[Federal Register Volume 72, Number 21 (Thursday, February 1, 2007)]
[Proposed Rules]
[Pages 4776-4886]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 07-392]



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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 412 and 413



Medicare Program; Prospective Payment System for Long-Term Care 
Hospitals RY 2008: Proposed Annual Payment Rate Updates, and Policy 
Changes; and Proposed Hospital Direct and Indirect Graduate Medical 
Education Policy Changes; Proposed Rule

Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / 
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412 and 413

[CMS-1529-P]
RIN 0938-AO30


Medicare Program; Prospective Payment System for Long-Term Care 
Hospitals RY 2008: Proposed Annual Payment Rate Updates, and Policy 
Changes; and Proposed Hospital Direct and Indirect Graduate Medical 
Education Policy Changes

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would update the annual payment rates for 
the Medicare prospective payment system (PPS) for inpatient hospital 
services provided by long-term care hospitals (LTCHs). The proposed 
payment amounts and factors used to determine the updated Federal rates 
that are described in this proposed rule were determined based on the 
LTCH PPS rate year July 1, 2007 through June 30, 2008. The annual 
update of the long-term care diagnosis-related group (LTC-DRG) 
classifications and relative weights remains linked to the annual 
adjustments of the acute care hospital inpatient diagnosis-related 
group system, and would continue to be effective each October 1. The 
proposed outlier threshold for July 1, 2007, through June 30, 2008, 
would also be derived from the LTCH PPS rate year calculations. We are 
also proposing to make policy changes which include proposed revisions 
to the GME and IME policies. In addition, we are adding a technical 
amendment correcting the regulations text at Sec.  412.22.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on April 2, 2007.

ADDRESSES: In commenting, please refer to file code CMS-1529-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to http://www.cms.hhs.gov/eRulemaking/. 
(Attachments should be in Microsoft Word, WordPerfect, or Excel; 
however, we prefer Microsoft Word.)
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address ONLY: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention: 
CMS-1529-P, P.O. Box 8015, Baltimore, MD 21244-8015.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments (one 
original and two copies) to the following address ONLY: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-1529-P, Mail Stop C4-26-5, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to one of the following addresses. If you 
intend to deliver your comments to the Baltimore address, please call 
telephone number (410) 786-7197 in advance to schedule your arrival 
with one of our staff members. Room 445-G, Hubert H. Humphrey Building, 
200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by mailing your 
comments to the addresses provided at the end of the ``Collection of 
Information Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Tzvi Hefter, (410) 786-4487 (General 
information).
    Judy Richter, (410) 786-2590 (General information, payment 
adjustments for special cases, and onsite discharges and readmissions, 
interrupted stays, co-located providers, and short-stay outliers).
    Michele Hudson, (410) 786-5490 (Calculation of the payment rates, 
LTC-DRGs, relative weights and case-mix index, market basket, wage 
index, budget neutrality, and other payment adjustments).
    Ann Fagan, (410) 786-5662 (Patient classification system).
    Miechal Lefkowitz, (410) 786-5316 (Graduate Medical Education 
payments).
    Linda McKenna, (410) 786-4537 (Payment adjustments, interrupted 
stay, and transition period).
    Renate Rockwell, (410) 786-4645 (Graduate Medical Education 
payments).
    Elizabeth Truong, (410) 786-6005 (Federal rate update, budget 
neutrality, other adjustments, and calculation of the payment rates).
    Michael Treitel, (410) 786-4552 (High cost outliers and cost-to-
charge ratios).

SUPPLEMENTARY INFORMATION:
    Submission of Public Comments: We welcome comments from the public 
on all issues set forth in this rule to assist us in fully considering 
issues and developing policies. You can assist us by referencing the 
file code [CMS-1529-P] and the specific ``issue identifier'' that 
precedes the section on which you choose to comment.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://
www.cms.hhs.gov/eRulemaking. Click on the link ``Electronic Comments on 
CMS Regulations'' on that Web site to view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

Table of Contents

I. Background
    A. Legislative and Regulatory Authority
    B. Criteria for Classification as a LTCH
    1. Classification as a LTCH
    2. Hospitals Excluded From the LTCH PPS

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    C. Transition Period for Implementation of the LTCH PPS
    D. Limitation on Charges to Beneficiaries
    E. Administrative Simplification Compliance Act (ASCA) and 
Health Insurance Portability and Accountability Act (HIPAA) 
Compliance
II. Summary of Major Contents of This Proposed Rule
III. Long-Term Care Diagnosis-Related Group (LTC-DRG) 
Classifications and Relative Weights
    A. Background
    B. Patient Classifications Into DRGs
    C. Organization of DRGs
    D. Proposed Update of LTC-DRGs
    1. Background
    2. Proposed Budget Neutrality (BN) Requirement for the Annual 
LTC-DRG Update
    E. ICD-9-CM Coding System
    1. Uniform Hospital Discharge Data Set (UHDDS) Definitions
    2. Maintenance of the ICD-9-CM Coding System
    3. Coding Rules and Use of ICD-9-CM Codes in LTCHs
    F. Method for Updating the LTC-DRG Relative Weights
IV. Proposed Changes to the LTCH PPS Payment Rates for the 2008 LTCH 
PPS Rate Year
    A. Overview of the Development of the Payment Rates
    B. LTCH PPS Market Basket
    1. Overview of the RPL Market Basket
    2. Proposed Market Basket Estimate for the 2008 LTCH PPS Rate 
Year
    C. Proposed Standard Federal Rate for the 2008 LTCH PPS Rate 
Year
    1. Background
    2. Proposed Update to the Standard Federal Rate for the 2008 
LTCH PPS Rate Year
    3. Proposed Standard Federal Rate for the 2008 LTCH PPS Rate 
Year
    D. Calculation of Proposed LTCH Prospective Payments for the 
2008 LTCH PPS Rate Year
    1. Proposed Adjustment for Area Wage Levels
    a. Background
    b. Geographic Classifications/Labor Market Area Definitions
    c. Proposed Labor-Related Share
    d. Proposed Wage Index Data
    2. Proposed Adjustment for Cost-of-Living in Alaska and Hawaii
    3. Proposed Adjustment for High-Cost Outliers (HCOs)
    a. Background
    b. Cost-to-Charge Ratios (CCRs)
    c. Establishment of the Proposed Fixed-Loss Amount
    d. Reconciliation of Outlier Payments Upon Cost Report 
Settlement
    e. Application of Outlier Policy to Short-Stay Outlier (SSO) 
Cases
    4. Other Payment Adjustments
    5. Proposed Budget Neutrality (BN) Offset To Account for the 
Transition Methodology
    6. One-Time Prospective Adjustment to the Standard Federal Rate
V. Other Proposed Policy Changes for the 2008 LTCH PPS Rate Year
    A. Short-Stay Outlier (SSO) Cases
    1. Background
    2. Additional Discussion of SSO Payment Formula (includes 
Technical Correction)
    3. Determination of Cost-to-Charge Ratios (CCRs)
    4. Reconciliation of SSO Cases
    B. Proposed expansion of special payment provisions for LTCH 
hospitals within hospitals (HwHs) and LTCH satellites: Proposed 
expansion of the 25 percent rule to certain situations not currently 
covered under existing Sec.  412.534
VI. Computing the Proposed Adjusted Federal Prospective Payments for 
the 2008 LTCH PPS Rate Year
VII. Transition Period
VIII. Payments to New LTCHs
IX. Method of Payment
X. Monitoring
XI. MedPAC Recommendations: The RTI Contract
XII. Graduate Medical Education (GME)
    A. GME Background
    B. Resident Training in Nonhospital Settings
    1. Background
    2. Moratorium on Disallowances of Allopathic or Osteopathic 
Family Practice Residents Training Time in Nonhospital Settings, and 
Questions and Answers (Qs&As) on CMS Web Site (Section 713 of the 
MMA and Sec.  413.78)
    3. Requirements for Written Agreements for Residency Training in 
Nonhospital Settings (Sec.  413.78(e))
    4. Modification of the Definition of ``All or Substantially All 
of the Costs for the Training Program in the Nonhospital Setting''
    5. Implementation of a 90 Percent Cost Threshold
    C. Other Issues To Be Considered
XIII. Technical Amendment
XIV. Waiver of Proposed Rulemaking and Delay in the Effective Date
XV. Collection of Information Requirements
XVI. Regulatory Impact Analysis
Addendum A: Tables
Addendum B: Executive Summary of RTI's Report

Acronyms

    Because of the many terms to which we refer by acronym in this 
proposed rule, we are listing the acronyms used and their 
corresponding terms in alphabetical order below:

AAMC Association of American Medical Colleges
AFMAA Academic Family Medicine Advocacy Alliance
AHA American Hospital Association
AHIMA American Health Information Management Association
ALOS Average length of stay
ALTHA Acute Long Term Hospital Association
AMGA American Medical Group Association
AMPRA American Medical Peer Review Association
AOA American Osteopathic Association
APR All patient refined
ASCA Administrative Simplification Compliance Act of 2002 (Pub. L. 
107-105)
BBA Balanced Budget Act of 1997 (Pub. L. 105-33)
BBRA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999 (Pub. L. 
106-113)
BIPA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Benefits Improvement and Protection Act of 2000 
(Pub. L. 106-554)
BN Budget neutrality
CBSA Core-based statistical area
CCR Cost-to-charge ratio
C&M Coordination and maintenance
CMI Case-mix index
CMS Centers for Medicare & Medicaid Services
COLA Cost of living adjustment
CS Consolidated severity-adjusted
CY Calendar year
DSH Disproportionate share of low-income patients
DRGs Diagnosis-related groups
FI Fiscal intermediary
FMC Family Medicine Center
FTE Full-time equivalent
FY Federal fiscal year
GME Graduate medical education
HCO High-cost outlier
HCRIS Hospital cost report information system
HHA Home health agency
HHS (Department of) Health and Human Services
HIPAA Health Insurance Portability and Accountability Act (Pub. L. 
104-191)
HIPC Health Information Policy Council
HwHs Hospitals within hospitals
ICD-9-CM International Classification of Diseases, Ninth Revision, 
Clinical Modification (codes)
IME Indirect medical education
I-O Input-Output
IPF Inpatient psychiatric facility
IPPS [Acute Care Hospital] Inpatient Prospective Payment System
IRF Inpatient rehabilitation facility
LOS Length of stay
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
MCE Medicare code editor
MDC Major diagnostic categories
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare provider analysis and review
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (Pub. L. 108-173)
MSA Metropolitan statistical area
NAICS North American Industrial Classification System
NALTH National Association of Long Term Hospitals
NCHS National Center for Health Statistics
OACT [CMS'] Office of the Actuary
OBRA 86 Omnibus Budget Reconciliation Act of 1986 (Pub. L. 99-509)
OMB Office of Management and Budget
OPM U.S. Office of Personnel Management
O.R. Operating room
OSCAR Online Survey Certification and Reporting (System)
OTN One-Time Notification
PIP Periodic interim payment

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PLI Professional liability insurance
PMSA Primary metropolitan statistical area
PPI Producer Price Indexes
PPS Prospective payment system
PRA Per resident amount
PSF Provider specific file
QIO Quality Improvement Organization (formerly Peer Review 
organization (PRO))
RIA Regulatory impact analysis
RPL Rehabilitation psychiatric long-term care (hospital)
RTI Research Triangle Institute, International
RY Rate year (begins July 1 and ends June 30)
SIC Standard industrial code
SNF Skilled nursing facility
SSO Short-stay outlier
TEFRA Tax Equity and Fiscal Responsibility Act of 1982 (Pub. L. 97-
248)
TEP Technical expert panel
UHDDS Uniform hospital discharge data set

I. Background

    [If you choose to comment on issues in this section, please include 
the caption ``BACKGROUND'' at the beginning of your comments.]

A. Legislative and Regulatory Authority

    Section 123 of the Medicare, Medicaid, and SCHIP [State Children's 
Health Insurance Program] Balanced Budget Refinement Act of 1999 (BBRA) 
(Pub. L. 106-113) as amended by section 307(b) of the Medicare, 
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 
(BIPA) (Pub. L. 106-554) provides for payment for both the operating 
and capital-related costs of hospital inpatient stays in long-term care 
hospitals (LTCHs) under Medicare Part A based on prospectively set 
rates. The Medicare prospective payment system (PPS) for LTCHs applies 
to hospitals described in section 1886(d)(1)(B)(iv) of the Social 
Security Act (the Act), effective for cost reporting periods beginning 
on or after October 1, 2002.
    Section 1886(d)(1)(B)(iv)(I) of the Act defines a LTCH as ``a 
hospital which has an average inpatient length of stay (as determined 
by the Secretary) of greater than 25 days.'' Section 
1886(d)(1)(B)(iv)(II) of the Act also provides an alternative 
definition of LTCHs: specifically, a hospital that first received 
payment under section 1886(d) of the Act in 1986 and has an average 
inpatient length of stay (LOS) (as determined by the Secretary of 
Health and Human Services (the Secretary)) of greater than 20 days and 
has 80 percent or more of its annual Medicare inpatient discharges with 
a principal diagnosis that reflects a finding of neoplastic disease in 
the 12-month cost reporting period ending in fiscal year (FY) 1997.
    Section 123 of the BBRA requires the PPS for LTCHs to be a ``per 
discharge'' system with a diagnosis-related group (DRG) based patient 
classification system that reflects the differences in patient 
resources and costs in LTCHs. It also requires that the ``per 
discharge'' system maintain budget neutrality (BN). We believe the 
statutory mandate for BN applies only to the first year of the 
implementation of the LTCH PPS such that estimated payments in the 
first year of the PPS were projected to equal payments that would have 
been paid for operating and capital-related costs of LTCHs had this new 
payment system not been enacted.
    Section 307(b)(1) of the BIPA, among other things, mandates that 
the Secretary shall examine, and may provide for, adjustments to 
payments under the LTCH PPS, including adjustments to DRG weights, area 
wage adjustments, geographic reclassification, outliers, updates, and a 
disproportionate share adjustment.
    In the August 30, 2002 Federal Register, we issued a final rule 
that implemented the LTCH PPS authorized under BBRA and BIPA (67 FR 
55954). This system uses information from LTCH patient records to 
classify patients into distinct long-term care diagnosis-related groups 
(LTC-DRGs) based on clinical characteristics and expected resource 
needs. Payments are calculated for each LTC-DRG and provisions are made 
for appropriate payment adjustments. Payment rates under the LTCH PPS 
are updated annually and published in the Federal Register.
    The LTCH PPS replaced the reasonable cost-based payment system 
under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) 
(Pub. L. 97-248) for payments for inpatient services provided by a LTCH 
with a cost reporting period beginning on or after October 1, 2002. 
(The regulations implementing the TEFRA reasonable cost-based payment 
provisions are located at 42 CFR part 413.) With the implementation of 
the PPS for acute care hospitals authorized by the Social Security 
Amendments of 1983 (Pub. L. 98-21), which added section 1886(d) to the 
Act, certain hospitals, including LTCHs, were excluded from the PPS for 
acute care hospitals and were paid their reasonable costs for inpatient 
services subject to a per discharge limitation or target amount under 
the TEFRA system. For each cost reporting period, a hospital-specific 
ceiling on payments was determined by multiplying the hospital's 
updated target amount by the number of total current year Medicare 
discharges. (Generally, in this document when we refer to discharges, 
the intent is to describe Medicare discharges.) The August 30, 2002 
final rule further details the payment policy under the TEFRA system 
(67 FR 55954).
    In the August 30, 2002 final rule, we also presented an in-depth 
discussion of the LTCH PPS, including the patient classification 
system, relative weights, payment rates, additional payments, and the 
BN requirements mandated by section 123 of the BBRA. The same final 
rule that established regulations for the LTCH PPS under 42 CFR part 
412, subpart O, also contained LTCH provisions related to covered 
inpatient services, limitation on charges to beneficiaries, medical 
review requirements, furnishing of inpatient hospital services directly 
or under arrangement, and reporting and recordkeeping requirements. We 
refer readers to the August 30, 2002 final rule for a comprehensive 
discussion of the research and data that supported the establishment of 
the LTCH PPS (67 FR 55954).
    In the June 6, 2003 Federal Register, we published a final rule 
that set forth the FY 2004 annual update of the payment rates for the 
Medicare PPS for inpatient hospital services furnished by LTCHs (68 FR 
34122). It also changed the annual period for which the payment rates 
are effective. The annual updated rates are now effective from July 1 
through June 30 instead of from October 1 through September 30. We 
refer to the July through June time period as a ``long-term care 
hospital rate year'' (LTCH PPS RY). In addition, we changed the 
publication schedule for the annual update to allow for an effective 
date of July 1. The payment amounts and factors used to determine the 
annual update of the LTCH PPS Federal rate is based on a LTCH PPS rate 
year. While the LTCH payment rate update is effective July 1, the 
annual update of the LTC-DRG classifications and relative weights are 
linked to the annual adjustments of the acute care hospital inpatient 
DRGs and are effective each October 1.
    In the Prospective Payment System for Long-Term Care Hospitals RY 
2007: Annual Payment Rate Updates, Policy Changes, and Clarifications 
final rule (71 FR 27798) (hereinafter referred to as the RY 2007 LTCH 
PPS final rule), we set forth the 2007 LTCH PPS rate year annual update 
of the payment rates for the Medicare PPS for inpatient hospital 
services provided by LTCHs. We also adopted the ``Rehabilitation, 
Psychiatric, Long-Term Care (RPL)'' market basket under the LTCH PPS in 
place of the excluded hospital with capital market basket. In addition, 
we implemented a zero percent update to

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the LTCH PPS Federal rate for RY 2007. We also revised the existing 
payment adjustment for short stay outlier (SSO) cases by reducing part 
of the current payment formula and adding a fourth component to that 
payment formula. Also, we sunsetted the surgical DRG exception to the 
payment policy established under the 3-day or less interruption of stay 
policy. Finally, we clarified the policy at Sec.  412.534(c) for 
adjusting the LTCH PPS payment so that the LTCH PPS payment is 
equivalent to what would otherwise be payable under Sec.  412.1(a).

B. Criteria for Classification as a LTCH

1. Classification as a LTCH
    Under the existing regulations at Sec.  412.23(e)(1) and (e)(2)(i), 
which implement section 1886(d)(1)(B)(iv)(I) of the Act, to qualify to 
be paid under the LTCH PPS, a hospital must have a provider agreement 
with Medicare and must have an average Medicare inpatient LOS of 
greater than 25 days. Alternatively, Sec.  412.23(e)(2)(ii) states that 
for cost reporting periods beginning on or after August 5, 1997, a 
hospital that was first excluded from the PPS in 1986 and can 
demonstrate that at least 80 percent of its annual Medicare inpatient 
discharges in the 12-month cost reporting period ending in FY 1997 have 
a principal diagnosis that reflects a finding of neoplastic disease 
must have an average inpatient LOS for all patients, including both 
Medicare and non-Medicare inpatients, of greater than 20 days.
    Section 412.23(e)(3) provides that, subject to the provisions of 
paragraphs (e)(3)(ii) through (e)(3)(iv) of this section, the average 
Medicare inpatient LOS, specified under Sec.  412.23(e)(2)(i) is 
calculated by dividing the total number of covered and noncovered days 
of stay for Medicare inpatients (less leave or pass days) by the number 
of total Medicare discharges for the hospital's most recent complete 
cost reporting period. Section 412.23 also provides that subject to the 
provisions of paragraphs (e)(3)(ii) through (e)(3)(iv) of this section, 
the average inpatient LOS specified under Sec.  412.23(e)(2)(ii) is 
calculated by dividing the total number of days for all patients, 
including both Medicare and non-Medicare inpatients (less leave or pass 
days) by the number of total discharges for the hospital's most recent 
complete cost reporting period.
    In the RY 2005 LTCH PPS final rule (69 FR 25674), we specified the 
procedure for calculating a hospital's inpatient average length of stay 
(ALOS) for purposes of classification as a LTCH. That is, if a 
patient's stay includes days of care furnished during two or more 
separate consecutive cost reporting periods, the total days of a 
patient's stay would be reported in the cost reporting period during 
which the patient is discharged (69 FR 25705). Therefore, we revised 
Sec.  412.23(e)(3)(ii) to specify that, effective for cost reporting 
periods beginning on or after July 1, 2004, in calculating a hospital's 
ALOS, if the days of an inpatient stay involve days of care furnished 
during two or more separate consecutive cost reporting periods, the 
total number of days of the stay are considered to have occurred in the 
cost reporting period during which the inpatient was discharged.
    Fiscal intermediaries (FIs) verify that LTCHs meet the ALOS 
requirements. We note that the inpatient days of a patient who is 
admitted to a LTCH without any remaining Medicare days of coverage, 
regardless of the fact that the patient is a Medicare beneficiary, will 
not be included in the above calculation. Because Medicare would not be 
paying for any of the patient's treatment, data on the patient's stay 
would not be included in the Medicare claims processing systems. As 
described in Sec.  409.61, in order for both covered and noncovered 
days of a LTCH hospitalization to be included, a patient admitted to 
the LTCH must have at least one remaining benefit day (68 FR 34123).
    The FI's determination of whether or not a hospital qualifies as an 
LTCH is based on the hospital's discharge data from the hospital's most 
recent complete cost reporting period as specified in Sec.  
412.23(e)(3) and is effective at the start of the hospital's next cost 
reporting period as specified in Sec.  412.22(d). However, if the 
hospital does not meet the ALOS requirement as specified in Sec.  
412.23(e)(2)(i) and (ii), the hospital may provide the FI with data 
indicating a change in the ALOS by the same method for the period of at 
least 5 months of the immediately preceding 6-month period (69 FR 
25676). Our interpretation of Sec.  412.23(e)(3) was to allow hospitals 
to submit data using a period of at least 5 months of the most recent 
data from the immediately preceding 6-month period.
    As we stated in the FY 2004 Inpatient Prospective Payment System 
(IPPS) final rule, published in the August 1, 2003 Federal Register, 
prior to the implementation of the LTCH PPS, we did rely on data from 
the most recently submitted cost report for purposes of calculating the 
ALOS (68 FR 45464). The calculation to determine whether an acute care 
hospital qualifies for LTCH status was based on total days and 
discharges for LTCH inpatients. However, with the implementation of the 
LTCH PPS, for the ALOS specified under Sec.  412.23(e)(2)(i), we 
revised Sec.  412.23(e)(3)(i) to only count total days and discharges 
for Medicare inpatients (67 FR 55970 through 55974). In addition, the 
ALOS specified under Sec.  412.23(e)(2)(ii) is calculated by dividing 
the total number of days for all patients, including both Medicare and 
non-Medicare inpatients (less leave or pass days) by the number of 
total discharges for the hospital's most recent complete cost reporting 
period. As we discussed in the FY 2004 IPPS final rule, we are unable 
to capture the necessary data from our present cost reporting forms (68 
FR 45464). Therefore, we have notified FIs and LTCHs that until the 
cost reporting forms are revised, for purposes of calculating the ALOS, 
we will be relying upon census data extracted from Medicare Provider 
Analysis and Review (MedPAR) files that reflect each LTCH's cost 
reporting period (68 FR 45464). Requirements for hospitals seeking 
classification as LTCHs that have undergone a change in ownership, as 
described in Sec.  489.18, are set forth in Sec.  412.23(e)(3)(iv).
2. Hospitals Excluded From the LTCH PPS
    The following hospitals are paid under special payment provisions, 
as described in Sec.  412.22(c) and, therefore, are not subject to the 
LTCH PPS rules:
     Veterans Administration hospitals.
     Hospitals that are reimbursed under State cost control 
systems approved under 42 CFR part 403.
     Hospitals that are reimbursed in accordance with 
demonstration projects authorized under section 402(a) of the Social 
Security Amendments of 1967 (Pub. L. 90-248) (42 U.S.C. 1395b-1) or 
section 222(a) of the Social Security Amendments of 1972 (Pub. L. 92-
603) (42 U.S.C. 1395b-1 (note)) (Statewide all-payer systems, subject 
to the rate-of-increase test at section 1814(b) of the Act).
     Nonparticipating hospitals furnishing emergency services 
to Medicare beneficiaries.

C. Transition Period for Implementation of the LTCH PPS

    In the August 30, 2002 final rule (67 FR 55954), we provided for a 
5-year transition period. During this 5-year transition period, a 
LTCH's total payment under the PPS was based on an increasing 
percentage of the Federal rate with a corresponding decrease in the 
percentage of the LTCH PPS payment that is based on reasonable cost

[[Page 4780]]

concepts. However, effective for cost reporting periods beginning on or 
after October 1, 2006, total LTCH PPS payments are based on 100 percent 
of the Federal rate.

D. Limitation on Charges to Beneficiaries

    In the August 30, 2002 final rule, we presented an in-depth 
discussion of beneficiary liability under the LTCH PPS (67 FR 55974 
through 55975). In the RY 2005 LTCH PPS final rule (69 FR 25676), we 
clarified that the discussion of beneficiary liability in the August 
30, 2002 final rule was not meant to establish rates or payments for, 
or define Medicare-eligible expenses. Under Sec.  412.507, if the 
Medicare payment to the LTCH is the full LTC-DRG payment amount, as 
consistent with other established hospital prospective payment systems, 
a LTCH may not bill a Medicare beneficiary for more than the deductible 
and coinsurance amounts as specified under Sec.  409.82, Sec.  409.83, 
and Sec.  409.87 and for items and services as specified under Sec.  
489.30(a). However, under the LTCH PPS, Medicare will only pay for days 
for which the beneficiary has coverage until the SSO threshold is 
exceeded. (See section V.A.1.a. of this preamble.) Therefore, if the 
Medicare payment was for a SSO case (Sec.  412.529) that was less than 
the full LTC-DRG payment amount because the beneficiary had 
insufficient remaining Medicare days, the LTCH could also charge the 
beneficiary for services delivered on those uncovered days (Sec.  
412.507).

E. Administrative Simplification Compliance Act (ASCA) and Health 
Insurance Portability and Accountability Act (HIPAA) Compliance

    Claims submitted to Medicare must comply with both the 
Administrative Simplification Compliance Act (ASCA) (Pub. L. 107-105), 
and Health Insurance Portability and Accountability Act (HIPAA) (Pub. 
L. 104-191). Section 3 of the ASCA requires that the Medicare Program 
deny payment under Part A or Part B for any expenses incurred for items 
or services ``for which a claim is submitted other than in an 
electronic form specified by the Secretary.'' Section 1862(h) of the 
Act (as added by section 3(a) of the ASCA) provides that the Secretary 
shall waive such denial in two specific types of cases and may also 
waive such denial ``in such unusual cases as the Secretary finds 
appropriate'' (68 FR 48805). Section 3 of the ASCA operates in the 
context of the ASCA provisions of HIPAA, which include, among other 
provisions, the transactions and code sets standards requirements 
codified as 45 CFR parts 160 and 162, subparts A and I through R 
(generally known as the Transactions Rule). The Transactions Rule 
requires covered entities, including covered health care providers, to 
conduct the covered electronic transactions according to the applicable 
transactions and code sets standards.

