, we 
proposed that the FY 1996 Federal rate would be $457.11. In this final 
rule, we are establishing an FY 1996 Federal rate of $461.96. The final 
Federal rate for FY 1996 was calculated as follows:
     The FY 1996 special adjustment to the standard Federal 
rate to account for the change in transfer payment policy is 0.9972.
     The FY 1996 update factor is 1.0120.
     The FY 1996 outlier adjustment factor is 0.9536.
     The FY 1996 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 0.9994.
     The FY 1996 exceptions payments adjustment factor is 
0.9849.
     The expiration of the budget neutrality provision requires 
that the FY 1995 budget neutrality adjustment be removed from the rate 
without further incremental adjustment.
    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 are making no additional adjustments in the standard 
Federal rate for these factors other than the budget neutrality factor 
for changes in the DRG relative weights and the geographic adjustment 
factor.
    We are providing a chart that shows how each of the factors and 
adjustments for FY 1996 affected the computation of the final FY 1996 
Federal rate in comparison to the FY 1995 Federal rate. The special 
adjustment to account for the effects of changes in transfer payment 
policy has the effect of reducing the rate by 0.28 percent. The final 
FY 1996 update factor has the effect of increasing the Federal rate 
1.20 percent compared to the rate in FY 1995, while the final 
geographic and DRG budget neutrality factor has the effect of 
decreasing the Federal rate by 0.06 percent. The final FY 1996 outlier 
adjustment factor has the effect of increasing the Federal rate by 1.29 
percent compared to FY 1995. The final FY 1996 exceptions reduction 
factor has the effect of increasing the Federal rate by 1.18 percent 
compared to the exceptions reduction for FY 1995. Finally, the 
expiration of the budget neutrality provision has the effect of 
increasing the final FY 1996 rate by 18.60 percent compared to the 
effect of the budget neutrality reduction in FY 1995. The combined 
effect of all the changes is to increase the Federal rate by 22.59 
percent compared to the Federal rate for FY 1995.

                                                                        

[[Page 45861]]
 Comparison of Factors and Adjustments: FY 1995 Federal Rate and FY 1996
                              Federal Rate                              
------------------------------------------------------------------------
                                                                Percent 
                                                    Change      change  
------------------------------------------------------------------------
Transfer adjustment:                                                    
    FY 1995.........................         N/A  ..........            
    FY 1996.........................      0.9972      0.9972       -0.28
Update factor \1\:                                                      
    FY 1995.........................      1.0344  ..........  ..........
    FY 1996.........................      1.0120      1.0120        1.20
GAF/DRG adjustment factor: \1\                                          
    FY 1995.........................      0.9998  ..........  ..........
    FY 1996.........................      0.9994      0.9994       -0.06
Outlier adjustment factor:\2\                                           
    FY 1995.........................      0.9414  ..........  ..........
    FY 1996.........................      0.9536      1.0129        1.29
Exceptions adjustment factor: \2\                                       
    FY 1995.........................      0.9734  ..........  ..........
    FY 1996.........................      0.9849      1.0118        1.18
Budget neutrality adjustment factor:                                    
 \2\                                                                    
    FY 1995.........................      0.8432  ..........  ..........
    FY 1996.........................      1.0000      1.1860       18.60
Federal Rate:                                                           
    FY 1995.........................     $376.83  ..........  ..........
    FY 1996.........................     $461.96      1.2259      22.59 
------------------------------------------------------------------------
\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 1995 to FY 1996 resulting from the application of the  
  0.9994 GAF/DRG budget neutrality factor for FY 1996 is 0.9994.        
\2\ The outlier reduction factor and the exceptions reduction factor 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 1996 exceptions   
  reduction factor is 0.9849/0.9734, or 1.0118. The result of the       
  expiration of budget neutrality is that the FY 1995 budget neutrality 
  factor is removed from the rate without further incremental adjustment
  (i.e., the FY 1996 adjustment of .8432 is divided out of the rate     
  without further adjustment, for a net adjustment of 1.0000/.8432, or  
  1.1860).                                                              


    We are also providing a chart that shows how the final FY 1996 
Federal rate differs from the proposed FY 1996 Federal rate.
    This chart shows that the major factor in the 1.06 percent increase 
in the rate since the proposed rule is the 1.15 percent increase due to 
our decision not to implement the proposed tax adjustment factor at 
this time. We discuss our reasons for this decision in section V.B. of 
the preamble. As the chart shows, the effect of this change, when 
compared to the proposed FY 1996 Federal rate, is to increase the rate 
by 1.15 percent. In addition, there have been small changes in the 
outlier and exceptions factors that contribute to the small increase in 
the rate. As the chart also shows, the effect of these changes was 
partially offset by a decrease in the final update factor compared to 
the update factor in the proposed rule.

Comparison of Factors and Adjustments: Proposed FY 1996 Federal Rate and
                       Final FY 1996 Federal Rate                       
------------------------------------------------------------------------
                                                     Net        Percent 
                                                  adjustment    change  
------------------------------------------------------------------------
Update factor:                                                          
    Proposed FY 1996...............      1.0150  ...........  ..........
    Final FY 1996..................      1.0120       0.9970       -0.30
Transfer adjustment:                                                    
    Proposed FY 1996...............      0.9972  ...........  ..........
    Final FY 1996..................      0.9972       1.0000        0.00
Tax adjustment:                                                         
    Proposed FY 1996...............      0.9886  ...........  ..........
    Final FY 1996..................      1.0000       1.0115        1.15
Outlier reduction factor:                                               
    Proposed FY 1996...............      0.9526  ...........  ..........
    Final FY 1996..................      0.9536       1.0010        0.10
GAF/DRG reduction factor:                                               
    Proposed FY 1996...............      0.9993  ...........  ..........
    Final FY 1996..................      0.9994       1.0001        0.01
Exceptions reduction factor:                                            
    Proposed FY 1996...............      0.9840  ...........  ..........
    Final FY 1996..................      0.9849       1.0009        0.09
Budget neutrality adjustment                                            
 factor:                                                                
    Proposed FY 1996...............      1.0000  ...........  ..........
    Final FY 1996..................      1.0000       1.0000        0.00
Federal rate:                                                           
    Proposed FY 1996...............     $457.11  ...........  ..........
    Final FY 1996..................     $461.96       1.0106        1.06
------------------------------------------------------------------------


[[Page 45862]]

8. Special Rate for Puerto Rico Hospitals
    For FY 1995, the special rate for Puerto Rico hospitals was 
$289.87. With the changes we proposed making to the factors used to 
determine the rate, the proposed FY 1996 special rate for Puerto Rico 
was $351.61. In this final rule, the FY 1996 capital rate for Puerto 
Rico is $355.35.

B. Determination of Hospital-Specific Rate Update

    Section 412.328(e) of the regulations provides that the hospital-
specific rate for FY 1996 be determined by adjusting the FY 1995 
hospital-specific rate by the following factors:
1. Special Adjustment for the Effects of the New Transfer Policy
    Section 412.312(d) of the regulations provides that payment under 
the capital prospective payment system for transfer cases is made under 
the same rules governing transfer payments under the operating 
prospective payment system. Transfer cases under the prospective 
payment system for capital-related costs have been paid on a per diem 
basis, using the full prospective payment amount for the DRG (both 
Federal rate and hospital-specific rate, if appropriate) divided by the 
geometric mean length of stay for the DRG, but not to exceed the full 
prospective payment. Section IV.A of the preamble to this final rule 
describes our adoption of a graduated per diem payment methodology for 
transfer cases. Under this policy, we will pay double the per diem 
amount for the first day and the per diem amount for subsequent days, 
up to the full prospective payment amount. Section 109 of the Social 
Security Amendments of 1994 (Public Law 103-432) authorizes the 
Secretary to make adjustments to the operating prospective payment 
system rates so that adjustments to the payment policy for transfer 
cases do not affect aggregate payments. Section II of this Addendum 
describes the methodology for making the adjustment to the operating 
rates.
    In order to maintain consistency with the prospective payment 
system for operating costs, we believe that a parallel adjustment to 
the Federal capital rate and the hospital-specific capital rates is 
warranted. In this way, revision of the payment policy for transfer 
cases will not affect aggregate payments under the prospective payment 
system for capital-related costs. We describe the methodology for 
making this adjustment in Appendix B of this proposed rule. Following 
that methodology, we have determined that a special adjustment of 
0.9972 (-0.28 percent) to the standard Federal rate and the hospital-
specific rates is required. We have revised Sec. 412.328(e) 
accordingly.
2. 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 1996, the hospital-specific rate will be 
updated by a factor of 1.012.
3. 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 1996, we estimated in the proposed 
rule that exceptions payments would be 1.60 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 0.9840. In this final rule, we estimate that exceptions 
payments will be 1.51 percent of aggregate payments based on the 
Federal rate and the hospital-specific rate. We are therefore applying 
an exceptions reduction factor of 0.9849 to the hospital-specific rate. 
The exceptions reduction factors are not built permanently into the 
rates; that is, the factors are not applied cumulatively in determining 
the hospital-specific rate. Therefore, the proposed net adjustment to 
the FY 1996 hospital-specific rate is .9849/.9734, or 1.0118.
4. Expiration of the Budget Neutrality Provision
    For FY 1992 through FY 1995, the updated hospital-specific rate was 
adjusted by a budget neutrality adjustment factor determined under 
Sec. 412.352, so that estimated aggregate payments under the capital 
prospective payment system would equal 90 percent of estimated payments 
that would have been made on a reasonable cost basis. (The budget 
neutrality adjustment for changes in the DRG classifications and 
relative weights and in the geographic adjustment factor is not applied 
to the hospital-specific rate.) For FY 1995, the budget neutrality 
adjustment was 0.8432. The budget neutrality provision has now expired. 
Therefore, for FY 1996 there is no budget neutrality adjustment. The 
budget neutrality factor was not built permanently into the rates; that 
is, the factor was not applied cumulatively in determining the 
hospital-specific rate. Therefore, the net adjustment to the FY 1996 
hospital-specific rate as a result of the expiration of the budget 
neutrality provision is 1.0000/.8432, or 1.1860.
5. Net Change to Hospital-Specific Rate
    We are providing a chart to show the net change to the hospital-
specific rate. The chart shows the factors for FY 1995 and FY 1996 and 
the net adjustment for each factor. It also shows that the proposed 
cumulative net adjustment from FY 1995 to FY 1996 is 1.2110, which 
represents an increase of 21.10 percent to the hospital-specific rate. 
The FY 1996 hospital-specific rate for each hospital is determined by 
multiplying the FY 1995 hospital-specific rate by the cumulative net 
adjustment of 1.2110.

        FY 1996 Update and Adjustments to Hospital-Specific Rates       
------------------------------------------------------------------------
                                                     Net        Percent 
                                                  adjustment    change  
------------------------------------------------------------------------
Update factor:                                                          
    FY 1995........................      1.0344  ...........  ..........
    FY 1996........................      1.0120       1.0120        1.20
Transfer adjustment:                                                    
    FY 1995........................         N/A                         
    FY 1996........................      0.9972       0.9972       -0.28
Exceptions payment adjustment                                           
 factor:                                                                
    FY 1995........................      0.9734  ...........  ..........
    FY 1996........................      0.9849       1.0118        1.18
Budget neutrality factor:                                               
    FY 1995........................      0.8432  ...........  ..........

[[Page 45863]]
                                                                        
    FY 1996........................      1.0000       1.1860       18.60
Cumulative adjustments:                                                 
    FY 1995........................      0.8457  ...........  ..........
    FY 1996........................      1.0241       1.2110       21.10
------------------------------------------------------------------------


    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 1995 to FY 1996 is 1.0120. In 
contrast, the exceptions payment adjustment factor and the budget 
neutrality factor are not applied cumulatively. Thus, for example, 
the incremental increase in the exceptions reduction factor from FY 
1995 to FY 1996 is .9849/.9734, or 1.0118.
C. Calculation of Inpatient Capital-Related Prospective Payments for FY 
1996

    During the capital prospective payment system transition period, a 
hospital is paid for 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 of 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 
1996 are 50 percent of the adjusted Federal rate and 50 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 
hospital's inpatient capital-related payments that is based on the 
Federal rate. For fully prospective hospitals, that portion is 50 
percent Federal rate for discharges occurring in cost reporting periods 
beginning during FY 1996. Thus, a fully prospective hospital will 
receive 50 percent of the capital-related outlier payment calculated 
for the case for discharges occurring in cost reporting periods 
beginning in FY 1996. 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 based on 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 1996 are published in section 
II.A.4.c of this Addendum. For FY 1996, 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 $15,150. A 
case qualifies as a day outlier for FY 1996 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 23 days.
    During the capital prospective payment system transition period, a 
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 1996 are: 

[[Page 45864]]

     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 1996 for hospitals and hospital units excluded from the 
prospective payment system is 3.4 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 before 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 1993, we would 
use the rate of increase between the wage index based on 1982 wage data 
and the wage index based on the FY 1992 data, since the FY 1992 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 

[[Page 45865]]
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, 6H, 7A, 
7B, 8A, 8B, 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 1994 and Hospital Average Hourly Wage for Federal Fiscal 
Year 1996 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--Invalid Procedure Codes
Table 6e--Revised Diagnosis Code Titles
Table 6f--Revised Procedure Code Titles
Table 6G--Additions to the CC Exclusions List
Table 6H--Deletions to the CC Exclusions List
Table 7A--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay FY 95 MEDPAR Update 06/95 GROUPER V12.0
Table 7B--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay FY 94 MEDPAR Update 06/95 GROUPER V13.0
Table 8A--Statewide Average Operating Cost-to-Charge Ratios for Urban 
and Rural Hospitals (Case Weighted) August 1995
Table 8B--Statewide Average Capital Cost-to-Charge Ratios for Urban and 
Rural Hospitals (Case Weighted) August 1995
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           
------------------------------------------------------------------------
  Labor-related     Nonlabor-related    Labor-related   Nonlabor-related
------------------------------------------------------------------------
$2,741.39........       $1,098.09         $2,697.99         $1,080.71   
------------------------------------------------------------------------


                   Table 1b.--Regional Adjusted Operating Standardized Amounts, Labor/Nonlabor                  
----------------------------------------------------------------------------------------------------------------
                                                         Large urban areas                  Other areas         
                                                 ---------------------------------------------------------------
                                                                     Nonlabor-                       Nonlabor-  
                                                  Labor- related      related     Labor- related      related   
----------------------------------------------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).........       $2,874.14       $1,151.27       $2,828.62       $1,133.04
2. Middle Atlantic (PA, NJ, NY).................        2,623.06        1,050.69        2,581.53        1,034.06
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC,                                                                  
 VA, WV)........................................        2,685.62        1,075.75        2,643.11        1,058.72
4. East North Central (IL, IN, MI, OH, WI)......        2,926.45        1,172.22        2,880.12        1,153.66
5. East South Central (AL, KY, MS, TN)..........        2,537.85        1,016.56        2,497.67        1,000.47
6. West North Central (IA, KS, MN, MO, NE, ND,                                                                  
 SD)............................................        2,743.19        1,098.81        2,699.76        1,081.41
7. West South Central (AR, LA, OK, TX)..........        2,669.98        1,069.49        2,627.71        1,052.55
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)....        2,652.82        1,062.62        2,610.82        1,045.79
9. Pacific (AK, CA, HI, OR, WA).................        2,712.20        1,086.40        2,669.27        1,069.20
----------------------------------------------------------------------------------------------------------------


                                                                                                                

[[Page 45866]]
               Table 1c.--Adjusted Operating Standardized Amounts for Puerto Rico, Labor/Nonlabor               
----------------------------------------------------------------------------------------------------------------
                                                         Large urban areas                  Other areas         
                                                 ---------------------------------------------------------------
                                                                    Nonlabor--                      Nonlabor--  
                                                  Labor- related      related     Labor- related      related   
----------------------------------------------------------------------------------------------------------------
National........................................       $2,714.63       $1,087.37       $2,714.63       $1,087.37
Puerto Rico.....................................        2,444.77          509.50        2,406.07          501.43
----------------------------------------------------------------------------------------------------------------



            Table 1d.--Capital Standard Federal Payment Rate            
------------------------------------------------------------------------
                                                                 Rate   
------------------------------------------------------------------------
National....................................................     $461.96
Puerto Rico.................................................      355.35
------------------------------------------------------------------------


                                                                        