II. Summary of the Major Contents of This Proposed Rule

    In this proposed rule, we are setting forth the proposed annual 
update to the payment rates for the Medicare LTCH PPS, as well as, 
proposing other policy changes. The following is a summary of the major 
areas that we are addressing in this proposed rule.
    In section III. of this preamble, we discuss the LTCH PPS patient 
classification and the relative weights which remain linked to the 
annual adjustments of the acute care hospital inpatient DRG system, and 
are based on the annual revisions to the International Classification 
of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM) codes 
effective each October 1.
    Also, in section III. of this preamble, we are proposing to 
establish a BN requirement for when the LTC-DRG classifications and 
relative weights are updated annually to reflect changes in relative 
LTCH resource use. This requirement would ensure that estimated 
aggregate LTCH PPS payments would not decrease or increase as a result 
of the annual update to the LTC-DRG classifications and relative 
weights.
    As discussed in section IV.C. of this preamble, we are proposing a 
0.71 percent update to the LTCH PPS Federal rate for the 2008 LTCH PPS 
rate year based on an adjustment to the most recent estimate of the 
LTCH PPS market basket to account for changes in coding practices. Also 
in section IV. of this preamble, we discuss the proposed prospective 
payment rate for RY 2008, and in section VI. we discuss the applicable 
adjustments to the proposed payment rates, including the proposed 
revisions to the wage index, proposed labor-related share, the proposed 
cost-of-living adjustment (COLA) factors, and the proposed outlier 
threshold, for the 2008 LTCH PPS rate year.
    In section V.A.1.b. of this preamble, we discuss an approach being 
considered to make a change to our present payment methodology for 
certain SSO cases. Under this approach, payment for SSO cases would be 
subject to a further adjustment where the patient's LOS at the LTCH is 
less than or equal to an IPPS LOS threshold for the DRG.
    In section V.B. of this preamble, we discuss the proposed expansion 
of the present 25 percent admission policy at existing Sec.  412.534(c) 
to those certain situations not already affected by that existing 
policy. We are proposing to specify that for cost reporting periods 
beginning on or after July 1, 2007, that ``grandfathered'' LTCH HwHs 
and LTCH satellites, at Sec.  412.22(f) and Sec.  412.22(h)(3)(i) 
respectively, would also be included in the policy set forth at 
existing Sec.  412.534. We are also proposing that if the percentage of 
LTCH's or LTCH satellite facility's discharges that were admitted from 
any non-co-located referring hospital exceeds 25 percent (or the 
applicable percentage) for a particular cost reporting period, an 
adjusted amount would be made for those Medicare discharges that were 
admitted from that referring hospital beyond the 25 percent (or the 
applicable percentage) threshold.
    In section X. of this preamble, we will discuss our on-going 
monitoring protocols under the LTCH PPS.
    In section XI. of this preamble, we will discuss the 
recommendations made by the Research Triangle Institute, 
International's (RTI) evaluation of the feasibility of adopting 
recommendations made in the June 2004 Medicare Payment Advisory 
Commission (MedPAC) Report. (Addendum B will include the executive 
summary of the RTI report.)
    In section XII. of this preamble, we discuss our proposal to 
redefine the statutory term ``all or substantially all of the costs for 
the training program in the nonhospital setting.'' The statute requires 
that hospitals must pay all of substantially all of the costs for 
training in a nonhospital site in order to count FTE residents training 
in the nonhospital setting for Medicare graduate medical education 
(GME) payment purposes. We are proposing to revise Sec.  413.75(b) to 
introduce a new definition of ``all or substantially all of the costs 
for the training program in the nonhospital setting'' to mean, at least 
90 percent of the residents' salaries and fringe benefits (including 
travel and lodging where applicable) and the portion of the cost of 
teaching physicians' salaries attributable to direct GME. In addition, 
we are proposing to revise Sec.  412.105(f)(1)(ii)(C) for IME and Sec.  
413.78 to reflect this new definition of ``all or substantially all'' 
of the GME costs in a nonhospital setting, effective for cost reporting 
periods beginning on or after July 1, 2007.
    In section XVI. of this preamble, we analyze the impact of the 
proposed changes presented in this proposed rule on Medicare 
expenditures, Medicare-

[[Page 4781]]

participating LTCHs, and Medicare beneficiaries.

III. Long-Term Care Diagnosis-Related Group (LTC-DRG) Classifications 
and Relative Weights

    [If you choose to comment on issues in this section, please include 
the caption ``LTC-DRG CLASSIFICATIONS AND RELATIVE WEIGHTS'' at the 
beginning of your comments.]

A. Background

    Section 123 of the BBRA requires that the Secretary implement a PPS 
for LTCHs (that is, a per discharge system with a DRG-based patient 
classification system reflecting the differences in patient resources 
and costs. Section 307(b)(1) of the BIPA modified the requirements of 
section 123 of the BBRA by requiring that the Secretary examine ``the 
feasibility and the impact of basing payment under such a system [the 
LTCH PPS] on the use of existing (or refined) hospital DRGs that have 
been modified to account for different resource use of LTCH patients, 
as well as the use of the most recently available hospital discharge 
data.''
    In accordance with section 123 of the BBRA as amended by section 
307(b)(1) of the BIPA and Sec.  412.515, we use information derived 
from LTCH PPS patient records to classify these cases into distinct 
LTC-DRGs based on clinical characteristics and estimated resource 
needs. The LTC-DRGs used as the patient classification component of the 
LTCH PPS correspond to the hospital inpatient DRGs in the IPPS. We 
assign an appropriate weight to the LTC-DRGs to account for the 
difference in resource use by patients exhibiting the case complexity 
and multiple medical problems characteristic of LTCHs.
    In a departure from the IPPS, we use low volume LTC-DRGs (less than 
25 LTCH cases) in determining the LTC-DRG weights, since LTCHs do not 
typically treat the full range of diagnoses as do acute care hospitals. 
To manage the large number of low volume DRGs (all DRGs with fewer than 
25 cases), we group low volume DRGs into 5 quintiles based on average 
charge per discharge. (A listing of the current composition of low 
volume quintiles used in determining the FY 2007 LTC-DRG relative 
weights appears in the FY 2007 IPPS final rule (71 FR 47974 through 
47978).) We also account for adjustments to payments for cases in which 
the stay at the LTCH is less than or equal to five-sixths of the 
geometric ALOS and classify these cases as SSO cases. (A detailed 
discussion of the application of the Lewin Group model that was used to 
develop the LTC-DRGs appears in the August 30, 2002 LTCH PPS final rule 
(67 FR 55978).)

B. Patient Classifications Into DRGs

    Generally, under the LTCH PPS, a Medicare payment is made at a 
predetermined specific rate for each discharge; that payment varies by 
the LTC-DRG to which a beneficiary's stay is assigned. Cases are 
classified into LTC-DRGs for payment based on the following six data 
elements:
    (1) Principal diagnosis.
    (2) Up to eight additional diagnoses.
    (3) Up to six procedures performed.
    (4) Age.
    (5) Sex.
    (6) Discharge status of the patient.
    As indicated in the August 30, 2002 LTCH PPS final rule, upon the 
discharge of the patient from a LTCH, the LTCH must assign appropriate 
diagnosis and procedure codes from the most current version of the 
International Classification of Diseases, Ninth Revision, Clinical 
Modification (codes) (ICD-9-CM). HIPAA Transactions and Code Sets 
Standards regulations at 45 CFR parts 160 and 162 require that no later 
than October 16, 2003, all covered entities must comply with the 
applicable requirements of subparts A and I through R of part 162. 
Among other requirements, those provisions direct covered entities to 
use the ASC X12N 837 Health Care Claim: Institutional, Volumes 1 and 2, 
version 4010, and the applicable standard medical data code sets for 
the institutional health care claim or equivalent encounter information 
transaction (see 45 CFR 162.1002 and 45 CFR 162.1102).
    Medicare FIs enter the clinical and demographic information into 
their claims processing systems and subject this information to a 
series of automated screening processes called the Medicare Code Editor 
(MCE). These screens are designed to identify cases that require 
further review before assignment into a DRG can be made. During this 
process, the following types of cases are selected for further 
development:
     Cases that are improperly coded. (For example, diagnoses 
are shown that are inappropriate, given the sex of the patient. Code 
68.6, Radical abdominal hysterectomy, would be an inappropriate code 
for a male.)
     Cases including surgical procedures not covered under 
Medicare. (For example, organ transplant in a non-approved transplant 
center.)
     Cases requiring more information. (For example, ICD-9-CM 
codes are required to be entered at their highest level of specificity. 
There are valid 3-digit, 4-digit, and 5-digit codes. That is, code 262, 
Other severe protein-calorie malnutrition, contains all appropriate 
digits, but if it is reported with either fewer or more than 3 digits, 
the claim will be rejected by the MCE as invalid.)
     Cases with principal diagnoses that do not usually justify 
admission to the hospital. (For example, code 437.9, unspecified 
cerebrovascular disease. While this code is valid according to the ICD-
9-CM coding scheme, a more precise code should be used for the 
principal diagnosis.)
    After screening through the MCE, each claim will be classified into 
the appropriate LTC-DRG by the Medicare LTCH GROUPER software. As 
indicated in the August 30, 2002 LTCH PPS final rule, the Medicare 
GROUPER software, which is used under the LTCH PPS, is specialized 
computer software, and is the same GROUPER software program used under 
the IPPS. The GROUPER software was developed as a means of classifying 
each case into a DRG on the basis of diagnosis and procedure codes and 
other demographic information (age, sex, and discharge status). 
Following the LTC-DRG assignment, the Medicare FI determines the 
prospective payment by using the Medicare PRICER program, which 
accounts for hospital-specific adjustments. Under the LTCH PPS, we 
provide an opportunity for the LTCH to review the LTC-DRG assignments 
made by the FI and to submit additional information within a specified 
timeframe as specified in Sec.  412.513(c).
    The GROUPER software is used both to classify past cases 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 MedPAR file. The data in this file are used to evaluate possible 
DRG classification changes and to recalibrate the DRG weights during 
our annual update under both the IPPS (Sec.  412.60(e)) and the LTCH 
PPS (Sec.  412.517). As discussed in greater detail in sections III.D. 
and E. of this preamble, with the implementation of section 503(a) of 
the Medicare Prescription Drug, Improvement, and Modernization Act of 
2003 (MMA) (Pub. L. 108-173), there is the possibility that one feature 
of the GROUPER software program may be updated twice during a Federal 
FY (October 1 and April 1) as required by the statute for the IPPS (69 
FR 48954 through 48957). Specifically, as we discussed in the FY 2007 
IPPS final rule, diagnosis and procedure codes for new medical 
technology may be created

[[Page 4782]]

and added to existing DRGs in the middle of the Federal FY on April 1 
(71 FR 47959 and 47971). However, this policy change will have no 
effect on the LTC-DRG relative weights (during the FY), which will 
continue to be updated only once a year (October 1), nor will there be 
any impact on Medicare payments under the LTCH PPS during the FY as 
result of this policy. The use of the ICD-9-CM code set is also 
compliant with the current requirements of the Transactions and Code 
Sets Standards regulations at 45 CFR parts 160 and 162, published in 
accordance with HIPAA.

C. Organization of DRGs

    The DRGs are organized into 25 major diagnostic categories (MDCs), 
most of which are based on a particular organ system of the body; the 
remainder involve multiple organ systems (such as MDC 22, Burns). 
Accordingly, the principal diagnosis determines MDC assignment. Within 
most MDCs, cases are then divided into surgical DRGs and medical DRGs. 
Surgical DRGs are assigned based on a surgical hierarchy that orders 
operating room (O.R.) procedures or groups of O.R. procedures by 
resource intensity. The GROUPER software program does not recognize all 
ICD-9-CM procedure codes as procedures that affect DRG assignment, that 
is, procedures which are not surgical (for example, EKG), or minor 
surgical procedures (for example, 86.11, Biopsy of skin and 
subcutaneous tissue).
    The medical DRGs are generally differentiated on the basis of 
diagnosis. Both medical and surgical DRGs may be further differentiated 
based on age, sex, discharge status, and presence or absence of 
complications or comorbidities (CC). We note that CCs are defined by 
certain secondary diagnoses not related to, or not inherently a part 
of, the disease process identified by the principal diagnosis. (For 
example, the GROUPER software would not recognize a code from the 
800.0x series, Skull fracture, as a CC when combined with principal 
diagnosis 850.4, Concussion with prolonged loss of consciousness, 
without return to preexisting conscious level.) In addition, we note 
that the presence of additional diagnoses does not automatically 
generate a CC, as not all DRGs recognize a comorbid or complicating 
condition in their definition. (For example, DRG 466, Aftercare without 
History of Malignancy as Secondary Diagnosis, is based solely on the 
principal diagnosis, without consideration of additional diagnoses for 
DRG determination.)
    As discussed in greater detail in the FY 2007 IPPS final rule (71 
FR 47898 through 47912 and 47973), in its March 2005 Report to 
Congress, ``Physician-Owned Specialty Hospitals,'' MedPAC recommended 
that the Secretary improve payment accuracy in the hospital IPPS by, 
among other things, ``refining the current DRGs to more fully capture 
differences in severity of illness among patients.'' (Recommendation 1, 
p. 93.) As we discussed in that same final rule (71 FR 47973), although 
we did not adopt a new severity-adjusted patient classification system 
under the IPPS, for FY 2007, we refined the current CMS-DRG patient 
classification system by creating 20 new CMS-DRGs and modifying 32 
others across 13 different clinical areas for Version 24.0 of the 
GROUPER software that we expect will improve the CMS-DRG system's 
recognition of severity of illness for FY 2007. As noted previously in 
this section, the LTCH PPS patient classification system (that is, LTC-
DRGs) is the same patient classification system used under the IPPS 
(that is, CMS DRGs). As such, the updates to the CMS DRG patient 
classification system used under the IPPS for FY 2007 (GROUPER Version 
24.0), are the updates that apply to the LTC-DRGs used under the LTCH 
PPS for FY 2007.
    In the FY 2007 IPPS final rule, we present the changes to the DRG 
patient classification system for FY 2007 (71 FR 47939 through 47962). 
In that rule, we adopted the IPPS GROUPER Version 24.0 for FY 2007 to 
process LTCH PPS claims for LTCH discharges occurring from October 1, 
2006 through September 30, 2007 (71 FR 47973). As noted above in this 
section and as we also discussed in the FY 2007 IPPS final rule, in its 
March 1, 2005 Report to Congress on Medicare Payment Policy (page 64) 
and Recommendation 1 in the 2005 Report to Congress on Physician-Owned 
Specialty Hospitals, MedPAC recommended that CMS, among other things, 
refine the current DRGs under the IPPS to more fully capture 
differences in severity of illness among patients. In evaluating this 
MedPAC recommendation for the IPPS, we evaluated the APR-DRG Grouper 
used by MedPAC in its analysis. Based on that analysis, we concur with 
MedPAC that the modified version of the APR DRGs would account more 
completely for differences in severity of illness and associated costs 
among hospitals. However, as we clarified in the FY 2007 IPPS proposed 
rule and reiterated in section II.C.6. of the FY 2007 IPPS final rule, 
there are still further changes that are important to make to the 
consolidated severity-adjusted (CS) DRG system before it is ready for 
adoption. Therefore, in the FY 2007 IPPS final rule, we did not adopt a 
new CS DRG system, such as the APR DRGs or a modified version of the 
APR DRGs, under the IPPS. However, we refined the current CMS-DRG 
patient classification system by creating 20 new CMS-DRGs and modifying 
32 others across 13 different clinical areas for Version 24.0 of the 
GROUPER software that we expect will improve the CMS DRG system's 
recognition of severity of illness for FY 2007. As noted previously in 
this section, the LTCH PPS patient classification system (that is, LTC-
DRGs) is the same patient classification system used under the IPPS 
(that is, CMS DRGs). As such, the updates to the CMS DRG patient 
classification system used under the IPPS for FY 2007 (GROUPER Version 
24.0), are the updates that apply under the LTCH PPS for FY 2007.
    As discussed in the FY 2007 IPPS final rule (71 FR 47906), we have 
engaged a contractor to assist us with completing an evaluation of 
alternative DRG systems for use under the IPPS that may better 
recognize severity than the current CMS DRGs and meet other criteria 
that would make them suitable to adopt for purposes of payment under 
the IPPS. We expect to complete this evaluation of alternative DRG 
systems quickly as part of moving forward on adopting a revised DRG 
system that better recognizes severity in the IPPS rulemaking for FY 
2008.
    As we also stated in that same FY 2007 IPPS final rule (71 FR 
47990), if and when a severity adjusted patient classification system 
is adopted under the IPPS, we would need to consider whether to propose 
revisions to the current patient classification system under the LTCH 
PPS. Any proposed changes to the patient classification system would be 
done through notice and comment rulemaking. We believe that it is 
advantageous to the LTCH community to wait for CMS to first finalize 
its policies regarding any refinements to the DRG patient 
classification system used under the IPPS so that we can fully analyze 
what the effects of such changes would be on LTCH PPS payments. To the 
extent any changes to the patient classification system used under the 
IPPS are proposed and subsequently finalized, an analysis could then be 
performed to determine whether it is appropriate to propose the same 
patient classification for LTCHs. As noted above in this section, at 
that time, we would need to consider whether to propose revisions to 
the patient classification system

[[Page 4783]]

under the LTCH PPS, which, if proposed would be done through notice and 
comment rulemaking.

D. Proposed Update of LTC-DRGs

1. Background
    As discussed in greater detail in the FY 2007 IPPS final rule (71 
FR 47974), under the LTCH PPS, relative weights for each LTC-DRG are a 
primary element used to account for the variations in cost per 
discharge and resource utilization among the payment groups (that is, 
LTC-DRGs). To ensure that Medicare patients classified to each LTC-DRG 
have access to an appropriate level of services and to encourage 
efficiency, each year based on the best available data, we calculate a 
relative weight for each LTC-DRG that represents the resources needed 
by an average inpatient LTCH case in that LTC-DRG. For example, cases 
in a LTC-DRG with a relative weight of 2 will, on average, cost twice 
as much as cases in a LTC-DRG with a relative weight of 1. Under Sec.  
412.517, the LTC-DRG classifications and weighting factors (that is, 
relative weights) are adjusted annually to reflect changes in factors 
affecting the relative use of LTCH resources, including treatment 
patterns, technology and number of discharges. For FY 2007, the LTC-DRG 
classifications and relative weights were updated based on LTCH data 
from the FY 2005 MedPAR file, which contained hospital bills data from 
the March 2006 update. The LTC-DRG patient classification system 
consists of 538 DRGs that formed the basis of the FY 2007 LTCH PPS 
GROUPER program. The 538 LTC-DRGs included two ``error DRGs.'' As in 
the IPPS, we included two error DRGs in which cases that cannot be 
assigned to valid DRGs will be grouped. These two error DRGs are DRG 
469 (Principal Diagnosis Invalid as a Discharge Diagnosis) and DRG 470 
(Ungroupable). The other 536 LTC-DRGs are the same DRGs used in the 
IPPS GROUPER program for FY 2007 (Version 24.0).
    In the past, the annual update to the CMS-DRGs was based on the 
annual revisions to the ICD-9-CM codes and was effective each October 
1. The ICD-9-CM coding update process was revised as discussed in 
greater detail in the FY 2005 IPPS final rule (69 FR 48953 through 
48957). Specifically, section 503(a) of the MMA includes a requirement 
for updating diagnosis and procedure codes for twice a year instead of 
the current process of annual updates on October 1 of each year. This 
requirement is included as part of the amendments to the Act relating 
to recognition of new medical technology under the IPPS. (For 
additional information on this provision, including its implementation 
and its impact on the LTCH PPS, refer to the FY 2005 IPPS final rule 
(69 FR 48953 through 48957) and the RY 2006 LTCH PPS final rule (70 FR 
24172 through 24177).)
    As noted above in this section, with the implementation of section 
503(a) of the MMA, there is the possibility that one feature of the 
GROUPER software program may be updated twice during a Federal FY 
(October 1 and April 1) as required by the statute for the IPPS. 
Specifically, diagnosis and procedure codes for new medical technology 
may be created and added to existing DRGs in the middle of the Federal 
FY on April 1. No new LTC-DRGs will be created or deleted. Consistent 
with our current practice, any changes to the DRGs or relative weights 
will be made at the beginning of the next Federal FY (October 1). 
Therefore, there will not be any impact on LTC-DRG payments under the 
LTCH PPS until the following October 1 (although the new ICD-9-CM 
diagnosis and procedure codes would be recognized April 1). The use of 
the ICD-9-CM code set is also compliant with the current requirements 
of the Transactions and Code Sets Standards regulations at 45 CFR parts 
160 and 162, issued under HIPAA.
    As we explained in the FY 2007 IPPS final rule, annual changes to 
the ICD-9-CM codes historically were effective for discharges occurring 
on or after October 1 each year (71 FR 47971). Thus, the manual and 
electronic versions of the GROUPER software, which are based on the 
ICD-9-CM codes, were also revised annually and effective for discharges 
occurring on or after October 1 each year. The patient classification 
system used under the LTCH PPS (LTC-DRGs) is the same DRG patient 
classification system used under the IPPS, which historically had been 
updated annually and was effective for discharges occurring on or after 
October 1 through September 30 each year. As we mentioned previously in 
this section, the ICD-9-CM coding update process was revised as a 
result of the implementation of section 503(a) of the MMA, which 
includes a requirement for updating diagnosis and procedure codes as 
often as twice a year instead of the current process of annual updates 
on October 1 of each year (as discussed in greater detail in section 
II.D.10. of the FY 2007 IPPS final rule (71 FR 47957 through 47960)). 
We currently use the ICD-9-CM codes as the code set for diagnoses and 
procedures. Therefore, the ICD-9-CM codes currently used under both the 
IPPS and LTCH PPS may be updated as often as twice a year. As described 
above in this section, this requirement is included as part of the 
amendments to the Act relating to recognition of new medical technology 
under the IPPS.
    Despite the fact that aspects of the GROUPER software may be 
updated to recognize any new technology ICD-9-CM codes, there will be 
no impact on either LTC-DRG assignments or payments under the LTCH PPS 
at that time. That is, changes to the LTC-DRGs (such as the creation or 
deletion of LTC-DRGs) and the relative weights will continue to be 
updated in the manner and timing (October 1) as they are now. Updates 
to the GROUPER software for both the IPPS and the LTCH PPS (for 
relative weights and the creation or deletion of DRGs) are made in the 
annual IPPS proposed and final rules and are effective each October 1. 
We have also explained that since we do not publish a mid-year IPPS 
rule, we will assign any new diagnosis or procedure codes implemented 
on April 1 to the same DRG in which its predecessor code was assigned, 
so that there will be no impact on the DRG assignments until the 
following October 1. Any coding updates will be available through the 
Web sites provided in section III.E. of this preamble and through the 
Coding Clinic for ICD-9-CM. Publishers and software vendors currently 
obtain code changes through these sources to update their code books 
and software system. If new codes are implemented on April 1, revised 
code books and software systems, including the GROUPER software 
program, will be necessary because we must use current ICD-9-CM codes. 
Therefore, for purposes of the LTCH PPS, because each ICD-9-CM code 
must be included in the GROUPER algorithm to classify each case into a 
LTC-DRG, the GROUPER software program used under the LTCH PPS would 
need to be revised to accommodate any new codes.
    In implementing section 503(a) of the MMA, there will only be an 
April 1 update if diagnosis and procedure codes are requested and 
approved. We note that any new codes created for April 1 implementation 
will be limited to those diagnosis and procedure code revisions 
primarily needed to describe new technologies and medical services. 
However, we reiterate that the process of discussing updates to the 
ICD-9-CM has been an open process through the ICD-9-CM Coordination and 
Maintenance (C&M) Committee since 1995. Requestors will be given the 
opportunity to present the merits for a new code and make a clear and 
convincing case for the need to update

[[Page 4784]]

ICD-9-CM codes through an April 1 update.
    At the September 2006 ICD-9-CM C&M Committee meeting, there were no 
requests for an April 1, 2007 implementation of ICD-9-CM codes, and 
therefore, the next update to the ICD-9-CM coding system will not occur 
until October 1, 2007 (FY 2008). Presently, as there were no coding 
changes suggested for an April 1, 2007 update, the ICD-9-CM coding set 
implemented on October 1, 2006, will continue through September 30, 
2007 (FY 2007). The next update to the LTC-DRGs and relative weights 
for FY 2008 will be presented in the FY 2008 IPPS proposed and final 
rules. Furthermore, we would notify LTCHs of any revisions to the 
GROUPER software used under the IPPS and LTCH PPS that would be 
implemented April 1, 2008. As noted previously in this section, in the 
FY 2007 IPPS final rule (71 FR 47973), we used Version 24.0 of the CMS 
GROUPER, which was used under the IPPS for FY 2007, to classify cases 
for LTCH PPS discharges that would occur on or after October 1, 2006 
and on or before September 30, 2007.
2. Proposed Budget Neutrality (BN) Requirement for the Annual LTC-DRG 
Update
    As noted above in this section, currently under Sec.  412.517, the 
LTC-DRG classifications and relative weights are adjusted annually to 
reflect changes in factors affecting the relative use of LTCH 
resources, such as treatment patterns, technology and number of 
discharges. Currently, there are no statutory or regulatory 
requirements that the annual update to the LTC-DRG classifications and 
relative weights be done in a budget neutral manner. Historically, 
since the initial implementation of the LTCH PPS in FY 2003, we have 
updated the LTC-DRG relative weights each year without a BN adjustment 
based on the most recent available LTCH claims data, which reflect 
current LTCH patient mix and coding practices, and appropriately 
reflected more or less resource use than the previous year's LTC-DRG 
relative weights (71 FR 47991). When we proposed changes to the LTC-
DRGs for FY 2007 in the FY 2007 IPPS proposed rule, we estimated that 
those proposed changes to the LTC-DRG classifications and relative 
weights would result in about an estimated 1.4 percent decrease in 
estimated aggregate LTCH PPS payments (71 FR 24413). As we discussed in 
the FY 2007 IPPS final rule (71 FR 47991), several commenters, 
including MedPAC, urged us to establish a BN requirement for the annual 
reclassification and recalibration of the LTC-DRGs so that, in future 
years, the LTCH PPS could avoid an estimated decrease in estimated 
aggregate payments, such as the estimated 1.4 percent decrease that 
resulted from the proposed update to the LTC-DRGs and relative weights 
for FY 2007. In response to previous proposed annual updates to the 
LTC-DRG relative weights, we also received comments recommending that a 
BN adjustment be applied in determining the LTC-DRG relative weights to 
mitigate LTCH PPS payment fluctuations. (See the FY 2005 IPPS final 
rule (69 FR 48999 through 49000), and the FY 2006 IPPS final rule (70 
FR 47333 through 47334).)
    In response to those comments, we explained that we understood the 
commenters' concern with the estimated decrease in payments under LTCH 
PPS based upon the changes in the LTC-DRGs and relative weights 
proposed for FY 2007. However, as we discussed in the FY 2007 IPPS 
final rule, we did not postpone the proposed FY 2007 reclassification 
and recalibration of the LTC-DRGs, nor did we implement those changes 
in a budget neutral manner. We noted several reasons for the annual 
fluctuations in LTC-DRG relative weights that have resulted in both 
estimated increases and decreases in estimated aggregate LTCH PPS 
payments in the 4 years since the implementation of the LTCH PPS in FY 
2003. Specifically, we reiterated our belief that several factors have 
affected the changes to the LTC-DRG relative weights over the past 4 
years, including actual improvements in coding so that cases are 
appropriately assigned to LTC-DRGs. We also explained that, as noted 
above in this section, historically we recalibrated the LTC-DRG 
relative weights each year based on the most recent available LTCH 
claims data, which reflect current LTCH patient mix and coding 
practices, and appropriately reflects more or less resource use than 
the previous year's LTC-DRG relative weights. The intended purpose of 
the annual recalibration of the LTC-DRG relative weights is to reflect 
any variation in coding practices and charges from the previous year 
and to help ensure that the LTC-DRG relative weights in the upcoming 
fiscal year will result in appropriate and accurate payments to LTCHs 
for the resources they expend to treat their Medicare patients. (71 FR 
47984 through 47989)
    We also reminded the commenters that under the IPPS, there is a 
statutory requirement that the annual DRG reclassification and 
recalibration changes be made in a manner that assures that the 
estimated aggregate payments are neither greater than nor less than the 
estimated aggregate payments that would have been made without the 
changes, but there is no corresponding statutory requirement under the 
LTCH PPS. However, we noted that, given the considerable discretion 
granted to the Secretary under section 123 of the BBRA and section 
307(b) of the BIPA of 2000 to develop the LTCH PPS, it is possible 
that, at some point, the Secretary would consider using this broad 
authority to establish a BN policy for the annual update of the LTC-DRG 
classifications and relative weights. We further stated that if we find 
that it would be appropriate to propose making the updates to the LTC-
DRGs and relative weights in a budget neutral manner, the public would 
have the opportunity to submit comments on any proposed change during 
the rulemaking process.
    As we explained in the FY 2007 IPPS final rule (71 FR 47985 through 
47986), a LTCH's case-mix index (CMI) is defined as its case weighted 
average LTC-DRG relative weight for all its discharges in a given 
period. Changes in CMI consist of two components: ``real'' CMI changes 
and ``apparent'' CMI changes. Real CMI increase is defined as the 
increase in the average LTC-DRG relative weights resulting from the 
hospital's treatment of more resource intensive patients. Apparent CMI 
increase is defined as the increase in CMI due to changes in coding 
practices. The computed (or observed) CMI increase is defined as real 
CMI increase (due to an increase in patient severity) plus the increase 
due to changes in coding practices (including better documentation of 
the medical record by physicians and more complete coding of the 
medical record by coders). If LTCH patients have more costly 
impairments, lower functional status, or increased comorbidities, and 
thus require more resources in the LTCH, we consider this a real change 
in case-mix. Conversely, if LTCH patients have the same impairments, 
functional status, and comorbidities but are coded differently 
resulting in higher payment, we consider this an apparent change in 
case-mix. We believe that changes in payment rates, including the LTC-
DRG relative weights, should accurately reflect changes in LTCHs' true 
cost of treating patients (real CMI increase), and should not be 
influenced by changes in coding practices (apparent CMI increase).
    As stated above in this section, apparent CMI increase results from 
cases being grouped to a LTC-DRG with a higher weight than it would be

[[Page 4785]]

without such changes in coding practices. As we discussed in the FY 
2007 IPPS final rule (71 FR 48343 through 48344), in discussing the 
impact of the changes to the LTC-DRG classifications and relative 
weights established for FY 2007 that were estimated to result in an 
aggregate decrease in LTCH PPS payments of approximately 1.3 percent, 
we explained that changes in coding practices (rather than patient 
severity) primarily resulted in fluctuations in the LTC-DRG relative 
weights in the past. Specifically, based on an analysis of FY 2005 LTCH 
claims data, we continued to observe that the average LTC-DRG relative 
weight decreases due to an increase of relatively lower charge cases 
being assigned to LTC-DRGs with higher relative weights in the prior 
year. Contributing to this increase in these relatively lower charge 
cases being assigned to LTC-DRGs with higher relative weights in the 
prior year are improvements in coding practices, which are typical when 
moving from a reasonable cost-based payment system to a PPS. The impact 
of including cases with relatively lower charges into LTC-DRGs that had 
a relatively higher relative weight in the previous version of the 
GROUPER software is a decrease in the average relative weight for those 
LTC-DRGs in the updated version of the GROUPER software.
    We note that this same phenomenon of relatively lower charge cases 
being assigned to LTC-DRGs with higher relative weights in the prior 
year was also observed when we analyzed the LTCH claims data from FY 
2003 and FY 2004 to update the LTC-DRG relative weights for FY 2005 and 
FY 2006, respectively (see the FY 2005 IPPS final rule (69 FR 48999) 
and the FY 2006 IPPS final rule (70 FR 47701 through 47702).) However, 
this phenomenon was more notable based on the FY 2004 LTCH claims data 
that were used to update the LTC-DRG relative weights for FY 2006, 
where the changes to the LTC-DRG weights established were estimated to 
result in a decrease in aggregate LTCH PPS payments of 4.2 percent (as 
compared to the estimated 1.3 percent decrease in aggregate LTCH PPS 
payments based on the FY 2005 LTCH claims data used to determine the FY 
2007 LTC-DRG relative weights). Because the estimated decrease in 
aggregate LTCH PPS payments due to the update to the LTC-DRG relative 
weights based on more recent (FY 2005) LTCH claims data was 
significantly lower (1.3 percent estimated based on the LTC-DRG changes 
for FY 2007) than it was based on FY 2004 LTCH claims data (4.2 percent 
estimated based on the LTC-DRG changes for FY 2006), we believe that, 
as LTCHs have become more familiar with the ICD-9-CM coding principles 
and guidelines used under a DRG-based system, annual changes in LTCH 
CMI are approaching the point where the observed CMI increase is 
primarily due to changes in real CMI (that is, increased patient 
severity) rather than apparent CMI (that is, changes in coding 
practices). In other words, because we have observed that, over time as 
LTCHs have gained more experience with ICD-9-CM coding, estimated 
changes in LTCH PPS payments due to recalibration of the LTC-DRG 
relative weights based on more recent claims data (for example, the FY 
2007 LTC-DRG relative weights calculated from FY 2005 LTCH claims data 
as compared to the FY 2006 LTC-DRG relative weights calculated from FY 
2004 LTCH claims data) have diminished over time. That is, we have 
estimated smaller fluctuations in aggregate LTCH PPS payments as a 
result of the annual recalibration of the LTC-DRG relative weights 
based on more recent LTCH claims data generated after the 
implementation of the LTCH PPS (for example, the 1.3 percent estimated 
decrease in aggregate LTCH PPS payments for FY 2007 based on FY 2004 
LTCH claims data as compared to the 4.2 percent estimated decrease in 
aggregate LTCH PPS payments for FY 2007 based on FY 2005 LTCH claims 
data). For these reasons, we believe that LTCH coding practices have 
stabilized such that the most recent available LTCH claims data now 
primarily reflect changes in the resources used by the average LTCH 
patient in a particular LTC-DRG (and not changes in coding practices). 
Thus, we believe that the most recent available data (as described 
below in this section) mainly reflect the true costs of treating LTCH 
patients, and as discussed above, we believe changes in payment rates, 
including the LTC-DRGs, should reflect such costs.
    Furthermore, a LTCH CMI analysis based on the most recent available 
LTCH claims data, which is discussed in section IV.C. of this preamble, 
also supports our belief that observed CMI increase is primarily due to 
changes in real CMI (that is, increased patient severity) rather than 
apparent CMI (that is, changes in coding practices). Specifically, this 
CMI analysis indicates that changes in LTCH coding practices, which 
resulted in fluctuations in the LTC-DRG relative weights in the past, 
appear to be stabilizing as LTCHs have become more familiar with a DRG-
based system. As discussed in section IV.C.2. of this preamble, the 
overall observed change in LTCH CMI from FY 2003 compared to FY 2004 
was an increase of approximately 6.75 percent while the overall 
observed change in LTCH CMI from FY 2004 compared to FY 2005 was an 
increase of approximately 3.49 percent, which is only about half of the 
LTCH CMI growth measured from the prior period (that is, the 6.75 
percent from FY 2003 to FY 2004). Furthermore, preliminary analysis of 
FY 2006 LTCH claims data, which reflects over 3 full years of 
experience under the LTCH PPS for most LTCHs, shows an even smaller 
overall observed CMI increase of about 1.9 percent from FY 2005 
compared to FY 2006. Again, the observed CMI increase from FY 2005 to 
FY 2006 is only about half of the LTCH CMI growth measured from the 
prior period (that is, the 3.49 percent from FY 2004 to FY 2005). 
Because this LTCH CMI analysis shows that observed CMI is declining, we 
believe that LTCH coding practices have stabilized such that changes in 
LTCH CMI are now primarily due to changes in real CMI (that is, 
increased patient severity) rather than apparent CMI (that is, changes 
in coding practices). In other words, because we believe that the 
observed annual CMI increase is primarily ``real'' and not 
``apparent,'' it is no longer necessary to update the LTC-DRGs in a 
non-budget neutral manner (as discussed in greater detail below in this 
section). As stated above in this section, we believe that changes in 
payment rates, including the LTC-DRG relative weights, should 
accurately reflect changes in LTCHs' true cost of treating patients 
(real CMI increase) and should not be influenced by changes in coding 
practices (apparent CMI increase).
    In light of these facts, in order to mitigate estimated 
fluctuations in estimated aggregate LTCH PPS payments, as urged by past 
commenters, we have given further consideration to the issue of 
establishing a BN requirement for annual LTC-DRG reclassification and 
recalibration. Therefore, in this proposed rule, under the broad 
authority conferred upon the Secretary under section 123 of the BBRA as 
amended by section 307(b) of the BIPA to develop the LTCH PPS, we are 
proposing that, beginning with the LTC-DRG update for FY 2008, the 
annual update to the LTC-DRG classifications and relative weights would 
be done in a budget neutral manner such that estimated aggregate LTCH 
PPS payments would be unaffected, that is, would be neither greater 
than nor less than the estimated aggregate LTCH PPS payments that

[[Page 4786]]

would have been made without the proposed LTC-DRG classification and 
relative weight changes. Accordingly, we are proposing to revise Sec.  
412.517 to specify that annual changes to the LTC-DRG classifications 
and the recalibration of the LTC-DRG relative weights are made in a 
budget neutral manner such that estimated aggregate LTCH PPS payments 
are not affected. We believe that it would be appropriate to update the 
LTC-DRG classifications and relative weights in a budget neutral manner 
at this time for the reasons discussed below.
    As noted above in this section, the relative weight for each LTC-
DRG represents the resources needed by an average inpatient LTCH case 
in that LTC-DRG, such that LTCH cases in a LTC-DRG with a relative 
weight of 2 will, on average, cost twice as much as cases in a LTC-DRG 
with a relative weight of 1. As also noted above in this section, in 
the past when we recalibrated the LTC-DRG relative weights each year 
without a BN adjustment based on the most recent available LTCH claims 
data, we believe that the resulting LTC-DRG relative weights 
appropriately reflected more or less resource use than the previous 
year's LTC-DRG relative weights, and that the estimated aggregate 
payment changes were appropriate given that the LTCH claims data used 
to determine those LTC-DRG relative weights reflected changes in coding 
practices, as well as changes in actual resource use. Historically, we 
have not updated the LTC-DRGs in a budget neutral manner because, as 
discussed above in this section, we believed that past fluctuations in 
the LTC-DRG relative weights were primarily due to changes in LTCH 
coding practices, which included both ``real'' and ``apparent'' changes 
in LTCHs'' case-mix. We believe that changes in the LTCH PPS payment 
rates, including the LTC-DRG relative weights, should accurately 
reflect changes in LTCHs' true cost of treating patients (real CMI 
increase), and should not be influenced by changes in coding practices 
(apparent CMI increase). Therefore, in the past we did not update the 
LTC-DRGs in a budget neutral manner so that ``apparent'' CMI changes 
were not permanently built into the LTCH PPS payment rates. Because 
LTCH 2006 claims data does not appear to significantly reflect changes 
in LTCH coding practices in response to the implementation of the LTCH 
PPS (as explained above in this section), we believe that it may be 
appropriate to update the LTC-DRGs so that estimated aggregate LTCH PPS 
payments would neither increase or decrease since we believe that 
changes in the LTC-DRG classifications and relative weights should 
accurately reflect changes in LTCHs' resource use (that is, true cost 
of treating patients) and should not be influenced by changes in coding 
practices, and that the most recent such LTCH claims data primarily 
reflects changes in the resources needed by an average LTCH case in a 
particular LTC-DRG (and not changes in coding practices). Thus, we now 
believe it would be reasonable and appropriate to update the LTC-DRGs 
in a budget neutral manner, beginning in FY 2008, so that estimated 
aggregate payments under the LTCH PPS would be unaffected (that is, 
estimated aggregate LTCH PPS payments would not be greater than or less 
than they would have been without the proposed LTC-DRG classification 
and relative weight changes) by any changes resulting from the annual 
reclassification and recalibration of the LTC-DRGs. Updating the LTC-
DRGs in a budget neutral manner would result in an annual update to the 
individual LTC-DRG classifications and relative weights based on the 
most recent available data to reflect changes in relative LTCH resource 
use; however, the LTC-DRG relative weights would be uniformly adjusted 
to ensure that estimated aggregate payments under the LTCH PPS would 
not be affected (that is, decreased or increased).
    Under this proposal, we intend to update the LTC-DRG 
classifications and relative weights for FY 2008 based on the best 
available data at the time to allow for changes in factors affecting 
hospital resource use, including but not limited to, practice patterns 
and new technology. This would be done in a budget neutral manner, such 
that estimated aggregate payments under the LTCH PPS would neither 
decrease or increase as a result of the changes due to the annual 
reclassification and recalibration of the LTC-DRGs. Because, under this 
proposal, we would continue to use the most recent available LTCH data, 
the updated LTC-DRG relative weights would continue to reflect changes 
in LTCH resource use (as is the case under the current (non-budget 
neutral) LTC-DRG update methodology). Thus, for example, if the most 
recent LTCH claims data showed that the resource use for hypothetical 
LTC-DRG ``ABC'' is double the resource use for hypothetical LTC-DRG 
``XYZ,'' then the value of the relative weight for LTC-DRG ``ABC'' 
would be about twice the value of relative weight for LTC-DRG ``XYZ.''
    In addition to accounting for changes in relative resource use, to 
include a BN requirement for the annual update to the LTC-DRGs under 
this proposal, the updated LTC-DRG relative weights would need to be 
uniformly adjusted to ensure that estimated aggregate LTCH PPS payments 
would not be affected. That is, a BN factor would need to be computed 
to ensure that the LTC-DRG reclassification and recalibration process, 
by itself, neither increases nor decreases estimated aggregate LTCH PPS 
payments. To accomplish BN when annually updating the LTC-DRG 
classifications and relative weights under the proposed change to Sec.  
412.517, we are proposing to use a method that is similar to the 
methodology used under the IPPS. Specifically, we are proposing that 
after recalibrating the LTC-DRG relative weights, as we do under our 
existing methodology (as described in detail in the FY 2007 IPPS final 
rule (71 FR 47978 through 47981)), we would apply a single BN 
adjustment factor (which would be published annually in the IPPS 
proposed and final rules when we update the LTC-DRGs and relative 
weights) to each of those relative weights. The LTC-DRG BN adjustment 
factor would ensure that estimated aggregate LTCH PPS payments (based 
on the most recent available LTCH claims data) after recalibration (the 
``new'' relative weights) would be equal to estimated aggregate LTCH 
PPS payments (for the same most recent available LTCH claims data) 
before recalibration (the current or ``old'' relative weights). 
(Information on the IPPS DRG BN adjustment can be found in the FY 2007 
IPPS final rule (71 FR 47970).) As noted above in this section, the 
annual update to the LTC-DRG classifications and relative weights 
provided for under the current Sec.  412.517 is presented in the IPPS 
proposed and final rules, and under the proposed changes to Sec.  
412.517 presented in this proposed rule, the proposed BN update to the 
LTC-DRGs for FY 2008 would be presented in the FY 2008 IPPS proposed 
rule in the spring of 2007.

E. ICD-9-CM Coding System

1. Uniform Hospital Discharge Data Set (UHDDS) Definitions
    Because the assignment of a case to a particular LTC-DRG will help 
determine the amount that will be paid for the case, it is important 
that the coding is accurate. Classifications and terminology used in 
the LTCH PPS are consistent with the ICD-9-CM and the UHDDS, as 
recommended to the Secretary by the National Committee on Vital and 
Health Statistics (``Uniform

[[Page 4787]]

Hospital Discharge Data: Minimum Data Set, National Center for Health 
Statistics (NCHS), April 1980'') and as revised in 1984 by the Health 
Information Policy Council (HIPC) of the Department of Health and Human 
Services (HHS).
    We note that the ICD-9-CM coding terminology and the definitions of 
principal and other diagnoses of the UHDDS are consistent with the 
requirements of the HIPAA Administrative Simplification Act of 1996 (45 
CFR part 162). Furthermore, the UHDDS was used as a standard for the 
development of policies and programs related to hospital discharge 
statistics by both governmental and nongovernmental sectors for over 30 
years. In addition, the following definitions (as described in the 1984 
Revision of the UHDDS, approved by the Secretary for use starting 
January 1986) are requirements of the ICD-9-CM coding system, and have 
been used as a standard for the development of the CMS-DRGs:
     Diagnoses are defined to include all diagnoses that affect 
the current hospital stay.
     Principal diagnosis is defined as the condition 
established after study to be chiefly responsible for occasioning the 
admission of the patient to the hospital for care.
     Other diagnoses (also called secondary diagnoses or 
additional diagnoses) are defined as all conditions that coexist at the 
time of admission, that develop subsequently, or that affect the 
treatment received or the LOS or both. Diagnoses that relate to an 
earlier episode of care that have no bearing on the current hospital 
stay are excluded.
     All procedures performed will be reported. This includes 
those that are surgical in nature, carry a procedural risk, carry an 
anesthetic risk, or require specialized training.
    We provide LTCHs with a 60-day window after the date of the notice 
of the initial LTC-DRG assignment to request review of that assignment 
of the discharge to a LTC-DRG. Additional information may be provided 
by the LTCH to the FI as part of that review.
2. Maintenance of the ICD-9-CM Coding System
    The ICD-9-CM C&M Committee is a Federal interdepartmental 
committee, co-chaired by the National Center for Health Statistics 
(NCHS) and CMS, that is charged with maintaining and updating the ICD-
9-CM system. The C&M Committee is jointly responsible for 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 C&M 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 NCHS has lead responsibility for the ICD-9-CM diagnosis codes 
included in the Tabular List and Alphabetic Index for Diseases, while 
we have the lead responsibility for the ICD-9-CM procedure codes 
included in the Tabular List and Alphabetic Index for Procedures. The 
C&M Committee encourages participation by health-related organizations 
in this process and holds public meetings for discussion of educational 
issues and proposed coding changes twice a year at the CMS Central 
Office located in Baltimore, Maryland. The agenda and dates of the 
meetings can be accessed on our Web site at http://www.cms.hhs.gov/
ICD9ProviderDiagnosticCodes.
    As discussed previously in this section, for the IPPS, section 
503(a) of the MMA includes a requirement for updating diagnosis and 
procedure codes twice a year instead of annual updates on October 1 of 
each year. This requirement will improve the recognition of new 
technologies under the IPPS by accounting for them in the GROUPER 
software at an earlier date. Because this statutory requirement could 
have a significant impact on health care providers, coding staff, 
publishers, system maintainers, and software systems, among others, we 
solicited comments on our proposed provisions to implement this 
requirement as part of the FY 2005 IPPS proposed rule (69 FR 28220 
through 28221). We responded to comments and published our new policy 
regarding the updating of diagnosis and procedure codes (currently the 
ICD-9-CM) in the FY 2005 IPPS final rule (69 FR 48953 through 48957). 
In addition, we established a policy for the possibility of an April 1 
ICD-9-CM diagnosis and procedure code update in the RY 2006 LTCH PPS 
final rule (70 FR 24176) since LTCH systems would be expected to 
recognize and report those new codes through the channels described in 
this section even though no DRG additions or deletions or changes to 
relative weights will occur prior to the usual October 1 update. (For 
more detailed information on the affect of the statutory mandates 
directed at the IPPS as amended by section 503(a) of the MMA, refer to 
the FY 2005 IPPS final rule (69 FR 48954 through 48957) and the RY 2007 
LTCH PPS final rule (71 FR 27806 through 27808)).
    Current addendum and code title information is published on the CMS 
Web site at: http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/04_
addendum.asp. Summary tables showing new, revised, and deleted code 
titles are also posted on the CMS Web site at http://www.cms.hhs.gov/
ICD9ProviderDiagnosticCodes/07_summarytables.asp. Information on ICD-
9-CM diagnosis codes can be found at http://www.cms.hhs.gov/
ICD9ProviderDiagnosticCodes/. Information on new, revised, and deleted 
ICD-9-CM codes is also available in the American Hospital Association 
(AHA) publication, the Coding Clinic for ICD-9-CM. AHA also distributes 
information to publishers and software vendors. We also send copies of 
all ICD-9-CM coding changes to our contractors for use in updating 
their systems and providing education to providers. In addition, of 
particular note to LTCHs are the invalid diagnosis codes (Table 6C) and 
the invalid procedure codes (Table 6D) located in the annual proposed 
and final rules for the IPPS. Claims with invalid codes are not 
processed by the Medicare claims processing system.
3. Coding Rules and Use of ICD-9-CM Codes in LTCHs
    We continue to urge LTCHs to focus on improved coding practices. 
Inappropriate coding of cases can adversely affect the uniformity of 
cases in each LTC-DRG and produce inappropriate weighting factors at 
recalibration. Because of concerns raised by LTCHs concerning correct 
coding, we have asked the AHA to provide additional clarification and 
instruction on proper coding in the LTCH setting. The AHA will provide 
this instruction via their established process of addressing questions 
through their publication, the Coding Clinic for ICD-9-CM. Written 
questions or requests for clarification may be addressed to the Central 
Office on ICD-9-CM, American Hospital Association, One North Franklin, 
Chicago, IL 60606. A form for question(s) is available for download and 
can be mailed on AHA's Web site at: www.ahacentraloffice.org. In 
addition, current coding guidelines are available at the NCHS Web site: 
http://www.cdc.gov/nchs/datawh/ftpserv/ftpicd9/ftpicd9.htm#conv.
    In conjunction with the cooperating parties (AHA, the American 
Health Information Management Association (AHIMA), and NCHS), we 
reviewed actual medical records and continue to emphasize the 
importance of the quality

[[Page 4788]]

of the documentation under the LTCH PPS. Based on the LTCH claims data 
analysis described above in section III.D.2. of this preamble, we fully 
believe that with some experience under a PPS, the quality of the 
documentation and coding of LTCHs has improved, as it did for the IPPS. 
However, because of the need for proper coding by LTCHs, the 
cooperating parties have plans to assist their members with continued 
improvement in documentation and coding issues for the LTCHs through 
specific questions and coding guidelines. The importance of consistent 
and complete documentation is emphasized in the revised ICD-9-CM 
Official Guidelines for Coding and Reporting: ``A joint effort between 
the attending physician and coder is essential to achieve complete and 
accurate documentation, code assignment, and reporting of diagnoses and 
procedures. The importance of consistent, complete documentation in the 
medical record cannot be overemphasized. Without this documentation, 
the application of all coding guidelines is a difficult, if not 
impossible task'' (Coding Clinic for ICD-9-CM, Fourth Quarter 2002, 
page 115).
    To improve medical record documentation, LTCHs should be aware that 
if the patient is being admitted for continuation of treatment of an 
acute or chronic condition, guidelines at Section I.B.10 of the Coding 
Clinic for ICD-9-CM, Fourth Quarter 2002 (page 129) are applicable for 
the selection of principal diagnosis. To clarify coding advice issued 
in the August 30, 2002 LTCH PPS final rule (67 FR 55979), at Guideline 
I.B.12, Late Effects, we state that a late effect is considered to be 
the residual effect (condition produced) after the acute phase of an 
illness or injury has terminated (Coding Clinic for ICD-9-CM, Fourth 
Quarter 2002, page 129). Regarding whether a LTCH should report the 
ICD-9-CM code(s) for an unresolved acute condition instead of the 
code(s) for late effects of rehabilitation, we emphasize that each case 
must be evaluated on its unique circumstances and coded appropriately. 
Depending on the documentation in the medical record, either a code 
reflecting the acute condition or rehabilitation could be appropriate 
in a LTCH.
    Since implementation of the LTCH PPS, our Medicare FIs have 
conducted training and provided assistance to LTCHs in correct coding. 
We have also issued manuals containing procedures, as well as coding 
instructions to LTCHs and FIs. We will continue to conduct training and 
provide guidance on an ``as needed'' basis. We also refer readers to 
the detailed discussion on correct coding practices in the August 30, 
2002 LTCH PPS final rule (67 FR 55981 through 55983). Additional coding 
instructions and examples will be published in the Coding Clinic for 
ICD-9-CM.