[[Page 45867]]
                 Table 3c.--Hospital Case Mix Indexes for Discharges Occurring in Federal Fiscal Year 1994, Hospital Average Hourly Wage for Federal Fiscal Year 1996 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............   01.3968   14.70   010095............   01.0332   10.66   030004............   01.0179   13.13   040003............   01.0705   13.33   040105............   01.0662   11.86
010004............   01.0413   11.54   010097............   00.9261   12.23   030006............   01.5839   17.32   040004............   01.4025   13.86   040106............   01.2166   11.16
010005............   01.1775   13.61   010098............   01.0799   11.19   030007............   01.2521   16.55   040005............   00.9579   11.37   040107............   01.1231   15.18
010006............   01.3889   14.23   010099............   01.0329   14.74   030008............   01.9610   20.06   040007............   01.7232   16.81   040109............   01.0766   12.13
010007............   01.0911   12.03   010100............   01.1814   13.72   030009............   01.2256   15.42   040008............   01.1067   10.45   040114............   01.8042   16.23
010008............   01.0538   09.78   010101............   01.1089   12.72   030010............   01.4044   17.40   040010............   01.1910   13.08   040116............   01.3377   18.71
010009............   01.0803   15.47   010102............   00.9127   11.42   030011............   01.4903   20.19   040011............   00.9909   10.41   040118............   01.1197   13.58
010010............   01.0761   13.64   010103............   01.7143   16.47   030012............   01.2311   15.06   040013............   00.8034   11.75   040119............   01.1364   13.45
010011............   01.5164   19.89   010104............   01.6688   16.63   030013............   01.2419   19.04   040014............   01.2134   15.72   040124............   01.1769   13.61
010012............   01.2603   14.67   010108............   01.2172   11.76   030014............   01.4902   17.79   040015............   01.2060   11.77   040126............   00.9480   11.00
010015............   01.0453   15.13   010109............   01.0546   11.54   030016............   01.3304   16.82   040016............   01.7332   15.81   040132............   00.3512   14.00
010016............   01.1906   15.10   010110............   00.9496   12.21   030017............   01.3986   18.43   040017............   01.2172   10.52   050002............   01.5615   26.17
010018............   00.9544   15.60   010112............   01.0969   13.96   030018............   01.7243   17.74   040018............   01.2122   15.74   050006............   01.4001   19.22
010019............   01.2751   13.87   010113............   01.6285   13.09   030019............   01.2442   18.78   040019............   01.1123   11.20   050007............   01.5879   26.63
010021............   01.2588   13.21   010114............   01.3117   15.41   030022............   01.4806   17.27   040020............   01.5105   13.74   050008............   01.4323   24.86
010022............   01.0256   15.65   010115............   00.8513   10.12   030023............   01.2911   16.24   040021............   01.2130   15.42   050009............   01.6649   26.93
010023............   01.3805   14.44   010117............   00.9347   18.73   030024............   01.7625   18.77   040022............   01.8066   14.21   050013............   01.8480   20.87
010024............   01.3726   15.01   010118............   01.2246   15.42   030025............   01.1006   13.38   040024............   01.0180   11.62   050014............   01.1446   22.82
010025............   01.3813   12.75   010119............   01.2015   15.12   030027............   01.1208   14.29   040025............   00.9354   10.69   050015............   01.4331   20.74
010027............   00.8467   13.11   010120............   00.9965   14.36   030030............   01.6996   20.88   040026............   01.5494   15.05   050016............   01.1496   14.51
010029............   01.4704   14.06   010121............   01.1896   14.23   030033............   01.2155   15.50   040027............   01.2685   12.06   050017............   02.0952   24.17
010031............   01.2567   13.51   010123............   01.2321   16.17   030034............   01.1710   15.72   040028............   01.0217   10.19   050018............   01.2508   18.71
010032............   00.9701   13.69   010124............   01.2794   15.36   030035............   01.3011   19.44   040029............   01.2031   13.07   050021............   01.3600   21.85
010033............   01.8757   17.51   010125............   01.0446   12.25   030036............   01.1317   17.49   040030............   00.8998   11.86   050022............   01.5018   22.19
010034............   01.0149   12.69   010126............   01.1157   12.54   030037............   01.9258   19.15   040032............   01.0062   10.37   050024............   01.3482   23.48
010035............   01.2169   14.72   010127............   01.4863   16.01   030038............   01.5022   17.78   040035............   00.9926   09.69   050025............   01.7235   21.46
010036............   01.1364   15.26   010128............   01.0313   10.97   030040............   00.9810   15.24   040036............   01.4043   15.86   050026............   01.4341   20.43
010038............   01.2308   16.94   010129............   01.0641   13.39   030041............   00.9523   16.41   040037............   01.1119   11.56   050028............   01.4066   15.18
010039............   01.6205   15.05   010130............   01.0484   15.47   030043............   01.1729   17.72   040039............   01.2264   11.89   050029............   01.2872   25.93
010040............   01.4682   17.28   010131............   01.2518   17.42   030044............   00.9940   13.57   040040............   01.1993   17.12   050030............   01.2790   19.28
010043............   01.0564   12.55   010134............   00.8447   12.38   030046............   01.0471   16.87   040041............   01.3374   14.18   050032............   01.2640   22.74
010044............   00.9582   12.54   010137............   01.2210   15.71   030047............   00.9475   18.93   040042............   01.2984   12.26   050033............   01.3994   24.02
010045............   01.1387   11.95   010138............   00.9878   09.88   030049............   00.9609   14.29   040044............   00.8731   10.10   050036............   01.7580   20.22
010046............   01.4552   13.93   010139............   01.6156   20.00   030054............   00.9290   12.19   040045............   01.0710   13.23   050038............   01.3353   28.61
010047............   01.0735   08.72   010143............   01.1710   16.12   030055............   01.2152   16.00   040047............   01.0339   14.05   050039............   01.5925   20.33
010049............   01.1096   14.18   010144............   01.3054   15.54   030059............   01.3347   20.15   040048............   01.1791   13.54   050040............   01.2773   22.38
010050............   01.0179   11.94   010145............   01.2130   15.36   030060............   01.1092   13.06   040050............   01.1429   11.01   050041............   01.3654   21.68
010051............   00.8267   09.81   010146............   01.1608   15.74   030061............   01.5941   16.25   040051............   01.1125   10.19   050042............   01.2517   20.06
010052............   00.9528   11.56   010148............   00.9487   10.54   030062............   01.2600   14.57   040053............   01.1313   12.40   050043............   01.5396   27.78
010053............   01.0421   12.58   010149............   01.3465   15.90   030064............   01.6330   16.62   040054............   01.0770   11.90   050045............   01.3028   17.13
010054............   01.1530   15.11   010150............   01.0127   13.86   030065............   01.6023   18.78   040055............   01.4478   14.04   050046............   01.1768   24.46
010055............   01.4397   14.98   010152............   01.3346   15.42   030067............   01.0531   15.23   040058............   01.2358   13.05   050047............   01.6769   28.05
010056............   01.4021   17.64   010155............   00.9590   09.48   030068............   00.9663   13.92   040060............   00.9532   12.70   050051............   01.0947   17.01
010058............   01.0147   12.39   020001............   01.5075   25.13   030069............   01.3595   16.55   040062............   01.5209   14.64   050052............   01.1447  ......
010059............   01.0348   13.89   020002............   01.0097   24.19   030071............   00.9416  .......  040063............   01.4946   14.95   050054............   01.1528   19.64
010061............   00.9669   13.39   020004............   01.1323   23.34   030072............   00.8611  .......  040064............   00.9489   09.57   050055............   01.4117   29.68
010062............   01.0039   11.97   020005............   00.9083   23.80   030073............   01.0810  .......  040066............   01.0779   13.90   050056............   01.3677   23.16
010064............   01.7903   17.53   020006............   01.1710   21.93   030074............   00.8502  .......  040067............   01.1361   11.31   050057............   01.4622   19.73
010065............   01.3665   14.14   020007............   00.8393   17.74   030075............   00.8573  .......  040069............   01.0798   13.04   050058............   01.4523   21.90
010066............   00.9197   09.11   020008............   00.9996   26.65   030076............   00.8694  .......  040070............   00.9387   13.28   050060............   01.5727   19.17
010068............   01.2297   18.14   020009............   00.9280   19.88   030077............   00.8113  .......  040071............   01.4674   15.11   050061............   01.3814   22.35
010069............   01.0778   13.08   020010............   01.0303   18.60   030078............   01.1209  .......  040072............   01.1259   14.24   050063............   01.4300   21.08
010072............   01.2032   12.45   020011............   01.1331   21.26   030079............   00.7942  .......  040074............   01.3112   13.79   050065............   01.6178   22.56
010073............   00.9006   10.82   020012............   01.2973   22.82   030080............   01.6610   21.27   040075............   01.0563   10.99   050066............   01.2551   24.33
010078............   01.1694   15.06   020013............   00.8540   21.66   030083............   01.3676   21.02   040076............   01.0433   13.39   050067............   01.4056   21.52
010079............   01.1115   14.56   020014............   01.2972   19.97   030084............   00.9965  .......  040077............   00.8759   10.34   050068............   01.2515   18.27
010080............   00.9621   13.13   020017............   01.3934   25.88   030085............   01.4980   17.85   040078............   01.4179   15.29   050069............   01.5984   23.54
010081............   01.9629   16.46   020018............   00.9100  .......  030086............   01.2409   18.35   040080............   01.0214   14.94   050070............   01.3123   28.83
010083............   01.0402   12.57   020019............   00.8722  .......  030087............   01.5981   17.23   040081............   00.8802   09.81   050071............   01.3070   28.37
010084............   01.3687   15.98   020020............   00.8894  .......  030088............   01.3666   18.08   040082............   01.2322   12.53   050072............   01.3191   29.11
010085............   01.2525   15.87   020021............   00.8976  .......  030089............   01.4360   18.51   040084............   01.0970   14.26   050073............   01.2552   29.08
010086............   00.9830   13.22   020024............   01.0720   22.25   030092............   01.5477   18.71   040085............   01.2523   14.29   050074............   01.0875   31.87
010087............   01.7658   16.49   020025............   01.0426   21.61   030093............   01.3513   17.76   040088............   01.3551   13.14   050075............   01.3402   28.71
010089............   01.1268   15.32   020026............   01.2538  .......  030094............   01.3531   17.83   040090............   00.9673   11.94   050076............   01.6600   28.90
010090............   01.5515   15.76   020027............   00.9528  .......  030095............   01.1298   14.39   040091............   01.2662   17.58   050077............   01.5894   22.97
010091............   00.9581   12.37   030001............   01.3021   19.25   030097............   01.0287  .......  040093............   00.9748   10.17   050078............   01.3994   22.74
010092............   01.3781   15.31   030002............   01.8140   20.27   040001............   01.1696   11.25   040095............   00.8388   11.17   050079............   01.5499   29.43
010094............   01.1698   17.54   030003............   01.7302   19.73   040002............   01.1882   12.09   040100............   01.1610   13.63   050080............   01.2743   23.03
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[[Page 45868]]
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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 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
050081............   01.6679   21.10   050177............   01.2282   18.24   050286............   00.9265   26.63   050407............   01.3626   26.56   050528............   01.2336   16.76
050082............   01.4770   21.26   050179............   01.2418   18.28   050289............   01.7527   25.91   050410............   01.1100   16.16   050531............   01.2049   19.81
050084............   01.5885   21.52   050180............   01.5435   30.93   050290............   01.5196   24.38   050411............   01.3968   27.93   050534............   01.3893   23.99
050088............   01.0729   21.32   050181............   01.2989  .......  050291............   01.2685   24.17   050414............   01.2954   24.04   050535............   01.4946   22.35
050089............   01.3265   19.83   050183............   01.2255   19.25   050292............   01.1333   21.25   050417............   01.2300   18.53   050537............   01.2230   21.28
050090............   01.3257   20.02   050186............   01.3277   24.64   050293............   00.8257   19.92   050418............   01.3467   24.11   050539............   01.1557   22.82
050091............   01.1739   21.63   050188............   01.4107   25.19   050295............   01.4056   20.72   050419............   01.2985   18.33   050541............   01.5428   28.93
050092............   00.9075   16.84   050189............   00.9558   22.45   050296............   01.2987   23.78   050420............   01.4723   24.85   050542............   01.1764   15.76
050093............   01.5560   20.79   050191............   01.5886   21.31   050298............   01.2369   16.65   050421............   01.4309   24.17   050543............   00.9034   24.18
050095............   00.9989   29.05   050192............   01.2153   18.66   050299............   01.2994   22.49   050423............   01.0348   17.53   050545............   00.8899   21.07
050096............   01.1224   18.14   050193............   01.4095   23.10   050300............   01.2676   18.73   050424............   01.7320   24.12   050546............   00.8228   21.43
050097............   01.4238   16.13   050194............   01.1999   25.22   050301............   01.4347   21.30   050425............   01.2512   27.91   050547............   00.9096   22.13
050099............   01.4808   22.03   050195............   01.5632   29.15   050302............   01.3531   23.57   050426............   01.3324   22.18   050549............   01.7694   25.56
050100............   01.8779   22.92   050196............   01.4143   18.09   050305............   01.6085   28.25   050427............   00.9421   22.53   050550............   02.3252   21.44
050101............   01.4198   24.98   050197............   01.8868   27.85   050307............   01.3897   20.66   050430............   00.9277   15.31   050551............   01.3390   23.83
050102............   01.5195   21.67   050199............   01.0425   22.19   050308............   01.5405   28.06   050431............   01.1250   20.82   050552............   01.3328   20.13
050103............   01.6052   28.01   050204............   01.3887   22.44   050309............   01.3839   23.19   050432............   01.5930   23.40   050557............   01.5817   21.45
050104............   01.3567   21.95   050205............   01.4014   19.74   050310............   01.2782   20.36   050433............   01.0404   17.20   050559............   01.3762   22.56
050107............   01.4065   20.13   050207............   01.3154   20.06   050312............   01.8592   23.07   050434............   01.1767   17.00   050560............   01.5959   22.35
050108............   01.5751   22.50   050208............   01.2787   27.22   050313............   01.2419   20.05   050435............   01.2922   16.47   050561............   01.2104   28.42
050109............   02.2189   23.93   050211............   01.3765   25.67   050315............   01.3025   20.58   050436............   00.9928   15.70   050564............   01.2887   25.38
050110............   01.2585   20.72   050213............   01.4588   19.75   050317............   01.2356   19.58   050438............   01.6084   23.36   050565............   01.2006   21.03
050111............   01.3024   18.52   050214............   01.5542   22.70   050320............   01.3287   32.07   050440............   01.3911   18.93   050566............   00.9865   13.94
050112............   01.5233   22.95   050215............   01.5360   25.76   050324............   01.8053   23.27   050441............   01.8493   27.68   050567............   01.6027   21.00
050113............   01.3013   26.77   050217............   01.3147   17.43   050325............   01.2332   20.65   050443............   00.9409   14.95   050568............   01.3231   22.17
050114............   01.4336   25.49   050219............   01.2947   20.45   050327............   01.5955   21.01   050444............   01.3535   23.83   050569............   01.4307   21.89
050115............   01.5153   21.57   050222............   01.5416   25.04   050328............   01.5394   27.69   050446............   00.9957   17.23   050570............   01.5835   24.67
050116............   01.4747   22.94   050224............   01.5576   21.12   050329............   01.2920   15.93   050447............   01.0895   16.92   050571............   01.3222   26.14
050117............   01.3259   18.74   050225............   01.3801   20.48   050331............   01.4400   28.29   050448............   01.0625   18.59   050573............   01.6210   22.10
050118............   01.2218   23.13   050226............   01.3631   21.59   050333............   00.9684   17.95   050449............   01.3118   20.99   050575............   01.2532   23.34
050121............   01.5400   20.07   050228............   01.4464   28.72   050334............   01.5816   28.97   050454............   01.8126   26.37   050577............   01.3920   21.47
050122............   01.6430   23.24   050230............   01.3603   26.71   050335............   01.2433   20.84   050455............   01.8486   21.11   050578............   01.2616   24.09
050124............   01.2701   22.93   050231............   01.6538   22.19   050336............   01.2893   19.40   050456............   01.2190   21.52   050579............   01.5452   27.06
050125............   01.3509   24.50   050232............   01.8167   25.50   050337............   01.2628   26.55   050457............   01.9322   28.03   050580............   01.4027   22.40
050126............   01.4205   24.72   050233............   01.2148   23.64   050342............   01.3993   17.43   050458............   00.7146   23.76   050581............   01.4171   24.32
050127............   01.2797   22.28   050234............   01.3556   18.84   050343............   01.1120   16.91   050459............   01.1585   28.15   050583............   01.6137   21.83
050128............   01.5377   20.73   050235............   01.4868   23.84   050348............   01.6361   24.26   050464............   01.8498   22.87   050584............   01.2738   22.37
050129............   01.5022   21.49   050236............   01.5367   24.67   050349............   00.9483   13.96   050468............   01.3417   15.80   050585............   01.3347   22.76
050131............   01.2906   25.95   050238............   01.5043   19.87   050350............   01.3833   21.49   050469............   01.1376   17.19   050586............   01.3449   22.75
050132............   01.3632   19.85   050239............   01.5179   21.99   050351............   01.4824   27.25   050470............   01.1109   19.37   050587............   01.2709   20.16
050133............   01.3704   20.11   050240............   01.4428   23.58   050352............   01.2933   22.36   050471............   01.6780   23.33   050588............   01.2785   27.21
050135............   01.2507   26.85   050241............   01.3170   26.52   050353............   01.5831   20.14   050476............   01.2475   19.26   050589............   01.3320   24.60
050136............   01.4215   21.96   050242............   01.3730   26.92   050355............   00.9653   15.90   050477............   01.4106   27.66   050590............   01.4053   23.13
050137............   01.3803   29.95   050243............   01.5537   24.82   050357............   01.7895   22.17   050478............   00.9938   22.01   050591............   01.1739   20.64
050138............   01.7766   30.59   050245............   01.3655   21.94   050359............   01.0386   19.35   050481............   01.4268   25.61   050592............   01.3816   23.45
050139............   01.3303   29.15   050248............   01.1103   24.57   050360............   01.5164   31.61   050482............   00.9597   18.35   050593............   01.5525   25.60
050140............   01.4148   29.23   050251............   01.1099   16.23   050366............   01.2747   20.46   050483............   01.1904   26.34   050594............   02.0551   22.74
050144............   01.6499   22.42   050253............   00.8763   18.00   050367............   01.2967   26.14   050485............   01.6004   21.94   050597............   01.2322   21.75
050145............   01.3454   26.85   050254............   01.1399   22.76   050369............   01.3062   23.37   050486............   01.4342   23.44   050598............   01.4335   25.33
050146............   01.3466  .......  050256............   01.8935   19.43   050373............   01.3703   23.22   050488............   01.4138   27.49   050599............   01.7122   22.85
050147............   00.7123   20.96   050257............   01.1982   17.90   050376............   01.3429   25.07   050489............   01.0669   23.36   050601............   01.3033   30.28
050148............   01.0691   17.09   050260............   00.9782   21.22   050377............   00.9475   16.99   050491............   01.1810   26.44   050603............   01.4452   22.96
050149............   01.3651   22.42   050261............   01.1624   17.18   050378............   01.1675   22.91   050492............   01.1874   20.52   050604............   01.5474   27.40
050150............   01.3121   21.41   050262............   01.8406   25.72   050379............   01.0648   18.39   050494............   01.1616   23.56   050607............   01.3481   19.27
050152............   01.4075   25.02   050263............   01.2553   26.81   050380............   01.6428   26.54   050496............   01.7182   29.82   050608............   01.1805   15.26
050153............   01.6199   29.55   050264............   01.4300   26.35   050382............   01.3947   23.92   050497............   00.9065   11.78   050609............   01.3393   30.07
050154............   01.0949   21.63   050267............   01.5691   24.29   050385............   01.4407   24.00   050498............   01.2744   21.87   050613............   01.1025   22.87
050155............   01.1562   19.97   050270............   01.3246   22.68   050388............   00.9432   14.21   050502............   01.6692   21.87   050615............   01.4503   21.15
050158............   01.5592   26.71   050272............   01.3615   19.69   050390............   01.2350   21.04   050503............   01.3323   22.11   050616............   01.2735   20.76
050159............   01.2369   21.78   050274............   01.0960   18.11   050391............   01.3409   19.68   050506............   01.4708   24.09   050618............   01.0205   16.48
050167............   01.3568   22.09   050276............   01.2591   28.37   050392............   00.9821   16.53   050510............   01.3648   28.70   050623............   01.2040   23.19
050168............   01.5962   23.78   050277............   01.3622   21.80   050393............   01.3945   22.22   050512............   01.3749   29.35   050624............   01.2514   26.72
050169............   01.5252   23.32   050278............   01.5011   21.16   050394............   01.5281   22.04   050515............   01.3295   28.65   050625............   01.5858   23.29
050170............   01.5054   21.35   050279............   01.2210   20.42   050396............   01.5525   21.13   050516............   01.6481   23.36   050630............   01.2448   21.58
050172............   01.3087   20.41   050280............   01.6345   22.36   050397............   01.0703   17.88   050517............   01.2673   19.52   050633............   01.2660   21.41
050173............   01.2190   22.01   050281............   01.4865  .......  050401............   01.2008   15.64   050522............   01.3936   29.90   050635............   01.3393   29.56
050174............   01.7090   25.94   050282............   01.3481   22.82   050404............   01.1331   13.84   050523............   01.2175   25.91   050636............   01.3336   21.81
050175............   01.3262   23.42   050283............   01.3344   26.60   050406............   01.1195   14.65   050526............   01.3612   25.43   050637............   01.0646   22.10
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[[Page 45869]]
                                                                                          Page 3 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 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
050638............   00.9513   24.17   060033............   01.1476   11.24   070030............   01.2535   23.06   100055............   01.3743   17.82   100146............   01.1447   14.10
050641............   01.2117   15.92   060034............   01.4987   19.01   070031............   01.3049   19.23   100056............   01.4899   20.15   100147............   01.0930   13.00
050643............   00.8711  .......  060036............   01.1813   12.48   070033............   01.3033   24.24   100057............   01.3746   15.39   100150............   01.2948   16.60
050644............   00.9872   24.48   060037............   01.0516   12.26   070034............   01.3458   24.14   100059............   00.9153   16.60   100151............   01.7793   18.68
050660............   01.2866  .......  060038............   01.0530   11.85   070035............   01.3917   22.12   100060............   01.7354   16.88   100154............   01.6427   18.00
050661............   00.9135   20.77   060041............   00.8964   15.38   070036............   01.3278   25.69   100061............   01.5117   20.28   100156............   01.1459   17.50
050662............   00.8619   21.30   060042............   00.9425   17.68   070038............   00.9919  .......  100062............   01.7513   16.20   100157............   01.6054   18.71
050663............   01.1139   22.11   060043............   00.9975   14.76   080001............   01.6573   23.28   100063............   01.2214   15.65   100159............   01.0322   14.28
050666............   00.7638   23.70   060044............   01.1525   14.89   080002............   01.2698   16.99   100067............   01.3722   15.72   100160............   01.0625   17.34
050667............   01.1809   23.89   060046............   01.1237   15.46   080003............   01.3084   19.43   100068............   01.4318   17.17   100161............   01.5648   19.20
050668............   01.2274   26.93   060047............   01.1030   09.96   080004............   01.3271   16.96   100069............   01.5169   15.21   100162............   01.4159   16.74
050671............   01.6203   27.00   060049............   01.2107   17.19   080005............   01.3183   15.82   100070............   01.4353   17.16   100165............   01.2363   13.51
050672............   00.6349   21.17   060050............   01.2676   13.15   080006............   01.3653   16.48   100071............   01.2737   15.51   100166............   01.4690   19.88
050674............   01.2495   28.26   060052............   01.1344   12.88   080007............   01.2784   17.63   100072............   01.2463   16.34   100167............   01.4139   20.48
050675............   01.7051   15.00   060053............   00.9301   12.60   090001............   01.4960   19.94   100073............   01.7678   20.14   100168............   01.3765   18.12
050676............   00.9870   13.25   060054............   01.3476   15.54   090002............   01.1416   15.96   100074............   01.2361   19.00   100169............   01.8741   18.22
050677............   01.3405   31.12   060056............   00.8988   12.65   090003............   01.3455   21.55   100075............   01.6388   16.40   100170............   01.4112   15.90
050678............   01.1794   24.63   060057............   01.0220   20.40   090004............   01.6239   22.47   100076............   01.4024   16.43   100172............   01.3624   13.54
050680............   01.2553   25.39   060058............   00.8994   10.18   090005............   01.2725   25.88   100077............   01.3380   15.83   100173............   01.5814   15.59
050682............   00.9270   13.61   060060............   00.9656   12.38   090006............   01.3232   19.62   100078............   01.1723   14.56   100174............   01.4758   18.74
050684............   01.1759   21.43   060062............   00.9881   14.10   090007............   01.4799   19.96   100079............   01.4619   18.80   100175............   01.1062   15.14
050685............   01.2662   27.06   060063............   01.0031   11.07   090008............   01.5653   19.96   100080............   01.5393   18.32   100176............   01.9867   25.81
050686............   01.3631   29.52   060064............   01.3900   20.49   090010............   00.9357   20.65   100081............   01.1737   12.91   100177............   01.3286   17.48
050688............   01.2056   28.71   060065............   01.3782   17.83   090011............   01.9895   24.31   100082............   01.5720   16.76   100179............   01.6306   17.87
050689............   01.4343   28.59   060066............   00.9691   12.11   100001............   01.5587   17.27   100083............   01.3813   16.09   100180............   01.4820   16.54
050690............   01.3986   28.26   060068............   01.1369   14.76   100002............   01.4599   18.36   100084............   01.5159   16.83   100181............   01.4152   15.91
050693............   01.5106   27.22   060070............   01.1233   15.55   100004............   01.0642   11.43   100085............   01.3516   19.23   100183............   01.3405   17.45
050694............   01.4369   21.73   060071............   01.2613   13.96   100005............   01.0143   17.36   100086............   01.3887   20.43   100186............   01.3865   14.90
050695............   01.1047   24.12   060072............   00.9310  .......  100006............   01.6473   18.18   100087............   01.7370   19.99   100187............   01.4505   19.93
050696............   02.1885   26.95   060073............   01.0637   14.30   100007............   01.8060   18.70   100088............   01.7194   16.94   100189............   01.2663   21.83
050697............   01.1355   16.30   060075............   01.2280   18.89   100008............   01.7161   19.32   100090............   01.3598   15.22   100191............   01.3230   18.97
050698............   01.4891   21.28   060076............   01.3825   16.07   100009............   01.5540   19.83   100092............   01.5115   16.62   100199............   01.2982   18.97
050699............   00.7489   25.39   060085............   00.9265   10.79   100010............   01.4427   19.21   100093............   01.4388   14.09   100200............   01.3820   21.22
050700............   01.5233   30.13   060087............   01.6314   20.20   100012............   01.6373   17.94   100098............   01.1755   16.49   100203............   01.1492   18.76
050701............   01.3466   27.27   060088............   00.9716   13.54   100014............   01.2434   17.55   100099............   01.2245   15.33   100204............   01.5986   17.77
050702............   00.9229   16.26   060090............   00.9339   14.20   100015............   01.3079   16.81   100102............   01.0695   15.80   100206............   01.3467   20.26
050704............   01.1765  .......  060096............   00.9593   19.72   100017............   01.5767   16.31   100103............   01.1072   15.50   100207............   01.4218   23.04
050705............   00.6755  .......  060100............   01.3764   20.85   100018............   01.3236   18.69   100105............   01.4167   17.66   100208............   01.5597   21.28
050706............   00.8631  .......  060103............   01.2065   20.37   100019............   01.5037   18.79   100106............   01.0533   14.76   100209............   01.6023   22.01
050707............   00.8651  .......  060104............   01.3098   19.86   100020............   01.3154   19.55   100107............   01.3184   17.58   100210............   01.7086   15.89
050708............   00.9092  .......  060106............   01.3945  .......  100022............   01.6583   22.47   100108............   01.1084   15.65   100211............   01.3203   17.57
050709............   01.2686  .......  070001............   01.7362   23.62   100023............   01.3773   15.61   100109............   01.3226   16.41   100212............   01.6271   18.04
060001............   01.5030   17.31   070002............   01.8127   24.21   100024............   01.4214   18.53   100110............   01.4002   16.69   100213............   01.5981   17.94
060003............   01.3096   16.54   070003............   01.1701   24.23   100025............   01.6538   15.42   100112............   01.0009   11.56   100217............   01.2339   18.31
060004............   01.1473   18.71   070004............   01.1546   23.01   100026............   01.6173   15.46   100113............   02.1328   16.92   100220............   01.8434   19.78
060006............   01.1401   16.47   070005............   01.3231   24.75   100027............   00.9427   10.01   100114............   01.4707   17.68   100221............   01.4373   18.35
060007............   01.2317   12.87   070006............   01.3732   25.94   100028............   01.3008   16.01   100117............   01.3068   17.02   100222............   01.3493   16.57
060008............   00.9879   13.68   070007............   01.3763   22.95   100029............   01.3803   18.94   100118............   01.3114   16.43   100223............   01.4700   16.34
060009............   01.4330   19.83   070008............   01.2804   22.85   100030............   01.3109   17.44   100121............   01.2688   14.78   100224............   01.4555   18.76
060010............   01.5768   21.01   070009............   01.2496   23.96   100032............   01.9713   17.17   100122............   01.3418   15.71   100225............   01.3723   19.52
060011............   01.2375   18.74   070010............   01.4502   22.35   100034............   01.7876   17.67   100124............   01.4069   18.25   100226............   01.3627   17.20
060012............   01.4260   16.50   070011............   01.2736   22.16   100035............   01.6278   16.30   100125............   01.0866   16.78   100227............   01.0034   17.78
060013............   01.2804   17.06   070012............   01.1874   22.30   100038............   01.6744   20.22   100126............   01.4434   18.61   100228............   01.2587   18.85
060014............   01.7292   20.66   070013............   01.3474   23.92   100039............   01.7057   20.59   100127............   01.5845   18.03   100229............   01.3333   17.11
060015............   01.6044   18.45   070015............   01.3807   23.42   100040............   01.6897   16.11   100128............   02.1609   19.42   100230............   01.3649   18.43
060016............   01.1611   12.48   070016............   01.3213   24.30   100042............   01.6015   20.23   100129............   01.3096   17.71   100231............   01.6877   17.03
060018............   01.2240   14.91   070017............   01.4158   23.47   100043............   01.4283   19.94   100130............   01.1928   17.18   100232............   01.2221   17.96
060020............   01.4952   15.53   070018............   01.4256   25.83   100044............   01.4447   19.01   100131............   01.3138   19.27   100234............   01.6152   18.45
060022............   01.7419   16.71   070019............   01.2680   23.06   100045............   01.4428   16.70   100132............   01.4097   15.18   100235............   01.4317   16.20
060023............   01.5247   17.84   070020............   01.4289   23.68   100046............   01.5106   16.91   100134............   01.2156   14.50   100236............   01.4542   17.71
060024............   01.7207   21.41   070021............   01.2994   25.55   100047............   01.7854   20.80   100135............   01.4709   15.53   100237............   02.1813   22.74
060026............   01.4299   18.52   070022............   01.6980   24.10   100048............   00.9565   11.55   100137............   01.2745   16.08   100238............   01.4226   16.85
060027............   01.5313   19.14   070024............   01.3199   21.90   100049............   01.3153   16.74   100138............   00.9682   11.92   100239............   01.4527   18.66
060028............   01.4606   20.00   070025............   01.6953   23.66   100050............   01.2729   15.06   100139............   01.0334   15.70   100240............   00.8556   14.86
060029............   01.0333   14.09   070026............   01.1185   23.44   100051............   01.2310   16.21   100140............   01.1773   16.00   100241............   00.9113   12.29
060030............   01.3159   18.40   070027............   01.2450   24.05   100052............   01.4041   14.82   100142............   01.1827   16.26   100242............   01.4018   15.55
060031............   01.5071   18.31   070028............   01.4651   22.94   100053............   01.3238   16.23   100144............   01.2243   11.94   100243............   01.4662   16.92
060032............   01.4381   20.01   070029............   01.2874   20.71   100054............   01.2994   17.88   100145............   01.4725   12.24   100244............   01.3863   17.40
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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 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
100246............   01.3230   20.75   110042............   01.1790   14.31   110134............   00.8704   10.30   120015............   00.8598   20.16   140026............   01.1449   14.78
100248............   01.6328   18.68   110043............   01.6250   15.19   110135............   01.1388   12.78   120016............   00.8970   20.47   140027............   01.2762   15.39
100249............   01.3119   18.19   110044............   01.1797   13.21   110136............   01.1520   17.56   120018............   00.9883   19.81   140029............   01.2988   18.41
100252............   01.1810   18.33   110045............   01.2493   21.95   110140............   00.8058   16.43   120019............   01.1558   18.50   140030............   01.5387   20.92
100253............   01.3866   18.25   110046............   01.1838   15.37   110141............   00.8796   10.46   120021............   00.9286   20.79   140031............   01.1847   12.51
100254............   01.5036   16.89   110048............   01.2613   13.55   110142............   01.0386   11.73   120022............   01.6897   16.62   140032............   01.2774   15.20
100255............   01.2985   20.20   110049............   01.0212   14.46   110143............   01.3255   18.71   120025............   00.9278   18.26   140033............   01.2441   17.93
100256............   01.8114   19.59   110050............   01.0553   12.45   110144............   01.1549   12.85   120026............   01.2765   21.37   140034............   01.1618   15.80
100258............   01.6527   21.05   110051............   00.9820   16.34   110146............   00.9561   12.45   120027............   01.4535   20.92   140035............   01.0554   11.09
100259............   01.4100   16.77   110052............   00.8726   14.34   110149............   01.0717   11.53   130001............   00.9695   15.35   140036............   01.1506   14.74
100260............   01.4001   19.49   110054............   01.2733   16.58   110150............   01.3285   15.62   130002............   01.3383   14.89   140037............   00.9955   11.93
100262............   01.4017   18.35   110056............   01.0644   11.70   110152............   01.1220   12.64   130003............   01.2345   17.34   140038............   01.1754   15.57
100263............   01.4215   16.60   110059............   01.2402   13.14   110153............   00.9568   16.74   130005............   01.4022   17.25   140039............   00.9621   12.57
100264............   01.3949   16.86   110061............   01.0319   10.55   110154............   00.9795   13.79   130006............   01.8193   16.88   140040............   01.2404   13.67
100265............   01.2985   17.52   110062............   00.9472   10.27   110155............   01.1836   14.04   130007............   01.5553   17.89   140041............   01.1593   15.42
100266............   01.2182   15.99   110063............   01.0362   11.52   110156............   00.9738   12.03   130008............   00.9091   11.92   140042............   01.0276   13.28
100267............   01.2953   19.12   110064............   01.2695   15.88   110157............   01.0805   15.98   130009............   00.9481   15.96   140043............   01.2443   15.96
100268............   01.2190   22.57   110065............   01.0563   11.99   110161............   01.2316   19.75   130010............   01.0134   14.43   140045............   00.9734   12.36
100269............   01.3820   21.84   110066............   01.3146   15.99   110162............   00.8777  .......  130011............   01.2663   15.29   140046............   01.2920   15.06
100270............   00.8854   08.60   110069............   01.1375   16.05   110163............   01.3592   18.05   130012............   01.0033   17.91   140047............   01.1556   12.83
100271............   01.7876   16.19   110070............   00.9918   10.92   110164............   01.4399   18.67   130013............   01.2907   16.78   140048............   01.3210   21.62
100273............   01.1555   16.72   110071............   00.9799   09.13   110165............   01.3380   16.78   130014............   01.3583   16.02   140049............   01.5612   18.55
100275............   01.5128   21.10   110072............   01.0385   11.97   110166............   01.5044   16.62   130015............   00.8456   11.94   140051............   01.4159   19.71
100276............   01.3266   21.04   110073............   01.2536   12.73   110168............   01.6390   19.01   130016............   00.8863   16.82   140052............   01.3254   15.64
100277............   01.0704   13.45   110074............   01.4550   17.30   110169............   00.6684   19.82   130017............   01.1662   14.08   140053............   01.8281   17.25
100278............   00.8470   17.64   110075............   01.1944   14.67   110171............   01.3974   21.21   130018............   01.6857   18.13   140054............   01.3179   22.79
100279............   01.4017   19.25   110076............   01.3738   18.20   110172............   01.2170  .......  130019............   01.1462   13.98   140055............   00.9762   13.01
100280............   01.4128   17.83   110078............   01.6419   20.48   110174............   00.9987   13.50   130021............   00.9430   10.36   140058............   01.1683   14.76
100281............   01.2713   19.04   110079............   01.3867   19.71   110176............   01.0961   19.01   130022............   01.2896   15.71   140059............   01.1460   13.34
100282............   01.1035  .......  110080............   01.1510   15.47   110177............   01.4732   18.73   130024............   01.0074   15.03   140061............   01.0905   13.15
100283............   01.4423  .......  110082............   02.0423   20.22   110178............   01.0701   19.58   130025............   01.1165   16.20   140062............   01.2773   21.56
110001............   01.2829   16.74   110083............   01.6304   20.25   110179............   01.2084   21.20   130026............   01.1560   16.79   140063............   01.3587   20.34
110002............   01.2029   14.85   110086............   01.1579   13.70   110181............   00.9605   11.66   130027............   00.8922   16.96   140064............   01.2366   15.63
110003............   01.3085   12.29   110087............   01.2659   18.36   110183............   01.4004   18.69   130028............   01.2052   15.05   140065............   01.4654   23.04
110004............   01.2453   16.00   110088............   01.0863   10.58   110184............   01.1402   17.71   130029............   01.0312   15.58   140066............   01.2979   13.08
110005............   01.2307   17.68   110089............   01.1961   14.54   110185............   01.1390   12.05   130030............   01.0209   14.67   140067............   01.8106   17.15
110006............   01.3275   17.10   110091............   01.3517   17.32   110186............   01.2511   15.58   130031............   01.0486   11.89   140068............   01.3772   17.79
110007............   01.4301   15.73   110092............   01.0992   12.26   110187............   01.1357   17.43   130034............   01.0508   14.58   140069............   01.0914   14.27
110008............   01.1769   14.50   110093............   00.9452   09.30   110188............   01.4760   17.46   130035............   00.9454   13.51   140070............   01.3464   15.36
110009............   01.0443   15.28   110094............   01.0216   11.93   110189............   01.2039   18.59   130036............   01.2470   09.19   140074............   01.0354   15.11
110010............   02.0526   23.06   110095............   01.2630   12.81   110190............   01.1387   13.01   130037............   01.1733   15.01   140075............   01.4482   17.74
110011............   01.2551   15.54   110096............   01.0913   12.34   110191............   01.3062   17.97   130043............   01.0364   14.00   140077............   01.1222   14.95
110013............   01.1134   13.82   110097............   01.0512   14.03   110192............   01.3434   20.20   130044............   01.0674   10.65   140079............   01.2611   20.63
110014............   01.0738   13.26   110098............   01.0322   12.30   110193............   01.1627   15.60   130045............   01.0030   12.30   140080............   01.6786   18.56
110015............   01.2788   16.72   110100............   01.0601   11.30   110194............   00.9472   12.58   130048............   01.0330   10.31   140081............   01.1023   12.45
110016............   01.2194   14.43   110101............   01.0740   10.28   110195............   01.1321   10.00   130049............   01.2151   16.73   140082............   01.5490   20.34
110017............   00.9514   11.20   110103............   00.9390   09.39   110198............   01.3765   22.76   130054............   00.9330   18.69   140083............   01.2899   15.67
110018............   01.1881   15.66   110104............   01.1922   12.01   110200............   01.9396   15.32   130056............   00.9020   09.97   140084............   01.2165   18.03
110020............   01.2051   17.27   110105............   01.0766   14.09   110201............   01.3759   16.18   130058............   01.0275   13.32   140086............   01.1518   11.92
110023............   01.2964   16.89   110107............   01.7532   17.13   110203............   00.9931   15.24   130060............   01.2292   17.97   140087............   01.2902   17.36
110024............   01.4085   16.46   110108............   01.0779   10.44   110204............   00.7983   16.64   140001............   01.2446   14.00   140088............   01.5977   23.06
110025............   01.4202   15.36   110109............   01.1110   13.54   110205............   01.0713   13.28   140002............   01.3090   16.16   140089............   01.2351   15.16
110026............   01.1955   13.12   110111............   01.1008   13.66   110207............   01.0576   13.48   140003............   01.0231   12.69   140090............   01.4626   24.80
110027............   01.0801   14.33   110112............   00.9810   15.61   110208............   00.9109   12.52   140004............   01.0152   14.64   140091............   01.7797   16.35
110028............   01.6087   17.60   110113............   01.0754   12.69   110209............   00.9130  .......  140005............   00.9445   09.86   140093............   01.1615   15.98
110029............   01.3243   17.70   110114............   01.1082   13.17   110210............   01.0869  .......  140007............   01.4546   20.34   140094............   01.2618   17.89
110030............   01.2231   17.52   110115............   01.6517   18.21   120001............   01.7122   23.07   140008............   01.4279   20.25   140095............   01.5124   18.79
110031............   01.3455   20.47   110118............   01.0138   11.40   120002............   01.2031   17.55   140010............   01.3181   21.78   140097............   00.9517   12.93
110032............   01.2138   14.40   110120............   01.1050   11.39   120003............   01.1117   21.38   140011............   01.0968   13.89   140098............   01.6019   18.91
110033............   01.4241   20.02   110121............   01.1562   12.05   120004............   01.2411   19.86   140012............   01.2725   15.85   140100............   01.3360   17.74
110034............   01.5155   15.82   110122............   01.2984   15.88   120005............   01.2737   18.43   140013............   01.6368   15.47   140101............   01.1394   17.56
110035............   01.3200   18.11   110124............   01.0454   14.58   120006............   01.1713   22.51   140014............   01.1626   15.87   140102............   01.0394   13.57
110036............   01.6154   18.45   110125............   01.2007   15.34   120007............   01.6238   19.33   140015............   01.2858   13.12   140103............   01.3496   17.19
110037............   01.0626   09.72   110127............   00.9893   12.30   120009............   01.0106   18.94   140016............   00.9209   10.97   140105............   01.2716   19.12
110038............   01.4567   14.12   110128............   01.1836   17.25   120010............   01.8065   21.30   140018............   01.3546   18.18   140107............   01.0636   11.30
110039............   01.3732   17.07   110129............   01.6398   12.75   120011............   01.2612   28.18   140019............   00.9450   12.11   140108............   01.3514   20.09
110040............   01.0515   15.13   110130............   01.0589   09.58   120012............   00.9554   19.45   140024............   01.0061   13.82   140109............   01.0897   12.38
110041............   01.2778   13.87   110132............   01.1404   12.55   120014............   01.2507   20.16   140025............   01.0811   15.57   140110............   01.2892   15.34
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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 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
140112............   01.0965   13.56   140202............   01.3426   19.33   150022............   01.0980   17.53   150101............   01.1104   15.07   160048............   01.1233   11.75
140113............   01.4687   17.23   140203............   01.1739   17.40   150023............   01.4769   16.92   150102............   01.0650   13.94   160049............   00.9284   11.56
140114............   01.3274   17.70   140205............   00.9214   13.44   150024............   01.3035   15.60   150103............   01.0279   15.64   160050............   01.0311   13.62
140115............   01.2848   16.57   140206............   00.9779   18.13   150025............   01.4971   17.14   150104............   01.1084   14.82   160051............   01.1187   14.21
140116............   01.2435   17.79   140207............   01.3688   19.80   150026............   01.1675   16.48   150105............   01.3107   15.63   160052............   01.0489   12.86
140117............   01.4090   16.72   140208............   01.5927   22.03   150027............   01.0157   15.66   150106............   01.0815   15.53   160054............   00.9694   11.05
140118............   01.6957   21.24   140209............   01.7149   16.20   150029............   01.2769   17.73   150109............   01.4210   14.54   160055............   01.0271   12.02
140119............   01.6578   20.94   140210............   01.0283   11.46   150030............   01.0675   15.26   150110............   00.9954   14.35   160056............   01.0362   12.73
140120............   01.4814   14.18   140211............   01.1928   18.69   150031............   01.0304   13.82   150111............   01.2159   13.31   160057............   01.3290   14.53
140121............   01.4762   10.01   140212............   01.1562   21.62   150032............   01.8129   18.37   150112............   01.2079   16.65   160058............   01.6641   17.91
140122............   01.5373   20.90   140213............   01.2707   21.23   150033............   01.5682   18.86   150113............   01.1647   16.07   160060............   01.0516   13.01
140124............   01.1333   21.99   140215............   01.1481   13.29   150034............   01.3594   18.13   150114............   01.0006   12.64   160061............   01.0052   12.04
140125............   01.3141   14.30   140217............   01.2000   20.19   150035............   01.4091   17.89   150115............   01.3358   16.31   160062............   01.0359   11.11
140127............   01.3094   16.12   140218............   00.9759   13.27   150036............   01.0182   16.72   150122............   01.1316   16.92   160063............   01.1735   12.72
140128............   01.0912   15.47   140220............   01.1237   14.02   150037............   01.2532   16.88   150123............   01.2559   13.21   160064............   01.5804   16.66
140129............   01.0377   13.55   140223............   01.5250   21.42   150038............   01.3406   15.77   150124............   01.1502   14.29   160065............   01.0796   13.11
140130............   01.1725   19.93   140224............   01.3763   20.01   150039............   00.9542   14.21   150125............   01.3991   17.70   160066............   01.1325   13.51
140132............   01.4217   18.36   140228............   01.5757   16.72   150042............   01.2377   14.39   150126............   01.5033   18.93   160067............   01.4111   15.81
140133............   01.3843   19.25   140230............   00.9812   14.89   150043............   01.0398   18.18   150127............   01.1534   12.34   160068............   00.9913   13.55
140135............   01.2412   13.86   140231............   01.5483   19.72   150044............   01.2436   17.15   150128............   01.2294   17.33   160069............   01.3977   15.53
140137............   01.0158   13.42   140233............   01.7552   15.55   150045............   01.1638   15.56   150129............   01.1748   19.71   160070............   00.9804   13.02
140138............   00.9707   11.80   140234............   01.1921   15.04   150046............   01.4977   16.06   150130............   01.0588   13.99   160072............   01.0797   12.24