F. Method for Updating the LTC-DRG Relative Weights

    As discussed in the August 30, 2002 LTCH PPS final rule that 
implemented the LTCH PPS, under the LTCH PPS, each LTCH will receive a 
payment that represents an appropriate amount for the efficient 
delivery of care to Medicare patients (67 FR 55984). The system must be 
able to account adequately for each LTCH's case-mix to ensure both a 
fair distribution of Medicare payments and access to care for those 
Medicare patients whose care is more costly. Therefore, in Sec.  
412.523(c), we adjust the standard Federal PPS rate by the LTC-DRG 
relative weights in determining payment to LTCHs for each case.
    Under this payment system, relative weights for each LTC-DRG are a 
primary element used to account for the variations in cost per 
discharge and resource utilization among the payment groups as 
described in Sec.  412.515. To ensure that Medicare patients who are 
classified to each LTC-DRG have access to services and to encourage 
efficiency, we calculate a relative weight for each LTC-DRG that 
represents the resources needed by an average inpatient LTCH case in 
that LTC-DRG. For example, cases in a LTC-DRG with a relative weight of 
2 will, on average, cost twice as much as cases in a LTC-DRG with a 
weight of 1.
    As we discussed in the FY 2007 IPPS final rule, the LTC-DRG 
relative weights effective under the LTCH PPS for Federal FY 2007 were 
calculated using the March 2006 update of FY 2005 MedPAR data and 
Version 24.0 of the GROUPER software (71 FR 47973). We use total days 
and total charges in the calculation of the LTC-DRG relative weights.
    LTCHs often specialize in certain areas, such as ventilator-
dependent patients and rehabilitation or wound care. Some case types 
(DRGs) may be treated, to a large extent, in hospitals that have (from 
a perspective of charges) relatively high (or low) charges. 
Distribution of cases with relatively high (or low) charges in specific 
LTC-DRGs has the potential to inappropriately distort the measure of 
average charges. To account for the fact that cases may not be randomly 
distributed across LTCHs, we use a hospital-specific relative value 
method to calculate relative weights. We believe this method removes 
this hospital-specific source of bias in measuring average charges. 
Specifically, we reduce the impact of the variation in charges across 
providers on any particular LTC-DRG relative weight by converting each 
LTCH's charge for a case to a relative value based on that LTCH's 
average charge. (See the FY 2007 IPPS final rule for further 
information on the application of the hospital-specific relative value 
methodology under the LTCH PPS (71 FR 47974 through 47975).)
    To account for LTC-DRGs with low volume (that is, with fewer than 
25 LTCH cases), we grouped those low volume LTC-DRGs into 1 of 5 
categories (quintiles) based on average charges, for the purposes of 
determining relative weights. For FY 2007 based on the FY 2005 MedPAR 
data, we identified 180 LTC-DRGs that contained between 1 and 24 cases. 
This list of low volume LTC-DRGs was then divided into 1 of the 5 low 
volume quintiles, each containing 36 LTC-DRGs (180 / 5 = 36). Each of 
the low volume LTC-DRGs grouped to a specific quintile received the 
same relative weight and ALOS using the formula applied to the regular 
LTC-DRGs (25 or more cases). (See the FY 2007 IPPS final rule for 
further explanation of the development and composition of each of the 5 
low volume quintiles for FY 2007 (71 FR 47975 through 47978).)
    After grouping the cases in the appropriate LTC-DRG, we calculated 
the relative weights by first removing statistical outliers and cases 
with a LOS of 7 days or less. Next, we adjusted the number of cases 
remaining in each LTC-DRG for the effect of SSO cases under Sec.  
412.529. The short-stay adjusted discharges and corresponding charges 
were used to calculate ``relative adjusted weights'' in each LTC-DRG 
using the hospital-specific relative value method. We also adjusted the 
LTC-DRG relative weights to account for nonmonotonically increasing 
relative weights. That is, we made an adjustment if cases classified to 
the LTC-DRG ``with CCs'' of a ``with CC''/``without CC'' pair had a 
lower average charge than the corresponding LTC-DRG ``without CCs'' by 
assigning the same weight to both LTC-DRGs in the ``with CC''/``without 
CC'' pair. (See the FY 2007 IPPS final rule for further details on the 
steps for calculating the LTC-DRG relative weights (71 FR 47978 through 
47984).)
    In addition, of the 538 LTC-DRGs in the LTCH PPS for FY 2007, based 
on LTCH cases in the FY 2005 MedPAR files, we identified 183 LTC-DRGs 
for which there were no LTCH cases in the

[[Page 4789]]

database. That is, no patients who would have been classified to those 
DRGs were treated in LTCHs during FY 2005 and, therefore, no charge 
data were reported for those DRGs. Thus, in the process of determining 
the relative weights of LTC-DRGs, we were unable to determine weights 
for these 183 LTC-DRGs using the method described in this section of 
the preamble. However, since patients with a number of the diagnoses 
under these LTC-DRGs may be treated at LTCHs beginning in FY 2007, we 
assigned relative weights to each of the 183 ``no volume'' LTC-DRGs 
based on clinical similarity and relative costliness to one of the 
remaining 355 (538-183 = 355) LTC-DRGs for which we were able to 
determine relative weights, based on the FY 2005 claims data. (A list 
of the current no-volume LTC-DRGs and further explanation of their FY 
2007 relative weight assignment can be found in the FY 2007 IPPS final 
rule (71 FR 47980 through 47984).)
    Furthermore, for FY 2007, we established LTC-DRG relative weights 
of 0.0000 for heart, kidney, liver/intestinal, lung, simultaneous 
pancreas/kidney, and pancreas transplants (LTC-DRGs 103, 302, 480, 495, 
512 and 513, respectively) because presently no LTCH meets the 
applicable requirements to perform Medicare covered transplant 
procedures. However, if in the future, a LTCH seeks to meet such 
requirements as a Medicare-approved transplant center to perform 
Medicare-covered transplant procedures, we believe that the application 
and approval procedure would allow sufficient time for us to propose 
appropriate weights for the LTC-DRGs affected. At the present time, we 
included these 6 transplant LTC-DRGs in the GROUPER software program 
for administrative purposes. As the LTCH PPS uses the same GROUPER 
software program for LTCHs as is used under the IPPS, removing these 
DRGs would be administratively burdensome.
    As we noted previously in this proposed rule, there were no new 
ICD-9-CM code requests for an April 1, 2007 update. Therefore, Version 
24.0 of the DRG GROUPER software established in the FY 2007 IPPS final 
rule will continue to be effective until October 1, 2007. Moreover, the 
LTC-DRGs and relative weights for FY 2007 established in Table 11 of 
that same IPPS final rule (71 FR 48321 through 48331) will continue to 
be effective until October 1, 2007, (just as they would have been even 
if there had been any new ICD-9-CM code requests for an April 1, 2007 
update). Accordingly, Table 3 in Addendum A to this proposed rule lists 
the LTC-DRGs and their respective relative weights, geometric ALOS, and 
five-sixths of the geometric ALOS that we will continue to use for the 
period of July 1, 2007 through September 30, 2007. (This table is the 
same as Table 11 of the Addendum to the FY 2007 IPPS final rule.) The 
next update to the ICD-9-CM coding system will be presented in the FY 
2008 IPPS proposed rule (since there will be no April 1, 2007 updates 
to the ICD-9-CM coding system). In addition, the proposed DRGs and 
GROUPER for FY 2008 that would be used for the IPPS and the LTCH PPS, 
effective October 1, 2007, will be presented in the IPPS FY 2008 
proposed rule that will be published in the Federal Register.

IV. Proposed Changes to the LTCH PPS Payment Rates for the 2008 LTCH 
PPS Rate Year

    [If you choose to comment on issues in this section, please include 
the caption ``PROPOSED CHANGES TO LTCH PPS PAYMENT RATES FOR THE 2007 
LTCH PPS RATE YEAR'' at the beginning of your comments.]

A. Overview of the Development of the Payment Rates

    The LTCH PPS was effective for a LTCH's first cost reporting period 
beginning on or after October 1, 2002. Effective with that cost 
reporting period, LTCHs are paid, during a 5-year transition period, a 
total LTCH prospective payment that is comprised of an increasing 
proportion of the LTCH PPS Federal rate and a decreasing proportion 
based on reasonable cost-based principles, unless the hospital makes a 
one-time election to receive payment based on 100 percent of the 
Federal rate as specified in Sec.  412.533. New LTCHs (as defined at 
Sec.  412.23(e)(4)) are paid based on 100 percent of the Federal rate, 
with no phase-in transition payments.
    The basic methodology for determining LTCH PPS Federal prospective 
payment rates is set forth at Sec.  412.515 through Sec.  412.532. In 
this section, we discuss the proposed factors that would be used to 
update the LTCH PPS standard Federal rate for the 2008 LTCH PPS rate 
year that would be effective for LTCH discharges occurring on or after 
July 1, 2007 through June 30, 2008. When we implemented the LTCH PPS in 
the August 30, 2002 LTCH PPS final rule (67 FR 56029 through 56031), we 
computed the LTCH PPS standard Federal payment rate for FY 2003 by 
updating the best latest available (FY 1998 or FY 1999) Medicare 
inpatient operating and capital cost data, using the excluded hospital 
market basket.
    Section 123(a)(1) of the BBRA requires that the PPS developed for 
LTCHs be budget neutral for the initial year of implementation. 
Therefore, in calculating the standard Federal rate under Sec.  
412.523(d)(2), we set total estimated LTCH PPS payments equal to 
estimated payments that would have been made under the reasonable cost-
based payment methodology had the PPS for LTCHs not been implemented. 
Section 307(a) of the BIPA specified that the increases to the 
hospital-specific target amounts and the cap on the target amounts for 
LTCHs for FY 2002 provided for by section 307(a)(1) of the BIPA shall 
not be considered in the development and implementation of the LTCH 
PPS.
    Furthermore, as specified at Sec.  412.523(d)(1), the standard 
Federal rate is reduced by an adjustment factor to account for the 
estimated proportion of outlier payments under the LTCH PPS to total 
estimated LTCH PPS payments (8 percent). For further details on the 
development of the FY 2003 standard Federal rate, see the August 30, 
2002 LTCH PPS final rule (67 FR 56027 through 56037), and for 
subsequent updates to the LTCH PPS Federal rate, refer to the following 
final rules: RY 2004 LTCH PPS final rule (68 FR 34134 through 34140), 
RY 2005 LTCH PPS final rule (69 FR 25682 through 25684), RY 2006 LTCH 
PPS final rule (70 FR 24179 through 24180), and RY 2007 LTCH PPS final 
rule (71 FR 27819 through 27827).

B. LTCH PPS Market Basket

1. Overview of the RPL Market Basket
    Historically, the Medicare program has used a market basket to 
account for price increases of the services furnished by providers. The 
market basket used for the LTCH PPS includes both operating and 
capital-related costs of LTCHs because the LTCH PPS uses a single 
payment rate for both operating and capital-related costs. The 
development of the LTCH PPS standard Federal rate, using the excluded 
hospital with capital market basket, is discussed in further detail in 
the August 30, 2002 LTCH PPS final rule (67 FR 56027 through 56033).
    In the August 30, 2002 final rule (67 FR 56016 through 56017 and 
56030), which implemented the LTCH PPS, we established the use of the 
excluded hospital with capital market basket as the LTCH PPS market 
basket. The excluded hospital with capital market basket was also used 
to update the limits on LTCHs' operating costs for inflation under the 
TEFRA reasonable cost-based payment system. We

[[Page 4790]]

explained that we believe the use of the excluded hospital with capital 
market basket to update LTCHs' costs for inflation was appropriate 
because the excluded hospital market basket (with a capital component) 
measures price increases of the services furnished by excluded 
hospitals, including LTCHs. For further details on the development of 
the excluded hospital with capital market basket, see the RY 2004 LTCH 
PPS final rule (68 FR 34134 through 34137).
    In the RY 2007 LTCH PPS final rule (71 FR 27810), we noted that 
based on our research, we did not develop a market basket specific to 
LTCH services. We are still unable to create a separate market basket 
specifically for LTCHs due to the small number of facilities and the 
limited amount of data that is reported (for instance, only 
approximately 15 percent of LTCHs reported contract labor cost data for 
2002). In that same final rule, under the broad authority conferred 
upon the Secretary by section 123 of the BBRA as amended by section 
307(b) of the BIPA, we adopted the ``Rehabilitation, Psychiatric and 
Long-Term Care (RPL) market basket'' as the appropriate market basket 
of goods and services under the LTCH PPS for discharges occurring on or 
after July 1, 2006. Specifically, beginning with the 2007 LTCH PPS rate 
year, for the LTCH PPS, we adopted the use of the RPL market basket 
based on FY 2002 cost report data as it was the best available data. We 
choose to use the FY 2002 Medicare cost reports because these are the 
most recent, relatively complete cost data for inpatient rehabilitation 
facilities (IRFs), inpatient psychiatric facilities (IPF), and LTCHs.
    The RPL market basket is determined based on the operating and 
capital costs of IRFs, IPFs and LTCHs. Since all IRFs are now paid 
under the IRF PPS Federal payment rate, nearly all LTCHs are paid 100 
percent of the Federal rate under the LTCH PPS, and most IPFs are 
transitioning to payment based on 100 percent of the Federal per diem 
payment amount under the IPF PPS (payments to IPFs will be based 
exclusively on 100 percent of the Federal rate for cost reporting 
periods beginning on or after January 1, 2008), the RPL market basket 
reflects changes in the operating and capital costs for these 
hospitals. As we explained in that same final rule, we believe a market 
basket based on the data of IRFs, IPFs and LTCHs is appropriate to use 
under the LTCH PPS since it is the best available data that reflects 
the cost structures of LTCHs.
    For further details on the development of the RPL market basket, 
including the methodology for determining the operating and capital 
portions of the RPL market basket, see the RY 2007 LTCH PPS final rule 
(71 FR 27810 through 27817).
2. Proposed Market Basket Estimate for the 2008 LTCH PPS Rate Year
    Consistent with our historical practice, we estimate market basket 
increase based on Global Insight's forecast using the most recent 
available data. The most recent estimate of the RPL market basket for 
July 1, 2007 through June 30, 2008 (the 2008 LTCH PPS rate year), based 
on Global Insight's 3rd quarter 2006 forecast with history through the 
2nd quarter of 2006, is 3.2 percent. Global Insight, Inc. is a 
nationally recognized economic and financial forecasting firm that 
contracts with CMS to forecast changes in the components of the market 
baskets. Consistent with our historical practice of using market basket 
estimates based on the most recent available data, we propose that if 
more recent data is available when we develop the final rule, we would 
use such data, if appropriate.
    As discussed in greater detail in this section, for the 2008 LTCH 
PPS rate year, we are proposing to update the standard Federal rate by 
0.71 percent. The proposed update reflects an adjustment based on the 
most recent market basket estimate (currently 3.2 percent) and an 
adjustment to account for the increase in case-mix in the prior period 
(FY 2005) that resulted from changes in coding practices rather than an 
increase in patient severity. We are also proposing that if more recent 
data are available (for example, a more recent estimate of the market 
basket), we would use such data, if appropriate, to determine the RY 
2008 update in the final rule and thus, the rate update noted in 
regulation text could change.

C. Proposed Standard Federal Rate for the 2008 LTCH PPS Rate Year

1. Background
    At Sec.  412.523(c)(3)(ii), for LTCH PPS rate years beginning RY 
2004 through RY 2006, we updated the standard Federal rate to adjust 
for the most recent estimate of the projected increases in prices for 
LTCH inpatient hospital services. We established the policy of annually 
updating the standard Federal rate by the increase factor described in 
the RY 2004 LTCH PPS final rule (68 FR 34138) because at that time we 
believed that was the most appropriate method for updating the LTCH PPS 
standard Federal rate annually for years after FY 2003. When we moved 
the date of the annual update of the LTCH PPS from October 1 to July 1 
in the RY 2004 LTCH PPS final rule (68 FR 34138), we revised Sec.  
412.523(c)(3) to specify that for LTCH PPS rate years beginning on or 
after July 1, 2003, the annual update to the standard Federal rate for 
the LTCH PPS would be equal to the previous rate year's Federal rate 
updated by the most recent estimate of increases in the appropriate 
market basket of goods and services included in covered inpatient LTCH 
services. We believed that was the most appropriate method for updating 
the LTCH PPS standard Federal rate annually for years after RY 2004. In 
the RY 2007 LTCH PPS final rule (71 FR 27818), we established at Sec.  
412.523(c)(3)(iii) that the update to the standard Federal rate for the 
2007 LTCH PPS rate year is zero percent. As discussed in that same 
final rule, we explained that rather than solely using the most recent 
estimate of the LTCH PPS market basket as the basis of the update 
factor for the Federal rate for RY 2007, we believed it was appropriate 
to adjust the rate to account for the changes in coding practices 
(rather than patient severity) as indicated by our ongoing monitoring 
activities.
    Accordingly, we established the LTCH PPS standard Federal rate, 
effective from July 1, 2006 through June 30, 2007 (the 2007 LTCH PPS 
rate year), at $38,086.04 (71 FR 27818). Additionally, in the RY 2007 
LTCH PPS proposed rule (71 FR 4742 through 4747), we provided a 
description of a preliminary model of an update framework under the 
LTCH PPS. We received few comments on that update framework preliminary 
model. As discussed in the RY 2007 LTCH PPS final rule (71 FR 27818 
through 27819 and 27902 through 27906), although we did not propose to 
adopt an analytical update framework, we continued to solicit comments 
on the framework based on the preliminary model, using the best 
available data and concepts, and we may propose to adopt a framework at 
some time in the future. We continue to be interested in comments and 
suggestions on the preliminary model of an update framework under the 
LTCH PPS that was present in Appendix A of the RY 2007 LTCH PPS final 
rule (71 FR 27902 through 27906).
    In the discussion that follows, we explain how we developed the 
proposed standard Federal rate for the 2008 LTCH PPS rate year. 
Specifically, we explain our rationale, which is based on our ongoing 
monitoring activities, for proposing an annual update to the

[[Page 4791]]

standard Federal rate for RY 2008 that reflects an adjustment for the 
most recent market basket estimate and an adjustment to account for the 
increase in case-mix in a prior period (FY 2005) that resulted from 
changes in coding practices rather than an increase in patient 
severity.
2. Proposed Update to the Standard Federal Rate for the 2008 LTCH PPS 
Rate Year
    Under Sec.  412.523(c)(3)(ii), for RY 2004 through RY 2006, the 
annual update to the LTCH PPS standard Federal rate was equal to the 
most recent estimate of increases in the prices of an appropriate 
market basket of goods and services included in covered inpatient LTCH 
services. As noted above in this section, in the RY 2007 LTCH PPS final 
rule, under the broad authority conferred upon the Secretary by section 
123 of the BBRA as amended by section 307(b) of BIPA to include 
appropriate adjustments in the establishment of the LTCH PPS, for 
discharges occurring on or after July 1, 2006 and on or before June 30, 
2007 (RY 2007), we specified at Sec.  412.523(c)(3)(iii) that the 
standard Federal rate from the previous year would be updated by a 
factor of zero percent. That is, the standard Federal rate for the 2007 
LTCH PPS rate year remained the same as the standard Federal rate in 
effect during the 2006 LTCH PPS rate year (July 1, 2005 through June 
30, 2006) (that is, $38,086.04).
    As discussed in greater detail in the RY 2007 LTCH PPS final rule 
(71 FR 27819 through 27827), the update to the standard Federal rate 
for RY 2007 was determined based on the estimate of the LTCH PPS market 
basket and an analysis of LTCH case-mix, in conjunction with a review 
of LTCHs' margins and our ongoing LTCH monitoring activities. 
Specifically, from our CMI analysis, we calculated the observed CMI 
increase between FY 2003 and FY 2004 (6.75 percent) and determined that 
a significant portion of the 6.75 percent increase in CMI between FY 
2003 and FY 2004 is due to changes in coding practices, which we define 
as ``apparent'' increase in case-mix, rather than the treatment of more 
resource intensive patients. We also noted that the large observed 
increase in LTCH case-mix was not accompanied by a corresponding 
increase in Medicare costs. Finally, we noted in the RY 2007 LTCH PPS 
final rule (71 FR 27826 through 27827) that although the most recent 
update of the market basket discussed in that final rule is 0.2 percent 
lower than the estimate of the market basket discussed in the RY 2007 
LTCH PPS proposed rule, we believed that finalizing a zero percent 
update to the Federal rate for RY 2007 was appropriate for several 
reasons. First, we did not believe that there was a significant 
difference between the most recent estimates of the market basket for 
RY 2007 (3.4 percent) and the estimate used in the RY 2007 LTCH PPS 
proposed rule (3.6 percent). Furthermore, there could be some minimal 
variation in how much of the observed case-mix increase represents real 
case-mix changes. Finally, because the proposed update for RY 2007 at 
Sec.  412.523(c)(3)(iii) explicitly specified that the RY 2007 standard 
Federal rate would be the previous LTCH PPS rate year updated by an 
update factor of zero percent, we believe some commenters may not have 
been aware that the final update for RY 2007 could have been different 
than (that is, greater than or less than) zero percent. Thus, we 
believed that the best approach was to adopt an update factor of zero 
percent in the final rule for RY 2007, which reflected both the market 
basket estimate and an adjustment to account for the increase in case-
mix in a prior period (FY 2004) that resulted from changes in coding 
practices rather than an increase in patient severity. In that same 
final rule (71 FR 27821), we stated that the revision to Sec.  
412.523(c)(3) only addressed an update to the LTCH PPS Federal rate for 
the 2007 LTCH PPS rate year (Sec.  412.523(c)(3)(iii)), and that we 
would propose future revisions to Sec.  412.523(c)(3) to address future 
proposed updates to the LTCH PPS Federal rates in future rate years 
based on an analysis of the most recent available LTCH data.
    In determining the proposed update to the standard Federal rate for 
the 2008 LTCH PPS rate year, we again performed a CMI analysis using 
the most recent available LTCH claims data and found the observed CMI 
increase between FY 2004 and FY 2005 to be 3.49 percent. We believe 
that there is still some component of apparent CMI increase within the 
observed CMI increase of 3.49 percent that is due to coding practices 
rather than the treatment of more resource intensive patients (real CMI 
increase). Therefore, we believe it is appropriate to propose an 
adjustment to the market basket update for RY 2008 to account for the 
apparent CMI increase for a subsequent prior period (that is, CMI 
increase due to changes in coding practices during FY 2005). As 
discussed in detail in the RY 2007 LTCH PPS final rule (71 FR 27819 
through 27827), in determining the update to the LTCH PPS Federal rate 
for RY 2007, we used 2.75 percent as the proxy for ``real'' CMI change 
during RY 2004. We noted in that same final rule (71 FR 27822) that we 
were aware of a well-established RAND Corporation (RAND) study [``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)]. Based upon such study, we determined that real 
case-mix change for IPPS hospitals was a fairly steady 1.0 and 1.4 
percent per year. We also noted that in updating IPPS rates, we have 
consistently assumed that real case-mix change was between 1.0 to 1.4 
percent per year, which is a more conservative estimate of real case-
mix increase than the 2.75 percent used in determining the update to 
the Federal rate for RY 2007 (71 FR 27822). However, we explained that 
we believed at the time it was appropriate to utilize the estimate of 
2.75 percent as a proxy for real CMI increase in determining the update 
for RY 2007 rather than the estimates based on the RAND study (71 FR 
27819 through 27827). We believe it is appropriate to factor the impact 
of moving from a reasonable cost-based (TEFRA) payment system to a PPS 
into our CMI analysis for RY 2007. In determining the update for RY 
2007, we measured the observed CMI increase from FY 2003 (the year 
LTCHs began transitioning to PPS payments from reasonable cost-based 
payments) to FY 2004 (the first full year after implementation of the 
LTCH PPS). Under the reasonable cost-based payment system, there was 
little incentive for LTCHs to attempt to influence payments through 
changes in coding practices. Under the former reasonable cost-based 
payment system, a LTCH's payments were limited on the costs per 
discharge of its patients in a base year updated. Since payment was 
based on the resource use of a particular mix of patients in the base 
year, there may have been reluctance on the part of LTCHs, in 
subsequent years, to accept more resource-intensive patients than those 
patients they treat in their base year. In contrast, under the LTCH 
PPS, payment is DRG-based. Payments are dependent on the DRG to which a 
patient is assigned as determined by the patient's diagnosis. 
Therefore, a LTCH could treat higher severity patients with the 
expectation that payment will be determined based on the hospital case 
mix in the current year and without the concern, under the former 
payment system, that its costs for those more resource intensive 
patients would be limited by the cost per discharge limits

[[Page 4792]]

that were established by its patient mix in its base year. Immediately 
following the transition to the LTCH PPS, a LTCH could receive payment 
for treating patients with higher severity that require more intensive 
resources, which would have caused the LTCH to exceed its set limit 
under the TEFRA system. Therefore, we expected that in the first full 
year following implementation of the LTCH PPS, LTCHs would take 
advantage of this change and treat more severe patients. Accordingly, 
we believe that it is reasonable to assume that the real CMI increase 
in that first full year after implementation of the LTCH PPS would be 
somewhat higher than the 1.0 to 1.4 percent annual increase.
    Thus, in the CMI analysis conducted for RY 2007 based on case mix 
data from FY 2003 to FY 2004, we used 2.75 percent as the proxy for the 
real CMI increase component of the total 6.75 percent observed CMI 
increase. (For a more detailed discussion on the 2.75 percent proxy for 
real CMI increase, refer to the RY 2007 LTCH PPS final rule (71 FR 
27819 through 27827).)
    Consequently for RY 2007, by removing the real CMI increase 
component (2.75 percent) from the observed CMI increase (6.75 percent), 
the apparent CMI increase from FY 2003 to FY 2004 was estimated to be 
4.0 percent (6.75-2.75 = 4.0). The rate for RY 2007 was offset by 3.4 
percent to account for the changes in coding practices that do not 
reflect increased severity of LTCH patients (which accounts for the 
fact that we have already included a 0.34 percent behavioral offset in 
establishing the initial LTCH PPS Federal rate). For further 
information on the update to the Federal rate for RY 2007, see the RY 
2007 final rule (71 FR 27819 through 27827).
    For this proposed rule, the CMI analysis performed in determining 
the proposed Federal rate update for RY 2008 is based on the observed 
CMI increase from FY 2004 to FY 2005 (the first and second full years 
of the LTCH PPS, respectively). We believe that as the LTCH PPS matured 
and LTCHs have become more familiar with the DRG-based payment system, 
it is more appropriate to utilize the estimate of real case-mix 
increase (1.0 percent to 1.4 percent) based on the RAND study that is 
typically found in acute care hospitals under the IPPS. Furthermore, an 
analysis of the most recent available LTCH claims data shows a steady 
decrease in the observed CMI from year to year since FY 2003 (the 
observed CMI change between FY 2003 and FY 2004 is 6.75 percent, 
between FY 2004 and FY 2005 is 3.49 percent, and between FY 2005 and FY 
2006 is estimated to be 1.9 percent), which suggests that both apparent 
and real components of CMI are decreasing as the LTCH PPS matures. 
Given the estimated 1.9 percent observed CMI increase for FY 2006, it 
appears that it is inappropriate to assume a constant annual real case 
mix of 2.75 percent.
    Therefore, for periods beyond the first full year of the LTCH PPS, 
we believe it is no longer appropriate to use such a generous estimate 
of real CMI. (Many LTCHs have cost reporting periods beginning in 
August and thus were not paid under the LTCH PPS until August 2003. For 
those hospitals, the first full year of the LTCH PPS was during FY 
2004.) While the well-established ``real'' case-mix parameters based on 
the RAND study are based on IPPS data, we believe they are appropriate 
to apply under the LTCH PPS for the reasons explained below in this 
section. However, we are soliciting comments on other data sources that 
could be used to determine a proxy for real LTCH PPS case-mix change 
other than the 1.0 to 1.4 percent per year case-mix parameters based on 
the RAND study. As we have discussed numerous times in previous LTCH 
PPS proposed and final rules, acute care hospitals paid under the IPPS 
and LTCHs paid under the LTCH PPS have much in common. Hospitals paid 
under both systems are required to meet the same certification criteria 
set forth in section 1861(e) of the Act to participate as a hospital in 
the Medicare program. LTCHs are certified as acute care hospitals but 
are classified as LTCHs for payment purposes solely because such 
hospitals generally have an inpatient ALOS of greater than 25 days (as 
set forth in section 1886(d)(1)(B)(iv)(I) of the Act). Furthermore, the 
LTCH PPS uses the same patient classification system that is used under 
the IPPS, and several LTCH PPS payment policies, such as the area wage 
adjustment (Sec.  412.525(c)), COLA for Alaska and Hawaii (Sec.  
412.525(b)), and high cost outlier (HCO) policy (Sec.  412.525(a)) are 
modeled after the similar IPPS policies.
    Therefore, we believe it is appropriate to propose utilizing the 
estimate of real CMI increase based on the RAND study of 1.0 percent as 
the proxy for the portion of the observed 3.49 percent CMI increase 
from FY 2004 to FY 2005 that represents real CMI changes for use in 
determining the proposed RY 2008 Federal rate update. We propose to use 
the more conservative 1.0 percent (rather than the 1.4 percent) as a 
proxy for real CMI increase because it is consistent with what is used 
under the IPPS and we believe the similarities between LTCHs and acute 
care hospitals are significant as we explained previously. (For a more 
detailed discussion on the 1.0 percent for real CMI increase utilized 
in the IPPS, see the FY 2007 IPPS final rule (71 FR 48156 through 
48158), and the FY 1994 IPPS proposed rule (58 FR 30444).) Accordingly, 
since the observed CMI change for FY 2005 is estimated at 3.49 percent 
(based on the most recent available LTCH case-mix data from FY 2004 
compared to FY 2005), accounting for the real CMI change of 1.0 
percent, we believe that 2.49 percent (3.49 - 1.0 = 2.49) of that 
increase reflects CMI increase that is due to changes in coding 
practices (rather than patient severity).
    As we discussed in greater detail in the RY 2007 LTCH PPS final 
rule (71 FR 27819 through 27827), while we continue to believe that an 
update to the LTCH PPS Federal rate year should be based on the most 
recent estimate of the LTCH PPS market basket, we believe it 
appropriate that the rate be offset by an adjustment to account for 
changes in coding practices that do not reflect increased patient 
severity. Such an adjustment protects the integrity of the Medicare 
Trust Funds by ensuring that the LTCH PPS payment rates better reflect 
the true costs of treating LTCH patients (71 FR 27798 through 27820). 
Therefore, in determining the proposed RY 2008 update to the LTCH PPS 
Federal rate, we believe it is appropriate to apply an adjustment to 
eliminate the effect of coding or classification changes in a prior 
period (FY 2005) that do not reflect real changes in LTCHs' case-mix. 
Specifically, the proposed case-mix adjustment in determining the 
proposed RY 2008 Federal rate is meant to reduce current payments to 
account for the increase in payments in FY 2005 that resulted from the 
CMI increase that was attributable to the apparent case-mix increase in 
that year. As was the case when we determined the RY 2007 update 
factor, this adjustment would be necessary to account for payments that 
were made based on improved coding (rather than increased patient 
severity) in prior years. Therefore, in this proposed rule, under the 
broad authority conferred upon the Secretary by section 123 of the BBRA 
as amended by section 307(b) of the BIPA to include appropriate 
adjustments, including updates, in the establishment of the LTCH PPS, 
we are proposing to revise Sec.  412.523(c)(3), to specify that, for 
discharges occurring on or after July 1, 2007 and on or before June 30, 
2008, the standard Federal rate from the previous year would be updated 
by 0.71 percent, which is based on the most recent market basket 
estimate (3.2 percent)