140139............   01.0718   13.33   140236............   00.9891   11.86   150047............   01.6539   17.32   150132............   01.3503   18.09   160073............   00.9651   10.93
140140............   01.1676   12.45   140239............   01.5695   17.90   150048............   01.1741   15.68   150133............   01.1933   15.64   160074............   00.9967   12.64
140141............   00.9239   12.09   140240............   01.4712   21.75   150049............   01.1587   12.40   150134............   01.2884   15.24   160075............   01.0724   13.49
140143............   01.1190   15.80   140242............   01.5193   20.44   150050............   01.1485   14.30   150136............   00.9179   18.60   160076............   01.0566   15.24
140144............   01.0202   13.85   140245............   01.1141   12.96   150051............   01.2735   15.96   150137............   03.1313  .......  160077............   01.2005   10.22
140145............   01.1235   15.06   140246............   01.0607   11.58   150052............   01.1241   11.23   150138............   01.1910  .......  160079............   01.4063   15.08
140146............   00.9399   14.65   140250............   01.2721   21.19   150053............   01.0216   15.93   150140............   02.4842  .......  160080............   01.2127   15.51
140147............   01.1689   13.02   140251............   01.3111   17.14   150054............   01.1266   13.30   150141............   00.9198  .......  160081............   01.0831   13.91
140148............   01.7026   16.79   140252............   01.4481   21.67   150056............   01.6530   19.66   150897............   05.1218  .......  160082............   01.6924   16.88
140150............   01.5334   22.42   140253............   01.4610   14.43   150057............   02.4338   14.55   160001............   01.2439   16.04   160083............   01.5064   16.82
140151............   01.1688   16.06   140258............   01.5165   20.74   150058............   01.6757   17.54   160002............   01.2061   12.61   160085............   01.0754   11.90
140152............   01.0932   21.14   140271............   01.0467   13.77   150059............   01.3249   18.15   160003............   01.0308   12.40   160086............   00.9602   12.15
140155............   01.2094   16.91   140275............   01.2155   15.26   150060............   01.1564   15.01   160005............   01.0538   12.42   160088............   01.0433   13.89
140158............   01.3335   20.44   140276............   01.9959   19.03   150061............   01.2447   14.90   160007............   01.0184   12.24   160089............   01.2073   13.54
140160............   01.2063   14.61   140280............   01.2762   16.62   150062............   01.0233   14.82   160008............   01.1335   14.26   160090............   01.0580   14.34
140161............   01.1250   16.18   140281............   01.5943   19.85   150063............   01.0873   19.83   160009............   01.2106   13.13   160091............   01.1695   10.55
140162............   01.6805   17.28   140285............   01.2309   14.65   150064............   01.0346   16.55   160012............   01.1292   13.88   160092............   00.9649   12.70
140164............   01.2497   15.27   140286............   01.0922   16.58   150065............   01.0989   16.08   160013............   01.2580   14.28   160093............   01.1424   12.92
140165............   01.0894   12.83   140288............   01.6787   21.28   150066............   00.9891   13.07   160014............   00.9703   12.72   160094............   01.2097   14.65
140166............   01.2670   15.81   140289............   01.2885   14.43   150067............   01.0729   13.96   160016............   01.2622   15.22   160095............   01.0123   15.81
140167............   01.1570   13.88   140290............   01.3203   19.56   150069............   01.2194   16.18   160018............   00.9108   12.92   160097............   01.1814   13.10
140168............   01.2012   14.64   140291............   01.3419   22.01   150070............   01.0530   14.00   160020............   01.0625   11.57   160098............   01.0188   12.41
140170............   01.1306   11.77   140292............   01.1778   18.63   150071............   01.2019   11.71   160021............   01.0819   14.23   160099............   00.9949   11.94
140171............   00.8944   10.42   140294............   01.1511   15.03   150072............   01.1576   15.53   160023............   01.0941   13.47   160101............   01.1236   17.13
140172............   01.5026   17.11   140297............   01.1950   21.49   150073............   00.9918   17.12   160024............   01.5923   16.25   160102............   01.3050   15.06
140173............   00.9836   12.88   140300............   01.0367  .......  150074............   01.5594   18.05   160025............   01.7778   15.89   160103............   00.9911   12.23
140174............   01.4124   17.67   150001............   01.0972   16.90   150075............   01.1754   13.29   160026............   01.1442   14.15   160104............   01.1581   16.70
140176............   01.2493   19.10   150002............   01.4373   17.08   150076............   01.0745   16.60   160027............   01.1974   12.61   160106............   01.0904   13.40
140177............   01.2799   15.29   150003............   01.7331   16.59   150077............   01.3123   15.22   160028............   01.3029   17.45   160107............   01.1461   14.31
140179............   01.3034   18.61   150004............   01.4468   18.37   150078............   01.0196   18.19   160029............   01.4799   16.57   160108............   01.1020   13.59
140180............   01.4730   20.05   150005............   01.2178   16.87   150079............   01.2034   13.37   160030............   01.2650   15.65   160109............   00.9338   11.85
140181............   01.3412   17.28   150006............   01.1904   15.77   150082............   01.4896   16.98   160031............   01.1968   12.60   160110............   01.5430   17.18
140182............   01.3058   19.45   150007............   01.2625   17.48   150084............   01.8655   21.52   160032............   01.1969   14.22   160111............   00.9992   10.53
140184............   01.1675   13.87   150008............   01.3341   18.07   150086............   01.2770   15.03   160033............   01.5017   15.45   160112............   01.4460   14.36
140185............   01.4725   15.34   150009............   01.2833   16.85   150088............   01.1849   16.25   160034............   01.0027   13.04   160113............   01.0071   11.13
140186............   01.2813   17.46   150010............   01.1806   16.38   150089............   01.3686   17.27   160035............   00.9960   11.50   160114............   01.0526   13.89
140187............   01.4143   15.70   150011............   01.2160   15.65   150090............   01.2297   17.84   160036............   01.0488   13.58   160115............   00.9897   12.83
140188............   00.9687   10.93   150012............   01.6434   18.77   150091............   01.0696   15.33   160037............   01.1651   14.19   160116............   01.1879   14.80
140189............   01.1508   15.87   150013............   01.1117   12.68   150092............   01.0246   12.84   160039............   01.0370   14.71   160117............   01.2924   14.70
140190............   01.1530   13.53   150014............   01.4271   18.85   150094............   01.0291   16.14   160040............   01.3268   15.44   160118............   01.0051   11.77
140191............   01.4154   20.56   150015............   01.2677   16.77   150095............   01.0866   15.17   160041............   01.0084   12.61   160120............   00.9931   09.44
140192............   01.1322   16.11   150017............   01.7977   15.68   150096............   01.0528   17.76   160043............   01.0207   13.56   160122............   01.1748   14.31
140193............   01.0104   11.79   150018............   01.2591   16.65   150097............   01.0892   16.38   160044............   01.1698   12.51   160123............   01.1808   14.15
140197............   01.3690   16.76   150019............   01.0382   13.59   150098............   01.1575   11.86   160045............   01.6667   16.35   160124............   01.2394   14.80
140199............   01.0260   14.73   150020............   01.1643   12.34   150099............   01.2997   16.16   160046............   01.0636   11.86   160126............   01.0838   16.15
140200............   01.4494   20.10   150021............   01.6412   17.52   150100............   01.6382   17.23   160047............   01.3421   15.29   160129............   01.0127   12.82
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[[Page 45872]]
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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 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
160130............   01.0625   12.49   170067............   00.9103   11.65   170160............   01.0407   11.13   180067............   01.9277   15.27   190034............   01.1602   14.41
160131............   01.1371   12.28   170068............   01.3094   14.11   170164............   00.9906   13.92   180069............   01.0350   15.39   190035............   01.4469   17.61
160133............   01.1892   17.39   170069............   01.1645   13.12   170166............   01.1623   13.71   180070............   01.0759   13.59   190036............   01.6233   18.08
160134............   01.0327   12.24   170070............   01.0065   12.24   170168............   00.8805   10.83   180072............   00.9953   14.39   190037............   01.0251   10.21
160135............   00.9953   10.69   170072............   00.9187   10.54   170171............   01.0870   10.44   180075............   00.9673   12.29   190039............   01.4452   17.58
160138............   01.1205   12.71   170073............   01.0171   12.99   170172............   00.9598   12.70   180078............   01.0960   16.85   190040............   01.3872   17.91
160140............   01.0812   14.30   170074............   01.1095   12.85   170174............   01.0175   10.87   180079............   01.2252   13.16   190041............   01.4886   16.84
160142............   01.0411   13.08   170075............   00.8614   10.41   170175............   01.2756   17.46   180080............   01.0560   13.90   190043............   01.0919   12.42
160143............   01.0401   12.58   170076............   01.0513   10.87   170176............   01.5076   19.27   180085............   01.2867   16.89   190044............   01.1587   17.86
160145............   01.1178   11.55   170077............   00.9750   10.85   170181............   01.1767  .......  180087............   01.0977   13.07   190045............   01.3452   18.67
160146............   01.3788   14.96   170079............   01.0894   10.45   180001............   01.2221   15.86   180088............   01.6293   18.09   190046............   01.4675   16.26
160147............   01.2215   14.07   170080............   00.9829   11.16   180002............   01.0469   16.25   180092............   01.0862   13.78   190047............   01.0592   16.48
160151............   01.0912   13.10   170081............   00.9978   10.32   180004............   01.1119   13.38   180093............   01.3382   14.08   190048............   01.0642   13.69
160152............   00.9447   12.41   170082............   00.9942   10.30   180005............   01.0618   17.26   180094............   00.9419   11.42   190049............   01.0172   13.95
160153............   01.7242   16.90   170084............   00.9622   10.65   180006............   00.9274   08.63   180095............   01.1899   12.50   190050............   01.0694   13.14
170001............   01.2131   14.88   170085............   00.8999   11.95   180007............   01.3845   14.33   180099............   01.2077   10.89   190053............   01.0354   12.25
170004............   01.0693   12.69   170086............   01.6679   17.55   180009............   01.3240   16.50   180101............   01.3186   18.68   190054............   01.3615   13.23
170006............   01.2010   15.19   170087............   01.4303   18.81   180010............   01.8396   16.23   180102............   01.4368   14.54   190059............   00.9426   13.39
170008............   00.9801   12.92   170088............   00.8977   09.76   180011............   01.1454   15.42   180103............   02.0493   17.52   190060............   01.4785   15.16
170009............   01.1155   17.18   170089............   01.0612   12.95   180012............   01.3085   16.85   180104............   01.4735   15.55   190064............   01.4974   16.92
170010............   01.1763   14.08   170090............   01.0082   09.95   180013............   01.4626   15.12   180105............   00.9012   12.43   190065............   01.4931   17.04
170011............   01.3537   14.19   170092............   00.8129   11.15   180014............   01.5910   17.73   180106............   00.9012   11.83   190071............   00.8498   11.85
170012............   01.4645   15.64   170093............   00.8838   11.10   180015............   01.1845   14.35   180108............   00.8747   12.16   190075............   01.4543   18.92
170013............   01.3540   13.97   170094............   01.0632   13.44   180016............   01.2633   14.75   180115............   00.9720   14.02   190077............   00.9541   11.73
170014............   01.0794   14.53   170095............   01.1095   13.17   180017............   01.2913   13.27   180116............   01.3169   15.01   190078............   01.1817   11.43
170015............   00.9806   13.60   170097............   00.9789   10.48   180018............   01.1740   13.63   180117............   01.2367   15.41   190079............   01.2300   14.73
170016............   01.6091   19.51   170098............   01.0225   15.18   180019............   01.3293   16.80   180118............   01.0391   11.92   190081............   00.9047   08.99
170017............   01.1922   15.10   170099............   01.3189   10.77   180020............   01.0556   15.49   180120............   00.9822   12.26   190083............   00.9672   11.08
170018............   01.0161   11.92   170100............   01.0247   13.48   180021............   01.1618   12.98   180121............   01.0719   12.71   190086............   01.3024   14.53
170019............   01.1399   14.63   170101............   00.9913   13.45   180023............   00.8798   10.99   180122............   01.0623   12.63   190088............   01.2370   16.36
170020............   01.3110   14.68   170102............   00.9680   12.36   180024............   01.2590   15.48   180123............   01.4446   17.30   190089............   01.0711   09.26
170022............   01.1413   13.47   170103............   01.2817   14.83   180025............   01.1179   15.19   180124............   01.4142   15.91   190090............   01.1668   14.43
170023............   01.3799   15.56   170104............   01.4279   19.34   180026............   01.1606   11.76   180125............   00.9599   15.97   190092............   01.2573   12.24
170024............   01.2165   11.95   170105............   00.9750   13.23   180027............   01.2141   14.17   180126............   01.2179   11.31   190095............   01.0284   13.52
170025............   01.3789   14.29   170106............   00.8751   12.19   180028............   00.9833   16.46   180127............   01.2600   16.63   190098............   01.5166   17.10
170026............   01.0526   13.40   170108............   00.9812   10.51   180029............   01.2220   15.43   180128............   01.1607   13.00   190099............   01.1300   17.03
170027............   01.2573   14.72   170109............   01.0068   13.96   180030............   01.1336   09.54   180129............   01.0456   15.03   190102............   01.5245   15.33
170030............   01.0235   13.67   170110............   00.9179   15.29   180031............   00.9296   12.11   180130............   01.4167   17.27   190103............   00.8384   09.39
170031............   00.9325   11.65   170112............   00.9238   12.74   180032............   01.0559   15.53   180132............   01.1821   14.40   190106............   01.1220   15.42
170032............   01.1074   13.49   170113............   01.1925   13.04   180033............   01.1073   12.13   180133............   01.2386   17.31   190109............   01.2162   14.04
170033............   01.2882   14.68   170114............   01.0133   12.48   180034............   00.9890   14.93   180134............   00.9786   12.39   190110............   01.0315   11.76
170034............   00.9131   13.26   170115............   01.0216   10.73   180035............   01.4971   16.92   180136............   01.4161   16.84   190111............   01.5568   17.17
170035............   00.8750   12.11   170116............   01.0387   13.57   180036............   01.1477   16.65   180137............   01.6839   17.08   190112............   01.4902   17.35
170036............   00.8821   11.44   170117............   00.9050   12.83   180037............   01.2434   19.20   180138............   01.1826   16.52   190113............   01.3396   17.08
170037............   01.1169   15.23   170119............   00.9649   10.20   180038............   01.3562   14.14   180139............   01.1051   15.33   190114............   00.9851   12.28
170038............   00.9551   11.29   170120............   01.3299   14.75   180040............   01.9301   19.09   190001............   00.9644   16.01   190115............   01.2542   17.60
170039............   01.0968   12.22   170121............   00.9411   11.71   180041............   01.0478   13.28   190002............   01.6374   18.16   190116............   01.2858   13.30
170040............   01.4401   16.25   170122............   01.8098   18.62   180042............   01.1672   12.00   190003............   01.4074   18.23   190118............   01.0092   12.00
170041............   01.0143   11.04   170123............   01.7901   18.27   180043............   01.0935   15.39   190004............   01.3544   14.02   190120............   01.0309   13.37
170043............   01.0640   12.94   170124............   00.9830   12.46   180044............   01.0544   13.83   190005............   01.5020   15.78   190122............   01.2919   13.38
170044............   01.1084   14.61   170126............   00.9847   10.58   180045............   01.2217   16.28   190006............   01.2258   13.74   190124............   01.4639   18.66
170045............   00.9976   12.44   170128............   00.9854   13.53   180046............   01.0915   16.36   190007............   01.0434   12.27   190125............   01.4620   15.18
170049............   01.3162   17.80   170131............   01.1350   09.38   180047............   01.0650   13.71   190008............   01.6475   16.82   190127............   01.4558   19.90
170050............   01.0199   10.54   170133............   01.1703   14.32   180048............   01.1869   15.40   190009............   01.1425   13.81   190128............   01.0642   16.60
170051............   00.9951   12.83   170134............   00.9502   12.07   180049............   01.3278   14.26   190010............   01.1244   13.57   190130............   01.0520   11.86
170052............   01.1045   12.81   170137............   01.1506   16.18   180050............   01.2987   15.06   190011............   01.1585   13.25   190131............   01.2964   14.32
170053............   00.8956   11.99   170139............   01.0518   11.91   180051............   01.3456   13.60   190013............   01.3692   15.51   190133............   01.0540   10.90
170054............   01.0671   12.27   170140............   01.0645   11.61   180053............   01.2163   13.52   190014............   01.0595   13.49   190134............   00.9924   11.85
170055............   01.1158   14.16   170142............   01.2551   15.60   180054............   01.0523   12.43   190015............   01.2040   16.70   190135............   01.4554   20.08
170056............   00.9899   10.07   170143............   01.1521   13.23   180055............   01.1054   13.29   190017............   01.2604   14.98   190136............   01.1399   12.08
170057............   01.0076   14.13   170144............   01.6074   14.82   180056............   01.0784   15.70   190018............   01.2232   15.07   190138............   00.7376   18.82
170058............   01.1368   16.33   170145............   01.1826   13.74   180058............   00.9120   12.01   190019............   01.4599   15.79   190140............   00.9870   11.41
170060............   01.0095   12.67   170146............   01.3553   17.87   180059............   00.8790   11.19   190020............   01.1434   16.43   190142............   00.9693   13.12
170061............   01.2333   11.89   170147............   01.1927   17.94   180060............   00.9768   11.01   190025............   01.2407   12.09   190144............   01.1976   14.30
170062............   00.9532   11.22   170148............   01.4374   17.40   180063............   01.0505   09.44   190026............   01.4204   14.85   190145............   00.9489   13.28
170063............   00.9660   09.03   170150............   01.1431   14.56   180064............   01.2302   12.70   190027............   01.4175   15.44   190146............   01.5725   17.87
170064............   00.9331   11.28   170151............   01.0535   11.47   180065............   01.0596   09.61   190029............   01.1868   15.59   190147............   00.9619   12.68
170066............   00.9185   11.39   170152............   00.9490   13.46   180066............   01.2304   17.26   190033............   00.8818   09.88   190148............   00.9425   11.65
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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 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
190149............   00.9929   10.60   200021............   01.1487   17.17   210055............   01.2113   26.02   220090............   01.1993   20.51   230058............   01.1252   15.97
190151............   01.0876   11.14   200023............   00.8912   15.25   210056............   01.4275   15.73   220092............   01.2503   20.92   230059............   01.4661   18.12
190152............   01.4102   19.90   200024............   01.2557   18.55   210057............   01.3256   22.58   220094............   01.2099   18.76   230060............   01.3317   16.27
190155............   00.9849   14.75   200025............   01.1783   18.48   210058............   01.7447   17.53   220095............   01.2315   17.94   230062............   01.1130   14.71
190156............   00.8862   11.37   200026............   01.0457   15.56   210059............   01.3134   21.97   220097............   01.1025   19.24   230063............   01.3458   17.81
190158............   01.3048   20.92   200027............   01.2207   15.52   210060............   01.0967   21.07   220098............   01.2361   17.34   230065............   01.4526   18.13
190160............   01.2539   14.82   200028............   00.9634   15.57   210061............   01.0430  .......  220099............   01.1392   16.77   230066............   01.3152   18.55
190161............   01.0117   13.12   200031............   01.2310   14.32   220001............   01.1976   20.13   220100............   01.2219   21.66   230068............   01.4296   20.00
190162............   01.2364   21.67   200032............   01.2057   17.73   220002............   01.5483   21.50   220101............   01.4460   23.37   230069............   01.1205   18.20
190164............   01.0920   16.49   200033............   01.6964   19.02   220003............   01.0701   16.57   220104............   01.2209   22.59   230070............   01.4620   18.67
190166............   01.0211   13.69   200034............   01.2233   16.82   220004............   01.1907   19.23   220105............   01.1869   21.38   230071............   00.8421   20.02
190167............   01.2466   17.25   200037............   01.1715   15.27   220006............   01.3611   20.97   220106............   01.2377   21.02   230072............   01.2440   17.55
190170............   00.9827   12.41   200038............   01.0836   17.59   220008............   01.2043   18.57   220107............   01.1978   18.62   230075............   01.5034   18.69
190173............   01.4630   20.83   200039............   01.2581   16.94   220010............   01.2376   20.19   220108............   01.1328   20.00   230076............   01.3257   18.86
190175............   01.4110  .......  200040............   01.0808   15.62   220011............   01.1200   28.03   220110............   02.0106   29.37   230077............   02.0001   18.35
190176............   01.6417   17.06   200041............   01.1404   16.98   220012............   01.3024   26.53   220111............   01.2194   19.33   230078............   01.2068   14.77
190177............   01.6197   20.78   200043............   00.6087   16.71   220015............   01.1897   19.96   220114............   01.4568   18.43   230080............   01.1882   18.22
190178............   00.9582   10.79   200050............   01.1492   15.77   220016............   01.2459   19.14   220116............   01.8553   23.87   230081............   01.1626   16.37
190182............   00.9566   20.15   200051............   00.9912   17.33   220017............   01.3072   23.11   220118............   02.0244   25.34   230082............   01.1171   14.65
190183............   01.1614   12.24   200052............   01.0230   13.59   220019............   01.1584   18.25   220119............   01.3055   23.40   230085............   01.0995   16.38
190184............   01.0158   11.69   200055............   01.0929   15.03   220020............   01.1232   17.89   220120............   01.2446   18.85   230086............   01.0390   14.27
190185............   01.2193   19.21   200062............   00.9693   14.32   220021............   01.3770   22.08   220123............   00.9948   22.88   230087............   01.0361   13.82
190186............   00.9482   12.11   200063............   01.1759   16.86   220023............   01.1947   18.44   220126............   01.2639   17.78   230089............   01.3695   21.88
190187............   00.9318   12.65   200066............   01.2341   14.87   220024............   01.1843   18.45   220128............   01.1216   22.23   230092............   01.2787   17.42
190189............   00.7764   16.06   210001............   01.3646   17.18   220025............   01.1360   17.91   220133............   00.8589   28.96   230093............   01.2534   18.00
190190............   01.0161   18.85   210002............   02.0515   16.27   220028............   01.4387   20.23   220135............   01.1607   22.89   230095............   01.1863   15.62
190191............   01.2715   20.41   210003............   01.5173   26.44   220029............   01.1282   21.86   220153............   00.9800   17.41   230096............   01.1620   18.32
190193............   01.2707   19.19   210004............   01.3041   24.62   220030............   01.0843   15.28   220154............   00.9489   19.60   230097............   01.5679   17.19
190194............   01.1518   18.53   210005............   01.1988   18.75   220031............   01.6928   25.43   220156............   01.3161   19.38   230099............   01.2435   18.35
190196............   00.8489   16.88   210006............   01.0805   16.17   220033............   01.3632   19.43   220162............   01.4775  .......  230100............   01.2387   14.49
190197............   01.2858   17.69   210007............   01.5575   19.41   220035............   01.2434   20.33   220163............   01.9504   22.98   230101............   01.0969   15.97
190199............   01.3781   12.37   210008............   01.3734   19.80   220036............   01.6474   21.93   220171............   01.7211   22.19   230102............   00.7834  ......
190200............   01.5574   18.93   210009............   01.7273   18.18   220038............   01.3326   20.40   220897............   04.8013  .......  230103............   01.0500   16.10
190201............   01.2697   17.92   210010............   01.2191   15.74   220041............   01.1978   20.15   230001............   01.2107   15.09   230104............   01.6245   19.92
190202............   01.5201   18.78   210011............   01.2655   19.58   220042............   01.2521   22.65   230002............   01.2674   18.51   230105............   01.5944   18.07
190203............   01.5031   19.57   210012............   01.5475   20.57   220046............   01.4143   21.28   230003............   01.1446   17.63   230106............   01.1545   16.99
190204............   01.4792   20.13   210013............   01.2654   20.26   220049............   01.2639   21.92   230004............   01.6481   20.75   230107............   00.8769   11.85
190205............   01.8112   16.91   210015............   01.1746   18.47   220050............   01.0680   16.72   230005............   01.2896   17.44   230108............   01.2212   15.90
190206............   01.4616   20.80   210016............   01.7430   19.90   220051............   01.2295   20.11   230006............   01.1046   15.62   230110............   01.2393   16.49
190207............   01.1994   18.41   210017............   01.1089   15.93   220052............   01.2703   23.12   230007............   01.0047   16.93   230111............   01.0595   14.14
190208............   00.8324   09.96   210018............   01.2700   20.00   220053............   01.2871   19.36   230012............   00.6001   12.54   230113............   00.9922   17.34
190211............   00.6056   11.52   210019............   01.3205   16.54   220055............   01.3639   19.25   230013............   01.3303   19.57   230114............   00.6287   20.38
190212............   00.7321   12.23   210022............   01.4198   19.43   220057............   01.3603   22.51   230015............   01.1594   18.65   230115............   00.9767   14.41
190216............   00.6297   18.37   210023............   01.3483   19.46   220058............   01.0610   18.83   230017............   01.5654   20.01   230116............   00.9194   14.42
190217............   00.9191  .......  210024............   01.3754   17.35   220060............   01.1489   23.11   230019............   01.4946   20.56   230117............   01.8754   22.68
190218............   01.0516  .......  210025............   01.3202   17.00   220062............   00.6790   18.68   230020............   01.6382   19.60   230118............   01.2164   15.76
190223............   00.5207  .......  210026............   01.3603   22.97   220063............   01.2217   18.81   230021............   01.5867   16.12   230119............   01.3453   22.01
190226............   00.8135  .......  210027............   01.2333   15.59   220064............   01.1869   20.35   230022............   01.3133   16.98   230120............   01.1522   23.67
190227............   00.8873  .......  210028............   01.2118   16.10   220065............   01.1891   19.93   230024............   01.4936   23.87   230121............   01.3023   18.60
190229............   02.4642  .......  210029............   01.3271   17.21   220066............   01.3085   18.74   230027............   01.1037   14.80   230122............   01.3015   17.81
190230............   00.8400  .......  210030............   01.0685   18.36   220067............   01.2643   22.39   230029............   01.5937   20.50   230124............   01.1111   16.69
190231............   01.1981  .......  210031............   01.6197   17.91   220068............   00.5785   15.96   230030............   01.2668   16.14   230125............   01.3058   13.25
190232............   01.7205  .......  210032............   01.1992   18.14   220070............   01.2733   17.86   230031............   01.4708   18.10   230128............   01.4402   19.92
200001............   01.2566   14.52   210033............   01.1728   17.70   220071............   01.8242   24.13   230032............   01.7439   18.41   230129............   01.9293   19.58
200002............   01.0559   16.63   210034............   01.3497   19.13   220073............   01.3852   23.80   230034............   01.1872   15.14   230130............   01.6340   21.89
200003............   01.1171   15.66   210035............   01.2142   20.18   220074............   01.2794   20.97   230035............   01.1903   16.81   230132............   01.4283   21.06
200006............   01.1701   15.38   210037............   01.2548   15.17   220075............   01.2079   18.15   230036............   01.2920   18.69   230133............   01.2463   14.88
200007............   00.9811   14.93   210038............   01.4342   19.79   220076............   01.1689   21.63   230037............   01.1725   16.35   230134............   01.1369   16.43
200008............   01.2424   18.02   210039............   01.1532   15.16   220077............   01.6349   21.71   230038............   01.6738   20.24   230135............   01.2139   19.52
200009............   01.7323   19.47   210040............   01.3767   19.85   220079............   01.0974   20.24   230040............   01.2196   17.05   230137............   01.1843   17.53
200012............   01.1162   15.58   210043............   01.2576   20.43   220080............   01.2793   17.64   230041............   01.1727   17.55   230141............   01.6069   20.25
200013............   01.1207   14.58   210044............   01.2302   20.56   220081............   01.0455   21.45   230042............   01.1831   18.66   230142............   01.1826   19.33
200015............   01.2633   16.46   210045............   00.9736   11.99   220082............   01.2554   17.24   230046............   01.7722   25.27   230143............   01.2154   15.80
200016............   01.0159   16.05   210046............   01.1333   12.11   220083............   01.1952   19.46   230047............   01.2937   19.18   230144............   01.1448   20.99
200017............   01.2461   17.38   210048............   01.2058   21.96   220084............   01.2206   23.28   230053............   01.5048   23.90   230145............   01.1262   14.78
200018............   01.1752   14.04   210049............   01.1165   16.76   220086............   01.5367   24.89   230054............   01.7859   18.80   230146............   01.2901   19.28
200019............   01.2513   17.59   210051............   01.3824   13.41   220088............   01.5488   21.94   230055............   01.1569   16.59   230147............   01.5230   19.33
200020............   01.1539   19.52   210054............   01.2555   19.16   220089............   01.2981   23.19   230056............   00.9682   13.06   230149............   01.2085   14.21
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[[Page 45874]]
                                                                                          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 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
230151............   01.3233   19.88   240002............   01.6725   19.53   240090............   01.0732   13.12   240193............   01.0606   14.44   250081............   01.2292   14.24
230153............   01.0349   14.92   240003............   01.1479   23.37   240091............   01.0937   10.92   240196............   00.6031   18.69   250082............   01.2324   12.01
230154............   00.9714   12.93   240004............   01.4625   19.26   240093............   01.3102   15.75   240200............   00.8656   12.36   250083............   01.0859   11.71
230155............   01.0761   13.24   240005............   00.8750   13.13   240094............   00.9900   16.21   240205............   00.9024  .......  250084............   01.1326   12.46
230156............   01.6534   21.08   240006............   01.0912   18.30   240096............   01.0972   15.05   240206............   00.8925  .......  250085............   01.0384   11.38
230157............   01.2631   18.67   240007............   01.1001   14.77   240097............   01.0203   16.73   240207............   01.2148   20.96   250088............   00.9623   14.19
230159............   01.3273   18.09   240008............   01.1026   13.42   240098............   00.9520   14.88   240210............   01.2573   21.49   250089............   01.1194   11.05
230161............   00.9933   12.75   240009............   01.0008   15.30   240099............   01.0626   11.12   240211............   00.9051   11.55   250093............   01.1480   12.10
230162............   00.9084   14.55   240010............   01.9591   20.03   240100............   01.2660   18.09   250001............   01.6028   15.00   250094............   01.2904   13.80
230165............   01.8106   20.30   240011............   01.1175   15.51   240101............   01.2004   16.22   250002............   00.7930   12.37   250095............   00.9758   12.64
230167............   01.2554   18.08   240013............   01.2838   15.46   240102............   00.9699   13.30   250003............   01.0075   12.86   250096............   01.2819   15.13
230169............   01.3305   20.76   240014............   01.0662   16.73   240103............   01.1370   14.12   250004............   01.4407   14.26   250097............   01.1086   13.52
230171............   01.0332   14.03   240016............   01.3937   14.72   240104............   01.1893   19.56   250005............   00.9885   09.59   250098............   00.8759   11.22
230172............   01.2727   22.25   240017............   01.1536   14.77   240105............   01.0763   13.71   250006............   00.9874   13.07   250099............   01.2391   11.86
230174............   01.2418   17.96   240018............   01.2886   15.31   240106............   01.2773   22.45   250007............   01.2429   16.54   250100............   01.2131   12.66
230175............   02.6753   14.23   240019............   01.2248   19.80   240107............   00.9785   13.40   250008............   00.9665   10.63   250101............   00.9434   09.57
230176............   01.2043   19.69   240020............   01.1723   17.23   240108............   00.9827   11.10   250009............   01.1540   12.76   250102............   01.4660   13.97
230178............   01.0119   14.97   240021............   00.9716   12.83   240109............   00.9555   13.75   250010............   01.0241   11.13   250104............   01.2793   14.47
230180............   01.1001   14.82   240022............   01.1386   16.66   240110............   00.9468   14.99   250012............   00.9571   14.17   250105............   00.8550   11.42
230184............   01.1705   16.11   240023............   01.0863   15.38   240111............   00.9794   12.94   250015............   01.0999   12.36   250107............   00.8983   13.99
230186............   01.3015   15.69   240025............   01.2377   13.94   240112............   01.0860   13.13   250017............   00.9522   12.98   250109............   00.9693   12.07
230188............   01.1288   15.61   240027............   01.0029   12.39   240114............   01.0045   10.23   250018............   00.9424   10.22   250112............   00.9521   12.65
230189............   00.9168   14.34   240028............   01.1422   15.53   240115............   01.6327   21.28   250019............   01.3283   16.89   250117............   01.0319   12.65
230190............   01.0148   20.60   240029............   01.2204   15.39   240116............   00.8833   12.64   250020............   00.9812   09.79   250119............   01.2539   11.54
230191............   00.9038   14.34   240030............   01.3116   16.01   240117............   01.0892   16.56   250021............   00.8899   07.83   250120............   01.0502   11.96
230193............   01.2146   16.81   240031............   00.9538   12.78   240119............   00.8532   16.27   250023............   00.8958   09.70   250122............   01.3088   14.29
230194............   01.1621   13.35   240036............   01.4871   18.61   240121............   00.8919   17.30   250024............   00.9704   08.93   250123............   01.4131   18.33
230195............   01.2654   21.05   240037............   01.0790   15.12   240122............   01.0333   16.04   250025............   01.1605   14.21   250124............   00.8930   11.34
230197............   01.2729   20.03   240038............   01.4674   21.40   240123............   01.0160   12.31   250027............   01.0442   10.04   250125............   01.3329   15.75
230199............   01.1844   16.77   240040............   01.2418   18.94   240124............   01.0500   15.19   250029............   00.8985   11.10   250126............   01.0024   12.25
230201............   01.0422   13.64   240041............   01.1943   14.12   240125............   00.9073   10.62   250030............   00.9668   11.80   250127............   00.7908  ......
230204............   01.3354   19.61   240043............   01.2025   16.03   240127............   00.9941   11.24   250031............   01.3816   17.69   250128............   00.9436   10.61
230205............   01.1139   15.36   240044............   01.1743   15.76   240128............   01.0878   13.49   250032............   01.2589   15.96   250131............   01.0283   09.45
230207............   01.2058   19.06   240045............   01.0584   16.81   240129............   00.9651   11.01   250033............   00.9355   12.59   250134............   00.9520   11.58
230208............   01.1852   14.67   240047............   01.4203   17.39   240130............   00.9793   14.34   250034............   01.4922   12.38   250136............   00.8671   16.62
230211............   00.9895   13.41   240048............   01.2660   20.88   240132............   01.2199   21.55   250035............   00.8666   12.03   250138............   01.3257   16.03
230212............   01.0473   19.14   240049............   01.6889   20.76   240133............   01.1223   15.52   250036............   00.9908   10.24   250140............   00.8057   09.41
230213............   01.0531   11.90   240050............   01.1268   17.74   240135............   00.9209   11.04   250037............   00.8841   08.83   250141............   01.2412   14.89
230216............   01.4062   14.96   240051............   00.9170   16.00   240137............   01.1889   14.43   250038............   00.9733   09.93   250144............   00.9467  ......
230217............   01.1401   17.17   240052............   01.2359   16.24   240138............   00.9656   11.55   250039............   01.0067   10.13   250145............   00.8829  ......
230219............   00.9667   12.74   240053............   01.5047   19.08   240139............   00.9549   14.97   250040............   01.3264   14.88   250146............   01.0100  ......
230221............   01.2982   18.57   240056............   01.2934   19.39   240141............   01.1105   19.61   250042............   01.1532   13.22   250148............   01.0637  ......
230222............   01.3345   17.89   240057............   01.7457   21.23   240142............   01.1063   14.42   250043............   00.8809   10.27   250149............   00.9111  ......
230223............   01.3148   19.52   240058............   00.9587   09.56   240143............   00.9185   11.41   250044............   01.0076   12.85   260001............   01.6498   15.91
230227............   01.4498   20.47   240059............   01.0818   17.97   240144............   00.9655   13.73   250045............   01.2115   15.80   260002............   01.4327   19.48
230228............   01.2890   17.02   240061............   01.7137   19.93   240145............   01.0049   11.38   250047............   00.9196   08.87   260003............   00.9751   12.78
230230............   01.3845   20.01   240063............   01.5305   20.52   240146............   00.9799   14.99   250048............   01.4047   12.62   260004............   01.0432   12.06
230232............   01.0545   16.94   240064............   01.1601   17.31   240148............   01.0008   10.45   250049............   00.8974   10.42   260005............   01.5844   19.17
230235............   01.0046   14.62   240065............   00.9338   10.64   240150............   00.8780   10.86   250050............   01.2596   11.28   260006............   01.4804   16.01
230236............   01.3262   20.31   240066............   01.3795   19.06   240152............   01.0006   17.14   250051............   00.8750   08.96   260007............   01.4060   16.14
230239............   01.1482   14.99   240069............   01.1330   17.24   240153............   01.0192   14.24   250057............   01.1491   12.74   260008............   01.2376   13.90
230241............   01.1550   16.43   240071............   01.1292   17.46   240154............   00.9905   14.61   250058............   01.1665   12.27   260009............   01.2653   15.01
230244............   01.3835   18.88   240072............   01.0019   15.57   240155............   00.9286   16.12   250059............   01.1891   11.77   260011............   01.6051   16.63
230253............   01.0636   16.84   240073............   00.9783   14.01   240157............   01.0225   12.12   250060............   00.8058   11.28   260012............   01.0636   11.88
230254............   01.2272   21.93   240075............   01.2057   18.33   240160............   00.9496   14.46   250061............   00.8775   09.15   260013............   01.1493   13.50
230257............   01.1250   17.12   240076............   01.1450   19.11   240161............   00.9605   14.31   250063............   00.8500   12.49   260014............   01.7535   17.79
230259............   01.2698   18.67   240077............   00.9211   12.69   240162............   00.9630   14.88   250065............   00.9011   10.82   260015............   01.2443   12.97
230264............   01.2471   16.92   240078............   01.4412   19.92   240163............   00.8630   13.46   250066............   00.9326   12.03   260017............   01.1937   12.42
230269............   01.2450   21.14   240079............   01.0116   13.47   240166............   01.1232   14.50   250067............   01.0946   12.22   260018............   00.9428   08.66
230270............   01.2233   18.95   240080............   01.4123   19.62   240169............   00.9513   13.93   250068............   00.8683   12.14   260019............   01.0687   13.01
230273............   01.5933   19.35   240082............   01.1392   14.18   240170............   01.1212   14.12   250069............   01.2544   12.65   260020............   01.6841   19.79
230275............   00.6409   15.75   240083............   01.3350   17.68   240171............   01.0074   13.83   250071............   00.9869   11.25   260021............   01.4693   16.68
230276............   00.8837   15.48   240084............   01.3215   16.20   240172............   01.0814   14.56   250072............   01.2924   15.11   260022............   01.3476   14.85
230277............   01.2088   18.95   240085............   00.9135   15.23   240173............   01.0091   14.49   250073............   01.0574   09.16   260023............   01.2169   14.03
230278............   01.6978   17.19   240086............   01.0879   14.33   240179............   01.0502   14.05   250076............   01.0126   11.04   260024............   00.9975   11.71
230280............   00.9203  .......  240087............   01.1561   14.21   240180............   00.9111   10.44   250077............   00.9418   10.20   260025............   01.3026   13.16
230281............   01.4676  .......  240088............   01.4415   17.29   240184............   00.9037   11.75   250078............   01.3897   13.77   260027............   01.5904   18.65
240001............   01.5227   20.18   240089............   01.0048   14.73   240187............   01.2634   15.97   250079............   00.8444   12.64   260029............   01.1107   17.08
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[[Page 45875]]
                                                                                          Page 9 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 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
260030............   01.3033   09.37   260137............   01.2883   14.24   270050............   01.0455   16.53   280058............   01.1987   13.63   290036............   01.0268  ......
260031............   01.4678   18.03   260138............   01.8420   19.32   270051............   01.2741   18.12   280060............   01.5876   18.29   290037............   01.7750  ......
260032............   01.6073   13.18   260141............   01.8940   17.33   270052............   01.0618   13.84   280061............   01.4422   14.63   290038............   01.1870  ......
260034............   01.0152   12.93   260142............   01.1868   14.08   270053............   00.9970   07.13   280062............   01.1923   10.12   300001............   01.4047   19.78
260035............   01.0652   11.41   260143............   00.9867   09.51   270057............   01.1713   15.18   280064............   00.9693   12.15   300003............   01.7941   21.09
260036............   01.0897   14.27   260146............   01.4828   19.71   270058............   00.9807   10.66   280065............   01.2507   15.96   300005............   01.2685   17.44
260037............   01.3303   14.40   260147............   01.0149   12.16   270059............   00.8267   13.66   280066............   01.0279   11.07   300006............   01.1101   15.99
260039............   01.2388   10.72   260148............   01.0073   12.55   270060............   00.9644   13.42   280068............   00.9847   08.59   300007............   01.1781   17.72
260040............   01.6153   14.88   260158............   01.1788   11.40   270063............   00.9125   13.15   280070............   01.0000   09.86   300008............   01.2270   16.18
260042............   01.3286   15.75   260159............   01.3434   18.30   270068............   00.9184   12.25   280073............   01.0751   12.53   300009............   01.1985   15.47
260044............   01.0828   13.78   260160............   01.0914   12.54   270072............   00.9576   12.39   280074............   01.0409   12.24   300010............   01.2030   17.36
260047............   01.4248   13.91   260162............   01.5099   16.23   270073............   01.1034   10.27   280075............   01.3095   11.50   300011............   01.3272   21.08
260048............   01.2491   17.03   260163............   01.1785   13.51   270074............   00.9035  .......  280076............   01.0748   12.42   300012............   01.2920   21.68
260050............   01.1065   13.74   260164............   01.0462   11.93   270075............   00.8783  .......  280077............   01.3632   16.20   300013............   01.1784   16.16
260052............   01.2727   16.70   260166............   01.1547   18.14   270076............   00.7732  .......  280079............   01.0096   08.85   300014............   01.2554   17.01
260053............   01.1634   09.81   260172............   01.0140   11.31   270079............   00.8806   13.15   280080............   01.2501   10.50   300015............   01.1415   16.94
260054............   01.2584   15.10   260173............   00.9894   10.67   270080............   01.1206   14.02   280081............   01.7016   18.52   300016............   01.2632   19.06
260055............   01.0724   12.81   260175............   01.1485   13.86   270081............   01.0037   10.21   280082............   01.0906   11.81   300017............   01.1739   19.63
260057............   01.1608   13.77   260176............   01.5967   15.21   270082............   00.9086   16.06   280083............   01.0470   12.63   300018............   01.2143   18.68
260059............   01.1236   12.90   260177............   01.2822   18.47   270083............   01.0332   11.82   280084............   01.0205   10.55   300019............   01.2254   18.15
260061............   01.1071   11.10   260178............   01.4986   19.19   270084............   00.8579   13.29   280085............   00.5745   13.22   300020............   01.2443   18.81
260062............   01.1874   15.30   260179............   01.5429   20.22   270085............   01.1363  .......  280088............   01.6955   17.05   300021............   01.1653   15.20
260063............   01.0964   14.23   260180............   01.7170   17.79   280001............   01.1549   14.18   280089............   01.0291   13.15   300022............   01.1082   16.54
260064............   01.3736   14.63   260183............   01.6342   15.54   280003............   01.9107   17.34   280090............   01.0387   11.51   300023............   01.2794   19.11
260065............   01.7362   14.50   260186............   01.1915   14.51   280005............   01.4470   16.78   280091............   01.1348   14.23   300024............   01.2872   17.09
260066............   01.1245   12.18   260188............   01.2978   16.33   280009............   01.5926   15.76   280092............   00.8866   11.69   300028............   01.3059   15.13
260067............   00.9050   10.16   260189............   00.9718   09.35   280010............   00.9153   13.81   280094............   01.1289   13.71   300029............   01.2839   20.32
260068............   01.7168   18.00   260190............   01.1852   18.20   280011............   00.9466   11.03   280097............   00.9848   12.08   300033............   01.0583   13.69
260070............   01.2656   11.28   260191............   01.1932   16.21   280012............   01.1851   13.28   280098............   00.9036   09.92   300034............   01.9240   21.01
260073............   01.0078   11.49   260193............   01.2087   17.30   280013............   01.9950   20.71   280101............   01.0669   09.77   310001............   01.6930   23.44
260074............   01.3208   14.05   260195............   01.1672   13.70   280014............   00.9454   10.97   280102............   01.1276   10.31   310002............   01.6575   24.76
260077............   01.5591   16.08   260197............   01.2675   22.49   280015............   01.1157   12.78   280104............   01.0155   10.32   310003............   01.2015   21.26
260078............   01.1100   14.31   260198............   01.2556   14.73   280017............   01.1947   13.37   280105............   01.2556   15.99   310005............   01.1831   20.09
260079............   01.0374   11.13   260200............   01.2580   20.58   280018............   01.0064   12.08   280106............   00.9271   13.01   310006............   01.2093   20.07
260080............   00.9466   09.28   260202............   01.1449   17.37   280020............   01.5132   17.44   280107............   01.0584   10.79   310008............   01.2635   19.90
260081............   01.3870   17.21   260204............   00.6808  .......  280021............   01.2597   14.03   280108............   01.1035   12.56   310009............   01.2280   20.09
260082............   01.1706   13.16   270002............   01.2061   14.67   280022............   00.9537   10.41   280109............   00.8849   10.22   310010............   01.3079   17.46
260085............   01.5221   18.65   270003............   01.2427   17.35   280023............   01.3719   14.33   280110............   01.0153   10.55   310011............   01.2881   19.99
260086............   01.0078   12.28   270004............   01.6741   16.44   280024............   00.9370   10.93   280111............   01.2565   15.55   310012............   01.5330   22.98
260089............   01.0433   12.88   270006............   01.0315   11.79   280025............   01.0059   10.58   280114............   00.9330   10.07   310013............   01.3256   19.19
260091............   01.6144   18.97   270007............   00.9035   12.34   280026............   01.0774   12.62   280115............   00.9760   13.60   310014............   01.6329   22.95
260094............   01.0888   14.92   270009............   01.0522   18.56   280028............   01.0505   12.46   280117............   01.1662   14.07   310015............   01.7741   23.86
260095............   01.4311   16.21   270011............   01.1422   14.69   280029............   01.0102   12.23   280118............   00.9862   13.25   310016............   01.2302   21.83
260096............   01.5493   19.82   270012............   01.4573   17.25   280030............   01.7873   22.60   280119............   00.9944  .......  310017............   01.3436   21.36
260097............   01.1488   14.83   270013............   01.3235   16.27   280031............   01.0720   12.01   280123............   00.9270   15.00   310018............   01.2156   21.47
260100............   01.1269   12.77   270014............   01.6560   15.12   280032............   01.2383   14.78   290001............   01.7427   21.82   310019............   01.6949   21.25
260102............   01.0363   15.72   270016............   00.8256   10.20   280033............   01.0153   13.52   290002............   00.9190   17.72   310020............   01.1972   18.78
260103............   01.3221   17.08   270017............   01.2740   16.23   280034............   01.1911   13.66   290003............   01.6587   20.91   310021............   01.2836   19.65
260104............   01.6613   18.27   270019............   00.9937   12.23   280035............   00.8819   11.62   290005............   01.2678   19.56   310022............   01.2485   18.19
260105............   01.8256   18.29   270021............   01.1369   14.71   280037............   00.9979   12.06   290006............   01.0337   16.63   310024............   01.2319   21.47
260107............   01.3910   17.90   270023............   01.3182   17.63   280038............   01.0597   12.86   290007............   01.7782   22.22   310025............   01.1869   20.24
260108............   01.7513   17.38   270024............   00.9847   11.35   280039............   01.2712   13.10   290008............   01.2063   17.86   310026............   01.2706   21.12
260109............   01.0046   11.51   270026............   00.9131   12.56   280040............   01.6146   18.26   290009............   01.5580   20.26   310027............   01.3144   17.61
260110............   01.5467   14.55   270027............   01.0305   12.04   280041............   01.0572   10.95   290010............   01.1552   17.50   310028............   01.1385   19.28
260111............   00.8939   10.83   270028............   01.0693   14.45   280042............   01.1705   13.58   290011............   00.9691   13.05   310029............   01.7872   20.90
260112............   01.4469   17.09   270029............   01.0320   14.46   280043............   01.0597   12.23   290012............   01.4465   19.66   310031............   02.6050   23.85
260113............   01.1577   13.08   270031............   00.9049   09.71   280045............   01.1825   13.09   290013............   01.1414   15.42   310032............   01.2557   19.04
260115............   01.1768   14.97   270032............   01.1444   15.72   280046............   01.0708   10.66   290014............   01.0009   16.60   310034............   01.2014   18.21
260116............   01.1359   12.68   270033............   00.8783   21.10   280047............   01.1624   16.07   290015............   00.9889   12.99   310036............   01.2138   17.92
260119............   01.1926   13.52   270035............   00.9894   14.73   280048............   01.0499   10.85   290016............   01.3306   15.75   310037............   01.2388   24.01
260120............   01.2261   14.49   270036............   01.0120   09.12   280049............   01.1043   13.00   290018............   00.9628   22.74   310038............   01.7727   22.21
260122............   01.1602   12.04   270039............   00.9390   12.62   280050............   01.0174   11.53   290019............   01.2518   17.47   310039............   01.2783   19.78
260123............   01.0178   10.06   270040............   01.0903   19.48   280051............   01.0446   14.71   290020............   01.2240   18.37   310040............   01.2683   21.87
260127............   00.9980   14.37   270041............   01.0725   10.12   280052............   01.1260   10.91   290021............   01.5718   20.67   310041............   01.2889   20.71
260128............   01.0173   08.68   270044............   01.2618   14.10   280054............   01.2447   14.44   290022............   01.6200   23.07   310042............   01.1596   20.03
260129............   01.1495   13.09   270046............   00.9502   15.13   280055............   00.9253   10.12   290027............   01.0027   13.90   310043............   01.1812   20.19
260131............   01.3359   15.39   270048............   01.0910   12.39   280056............   01.0855   10.24   290029............   00.8842  .......  310044............   01.3145   19.51
260134............   01.1840   13.51   270049............   01.7658   16.51   280057............   00.9872   14.21   290032............   01.3433   19.50   310045............   01.3120   24.22
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[[Page 45876]]
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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 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
310047............   01.2978   21.60   320032............   00.9776   20.28   330061............   01.3120   22.35   330171............   01.2992   21.23   330268............   01.0090   14.96
310048............   01.2227   20.26   320033............   01.0818   19.40   330062............   01.0664   15.08   330175............   01.1063   13.41   330270............   01.9642   27.18
310049............   01.2908   20.19   320035............   01.1660   13.24   330064............   01.3911   27.78   330177............   01.0514   12.91   330273............   01.2855   21.42
310050............   01.2017   20.51   320037............   01.3899   12.74   330065............   01.1624   16.59   330179............   00.8581   12.51   330275............   01.2081   18.08
310051............   01.3227   22.94   320038............   01.2002   14.49   330066............   01.2995   17.69   330180............   01.1690   15.30   330276............   01.2082   16.38
310052............   01.2366   19.79   320046............   01.1906   18.36   330067............   01.3225   20.03   330181............   01.3008   27.47   330277............   01.1319   16.03
310054............   01.2848   22.08   320048............   01.2872   14.65   330072............   01.3563   26.92   330182............   02.4742   26.72   330279............   01.3510   16.78
310056............   01.2278   18.60   320056............   00.8819  .......  330073............   01.1841   13.26   330183............   01.3763   18.32   330281............   00.5568   23.06
310057............   01.2648   18.67   320057............   00.9639  .......  330074............   01.2524   16.33   330184............   01.3472   23.65   330285............   01.7116   20.80
310058............   01.1165   22.53   320058............   00.7808  .......  330075............   01.0753   16.05   330185............   01.1723   22.73   330286............   01.3041   22.10
310060............   01.1764   15.81   320059............   01.0425  .......  330078............   01.4389   16.68   330186............   00.9130   19.17   330288............   01.0139   17.60
310061............   01.1722   18.96   320060............   00.9410  .......  330079............   01.2684   15.57   330188............   01.2063   16.77   330290............   01.6417   27.25
310062............   01.2970   26.34   320061............   01.1664  .......  330080............   01.4665   23.97   330189............   00.7331   12.31   330293............   01.1276   13.51
310063............   01.3226   20.46   320062............   00.8931  .......  330082............   01.1808   17.10   330191............   01.2892   18.01   330304............   01.2716   23.24
310064............   01.2668   20.47   320063............   01.3211   15.46   330084............   00.9833   15.94   330193............   01.3482   24.81   330306............   01.3707   24.98
310067............   01.2594   20.36   320065............   01.2430   17.01   330085............   01.3460   17.68   330194............   01.8210   24.97   330307............   01.1721   17.04
310069............   01.1730   17.01   320067............   00.8539   10.32   330086............   01.2503   23.08   330195............   01.5873   27.49   330308............   01.2466   25.87
310070............   01.3502   21.60   320068............   00.9034   16.83   330088............   01.0977   22.97   330196............   01.3950   24.75   330309............   01.1999   23.47
310072............   01.2374   19.41   320069............   01.0835   13.56   330090............   01.5160   16.20   330197............   01.0524   14.34   330314............   01.4338   20.37
310073............   01.4817   21.39   320070............   00.9428  .......  330091............   01.3705   17.15   330198............   01.3620   25.91   330315............   01.2292   23.02
310074............   01.3262   20.59   320074............   01.1259   17.57   330092............   00.9957   14.04   330199............   01.2860   23.44   330316............   01.3096   24.11
310075............   01.3128   20.53   320076............   00.9991   16.21   330094............   01.1855   14.91   330201............   01.4531   24.83   330327............   00.8781   15.44
310076............   01.3226   26.50   320079............   01.1685   18.53   330095............   01.2824   16.28   330202............   01.3373   24.50   330331............   01.1813   25.65
310077............   01.4994   22.03   320082............   01.8075  .......  330096............   01.0596   14.40   330203............   01.3430   18.69   330332............   01.2836   22.41
310078............   01.2791   22.48   330001............   01.2027   23.04   330097............   01.1475   14.94   330204............   01.2933   23.88   330333............   01.2926   23.11
310081............   01.2164   19.38   330002............   01.4124   23.83   330100............   00.6684   24.57   330205............   01.1975   17.54   330336............   01.3502   27.66
310083............   01.2378   21.39   330003............   01.3158   17.46   330101............   01.7755   29.73   330208............   01.2274   22.74   330338............   01.2396   22.06
310084............   01.2075   20.18   330004............   01.2561   19.60   330102............   01.3522   16.65   330209............   01.1848   20.53   330339............   00.8669   17.94
310086............   01.2176   19.38   330005............   01.7620   18.94   330103............   01.2524   15.29   330211............   01.2925   15.74   330340............   01.1608   23.73
310087............   01.2313   18.62   330006............   01.3185   23.17   330104............   01.4242   25.67   330212............   01.1932   19.47   330350............   01.8072   26.95
310088............   01.1789   21.00   330007............   01.3208   16.57   330106............   01.5662   31.07   330213............   01.0876   15.58   330353............   01.2882   28.01
310090............   01.1946   21.38   330008............   01.1370   16.15   330107............   01.2052   22.95   330214............   01.7088   27.08   330354............   01.3874  ......
310091............   01.2415   18.79   330009............   01.3261   27.98   330108............   01.1972   15.71   330215............   01.1519   16.55   330357............   01.3452   29.51
310092............   01.3962   19.24   330010............   01.2191   14.38   330111............   01.0845   14.47   330218............   01.1659   15.36   330359............   00.9345   19.17
310093............   01.1435   19.43   330011............   01.2428   16.56   330114............   00.9193   15.00   330219............   01.7195   18.75   330372............   01.2575   21.28
310096............   01.8860   21.72   330012............   01.6258   25.68   330115............   01.1851   14.41   330221............   01.2718   25.64   330381............   01.2114   26.55
310105............   01.2351   20.43   330013............   02.0631   17.16   330116............   00.9613   13.66   330222............   01.2469   15.21   330383............   01.3259  ......
310108............   01.3621   19.59   330014............   01.3639   26.33   330118............   01.5979   17.36   330223............   01.1104   15.86   330385............   01.2184   25.67
310110............   01.2191   19.32   330016............   00.9847   15.57   330119............   01.7237   28.24   330224............   01.2700   19.31   330386............   01.2294   19.79
310111............   01.2455   18.13   330019............   01.2313   23.83   330121............   01.0667   13.42   330225............   01.1576   23.75   330387............   00.7536   36.27
310112............   01.2943   19.42   330020............   01.0911   14.70   330122............   01.2895   21.37   330226............   01.2811   16.82   330389............   01.8055   28.55
310113............   01.2243   19.35   330023............   01.1830   21.41   330125............   01.7519   18.89   330229............   01.3299   14.48   330390............   01.2316   24.96
310115............   01.2390   19.80   330024............   01.8062   27.93   330126............   01.1469   19.06   330230............   01.5420   25.52   330393............   01.6790   25.15
310116............   01.2166   20.61   330025............   01.1635   13.45   330127............   01.3574   24.53   330231............   01.1472   26.40   330394............   01.4862   17.28
310118............   01.2191   21.18   330027............   01.4312   29.92   330128............   01.3303   25.17   330232............   01.2389   14.65   330395............   01.3351   26.58
310119............   01.5589   29.46   330028............   01.3524   23.16   330132............   01.0796   13.15   330233............   01.5462   30.00   330396............   01.2611   23.98
310120............   01.0810   17.02   330029............   01.0937   16.36   330133............   01.3290   28.20   330234............   02.1509   27.03   330397............   01.4810   23.47
310121............   01.0724   17.85   330030............   01.2392   15.26   330135............   01.2226   16.47   330235............   01.1618   16.46   330398............   01.2131   25.84
320001............   01.4366   16.14   330033............   01.2024   13.36   330136............   01.2683   19.79   330236............   01.3663   25.32   330399............   01.3136   27.41
320002............   01.3563   21.36   330034............   00.8669   29.10   330140............   01.6881   17.07   330238............   01.1419   13.64   340001............   01.4375   18.69
320003............   01.2298   14.20   330036............   01.2237   21.09   330141............   01.3453   23.29   330239............   01.2266   14.38   340002............   01.8274   17.46
320004............   01.1229   16.38   330037............   01.1795   14.71   330144............   01.0398   13.45   330240............   01.3143   26.41   340003............   01.1539   17.44
320005............   01.3257   18.36   330038............   01.1869   13.86   330148............   01.0294   13.70   330241............   01.9309   20.81   340004............   01.4844   16.48
320006............   01.4173   14.16   330039............   00.8701   13.51   330151............   01.0525   12.53   330242............   01.3377   20.60   340005............   01.2380   12.65
320009............   01.5156   16.90   330041............   01.3624   26.36   330152............   01.3980   26.57   330245............   01.2460   17.22   340006............   01.1128   14.19
320011............   01.0249   17.65   330043............   01.2325   24.15   330153............   01.6410   17.53   330246............   01.2726   22.67   340007............   01.1584   14.94
320012............   01.0428   17.37   330044............   01.2066   16.10   330154............   01.5523  .......  330247............   00.7884   25.42   340008............   01.2193   15.82
320013............   01.0889   17.38   330045............   01.3974   23.27   330157............   01.2584   18.01   330249............   01.2357   15.87   340009............   01.1741   19.21
320014............   01.0454   09.02   330046............   01.4962   26.80   330158............   01.3006   22.12   330250............   01.2316   15.80   340010............   01.3038   15.46
320016............   01.1562   14.52   330047............   01.2200   16.37   330159............   01.3142   17.37   330252............   00.9099   15.14   340011............   01.1066   13.94
320017............   01.1504   17.38   330048............   01.2674   15.50   330160............   01.4544   27.75   330254............   00.9916   15.51   340012............   01.2143   15.39
320018............   01.4185   16.77   330049............   01.2673   17.22   330161............   00.9392   15.60   330258............   01.3589   23.96   340013............   01.2166   14.57
320019............   01.4846   18.67   330053............   01.1259   14.20   330162............   01.2563   24.16   330259............   01.3537   21.55   340014............   01.5912   18.83
320021............   01.7030   20.73   330055............   01.3713   27.96   330163............   01.1593   16.79   330261............   01.2206   23.08   340015............   01.2407   15.33
320022............   01.2443   17.51   330056............   01.3550   27.22   330164............   01.3538   18.48   330263............   01.0437   15.85   340016............   01.1503   14.55
320023............   01.0444   14.13   330057............   01.6043   17.28   330166............   00.9855   13.97   330264............   01.2549   19.42   340017............   01.3015   14.65
320030............   01.0646   18.67   330058............   01.2642   15.35   330167............   01.5896   26.67   330265............   01.3454   14.34   340018............   01.0825   14.66
320031............   00.9696   11.41   330059............   01.5861   27.24   330169............   01.4497   29.07   330267............   01.2471   21.54   340019............   01.0463   10.97
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[[Page 45877]]
                                                                                          Page 11 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 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
340020............   01.2214   19.33   340114............   01.4370   18.91   350030............   01.0782   15.42   360052............   01.6706   17.01   360129............   01.0212   13.31
340021............   01.2429   15.10   340115............   01.5516   17.01   350033............   00.9414   13.28   360054............   01.2364   14.87   360130............   01.0803   13.93
340022............   01.0861   14.07   340116............   01.7556   19.43   350034............   00.9862   14.00   360055............   01.1887   17.02   360131............   01.2766   16.41
340023............   01.3551   16.96   340119............   01.2827   14.92   350035............   00.8461   10.06   360056............   01.4023   14.80   360132............   01.3067   18.64
340024............   01.2088   14.35   340120............   01.0627   12.83   350038............   00.9999   13.01   360057............   01.0616   12.70   360133............   01.4340   17.01
340025............   01.1085   14.27   340121............   01.0948   13.86   350039............   01.0331   13.63   360058............   01.1741   15.10   360134............   01.6313   17.77
340027............   01.2066   14.87   340122............   01.0074   12.44   350041............   01.0451   11.63   360059............   01.5386   19.71   360135............   01.1456   15.15
340028............   01.5189   16.47   340123............   01.1032   14.48   350042............   01.0138   13.85   360062............   01.4513   18.00   360136............   01.0358   14.10
340030............   01.9236   18.03   340124............   01.0598   13.16   350043............   01.4085   15.08   360063............   01.0436   17.30   360137............   01.5633   17.61
340031............   01.0073   11.38   340125............   01.4126   16.38   350044............   00.8723   10.01   360064............   01.4685   18.71   360140............   00.9977   15.13
340032............   01.2722   16.65   340126............   01.4006   16.98   350047............   01.1514   15.96   360065............   01.2562   16.05   360141............   01.4459   19.09
340034............   01.2862   17.26   340127............   01.3145   15.68   350049............   01.0973   09.92   360066............   01.3256   16.87   360142............   00.9941   14.51
340035............   01.1055   14.26   340129............   01.2766   18.25   350050............   01.0007   10.35   360067............   01.1115   11.73   360143............   01.3138   17.32
340036............   01.2272   16.44   340130............   01.3380   15.99   350051............   00.9666   11.29   360068............   01.6362   20.80   360144............   01.3278   19.94
340037............   01.1607   14.58   340131............   01.3791   16.02   350053............   01.0840   09.16   360069............   01.0676   15.90   360145............   01.6473   15.96
340038............   01.1622   14.65   340132............   01.2661   12.80   350055............   00.9493   11.52   360070............   01.5784   16.33   360147............   01.2733   14.83
340039............   01.2728   17.98   340133............   01.1294   14.24   350056............   00.9567   12.07   360071............   01.2933   15.64   360148............   01.1734   15.29
340040............   01.7442   17.23   340136............   01.0903   16.92   350058............   01.0054   11.46   360072............   01.1550   14.77   360149............   01.1353   16.99
340041............   01.2497   15.28   340137............   01.1904   13.07   350060............   00.9061   07.20   360074............   01.3468   18.13   360150............   01.3102   16.70
340042............   01.1070   13.11   340138............   01.1282   14.31   350061............   01.0508   14.13   360075............   01.4104   18.42   360151............   01.3471   16.20
340044............   01.0368   12.58   340141............   01.5336   18.20   350063............   00.8168  .......  360076............   01.3080   17.06   360152............   01.5274   17.02
340045............   01.0070   08.49   340142............   01.1924   15.16   350064............   00.8453  .......  360077............   01.4463   18.22   360153............   01.1435   13.32
340047............   01.8771   17.46   340143............   01.3424   18.36   350065............   00.8966   09.89   360078............   01.2808   18.19   360154............   01.0543   12.01
340048............   00.7695   08.62   340144............   01.3526   16.96   350066............   00.8594  .......  360079............   01.6831   19.06   360155............   01.3084   18.30
340049............   00.6050   15.68   340145............   01.3006   15.79   360001............   01.2737   16.58   360080............   01.0833   14.79   360156............   01.3318   16.30
340050............   01.1906   16.12   340146............   01.0912   12.76   360002............   01.1539   14.90   360081............   01.3730   18.30   360159............   01.1477   17.70
340051............   01.2434   15.76   340147............   01.2928   16.80   360003............   01.7163   19.44   360082............   01.2993   18.90   360161............   01.3554   18.52
340052............   01.0229   18.45   340148............   01.4258   17.75   360006............   01.7248   19.60   360083............   01.2953   15.60   360162............   01.1934   15.50
340053............   01.6219   18.66   340151............   01.1784   13.81   360007............   01.0537   15.57   360084............   01.6280   17.52   360163............   01.8277   18.81
340054............   01.0768   12.74   340153............   01.9573   19.41   360008............   01.2393   15.77   360085............   01.7866   18.85   360164............   00.8939   13.53
340055............   01.2107   16.29   340154............   01.0753   14.94   360009............   01.3585   17.14   360086............   01.4650   15.62   360165............   01.1586   14.66
340060............   01.1365   15.32   340155............   01.4445   19.22   360010............   01.1699   15.09   360087............   01.3579   17.19   360166............   01.1803   16.68
340061............   01.7024   18.17   340156............   00.7886  .......  360011............   01.2316   17.13   360088............   01.2297   15.09   360169............   01.0152   16.77
340063............   01.0854   14.50   340158............   01.1620   16.37   360012............   01.2575   18.10   360089............   01.1095   16.46   360170............   01.2081   17.19
340064............   01.2236   15.48   340159............   01.1374   15.06   360013............   01.1234   15.10   360090............   01.2171   18.32   360172............   01.4144   16.01
340065............   01.2563   11.40   340160............   01.1423   12.04   360014............   01.1305   16.24   360091............   01.2693   18.20   360174............   01.2615   16.86
340067............   01.2050   13.69   340162............   01.3232   16.41   360016............   01.5690   17.58   360092............   01.3081   17.29   360175............   01.2606   17.31
340068............   01.2906   12.83   340164............   01.4023   17.72   360017............   01.6623   19.27   360093............   01.2115   15.93   360176............   01.1864   13.50
340069............   01.6454   17.99   340166............   01.3806   18.12   360018............   01.5828   18.43   360094............   01.2319   19.09   360177............   01.2503   15.44
340070............   01.2856   16.22   340168............   00.4892   16.61   360019............   01.2602   18.17   360095............   01.3224   15.76   360178............   01.2477   15.16
340071............   01.0192   13.98   340170............   01.2903  .......  360020............   01.4408   17.58   360096............   01.0972   15.60   360179............   01.3059   18.53
340072............   01.1001   13.96   340171............   01.1886  .......  360021............   01.2308   17.68   360098............   01.3847   17.38   360180............   02.0926   22.00
340073............   01.4140   19.33   350001............   01.1048   11.68   360024............   01.4150   17.78   360099............   00.9965   15.45   360184............   00.5635   15.74
340075............   01.2118   15.40   350002............   01.7422   16.34   360025............   01.1647   16.65   360100............   01.3185   15.79   360185............   01.2250   16.35
340080............   01.1487   10.79   350003............   01.1706   15.20   360026............   01.1441   15.74   360101............   01.7121   19.44   360186............   01.2001   15.60
340084............   01.0637   13.21   350004............   01.9130   17.61   360027............   01.5510   18.78   360102............   01.2239   18.95   360187............   01.2755   15.63
340085............   01.2350   14.60   350005............   01.1536   11.38   360028............   01.3557   15.35   360103............   01.3601   19.18   360188............   01.0228   14.47
340087............   01.2050   16.57   350006............   01.3190   15.87   360029............   01.1328   15.69   360104............   01.2382   18.94   360189............   01.0674   14.86
340088............   01.1530   16.20   350007............   00.9819   11.64   360030............   01.1077   14.24   360106............   01.0728   14.17   360192............   01.3026   18.10
340089............   00.9587   11.53   350008............   01.0282   17.11   360031............   01.2692   14.01   360107............   01.2622   15.52   360193............   01.2990   14.39
340090............   01.1072   15.15   350009............   01.1700   15.04   360032............   01.1041   15.63   360108............   01.0507   14.22   360194............   01.1138   15.67
340091............   01.6938   18.09   350010............   01.0948   11.48   360034............   01.2332   12.05   360109............   01.1010   16.95   360195............   01.1665   16.12
340093............   01.0960   12.41   350011............   01.8078   16.90   360035............   01.5032   19.25   360112............   01.7037   21.03   360197............   01.1624   16.55
340094............   01.2541   16.46   350012............   01.0559   11.94   360036............   01.1697   17.01   360113............   01.3399   17.68   360200............   01.0671   12.61
340096............   01.2466   15.59   350013............   01.1172   14.23   360037............   02.0688   19.75   360114............   01.1335   15.45   360203............   01.1252   15.23
340097............   01.1638   14.13   350014............   01.0793   10.84   360038............   01.5302   16.88   360115............   01.2330   18.39   360204............   01.2108   15.84
340098............   01.6534   17.84   350015............   01.5962   15.49   360039............   01.2972   15.46   360116............   01.0463   15.21   360210............   01.1859   18.60
340099............   01.1570   13.04   350016............   01.0047   10.29   360040............   01.2865   17.57   360118............   01.3302   16.33   360211............   01.1862   17.02
340100............   00.9781  .......  350017............   01.3945   14.02   360041............   01.3229   17.13   360119............   01.2505   16.21   360212............   01.4129   18.54
340101............   00.9994   11.37   350018............   01.1037   10.15   360042............   01.1307   15.94   360120............   00.6082  .......  360213............   01.1319   15.72
340104............   00.9394   10.52   350019............   01.6020   17.70   360044............   01.0998   15.06   360121............   01.2473   16.95   360218............   01.2494   15.77
340105............   01.3234   17.43   350020............   01.3474   15.80   360045............   01.5166   19.48   360122............   01.3128   17.15   360230............   01.2932   19.39
340106............   01.0977   16.14   350021............   01.0671   10.47   360046............   01.0676   17.35   360123............   01.2101   17.96   360231............   01.0985   12.30
340107............   01.2666   15.88   350023............   00.8750   14.45   360047............   01.1655   13.68   360124............   01.2525   16.62   360232............   01.2411   20.25
340109............   01.3020   15.08   350024............   01.0840   12.46   360048............   01.7585   20.91   360125............   01.0866   15.71   360234............   01.3135   17.37
340111............   01.2307   13.16   350025............   01.0046   13.17   360049............   01.3468   17.28   360126............   01.2385   18.24   360236............   01.1914   16.82
340112............   01.0315   12.98   350027............   00.9939   13.76   360050............   01.0922   11.62   360127............   01.0931   15.24   360238............   01.0788   12.57
340113............   01.9539   19.22   350029............   00.9491   10.79   360051............   01.4681   19.97   360128............   01.1129   13.39   360239............   01.1676   18.44
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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 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
360240............   00.4529   09.64   370085............   00.7965   12.79   380013............   01.1950   19.76   390016............   01.1958   15.75   390098............   01.7221   19.80
360241............   00.5971   16.19   370086............   01.1603   09.31   380014............   01.3873   18.00   390017............   01.1833   13.74   390100............   01.6581   18.56
360242............   01.6504  .......  370089............   01.2840   11.32   380017............   01.7679   21.74   390018............   01.1902   18.44   390101............   01.2352   15.40
360243............   00.8333   15.66   370091............   01.6606   15.44   380018............   01.7785   18.54   390019............   01.1196   15.02   390102............   01.3553   19.54
360244............   00.8182   14.72   370092............   01.0516   11.97   380019............   01.1920   17.57   390022............   01.3562   20.09   390103............   01.0890   16.83
360245............   00.8606   14.97   370093............   01.8102   18.31   380020............   01.4631   19.42   390023............   01.2620   20.25   390104............   01.1238   13.92
360246............   00.8831  .......  370094............   01.3503   16.33   380021............   01.2003   19.11   390024............   00.7630   21.76   390106............   00.9494   16.62
370001............   01.7432   18.38   370095............   00.9025   10.78   380022............   01.1792   17.88   390025............   00.7561   15.82   390107............   01.2140   17.78
370002............   01.2128   13.52   370097............   01.3556   18.32   380023............   01.2933   16.49   390026............   01.2627   20.06   390108............   01.3539   17.21
370004............   01.3050   13.98   370099............   01.1988   13.57   380025............   01.2496   21.04   390027............   01.9362   22.10   390109............   01.1417   13.32
370005............   01.0163   11.81   370100............   00.9930   10.79   380026............   01.3246   16.19   390028............   01.7661   18.59   390110............   01.5526   18.76
370006............   01.1880   14.35   370103............   00.9353   11.13   380027............   01.2259   18.77   390029............   01.7547   17.52   390111............   01.7889   26.50
370007............   01.1282   13.12   370105............   01.9314   16.18   380029............   01.1923   15.70   390030............   01.2137   15.42   390112............   01.2051   12.38
370008............   01.4032   14.97   370106............   01.4815   16.09   380031............   01.0018   14.64   390031............   01.1392   17.02   390113............   01.2139   14.98
370011............   01.0534   13.17   370108............   01.0799   10.32   380033............   01.6739   21.91   390032............   01.2170   17.70   390114............   01.0997   20.24
370012............   00.9141   11.46   370112............   01.0585   11.98   380035............   01.3441   18.88   390035............   01.2980   17.23   390115............   01.3237   20.80
370013............   01.7263   17.86   370113............   01.1333   13.21   380036............   01.0279   16.34   390036............   01.2563   16.92   390116............   01.1823   19.21
370014............   01.2868   17.05   370114............   01.6294   14.92   380037............   01.2562   19.57   390037............   01.2991   17.90   390117............   01.1278   15.07
370015............   01.2342   13.90   370121............   01.2113   13.37   380038............   01.3261   20.34   390039............   01.0821   15.36   390118............   01.2364   15.74
370016............   01.3725   15.42   370122............   01.1492   09.31   380039............   01.2600   20.17   390040............   00.9405   12.87   390119............   01.3644   17.02
370017............   01.1287   10.87   370123............   01.2248   13.70   380040............   01.3376   18.06   390041............   01.2776   17.41   390121............   01.3191   17.22
370018............   01.2937   16.87   370125............   00.9676   11.42   380042............   01.1747   21.92   390042............   01.3876   20.08   390122............   01.0374   15.47
370019............   01.3530   11.35   370126............   01.1557   09.48   380047............   01.6487   19.29   390043............   01.1087   14.27   390123............   01.2533   19.42
370020............   01.3032   11.92   370131............   00.9570   12.42   380048............   01.0224   13.14   390044............   01.5701   18.24   390125............   01.2123   15.75
370021............   00.9264   10.11   370133............   01.0789   09.65   380050............   01.3167   16.38   390045............   01.5158   16.69   390126............   01.2807   20.35
370022............   01.3140   15.01   370138............   01.0804   15.13   380051............   01.5315   18.38   390046............   01.4888   17.71   390127............   01.1718   19.86
370023............   01.3457   14.52   370139............   00.9646   09.78   380052............   01.1595   15.90   390047............   01.6328   22.95   390128............   01.1729   17.17
370025............   01.3493   14.57   370140............   00.9612   11.36   380055............   01.1802   23.98   390048............   01.1701   15.25   390130............   01.1049   17.23
370026............   01.4655   15.54   370141............   01.3618   19.76   380056............   01.0308   15.19   390049............   01.5133   19.09   390131............   01.2505   15.35
370028............   01.8025   17.10   370146............   01.1923   10.18   380060............   01.4607   21.21   390050............   02.0254   20.30   390132............   01.2306   18.08
370029............   01.2379   11.52   370148............   01.4229   17.76   380061............   01.5092   21.74   390051............   02.1917   23.77   390133............   01.7637   20.23
370030............   01.2303   11.25   370149............   01.1566   14.18   380062............   01.1219   13.68   390052............   01.1552   15.52   390135............   01.2401   19.41
370032............   01.4686   14.67   370153............   01.0837   14.50   380063............   01.2709   22.15   390054............   01.1515   13.42   390136............   01.2190   15.59
370033............   01.1587   10.89   370154............   01.0306   12.64   380064............   01.3409   18.16   390055............   01.7095   20.40   390137............   01.1696   17.43
370034............   01.2251   12.87   370156............   01.1282   12.99   380065............   00.9805   17.74   390056............   01.1719   15.60   390138............   01.2397   16.41
370035............   01.5390   14.70   370158............   01.0248   12.52   380066............   01.3503   17.09   390057............   01.2912   18.37   390139............   01.4632   21.08
370036............   01.0287   09.08   370159............   01.3498   13.48   380068............   01.0131   18.61   390058............   01.2889   16.75   390142............   01.6767   21.77
370037............   01.5897   16.07   370163............   00.9111   10.33   380069............   01.1321   17.14   390060............   01.1142   15.65   390145............   01.3345   18.30
370038............   00.9678   10.86   370165............   01.1694   11.10   380070............   01.3005   19.47   390061............   01.5073   20.59   390146............   01.2340   15.37
370039............   01.2989   15.91   370166............   01.1522   16.13   380071............   01.2980   19.74   390062............   01.1205   14.75   390147............   01.2315   18.19
370040............   01.0664   11.17   370169............   01.0487   10.14   380072............   00.9304   14.25   390063............   01.7188   18.14   390148............   01.1846   17.53
370041............   00.9314   13.21   370170............   00.9331  .......  380075............   01.4127   19.35   390064............   01.5206   15.84   390149............   01.2472   19.33
370042............   00.8323   11.93   370171............   01.0282  .......  380078............   01.0299   16.80   390065............   01.2194   17.97   390150............   01.1446   17.62
370043............   01.0171   11.72   370172............   00.8595  .......  380081............   01.1232   16.57   390066............   01.3031   16.55   390151............   01.2996   17.35
370045............   01.0563   10.29   370173............   01.2978  .......  380082............   01.3175   20.54   390067............   01.7360   18.65   390152............   01.0265   15.13
370046............   00.9411   11.89   370174............   00.6125  .......  380083............   01.3362   17.08   390068............   01.3209   17.00   390153............   01.1973   21.16
370047............   01.3164   13.84   370176............   01.1825   16.22   380084............   01.2653   18.54   390069............   01.2822   18.31   390154............   01.1643   13.88
370048............   01.1517   12.59   370177............   00.9262   10.16   380087............   01.0074   13.59   390070............   01.3131   19.08   390155............   01.3050   17.65
370049............   01.3213   15.14   370178............   00.9819   10.53   380088............   00.9674   15.05   390071............   01.0983   13.09   390156............   01.3758   21.65
370051............   00.9489   13.39   370179............   00.8489   13.14   380089............   01.2979   20.02   390072............   01.0753   15.84   390157............   01.2559   16.75
370054............   01.2306   14.66   370180............   00.9753  .......  380090............   01.3074   21.62   390073............   01.5189   17.44   390158............   01.4547   18.63
370056............   01.5068   15.57   370183............   01.2609   12.03   380091............   01.1984   23.39   390074............   01.2306   16.29   390159............   01.2909   19.66
370057............   01.1350   14.30   370186............   00.9700   10.36   380897............   04.7366  .......  390075............   01.3391   15.51   390160............   01.2003   17.44
370059............   01.1386   12.80   370189............   01.0967   11.81   390001............   01.2957   17.00   390076............   01.2601   20.04   390161............   01.0387   13.71
370060............   01.0833   14.13   370190............   01.5659   16.45   390002............   01.3114   17.45   390078............   01.0443   14.92   390162............   01.3081   19.03
370063............   01.1256   10.89   370192............   01.0518  .......  390003............   01.2089   16.14   390079............   01.6752   15.99   390163............   01.1829   16.45
370064............   00.9724   09.12   370193............   01.5813  .......  390004............   01.3574   16.37   390080............   01.2217   17.76   390164............   01.8500   18.93
370065............   01.0831   14.46   380001............   01.2941   18.46   390005............   01.0234   13.53   390081............   01.3066   20.10   390166............   01.1614   16.81
370071............   01.0248   10.53   380002............   01.2496   17.64   390006............   01.7687   17.25   390083............   01.1851   20.41   390167............   01.2638   20.38
370072............   00.9459   11.97   380003............   01.1800   17.46   390007............   01.1626   20.95   390084............   01.2284   14.79   390168............   01.1943   17.18
370076............   01.2870   11.71   380004............   01.6210   22.25   390008............   01.0940   15.45   390086............   01.0903   15.51   390169............   01.2157   17.22
370077............   01.3610   15.34   380005............   01.1604   19.10   390009............   01.6057   17.97   390088............   01.3463   19.25   390170............   01.8561   23.09
370078............   01.6915   14.53   380006............   01.3742   16.46   390010............   01.2048   16.98   390090............   01.7218   19.42   390173............   01.2147   17.58
370079............   00.9190   11.99   380007............   01.6261   20.55   390011............   01.1973   16.82   390091............   01.1478   18.41   390174............   01.7096   23.29
370080............   00.9794   11.31   380008............   01.0644   16.93   390012............   01.2118   18.59   390093............   01.1830   14.61   390176............   01.1355   16.28
370082............   00.9188   10.54   380009............   01.8099   21.55   390013............   01.2043   15.89   390095............   01.1731   14.43   390178............   01.2800   17.36
370083............   01.0320   10.95   380010............   01.1001   19.18   390014............   01.5661   15.29   390096............   01.2822   16.50   390179............   01.2574   20.80
370084............   01.0538   08.49   380011............   01.1580   14.12   390015............   01.1363   12.32   390097............   01.3255   20.69   390180............   01.5909   22.45
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[[Page 45879]]
                                                                                          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 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
390181............   01.0567   16.51   400009............   00.9585   07.08   420018............   01.6744   17.26   430015............   01.1953   13.84   440029............   01.3354   15.62
390183............   01.1579   17.62   400010............   00.9770   10.23   420019............   01.2114   14.47   430016............   01.7002   17.29   440030............   01.1477   12.68
390184............   01.1162   17.14   400011............   01.0729   06.77   420020............   01.2550   16.07   430018............   00.9508   13.20   440031............   00.9745   11.83
390185............   01.1728   15.64   400012............   01.1136   07.24   420022............   00.9393   15.80   430022............   00.9341   10.22   440032............   01.0065   12.50
390186............   01.1975   12.18   400013............   01.1634   09.09   420023............   01.3918   18.61   430023............   00.9430   09.74   440033............   01.1147   14.66
390189............   01.0744   16.34   400014............   01.4222   07.31   420026............   01.8511   17.80   430024............   00.8545   11.51   440034............   01.4727   17.16
390191............   01.0451   14.03   400015............   01.3962   10.35   420027............   01.3601   14.55   430025............   00.9418   10.29   440035............   01.2814   14.81
390192............   01.1105   16.42   400016............   01.3551   09.54   420028............   01.0490   14.33   430026............   01.0159   10.38   440039............   01.5604   16.47
390193............   01.1499   15.76   400017............   01.1630   06.80   420029............   01.7205   14.74   430027............   01.7393   16.35   440040............   00.9573   11.47
390194............   01.0783   18.49   400018............   01.2999   08.93   420030............   01.2787   17.01   430028............   01.0746   12.21   440041............   01.0356   12.55
390195............   01.8149   21.40   400019............   01.6166   09.45   420031............   01.0044   10.97   430029............   01.0015   12.56   440046............   01.3480   14.06
390196............   01.3571  .......  400021............   01.3458   07.96   420033............   01.2457   19.01   430031............   00.9411   10.95   440047............   00.9832   12.05
390197............   01.2759   18.62   400022............   01.3107   09.75   420035............   00.8101   11.93   430033............   01.0803   11.10   440048............   01.7516   15.85
390198............   01.2288   14.41   400024............   00.9882   07.75   420036............   01.2244   15.01   430034............   01.0196   10.93   440049............   01.6359   15.45
390199............   01.2242   14.46   400026............   00.9404   07.20   420037............   01.3233   19.81   430036............   01.0422   09.44   440050............   01.2307   13.86
390200............   01.0074   12.74   400027............   01.1225   06.87   420038............   01.2403   14.65   430037............   00.9525   12.46   440051............   00.8902   13.44
390201............   01.2922   18.28   400028............   01.1413   07.08   420039............   01.2260   13.96   430038............   01.0411   10.31   440052............   01.2700   17.91
390203............   01.3020   18.63   400029............   01.1113   07.59   420040............   01.2120   14.36   430039............   00.9738   10.63   440053............   01.2982   16.09
390204............   01.2596   18.31   400031............   01.0365   07.37   420042............   01.1943   13.01   430040............   00.9048   11.88   440054............   01.2513   13.93
390205............   01.2210   22.42   400032............   01.1747   07.75   420043............   01.1777   16.87   430041............   00.9680   11.58   440056............   01.0740   10.33
390206............   01.3668   19.80   400044............   01.1248   09.07   420044............   01.1942   15.94   430042............   01.0001   10.28   440057............   01.0255   10.50
390209............   01.0381   14.45   400048............   01.0912   08.01   420048............   01.1167   13.96   430043............   01.1190   12.47   440058............   01.3908   18.36
390211............   01.2078   16.56   400061............   01.4735   12.57   420049............   01.1468   14.52   430044............   00.9331   12.62   440059............   01.1604   13.84
390213............   01.0973   14.10   400079............   01.2413   09.48   420051............   01.5754   16.86   430047............   01.1161   11.03   440060............   01.1519   13.95
390215............   01.1567   20.50   400087............   01.3227   08.37   420053............   01.0676   14.06   430048............   01.2139   15.58   440061............   01.1571   14.49
390217............   01.2291   17.56   400094............   01.0188   07.41   420054............   01.3914   16.63   430049............   00.9343   11.35   440063............   01.5537   17.05
390219............   01.2478   15.84   400098............   01.2470   07.68   420055............   01.1239   12.86   430051............   00.9707   11.88   440064............   01.1859   15.87
390220............   01.1967   18.50   400102............   01.2005   07.47   420056............   01.0941   13.40   430054............   00.9389   14.12   440065............   01.2217   14.09
390222............   01.2922   19.29   400103............   01.4900   10.21   420057............   01.2682   12.58   430056............   00.8709   08.95   440067............   01.1662   15.85
390223............   01.6287   22.05   400104............   01.2323   09.13   420059............   00.9558   13.16   430057............   00.9123   10.35   440068............   01.1840   16.22
390224............   00.9142   13.29   400105............   01.2642   07.81   420061............   01.2214   15.80   430060............   00.9948   08.97   440069............   01.0893   13.34
390225............   01.2212   15.41   400106............   01.2411   07.28   420062............   01.4737   15.07   430062............   00.8308   10.10   440070............   01.1199   13.07
390226............   01.7113   22.03   400109............   01.5822   08.85   420064............   01.1420   12.36   430064............   01.1525   11.35   440071............   01.4836   15.35
390228............   01.1936   17.98   400110............   01.0953   08.90   420065............   01.3499   16.17   430065............   01.0287   09.01   440072............   01.4293   13.45
390231............   01.3451   20.59   400111............   01.1494   07.90   420066............   00.9394   13.87   430066............   00.9826   10.61   440073............   01.2767   16.09
390233............   01.2767   17.67   400112............   01.2510   07.00   420067............   01.1965   15.84   430073............   01.1944   13.35   440078............   00.9790   12.17
390235............   01.7664   23.05   400113............   01.1838   07.07   420068............   01.2582   15.36   430076............   00.9618   08.60   440081............   01.1398   14.51
390236............   01.1535   16.00   400114............   01.0673   07.53   420069............   01.0854   13.87   430077............   01.5420   15.65   440082............   01.8991   19.65
390237............   01.5568   18.82   400115............   01.0127   08.28   420070............   01.2534   15.79   430079............   00.9545   10.60   440083............   01.1648   10.26
390238............   01.0894   16.51   400117............   01.2052   08.75   420071............   01.3360   15.95   430080............   00.8917   08.87   440084............   01.1705   11.11
390242............   01.3227   18.78   400118............   01.1427   07.88   420072............   01.0021   09.92   430081............   00.9763  .......  440087............   00.9796   11.67
390244............   00.9153   12.37   400120............   01.2844   08.63   420073............   01.2975   17.80   430082............   00.7899  .......  440090............   00.9808   13.53
390245............   01.3582   20.14   400121............   00.8973   07.05   420074............   00.9444   09.76   430083............   00.8400  .......  440091............   01.5310   16.83
390246............   01.1577   15.60   400122............   00.9790   06.35   420075............   01.0336   13.97   430084............   00.8592  .......  440095............   01.2178   19.62
390247............   01.0044   16.83   400123............   01.1528   08.39   420076............   01.1230   20.04   430085............   00.8528  .......  440100............   01.0220   12.92
390249............   00.9992   11.06   400124............   02.7935  .......  420078............   01.7109   18.68   430087............   00.9462   09.28   440102............   01.0894   12.32
390256............   01.6957   20.51   410001............   01.3181   21.94   420079............   01.5207   17.23   440001............   01.1438   11.96   440103............   01.2356   16.26
390258............   01.3229   19.30   410004............   01.3535   20.28   420080............   01.2176   17.43   440002............   01.5819   16.12   440104............   01.5496   17.72
390260............   01.2454   17.74   410005............   01.3614   20.46   420081............   00.7967   18.94   440003............   01.0982   14.90   440105............   01.4359   16.93
390262............   01.9001   17.06   410006............   01.2126   21.65   420082............   01.3460   18.34   440006............   01.4833   16.87   440109............   01.0518   12.33
390263............   01.4742   18.55   410007............   01.6863   19.83   420083............   01.2177   17.28   440007............   01.0100   11.40   440110............   00.9963   14.21
390265............   01.3075   17.62   410008............   01.1749   20.30   420084............   00.9239   12.71   440008............   01.0294   14.41   440111............   01.3776   18.41
390266............   01.1996   15.69   410009............   01.3416   20.77   420085............   01.2801   17.16   440009............   01.1191   12.87   440114............   01.0168   11.73
390267............   01.2662   19.03   410010............   01.0352   24.28   420086............   01.4018   16.97   440010............   00.9290   10.52   440115............   01.0917   13.98
390268............   01.3883   19.24   410011............   01.2176   21.48   420087............   01.6123   15.64   440011............   01.2479   15.18   440120............   01.4814   15.84
390270............   01.3047   16.33   410012............   01.7204   18.98   420088............   01.1687   16.05   440012............   01.4314   16.29   440121............   01.9731  ......
390272............   00.5347   20.70   410013............   01.2564   24.87   420089............   01.2401   19.72   440014............   00.9936   10.17   440125............   01.4135   16.36
390277............   00.5685   19.80   420002............   01.3076   20.09   420091............   01.1896   15.91   440015............   01.5414   15.38   440130............   01.1216   13.51
390278............   00.8123   16.44   420004............   01.8572   17.72   430004............   01.0162   14.56   440016............   00.9709   10.91   440131............   01.0820   13.17
390279............   01.1355  .......  420005............   01.1291   14.18   430005............   01.2522   13.79   440017............   01.5885   17.33   440132............   01.1216   13.29
390280............   00.8687  .......  420006............   01.3106   15.86   430007............   01.1290   11.45   440018............   01.4879   15.33   440133............   01.5290   17.70
400001............   01.2171   08.19   420007............   01.5047   15.99   430008............   01.1381   13.47   440019............   01.5921   18.39   440135............   01.3506   19.68
400002............   01.4419   10.77   420009............   01.2531   15.89   430009............   01.0883   10.81   440020............   01.2181   16.73   440137............   00.9636   11.88
400003............   01.2195   08.34   420010............   01.0854   13.22   430010............   01.1134   08.78   440022............   01.2003   12.79   440141............   01.1777   12.78
400004............   01.2103   08.02   420011............   01.0971   14.00   430011............   01.3615   14.10   440023............   01.0157   11.52   440142............   01.0517   10.83
400005............   01.0871   06.34   420014............   01.0714   13.05   430012............   01.3050   14.13   440024............   01.3814   16.35   440143............   01.1010   16.30
400006............   01.2516   06.86   420015............   01.3661   16.20   430013............   01.1996   15.09   440025............   01.0818   12.19   440144............   01.2163   17.90
400007............   01.1884   07.19   420016............   01.1283   13.46   430014............   01.2671   16.05   440026............   00.9153   15.63   440145............   01.0539   13.40
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