[[Page 4793]]

adjusted by the apparent CMI (2.49 percent) due to changes in coding 
practice rather than an increase in patient severity. As explained 
above in this section, the proposed update factor for RY 2008 is based 
on the most recent estimate of the LTCH PPS market basket offset by an 
adjustment to account for changes in case-mix in prior periods due to 
changes in coding practices rather than increased patient severity. We 
note that the proposed update factor of 0.71 percent is higher than the 
zero percent update recommended by the MedPAC for RY 2008 (MedPAC 
Public Meeting, January 9, 2007, Meeting Transcript pp. 225-226). We 
are soliciting comments on a possible zero percent update to the 
standard Federal rate for RY 2008.
    Furthermore, since we are proposing to use the most recent 
estimates of the market basket and CMI increase in the prior period (FY 
2005) for calculating the update factor to the LTCH PPS Federal rate, 
we note that at the time the analysis must be performed for the final 
rule, we will consider comments received on this proposed rule and 
would also use the most recent estimates available at that time, if 
appropriate, which may be different from the data we are using in this 
proposed rule. Therefore, the proposed update factor applied to the 
standard Federal rate may change in the final rule. Consequently, the 
update factor in the regulation text would change accordingly.
    At this time, the most recent estimate of the LTCH PPS market 
basket is 3.2 percent, and the most recent estimate of apparent CMI 
increase in the prior period (FY 2005), that is, case-mix increase due 
to changes in coding practices, is 2.49 percent. Therefore, we are 
proposing that the RY 2008 update factor to the LTCH PPS Federal rate 
would be an estimated 0.71 percent (3.2 - 2.49 = 0.71), which reflects 
the proposed adjustment to the most recent market basket estimate and 
accounts for the increase in case-mix in the prior period that resulted 
from changes in coding practices rather than an increase in patient 
severity. Accordingly, under the same broad authority conferred upon 
the Secretary under the BBRA and the BIPA referenced above in this 
section, we are proposing to specify under Sec.  412.523(c)(3)(iv), 
that, for discharges occurring on or after July 1, 2007 and on or 
before June 30, 2008, the standard Federal rate from the previous year 
would be updated by 0.71 percent, determined based on an adjustment to 
the most recent estimate of the market basket to account for case-mix 
increase in the prior period (FY 2005) that is due to changes in coding 
practices rather than patient severity.
3. Proposed Standard Federal Rate for the 2008 LTCH PPS Rate Year
    In the RY 2007 LTCH PPS final rule (71 FR 27827), we established a 
standard Federal rate of $38,086.04 for the 2007 LTCH PPS rate year 
that was based on the best available data and policies established in 
that final rule. In this proposed rule, under the broad authority 
conferred upon the Secretary by section 123 of the BBRA as amended by 
section 307(b) of the BIPA, we are proposing an annual update to the 
standard Federal rate for RY 2008 that reflects an adjustment for the 
most recent market basket estimate and an adjustment to account for the 
increase in case-mix in a prior period (FY 2005) that resulted from 
changes in coding practices rather than an increase in patient 
severity. Therefore, based on the proposed update factor for RY 2008 of 
0.71 percent, the proposed standard Federal rate for RY 2008 would be 
$38,356.45. Since the proposed standard Federal rate for the 2008 LTCH 
PPS rate year has already been adjusted for differences in case-mix, 
wages, COLAs, and HCO payments, we are not proposing to make any 
additional adjustments in the proposed standard Federal rate for these 
factors. Finally, we propose that if more recent data becomes 
available, we would use that data, if appropriate, to determine the 
update to the standard Federal rate for the RY 2008 final rule.

D. Calculation of Proposed LTCH Prospective Payments for the 2008 LTCH 
PPS Rate Year

    The basic methodology for determining prospective payment rates for 
LTCH inpatient operating and capital-related costs is set forth in 
Sec.  412.515 through Sec.  412.532. In accordance with Sec.  412.515, 
we assign appropriate weighting factors to each LTC-DRG to reflect the 
estimated relative cost of hospital resources used for discharges 
within that group as compared to discharges classified within other 
groups. The amount of the prospective payment is based on the standard 
Federal rate, established under Sec.  412.523, and adjusted for the 
LTC-DRG relative weights, differences in area wage levels, COLA in 
Alaska and Hawaii, HCOs, and other special payment provisions (SSOs 
under Sec.  412.529 and interrupted stays under Sec.  412.531).
    In accordance with Sec.  412.533, during the 5-year transition 
period, which is currently in its final year for LTCH cost reporting 
periods beginning on or after October 1, 2006 (FY 2007), a total LTCH 
PPS payment was based on the applicable transition blend percentage of 
the adjusted Federal rate and a percentage based on reasonable cost 
principles unless the LTCH made a one-time election to receive payment 
based on 100 percent of the Federal rate. In the final year of the 5-
year transition period, which begins with LTCH cost reporting periods 
beginning on or after October 1, 2006, as specified at Sec.  412.533, a 
total LTCH PPS payment is based on 100 percent of the Federal rate. A 
LTCH defined as ``new'' under Sec.  412.23(e)(4) is paid based on 100 
percent of the Federal rate with no blended transition payments as 
specified in Sec.  412.533(d). As discussed in the August 30, 2002 LTCH 
PPS final rule (67 FR 56038), the applicable transition blends are set 
forth in Sec.  412.533(a).
    Accordingly, for cost reporting periods that began during FY 2006 
(that is, on or after October 1, 2005 and on or before September 30, 
2006), blended payments under the transition methodology are based on 
20 percent of the LTCH's rate based on reasonable cost principles and 
80 percent of the adjusted LTCH PPS Federal rate. For cost reporting 
periods beginning on or after October 1, 2006 (FY 2007), Medicare 
payment to LTCHs are determined entirely (100 percent) under the LTCH 
PPS Federal rate.
1. Proposed Adjustment for Area Wage Levels
a. Background
    Under the authority of section 123 of the BBRA as amended by 
section 307(b) of the BIPA, we established an adjustment to the LTCH 
PPS Federal rate to account for differences in LTCH area wage levels at 
Sec.  412.525(c). The labor-related share of the LTCH PPS Federal rate, 
currently estimated by the FY 2002-based RPL market basket (as 
discussed in greater detail in section IV.D.1.c. of this preamble), is 
adjusted to account for geographic differences in area wage levels by 
applying the applicable LTCH PPS wage index. The applicable LTCH PPS 
wage index is computed using wage data from inpatient acute care 
hospitals without regard to reclassification under sections 1886(d)(8) 
or 1886(d)(10) of the Act. Furthermore, as we discussed in the August 
30, 2002 LTCH PPS final rule (67 FR 56015), we established a 5-year 
transition to the full wage adjustment. The applicable wage index 
phase-in percentages are based on the start of a LTCH's cost reporting 
period as shown in Table 1.

[[Page 4794]]



                                 Table 1
------------------------------------------------------------------------
  Cost reporting periods beginning on or     Phase-in percentage of the
                   after                           full wage index
------------------------------------------------------------------------
October 1, 2002...........................  \1/5\ (20 percent).
October 1, 2003...........................  \2/5\ (40 percent).
October 1, 2004...........................  \3/5\ (60 percent).
October 1, 2005...........................  \4/5\ (80 percent).
October 1, 2006...........................  \5/5\ (100 percent).
------------------------------------------------------------------------

    For example, for cost reporting periods beginning on or after 
October 1, 2005 and on or before September 30, 2006 (FY 2006), the 
applicable LTCH wage index value is four-fifths of the applicable full 
LTCH PPS wage index value. The wage index adjustment will be completely 
phased-in beginning with cost reporting periods beginning in FY 2007, 
that is, for cost reporting periods beginning on or after October 1, 
2006, the applicable LTCH wage index value will be the full (five-
fifths) LTCH PPS wage index value. Therefore, the majority of LTCHs are 
currently receiving either the four-fifths or full (five-fifths) LTCH 
PPS wage index value. As we established in the August 30, 2002 LTCH PPS 
final rule (67 FR 56018), the applicable full LTCH PPS wage index value 
is calculated from acute-care hospital inpatient wage index data 
without taking into account geographic reclassification under sections 
1886(d)(8) and (d)(10) of the Act.
b. Geographic Classifications/Labor Market Area Definitions
    As discussed in the August 30, 2002 LTCH PPS final rule, which 
implemented the LTCH PPS (67 FR 56015 through 56019), in establishing 
an adjustment for area wage levels under Sec.  412.525(c), the labor-
related portion of a LTCH's Federal prospective payment is adjusted by 
using an appropriate wage index based on the labor market area in which 
the LTCH is located. In the 2006 LTCH PPS rate year final rule (70 FR 
24184 through 24185), in Sec.  412.525(c), we revised the labor market 
area definitions used under the LTCH PPS effective for discharges 
occurring on or after July 1, 2005 based on the Office of Management 
and Budget's (OMB's) Core Based Statistical Area (CBSA) designations 
based on 2000 Census data because we believe that those new labor 
market area definitions will ensure that the LTCH PPS wage index 
adjustment most appropriately accounts for and reflects the relative 
hospital wage levels in the geographic area of the hospital as compared 
to the national average hospital wage level. As set forth in Sec.  
412.525(c)(2), a LTCH's wage index is determined based on the location 
of the LTCH in an urban or rural area as defined in Sec.  
412.64(b)(1)(ii)(A) through (C). An urban area under the LTCH PPS is 
defined at Sec.  412.64(b)(1)(ii)(A) and (B). In general, an urban area 
is defined as a Metropolitan Statistical Area (MSA) as defined by the 
OMB. (In addition, a few counties located outside of MSAs are 
considered urban as specified at Sec.  412.64(b)(1)(ii)(B).) Under 
Sec.  412.64(b)(1)(ii)(C), a rural area is defined as any area outside 
of an urban area.
    We note that these are the same CBSA-based designations implemented 
for acute care inpatient hospitals under the IPPS at Sec.  412.64(b) 
effective October 1, 2004 (69 FR 49026 through 49034). For further 
discussion of the labor market area (geographic classification) 
definitions used under the LTCH PPS, see the 2006 LTCH PPS rate year 
final rule (70 FR 24182 through 24191).
c. Proposed Labor-Related Share
    In the August 30, 2002 LTCH PPS final rule (67 FR 56016), we 
established a labor-related share of 72.885 percent based on the 
relative importance of the labor-related share of operating costs 
(wages and salaries, employee benefits, professional fees, postal 
services, and all other labor-intensive services) and capital costs of 
the excluded hospital with capital market basket based on FY 1992 data.
    As we discussed in LTCH PPS final rules subsequent to the FY 2003 
LTCH PPS final rule in which we established the original LTCH PPS 
labor-related share (68 FR 34142, 69 FR 25685 through 25686, and 70 FR 
24182), once our research into the labor-related share methodology was 
complete, we would update the IPPS and excluded hospital labor-related 
shares based on that research and the best available data if necessary. 
Accordingly, we conducted analysis of our labor share methodology, 
which was completed prior to the development of the RY 2007 LTCH PPS 
proposed and final rules. In the RY 2007 LTCH PPS final rule (71 FR 
27829), we updated the LTCH PPS labor-related share based on the FY 
2002-based RPL market basket (discussed in section IV.B. of this 
preamble) because we believe that this market basket was developed 
based on the best available data that reflect the cost structures of 
LTCHs.
    Consistent with our historical practice, the labor-related share 
currently used under the LTCH PPS is determined by identifying the 
national average proportion of operating costs and capital costs that 
are related to, influenced by, or vary with the local labor market. 
Specifically, in the RY 2007 LTCH PPS final rule (71 FR 27829 through 
27832), we revised the LTCH PPS labor-related share from 72.885 percent 
(as established in the August 30, 2002 final rule (67 FR 56016) based 
on the FY 1997-based excluded hospital with capital market basket) to 
75.665 percent based on the relative importance of the labor-related 
share of operating costs (wages and salaries, employee benefits, 
professional fees, and all other labor-intensive services) and capital 
costs of the proposed RPL market basket based on FY 2002 data from the 
first quarter of 2006.
    As discussed in section IV.B.2. of this preamble, we now have data 
from the 3rd quarter of 2006 (with history through the 2nd quarter of 
2006) available for determining the labor-related share of the FY 2002-
based RPL market basket. Based on this more recent data, in this 
proposed rule, under the broad authority conferred upon the Secretary 
by section 123 of the BBRA as amended by section 307(b) of the BIPA, 
consistent with our historical practice of determining the labor-
related share by identifying the national average proportion of 
operating costs and capital costs that are related to, influenced by, 
or varies with the local labor market, we are proposing to revise the 
LTCH PPS labor-related share from 75.665 percent to 75.511 percent 
based on the relative importance of the labor-related share of 
operating costs (wages and salaries, employee benefits, professional 
fees, and all other labor-intensive services) and capital costs of the 
FY 2002-based RPL market basket from the third quarter of 2006, as 
shown in Table 2. The labor-related share is the sum of the relative 
importance of wages and salaries, fringe benefits, professional fees, 
labor-intensive services, and a portion of the capital share from an 
appropriate market basket. In this proposed rule, for RY 2008, we are 
proposing to use the FY 2002-based RPL market basket costs based on 
data from the 3rd quarter of 2006 to determine the labor-related share 
for the LTCH PPS effective for discharges occurring on or after July 1, 
2007, as this is the most recent available data. The labor-related 
share for the 2008 LTCH PPS rate year would continue to be the sum of 
the relative importance of each labor-related cost category, and would 
reflect the different rates of price change for these cost categories 
between the base year (FY 2002) and the 2008 LTCH PPS rate year. 
Consistent with our historical practice of using the best data 
available, if more recent data are available to determine the labor-
related share of the RPL market basket (used under the

[[Page 4795]]

LTCH PPS), we propose to use it for determining the labor-related share 
for the 2008 LTCH PPS rate year in the final rule.
    Based on the most recent available data, we are proposing that the 
sum of the relative importance for 2008 LTCH PPS rate year for 
operating costs (wages and salaries, employee benefits, professional 
fees, and labor-intensive services) would be 71.484, as shown in Table 
2. The portion of capital that is influenced by the local labor market 
is still estimated to be 46 percent, which is the same percentage used 
when we established the current labor-related share in the RY 2007 LTCH 
PPS final rule. Since, based on the most recent available data, the 
relative importance for capital would be 8.754 percent of the FY 2002-
based RPL market basket for the 2008 LTCH PPS rate year, we are 
proposing to multiply the estimated portion of capital influenced by 
the local labor market (46 percent) by the relative importance for 
capital (8.754 percent) to determine the proposed labor-related share 
of capital for the 2008 LTCH PPS rate year. The result would be 4.027 
percent (0.46 x 8.754 percent), which we would add to the proposed 
71.484 percent for the operating cost amount to determine the proposed 
total labor-related share for the 2008 LTCH PPS rate year. Thus, based 
on the latest available data, we are proposing to use a labor-related 
share of 75.511 percent (71.484 percent + 4.027 percent) under the LTCH 
PPS for the 2008 LTCH PPS rate year. As noted above in this section, 
this proposed labor-related share is determined using the same 
methodology as employed in calculating the current LTCH labor-related 
share (71 FR 27830) and the labor-related shares used under the IRF PPS 
and IPF PPS, which also use the RPL market basket.
    Table 2 shows the 2007 LTCH PPS rate year relative importance 
labor-related share of the FY 2002-based RPL market basket (established 
in the RY 2007 LTCH PPS final rule) and the proposed 2008 LTCH PPS rate 
year relative importance labor-related share of the FY 2002-based RPL 
market basket.

 Table 2.--RY 2007 Labor-Related Share Relative Importance and Proposed
RY 2008 Labor-Related Share Relative Importance of the FY 2002-Based RPL
                              Market Basket
------------------------------------------------------------------------
                                              RY 2007       Proposed RY
              Cost category                  relative      2008 relative
                                          importance \*\    importance
------------------------------------------------------------------------
Wages and Salaries......................          52.506          52.359
Employee Benefits.......................          14.042          14.095
Professional fees.......................           2.886           2.899
All other labor intensive services......           2.152           2.131
                                         -------------------------------
    Subtotal............................          71.586          71.484
Labor share of capital costs............           4.079           4.027
                                         -------------------------------
    Total Labor-related share...........          75.665         75.511
------------------------------------------------------------------------
\*\ As established in the RY 2007 LTCH PPS final rule (71 FR 27830).
\**\ Other labor intensive services includes landscaping services,
  services to buildings, detective and protective services, repair
  services, laundry services, advertising, auto parking and repairs,
  physical fitness facilities, and other government enterprises.

d. Proposed Wage Index Data
    In the RY 2007 LTCH PPS final rule (71 FR 27830 through 27831), we 
established LTCH PPS wage index values for the 2007 LTCH PPS rate year 
calculated from the same data (generated in cost reporting periods 
beginning during FY 2002) used to compute the FY 2006 acute care 
hospital inpatient wage index data without taking into account 
geographic reclassification under sections 1886(d)(8) and (d)(10) of 
the Act because that was the best available data at that time. The LTCH 
wage index values applicable for discharges occurring on or after July 
1, 2006 through June 30, 2007 are shown in Table 1 (for urban areas) 
and Table 2 (for rural areas) in the Addendum to the RY 2007 LTCH PPS 
final rule (71 FR 27906 through 27930). Acute care hospital inpatient 
wage index data are also used to establish the wage index adjustment 
used in the IRF PPS, HHA PPS, and SNF PPS. As we discussed in the 
August 30, 2002 LTCH PPS final rule (67 FR 56019), since hospitals that 
are excluded from the IPPS are not required to provide wage-related 
information on the Medicare cost report and because we would need to 
establish instructions for the collection of this LTCH data to 
establish a geographic reclassification adjustment under the LTCH PPS, 
the wage adjustment established under the LTCH PPS is based on a LTCH's 
actual location without regard to the urban or rural designation of any 
related or affiliated provider.
    In this proposed rule, under the broad authority conferred upon the 
Secretary by section 123 of the BBRA as amended by section 307(b) of 
BIPA to determine appropriate adjustments under the LTCH PPS, we are 
proposing that, for the 2008 LTCH PPS rate year, the same data 
(generated in cost reporting periods beginning during FY 2003) used to 
compute the FY 2007 acute care hospital inpatient wage index data 
without taking into account geographic reclassification under sections 
1886(d)(8) and (d)(10) of the Act would be used to determine the 
applicable wage index values under the LTCH PPS because these data (FY 
2003) are the most recent complete data. We are proposing to continue 
to use IPPS wage data as a proxy to determine the proposed LTCH wage 
index values for the 2008 LTCH PPS rate year because both LTCHs and 
acute-care hospitals are required to meet the same certification 
criteria set forth in section 1861(e) of the Act to participate as a 
hospital in the Medicare program and they both compete in the same 
labor markets, and, therefore, experience similar wage-related costs. 
These data are the same FY 2003 acute care hospital inpatient wage data 
that were used to compute the FY 2007 wage indices currently used under 
the IPPS, skilled nursing facility (SNF) PPS and home health agency 
(HHA) PPS. The proposed LTCH wage index values that would be applicable 
for discharges occurring on or after July 1, 2007 through June 30, 
2008, are shown in Table 1 (for urban areas) and Table 2 (for rural 
areas) in Addendum A to this proposed rule.
    As discussed in section IV.D.1.a. of this preamble, the applicable 
wage index phase-in percentages are based on the start of a LTCH's cost 
reporting

[[Page 4796]]

period beginning on or after October 1st of each year during the 5-year 
transition period. Thus, cost reporting periods beginning on or after 
October 1, 2005 and before October 1, 2006 (FY 2006), the labor-related 
portion of the standard Federal rate is adjusted by four-fifths of the 
applicable LTCH wage index value. The wage index adjustment will be 
completely phased-in beginning with cost reporting periods beginning in 
FY 2007. That is, for cost reporting periods beginning on or after 
October 1, 2006, the labor-related portion of the standard Federal rate 
is adjusted by the full (five-fifths) applicable LTCH wage index value.
    Because the phase-in of the wage index does not coincide with the 
LTCH PPS rate year (July 1st through June 30th), most LTCHs will 
experience a change in the wage index phase-in percentages during the 
LTCH PPS rate year. For example, during the 2008 LTCH PPS rate year, 
for a LTCH with a September 1st fiscal year, the four-fifths wage index 
will be applicable for the first 2 months of the 2007 LTCH PPS rate 
year (July 1, 2007 through August 31, 2007) and the full (five-fifths) 
wage index will be applicable for the next 10 months of the 2008 LTCH 
PPS rate year (September 1, 2007 through June 30, 2008). For the 
remainder of such a LTCH's FY 2006 cost reporting periods, which 
coincides with the first 2 months of RY 2008, the applicable wage index 
value would be four-fifths of the full FY 2007 acute-care hospital 
inpatient wage index data, without taking into account geographic 
reclassification under sections 1886(d)(8) and (d)(10) of the Act (as 
shown in Tables 1 and 2 in Addendum A to this proposed rule). Beginning 
with this LTCH's FY 2007 cost reporting period that will begin during 
RY 2008, the applicable wage index value would be the full (five-
fifths) FY 2007 acute care hospital inpatient wage index data, without 
taking into account geographic reclassification under sections 
1886(d)(8) and (d)(10) of the Act (as shown in Tables 1 and 2 in 
Addendum A to this proposed rule). We note that since there are no 
longer any LTCHs in their cost reporting periods that began during FY 
2003 through FY 2005 (the first three years of the 5-year wage index 
phase-in), we are no longer showing the 1/5th, 2/5ths and 3/5ths wage 
index values in Tables 1 and 2 in Addendum A to this proposed rule.
2. Proposed Adjustment for Cost-of-Living in Alaska and Hawaii
    In the August 30, 2002 final rule (67 FR 56022), we established, 
under Sec.  412.525(b), a COLA for LTCHs located in Alaska and Hawaii 
to account for the higher costs incurred in those States. In the RY 
2007 LTCH PPS final rule (71 FR 27832), for the 2007 LTCH PPS rate 
year, we established a COLA to payments for LTCHs located in Alaska and 
Hawaii by multiplying the standard Federal payment rate by the 
appropriate factor listed in Table 8 of that same final rule.
    Similarly, in this proposed rule, under the broad authority 
conferred upon the Secretary by section 123 of the BBRA as amended by 
section 307(b) of BIPA to determine appropriate adjustments under the 
LTCH PPS, for the 2008 LTCH PPS rate year we are proposing a COLA to 
payments to LTCHs located in Alaska and Hawaii by multiplying the 
proposed standard Federal payment rate by the proposed factors listed 
in Table 3 because these are currently the most recent available data. 
These proposed factors are obtained from the U.S. Office of Personnel 
Management (OPM) and are currently used under the IPPS. In addition, we 
propose that if OPM releases revised COLA factors before March 1, 2007, 
we would use them for the development of the payments for the 2008 LTCH 
rate year and publish them in the LTCH PPS final rule.