                                                                                                                                                                                                

[[Page 45880]]
                                                                                          Page 14 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 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
440146............   01.2978   12.03   450051............   01.5096   18.04   450153............   01.5438   17.33   450292............   01.2600   17.64   450465............   01.1813   11.39
440148............   01.1549   15.81   450052............   01.0230   13.39   450154............   01.1285   10.93   450293............   01.0277   12.90   450467............   00.9691   13.77
440149............   01.2150   15.70   450053............   01.0703   15.65   450155............   01.0107   10.09   450296............   01.3571   16.97   450469............   01.3473   15.87
440150............   01.2583   18.75   450054............   01.7336   21.09   450157............   01.0311   14.31   450297............   00.8956   13.66   450473............   01.0491   15.90
440151............   01.4156   15.89   450055............   01.1093   11.71   450160............   00.9356   17.51   450299............   01.4096   17.66   450475............   01.1874   14.99
440152............   01.6578   17.32   450056............   01.6499   17.62   450162............   01.1964   17.13   450303............   00.9720   10.74   450484............   01.5173   17.72
440153............   01.2633   14.46   450058............   01.5208   14.43   450163............   01.1423   16.18   450306............   01.0838   11.84   450488............   01.2219   19.43
440156............   01.5231   18.76   450059............   01.2787   12.62   450164............   01.1333   12.97   450307............   00.9772   13.59   450489............   00.9989   14.86
440157............   01.0053   13.12   450060............   01.3766   19.96   450165............   01.0054   14.05   450309............   01.0505   11.15   450497............   01.1598   12.54
440159............   01.2421  .......  450063............   01.0234   11.54   450166............   00.9211   11.39   450315............   01.2119   19.84   450498............   01.1296   13.21
440161............   01.5951   20.02   450064............   01.5106   15.53   450169............   00.8607   14.45   450320............   01.3603   17.73   450508............   01.5551   15.68
440166............   01.4014   17.40   450065............   01.1189   13.86   450170............   00.9895   12.30   450321............   00.9793   10.98   450514............   01.1878   16.22
440168............   01.0191   13.32   450068............   01.7833   17.27   450176............   01.2578   14.33   450322............   00.8870   15.26   450517............   01.0115   11.00
440173............   01.4900   16.51   450070............   01.1662   13.40   450177............   01.1371   12.72   450324............   01.5522   15.53   450518............   01.5165   15.17
440174............   00.9730   14.29   450072............   01.2259   17.28   450178............   01.0836   15.65   450325............   01.1881   09.56   450523............   01.5622   20.04
440175............   01.2420   17.24   450073............   01.1191   10.92   450181............   00.9133   15.39   450327............   00.9869   10.00   450530............   01.2882   19.74
440176............   01.3017   17.31   450074............   00.8492   16.51   450184............   01.5011   19.61   450330............   01.1758   14.47   450534............   00.9344   17.01
440178............   01.2129   18.01   450076............   01.5227  .......  450185............   01.1232   09.25   450334............   01.0079   11.79   450535............   01.1966   16.74
440180............   01.1306   16.13   450078............   00.9592   10.69   450187............   01.3348   15.83   450337............   01.2726   14.42   450537............   01.3800   18.07
440181............   01.0368   12.30   450079............   01.4470   19.51   450188............   00.9808   12.13   450340............   01.3364   14.79   450538............   01.2233   18.62
440182............   00.9087   14.69   450080............   01.2576   14.43   450190............   01.1818   17.82   450341............   00.9763   16.17   450539............   01.2718   14.11
440183............   01.4914   15.92   450081............   01.0910   12.40   450191............   01.1079   15.11   450346............   01.3821   15.86   450544............   01.4394   19.57
440184............   01.4104   18.05   450082............   00.9799   14.21   450192............   01.0655   15.77   450347............   01.1385   14.95   450545............   01.1893   16.75
440185............   00.9987   17.19   450083............   01.6927   16.91   450193............   01.8455   20.78   450348............   00.9936   10.99   450546............   01.3009   15.56
440186............   01.2154   16.59   450085............   01.1191   13.44   450194............   01.2628   16.17   450349............   01.0976   25.54   450547............   01.1799   13.04
440187............   01.2318   16.58   450087............   01.4765   20.99   450195............   01.1649   17.01   450351............   01.2378   20.82   450550............   00.9777   17.28
440189............   01.4607   16.08   450090............   01.0814   11.92   450196............   01.4781   13.63   450352............   01.1492   15.51   450551............   01.1352   12.64
440192............   01.1078   14.00   450092............   01.3766   12.51   450197............   01.1513   18.21   450353............   01.2989   17.12   450558............   01.7485   18.18
440193............   01.3105   17.42   450094............   01.2950   17.42   450200............   01.4362   15.19   450355............   01.1550   11.43   450559............   00.8703   10.67
440194............   01.3026   17.11   450096............   01.5012   18.60   450201............   00.9844   14.55   450358............   02.0824   19.02   450561............   01.5458   16.77
440196............   00.9296   14.68   450097............   01.4119   17.99   450203............   01.2264   15.81   450362............   01.0825   11.91   450563............   01.2669   21.61
440197............   01.3620   19.48   450098............   01.2552   13.96   450209............   01.5849   16.60   450366............   01.6443   18.85   450565............   01.2714   14.73
440200............   01.2074   16.77   450099............   01.3037   16.51   450210............   01.1197   12.40   450369............   01.1403   10.97   450570............   01.0643   12.15
440203............   00.9627   11.16   450101............   01.4061   14.92   450211............   01.3930   14.50   450370............   01.2110   11.99   450571............   01.4160   14.67
440205............   01.3025   14.19   450102............   01.6381   17.29   450213............   01.5335   15.73   450371............   01.1823   10.92   450573............   00.9645   13.22
440206............   01.0764   13.22   450104............   01.2372   13.07   450214............   01.3888   17.29   450372............   01.3285   22.86   450574............   00.9827   13.75
450002............   01.4686   18.34   450107............   01.5476   18.16   450217............   01.1331   11.65   450373............   01.2235   13.96   450575............   00.9515   14.24
450004............   01.1281   12.11   450108............   01.0272   12.16   450219............   01.1040   13.42   450374............   00.9039   11.71   450578............   01.0238   14.27
450005............   01.0892   14.37   450109............   01.0396   16.18   450221............   00.9863   13.35   450376............   01.4734   14.76   450580............   01.1179   12.70
450007............   01.3197   13.04   450110............   01.2341   14.61   450222............   01.7067   17.58   450378............   01.0687   18.25   450583............   00.9814   12.02
450008............   01.4103   14.15   450111............   01.1514   18.57   450224............   01.3981   15.77   450379............   01.5572   20.78   450584............   01.2182   12.25
450010............   01.3556   14.39   450112............   01.3449   12.60   450229............   01.5394   15.30   450381............   00.9491   12.16   450586............   01.0168   12.00
450011............   01.5223   16.73   450113............   01.2319   14.59   450231............   01.5327   17.95   450388............   01.7306   17.23   450587............   01.2802   15.54
450014............   01.1081   13.51   450118............   01.5353   15.96   450234............   01.0317   11.57   450389............   01.2099   17.39   450591............   01.1080   15.20
450015............   01.6382   14.59   450119............   01.2988   15.78   450235............   00.9859   12.40   450393............   01.2470   21.55   450596............   01.2924   16.49
450016............   01.5859   18.64   450121............   01.5746   18.89   450236............   01.0705   13.45   450395............   01.0148   14.21   450597............   01.0598   15.32
450018............   01.4858   19.82   450123............   01.1617   16.60   450237............   01.5886   15.96   450399............   01.0278   12.52   450603............   00.8258   11.74
450020............   01.0466   14.94   450124............   01.4856   18.15   450239............   01.2557   12.21   450400............   01.1214   13.83   450604............   01.3711   12.85
450021............   01.8443   19.58   450126............   01.3582   16.49   450241............   00.9480   13.71   450403............   01.3371   19.91   450605............   01.2926   18.17
450023............   01.4041   15.21   450128............   01.2520   13.45   450243............   00.8275   11.52   450410............   00.9614   16.52   450609............   00.8993   11.00
450024............   01.3873   14.47   450130............   01.4833   16.85   450246............   01.0125   10.82   450411............   00.9623   11.26   450610............   01.4896   17.33
450025............   01.4725   15.12   450131............   01.3207   17.06   450249............   01.0282   10.84   450417............   01.0110   13.74   450614............   01.0715   12.13
450028............   01.5375   17.21   450132............   01.5960   15.46   450250............   01.0189   12.12   450418............   01.3733   16.29   450615............   00.9254   11.97
450029............   01.4012   11.81   450133............   01.6059   17.50   450253............   01.2030   12.54   450419............   01.2552   20.88   450617............   01.3368   18.17
450031............   01.6419   18.78   450135............   01.7237   19.83   450258............   01.0849   10.82   450422............   00.8158   23.68   450620............   01.0358   13.85
450032............   01.2840   13.14   450137............   01.4452   21.51   450259............   01.2156   17.92   450423............   01.4053   22.35   450623............   01.2321   17.54
450033............   01.5984   16.13   450140............   01.0268   12.94   450264............   00.8617   09.77   450424............   01.2098   16.01   450626............   01.0232   13.74
450034............   01.5650   16.34   450142............   01.4624   19.12   450269............   01.0790   13.32   450429............   01.0802   12.22   450628............   00.8951   11.43
450035............   01.4950   19.26   450143............   01.1229   11.76   450270............   01.1067   10.66   450431............   01.5647   17.87   450630............   01.5789   22.91
450037............   01.5437   16.93   450144............   01.1095   15.44   450271............   01.1987   14.76   450438............   01.1417   13.61   450631............   01.7397   18.06
450039............   01.3673   17.94   450145............   00.8879   12.61   450272............   01.2222   15.51   450446............   00.8057   13.57   450632............   00.9909   10.90
450040............   01.6012   16.80   450146............   00.9990   16.15   450276............   01.1137   11.27   450447............   01.3466   17.04   450633............   01.5675   17.65
450042............   01.6252   15.24   450147............   01.3675   17.10   450278............   00.8682   11.11   450450............   01.1208   13.64   450634............   01.5775   20.13
450043............   01.4123   17.52   450148............   01.2850   18.70   450280............   01.3411   19.11   450451............   01.0779   16.31   450637............   01.3732   17.24
450044............   01.5738   19.16   450149............   01.4000   18.97   450283............   01.0279   13.57   450457............   01.7418   16.53   450638............   01.5845   21.91
450046............   01.3278   16.83   450150............   00.9221   12.55   450286............   01.0489   13.54   450460............   00.9999   11.81   450639............   01.4385   23.61
450047............   01.1284   14.89   450151............   01.1844   12.12   450288............   01.2387   13.72   450462............   01.8365   18.04   450641............   00.9502   11.53
450050............   00.9784   13.70   450152............   01.2996   14.41   450289............   01.4874   16.97   450464............   01.0067   13.17   450643............   01.2894   16.86
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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 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
450644............   01.6088   21.23   450750............   01.0246   11.13   460041............   01.2248   18.67   490057............   01.4890   16.35   500024............   01.6083   21.17
450646............   01.5906   18.64   450751............   01.3272   21.86   460042............   01.4963   15.69   490059............   01.5998   17.16   500025............   01.8684   22.05
450647............   01.9884   22.49   450754............   00.9098   11.72   460043............   01.3741   19.57   490060............   01.0575   17.44   500026............   01.4016   21.54
450648............   01.1125   12.96   450755............   01.2089   13.35   460044............   01.1648   18.10   490063............   01.6367   22.05   500027............   01.5390   21.51
450649............   01.0969   12.57   450757............   00.9885   12.42   460046............   00.8607   12.57   490066............   01.2549   17.26   500028............   01.1284   14.22
450651............   01.7432   22.45   450758............   01.8822   20.89   460047............   01.7937   18.94   490067............   01.2556   14.34   500029............   00.9587   12.95
450652............   00.9632   12.52   450760............   01.1644   18.92   460049............   01.9333   15.66   490069............   01.4348   14.22   500030............   01.3685   24.00
450653............   01.1757   16.49   450761............   01.0223   09.89   460050............   01.2337  .......  490071............   01.4542   17.65   500031............   01.2640   19.54
450654............   00.9469   11.33   450763............   01.0199   15.67   460051............   01.0445  .......  490073............   01.3843   21.85   500033............   01.2449   17.29
450656............   01.3727   15.58   450766............   02.1856   19.39   470001............   01.1934   17.49   490074............   01.2589   16.61   500036............   01.2776   18.39
450658............   00.9981   10.98   450769............   00.9727   12.82   470003............   01.9247   17.39   490075............   01.2964   16.02   500037............   01.1897   17.16
450659............   01.4943   19.28   450770............   01.0467   12.94   470004............   01.0722   14.19   490077............   01.2149   17.00   500039............   01.3377   19.49
450660............   01.5981   20.17   450771............   02.0587   18.83   470005............   01.2108   18.33   490079............   01.2757   14.03   500041............   01.2747   21.21
450661............   01.3065   18.06   450774............   00.7538   21.30   470006............   01.2015   18.12   490083............   00.7547   13.47   500042............   01.3098   20.40
450662............   01.5933   16.63   450775............   01.2005   17.45   470008............   01.2928   16.29   490084............   01.2941   16.33   500043............   01.1372   16.16
450665............   00.9971   11.26   450776............   00.9537   10.12   470010............   01.1493   17.20   490085............   01.1576   12.49   500044............   01.8736   19.89
450666............   01.2396   17.31   450777............   01.0057   14.24   470011............   01.1925   18.92   490088............   01.1847   14.26   500045............   01.1212   18.22
450668............   01.5522   18.60   450778............   01.0640   15.29   470012............   01.2697   15.64   490089............   01.1042   14.82   500048............   00.9117   15.45
450669............   01.2481   19.18   450779............   01.3064   21.26   470013............   01.1390   18.59   490090............   01.2200   13.95   500049............   01.4899   16.56
450670............   01.2784   16.66   450780............   00.9836   22.14   470015............   01.1457   16.60   490091............   01.2392   21.12   500050............   01.4060   19.25
450672............   01.6395   19.60   450781............   01.3563   17.80   470018............   01.1609   17.36   490092............   01.1705   14.20   500051............   01.5384   21.26
450673............   01.0761   11.01   450785............   00.9009  .......  470020............   00.9563   13.25   490093............   01.2825   13.84   500052............   01.2712  ......
450674............   00.8953   21.14   450787............   01.6643  .......  470023............   01.2131   16.94   490094............   01.1699   14.92   500053............   01.2515   18.75
450675............   01.4186   18.92   450788............   01.3734  .......  470024............   01.1176   17.30   490095............   01.3280   15.08   500054............   01.8258   19.36
450677............   01.4547   17.98   450789............   01.5166  .......  490001............   01.0841   18.15   490097............   01.1514   13.16   500055............   01.0515   19.51
450678............   01.6001   20.58   450790............   01.4639  .......  490002............   01.1122   13.81   490098............   01.3214   11.28   500057............   01.3245   15.53
450681............   01.6741   16.31   450791............   01.3605  .......  490003............   00.6435   17.00   490099............   00.9238   14.45   500058............   01.4327   18.94
450683............   01.2986   18.99   450792............   02.0245  .......  490004............   01.1979   16.16   490100............   01.3493   15.30   500059............   01.1171   19.10
450684............   01.2701   19.08   450793............   01.7205  .......  490005............   01.5122   15.84   490101............   01.1264   22.88   500060............   01.4666   20.13
450686............   01.4767   14.11   450794............   01.5005  .......  490006............   01.1536   11.33   490104............   00.8991   13.15   500061............   01.0210   18.41
450688............   01.3862   18.04   450795............   00.7983  .......  490007............   02.0030   16.84   490105............   00.7117   14.49   500062............   01.1748   16.66
450690............   01.4546   20.68   450797............   00.8211  .......  490009............   01.7149   17.43   490106............   00.8530   14.71   500064............   01.4821   20.82
450691............   01.1341   17.17   450798............   00.6737  .......  490010............   01.1081   16.48   490107............   01.2127   21.41   500065............   01.3304   16.86
450694............   01.3398   18.17   450799............   01.7205  .......  490011............   01.3387   16.63   490108............   00.8585  .......  500068............   00.9814   17.47
450696............   01.4552   25.42   450897............   04.9398  .......  490012............   01.1697   15.28   490109............   00.9591   15.20   500069............   01.1385   17.48
450697............   01.4442   16.21   460001............   01.7298   18.59   490013............   01.1924   14.26   490110............   01.2966   17.10   500071............   01.2496   18.61
450698............   00.9526   11.08   460003............   01.5949   18.81   490014............   01.4385   20.38   490111............   01.2268   15.12   500072............   01.2221   20.50
450700............   00.9540   12.44   460004............   01.7192   19.08   490015............   01.4857   15.02   490112............   01.6762   18.77   500073............   01.0568   15.12
450702............   01.5786   18.31   460005............   01.5937   17.62   490017............   01.3020   16.09   490113............   01.3532   20.37   500074............   01.0883   14.41
450703............   01.5413   19.25   460006............   01.3874   17.64   490018............   01.2041   16.62   490114............   01.1088   14.33   500075............   01.2828   19.27
450704............   01.2670   17.67   460007............   01.3090   17.38   490019............   01.2498   14.91   490115............   01.2261   13.65   500077............   01.3492   20.78
450705............   01.0180   17.17   460008............   01.4032   17.62   490020............   01.1735   14.05   490116............   01.2469   15.71   500079............   01.3578   19.43
450706............   01.2046   20.86   460009............   01.6060   18.12   490021............   01.3480   16.28   490117............   01.1112   12.95   500080............   00.8344   11.39
450709............   01.1943   20.28   460010............   02.0221   18.98   490022............   01.2783   17.26   490118............   01.7075   20.83   500084............   01.2294   20.02
450711............   01.6186   17.54   460011............   01.4052   15.54   490023............   01.2035   16.32   490119............   01.2866   15.88   500085............   01.0260   16.17
450712............   00.8013   13.61   460013............   01.4857   17.85   490024............   01.6911   16.18   490120............   01.3466   15.75   500086............   01.3689   17.97
450713............   01.4662   18.26   460014............   01.0888   13.89   490027............   01.1650   12.79   490122............   01.2872   20.90   500088............   01.3266   22.26
450715............   01.4731   18.76   460015............   01.2749   18.76   490028............   01.3394   18.38   490123............   01.1430   14.54   500089............   01.0004   13.34
450716............   01.2218   19.00   460016............   00.9499   11.00   490030............   01.2407   11.35   490124............   01.1661   15.26   500090............   00.7866   11.74
450717............   01.2784   21.01   460017............   01.4383   17.16   490031............   01.1795   12.64   490126............   01.2848   14.21   500092............   01.0572   15.00
450718............   01.2203   18.08   460018............   00.9576   12.68   490032............   01.7158   17.92   490127............   01.0520   14.36   500094............   00.9085   14.32
450723............   01.3063   18.47   460019............   01.0413   12.47   490033............   01.1833   14.44   490130............   01.2888   15.51   500096............   00.9781   17.15
450724............   01.2219   15.86   460020............   01.0260   13.72   490035............   01.0368  .......  490131............   00.9910   14.07   500097............   01.2091   15.19
450725............   01.1353   17.82   460021............   01.3642   18.22   490037............   01.1718   12.63   500001............   01.3060   20.75   500098............   00.9354   13.14
450726............   00.8698   13.38   460022............   00.9921   18.32   490038............   01.1871   12.51   500002............   01.4361   17.37   500101............   00.9677   15.87
450727............   00.9143   11.28   460023............   01.1554   19.51   490040............   01.3958   20.53   500003............   01.3129   19.31   500102............   00.9781   17.18
450728............   00.9353   11.43   460024............   01.0223   13.10   490041............   01.2628   17.07   500005............   01.7732   21.79   500104............   01.2642   19.06
450730............   01.3395   20.38   460025............   00.7899   13.76   490042............   01.3552   14.57   500007............   01.3550   19.61   500106............   00.9461   14.69
450732............   01.3497   18.21   460026............   01.0403   16.26   490043............   01.2576   19.59   500008............   01.8774   22.18   500107............   01.1150   14.46
450733............   01.3875   18.33   460027............   00.9741   17.65   490044............   01.3074   16.12   500009............   01.3107   20.51   500108............   01.6565   21.71
450734............   01.3020   16.26   460029............   01.1357   14.92   490045............   01.1758   18.21   500011............   01.3536   22.04   500110............   01.2379   17.96
450735............   00.9322   11.77   460030............   01.2052   15.88   490046............   01.4569   16.95   500012............   01.5160   19.95   500118............   01.1807   19.87
450742............   01.2757   19.64   460032............   00.9608   14.10   490047............   01.0538   17.13   500014............   01.8057   22.08   500119............   01.3366   19.61
450743............   01.3731   20.69   460033............   00.9525   16.93   490048............   01.4629   16.87   500015............   01.3083   19.91   500122............   01.2713   18.49
450745............   00.7868   20.44   460035............   00.8922   12.40   490050............   01.3959   20.10   500016............   01.3773   21.55   500123............   01.0450   15.07
450746............   01.0246   12.27   460036............   00.9189   18.64   490052............   01.5704   14.59   500019............   01.2746   19.53   500124............   01.3300   21.30
450747............   01.4159   14.21   460037............   01.0249   13.35   490053............   01.2549   13.56   500021............   01.5192   19.18   500125............   01.0634   10.72
450749............   01.0392   12.03   460039............   00.9759   19.55   490054............   01.0939   13.83   500023............   01.2135   19.80   500127............   00.7012   14.81
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