   Table 3.--Proposed Cost-of-Living Adjustment Factors for Alaska and
            Hawaii Hospitals for the 2008 LTCH PPS Rate Year
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Alaska:
  All areas.....................................................  1.25
Hawaii:
  Honolulu County...............................................  1.25
  Hawaii County.................................................  1.165
  Kauai County..................................................  1.2325
  Maui County...................................................  1.2375
  Kalawao County................................................  1.2375
------------------------------------------------------------------------

3. Proposed Adjustment for High-Cost Outliers (HCOs)
a. Background
    Under the broad authority conferred upon the Secretary by section 
123 of the BBRA as amended by section 307(b) of BIPA, in the 
regulations at Sec.  412.525(a), we established an adjustment for 
additional payments for outlier cases that have extraordinarily high 
costs relative to the costs of most discharges. Providing additional 
payments for outliers strongly improves the accuracy of the LTCH PPS in 
determining resource costs at the patient and hospital level. These 
additional payments reduce the financial losses that would otherwise be 
incurred when treating patients who require more costly care and, 
therefore, reduce the incentives to underserve these patients. We set 
the outlier threshold before the beginning of the applicable rate year 
so that total estimated outlier payments are projected to equal 8 
percent of total estimated payments under the LTCH PPS. Outlier 
payments under the LTCH PPS are determined consistent with the IPPS 
outlier policy.
    Under Sec.  412.525(a), we make outlier payments for any discharges 
if the estimated cost of a case exceeds the adjusted LTCH PPS payment 
for the LTC-DRG plus a fixed-loss amount. The fixed-loss amount is the 
amount used to limit the loss that a hospital will incur under the 
outlier policy for a case with unusually high costs. This results in 
Medicare and the LTCH sharing financial risk in the treatment of 
extraordinarily costly cases. Under the LTCH PPS HCO policy, the LTCH's 
loss is limited to the fixed-loss amount and a fixed percentage of 
costs above the outlier threshold (LTCH DRG payment plus the fixed loss 
amount) determined by the marginal cost factor. We calculate the 
estimated cost of a case by multiplying the overall hospital cost-to-
charge ratio (CCR) by the Medicare allowable covered charge. In 
accordance with Sec.  412.525(a)(3), we pay outlier cases 80 percent of 
the difference between the estimated cost of the patient case and the 
outlier threshold (the sum of the adjusted Federal prospective payment 
for the LTC-DRG and the fixed-loss amount).
    Under the LTCH PPS, we determine a fixed-loss amount, that is, the 
maximum loss that a LTCH can incur under the LTCH PPS for a case with 
unusually high costs before the LTCH will receive any additional 
payments. We calculate the fixed-loss amount by estimating aggregate 
payments with and without an outlier policy. The fixed-loss amount will 
result in estimated total outlier payments being projected to be equal 
to 8 percent of projected total LTCH PPS payments. Currently, MedPAR 
claims data and CCRs based on data from the most recent provider 
specific file (PSF) (or to the applicable Statewide average CCR if a 
LTCH's CCR data are faulty or unavailable) are used to establish a 
fixed-loss threshold amount under the LTCH PPS.
b. Cost-to-Charge Ratios (CCRs)
    In determining outlier payments, we calculate the estimated cost of 
the case by multiplying the LTCH's overall CCR by the Medicare 
allowable charges for the case. As we discussed in greater detail in 
the June 9, 2003 IPPS HCO final rule (68 FR 34506 through 34516), 
because the LTCH PPS HCO policy at Sec.  412.525 is modeled after the 
IPPS

[[Page 4797]]

outlier policy, we believed that it and the SSO policy at Sec.  412.529 
are susceptible to the same payment vulnerabilities that became evident 
under the IPPS and, therefore, merited revision. Thus, we revised the 
HCO policy at Sec.  412.525(a) and the SSO policy at Sec.  412.529 in 
that same final rule for the determination of LTCHs' CCRs and the 
reconciliation of outlier payments.
    Under the LTCH PPS, a single prospective payment per discharge is 
made for both inpatient operating and capital-related costs, and, 
therefore, we compute a single ``overall'' or ``total'' CCR for LTCHs 
based on the sum of their operating and capital costs (as described in 
Chapter 3, section 150.24, of the Medicare Claims Processing Manual 
(CMS Pub. 100-4)) as compared to total charges. Specifically, a LTCH's 
CCR is calculated by dividing a LTCH's total Medicare costs (that is, 
the sum of its operating and capital inpatient routine and ancillary 
costs) by its total Medicare charges (that is, the sum of its operating 
and capital inpatient routine and ancillary charges). (Instructions 
regarding the changes established in the June 9, 2003 IPPS HCO final 
rule for both LTCHs and IPPS hospitals can be found in Transmittal A-
03-058 (Change Request 2785; July 3, 2003).)
    As a result of the changes established in the June 9, 2003 IPPS HCO 
final rule, as we discussed in the RY 2007 LTCH PPS final rule (71 FR 
27832 through 27833) and the FY 2007 IPPS final rule (71 FR 48119 
through 48121), a LTCH is assigned the applicable Statewide average CCR 
if, among other things, a LTCH's CCR is found to be in excess of the 
applicable maximum CCR threshold (that is, the LTCH CCR ceiling). As we 
explained in the FY 2007 IPPS final rule (71 FR 48117), CCRs above this 
threshold are most likely due to faulty data reporting or entry, and, 
therefore, these CCRs should not be used to identify and make payments 
for outlier cases. Such data are clearly errors and should not be 
relied upon. Thus, under our established policy, if a LTCH's CCR is 
above the applicable ceiling, the applicable LTCH PPS Statewide average 
CCR is assigned to the LTCH instead of the CCR computed from its most 
recent (settled or tentatively settled) cost report data.
    Under Sec.  412.525(a)(4)(ii), for discharges occurring on or after 
August 8, 2003, and before October 1, 2006, we determined the 
applicable LTCH PPS Statewide average CCRs using the ``combined'' IPPS 
operating and capital Statewide average CCRs (that is, adding the 
separate IPPS operating and capital CCRs together to determine the LTCH 
PPS Statewide average CCRs).
    Also, under Sec.  412.525(a)(4)(ii), for discharges occurring on or 
after August 8, 2003, and before October 1, 2006, if a LTCH's CCR is 
above the applicable ``combined'' IPPS operating and capital ceiling 
(that is, adding the separate IPPS operating and capital CCR ceiling 
together), the applicable Statewide average CCR may be assigned to the 
LTCH.
    As we explained in the FY 2007 IPPS final rule (71 FR 48117 through 
48121), we revised our methodology for determining the annual CCR 
ceiling and Statewide average CCRs under the LTCH PPS because we 
believe that those changes are consistent with the LTCH PPS single 
payment rate for inpatient operating and capital costs. Therefore, 
under the broad authority of section 123 of the BBRA and section 
307(b)(1) of BIPA, in that same final rule, we revised our methodology 
used to determine the LTCH CCR ceiling. For discharges occurring on or 
after October 1, 2006, we established that the LTCH CCR ceiling 
specified under Sec.  412.525(a)(4)(iv)(C)(2) is calculated as three 
standard deviations above the corresponding national geometric mean 
total CCR (established and published annually by CMS). (The FI may use 
a Statewide average CCR if, among other things, a LTCH's CCR is in 
excess of the LTCH CCR ceiling.) The LTCH total CCR ceiling is 
determined based on IPPS CCR data, by first calculating the ``total'' 
(that is, operating and capital) IPPS CCR for each hospital and then 
determining the average ``total'' IPPS CCR for all IPPS hospitals. (Our 
rationale for using IPPS hospital data is discussed in the FY 2007 IPPS 
final rule (71 FR 48117) and reiterated below in this section.) The 
LTCH CCR ceiling is then established at 3 standard deviations from the 
corresponding national geometric mean total CCR. (For further detail on 
our methodology for annually determining the LTCH CCR ceiling, refer to 
the FY 2007 IPPS final rule (71 FR 48117 through 48119).) We also 
established that the LTCH ``total'' CCR ceiling used under the LTCH PPS 
will continue to be published annually in the IPPS proposed and final 
rules, and the public should continue to consult the annual IPPS 
proposed and final rules for changes to the LTCH total CCR ceiling that 
would be effective for discharges occurring on or after October 1 each 
year. Accordingly, in the FY 2007 IPPS final rule (71 FR 48119), we 
established a FY 2007 LTCH PPS total CCR ceiling of 1.321, effective 
for discharges occurring on or after October 1, 2006.
    In addition, under the broad authority of section 123 of the BBRA 
and section 307(b)(1) of BIPA, we revised our methodology to determine 
the Statewide average CCRs under Sec.  412.525(a)(4)(iv)(C) for use 
under the LTCH PPS in a manner similar to the way we compute the 
``total'' CCR ceiling using IPPS CCR data (71 FR 48120). Specifically, 
under this revised methodology we first calculate the total (that is, 
operating and capital) CCR for each IPPS hospital. We then calculate 
the weighted average ``total'' CCR for all IPPS hospitals in the rural 
areas of the State and the weighted average ``total'' CCR for all IPPS 
hospitals in the urban areas of the State. (For further detail on our 
methodology for annually determining the LTCH urban and rural Statewide 
average CCRs, refer to the FY 2007 IPPS final rule (71 FR 48119 through 
48121).) We also established that the applicable Statewide average 
``total'' (operating and capital) CCRs used under the LTCH PPS will 
continue to be published annually in the IPPS proposed and final rules, 
and the public should continue to consult the annual IPPS proposed and 
final rules for changes to the applicable Statewide average total CCRs 
that would be effective for discharges occurring on or after October 1 
each year. Accordingly, in the FY 2007 IPPS final rule (71 FR 48122), 
the FY 2007 LTCH PPS Statewide average total CCRs for urban and rural 
hospitals, effective for discharges occurring on or after October 1, 
2006, were presented in Table 8C of the Addendum of that final rule (71 
FR 48303).
    As we explained in the FY 2007 IPPS final rule (71 FR 48117), we 
continue to believe it is appropriate to use IPPS operating and capital 
CCRs to compute the LTCH total CCR ceiling and the Statewide average 
CCRs because LTCHs' cost and charge structures are similar to that of 
IPPS acute-care hospitals. For instance, LTCHs are certified as acute 
care hospitals, as set forth in section 1861(e) of the Act to 
participate as a hospital in the Medicare program, and these hospitals, 
in general, are paid as LTCHs only because their Medicare ALOS is 
greater than 25 days as specified in Sec.  412.23(e). Furthermore, 
prior to qualifying as a LTCH under Sec.  412.23(e)(2)(i), a hospital 
generally is paid as an acute-care hospital under the IPPS during the 
period in which it demonstrates that it has an ALOS of greater than 25 
days. In addition, since there are less than 400 LTCHs, which are 
unevenly geographically distributed throughout the United States, there 
may not be sufficient LTCH CCR data to

[[Page 4798]]

determine an appropriate LTCH PPS CCR ceiling using LTCH data.
    In the FY 2007 IPPS final rule, in addition to revising our 
methodology for determining the annual CCR ceiling and Statewide 
average CCRs under the LTCH PPS for discharges occurring on or after 
October 1, 2006, under the broad authority of section 123 of the BBRA 
and section 307(b)(1) of BIPA, we revised Sec.  412.525(a)(4)(iv) for 
discharges occurring on or after October 1, 2006, to codify in 42 CFR 
part 412, subpart O the remaining LTCH PPS outlier policy changes that 
were established in the June 9, 2003 IPPS HCO final rule (68 FR 34506 
through 34513), including modifications and editorial clarifications to 
those existing policies established in that final rule. We made these 
revisions because we believe that they more precisely describe the 
application of those policies as they relate to the determination of 
LTCH CCRs because these changes are consistent with the changes to the 
calculation of the LTCH CCR ceiling.
    Specifically, in the FY 2007 IPPS final rule (71 FR 48119), under 
the broad authority of section 123 of the BBRA and section 307(b)(1) of 
BIPA, we established under the LTCH PPS HCO policy at Sec.  
412.525(a)(4)(iv)(C) that the FI may use a Statewide average CCR, which 
is established annually by CMS, if it is unable to determine an 
accurate CCR for a LTCH in one of the following three circumstances: 
(1) New LTCHs that have not yet submitted their first Medicare cost 
report (for this purpose, consistent with current policy, a new LTCH 
would be defined as an entity that has not accepted assignment of an 
existing hospital's provider agreement in accordance with Sec.  
489.18); (2) LTCHs whose CCR is in excess of the LTCH CCR ceiling; and 
(3) other LTCHs for whom data with which to calculate a CCR are not 
available (for example, missing or faulty data). (Other sources of data 
that the FI may consider in determining a LTCH's CCR included data from 
a different cost reporting period for the LTCH, data from the cost 
reporting period preceding the period in which the hospital began to be 
paid as a LTCH (that is, the period of at least 6 months that it was 
paid as a short-term acute care hospital), or data from other 
comparable LTCHs, such as LTCHs in the same chain or in the same 
region.)
    Additionally, in the FY 2007 IPPS final rule (71 FR 48121), we 
established under Sec.  412.525(a)(4)(iv)(B) and Sec.  
412.529(c)(3)(iv)(B) that, for discharges occurring on or after October 
1, 2006, the CCR applied at the time a claim is processed will be based 
on either the most recently settled cost report or the most recent 
tentatively settled cost report, whichever is from the latest cost 
reporting period. Under the broad authority of section 123 of the BBRA 
and section 307(b)(1) of BIPA, in that same final rule, we also 
established at Sec.  412.525(a)(4)(iv)(A) that, for discharges 
occurring on or after October 1, 2006, we may specify an alternative to 
the CCR computed under Sec.  412.525(a)(4)(iv)(B) (that is, computed 
from the most recently settled cost report or the most recent 
tentatively settled cost report, whichever is later), or a hospital may 
also request that the FI use a different (higher or lower) CCR based on 
substantial evidence presented by the hospital. In addition, under the 
broad authority of section 123 of the BBRA and section 307(b)(1) of 
BIPA, we revised Sec.  412.525(a)(3) to change the plural reference 
from cost-to-charge ``ratios'' to the singular reference to a cost-to-
charge ``ratio'' in that final rule. For a complete discussion on all 
these revisions to our methodology for determining a LTCH's CCR, refer 
to the FY 2007 IPPS final rule (71 FR 48119 through 48121). We note 
that in that same FY 2007 IPPS final rule, we made similar revisions to 
the SSO policy at Sec.  412.529(c)(3), as discussed in V.A.1.b. of the 
preamble of this proposed rule.
c. Establishment of the Proposed Fixed-Loss Amount
    When we implemented the LTCH PPS, as discussed in the August 30, 
2002 LTCH PPS final rule (67 FR 56022 through 56026), under the broad 
authority of section 123 of the BBRA as amended by section 307(b) of 
BIPA, we established a fixed-loss amount so that total estimated 
outlier payments are projected to equal 8 percent of total estimated 
payments under the LTCH PPS. To determine the fixed-loss amount, we 
estimate outlier payments and total LTCH PPS payments for each case 
using claims data from the MedPAR files. Specifically, to determine the 
outlier payment for each case, we estimate the cost of the case by 
multiplying the Medicare covered charges from the claim by the LTCH's 
hospital specific CCR. Under Sec.  412.525(a)(3), if the estimated cost 
of the case exceeds the outlier threshold (the sum of the adjusted 
Federal prospective payment for the LTC-DRG and the fixed-loss amount), 
we pay an outlier payment equal to 80 percent of the difference between 
the estimated cost of the case and the outlier threshold (the sum of 
the adjusted Federal prospective payment for the LTC-DRG and the fixed-
loss amount).
    In the RY 2007 LTCH PPS final rule (71 FR 27838), in calculating 
the fixed-loss amount that would result in estimated outlier payments 
projected to be equal to 8 percent of total estimated payments for the 
2007 LTCH PPS rate year, we used claims data from the December 2005 
update of the FY 2005 MedPAR files and CCRs from the December 2005 
update of the PSF, as that was the best available data at that time. We 
believe that CCRs from the PSF are the best available CCR data for 
determining estimated LTCH PPS payments for a given LTCH PPS rate year 
because they are the most recently available CCRs actually used to make 
LTCH PPS payments.
    As we also discussed in the RY 2007 LTCH PPS rate year final rule 
(71 FR 27838), we calculated a single fixed-loss amount for the 2007 
LTCH PPS rate year based on the version 23.0 of the GROUPER, which was 
the version in effect as of the beginning of the LTCH PPS rate year 
(that is, July 1, 2006 for the 2007 LTCH PPS rate year). In addition, 
we applied the outlier policy under Sec.  412.525(a) in determining the 
fixed-loss amount for the 2007 LTCH PPS rate year; that is, we assigned 
the applicable Statewide average CCR only to LTCHs whose CCRs exceeded 
the ceiling (and not when they fell below the floor). Accordingly, we 
used the FY 2006 LTCH PPS CCR ceiling of 1.423 (71 FR 27838). As noted 
in that same final rule, in determining the fixed-loss amount for the 
2007 LTCH PPS rate year using the CCRs from the PSF, there were no 
LTCHs with missing CCRs or with CCRs in excess of the current ceiling 
and, therefore, there was no need for us to independently assign the 
applicable Statewide average CCR to any LTCHs in determining the fixed-
loss amount for the 2007 LTCH PPS rate year (as this may have already 
been done by the FI in the PSF in accordance with the established 
policy).
    Accordingly, in 2007 LTCH PPS rate year final rule (71 FR 27838), 
we established a fixed-loss amount of $14,887 for the 2007 LTCH PPS 
rate year. Thus, we pay an outlier case 80 percent of the difference 
between the estimated cost of the case and the outlier threshold (the 
sum of the adjusted Federal LTCH PPS payment for the LTC-DRG and the 
fixed-loss amount of $14,887).
    In this proposed rule, for the 2008 LTCH PPS rate year, we used the 
March 2006 update of the FY 2005 MedPAR claims data to determine a 
proposed fixed-loss amount that would result in estimated outlier 
payments projected to be equal to 8 percent of total estimated 
payments, based on the policies described in this proposed rule, 
because these data are the most recent complete

[[Page 4799]]

LTCH data available. Consistent with our historical practice of using 
the best data available, if more recent LTCH claims data become 
available, we propose to use it for determining the fixed-loss amount 
for the 2008 LTCH PPS rate year in the final rule. Furthermore, as 
noted previously, we determined the proposed fixed-loss amount based on 
the version of the GROUPER that would be in effect as of the beginning 
of the 2008 LTCH PPS rate year (July 1, 2007), that is, Version 24.0 of 
the GROUPER (as established in the FY 2007 IPPS final rule (71 FR 
47973)).
    We also used CCRs from the June 2006 update of the PSF for 
determining the proposed fixed-loss amount for the 2008 LTCH PPS rate 
year as they are currently the most recent complete available data. 
Consistent with our historical practice of using the best data 
available, if more recent CCR data are available, we propose to use it 
for determining the fixed-loss amount for the 2008 LTCH PPS rate year 
in the final rule. As we discussed in this proposed rule, we revised 
our methodology for our annual determination of the applicable LTCH CCR 
ceiling and applicable Statewide average CCRs in determining a LTCH's 
CCR effective for discharges occurring on or after October 1, 2006 in 
the FY 2007 IPPS final rule (71 FR 48117 through 48122). Accordingly, 
in determining the proposed fixed-loss amount for the 2008 LTCH PPS 
rate year, we used the current FY 2007 applicable LTCH ``total'' CCR 
ceiling of 1.321 and LTCH Statewide average ``total'' CCRs established 
under our revised methodology in the FY 2007 IPPS final rule (71 FR 
48118 and 48121) such that the current applicable Statewide average CCR 
would be assigned if, among other things, a LTCH's CCR exceeded the 
current ceiling (1.321). We note that in determining the proposed 
fixed-loss amount for the 2008 LTCH PPS rate year using the CCRs from 
the PSF, there was no need for us to independently assign the 
applicable Statewide average CCR to any LTCHs (as this may have already 
been done by the FI in the PSF in accordance with our established 
policy). (Currently, the applicable FY 2007 LTCH Statewide average CCRs 
can be found in Table 8C of the FY 2007 IPPS final rule (71 FR 48303).)
    Accordingly, based on the data and policies described in this 
proposed rule, we are proposing a fixed-loss amount of $18,774 for the 
2008 LTCH PPS rate year. Thus, we would pay an outlier case 80 percent 
of the difference between the estimated cost of the case and the 
proposed outlier threshold (the sum of the adjusted proposed Federal 
LTCH payment for the LTC-DRG and the proposed fixed-loss amount of 
$18,774). We note that the proposed fixed-loss amount for the 2008 LTCH 
PPS rate year is higher than the current fixed-loss amount of $14,887. 
In addition to being based on the most recent available LTCH data to 
estimate the cost of each LTCH case, this proposed change in the fixed-
loss amount is primarily due to the projected decrease in estimated 
aggregate LTCH PPS payments that is expected to result from the 
approach discussed for the SSO policy under Sec.  412.529 (discussed in 
greater detail in section V.A.2. of this preamble), in conjunction with 
the proposed changes to the area wage adjustment (discussed in greater 
detail in section IV.D.1. of this preamble) and the changes to the LTC-
DRG relative weights for FY 2007 (as discussed in the FY 2007 IPPS 
final rule (71 FR 47971 through 47994)). We note that if the approach 
discussed for the SSO policy was not considered, then the proposed 
fixed-loss amount would be $18,207.
    As discussed in greater detail in the impact analysis presented in 
section XVI.B.4. of this proposed rule, we are projecting that the 
proposed changes, including the approach discussed for the SSO policy 
presented in section V.A.2. of this proposed rule, would result in a 
0.7 percent decrease in estimated payments per discharge in RY 2008 as 
compared to RY 2007, on average, for all LTCHs. While we are projecting 
that the proposed 0.71 percent update to the Federal rate (discussed in 
section IV.C. of this preamble) would result in an increase in 
estimated payments per discharge in RY 2008 as compared to RY 2007, 
this increase would be offset by the projected decrease in estimated 
payments per discharge from RY 2007 to RY 2008 of 0.9 percent due to 
the approach being considered for the SSO policy and a projected 
decrease in estimated payments per discharge from RY 2007 to RY 2008 of 
0.5 percent due to the proposed changes to the area wage adjustment 
(including the progression of the established phase-in of that 
adjustment). Without taking the approach being considered for the SSO 
policy into account, the proposed changes to the payment rate and 
policies noted above would result in a 0.3 percent increase in 
estimated payments per discharge in RY 2008 as compared to RY 2007. 
Furthermore, as we discussed in the FY 2007 IPPS final rule (71 FR 
48343 through 47994), the changes to the LTC-DRG relative weights for 
FY 2007, which we used to determine the proposed RY 2008 fixed-loss 
amount, were projected to result in a 1.3 percent decrease in estimated 
aggregate LTCH PPS payments in FY 2007.
    Because of the estimated decrease in aggregate LTCH PPS payments 
proposed for the 2008 LTCH PPS rate year (as discussed above in this 
section), we believe that an increase in the proposed fixed-loss amount 
is appropriate and necessary to maintain the requirement that estimated 
outlier payments would be projected to be equal to 8 percent of 
estimated total LTCH PPS payments, as required under Sec.  412.525(a). 
As we discussed in the RY 2007 final rule (71 FR 27836), maintaining 
the fixed-loss amount at the current level would result in HCO payments 
that significantly exceed the current regulatory requirement that 
estimated outlier payments would be projected to equal 8 percent of 
estimated total LTCH PPS payments. Based on the regression analysis 
that was performed when we implemented the LTCH PPS (August 30, 2002 
final rule (67 FR 56022 through 56027)), we established the outlier 
target at 8 percent of estimated total LTCH PPS payments to allow us to 
achieve a balance between the ``conflicting considerations of the need 
to protect hospitals with costly cases, while maintaining incentives to 
improve overall efficiency'' (67 FR 56024). That regression analysis 
also showed that additional increments of outlier payments over 8 
percent (that is, raising the outlier target to a larger percentage 
than 8 percent) would reduce financial risk, but by successively 
smaller amounts. Outlier payments are budget neutral, and therefore, 
outlier payments are funded by prospectively reducing the non-outlier 
PPS payment rates by projected total outlier payments. The higher the 
outlier target, the greater the (prospective) reduction to the base 
payment would need to be applied to the Federal rate to maintain BN.
    As we discussed in the RY 2007 LTCH PPS final rule (71 FR 27834 
through 27835) when we proposed to increase the fixed-loss amount for 
RY 2007 (over the RY 2006 fixed-loss amount), as an alternative to the 
proposal to raise the RY 2007 fixed-loss amount, we examined adjusting 
the marginal cost factor (that is, the percentage that Medicare will 
pay of the estimated cost of a case that exceeds the sum of the 
adjusted Federal prospective payment for the LTC-DRG and the fixed-loss 
amount for LTCH PPS outlier cases as specified in Sec.  412.525(a)(3)), 
which is currently equal to 80 percent, as a means of ensuring that 
estimated outlier payments would be projected to

[[Page 4800]]

equal 8 percent of estimated total LTCH PPS payments. When we initially 
established the 80 percent marginal cost factor in the August 30, 2002 
final rule (67 FR 56022 through 56027), we explained that our analysis 
of payment-to-cost ratios for HCO cases showed that a marginal cost 
factor of 80 percent appropriately addresses outlier cases that are 
significantly more expensive than nonoutlier cases, while 
simultaneously maintaining the integrity of the LTCH PPS.
    In proposing an increase to the fixed-loss amount for RY 2007 (71 
FR 27834), we also solicited comments on whether we should revisit the 
regression analysis discussed above in this section that was used to 
establish the existing 8 percent outlier target and 80 percent marginal 
cost factor, using the most recent available data to evaluate whether 
the current outlier target of 8 percent or the 80 percent marginal cost 
factor should be adjusted, and therefore, could have resulted in less 
of an increase in the fixed-loss amount for RY 2007. In response to 
this solicitation (as summarized in the RY 2007 LTCH PPS final rule (71 
FR 27834 through 24835)), several commenters opposed any option that 
would allow us to revisit the regression analysis that was used to 
establish the existing 80 percent marginal cost factor and existing 
outlier target of 8 percent. The commenters stated their belief that 
the LTCH PPS is still in its early stages and further changes to the 80 
percent marginal cost factor or 8 percent outlier target would result 
in instability to the system. The commenters cautioned against making 
any premature changes to the factors affecting HCO payments to LTCHs, 
particularly the marginal cost factor and outlier target established by 
regulation when the LTCH PPS was implemented. Also, the commenters 
agreed that keeping the marginal cost factor at 80 percent and the 
outlier pool at 8 percent better identifies LTCH patients that are 
truly unusually costly cases, and that this policy appropriately 
addresses outlier cases that are significantly more expensive than non-
outlier cases.
    In response to these comments, we agreed with the commenters that, 
based on the regression analysis done for the implementation of the 
LTCH PPS (August 30, 2002; 68 FR 56022 through 56026), a marginal cost 
factor of 80 percent and a outlier target of 8 percent best identifies 
LTCH patients that are truly unusually costly cases, and that such a 
policy appropriately addresses LTCH HCO cases that are significantly 
more expensive than non-outlier cases, which is consistent with our 
intent of the LTCH HCO policy as stated when we implemented the LTCH 
PPS in the August 30, 2002 final rule (67 FR 56025). Therefore, as 
supported by many commenters, in the RY 2007 LTCH PPS final rule (71 FR 
27835), we did not revisit the regression analysis that was used to 
establish the existing 80 percent marginal cost factor and existing 
outlier target of 8 percent, and therefore, did not make any changes to 
the marginal cost factor or outlier target in that final rule. 
Furthermore, we stated that after revisiting this issue and an analysis 
of the most recent complete available data, due to the lag time in the 
availability of data, we now believe the most appropriate time to 
revisit a budget neutral policy change in the outlier policy (among 
other things), which would affect future LTCH PPS payment rates, would 
be after the conclusion of the 5-year transition period when we expect 
to have several years of data generated after the implementation of the 
LTCH PPS.
    Although proposing to raise the fixed-loss amount from $14,887 to 
$18,774 (based on the policies presented in this proposed rule) would 
increase the amount of the ``loss'' that a LTCH must incur under the 
LTCH PPS for a case with unusually high costs before the LTCH would 
receive any additional Medicare payments, as we discussed above and as 
we explained in greater detail in the RY 2007 LTCH PPS final rule, 
based on the best available data, we continue to believe that the 
existing 8 percent outlier target and 80 percent marginal cost factor 
continue to adequately maintain the LTCHs' share of the financial risk 
in treating the most costly patients and ensure the efficient delivery 
of services. Accordingly, we are not proposing to adjust the existing 8 
percent outlier target or 80 percent marginal cost factor under the 
LTCH PPS HCO policy at this time. However, we continue to be interested 
in any comments that would support revisiting the analysis that was 
used to establish the existing 8 percent outlier target and the 
existing 80 percent marginal cost factor, using the most recent 
available data to evaluate whether any changes to the current HCO 
policy should be made, and therefore, may result in less of an increase 
in the fixed-loss amount for RY 2008.
    Furthermore, we note that the proposed fixed-loss amount of $18,774 
is lower than the FY 2003 fixed-loss amount of $24,450 (67 FR 56023) 
and the 2004 LTCH PPS rate year fixed-loss amount of $19,590 (68 FR 
34144), and only slightly higher than the 2005 LTCH PPS rate year 
fixed-loss amount of $17,864 (69 FR 25688), all of which were in effect 
during the time period that we estimate positive Medicare margins (as 
discussed in the RY 2007 LTCH PPS final rule (71 FR 27820 through 
27825). Therefore, we believe the proposed fixed-loss amount of $18,774 
would appropriately identify unusually costly LTCH cases while 
maintaining the integrity of the LTCH PPS. Thus, under the broad 
authority of section 123(a)(1) of the BBRA and section 307(b)(1) of 
BIPA, we are proposing to establish a fixed-loss amount of $18,774 
based on the best available LTCH data and the policies presented in 
this proposed rule because we believe a proposed increase in the fixed-
loss amount is appropriate and necessary to maintain estimated outlier 
payments are projected to be equal to 8 percent of estimated total LTCH 
PPS payments, as required under Sec.  412.525(a).
d. Reconciliation of Outlier Payments Upon Cost Report Settlement
    In the June 9, 2003 HCO final rule (68 FR 34508 through 34512), we 
established our policy for LTCHs that provided that effective for LTCH 
PPS discharges occurring on or after August 8, 2003, any reconciliation 
of outlier payments will be based upon the actual CCR computed from the 
costs and charges incurred in the period during which the discharge 
occurs. In that same final rule, we also established that, for 
discharges occurring on or after August 8, 2003, at the time of any 
reconciliation, outlier payments may be adjusted to account for the 
time value of any underpayments or overpayments based upon a widely 
available index to be established in advance by the Secretary and will 
be applied from the midpoint of the cost reporting period to the date 
of reconciliation. (Additional information on the administration of the 
reconciliation process under the IPPS is provided in CMS Program 
Transmittal 707 (October 12, 2005; Change Request 3966). We note that 
we are currently developing additional instructions on the 
administration of the reconciliation process under the LTCH PPS that 
would be similar to the IPPS reconciliation process.)
    In the FY 2007 IPPS final rule (71 FR 48121 through 48122), for 
discharges occurring on or after October 1, 2006, we codified into the 
LTCH PPS section of the regulations (42 CFR part 412, subpart O) the 
provisions governing the determination of LTCHs' CCRs, including 
modifications and editorial clarifications to our existing methodology 
for determining the annual LTCH CCR ceiling and applicable Statewide 
average CCRs under the LTCH PPS. (We note that we also made