                                                                                                                                                                                                

[[Page 45882]]
                                                                                          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 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
500129............   01.6435   20.99   520003............   01.1019   14.95   520092............   01.1009   15.89   530012............   01.5259   15.96                                       
500132............   00.9823   18.61   520004............   01.1977   15.96   520094............   01.0671   15.88   530014............   01.2904   14.52                                       
500134............   00.8256   15.48   520006............   01.0303   17.00   520095............   01.3481   17.75   530015............   01.1431   18.14                                       
500137............   00.6497   17.85   520007............   01.0705   13.40   520096............   01.5431   16.65   530016............   01.1199   11.30                                       
500138............   05.5857  .......  520008............   01.5038   20.21   520097............   01.3461   16.82   530017............   01.0566   15.09                                       
500139............   01.4518   21.47   520009............   01.6685   16.69   520098............   01.8261   19.03   530018............   01.0261   13.70                                       
500140............   00.9789   13.96   520010............   01.1333   18.74   520100............   01.2401   15.22   530019............   00.9964   12.98                                       
500141............   01.3370   20.95   520011............   01.1787   15.82   520101............   01.1171   15.24   530022............   01.0572   15.34                                       
500143............   00.8363   14.99   520013............   01.3440   17.39   520102............   01.2258   18.37   530023............   00.8340   16.19                                       
500145............   01.8903  .......  520014............   01.1833   14.92   520103............   01.3072   16.55   530025............   01.3592   17.07                                       
500898............   01.1447  .......  520015............   01.1939   16.10   520107............   01.2720   15.90   530026............   01.0587   13.67                                       
510001............   01.6943   16.64   520016............   01.0266   12.10   520109............   01.0103   16.79   530027............   00.8666   08.89                                       
510002............   01.2607   17.53   520017............   01.2182   16.17   520110............   01.1029   16.26   530029............   00.8700   13.80                                       
510004............   00.9418   11.47   520018............   00.9654   15.12   520111............   01.0740   13.12   530031............   00.8812   12.07                                       
510005............   00.9081   12.40   520019............   01.3228   15.81   520112............   01.1233   17.91   530032............   01.1554   16.45                                       
510006............   01.2424   17.07   520021............   01.3295   17.87   520113............   01.1931   17.45                                                                              
510007............   01.4216   16.92   520024............   01.0301   12.06   520114............   01.0922   12.56                                                                              
510008............   01.0998   14.78   520025............   01.0787   14.84   520115............   01.2924   15.40                                                                              
510009............   01.0048   12.02   520026............   01.0610   16.62   520116............   01.2584   16.86                                                                              
510012............   01.0531   14.30   520027............   01.1488   18.20   520117............   01.0564   14.29                                                                              
510013............   01.1930   14.68   520028............   01.3486   16.60   520118............   00.9485   09.62                                                                              
510015............   00.9510   13.86   520029............   00.9455   15.32   520120............   00.9830   11.97                                                                              
510016............   01.0213   11.19   520030............   01.6743   18.99   520121............   00.9330   13.81                                                                              
510018............   01.0890   12.75   520031............   01.1703   16.00   520122............   01.0095   13.21                                                                              
510020............   01.0922   09.36   520032............   01.1521   14.19   520123............   01.0554   15.20                                                                              
510022............   01.7054   18.97   520033............   01.1822   15.92   520124............   01.1511   14.50                                                                              
510023............   01.1019   15.21   520034............   01.1919   16.24   520130............   01.0949   12.36                                                                              
510024............   01.3533   16.56   520035............   01.2474   14.95   520131............   01.0242   15.72                                                                              
510025............   00.9456   10.06   520037............   01.5852   17.92   520132............   01.1825   13.60                                                                              
510026............   00.9312   11.40   520038............   01.3793   16.35   520134............   01.0935   14.40                                                                              
510027............   00.9817   13.01   520039............   01.0054   15.55   520135............   01.0064   12.70                                                                              
510028............   01.0630   18.75   520040............   01.4619   19.00   520136............   01.5225   18.05                                                                              
510029............   01.2924   15.75   520041............   01.1965   14.44   520138............   01.8502   17.66                                                                              
510030............   01.0608   14.71   520042............   01.0497   15.99   520139............   01.2028   17.83                                                                              
510031............   01.3136   15.41   520044............   01.3539   15.83   520140............   01.5559   18.24                                                                              
510033............   01.2401   13.81   520045............   01.6488   16.87   520141............   01.1553   15.56                                                                              
510035............   01.1549   17.54   520047............   01.0317   14.12   520142............   00.8153   11.71                                                                              
510036............   00.9330   11.78   520048............   01.4308   16.96   520144............   01.0173   15.72                                                                              
510038............   01.0459   13.86   520049............   01.8222   17.11   520145............   00.9640   16.59                                                                              
510039............   01.3509   14.77   520051............   01.9233   18.64   520146............   01.0787   12.88                                                                              
510043............   00.9749   10.23   520053............   01.0459   14.95   520148............   01.1487   14.99                                                                              
510046............   01.2071   15.27   520054............   01.0481   15.66   520149............   00.9606   12.29                                                                              
510047............   01.1461   16.64   520056............   01.2856   17.61   520151............   01.0828   13.81                                                                              
510048............   01.1064   17.03   520057............   01.1572   15.81   520152............   01.1492   15.57                                                                              
510050............   01.3072   14.07   520058............   01.0289   17.40   520153............   00.9151   12.42                                                                              
510053............   00.9862   13.43   520059............   01.2817   17.27   520154............   01.1233   15.66                                                                              
510055............   01.2700   18.38   520060............   01.3379   14.70   520156............   01.0988   17.35                                                                              
510058............   01.2284   15.23   520062............   01.2446   15.60   520157............   01.0073   13.06                                                                              
510059............   01.0508   13.61   520063............   01.1934   16.74   520159............   00.8912   15.84                                                                              
510060............   01.1108   13.44   520064............   01.6924   17.58   520160............   01.7825   16.98                                                                              
510061............   01.0267   13.23   520066............   01.3684   17.75   520161............   01.0499   14.34                                                                              
510062............   01.2044   15.84   520068............   00.9064   14.65   520170............   01.3136   17.27                                                                              
510063............   01.0554   13.39   520069............   01.2244   15.89   520171............   00.9780   13.38                                                                              
510065............   00.9964   18.80   520070............   01.4628   16.29   520173............   01.2002   17.49                                                                              
510066............   01.1021   11.29   520071............   01.1162   16.28   520174............   01.4623   19.90                                                                              
510067............   01.2260   16.60   520074............   01.1022   14.80   520177............   01.5389   19.26                                                                              
510068............   01.1324   14.26   520075............   01.4723   16.74   520178............   01.0619   13.83                                                                              
510070............   01.1945   15.60   520076............   01.0948   14.67   520186............   02.1412  .......                                                                             
510071............   01.2602   14.58   520077............   01.0475   13.87   530002............   01.1018   16.35                                                                              
510072............   01.0953   12.86   520078............   01.4727   16.04   530003............   00.8823   12.54                                                                              
510077............   01.1439   13.21   520082............   01.4075   15.87   530004............   01.0189   12.81                                                                              
510080............   01.1711   10.11   520083............   01.6393   20.44   530005............   01.0032   11.90                                                                              
510081............   00.9772   12.88   520084............   01.1026   14.57   530006............   01.1623   16.90                                                                              
510082............   01.1301   11.32   520087............   01.6097   16.33   530007............   01.0744   11.30                                                                              
510084............   00.9945   12.23   520088............   01.2813   16.17   530008............   01.2067   16.29                                                                              
510085............   01.2462   17.51   520089............   01.5211   18.22   530009............   01.0242   15.00                                                                              
510086............   01.1086   14.08   520090............   01.2264   15.59   530010............   01.2322   16.82                                                                              
520002............   01.2769   16.70   520091............   01.2702   16.49   530011............   01.0511   15.86                                                                              
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Case mix indexes do not include discharges from PPS-Exempt Units. Case mix indexes include cases received in HCFA Central Office through June 1995.                                       



BILLING CODE 4120-01-P

                                                                                                                                                                                                

[[Page 45883]]
Table 4a.--Wage Index and Capital Geographic Adjustment Factor (GAF) for
                               Urban Areas                              
------------------------------------------------------------------------
     Urban area (constituent counties or county         Wage            
                    equivalents)                        index      GAF  
------------------------------------------------------------------------
0040  Abilene, TX...................................    0.8546    0.8980
  Taylor, TX                                                            
0060  Aguadilla, PR.................................    0.4744    0.6001
  Aguada, PR                                                            
  Aguadilla, PR                                                         
  Moca, PR                                                              
0080  Akron, OH.....................................    0.9578    0.9709
  Portage, OH                                                           
  Summit, OH                                                            
0120  Albany, GA....................................    0.8608    0.9024
  Dougherty, GA                                                         
  Lee, GA                                                               
0160  Albany-Schenectady-Troy, NY...................    0.8818    0.9175
  Albany, NY                                                            
  Montgomery, NY                                                        
  Rensselaer, NY                                                        
  Saratoga, NY                                                          
  Schenectady, NY                                                       
  Schoharie, NY                                                         
0200  Albuquerque, NM...............................    0.9542    0.9684
  Bernalillo, NM                                                        
  Sandoval, NM                                                          
  Valencia, NM                                                          
0220  Alexandria, LA................................    0.8010    0.8590
  Rapides, LA                                                           
0240  Allentown-Bethlehem-Easton, PA................    1.0198    1.0135
  Carbon, PA                                                            
  Lehigh, PA                                                            
  Northampton, PA                                                       
0280  Altoona, PA...................................    0.9007    0.9309
  Blair, PA                                                             
0320  Amarillo, TX..................................    0.8759    0.9133
  Potter, TX                                                            
  Randall, TX                                                           
0380  Anchorage, AK.................................    1.3373    1.2202
  Anchorage, AK                                                         
0440  Ann Arbor, MI.................................    1.2116    1.1405
  Lenawee, MI                                                           
  Livingston, MI                                                        
  Washtenaw, MI                                                         
0450  Anniston, AL..................................    0.8158    0.8699
  Calhoun, AL                                                           
0460  Appleton-Oshkosh-Neenah, WI...................    0.8844    0.9193
  Calumet, WI                                                           
  Outagamie, WI                                                         
  Winnebago, WI                                                         
0470  Arecibo, PR...................................    0.4498    0.5786
  Arecibo, PR                                                           
  Camuy, PR                                                             
  Hatillo, PR                                                           
0480  Asheville, NC.................................    0.9218    0.9458
  Buncombe, NC                                                          
  Madison, NC                                                           
0500  Athens, GA....................................    0.9097    0.9372
  Clarke, GA                                                            
  Madison, GA                                                           
  Oconee, GA                                                            
0520  *Atlanta, GA..................................    1.0069    1.0047
  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                                                            
0560  Atlantic City-Cape May, NJ....................    1.0935    1.0631
  Atlantic City, NJ                                                     
  Cape May, NJ                                                          
0600  Augusta-Aiken, GA-SC..........................    0.8955    0.9272
  Columbia, GA                                                          
  McDuffie, GA                                                          
  Richmond, GA                                                          
  Aiken, SC                                                             
  Edgefield, SC                                                         
0640  Austin-San Marcos, TX.........................    0.9255    0.9484
  Bastrop, TX                                                           
  Caldwell, TX                                                          
  Hays, TX                                                              
  Travis, TX                                                            
  Williamson, TX                                                        
0680  Bakersfield, CA...............................    1.0502    1.0341
  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                                                       
0733  Bangor, ME....................................    0.9360    0.9557
  Penobscot, ME                                                         
0743  Barnstable-Yarmouth, MA.......................    1.3457    1.2255
  Barnstable, MA                                                        
0760  Baton Rouge, LA...............................    0.8670    0.9069
  Ascension, LA                                                         
  East Baton Rouge, LA                                                  
  Livingston, LA                                                        
  West Baton Rouge, LA                                                  
0840  Beaumont-Port Arthur, TX......................    0.8603    0.9021
  Hardin, TX                                                            
  Jefferson, TX                                                         
  Orange, TX                                                            
0860  Bellingham, WA................................    1.2681    1.1766
  Whatcom, WA                                                           
0870  Benton Harbor, MI.............................    0.8304    0.8805
  Berrien, MI                                                           
0875  *Bergen-Passaic, NJ...........................    1.1474    1.0987
  Bergen, NJ                                                            
  Passaic, NJ                                                           
0880  Billings, MT..................................    0.8705    0.9094
  Yellowstone, MT                                                       
0920  Biloxi-Gulfport-Pascagoula, MS................    0.8448    0.8909
  Hancock, MS                                                           
  Harrison, MS                                                          
  Jackson, MS                                                           
0960  Binghamton, NY................................    0.9005    0.9307
  Broome, NY                                                            
  Tioga, NY                                                             
1000  Birmingham, AL................................    0.9144    0.9406
  Blount, AL                                                            
  Jefferson, AL                                                         
  St. Clair, AL                                                         
  Shelby, AL                                                            
1010  Bismarck, ND..................................    0.8299    0.8801
  Burleigh, ND                                                          
  Morton, ND                                                            
1020  Bloomington, IN...............................    0.8429    0.8896
  Monroe, IN                                                            
1040  Bloomington-Normal, IL........................    0.8740    0.9119
  McLean, IL                                                            
1080  Boise City, ID................................    0.9150    0.9410
  Ada, ID                                                               
  Canyon, ID                                                            
1123  *Boston-Brockton-Nashua, MA-NH................    1.1685    1.1125
  Bristol, MA                                                           
  Essex, MA                                                             
  Middlesex, MA                                                         
  Norfolk, MA                                                           
  Plymouth, MA                                                          
  Suffolk, MA                                                           
  Worcester, MA                                                         
  Hillsborough, NH                                                      
  Merrimack, NH                                                         
  Rockingham, NH                                                        
  Strafford, NH                                                         
1125  Boulder-Longmont, CO..........................    0.9780    0.9849
  Boulder, CO                                                           
1145  Brazoria, TX..................................    0.8584    0.9007
  Brazoria, TX                                                          
1150  Bremerton, WA.................................    1.0295    1.0201
  Kitsap, WA                                                            
1240  Brownsville-Harlingen-San Benito, TX..........    0.8650    0.9055
  Cameron, TX                                                           
1260  Bryan-College Station, TX.....................    0.8987    0.9295
  Brazos, TX                                                            
1280  *Buffalo-Niagara Falls, NY....................    0.9186    0.9435
  Erie, NY                                                              
  Niagara, NY                                                           
1303  Burlington, VT................................    0.9252    0.9482
  Chittenden, VT                                                        
  Franklin, VT                                                          
  Grand Isle, VT                                                        
1310  Caguas, PR....................................    0.4706    0.5968
  Caguas, PR                                                            
  Cayey, PR                                                             
  Cidra, PR                                                             
  Gurabo, PR                                                            
  San Lorenzo, PR                                                       

[[Page 45884]]
                                                                        
1320  Canton-Massillon, OH..........................    0.8749    0.9125
  Carroll, OH                                                           
  Stark, OH                                                             
1350  Casper, WY....................................    0.8662    0.9063
  Natrona, WY                                                           
1360  Cedar Rapids, IA..............................    0.8359    0.8845
  Linn, IA                                                              
1400  Champaign-Urbana, IL..........................    0.8867    0.9210
  Champaign, IL                                                         
1440  Charleston-North Charleston, SC...............    0.8930    0.9254
  Berkeley, SC                                                          
  Charleston, SC                                                        
  Dorchester, SC                                                        
1480  Charleston, WV................................    0.9498    0.9653
  Kanawha, WV                                                           
  Putnam, WV                                                            
1520  *Charlotte-Gastonia-Rock Hill, NC-SC..........    0.9668    0.9771
  Cabarrus, NC                                                          
  Gaston, NC                                                            
  Lincoln, NC                                                           
  Mecklenburg, NC                                                       
  Rowan, NC                                                             
  Union, NC                                                             
  York, SC                                                              
1540  Charlottesville, VA...........................    0.9179    0.9430
  Albemarle, VA                                                         
  Charlottesville City, VA                                              
  Fluvanna, VA                                                          
  Greene, VA                                                            
1560  Chattanooga, TN-GA............................    0.9129    0.9395
  Catoosa, GA                                                           
  Dade, GA                                                              
  Walker, GA                                                            
  Hamilton, TN                                                          
  Marion, TN                                                            
1580  Cheyenne, WY..................................    0.7935    0.8535
  Laramie, WY                                                           
1600  *Chicago, IL..................................    1.0632    1.0429
  Cook, IL                                                              
  De Kalb, IL                                                           
  Du Page, IL                                                           
  Grundy, IL                                                            
  Kane, IL                                                              
  Kendall, IL                                                           
  Lake, IL                                                              
  McHenry, IL                                                           
  Will, IL                                                              
1620  Chico-Paradise, CA............................    1.0531    1.0361
  Butte, CA                                                             
1640  *Cincinnati, OH-KY-IN.........................    0.9418    0.9598
  Dearborn, IN                                                          
  Ohio, IN                                                              
  Boone, KY                                                             
  Campbell, KY                                                          
  Gallatin, KY                                                          
  Grant, KY                                                             
  Kenton, KY                                                            
  Pendleton, KY                                                         
  Brown, OH                                                             
  Clermont, OH                                                          
  Hamilton, OH                                                          
  Warren, OH                                                            
1660  Clarksville-Hopkinsville, TN-KY...............    0.7542    0.8243
  Christian, KY                                                         
  Montgomery, TN                                                        
1680  *Cleveland-Lorain-Elyria, OH..................    0.9835    0.9887
  Ashtabula, OH                                                         
  Cuyahoga, OH                                                          
  Geauga, OH                                                            
  Lake, OH                                                              
  Lorain, OH                                                            
  Medina, OH                                                            
1720  Colorado Springs, CO..........................    0.9294    0.9511
  El Paso, CO                                                           
1740  Columbia, MO..................................    0.9461    0.9628
  Boone, MO                                                             
1760  Columbia, SC..................................    0.9033    0.9327
  Lexington, SC                                                         
  Richland, SC                                                          
1800  Columbus, GA-AL...............................    0.7756    0.8403
  Russell, AL                                                           
  Chattanoochee, GA                                                     
  Harris, GA                                                            
  Muscogee, GA                                                          
1840  *Columbus, OH.................................    0.9734    0.9817
  Delaware, OH                                                          
  Fairfield, OH                                                         
  Franklin, OH                                                          
  Licking, OH                                                           
  Madison, OH                                                           
  Pickaway, OH                                                          
1880  Corpus Christi, TX............................    0.8941    0.9262
  Nueces, TX                                                            
  San Patricio, TX                                                      
1900  Cumberland, MD-WV.............................    0.8372    0.8854
  Allegany, MD                                                          
  Mineral, WV                                                           
1920  *Dallas, TX...................................    0.9804    0.9865
  Collin, TX                                                            
  Dallas, TX                                                            
  Denton, TX                                                            
  Ellis, TX                                                             
  Henderson, TX                                                         
  Hunt, TX                                                              
  Kaufman, TX                                                           
  Rockwall, TX                                                          
1950  Danville, VA..................................    0.8465    0.8922
  Danville City, VA                                                     
  Pittsylvania, VA                                                      
1960  Davenport-Rock Island-Moline, IA-IL...........    0.8347    0.8836
  Scott, IA                                                             
  Henry, IL                                                             
  Rock Island, IL                                                       
2000  Dayton-Springfield, OH........................    0.9428    0.9605
  Clark, OH                                                             
  Greene, OH                                                            
  Miami, OH                                                             
  Montgomery, OH                                                        
2020  Daytona Beach, FL.............................    0.8902    0.9234
  Flagler, FL                                                           
  Volusia, FL                                                           
2030  Decatur, AL...................................    0.8180    0.8715
  Lawrence, AL                                                          
  Morgan, AL                                                            
2040  Decatur, IL...................................    0.7790    0.8428
  Macon, IL                                                             
2080  *Denver, CO...................................    1.0447    1.0304
  Adams, CO                                                             
  Arapahoe, CO                                                          
  Denver, CO                                                            
  Douglas, CO                                                           
  Jefferson, CO                                                         
2120  Des Moines, IA................................    0.8792    0.9156
  Dallas, IA                                                            
  Polk, IA                                                              
  Warren, IA                                                            
2160  *Detroit, MI..................................    1.0834    1.0564
  Lapeer, MI                                                            
  Macomb, MI                                                            
  Monroe, MI                                                            
  Oakland, MI                                                           
  St. Clair, MI                                                         
  Wayne, MI                                                             
2180  Dothan, AL....................................    0.7751    0.8399
  Dale, AL                                                              
  Houston, AL                                                           
2190  Dover, DE.....................................    0.8960    0.9276
  Kent, DE                                                              
2200  Dubuque, IA...................................    0.8054    0.8623
  Dubuque, IA                                                           
2240  Duluth-Superior, MN-WI........................    0.9660    0.9766
  St. Louis, MN                                                         
  Douglas, WI                                                           
2281  Dutchess County, NY...........................    1.0697    1.0472
  Dutchess, NY                                                          
2290  Eau Claire, WI................................    0.8660    0.9062
  Chippewa, WI                                                          
  Eau Claire, WI                                                        
2320  El Paso, TX...................................    0.9266    0.9491
  El Paso, TX                                                           
2330  Elkhart-Goshen, IN............................    0.8806    0.9166
  Elkhart, IN                                                           
2335  Elmira, NY....................................    0.8460    0.8918
  Chemung, NY                                                           
2340  Enid, OK......................................    0.8170    0.8707
  Garfield, OK                                                          
2360  Erie, PA......................................    0.9196    0.9442
  Erie, PA                                                              
2400  Eugene-Springfield, OR........................    1.1184    1.0796
  Lane, OR                                                              
2440  Evansville-Henderson, IN-KY...................    0.8899    0.9232
  Posey, IN                                                             
  Vanderburgh, IN                                                       
  Warrick, IN                                                           
  Henderson, KY                                                         
2520  Fargo-Moorhead, ND-MN.........................    0.8912    0.9242
  Clay, MN                                                              

[[Page 45885]]
                                                                        
  Cass, ND                                                              
2560  Fayetteville, NC..............................    0.8843    0.9192
  Cumberland, NC                                                        
2580  Fayetteville-Springdale-Rogers, AR............    0.7090    0.7902
  Benton, AR                                                            
  Washington, AR                                                        
2620  Flagstaff, AZ-UT..............................    0.8619    0.9032
  Coconino, AZ                                                          
  Kane, UT                                                              
2640  Flint, MI.....................................    1.0738    1.0500
  Genesee, MI                                                           
2650  Florence, AL..................................    0.7970    0.8561
  Colbert, AL                                                           
  Lauderdale, AL                                                        
2655  Florence, SC..................................    0.8537    0.8973
  Florence, SC                                                          
2670  Fort Collins-Loveland, CO.....................    1.0595    1.0404
  Larimer, CO                                                           
2680  *Ft. Lauderdale, FL...........................    1.0952    1.0643
  Broward, FL                                                           
2700  Fort Myers-Cape Coral, FL.....................    0.9666    0.9770
  Lee, FL                                                               
2710  Fort Pierce-Port St. Lucie, FL................    1.0401    1.0273
  Martin, FL                                                            
  St. Lucie, FL                                                         
2720  Fort Smith, AR-OK.............................    0.7608    0.8293
  Crawford, AR                                                          
  Sebastian, AR                                                         
  Sequoyah, OK                                                          
2750  Fort Walton Beach, FL.........................    0.8705    0.9094
  Okaloosa, FL                                                          
2760  Fort Wayne, IN................................    0.8691    0.9084
  Adams, IN                                                             
  Allen, IN                                                             
  De Kalb, IN                                                           
  Huntington, IN                                                        
  Wells, IN                                                             
  Whitley, IN                                                           
2800  *Forth Worth-Arlington, TX....................    1.0052    1.0036
  Hood, TX                                                              
  Johnson, TX                                                           
  Parker, TX                                                            
  Tarrant, TX                                                           
2840  Fresno, CA....................................    1.0522    1.0355
  Fresno, CA                                                            
  Madera, CA                                                            
2880  Gadsden, AL...................................    0.8568    0.8996
  Etowah, AL                                                            
2900  Gainesville, FL...............................    0.9007    0.9309
  Alachua, FL                                                           
2920  Galveston-Texas City, TX......................    1.0304    1.0207
  Galveston, TX                                                         
2960  Gary, IN......................................    0.9452    0.9621
  Lake, IN                                                              
  Porter, IN                                                            
2975  Glens Falls, NY...............................    0.9276    0.9498
  Warren, NY                                                            
  Washington, NY                                                        
2980  Goldsboro, NC.................................    0.8165    0.8704
  Wayne, NC                                                             
2985  Grand Forks, ND-MN............................    0.8983    0.9292
  Polk, MN                                                              
  Grand Forks, ND                                                       
2995  Grand Junction, CO............................    0.7988    0.8574
  Mesa, CO                                                              
3000  Grand Rapids-Muskegon-Holland, MI.............    1.0055    1.0038
  Allegan, MI                                                           
  Kent, MI                                                              
  Muskegon, MI                                                          
  Ottawa, MI                                                            
3040  Great Falls, MT...............................    0.9039    0.9331
  Cascade, MT                                                           
3060  Greeley, CO...................................    0.9146    0.9407
  Weld, CO                                                              
3080  Green Bay, WI.................................    0.9190    0.9438
  Brown, WI                                                             
3120  *Greensboro-Winston-Salem-High................                    
  Point, NC                                             0.9160    0.9417
  Alamance, NC                                                          
  Davidson, NC                                                          
  Davie, NC                                                             
  Forsyth, NC                                                           
  Guilford, NC                                                          
  Randolph, NC                                                          
  Stokes, NC                                                            
  Yadkin, NC                                                            
3150  Greenville, NC................................    0.9102    0.9376
  Pitt, NC                                                              
3160  Greenville-Spartanburg-Anderson, SC...........    0.9047    0.9337
  Anderson, SC                                                          
  Cherokee, SC                                                          
  Greenville, SC                                                        
  Pickens, SC                                                           
  Spartanburg, SC                                                       
3180  Hagerstown, MD................................    0.9074    0.9356
  Washington, MD                                                        
3200  Hamilton-Middletown, OH.......................    0.8782    0.9149
  Butler, OH                                                            
3240  Harrisburg-Lebanon-Carlisle, PA...............    0.9972    0.9981
  Cumberland, PA                                                        
  Dauphin, PA                                                           
  Lebanon, PA                                                           
  Perry, PA                                                             
3283  *Hartford, CT.................................    1.2391    1.1581
  Hartford, CT                                                          
  Litchfield, CT                                                        
  Middlesex, CT                                                         
  Tolland, CT                                                           
3285  Hattiesburg, MS...............................    0.7245    0.8020
  Forrest, MS                                                           
  Lamar, MS                                                             
3290  Hickory-Morganton-Lenoir, NC..................    0.7983    0.8570
  Alexander, NC                                                         
  Burke, NC                                                             
  Caldwell, NC                                                          
  Catawba, NC                                                           
3320  Honolulu, HI..................................    1.1212    1.0815
  Honolulu, HI                                                          
3350  Houma, LA.....................................    0.7596    0.8284
  Lafourche, LA                                                         
  Terrebonne, LA                                                        
3360  *Houston, TX..................................    0.9874    0.9914
  Chambers, TX                                                          
  Fort Bend, TX                                                         
  Harris, TX                                                            
  Liberty, TX                                                           
  Montgomery, TX                                                        
  Waller, TX                                                            
3400  Huntington-Ashland, WV-KY-OH..................    0.8997    0.9302
  Boyd, KY                                                              
  Carter, KY                                                            
  Greenup, KY                                                           
  Lawrence, OH                                                          
  Cabell, WV                                                            
  Wayne, WV                                                             
3440  Huntsville, AL................................    0.8113    0.8666
  Limestone, AL                                                         
  Madison, AL                                                           
3480  *Indianapolis, IN.............................    0.9757    0.9833
  Boone, IN                                                             
  Hamilton, IN                                                          
  Hancock, IN                                                           
  Hendricks, IN                                                         
  Johnson, IN                                                           
  Madison, IN                                                           
  Marion, IN                                                            
  Morgan, IN                                                            
  Shelby, IN                                                            
3500  Iowa City, IA.................................    0.9371    0.9565
  Johnson, IA                                                           
3520  Jackson, MI...................................    0.9132    0.9397
  Jackson, MI                                                           
3560  Jackson, MS...................................    0.7642    0.8318
  Hinds, MS                                                             
  Madison, MS                                                           
  Rankin, MS                                                            
3580  Jackson, TN...................................    0.8511    0.8955
  Madison, TN                                                           
3600  Jacksonville, FL..............................    0.8953    0.9271
  Clay, FL                                                              
  Duval, FL                                                             
  Nassau, FL                                                            
  St. Johns, FL                                                         
3605  Jacksonville, NC..............................    0.6926    0.7776
  Onslow, NC                                                            
3610  Jamestown, NY.................................    0.7535    0.8238
  Chautaqua, NY                                                         
3620  Janesville-Beloit, WI.........................    0.8786    0.9152
  Rock, WI                                                              
3640  Jersey City, NJ...............................    1.1039    1.0700
  Hudson, NJ                                                            
3660  Johnson City-Kingsport-Bristol, TN-VA.........    0.8769    0.9140
  Carter, TN                                                            
  Hawkins, TN                                                           
  Sullivan, TN                                                          
  Unicoi, TN                                                            
  Washington, TN                                                        

[[Page 45886]]
                                                                        
  Bristol City, VA                                                      
  Scott, VA                                                             
  Washington, VA                                                        
3680  Johnstown, PA.................................    0.8521    0.8962
  Cambria, PA                                                           
  Somerset, PA                                                          
3710  Joplin, MO....................................    0.7923    0.8526
  Jasper, MO                                                            
  Newton, MO                                                            
3720  Kalamazoo-Battlecreek, MI.....................    1.0657    1.0445
  Calhoun, MI                                                           
  Kalamazoo, MI                                                         
  Van Buren, MI                                                         
3740  Kankakee, IL..................................    0.9114    0.9384
  Kankakee, IL                                                          
3760  *Kansas City, KS-MO...........................    0.9351    0.9551
  Johnson, KS                                                           
  Leavenworth, KS                                                       
  Miami, KS                                                             
  Wyandotte, KS                                                         
  Cass, MO                                                              
  Clay, MO                                                              
  Clinton, MO                                                           
  Jackson, MO                                                           
  Lafayette, MO                                                         
  Platte, MO                                                            
  Ray, MO                                                               
3800  Kenosha, WI...................................    0.8872    0.9213
  Kenosha, WI                                                           
3810  Killeen-Temple, TX............................    1.0526    1.0357
  Bell, TX                                                              
  Coryell, TX                                                           
3840  Knoxville, TN.................................    0.8518    0.8960
  Anderson, TN                                                          
  Blount, TN                                                            
  Knox, TN                                                              
  Loudon, TN                                                            
  Sevier, TN                                                            
  Union, TN                                                             
3850  Kokomo, IN....................................    0.8834    0.9186
  Howard, IN                                                            
  Tipton, IN                                                            
3870  La Crosse, WI-MN..............................    0.8519    0.8960
  Houston, MN                                                           
  La Crosse, WI                                                         
3880  Lafayette, LA.................................    0.8498    0.8945
  Acadia, LA                                                            
  Lafayette, LA                                                         
  St. Landry, LA                                                        
  St. Martin, LA                                                        
3920  Lafayette, IN.................................    0.8328    0.8822
  Clinton, IN                                                           
  Tippecanoe, IN                                                        
3960  Lake Charles, LA..............................    0.8094    0.8652
  Calcasieu, LA                                                         
3980  Lakeland-Winter Haven, FL.....................    0.8668    0.9067
  Polk, FL                                                              
4000  Lancaster, PA.................................    0.9569    0.9703
  Lancaster, PA                                                         
4040  Lansing-East Lansing, MI......................    1.0105    1.0072
  Clinton, MI                                                           
  Eaton, MI                                                             
  Ingham, MI                                                            
4080  Laredo, TX....................................    0.6750    0.7640
  Webb, TX                                                              
4100  Las Cruces, NM................................    0.8861    0.9205
  Dona Ana, NM                                                          
4120  *Las Vegas, NV-AZ.............................    1.0934    1.0631
  Mohave, AZ                                                            
  Clark, NV                                                             
  Nye, NV                                                               
4150  Lawrence, KS..................................    0.8549    0.8982
  Douglas, KS                                                           
4200  Lawton, OK....................................    0.8594    0.9014
  Comanche, OK                                                          
4243  Lewiston-Auburn, ME...........................    0.9433    0.9608
  Androscoggin, ME                                                      
4280  Lexington, KY.................................    0.8348    0.8837
  Bourbon, KY                                                           
  Clark, KY                                                             
  Fayette, KY                                                           
  Jessamine, KY                                                         
  Madison, KY                                                           
  Scott, KY                                                             
  Woodford, KY                                                          
4320  Lima, OH......................................    0.8863    0.9207
  Allen, OH                                                             
  Auglaize, OH                                                          
4360  Lincoln, NE...................................    0.9093    0.9370
  Lancaster, NE                                                         
4400  Little Rock-North Little Rock, AR.............    0.8527    0.8966
  Faulkner, AR                                                          
  Lonoke, AR                                                            
  Pulaski, AR                                                           
  Saline, AR                                                            
4420  Longview-Marshall, TX.........................    0.8653    0.9057
  Gregg, TX                                                             
  Harrison, TX                                                          
  Upshur, TX                                                            
4480  *Los Angeles-Long Beach, CA...................    1.2461    1.1626
  Los Angeles, CA                                                       
4520  Louisville, KY-IN.............................    0.9327    0.9534
  Clark, IN                                                             
  Floyd, IN                                                             
  Harrison, IN                                                          
  Scott, IN                                                             
  Bullitt, KY                                                           
  Jefferson, KY                                                         
  Oldham, KY                                                            
4600  Lubbock, TX...................................    0.8443    0.8906
  Lubbock, TX                                                           
4640  Lynchburg, VA.................................    0.8205    0.8733
  Amherst, VA                                                           
  Bedford City, VA                                                      
  Bedford, VA                                                           
  Campbell, VA                                                          
  Lynchburg City, VA                                                    
4680  Macon, GA.....................................    0.8991    0.9298
  Bibb, GA                                                              
  Houston, GA                                                           
  Jones, GA                                                             
  Peach, GA                                                             
  Twiggs, GA                                                            
4720  Madison, WI...................................    1.0055    1.0038
  Dane, WI                                                              
4800  Mansfield, OH.................................    0.8373    0.8855
  Crawford, OH                                                          
  Richland, OH                                                          
4840  Mayaguez, PR..................................    0.4644    0.5914
  Anasco, PR                                                            
  Cabo Rojo, PR                                                         
  Hormigueros, PR                                                       
  Mayaguez, PR                                                          
  Sabana Grande, PR                                                     
  San German, PR                                                        
4880  McAllen-Edinburg-Mission, TX..................    0.8669    0.9068
  Hidalgo, TX                                                           
4890  Medford-Ashland, OR...........................    1.0162    1.0111
  Jackson, OR                                                           
4900  Melbourne-Titusville-Palm Bay, FL.............    0.9323    0.9531
  Brevard, Fl                                                           
4920  *Memphis, TN-AR-MS............................    0.8399    0.8874
  Crittenden, AR                                                        
  De Soto, MS                                                           
  Fayette, TN                                                           
  Shelby, TN                                                            
  Tipton, TN                                                            
4940  Merced, CA....................................    1.0877    1.0593
  Merced, CA                                                            
5000  *Miami, FL....................................    0.9552    0.9691
  Dade, FL                                                              
5015  *Middlesex-Somerset-Hunterdon, NJ.............    1.0583    1.0396
  Hunterdon, NJ                                                         
  Middlesex, NJ                                                         
  Somerset, NJ                                                          
5080  *Milwaukee-Waukesha, WI.......................    0.9498    0.9653
  Milwaukee, WI                                                         
  Ozaukee, WI                                                           
  Washington, WI                                                        
  Waukesha, WI                                                          
5120  *Minneapolis-St Paul, MN-WI...................    1.0744    1.0504
  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                                                         
5160  Mobile, AL....................................    0.7706    0.8366
  Baldwin, AL                                                           
  Mobile, AL                                                            
5170  Modesto, CA...................................    1.0658    1.0446
  Stanislaus, CA                                                        
5190  *Monmouth-Ocean, NJ...........................    1.0562    1.0382
  Monmouth, NJ                                                          

[[Page 45887]]
                                                                        
  Ocean, NJ                                                             
5200  Monroe, LA....................................    0.7948    0.8545
  Ouachita, LA                                                          
5240  Montgomery, AL................................    0.7901    0.8510
  Autauga, AL                                                           
  Elmore, AL                                                            
  Montgomery, AL                                                        
5280  Muncie, IN....................................    0.9125    0.9392
  Delaware, IN                                                          
5330  Myrtle Beach, SC..............................    0.7961    0.8554
  Horry, SC                                                             
5345  Naples, FL....................................    0.9871    0.9911
  Collier, FL                                                           
5360  *Nashville, TN................................    0.9266    0.9491
  Cheatham, TN                                                          
  Davidson, TN                                                          
  Dickson, TN                                                           
  Robertson, TN                                                         
  Rutherford TN                                                         
  Sumner, TN                                                            
  Williamson, TN                                                        
  Wilson, TN                                                            
5380  *Nassau-Suffolk, NY...........................    1.3128    1.2049
  Nassau, NY                                                            
  Suffolk, NY                                                           
5483  *New Haven-Bridgeport-StamfordDanbury-                            
 Waterbury, CT......................................    1.2534    1.1673
  Fairfield, CT                                                         
  New Haven, CT                                                         
5523  New London-Norwich, CT........................    1.2088    1.1387
  New London, CT                                                        
5560  *New Orleans, LA..............................    0.9454    0.9623
  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.................................    1.3852    1.2500
  Bronx, NY                                                             
  Kings, NY                                                             
  New York, NY                                                          
  Putnam, NY                                                            
  Queens, NY                                                            
  Richmond, NY                                                          
  Rockland, NY                                                          
  Westchester, NY                                                       
5640  *Newark, NJ...................................    1.1241    1.0834
  Essex, NJ                                                             
  Morris, NJ                                                            
  Sussex, NJ                                                            
  Union, NJ                                                             
  Warren, NJ                                                            
5660  Newburgh, NY-PA...............................    1.0619    1.0420
  Orange, NY                                                            
  Pike, PA                                                              
5720  *Norfolk-Virginia                                                 
  Beach-Newport                                                         
  News, VA-NC                                           0.8411    0.8883
  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..................................    1.5203    1.3322
  Alameda, CA                                                           
  Contra Costa, CA                                                      
5790  Ocala, FL.....................................    0.8942    0.9263
  Marion, FL                                                            
5800  Odessa-Midland, TX............................    0.8753    0.9128
  Ector, TX                                                             
  Midland, TX                                                           
5880  *Oklahoma City, OK............................    0.8358    0.8844
  Canadian, OK                                                          
  Cleveland, OK                                                         
  Logan, OK                                                             
  McClain, OK                                                           
  Oklahoma, OK                                                          
  Pottawatomie, OK                                                      
5910  Olympia, WA...................................    1.1109    1.0747
  Thurston, WA                                                          
5920  Omaha, NE-IA..................................    0.9794    0.9858
  Pottawattamie, IA                                                     
  Cass, NE                                                              
  Douglas, NE                                                           
  Sarpy, NE                                                             
  Washington, NE                                                        
5945  *Orange County, CA............................    1.2299    1.1522
  Orange, CA                                                            
5960  *Orlando, FL..................................    0.9515    0.9665
  Lake, FL                                                              
  Orange, FL                                                            
  Osceola, FL                                                           
  Seminole, FL                                                          
5990  Owensboro, KY.................................    0.7498    0.8210
  Daviess, KY                                                           
6015  Panama City, FL...............................    0.8182    0.8716
  Bay, FL                                                               
6020  Parkersburg-Marietta, WV-OH...................    0.7751    0.8399
  Washington, OH                                                        
  Wood, WV                                                              
6080  Pensacola, FL.................................    0.8183    0.8717
  Escambia, FL                                                          
  Santa Rosa, FL                                                        
6120  Peoria-Pekin, IL..............................    0.8619    0.9032
  Peoria, IL                                                            
  Tazewell, IL                                                          
  Woodford, IL                                                          
6160  *Philadelphia, PA-NJ..........................    1.1098    1.0739
  Burlington, NJ                                                        
  Camden, NJ                                                            
  Gloucester, NJ                                                        
  Salem, NJ                                                             
  Bucks, PA                                                             
  Chester, PA                                                           
  Delaware, PA                                                          
  Montgomery, PA                                                        
  Philadelphia, PA                                                      
6200  *Phoenix-Mesa, AZ.............................    0.9808    0.9868
  Maricopa, AZ                                                          
  Pinal, AZ                                                             
6240  Pine Bluff, AR................................    0.7985    0.8572
  Jefferson, AR                                                         
6280  *Pittsburgh, PA...............................    0.9743    0.9823
  Allegheny, PA                                                         
  Beaver, PA                                                            
  Butler, PA                                                            
  Fayette, PA                                                           
  Washington, PA                                                        
  Westmoreland, PA                                                      
6323  Pittsfield, MA................................    1.0838    1.0567
  Berkshire, MA                                                         
6360  Ponce, PR.....................................    0.4780    0.6032
  Guayanilla, PR                                                        
  Juana Diaz, PR                                                        
  Penuelas, PR                                                          
  Ponce, PR                                                             
  Villalba, PR                                                          
  Yauco, PR                                                             
6403  Portland, ME..................................    0.9744    0.9824
  Cumberland, ME                                                        
  Sagadahoc, ME                                                         
  York, ME                                                              
6440  *Portland-Vancouver, OR-WA....................    1.1248    1.0839
  Clackamas, OR                                                         
  Columbia, OR                                                          
  Multnomah, OR                                                         
  Washington, OR                                                        
  Yamhill, OR                                                           
  Clark, WA                                                             
6483  *Providence-Warwick, RI.......................    1.1027    1.0692
  Bristol, RI                                                           
  Kent, RI                                                              
  Newport, RI                                                           
  Providence, RI                                                        
  Washington, RI                                                        
6520  Provo-Orem, UT................................    0.9843    0.9892
  Utah, UT                                                              
6560  Pueblo, CO....................................    0.8508    0.8953
  Pueblo, CO                                                            
6580  Punta Gorda, FL...............................    0.8806    0.9166
  Charlotte, FL                                                         
6600  Racine, WI....................................    0.8704    0.9093
  Racine, WI                                                            
6640  Raleigh-Durham-Chapel Hill, NC................    0.9539    0.9682
  Chatham, NC                                                           
  Durham, NC                                                            
  Franklin, NC                                                          
  Johnston, NC                                                          
  Orange, NC                                                            

[[Page 45888]]
                                                                        
  Wake, NC                                                              
6660  Rapid City, SD................................    0.8267    0.8778
  Pennington, SD                                                        
6680  Reading, PA...................................    0.9570    0.9704
  Berks, PA                                                             
6690  Redding, CA...................................    1.1796    1.1198
  Shasta, CA                                                            
6720  Reno, NV......................................    1.1087    1.0732
  Washoe, NV                                                            
6740  Richland-Kennewick-Pasco, WA..................    1.0011    1.0008
  Benton, WA                                                            
  Franklin, WA                                                          
6760  Richmond-Petersburg, VA.......................    0.9055    0.9343
  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.................    1.1489    1.0997
  Riverside, CA                                                         
  San Bernardino, CA                                                    
6800  Roanoke, VA...................................    0.8570    0.8997
  Botetourt, VA                                                         
  Roanoke, VA                                                           
  Roanoke City, VA                                                      
  Salem City, VA                                                        
6820  Rochester, MN.................................    1.0545    1.0370
  Olmsted, MN                                                           
6840  *Rochester, NY................................    0.9585    0.9714
  Genesee, NY                                                           
  Livingston, NY                                                        
  Monroe, NY                                                            
  Ontario, NY                                                           
  Orleans, NY                                                           
  Wayne, NY                                                             
6880  Rockford, IL..................................    0.8872    0.9213
  Boone, IL                                                             
  Ogle, IL                                                              
  Winnebago, IL                                                         
6895  Rocky Mount, NC...............................    0.8836    0.9187
  Edgecombe, NC                                                         
  Nash, NC                                                              
6920  *Sacramento, CA...............................    1.2539    1.1676
  El Dorado, CA                                                         
  Placer, CA                                                            
  Sacramento, CA                                                        
6960  Saginaw-Bay City-Midland, MI..................    0.9489    0.9647
  Bay, MI                                                               
  Midland, MI                                                           
  Saginaw, MI                                                           
6980  St. Cloud, MN.................................    0.9549    0.9689
  Benton, MN                                                            
  Stearns, MN                                                           
7000  St. Joseph, MO................................    0.8457    0.8916
  Andrews, MO                                                           
  Buchanan, MO                                                          
7040  *St. Louis, MO-IL.............................    0.8880    0.9219
  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                                                            
7080  Salem, OR.....................................    0.9575    0.9707
  Marion, OR                                                            
  Polk, OR                                                              
7120  Salinas, CA...................................    1.4263    1.2753
  Monterey, CA                                                          
7160  *Salt Lake City-Ogden, UT.....................    0.9681    0.9780
  Davis, UT                                                             
  Salt Lake, UT                                                         
  Weber, UT                                                             
7200  San Angelo, TX................................    0.7777    0.8418
  Tom Green, TX                                                         
7240  *San Antonio, TX..............................    0.8414    0.8885
  Bexar, TX                                                             
  Comal, TX                                                             
  Guadalupe, TX                                                         
  Wilson, TX                                                            
7320  *San Diego, CA................................    1.1856    1.1237
  San Diego, CA                                                         
7360  *San Francisco, CA............................    1.4288    1.2768
  Marin, CA                                                             
  San Francisco, CA                                                     
  San Mateo, CA                                                         
7400  *San Jose, CA.................................    1.4455    1.2870
  Santa Clara, CA                                                       
7440  *San Juan-Bayamon, PR.........................    0.4514    0.5800
  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                                                           
7460  San Luis Obispo-Atascadero-Paso Robles, CA....    1.1405    1.0942
  San Luis Obispo, CA                                                   
7480  Santa Barbara-Santa Maria-Lompoc, CA..........    1.1136    1.0765
  Santa Barbara, CA                                                     
7485  Santa Cruz-Watsonville, CA....................    1.3944    1.2557
  Santa Cruz, CA                                                        
7490  Santa Fe, NM..................................    1.1108    1.0746
  Los Alamos, NM                                                        
  Santa Fe, NM                                                          
7500  Santa Rosa, CA................................    1.2693    1.1774
  Sonoma, CA                                                            
7510  Sarasota-Bradenton, FL........................    0.9824    0.9879
  Manatee, FL                                                           
  Sarasota, FL                                                          
7520  Savannah, GA..................................    0.8968    0.9281
  Bryan, GA                                                             
  Chatham, GA                                                           
  Effingham, GA                                                         
7560  Scranton--Wilkes-Barre--Hazleton, PA..........    0.8724    0.9108
  Columbia, PA                                                          
  Lackawanna, PA                                                        
  Luzerne, PA                                                           
  Wyoming, PA                                                           
7600  *Seattle-Bellevue-Everett, WA.................    1.1307    1.0878
  Island, WA                                                            
  King, WA                                                              
  Snohomish, WA                                                         
7610  Sharon, PA....................................    0.9093    0.9370
  Mercer, PA                                                            
7620  Sheboygan, WI.................................    0.7981    0.8569
  Sheboygan, WI                                                         
7640  Sherman-Denison, TX...........................    0.8780    0.9148
  Grayson, TX                                                           
7680  Shreveport-Bossier City, LA...................    0.9007    0.9309
  Bossier, LA                                                           
  Caddo, LA                                                             
  Webster, LA                                                           
7720  Sioux City, IA-NE.............................    0.8436    0.8901
  Woodbury, IA                                                          
  Dakota, NE                                                            
7760  Sioux Falls, SD...............................    0.8761    0.9134
  Lincoln, SD                                                           
  Minnehaha, SD                                                         
7800  South Bend, IN................................    0.9475    0.9637
  St. Joseph, IN                                                        
7840  Spokane, WA...................................    1.0377    1.0257
  Spokane, WA                                                           
7880  Springfield, IL...............................    0.8940    0.9261

[[Page 45889]]
                                                                        
  Menard, IL                                                            
  Sangamon, IL                                                          
7920  Springfield, MO...............................    0.7896    0.8506
  Christian, MO                                                         
  Greene, MO                                                            
  Webster, MO                                                           
8003  Springfield, MA...............................    1.0517    1.0351
  Hampden, MA                                                           
  Hampshire, MA                                                         
8050  State College, PA.............................    1.0162    1.0111
  Centre, PA                                                            
8080  Steubenville-Weirton, OH-WV...................    0.8455    0.8914
  Jefferson, OH                                                         
  Brooke, WV                                                            
  Hancock, WV                                                           
8120  Stockton-Lodi, CA.............................    1.1672    1.1117
  San Joaquin, CA                                                       
8140  Sumter, SC....................................    0.8344    0.8834
  Sumter, SC                                                            
8160  Syracuse, NY..................................    0.9531    0.9676
  Cayuga, NY                                                            
  Madison, NY                                                           
  Onondaga, NY                                                          
  Oswego, NY                                                            
8200  Tacoma, WA....................................    1.0828    1.0560
  Pierce, WA                                                            
8240  Tallahassee, FL...............................    0.8321    0.8817
  Gadsden, FL                                                           
  Leon, FL                                                              
8280  *Tampa-St. Petersburg-Clearwater, FL..........    0.9311    0.9523
  Hernando, FL                                                          
  Hillsborough, FL                                                      
  Pasco, FL                                                             
  Pinellas, FL                                                          
8320  Terre Haute, IN...............................    0.8672    0.9070
  Clay, IN                                                              
  Vermillion, IN                                                        
  Vigo, IN                                                              
8360  Texarkana, AR-Texarkana, TX...................    0.8257    0.8771
  Miller, AR                                                            
  Bowie, TX                                                             
8400  Toledo, OH....................................    1.0330    1.0225
  Fulton, OH                                                            
  Lucas, OH                                                             
  Wood, OH                                                              
8440  Topeka, KS....................................    0.9735    0.9818
  Shawnee, KS                                                           
8480  Trenton, NJ...................................    1.0033    1.0023
  Mercer, NJ                                                            
8520  Tucson, AZ....................................    0.9291    0.9509
  Pima, AZ                                                              
8560  Tulsa, OK.....................................    0.8245    0.8762
  Creek, OK                                                             
  Osage, OK                                                             
  Rogers, OK                                                            
  Tulsa, OK                                                             
  Wagoner, OK                                                           
8600  Tuscaloosa, AL................................    0.8090    0.8649
  Tuscaloosa, AL                                                        
8640  Tyler, TX.....................................    0.9430    0.9606
  Smith, TX                                                             
8680  Utica-Rome, NY................................    0.8514    0.8957
  Herkimer, NY                                                          
  Oneida, NY                                                            
8720  Vallejo-Fairfield-Napa, CA....................    1.3040    1.1993
  Napa, CA                                                              
  Solano, CA                                                            
8735  Ventura, CA...................................    1.2330    1.1542
  Ventura, CA                                                           
8750  Victoria, TX..................................    0.8435    0.8900
  Victoria, TX                                                          
8760  Vineland-Millville-Bridgeton, NJ..............    0.9966    0.9977
  Cumberland, NJ                                                        
8780  Visalia-Tulare-Porterville, CA................    1.0446    1.0303
  Tulare, CA                                                            
8800  Waco, TX......................................    0.7898    0.8508
  McLennan, TX                                                          
8840  *Washington, DC-MD-VA-WV......................    1.1075    1.0724
  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                                                         
8920  Waterloo-Cedar Falls, IA......................    0.8638    0.9046
  Black Hawk, IA                                                        
8940  Wausau, WI....................................    1.0034    1.0023
  Marathon, WI                                                          
8960  West Palm Beach-Boca Raton, FL................    1.0096    1.0066
  Palm Beach, FL                                                        
9000  Wheeling, OH-WV...............................    0.7518    0.8225
  Belmont, OH                                                           
  Marshall, WV                                                          
  Ohio, WV                                                              
9040  Wichita, KS...................................    0.9562    0.9698
  Butler, KS                                                            
  Harvey, KS                                                            
  Sedgwick, KS                                                          
9080  Wichita Falls, TX.............................    0.7763    0.8408
  Archer, TX                                                            
  Wichita, TX                                                           
9140  Williamsport, PA..............................    0.8508    0.8953
  Lycoming, PA                                                          
9160  Wilmington-Newark, DE-MD......................    1.1539    1.1030
  New Castle, DE                                                        
  Cecil, MD                                                             
9200  Wilmington, NC................................    0.9299    0.9514
  New Hanover, NC                                                       
  Brunswick, NC                                                         
9260  Yakima, WA....................................    0.9951    0.9966
  Yakima, WA                                                            
9270  Yolo, CA......................................    1.1615    1.1080
  Yolo, CA                                                              
9280  York, PA......................................    0.9165    0.9420
  York, PA                                                              
9320  Youngstown-Warren, OH.........................    0.9555    0.9693
  Columbiana, OH                                                        
  Mahoning, OH                                                          
  Trumbull, OH                                                          
9340  Yuba City, CA.................................    1.0611    1.0414
  Sutter, CA                                                            
  Yuba, CA                                                              
9360  Yuma, AZ......................................    0.9769    0.9841
  Yuma, AZ                                                              
------------------------------------------------------------------------



Table 4b.--Wage Index and Capital Geographic Adjustment Factor (GAF) for
                               Rural Areas                              
------------------------------------------------------------------------
                                                        Wage            
                    Nonurban area                       index      GAF  
------------------------------------------------------------------------
Alabama.............................................    0.7183    0.7973
Alaska..............................................    1.2034    1.1352
Arizona.............................................    0.7995    0.8579
Arkansas............................................    0.6901    0.7757
California..........................................    1.0096    1.0066
Colorado............................................    0.7988    0.8574
Connecticut.........................................    1.3117    1.2042
Delaware............................................    0.9019    0.9317
Florida.............................................    0.8668    0.9067
Georgia.............................................    0.7721    0.8377
Hawaii..............................................    0.9847    0.9895
Idaho...............................................    0.8378    0.8859
Illinois............................................    0.7497    0.8210
Indiana.............................................    0.8067    0.8632
Iowa................................................    0.7352    0.8101
Kansas..............................................    0.7229    0.8007
Kentucky............................................    0.7660    0.8331
Louisiana...........................................    0.7275    0.8042
Maine...............................................    0.8425    0.8893
Maryland............................................    0.8463    0.8920
Massachusetts.......................................    1.0577    1.0392
Michigan............................................    0.8744    0.9122
Minnesota...........................................    0.8129    0.8677
Mississippi.........................................    0.6697    0.7599
Missouri............................................    0.7187    0.7976
Montana.............................................    0.8091    0.8650
Nebraska............................................    0.7219    0.8000
Nevada..............................................    0.8788    0.9153
New Hampshire.......................................    1.0013   1.0009 

[[Page 45890]]
                                                                        