[[Page 4801]]

the same changes under the SSO policy at Sec.  412.529(c)(3), as 
discussed in section V.A.1.c. of this preamble).
    In the FY 2007 IPPS final rule (71 FR 48122), under the broad 
authority of section 123 of the BBRA and section 307(b)(1) of BIPA, we 
revised Sec.  412.525(a)(4)(iv)(D) through (E), for discharges 
occurring on or after October 1, 2006, to codify in subpart O of 42 CFR 
part 412 the provisions discussed concerning the reconciliation of LTCH 
PPS outlier payments, including editorial clarifications discussed in 
greater detail in this section, that would more precisely describe the 
application of those policies. Specifically, at Sec.  
412.525(a)(4)(iv)(D), we specified that for discharges occurring on or 
after October 1, 2006, any reconciliation of outlier payments will be 
based on the CCR calculated based on a ratio of costs-to-charges 
computed from the relevant cost report and charge data determined at 
the time the cost report coinciding with the discharge is settled. In 
addition, at Sec.  412.525(a)(4)(iv)(E), we specified that for 
discharges occurring on or after October 1, 2006, at the time of any 
reconciliation, outlier payments may be adjusted to account for the 
time value of any underpayments or overpayments. We also specified that 
such an adjustment will be based upon a widely available index to be 
established in advance by the Secretary and will be applied from the 
midpoint of the cost reporting period to the date of reconciliation. We 
made these additional revisions to Sec.  412.525(a)(4) because we 
believe that these changes are more consistent with the LTCH PPS single 
payment rate for inpatient operating and capital costs (as discussed in 
greater detail previously), and because we believe it is more 
appropriate and administratively simpler to include all of the 
regulatory provisions concerning the determination of LTCH PPS outlier 
payments applicable under the LTCH PPS regulations in subpart O of 42 
CFR part 412 of the CFR.
e. Application of Outlier Policy to Short-Stay Outlier (SSO) Cases
    As we discussed in the August 30, 2002 final rule (67 FR 56026), 
under some rare circumstances, a LTCH discharge could qualify as a SSO 
case (as defined under Sec.  412.529 and discussed in section V.A.1.a. 
of this preamble) and also as a HCO case. In this scenario, a patient 
could be hospitalized for less than five-sixths of the geometric ALOS 
for the specific LTC-DRG, and yet incur extraordinarily high treatment 
costs. If the costs exceeded the outlier threshold (that is, the SSO 
payment plus the fixed-loss amount), the discharge would be eligible 
for payment as a HCO. Thus, for a SSO case in the 2008 LTCH PPS rate 
year, the HCO payment would be 80 percent of the difference between the 
estimated cost of the case and the proposed outlier threshold (the sum 
of the proposed fixed-loss amount of $18,774 and the amount paid under 
the SSO policy).
4. Other Payment Adjustments
    As indicated earlier, we have broad authority under section 
123(a)(1) of the BBRA as amended by section 307(b) of BIPA to determine 
appropriate adjustments under the LTCH PPS, including whether (and how) 
to provide for adjustments to reflect variations in the necessary costs 
of treatment among LTCHs. Thus, in the August 30, 2002 LTCH PPS final 
rule (67 FR 56014 through 56027), we discussed our extensive data 
analysis and rationale for not implementing an adjustment for 
geographic reclassification, rural location, treating a 
disproportionate share of low-income patients (DSH), or indirect 
medical education (IME) costs. In that same final rule, we stated that 
we would collect data and reevaluate the appropriateness of these 
adjustments in the future once more LTCH data become available after 
the LTCH PPS is implemented.
    As we discussed in the RY 2007 LTCH PPS final rule (71 FR 27839), 
we now believe that after the completion of the 5-year transition, 
sufficient new data that will have been generated while LTCHs are 
subject to the LTCH PPS may be available for a comprehensive 
reevaluation of payment adjustments such as geographic 
reclassification, rural location, DSH, and IME. The end of the 5-year 
transition occurs with cost reporting periods beginning on or after 
October 1, 2007. Therefore, in this proposed rule, we are not proposing 
to make any adjustments for geographic reclassification, rural 
location, DSH, or IME. However, we will continue to collect and 
interpret new data as they become available in the future to determine 
if these data support proposing any additional payment adjustments. As 
we also discussed in the RY 2007 LTCH PPS final rule (71 FR 27839), we 
now believe that it is appropriate to wait for the conclusion of the 5-
year transition to 100 percent of the Federal rate under the LTCH PPS, 
to maximize the availability of data that are reflective of LTCH 
behavior in response to the implementation of the LTCH PPS to be used 
to conduct a comprehensive evaluation of the potential payment 
adjustment policies (such as rural location, DSH and IME) in 
conjunction with our evaluation of the possibility of making a one-time 
prospective adjustment to the LTCH PPS rates provided for at Sec.  
412.523(d)(3).
5. Proposed Budget Neutrality (BN) Offset To Account for the Transition 
Methodology
    Under Sec.  412.533, we implemented a 5-year transition, during 
which a LTCH is paid a total LTCH PPS payment that is comprised of an 
increasing percentage of the LTCH PPS Federal prospective payment rate 
and a decreasing percentage of its payments based on the reasonable 
cost-based payment principles for each discharge. Furthermore, we allow 
a LTCH (other than those defined as ``new'' under Sec.  412.23(e)(4)) 
to elect to be paid based on 100 percent of the standard Federal rate 
in lieu of the blended methodology.
    The standard Federal rate was determined as if all LTCHs will be 
paid based on 100 percent of the standard Federal rate. As stated 
earlier, we provide for a 5-year transition period that allows LTCHs to 
receive LTCH PPS payments in which a component incorporates reasonable 
cost principles. To maintain BN for FY 2003 as required by section 
123(a)(1) of the BBRA during the 5-year transition period, we reduce 
all LTCH Medicare payments (whether a LTCH elects payment based on 100 
percent of the Federal rate or whether a LTCH is being paid under the 
transition blend methodology) to account for the cost of the applicable 
transition period methodology in a given LTCH PPS rate year.
    Specifically, during the LTCH PPS rate years governed under the 5-
year transition policy at Sec.  412.533(a), we reduce all LTCH Medicare 
payments during the 5-year transition by a factor that is equal to 1 
minus the ratio of the estimated TEFRA reasonable cost-based payments 
that would be made if the LTCH PPS was not implemented, to the 
projected total Medicare program PPS payments (that is, payments made 
under the transition methodology and the option to elect payment based 
on 100 percent of the Federal rate).
    In the RY 2007 LTCH PPS final rule (71 FR 27841), based on the best 
available data at that time, we projected that approximately 98 percent 
of LTCHs will be paid based on 100 percent of the standard Federal rate 
rather than receive payment under the transition blend methodology for 
the 2006 LTCH PPS rate year. Using the same methodology described in 
the August 30, 2002 LTCH PPS final rule (67 FR 56034), this projection, 
which used updated data

[[Page 4802]]

and inflation factors, was based on our estimate that either: (1) A 
LTCH has already elected payment based on 100 percent of the Federal 
rate prior to the start of the 2007 LTCH PPS rate year (July 1, 2006); 
or (2) a LTCH would receive higher payments based on 100 percent of the 
2007 LTCH PPS rate year standard Federal rate compared to the payments 
it would receive under the transition blend methodology. Similarly, we 
projected that the remaining 2 percent of LTCHs would choose to be paid 
based on the applicable transition blend methodology (as set forth 
under Sec.  412.533(a)) because they would receive higher payments than 
if they were paid based on 100 percent of the 2007 LTCH PPS rate year 
standard Federal rate.
    Also in the RY 2007 LTCH PPS final rule (71 FR 24202), based on the 
best available data at that time and policy revisions described in that 
same rule, we projected that in absence of a transition BN offset, the 
full effect of the final full year of the transition period (including 
the election option) as compared to payments as if all LTCHs would be 
paid based on 100 percent of the Federal rate would result in a 
negligible cost to the Medicare program (that is, less than $1 million 
in RY 2007). Because the $1 million in estimated costs to the Medicare 
program was such a small percentage of the estimated total LTCH 
payments for RY 2007 (over $5 billion), the formula that we use to 
establish the BN offset resulted in a factor, which we reduce all 
Medicare payments by to account for the additional costs of the 
transition methodology of zero (due to rounding). Therefore, we 
established a zero percent transition period BN offset to all LTCH PPS 
payments for discharge occurring on or after July 1, 2006 through June 
30, 2007, to account for the estimated cost of the transition period 
methodology (including the option to elect payment based on 100 percent 
of the Federal rate) in RY 2007. Furthermore, in that same final rule 
(71 FR 27841), we explained that we are no longer projecting a small 
cost for the 2008 LTCH PPS rate year (July 1, 2007 through June 30, 
2008) even though some LTCH's will have a cost reporting period for the 
5th year of the transition period which will be concluding in the first 
3 months of the 2008 LTCH PPS rate year. This is because, based on the 
most available data, we are projecting that the vast majority of LTCHs 
would have made the election to be paid based on 100 percent of the 
Federal rate rather than the transition blend which would result in a 
negligible cost to the Medicare program. In fact, based on the most 
recent available data from the July 2006 update of the PSF, we continue 
to estimate that nearly all (over 98 percent) LTCHs are currently being 
paid based on 100 percent of the Federal rate (rather than the 
transition blend methodology). Even for those few remaining LTCHs paid 
under the transition blend methodology set forth at Sec.  412.533(a), 
the majority of their LTCH PPS payments are now based on at least 80 
percent of the Federal rate and 20 percent of the reasonable cost 
amount (for cost reporting periods beginning during FY 2006) since 
there are no longer any LTCHs in their cost reporting periods that 
began during FY 2003 through FY 2005 (the first three years of the 5-
year transition period). Therefore, we continue to believe that there 
would be no measurable estimated cost to the Medicare program due to 
the transition period methodology (including the option to elect 
payment based on 100 percent of the Federal rate) in RY 2008. 
Accordingly, in this proposed rule, based on updated data and using the 
same methodology established in the August 30, 2002 final rule (67 FR 
56034), we are not proposing a transition BN offset to all LTCH PPS 
payments for discharges occurring on or after July 1, 2007 through June 
30, 2008, to account for the estimated cost of the transition period 
methodology (including the option to elect payment based on 100 percent 
of the Federal rate, since some LTCHs may still be paid under the 4th 
year of the transition blend methodology, specified at Sec.  412.533, 
for the first 3 months of RY 2008) in RY 2008.
6. One-Time Prospective Adjustment to the Standard Federal Rate
    As we discussed in the August 30, 2002 LTCH PPS final rule (67 FR 
56036), consistent with the statutory requirement for BN in section 
123(a)(1) of the BBRA, we estimated aggregate payments under the LTCH 
PPS for FY 2003 to be equal to the estimated aggregate payments that 
would be made if the LTCH PPS were not implemented. Our methodology for 
estimating payments for purposes of the BN calculations used the best 
available data at the time and necessarily reflected assumptions. As 
the LTCH PPS progresses, we are monitoring payment data and will 
evaluate the ultimate accuracy of the assumptions used in the BN 
calculations (for example, inflation factors, intensity of services 
provided, or behavioral response to the implementation of the LTCH PPS) 
described in the August 30, 2002 LTCH PPS final rule (67 FR 56027 
through 56037). To the extent these assumptions significantly differ 
from actual experience, the aggregate amount of actual payments may 
turn out to be significantly higher or lower than the estimates on 
which the BN calculations were based.
    Section 123(a)(1) of the BBRA as amended by section 307(b) of BIPA 
provides broad authority to the Secretary in developing the LTCH PPS, 
including the authority for establishing appropriate adjustments. Under 
this broad authority to make appropriate adjustments, as implemented in 
the existing Sec.  412.523(d)(3) (as revised in the RY 2007 LTCH PPS 
final rule), we have provided for the possibility of making a one-time 
prospective adjustment to the LTCH PPS rates by July 1, 2008, so that 
the effect of any significant difference between actual payments and 
estimated payments for the first year of the LTCH PPS would not be 
perpetuated in the LTCH PPS rates for future years. In the RY 2007 LTCH 
PPS final rule (71 FR 27842), based on the best available data at that 
time, we estimated that total Medicare program payments for LTCH 
services over the next 5 LTCH PPS rate years would be $5.27 billion for 
the 2007 LTCH PPS rate year; $5.43 billion for the 2008 LTCH PPS rate 
year; $5.63 billion for the 2009 LTCH PPS rate year; $5.86 billion for 
the 2010 LTCH PPS rate year; and $6.13 billion for the 2011 LTCH PPS 
rate year.
    In this proposed rule, consistent with the methodology established 
in the August 30, 2002 final rule (67 FR 56036), based on the most 
recent available data, we estimate that total Medicare program payments 
for LTCH services for the next 5 LTCH PPS rate years would be as shown 
in Table 4.

                                 Table 4
------------------------------------------------------------------------
                                                            Estimated
                   LTCH PPS rate year                    payments  ($ in
                                                            billions)
------------------------------------------------------------------------
2008...................................................            $4.65
2009...................................................             4.84
2010...................................................             5.02
2011...................................................             5.24
2012...................................................             5.48
------------------------------------------------------------------------

    In accordance with the methodology established in the August 30, 
2002 LTCH PPS final rule (67 FR 56037), these estimates are based on 
the most recent available data, including the projection that nearly 
all LTCHs will be paid based on 100 percent of the LTCH PPS standard 
Federal rate during the majority of RY 2008 (in accordance with the 
transition blend percentages set

[[Page 4803]]

forth at Sec.  412.533(a)). These estimates are also based on our 
estimate of LTCH PPS rate year payments to LTCHs using CMS' Office of 
the Actuary's (OACT) most recent estimate of the RPL market basket of 
3.2 percent for the 2008 LTCH PPS rate year, 2.9 percent for the 2009 
LTCH PPS rate year, 2.5 percent for the 2010 LTCH PPS rate year, and 
2.9 percent for the 2011 and 2012 LTCH PPS rate years. (We note that 
OACT develops its spending projections based on existing policy. 
Therefore, changes that have not yet been implemented are not reflected 
in the spending projections shown in this section.) We also considered 
OACT's most recent projections of changes in Medicare beneficiary 
enrollment that estimate a change in Medicare fee-for-service 
beneficiary enrollment of 0.2 percent in the 2008 LTCH PPS rate year, 
0.5 percent in the 2009 LTCH PPS rate year, 0.1 percent in the 2010 
LTCH PPS rate year, 0.2 percent in the 2011 LTCH PPS rate year and, 0.4 
percent in the 2012 LTCH PPS rate year.
    In the August 30, 2002 LTCH PPS final rule implementing the LTCH 
PPS (67 FR 55954), we set forth the implementing regulations, based 
upon the broad authority granted to the Secretary, under section 123 of 
the BBRA as amended by section 307(b) of the BIPA. Section 123(a)(1) of 
the BBRA required that the system ``maintain budget neutrality'' for FY 
2003, that is, that estimated aggregate payments under the LTCH PPS 
would be projected to be equal to the estimated aggregate payments that 
would be made if the LTCH PPS would not be implemented for FY 2003. The 
methodology for determining the LTCH PPS standard Federal rate for FY 
2003 that would ``maintain budget neutrality'' is described in 
considerable detail in the August 30, 2002 final rule (67 FR 56027 
through 56037). As we discussed in that same final rule, our 
methodology for estimating payments for the purposes of BN calculations 
used the best available data and necessarily reflects assumptions in 
estimating aggregate payments that would be made if the LTCH PPS was 
not implemented. We also stated our intentions to monitor LTCH PPS 
payment data to evaluate the ultimate accuracy of the assumptions used 
in the BN calculations (for example, inflation factors, intensity of 
services provided, or behavioral response to the implementation of the 
LTCH PPS). To the extent that those assumptions significantly differ 
from actual experience, the estimated aggregate amount of actual 
payments during FY 2003 may result in significantly higher or lower 
estimated payments than the estimates upon which the BN calculations 
were based. In that same final rule, the Secretary exercised his broad 
authority in establishing the LTCH PPS and provided for the possibility 
of a one-time prospective adjustment to the LTCH PPS rates by October 
1, 2006, in Sec.  412.523(d)(3) (this deadline was revised to July 1, 
2008, in the RY 2007 LTCH PPS final rule). The purpose of that 
provision was to prevent any significant difference between actual 
payments and estimated payments for the 1st year of the LTCH PPS, when 
we established the budget neutral Federal rate as required by the 
statute (discussed previously), from being perpetuated in the PPS rates 
for future years.
    As we discussed in the RY 2007 LTCH PPS final rule (71 FR 27842 
through 27844), because the LTCH PPS was only recently implemented, 
sufficient new data had not been generated that would enable us to 
conduct a comprehensive reevaluation of our BN calculations. Therefore, 
in that same final rule, we did not implement a one-time adjustment 
under Sec.  412.523(d)(3) so that the effect of any significant 
difference between actual payments and estimated payments for the 1st 
year of the LTCH PPS would not be perpetuated in the PPS rates for 
future years. However, we stated that we will continue to collect and 
interpret new data as it becomes available in the future to determine 
if this adjustment should be proposed. Therefore, in the RY 2007 LTCH 
PPS final rule (71 FR 27842), we revised Sec.  412.523(d)(3) by 
changing the original October 1, 2006 deadline (established in the 
August 30, 2002 final rule that implemented the LTCH PPS) to July 1, 
2008, to postpone the requirement due to the time lag in the 
availability of Medicare data upon which this adjustment would be 
based.
    As we discussed in the RY 2007 LTCH PPS final rule (71 FR 27843 
through 27844), we now believe that after the conclusion of the 5-year 
transition period sufficient new data will be generated by the LTCH PPS 
for a comprehensive reevaluation of our FY 2003 BN calculations. 
Specifically, we explained that the final year of the 5-year transition 
to LTCH PPS payments based on 100 percent of the Federal rate for all 
LTCHs will begin for cost reporting periods beginning on or after 
October 1, 2006 (FY 2007), and end with cost reporting periods 
beginning before October 1, 2007 (FY 2008). After the conclusion of the 
5-year transition period (October 1, 2007), we expect to have between 3 
and 4 years (FY 2003 through FY 2006) of LTCH data generated since the 
implementation of the LTCH PPS. We note that there is a lag time 
between the submission of claims data and cost report data, and the 
availability of that data in the MedPAR files and HCRIS, respectively. 
Based on a comprehensive analysis of that data, we may then propose to 
make a one-time prospective adjustment to the LTCH PPS rates as 
provided for in Sec.  412.523(d)(3). As also explained in that same 
final rule, we believe that postponing the deadline of the possible 
one-time prospective adjustment to the LTCH PPS rates provided for in 
Sec.  412.523(d)(3) to July 1, 2008, would result in the availability 
of additional data generated under the LTCH PPS and, therefore, our 
decisions regarding a possible adjustment would be based on more 
complete and up-to-date data. This data would be reflective of LTCH 
behavior in response to the implementation of the LTCH PPS.
    Evaluating the appropriateness of the possible one-time prospective 
adjustment will entail a thorough review of the actual Medicare costs 
incurred by LTCHs during the 1st year of the LTCH PPS, that is, for 
LTCH cost reporting periods beginning on or after October 1, 2002 
through September 30, 2003. When we established the FY 2003 standard 
Federal rate to be budget neutral, we used the most recent LTCH cost 
data available at that time, and trended that data forward to estimate 
what Medicare would have paid to LTCHs under the TEFRA payment system 
if the PPS were not implemented (67 FR 56033). Our methodology for 
estimating payments for the purposes of BN calculations, utilized the 
best available data and necessarily reflected assumptions in estimating 
aggregate payments that would have been made had the LTCH PPS not been 
implemented. (The methodology for determining the LTCH PPS standard 
Federal rate for FY 2003 that would ``maintain budget neutrality'' is 
described in considerable detail in the August 30, 2002 LTCH PPS final 
rule (67 FR 56027 through 56037).) In that same final rule (67 FR 
56036), we also stated our intentions to monitor LTCH PPS data to 
evaluate the ultimate accuracy of the assumptions used in the BN 
calculations (for example, inflation factors, intensity of services 
provided, or behavioral response to the implementation of the LTCH 
PPS). To the extent that those assumptions significantly differed from 
actual experience, the aggregate amount of actual payments during FY 
2003 could be significantly higher or lower than the

[[Page 4804]]

estimates upon which the BN calculations were based.
    At the outset of the LTCH PPS, we provided for the possibility of a 
one-time prospective adjustment at Sec.  412.523(d)(3). Among other 
things, we wanted the opportunity to adjust the LTCH PPS Federal 
payment rate once data were available that reflected the actual cost-
based payments that would have been made under the Medicare program 
during FY 2003 if the LTCH PPS had not been implemented, rather than 
perpetuate any significant difference between actual payments and 
estimated payments in the 1st year of the LTCH PPS used in determining 
the Federal rate into future years. Therefore, in the RY 2007 LTCH PPS 
final rule, we revised Sec.  412.523(d)(3) to postpone the adjustment 
until July 1, 2008, because by that time, given the lag time typically 
involved in the entire cost report settlement procedure, we believe we 
will be able to utilize the most accurate data reflecting the actual 
costs incurred by LTCHs for cost reporting periods beginning during FY 
2003.
    We continue to believe that collecting and evaluating new data as 
it becomes available will allow us to have the best data from the 1st 
year of the LTCH PPS upon which to base an adjustment such as this. As 
we explained in the RY 2007 LTCH PPS final rule (71 FR 27844), there 
are many LTCHs with cost reporting periods from September 1 through 
August 30 which first became subject to the LTCH PPS on September 1, 
2003. Given the lag time required for typical cost report settlement 
involving submission, desk review, and in some cases an audit, which 
can take approximately 2 additional years to complete (and we expect to 
audit a number of LTCH cost reports for the purpose of this analysis), 
we believe that the October 1, 2006 deadline established Sec.  
412.523(d)(3) is no longer reasonable or realistic. In fact, we believe 
that for cost reports for providers on August 2004 fiscal year ending 
date, we would be in possession of the most reliable cost report data, 
indicating the actual costs of the Medicare program of the LTCH PPS 
during the year in which we established the Federal payment rate by 
July 2007. Any proposed adjustment under Sec.  412.523(d)(3), if 
finalized could then be implemented on July 1, 2008. Therefore, at this 
time, for the reasons discussed in this section, we believe that we 
still do not have sufficient new data to enable us to conduct a 
comprehensive reevaluation of our FY 2003 BN calculations. Accordingly, 
in this proposed rule, we are not proposing to make a one-time 
adjustment under Sec.  412.523(d)(3) at this time.

V. Other Proposed Policy Changes for the 2008 LTCH PPS Rate Year

    [If you choose to comment on issues in this section, please include 
the caption ``OTHER PROPOSED POLICY CHANGES FOR THE 2008 LTCH PPS RATE 
YEAR'' at the beginning of your comments.]