New Jersey \1\......................................  ........  ........
New Mexico..........................................    0.8329    0.8823
New York............................................    0.8647    0.9052
North Carolina......................................    0.7983    0.8570
North Dakota........................................    0.7265    0.8035
Ohio................................................    0.8286    0.8792
Oklahoma............................................    0.6985    0.7821
Oregon..............................................    0.9486    0.9645
Pennsylvania........................................    0.8521    0.8962
Puerto Rico.........................................    0.4326    0.5634
Rhode Island \1\....................................  ........  ........
South Carolina......................................    0.7738    0.8389
South Dakota........................................    0.6987    0.7823
Tennessee...........................................    0.7409    0.8144
Texas...............................................    0.7302    0.8063
Utah................................................    0.8652    0.9056
Vermont.............................................    0.9043    0.9334
Virginia............................................    0.7801    0.8436
Washington..........................................    0.9775    0.9845
West Virginia.......................................    0.8069    0.8634
Wisconsin...........................................    0.8391    0.8868
Wyoming.............................................    0.8013    0.8592
------------------------------------------------------------------------
\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  
------------------------------------------------------------------------
Abilene, TX.........................................    0.8546    0.8980
Albuquerque, NM.....................................    0.9542    0.9684
Alexandria, LA......................................    0.8010    0.8590
Allentown-Bethlehem-Easton, PA......................    1.0198    1.0135
Amarillo, TX........................................    0.8759    0.9133
Anchorage, AK.......................................    1.3373    1.2202
Asheville, NC.......................................    0.9218    0.9458
Atlanta, GA.........................................    1.0069    1.0047
Augusta-Aiken, GA-SC................................    0.8955    0.9272
Baton Rouge, LA.....................................    0.8670    0.9069
Benton Harbor, MI...................................    0.8304    0.8805
Benton Harbor, MI (Rural Michigan Hosp.)............    0.8744    0.9122
Bergen-Passaic, NJ..................................    1.1329    1.0892
Biloxi-Gulfport-Pascagoula, MS......................    0.8448    0.8909
Birmingham, AL......................................    0.9144    0.9406
Bismarck, ND........................................    0.8172    0.8709
Boise City, ID......................................    0.9150    0.9410
Boston-Brockton-Nashua, MA-NH.......................    1.1685    1.1125
Brazoria, TX........................................    0.7724    0.8379
Casper, WY..........................................    0.8662    0.9063
Champaign-Urbana, IL................................    0.8664    0.9065
Charleston-North Charleston, SC.....................    0.8930    0.9254
Charleston, WV......................................    0.9317    0.9527
Charlotte-Gastonia-Rock Hill, NC-SC.................    0.9668    0.9771
Charlottesville, VA.................................    0.9030    0.9325
Chattanooga, TN-GA..................................    0.9015    0.9315
Chicago, IL.........................................    1.0511    1.0347
Cincinnati, OH-KY-IN................................    0.9418    0.9598
Cleveland-Lorain-Elyria, OH.........................    0.9835    0.9887
Columbia, MO........................................    0.9151    0.9411
Columbus, GA-AL.....................................    0.7756    0.8403
Columbus, OH........................................    0.9734    0.9817
Dallas, TX..........................................    0.9804    0.9865
Davenport-Rock Island-Moline, IA-IL.................    0.8347    0.8836
Dayton-Springfield, OH..............................    0.9428    0.9605
Denver, CO..........................................    1.0447    1.0304
Des Moines, IA......................................    0.8684    0.9079
Detroit, MI.........................................    1.0834    1.0564
Duluth-Superior, MN-WI..............................    0.9660    0.9766
Dutchess County, NY.................................    1.0546    1.0371
Eau Claire, WI......................................    0.8660    0.9062
Elkhart-Goshen, IN..................................    0.8806    0.9166
Eugene-Springfield, OR..............................    1.1184    1.0796
Fargo-Moorhead, ND-MN...............................    0.8912    0.9242
Fayetteville, NC....................................    0.8504    0.8950
Flint, MI...........................................    1.0738    1.0500
Florence, AL........................................    0.7970    0.8561
Florence, SC........................................    0.8537    0.8973
Fort Lauderdale, FL.................................    1.0952    1.0643
Fort Pierce-Port St Lucie, FL.......................    1.0069    1.0047
Fort Smith, AR-OK...................................    0.7608    0.8293
Fort Walton Beach, FL...............................    0.8705    0.9094
Fort Worth-Arlington, TX............................    1.0052    1.0036
Gadsden, AL.........................................    0.8568    0.8996
Grand Forks, ND-MN..................................    0.8983    0.9292
Great Falls, MT.....................................    0.9039    0.9331
Greeley, CO.........................................    0.8993    0.9299
Green Bay, WI.......................................    0.9190    0.9438
Greenville-Spartanburg-Anderson, SC.................    0.9047    0.9337
Harrisburg-Lebanon-Carlisle, PA.....................    0.9972    0.9981
Hartford, CT........................................    1.2228    1.1477
Honolulu, HI........................................    1.1212    1.0815
Houston, TX.........................................    0.9874    0.9914
Huntington-Ashland, WV-KY-OH........................    0.8997    0.9302
Huntsville, AL......................................    0.7948    0.8545
Indianapolis, IN....................................    0.9647    0.9757
Jackson, MS.........................................    0.7642    0.8318
Jacksonville, FL....................................    0.8953    0.9271
Johnson City-Kingsport-Bristol, TN-VA...............    0.8769    0.9140
Joplin, MO..........................................    0.7923    0.8526
Kalamazoo-Battlecreek, MI...........................    1.0449    1.0305
Kansas City, KS-MO..................................    0.9351    0.9551
Knoxville, TN.......................................    0.8518    0.8960
Lafayette, LA.......................................    0.8498    0.8945
Lansing-East Lansing, MI............................    1.0105    1.0072
Las Vegas, NV-AZ....................................    1.0934    1.0631
Lexington, KY.......................................    0.8348    0.8837
Lima, OH............................................    0.8863    0.9207
Lincoln, NE.........................................    0.8885    0.9222
Little Rock-North Little Rock, AR...................    0.8527    0.8966
Longview-Marshall, TX...............................    0.8479    0.8932
Los Angeles-Long Beach, CA..........................    1.2461    1.1626
Louisville, KY-IN...................................    0.9327    0.9534
Lubbock, TX.........................................    0.8443    0.8906
Madison, WI.........................................    1.0055    1.0038
Mansfield, OH.......................................    0.8373    0.8855
Medford-Ashland, OR.................................    1.0162    1.0111
Memphis, TN-AR-MS...................................    0.8292    0.8796
Middlesex-Somerset-Hunterdon, NJ....................    1.0355    1.0242
Milwaukee-Waukesha, WI..............................    0.9498    0.9653
Minneapolis-St. Paul, MN-WI.........................    1.0744    1.0504
Modesto, CA.........................................    1.0658    1.0446
Monroe, LA..........................................    0.7948    0.8545
Montgomery, AL......................................    0.7901    0.8510
Nashville, TN.......................................    0.9266    0.9491
New London-Norwich, CT..............................    1.2088    1.1387
New Orleans, LA.....................................    0.9454    0.9623
New York, NY........................................    1.3852    1.2500
Newark, NJ..........................................    1.1241    1.0834
Newburgh, NY-PA.....................................    1.0619    1.0420
Oakland, CA.........................................    1.5203    1.3322
Odessa-Midland, TX..................................    0.8753    0.9128
Oklahoma City, OK...................................    0.8358    0.8844
Omaha, NE-IA........................................    0.9794    0.9858
Orange County, CA...................................    1.5593    1.3556
Peoria-Pekin, IL....................................    0.8619    0.9032
Philadelphia, PA-NJ.................................    1.1098    1.0739
Pittsburgh, PA......................................    0.9743    0.9823
Portland, ME........................................    0.9744    0.9824
Portland-Vancouver, OR-WA...........................    1.1248    1.0839
Provo-Orem, UT......................................    0.9646    0.9756
Raleigh-Durham-Chapel Hill, NC......................    0.9539    0.9682
Rapid City, SD......................................    0.8267    0.8778
Richland-Kennewick-Pasco, WA........................    0.9768    0.9841
Roanoke, VA.........................................    0.8570    0.8997
Rochester, MN.......................................    1.0545    1.0370
Rockford, IL........................................    0.8872    0.9213
Rocky Mount, NC.....................................    0.8836    0.9187
Sacremento, CA......................................    1.2539    1.1676
Saginaw-Bay City-Midland, MI,.......................    0.9489    0.9647
St. Cloud, MN.......................................    0.9549    0.9689
St. Louis, MO-IL....................................    0.8880    0.9219
Salem, OR...........................................    0.9575    0.9707
Salinas, CA.........................................    1.4141    1.2678
Salt Lake City-Ogden, UT............................    0.9681    0.9780
San Diego, CA.......................................    1.1856    1.1237
San Francisco, CA...................................    1.4288    1.2768
San Jose, CA........................................    1.4455    1.2870
Santa Rosa, CA......................................    1.2574    1.1698
Sarasota-Bradenton, FL..............................    0.9824    0.9879
Savannah, GA........................................    0.8968    0.9281
Seattle-Bellevue-Everett, WA........................    1.1307    1.0878
Sharon, PA..........................................    0.9093    0.9370
Sherman-Denison, TX.................................    0.8436    0.8901
Sioux Falls, SD.....................................    0.8761    0.9134
South Bend, IN......................................    0.9475    0.9637
Springfield, IL.....................................    0.8836    0.9187
Springfield, MO.....................................    0.7896    0.8506
Stockton, CA........................................    1.1672   1.1117 

[[Page 45891]]
                                                                        
Syracuse, NY........................................    0.9531    0.9676
Tampa-St. Petersburg-Clearwater, FL.................    0.9311    0.9523
Texarkana, TX-Texarkana, AR.........................    0.8257    0.8771
Topeka, KS..........................................    0.9401    0.9586
Trenton, NJ.........................................    1.2599    1.1714
Tucson, AZ..........................................    0.9291    0.9509
Tulsa, OK...........................................    0.8245    0.8762
Tyler, TX...........................................    0.9164    0.9420
Ventura, CA.........................................    1.2330    1.1542
Victoria, TX........................................    0.8435    0.8900
Waco, TX............................................    0.7898    0.8508
Washington, DC-MD-VA-WV.............................    1.1075    1.0724
Waterloo-Cedar Falls, IA............................    0.8638    0.9046
Wausau, WI..........................................    0.9679    0.9779
Wichita, KS.........................................    0.9309    0.9521
Rural Alabama.......................................    0.7183    0.7973
Rural Arkansas......................................    0.6901    0.7757
Rural Florida.......................................    0.8668    0.9067
Rural Kentucky......................................    0.7660    0.8331
Rural Louisiana.....................................    0.7275    0.8042
Rural Michigan......................................    0.8744    0.9122
Rural Minnesota.....................................    0.8129    0.8677
Rural Missouri......................................    0.7187    0.7976
Rural New Hampshire.................................    1.0013    1.0009
Rural North Carolina................................    0.7983    0.8570
Rural Virginia......................................    0.7801    0.8436
Rural West Virginia.................................    0.8069    0.8634
Rural Wyoming.......................................    0.8013    0.8592
------------------------------------------------------------------------



             Table 4d.--Average Hourly Wage for Urban Areas             
------------------------------------------------------------------------
                                                                Average 
                          Urban area                             hourly 
                                                                  wage  
------------------------------------------------------------------------
Abilene, TX..................................................    16.1778
Aguadilla, PR................................................     8.9796
Akron, OH....................................................    18.0935
Albany, GA...................................................    16.2942
Albany-Schenectady-Troy, NY..................................    16.6927
Albuquerque, NM..............................................    18.0635
Alexandria, LA...............................................    14.9860
Allentown-Bethlehem-Easton, PA-NJ............................    19.3050
Altoona, PA..................................................    17.0490
Amarillo, TX.................................................    16.5798
Anchorage, AK................................................    25.3141
Ann Arbor, MI................................................    22.9356
Anniston, AL.................................................    15.4427
Appleton-Oshkosh-Neenah, WI..................................    16.7413
Arecibo, PR..................................................     8.5149
Asheville, NC................................................    17.4501
Athens, GA...................................................    17.2208
Atlanta, GA..................................................    19.0600
Atlantic City-Cape May, NJ...................................    20.7004
Augusta-Aiken, GA-SC.........................................    16.9519
Austin-San Marcos, TX........................................    17.5193
Bakersfield, CA..............................................    19.8792
Baltimore, MD................................................    18.6758
Bangor, ME...................................................    17.7185
Barnstable-Yarmouth, MA......................................    25.4728
Baton Rouge, LA..............................................    16.4123
Beaumont-Port Arthur, TX.....................................    16.2858
Bellingham, WA...............................................    24.0042
Benton Harbor, MI............................................    15.6323
Bergen-Passaic, NJ...........................................    22.1050
Billings, MT.................................................    16.4779
Biloxi-Gulfport-Pascagoula, MS...............................    15.9912
Binghamton, NY...............................................    17.0452
Birmingham, AL...............................................    17.3090
Bismarck, ND.................................................    15.7090
Bloomington, IN..............................................    15.9556
Bloomington-Normal, IL.......................................    16.5439
Boise City, ID...............................................    17.1324
Boston-Brockton-Nashua, MA-NH................................    22.1167
Boulder-Longmont, CO.........................................    18.5131
Brazoria, TX.................................................    16.6847
Bremerton, WA................................................    19.4876
Brownsville-Harlingen-San Benito, TX.........................    16.3732
Bryan-College Station, TX....................................    17.0117
Buffalo-Niagara Falls, NY....................................    17.3886
Burlington, VT...............................................    17.5139
Caguas, PR...................................................     8.9087
Canton-Massillon, OH.........................................    16.5610
Casper, WY...................................................    15.9558
Cedar Rapids, IA.............................................    15.8233
Champaign-Urbana, IL.........................................    16.7843
Charleston-North Charleston, SC..............................    16.9003
Charleston, WV...............................................    17.9801
Charlotte-Gastonia-Rock Hill, NC-SC..........................    18.3004
Charlottesville, VA..........................................    17.3750
Chattanooga, TN-GA...........................................    17.2815
Cheyenne, WY.................................................    15.0213
Chicago, IL..................................................    20.1255
Chico-Paradise, CA...........................................    19.9349
Cincinnati, OH-KY-IN.........................................    17.8270
Clarksville-Hopkinsville, TN-KY..............................    14.2763
Cleveland-Lorain-Elyria, OH..................................    18.6165
Colorado Springs, CO.........................................    17.5930
Columbia, MO.................................................    17.9090
Columbia, SC.................................................    17.0995
Columbus, GA-AL..............................................    14.6815
Columbus, OH.................................................    18.4253
Corpus Christi, TX...........................................    16.9241
Cumberland, MD-WV............................................    15.8483
Dallas, TX...................................................    18.5580
Danville, VA.................................................    16.0243
Davenport-Moline-Rock Island, IA-IL..........................    15.8012
Dayton-Springfield, OH.......................................    17.8462
Daytona Beach, FL............................................    16.8507
Decatur, AL..................................................    15.4835
Decatur, IL..................................................    14.7466
Denver, CO...................................................    19.7749
Des Moines, IA...............................................    16.6435
Detroit, MI..................................................    20.4975
Dothan, AL...................................................    14.6729
Dover, DE....................................................    16.9613
Dubuque, IA..................................................    15.2452
Duluth-Superior, MN-WI.......................................    18.2853
Dutchess County, NY..........................................    20.2495
Eau Claire, WI...............................................    16.3926
El Paso, TX..................................................    17.5401
Elkhart-Goshen, IN...........................................    16.5895
Elmira, NY...................................................    16.0141
Enid, OK.....................................................    15.4658
Erie, PA.....................................................    17.4069
Eugene-Springfield, OR.......................................    21.0833
Evansville, Henderson, IN-KY.................................    16.8454
Fargo-Moorhead, ND-MN........................................    16.8702
Fayetteville, NC.............................................    16.7399
Fayetteville-Springdale-Rogers, AR...........................    13.4214
Flagstaff, AZ-UT.............................................    16.3150
Flint, MI....................................................    20.3263
Florence, AL.................................................    14.5759
Florence, SC.................................................    16.1316
Fort Collins-Loveland, CO....................................    20.0554
Fort Lauderdale, FL..........................................    19.8737
Fort Myers-Cape Coral, FL....................................    18.2967
Fort Pierce-Fort St Lucie, FL................................    19.6884
Fort Smith, AR-OK............................................    14.3640
Fort Walton Beach, FL........................................    16.4775
Fort Wayne, IN...............................................    16.4522
Fort Worth-Arlington, TX.....................................    19.0148
Fresno, CA...................................................    19.9179
Gadsden, AL..................................................    16.2189
Gainesville, FL..............................................    17.0500
Galveston-Texas City, TX.....................................    19.5055
Gary, IN.....................................................    18.0150
Glens Falls, NY..............................................    17.5596
Goldsboro, NC................................................    15.4556
Grand Forks, ND-MN...........................................    16.9349
Grand Junction, CO...........................................    16.9556
Grand Rapids-Muskegon-Holland, MI............................    19.0334
Great Falls, MT..............................................    16.8712
Greeley, CO..................................................    17.3139
Green Bay, WI................................................    16.8657
Greensboro-Winston-Salem-High Point, NC......................    17.3386
Greenville, NC...............................................    17.2294
Greenville-Spartanburg-Anderson, SC..........................    17.1252
Hagerstown, MD...............................................    17.1762
Hamilton-Middletown, OH......................................    16.6240
Harrisburg-Lebanon-Carlisle, PA..............................    18.8766
Hartford, CT.................................................    23.4548
Hattiesburg, MS..............................................    13.7150
Hickory-Morganton-Lenoir, NC.................................    16.4247
Honolulu, HI.................................................    21.2237
Houma, LA....................................................    14.3783
Houston, TX..................................................    18.6920
Huntington-Ashland, WV-KY-OH.................................    17.0304
Huntsville, AL...............................................    15.3580
Indianapolis, IN.............................................    18.4690
Iowa City, IA................................................    17.7396
Jackson, MI..................................................    17.2871
Jackson, MS..................................................    14.2875
Jackson, TN..................................................    16.1114
Jacksonville, FL.............................................    16.9472
Jacksonville, NC.............................................    13.1113
Jamestown, NY................................................    14.2640
Janesville-Beloit, WI........................................    16.6310
Jersey City, NJ..............................................    20.9167
Johnson City-Kingsport-Bristol, TN-VA........................    16.5566
Johnstown, PA................................................    16.9376
Joplin, MO...................................................    14.9986
Kalamazoo-Battle Creek, MI...................................    20.1733
Kankakee, IL.................................................    17.2516
Kansas City, KS-MO...........................................    17.7010
Kenosha, WI..................................................    16.7936
Killeen-Temple, TX...........................................    19.9249
Knoxville, TN................................................    16.1236
Kokomo, IN...................................................    16.7227
LaCrosse, WI-MN..............................................    16.1256
Lafayette, LA................................................   15.9831 

[[Page 45892]]
                                                                        
Lafayette, IN................................................    15.7641
Lake Charles, LA.............................................    15.3213
Lakeland-Winter Haven, FL....................................    16.8079
Lancaster, PA................................................    18.1140
Lansing-East Lansing, MI.....................................    19.1281
Laredo, TX...................................................    12.7772
Las Cruces, NM...............................................    16.7732
Las Vegas, NV-AZ.............................................    20.6967
Lawrence, KS.................................................    16.1829
Lawton, OK...................................................    16.2688
Lewiston-Auburn, ME..........................................    17.8565
Lexington, KY................................................    15.8030
Lima, OH.....................................................    16.7765
Lincoln, NE..................................................    17.2129
Little Rock-North Little Rock, AR............................    16.1414
Longview-Marshall, TX........................................    16.5201
Los Angeles-Long Beach, CA...................................    23.6449
Louisville, KY-IN............................................    17.6559
Lubbock, TX..................................................    15.9821
Lynchburg, VA................................................    15.5313
Macon, GA....................................................    17.0204
Madison, WI..................................................    19.0333
Mansfield, OH................................................    15.8496
Mayaguez, PR.................................................     8.7914
McAllen-Edinburg-Mission, TX.................................    16.4091
Medford-Ashland, OR..........................................    18.8231
Melbourne-Titusville-Palm Bay, FL............................    17.6476
Memphis, TN-AR-MS............................................    15.8992
Merced, CA...................................................    20.5898
Miami, FL....................................................    19.2390
Middlesex-Somerset-Hunterdon, NJ.............................    20.4619
Milwaukee-Waukesha, WI.......................................    17.9801
Minneapolis-St Paul, MN-WI...................................    20.3375
Mobile, AL...................................................    14.7679
Modesto, CA..................................................    21.1266
Monmouth-Ocean, NJ...........................................    19.9942
Monroe, LA...................................................    14.9551
Montgomery, AL...............................................    14.9130
Muncie, IN...................................................    17.2733
Myrtle Beach, SC.............................................    15.0700
Naples, FL...................................................    18.6860
Nashville, TN................................................    17.5408
Nassau-Suffolk, NY...........................................    25.7257
New Haven-Bridgeport-Stamford-...............................           
Danbury-Waterbury, CT........................................    23.7262
New London-Norwich, CT.......................................    22.5252
New Orleans, LA..............................................    17.8955
New York, NY.................................................    26.1508
Newark, NJ...................................................    22.5401
Newburgh, NY-PA..............................................    20.1006
Norfolk-Virginia Beach-Newport News, VA-NC...................    15.9211
Oakland, CA..................................................    28.7763
Ocala, FL....................................................    16.9266
Odessa-Midland, TX...........................................    16.5687
Oklahoma City, OK............................................    15.8211
Olympia, WA..................................................    21.0283
Omaha, NE-IA.................................................    18.5393
Orange County, CA............................................    23.2815
Orlando, FL..................................................    18.0111
Owensboro, KY................................................    14.1939
Panama City, FL..............................................    15.4882
Parkersburg-Marietta, WV-OH..................................    14.6723
Pensacola, FL................................................    15.4904
Peoria-Pekin, IL.............................................    16.3153
Philadelphia, PA-NJ..........................................    21.0452
Phoenix-Mesa, AZ.............................................    18.5670
Pine Bluff, AR...............................................    15.1147
Pittsburgh, PA...............................................    18.4432
Pittsfield, MA...............................................    20.5161
Ponce, PR....................................................     9.0479
Portland, ME.................................................    18.4457
Portland-Vancouver, OR-WA....................................    21.2923
Providence-Warwick, RI.......................................    20.8739
Provo-Orem, UT...............................................    18.6323
Pueblo, CO...................................................    16.1052
Punta Gorda, FL..............................................    17.7975
Racine, WI...................................................    16.4769
Raleigh-Durham-Chapel Hill, NC...............................    18.0562
Rapid City, SD...............................................    15.6494
Reading, PA..................................................    18.1153
Redding, CA..................................................    22.3298
Reno, NV.....................................................    20.9876
Richland-Kennewick-Pasco, WA.................................    18.9500
Richmond-Petersburg, VA......................................    17.1415
Riverside-San Bernardino, CA.................................    21.9893
Roanoke, VA..................................................    16.0589
Rochester, MN................................................    19.9607
Rochester, NY................................................    18.1442
Rockford, IL.................................................    16.7939
Rocky Mount, NC..............................................    16.5823
Sacramento, CA...............................................    23.7352
Saginaw-Bay City-Midland, MI.................................    17.9615
St Cloud, MN.................................................    18.0754
St Joseph, MO................................................    16.0095
St Louis, MO-IL..............................................    16.8087
Salem, OR....................................................    18.1534
Salinas, CA..................................................    26.9989
Salt Lake City-Ogden, UT.....................................    18.3253
San Angelo, TX...............................................    14.7224
San Antonio, TX..............................................    15.9267
San Diego, CA................................................    22.4200
San Francisco, CA............................................    27.2835
San Jose, CA.................................................    27.3139
San Juan-Bayamon, PR.........................................     8.5450
San Luis Obispo-Atascadero-Paso Robles, CA...................    21.5899
Santa Barbara-Santa Maria-Lompoc, CA.........................    21.0804
Santa Cruz-Watsonville, CA...................................    26.3954
Santa Fe, NM.................................................    21.0277
Santa Rosa, CA...............................................    24.0268
Sarasota-Bradenton, FL.......................................    18.4321
Savannah, GA.................................................    16.9751
Scranton-Wilkes Barre-Hazleton, PA...........................    16.5137
Seattle-Bellevue-Everett, WA.................................    21.3995
Sharon, PA...................................................    16.8537
Sheboygan, WI................................................    15.1072
Sherman-Denison, TX..........................................    16.6210
Shreveport-Bossier City, LA..................................    17.0508
Sioux City, IA-NE............................................    15.9684
Sioux Falls, SD..............................................    16.5847
South Bend,IN................................................    17.9364
Spokane, WA..................................................    19.6432
Springfield, IL..............................................    16.9223
Springfield, MO..............................................    14.9476
Springfield, MA..............................................    19.9089
State College, PA............................................    19.2360
Steubenville-Weirton, OH-WV..................................    16.0044
Stockton-Lodi, CA............................................    21.8377
Sumter, SC...................................................    15.7945
Syracuse, NY.................................................    18.0411
Tacoma, WA...................................................    20.4969
Tallahassee, FL..............................................    15.7519
Tampa-St Petersburg-Clearwater, FL...........................    17.5324
Terre Haute, IN..............................................    16.4157
Texarkana, TX-Texarkana, AR..................................    15.5180
Toledo, OH...................................................    19.7316
Topeka, KS...................................................    18.4279
Trenton, NJ..................................................    18.9912
Tucson, AZ...................................................    17.5838
Tulsa, OK....................................................    15.6073
Tuscaloosa, AL...............................................    15.3144
Tyler, TX....................................................    17.8508
Utica-Rome, NY...............................................    16.1173
Vallejo-Fairfield-Napa, CA...................................    25.5228
Ventura, CA..................................................    22.5710
Victoria, TX.................................................    15.9679
Vineland-Millville-Bridgeton, NJ.............................    18.8648
Visalia-Tulare-Porterville, CA...............................    19.7741
Waco, TX.....................................................    14.9500
Washington, DC-MD-VA-WV......................................    20.9642
Waterloo-Cedar Falls, IA.....................................    16.2799
Wausau, WI...................................................    18.9938
West Palm Beach-Boca Raton, FL...............................    19.3398
Wheeling, WV-OH..............................................    14.2319
Wichita, KS..................................................    18.0997
Wichita Falls, TX............................................    14.6944
Williamsport, PA.............................................    16.1054
Wilmington-Newark, DE-MD.....................................    21.8419
Wilmington, NC...............................................    17.6028
Yakima, WA...................................................    18.8374
Yolo, CA.....................................................    21.9861
York, PA.....................................................    17.3484
Youngstown-Warren, OH........................................    18.0869
Yuba City, CA................................................    20.0865
Yuma, AZ.....................................................    18.4923
------------------------------------------------------------------------



             Table 4e.--Average Hourly Wage for Rural Areas             
------------------------------------------------------------------------
                                                                Average 
                        Nonurban area                            hourly 
                                                                  wage  
------------------------------------------------------------------------
Alabama......................................................    13.5615
Alaska.......................................................    22.7793
Arizona......................................................    15.1344
Arkansas.....................................................    13.0557
California...................................................    19.1114
Colorado.....................................................    15.1209
Connecticut..................................................    24.8299
Delaware.....................................................    17.0720
Florida......................................................    16.4079
Georgia......................................................    14.6148
Hawaii.......................................................    18.6401
Idaho........................................................    15.8589
Illinois.....................................................    14.1915
Indiana......................................................    15.2704
Iowa.........................................................    13.9176
Kansas.......................................................    13.6838
Kentucky.....................................................    14.4809
Louisiana....................................................    13.7719
Maine........................................................    15.9481
Maryland.....................................................    16.0195
Massachusetts................................................    20.0223
Michigan.....................................................    16.5516
Minnesota....................................................    15.3842
Mississippi..................................................    12.6771
Missouri.....................................................    13.6029
Montana......................................................    15.3151
Nebraska.....................................................   13.6661 

[[Page 45893]]
                                                                        
Nevada.......................................................    16.6350
New Hampshire................................................    18.9536
New Jersey \1\...............................................  .........
New Mexico...................................................    15.7665
New York.....................................................    16.3687
North Carolina...............................................    15.1058
North Dakota.................................................    13.7514
Ohio.........................................................    15.6847
Oklahoma.....................................................    13.2228
Oregon.......................................................    17.9571
Pennsylvania.................................................    16.1301
Puerto Rico..................................................     8.1889
Rhode Island \1\.............................................  .........
South Carolina...............................................    14.6476
South Dakota.................................................    13.2255
Tennessee....................................................    14.0250
Texas........................................................    13.8226
Utah.........................................................    16.3774
Vermont......................................................    17.1172
Virginia.....................................................    14.7420
Washington...................................................    18.5043
West Virginia................................................    15.2110
Wisconsin....................................................    15.8839
Wyoming......................................................   15.1685 
------------------------------------------------------------------------
\1\ All counties within the State are classified urban.                 



  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                
----------------------------------------------------------------------------------------------------------------
                                                                   Relative    Geometric  Arithmetic    Outlier 
                                                                    weights    mean LOS    mean LOS    threshold
----------------------------------------------------------------------------------------------------------------
1.......       01  SURG          CRANIOTOMY AGE >17 EXCEPT FOR        3.0932         8.7        12.4          32
                                  TRAUMA.                                                                       
2.......       01  SURG          CRANIOTOMY FOR TRAUMA AGE >17..      3.0095         9.0        12.6          32
3.......       01  SURG          *CRANIOTOMY AGE 0-17...........      1.8848        12.7        12.7          36
4.......       01  SURG          SPINAL PROCEDURES..............      2.3296         6.5        10.0          29
5.......       01  SURG          EXTRACRANIAL VASCULAR                1.5798         4.0         5.2          27
                                  PROCEDURES.                                                                   
6.......       01  SURG          CARPAL TUNNEL RELEASE..........       .8124         2.4         4.0          25
7.......       01  SURG          PERIPH & CRANIAL NERVE & OTHER       2.6017         9.3        14.7          32
                                  NERV SYST PROC W CC.                                                          
8.......       01  SURG          PERIPH & CRANIAL NERVE & OTHER       1.1794         3.1         4.6          26
                                  NERV SYST PROC W/O CC.                                                        
9.......       01  MED           SPINAL DISORDERS & INJURIES....      1.3047         5.7         8.5          29
10......       01  MED           NERVOUS SYSTEM NEOPLASMS W CC..      1.2299         6.2         8.9          29
11......       01  MED           NERVOUS SYSTEM NEOPLASMS W/O CC       .8000         3.8         5.3          27
12......       01  MED           DEGENERATIVE NERVOUS SYSTEM           .9891         6.0         8.7          29
                                  DISORDERS.                                                                    
13......       01  MED           MULTIPLE SCLEROSIS & CEREBELLAR       .7858         5.4         6.9          28
                                  ATAXIA.                                                                       
14......       01  MED           SPECIFIC CEREBROVASCULAR             1.2065         6.0         8.2          29
                                  DISORDERS EXCEPT TIA.                                                         
15......       01  MED           TRANSIENT ISCHEMIC ATTACK &           .7227         3.8         4.9          27
                                  PRECEREBRAL OCCLUSIONS.                                                       
16......       01  MED           NONSPECIFIC CEREBROVASCULAR          1.0639         5.4         7.4          28
                                  DISORDERS W CC.                                                               
17......       01  MED           NONSPECIFIC CEREBROVASCULAR           .6026         3.2         4.3          26
                                  DISORDERS W/O CC.                                                             
18......       01  MED           CRANIAL & PERIPHERAL NERVE            .9242         5.1         6.9          28
                                  DISORDERS W CC.                                                               
19......       01  MED           CRANIAL & PERIPHERAL NERVE            .5990         3.6         4.7          27
                                  DISORDERS W/O CC.                                                             
20......       01  MED           NERVOUS SYSTEM INFECTION EXCEPT      2.1157         8.3        11.5          31
                                  VIRAL MENINGITIS.                                                             
21......       01  MED           VIRAL MENINGITIS...............      1.5350         6.5         8.7          30
22......       01  MED           HYPERTENSIVE ENCEPHALOPATHY....       .8127         4.0         5.1          27
23......       01  MED           NONTRAUMATIC STUPOR & COMA.....       .8090         3.9         5.5          27
24......       01  MED           SEIZURE & HEADACHE AGE >17 W CC       .9908         4.6         6.5          28
25......       01  MED           SEIZURE & HEADACHE AGE >17 W/O        .5681         3.1         4.1          26
                                  CC.                                                                           
26......       01  MED           SEIZURE & HEADACHE AGE 0-17....       .8993         3.1         4.5          26
27......       01  MED           TRAUMATIC STUPOR & COMA, COMA        1.3476         3.9         7.2          27
                                  >1 HR.                                                                        
28......       01  MED           TRAUMATIC STUPOR & COMA, COMA        1.2001         5.2         7.9          28
                                  <1 HR AGE >17 W CC.                                                           
29......       01  MED           TRAUMATIC STUPOR & COMA, COMA         .6217         3.1         4.4          26
                                  <1 HR AGE >17 W/O CC.                                                         
30......       01  MED           *TRAUMATIC STUPOR & COMA, COMA        .3187         2.0         2.0          17
                                  <1 HR AGE 0-17.                                                               
31......       01  MED           CONCUSSION AGE >17 W CC........       .7934         3.8         5.7          27
32......       01  MED           CONCUSSION AGE >17 W/O CC......       .4819         2.4         3.3          22
33......       01  MED           *CONCUSSION AGE 0-17...........       .2003         1.6         1.6           9
34......       01  MED           OTHER DISORDERS OF NERVOUS           1.0569         4.9         6.9          28
                                  SYSTEM W CC.                                                                  
35......       01  MED           OTHER DISORDERS OF NERVOUS            .5914         3.4         4.8          26
                                  SYSTEM W/O CC.                                                                
36......       02  SURG          RETINAL PROCEDURES.............       .5930         1.4         1.7           7
37......       02  SURG          ORBITAL PROCEDURES.............       .8821         2.6         4.1          26
38......       02  SURG          PRIMARY IRIS PROCEDURES........       .4243         2.0         2.7          17
39......       02  SURG          LENS PROCEDURES WITH OR WITHOUT       .5036         1.5         1.9           9
                                  VITRECTOMY.                                                                   
40......       02  SURG          EXTRAOCULAR PROCEDURES EXCEPT         .7000         2.3         3.6          25
                                  ORBIT AGE >17.                                                                
41......       02  SURG          *EXTRAOCULAR PROCEDURES EXCEPT        .3244         1.6         1.6          7 
                                  ORBIT AGE 0-17.                                                               

[[Page 45894]]
                                                                                                                
42......       02  SURG          INTRAOCULAR PROCEDURES EXCEPT         .5615         1.6         2.2          12
                                  RETINA, IRIS & LENS.                                                          
43......       02  MED           HYPHEMA........................       .3665         3.0         3.8          25
44......       02  MED           ACUTE MAJOR EYE INFECTIONS.....       .6150         4.8         5.9          28
45......       02  MED           NEUROLOGICAL EYE DISORDERS.....       .6460         3.4         4.3          25
46......       02  MED           OTHER DISORDERS OF THE EYE AGE        .7593         4.2         5.9          27
                                  >17 W CC.                                                                     
47......       02  MED           OTHER DISORDERS OF THE EYE AGE        .4539         3.0         4.0          26
                                  >17 W/O CC.                                                                   
48......       02  MED           *OTHER DISORDERS OF THE EYE AGE       .2859         2.9         2.9          26
                                  0-17.                                                                         
49......       03  SURG          MAJOR HEAD & NECK PROCEDURES...      1.7701