A. Short Stay Outlier (SSO) Cases

1. Background
    In the August 30, 2002 rule for the LTCH PPS, under Sec.  412.529, 
we established a special payment policy for SSO cases, that is, cases 
with a covered LOS that is less than or equal to five-sixths of the 
geometric average LOS for each LTC-DRG. When we established the SSO 
policy, we explained that ``[a] short-stay outlier case may occur when 
a beneficiary receives less than the full course of treatment at the 
LTCH before being discharged (67 FR 55995). Also in the August 30, 2002 
LTCH PPS final rule, we stated that when we first described the policy, 
in the March 27, 2002 proposed rule, ``* * * we based the proposed 
policy on the belief that many of these patients could have been 
treated more appropriately in an acute hospital subject to the acute 
care hospital inpatient prospective payment system'' (67 FR 55995). 
Therefore, under the LTCH PPS, we implemented a special payment 
adjustment for SSO cases. Under the original SSO policy, for LTCH PPS 
discharges with a covered LOS of up to and including five-sixths the 
geometric average LOS for the LTC-DRG, we adjusted the per discharge 
payment under the LTCH PPS by the least of 120 percent of the estimated 
cost of the case, 120 percent of the LTC-DRG specific per diem amount 
multiplied by the covered LOS of that discharge, or the full LTC-DRG 
payment 67 FR 55995 through 56000).
    As noted previously, generally LTCHs are defined by statute as 
having an ALOS of greater than 25 days. We stated that we believed that 
the SSO payment adjustment results in more appropriate payments, since 
these cases most likely did not receive a full course of a LTCH-level 
of treatment in such a short period of time and the full LTC-DRG 
payment would generally not be appropriate. Payment-to-cost ratio 
analyses indicated that if LTCHs received a full LTC-DRG payment for 
those cases, they would have been significantly ``overpaid'' for the 
resources they have actually expended in treating those patients (67 FR 
55995 through 56000).
    Furthermore, in establishing the SSO policy, we stated that we 
believed that providing a reduced payment for SSO cases would 
discourage hospitals from admitting these patients. We also believed 
that the policy did not severely penalize providers that, in good 
faith, had admitted a patient and provided some services before 
realizing that the beneficiary could receive more appropriate treatment 
at another site of care. As we explained in the FY 2003 LTCH PPS final 
rule, establishing a SSO payment for these types of cases addresses the 
incentives inherent in a discharge-based PPS for LTCHs for treating 
patients with a short LOS (67 FR 55995 through 56000).
2. Additional Discussion of the SSO Payment Formula
    In the August 30, 2002 LTCH PPS final rule, when we first presented 
our rationale for establishing the SSO policy, we had proposed an 
adjustment to ensure appropriate payment for cases that we believed may 
have been transferred from an acute hospital prematurely. Even if a 
patient was an appropriate admission to the LTCH, we also believed that 
a short stay case at a LTCH most likely did not receive a full course 
of medical treatment during the short stay and that a full LTC-DRG 
payment would therefore, be inappropriate (67 FR 55995 through 56000).
    In keeping with these concerns, and based on an evaluation of data 
from more than 3 years of the LTCH PPS, which revealed that a large 
percentage of SSOs had a covered LOS of 14 days or less, we revised our 
payment policy for SSO cases in the RY 2007 LTCH PPS final rule for 
subclause (I) LTCHs (71 FR 27845 through 27870).
    Consistent with the Secretary's broad authority ``to provide for 
appropriate adjustments to the long-term hospital payment system * * 
*'' established under section 123 of the BBRA as amended by section 
307(b)(1) of BIPA, for RY 2007, we reduced the cost-based option of the 
SSO policy adjustment to 100 percent of the estimated costs of the case 
for discharges occurring on or after July 1, 2006. We believed that by 
reducing the Medicare payment to a LTCH for a specific SSO case so that 
it would not exceed the estimated costs incurred for that case, we 
would be removing what we believed could be a financial incentive to 
admit and treat SSO cases that the then existing policy had established 
for LTCHs. We did not change the payment option of 120 percent of the 
per diem for a specific LTC-DRG multiplied by the covered LOS for that 
case because as described

[[Page 4805]]

in detail in the FY 2003 final rule LTCH PPS, when we first established 
the SSO policy, we found that by adjusting the per discharge payment by 
paying at 120 percent of the per diem LTC-DRG payment, once a stay 
reaches five-sixths of the geometric average LOS for the LTC-DRG, the 
full LTC-DRG payment will have been made (67 FR 55999). We continue to 
believe that this specific methodology, which results in a gradual 
increase in payment as the LOS increases without producing a 
significant payment ``cliff'' at any one point, provides a reasonable 
payment option under the SSO policy.
    However, an analysis of the FY 2004 MedPAR data indicated that even 
under the existing SSO policy, LTCHs were admitting short stay patients 
that we believe could have continued treatment at the acute care 
hospitals (paid for under the IPPS) but could have been actually being 
prematurely discharged to LTCHs. Therefore, in the RY 2007 LTCH PPS 
final rule, we added a fourth payment option. This fourth payment 
alternative, a blend of an LTCH PPS amount that is comparable to the 
IPPS per diem payment amount, and 120 percent of the LTC-DRG per diem 
payment amount, as described below in this section, reflects our belief 
that as the length of a SSO stay increases, the case begins to resemble 
a more ``typical'' LTCH stay and, therefore, it is appropriate that 
incrementally, payment should be based more on what would otherwise be 
payable under the LTCH PPS and less on the IPPS-comparable amount. 
(Specifics of calculating the IPPS-comparable amount are set forth in 
considerable detail in the RY 2007 LTCH PPS final rule (71 FR 27852 
through 27853).
    We noted at the outset of the LTCH PPS for FY 2003, that the LTCH 
standard rate was calibrated based on LTCH resources expended in 
treating a patient population requiring long stays. Therefore, in 
establishing the SSO policy at the beginning of the LTCH PPS, we 
determined that it was appropriate that we not pay a full LTC-DRG 
payment for a patient stay not requiring those resources (67 FR 55995 
through 56000). Our revision of the payment formula for SSOs for RY 
2007 reflected our belief that where a case met our definition of a SSO 
at Sec.  412.529(a), as the covered LOS increased, the case began to 
more closely resemble a characteristic LTCH case (and less like a short 
term acute care hospital case). Therefore, it was appropriate to base 
an increasing percentage of payment for SSOs on the LTC-DRG payment 
amount and a decreasing percentage of the LTCH PPS payment amount based 
upon the IPPS-comparable amount.
    We continue to believe that in defining a LTCH as a hospital with 
an inpatient ALOS of greater than 25 days in section 
1886(d)(1)(B)(iv)(I) of the Act, that the Congress was focusing on LOS 
as the essential characteristic of this provider category. Furthermore, 
we believe that the statutory change requiring the establishment of the 
LTCH PPS emphasized that the payment system should reflect the 
different resource use related to inpatient hospital services provided 
by hospitals specified by section 1886(d)(1)(B)(iv) of the Act, that 
is, by LTCHs (71 FR 27865). Specifically, we believe that the language 
of the statute indicates that the Congress believed that LTCHs treat or 
should be treating patients with different medical needs which results 
in those patients having a significantly longer LOS than those acute 
care hospital patients that we pay for under the IPPS.
    In section 4422 of the BBA of 1997, which required that the 
Secretary develop a legislative proposal for the establishment of a PPS 
for LTCHs, the Congress specified that the system ``shall include an 
adequate patient classification system that reflects the differences in 
patient resource use and costs among such hospitals.'' Section 123 of 
the BBRA of 1999, which required implementation of a PPS for LTCHs for 
cost reporting periods beginning on or after October 1, 2002, 
specified, among other things, that the system be a per discharge 
payment system, based on diagnosis-related groups (DRGs), and 
``reflects the differences in patient resource use and costs'' of long-
term care hospital patients. Section 307(b) of the BIPA of 2000 
required the Secretary ``to examine the feasibility and the impact of 
basing payment under such a system on the use of existing (or refined) 
hospital DRGs that have been modified to account for different resource 
use of LTCH patients.''
    When we developed the LTCH PPS for FY 2003, the most recently 
available MedPAR data (generally, for FYs 1998 and 1999) revealed that 
52 percent of the Medicare patients at LTCHs nationwide had a LOS of 
less than two-thirds of the ALOS for the LTC-DRG to which they were 
grouped. Of these cases, 20 percent had stays of less than 8 days. 
Since payments under the LTCH PPS were based on the resources necessary 
for treatment requiring long term hospital-level stays, beginning with 
the start of the LTCH PPS, we established the SSO policy, to provide 
appropriate payment for stays that were significantly shorter than the 
ALOS for each specific LTC-DRG.
    The original SSO policy focused on our concerns that a SSO patient 
would generally receive less than the full course of treatment at the 
LTCH before being discharged and a full LTC-DRG payment would not be 
appropriate (67 FR 55943, 55995 through 55996). As we noted in the RY 
2007 LTCH PPS final rule, when we revised the SSO policy based on our 
analysis of the nearly 3 years of data since we designed the LTCH PPS, 
we believed that our SSO policy should reflect our conviction that many 
SSO patients could otherwise have continued to receive appropriate care 
in the acute care hospital from which they were admitted. Had these 
patients not been discharged from the acute care hospital, the 
additional days of treatment would have continued to have been paid for 
under the IPPS (71 FR 27845 through 27865).
    Section 123 of the BBRA, as amended by section 307(b) of the BIPA, 
confers broad authority on the Secretary to implement a PPS for LTCHs, 
including provisions for appropriate adjustments to the payment system. 
This broad authority gives the Secretary flexibility to fashion a LTCH 
PPS based on both original policies, as well as concepts borrowed from 
other payment systems that are adapted, where appropriate to the LTCH 
context. In the RY 2007 LTCH PPS final rule, we formulated a payment 
adjustment under the LTCH PPS that we believed would result in an 
appropriate payment adjustment for those inpatient stays that we 
believe are not characteristic of LTCHS but could be more appropriately 
treated in another setting.
    Subsequent to the RY 2007 LTCH PPS final rule, we have performed 
additional analysis of more recent data FY 2005 MedPAR data, and have 
determined that 42 percent of LTCH SSO discharges, or approximately 
19,750 cases, had lengths of stay that were less than or equal to the 
average LOS plus one standard deviation of an IPPS discharge that is 
the same DRG as the LTC-DRG to which the case was assigned. (One 
standard deviation is a statistical test which measures the certainty 
of the average of a set of measurements for the purpose of data 
analysis. The standard deviation is the quantity commonly used by 
statisticians to measure the variation in a data set.) We believe that 
it is appropriate to compare the covered LOS of a LTCH case grouped to 
a particular LTC-DRG to the ALOS plus one standard deviation for the 
corresponding DRG under the IPPS. At one standard deviation, we have 
identified approximately 68 percent of

[[Page 4806]]

the IPPS cases within that DRG that were discharged from acute care 
hospitals and paid for under the IPPS. Using the statistical test of 
one standard deviation of the ALOS for each DRG under the IPPS, 
identifies the majority of IPPS discharges in any DRG.
    We believe that the 42 percent of LTCH SSO cases in the RY 2005 
MedPAR files with lengths of stay that are equal to or less than the 
IPPS ALOS plus one standard deviation for the same DRGs under the IPPS 
appear to be comparable to typical stays at acute care hospitals.
    Although LTCHs are certified by Medicare as acute care hospitals, 
we believe that the Congress intended for the higher LTCH PPS payments 
to be made to LTCHs that treat patients requiring prolonged hospital-
level care. Payments under the LTCH PPS, in compliance with the 
statutory mandates, have been calibrated based on ``the different 
resource use'' of LTCHs as compared to acute care hospitals paid under 
the IPPS. We believe that we are ``overpaying,'' under the LTCH PPS, 
for those SSO cases in LTCHs with covered lengths of stay that are 
equal to or less than the typical IPPS ALOS (that is, a LOS that is 
less than or equal to the average IPPS LOS plus one standard deviation 
for the same DRG under the IPPS).
    We further believe that in excluding LTCHs from being paid under 
the IPPS, the Congress also recognized several types of hospital-level 
providers that offered a different type of treatment than could 
reasonably be paid for under the IPPS. Specifically, in the FY 2002 
LTCH PPS final rule, we reviewed the history of LTCHs as hospitals 
excluded from the IPPS. At that time we quoted the legislative history 
of the 1983 Social Security Amendments which stated, with regard to 
LTCHs, that the ``DRG system was developed for short-term acute care 
general hospitals and as currently constructed does not adequately 
account for special circumstances of diagnoses requiring long stays'' 
(Report of the Committee on Ways and Means, U.S. House of 
Representatives, to Accompany HR 1900, H.R. Rept. No. 98025, at 141 
(1983) (67 FR 55957)). Therefore, from the very outset of the IPPS, the 
Congress distinguished LTCHs from short term acute care hospitals by 
patients' lengths of stay. The PPS for LTCHs that we implemented in FY 
2003, complied with the statutory mandate, cited above in this section, 
that payments under the LTCH PPS be calibrated based on ``the different 
resource use'' of these long-stay LTCH patients as distinct from the 
resources used to treat short stay patients at acute care hospitals and 
paid under the IPPS. Consequently, as we stated in the RY 2007 LTCH PPS 
final rule, we believe that ``LTCHs that admit SSO patients with 
lengths of stay more typical of an acute care hospital may be, in fact, 
behaving like acute care hospitals'' (71 FR 27847), and we also believe 
that it is reasonable for payments under the LTCH PPS for such cases to 
reflect this behavior.
    Our data indicates that for the approximately 350 LTCHs in 
existence during FY 2005 that discharged approximately 130,000 cases, 
46,600 discharges were SSO patients. During that same period, the 
approximately 3,600 acute care hospitals throughout the United States 
discharged approximately 12.7 million Medicare beneficiaries. At the 
approximately 3,600 acute care hospitals, treatment for Medicare 
patients is paid for under the IPPS, including those cases with a LOS 
that is the same as the LOS for SSO treated at a LTCH. However at a 
LTCH, even under the blend payment option of the SSO policy that we 
established for RY 2007, a percentage of the payment for those short 
stay patients at LTCHs may be based on a payment rate that was 
calculated to reflect the ``different resource use'' at LTCHs as 
compared to payment based on DRGs at acute care hospitals paid for 
under the IPPS. We believe that based on this analysis under the 
existing SSO policy for short stay patients where the patient's LOS is 
less than or equal to the average LOS plus one standard deviation for 
the same DRG at an acute care hospital, paid for under the IPPS, our 
blended payment methodology could result in an excessive payment.
    Our data further indicates that typically LTCHs admit approximately 
80 percent of their patients from acute care hospitals where their 
urgent conditions have been diagnosed, treated, and stabilized. We 
believe that when these patients are admitted to a LTCH for an 
extremely short stay, the LTCH appears to be serving as a step-down 
unit of the acute care hospital (71 FR 27857 through 27858). (Section 
1886(d)(1)(B) of the Act, provides for the establishment of 
rehabilitation and psychiatric units of section 1886(d) hospitals (that 
is, acute care hospitals paid for under the IPPS) but not LTCH units.)
    As we stated in the RY 2007 LTCH PPS final rule, ``* * * an 
analysis of the CY 2004 MedPAR files revealed that for specified DRGs 
for acute care cases following ICU/CCU days, there were significantly 
fewer `recuperative' days (nearly 50 percent) for acute care outlier 
patients that were discharged from the acute care hospital and then 
admitted to a LTCH than for those patients that were discharged from 
the acute care hospital and not subsequently admitted to a LTCH. For 
example, under the IPPS for DRG 475 (Respiratory system diagnosis with 
ventilator support) and DRG 483 (Trach with mechanical vent 96+ hours 
or PDX except face, mouth and neck diagnosis), the number of 
``recuperative'' days were considerably shorter at the acute care 
hospital if there was a discharge at the acute care hospital followed 
by an admission to a LTCH. The data in Table 5 is consistent with our 
belief that many LTCHs appear to be admitting some SSO patients that 
could have received the care at the acute care hospital. (71 FR 27857)

    Table 5.--HCO LOS, ICU/CCU LOS, and Post-ICU/CCU LOS for Selected Inpatient DRGs by Post-Discharge Status
                                             [Live discharges only]
----------------------------------------------------------------------------------------------------------------
                                                                                      Outlier ICU/  Post ICU/CCU
                            DRG                                Cases         LOS        CCU days        days
----------------------------------------------------------------------------------------------------------------
475 (no LTCH).............................................        3,887         32.5          20.5          12
475 (with LTCH)...........................................          515         29.6          22.6           7
483 (no LTCH).............................................        3,257         73.6          53.6          20
483 (with LTCH)...........................................        2,353         45.7          41             4.7
----------------------------------------------------------------------------------------------------------------

    In our analysis of what we believe are excessive payments under the 
existing LTCH PPS for the shortest SSOs, we are focusing on those SSO 
cases where a LTCH patient's covered LOS at the LTCH is less than or 
equal to the ALOS

[[Page 4807]]

plus one standard deviation for the same DRG at acute care hospitals 
(the ``IPPS comparable threshold'') and distinguishing between those 
SSO cases with lengths of stay that are less than or equal to the 
``IPPS comparable threshold'' from those that exceed that threshold.
    For the purposes of this discussion, whether the LTCH SSO case is 
within the ``IPPS comparable threshold'' is determined by comparing the 
covered LOS of that SSO case which has been assigned to a particular 
LTC-DRG to the ALOS for the same DRG under the IPPS. For example, if 
the covered LOS of the LTCH SSO case is equal to or less than the 
average LOS plus one standard deviation for the same DRG under the 
IPPS, the LTCH SSO case would be within the ``IPPS comparable 
threshold''. We believe an alternative payment option would be 
appropriate for such a case. We are considering an approach where if 
the covered LOS was equal to or less than the ``IPPS comparable 
threshold'' (defined above in this section) of the same DRG under the 
IPPS, the SSO payment methodology could be revised so that payment 
would be based upon the least of 100 percent of estimated costs of the 
case as determined under Sec.  412.529(d)(2); 120 percent of the LTC-
DRG per diem multiplied by the covered LOS of the case as determined 
under Sec.  412.529(d)(1); the Federal prospective payment for the LTC-
DRG as determined under Sec.  412.529(d)(3); or an LTCH PPS amount 
comparable to the IPPS per diem amount as defined at Sec.  
412.529(d)(4), not to exceed the full IPPS comparable amount.
    We would note that the RTI Report, discussed in Section XI. of this 
proposed rule, includes an RTI recommendation that ``* * * for LTCH 
cases whose LOS is within 1 standard deviation of the IPPS average LOS, 
LTCHs should be paid the IPPS rate. When this occurs, it suggests that 
LTCH is providing general acute care for these patients. This will 
allow LTCHs to treat these cases but be paid on an equitable basis with 
other acute hospitals since the shorter length stay would suggest 
general acute treatment is being provided.'' (Recommendation 11, p. 
139) (We discuss the RTI report in Section XI. and have included the 
Executive Summary of the RTI Report as Addendum B of this proposed 
rule.)
    Under this approach, SSO cases with covered lengths of stay that 
exceed the ``IPPS comparable threshold'' would continue to be paid 
under the existing SSO payment policy at Sec.  412.529(c)(2) which is 
the least of: 100 percent of the estimate cost of the case as 
determined under Sec.  412.529 (d)(2); 120 percent of the per diem of 
the LTC-DRG multiplied by the covered LOS of the case as determined 
under Sec.  412.529(d)(1); the Federal prospective payment for the LTC-
DRG as determined under Sec.  412.529(d)(3); or a blend of the 120 
percent of the LTC-DRG specific per diem amount and an amount 
comparable to the IPPS per diem amount as set forth in Sec.  412.529 
(c)(2)(iv). (The methodology for the calculation of these amounts is 
specified at Sec.  412.529(d).)
    We believe this approach is appropriate because we believe that we 
should continue to ensure that the LTCH PPS payments are appropriate 
for all cases; including those with a LOS that resemble cases typically 
treated at acute care hospitals. Therefore, as noted in the above 
discussion in this section, for the shortest SSO cases (that is, if the 
LTCH patient's covered LOS is less than or equal to the ``IPPS-
comparable threshold''), the IPPS comparable per diem amount, capped at 
the full IPPS comparable amount that is used under the blend option of 
the current SSO policy, under this approach could be the fourth payment 
option in the SSO payment formula, replacing the blend option in the 
adjusted LTCH PPS payment formula at existing Sec.  412.529(c)(2)(iv). 
We are considering this policy because we believe that based on our 
analysis for this particular type of case, it is inappropriate for 
Medicare to pay a LTCH a LTCH PPS payment that results in a per 
discharge payment amount that is greater than a hospital paid under the 
IPPS. Consistent with this approach, those SSO cases where the covered 
LOS exceeded the ``IPPS-comparable threshold,'' payment (that is, cases 
that more closely resemble a characteristic LTCH case and less a short 
term acute care hospital case) would continue to be made under the 
existing SSO policy at Sec.  412.529(c)(2).
    In considering this policy direction, at the present time, we do 
not believe that this approach for SSOs would be appropriate for the 
specific situation of a subsection (II) LTCH (that is, a LTCH meeting 
the definition specified in section 1886(d)(1)(B)(iv)(II) of the Act). 
We have addressed the uniqueness of this type of LTCH in several 
notices ((62 FR 45966, 46016, and 46026), (67 FR 55954 and 55974), (68 
FR 34147 through 34148) (71 FR 27863)). We believe that subclause (II) 
LTCHs operate under a unique Congressional mandate which, as set forth 
in section 1886(d)(1)(B)(iv)(II) of the Act, circumscribes such a 
LTCHs' admission policies to the extent that it is being identified as 
a LTCH in order to provide a particular type of service (for which the 
ALOS is greater than 20 days) to a particular population (at least 80 
percent have a principal diagnosis of neoplastic disease) (68 FR 
34147). Exempting subsection (II) LTCHs under this approach is 
consistent with positions regarding the application of SSO policies to 
subclause (II) LTCHs. For example, in RY 2004, we provided a 
distinctive phase-in formula for subclause (II) LTCHs (Sec.  
412.529(e)), and in the RY 2007 LTCH PPS final rule, we did not apply 
SSO policy revisions for subclause (I) LTCHs (Sec.  412.529(c)(2)) to 
subclause (II) LTCHs ((68 FR 34122, 34147 through 34148) (71 FR 
27798,27863)).
    To encourage a thorough and accurate evaluation of this approach, 
we have included a column in Table 3 of Addendum A of this proposed 
rule, which sets forth what would be the IPPS-comparable threshold for 
each LTC-DRG. We note that to determine the ``IPPS Comparable 
Threshold'' for some DRGs it may be necessary to supplement IPPS 
hospital statistical data due to a low volume of IPPS cases grouped to 
those DRGs. In addition, although IPPS hospital statistical data for 
the six transplant DRGs (103, 302, 480, 495, 512 and 513) and two error 
DRGs (469 and 470) may be available, we could assign a value of zero 
for the ``IPPS Comparable Threshold'' for these LTC-DRGs. This is 
consistent with our on-going policy under the LTCH PPS to assign a 
value of 0.0000 to the relative weights for these LTC-DRGs, as 
discussed in section III.D.
    As we have stated in this section, we continue to be concerned 
about appropriate payment for SSO cases under the LTCH PPS, and 
therefore, we are considering a policy change for the purpose of 
differentiating between those SSO cases that we believe are more 
appropriately admitted and treated at LTCHs as distinguished from those 
with a LOS that resemble cases typically treated at acute care 
hospitals. As described in this section, for the shortest SSO cases 
(that is, if the LTCH patient's covered LOS is less than or equal to 
the ``IPPS-comparable threshold''), the IPPS comparable per diem 
amount, capped at the full IPPS-comparable amount that is used under 
the blend option of the current SSO policy, could be the fourth payment 
option in the SSO payment formula, replacing the blend option in the 
adjusted LTCH PPS SSO payment formula at existing Sec.  
412.529(c)(2)(iv). Consistent with this approach, those SSO cases where 
the covered LOS exceeded the ``IPPS-comparable threshold,'' payment 
(that is, cases that more closely resemble a characteristic

[[Page 4808]]

LTCH case and less a short term acute care hospital case) would 
continue to be made under the existing SSO policy at Sec.  
412.529(c)(2).
    As we detailed in this discussion, we are concerned as to whether 
it is appropriate to pay cases that have a covered LOS in the LTCH that 
is less than or equal to the IPPS ALOS plus one standard deviation for 
the same DRG more than would be paid under the IPPS for a similar case. 
We are interested in soliciting comments on this approach as well as 
suggestions as to alternative ways in which to address our concerns.
    Technical Correction.
    We are proposing a technical correction to existing Sec.  
412.529(a) which would add the term ``covered'' immediately before the 
phrase ``length of stay'' in the initial definition of a SSO case. This 
technical correction is not a substantive policy change but rather 
corrects the regulatory definition of a SSO case so that it is 
consistent with policy determinations that we have made since the FY 
2003 implementation of the LTCH PPS. We would note that utilizing only 
Medicare covered days for payment purposes has been our policy from the 
outset of the LTCH PPS, as is specified at Sec.  412.503 where we 
defined ``discharge'' for purposes of payment, as ``* * * when the 
patient stops receiving Medicare-covered long-term care services * * 
*'' Furthermore, in subsequent revisions of our SSO policy, we included 
the term ``covered'' in new regulation text, that is, Sec.  
412.529(c)(2)(iv)(A) and proposed Sec.  412.529(c)(3)(i)(B) and 
(c)(3)(ii)(B). We are proposing this technical correction to conform 
all references in the regulation text at Sec.  412.529 to our existing 
policy regarding a SSO discharge which is determined based on the 
number of ``covered'' days in the patient stay.
3. Determination of Cost-to-Charge Ratios (CCRs)
    In the FY 2007 IPPS final rule (71 FR 48117 through 48121), similar 
to the revisions to the HCO policy as discussed in IV.D.3.d. of the 
preamble of this proposed rule, we revised our methodology for 
determining the annual CCR ceiling and Statewide average CCRs under the 
LTCH PPS because we believe that those changes are more consistent with 
the LTCH PPS single payment rate for inpatient operating and capital 
costs. Under the broad authority of section 123 of the BBRA and section 
307(b)(1) of BIPA, for discharges occurring on or after October 1, 
2006, the LTCH CCR ceiling specified under Sec.  
412.529(c)(3)(iv)(C)(2) is calculated as three standard deviations 
above the corresponding national geometric mean total CCR (established 
and published annually by CMS). (As discussed in greater detail in this 
section, the FI may use a Statewide average CCR if, among other things, 
a LTCH's CCR is in excess of the LTCH CCR ceiling.) The LTCH total CCR 
ceiling is determined based on IPPS CCR data, by first calculating the 
``total'' (that is, operating and capital) IPPS CCR for each IPPS 
hospital and then determining the average ``total'' IPPS CCR for all 
hospitals. The LTCH CCR ceiling is then established at 3 standard 
deviations from the corresponding national geometric mean total CCR. 
(For further detail on our methodology for annually determining the 
LTCH CCR ceiling, refer to the FY 2007 IPPS final rule (71 FR 48117 
through 48119).) We also established that the LTCH ``total'' CCR 
ceiling used under the LTCH PPS will continue to be published annually 
in the IPPS proposed and final rules, and the public should continue to 
consult the annual IPPS proposed and final rules for changes to the 
LTCH total CCR ceiling that would be effective for discharges occurring 
on or after October 1 each year. Accordingly, in the FY 2007 IPPS final 
rule (71 FR 48119), we established a FY 2007 LTCH total CCR ceiling of 
1.321, effective for discharges occurring on or after October 1, 2006.
    In addition, under the broad authority of section 123 of the BBRA 
and section 307(b)(1) of BIPA, for discharges on or after October 1, 
2006, we revised our methodology to determine the Statewide average 
CCRs under Sec.  412.529(c)(3)(iv)(C) for use under the LTCH PPS in a 
manner similar to the way we compute the ``total'' LTCH CCR ceiling 
using IPPS CCR data (71 FR 48120). Specifically, under this revised 
methodology, we first calculate the total (that is, operating and 
capital) CCR for each IPPS hospital. We would then calculate a weighted 
average ``total'' CCR for all IPPS hospitals in the rural areas of the 
State and weighted average ``total'' CCR for all IPPS hospitals in the 
urban areas of the State. (For further detail on our methodology for 
annually determining the LTCH urban and rural Statewide average CCRs, 
refer to the FY 2007 IPPS final rule (71 FR 48119 through 48121).) We 
also established that the applicable Statewide average ``total'' 
(operating and capital) CCRs used under the LTCH PPS will continue to 
be published annually in the IPPS proposed and final rules, and the 
public should continue to consult the annual IPPS proposed and final 
rules for changes to the applicable Statewide average total CCRs that 
would be effective for discharges occurring on or after October 1 each 
year. Accordingly, in the FY 2007 IPPS final rule (71 FR 48122), the FY 
2007 LTCH PPS Statewide average total CCRs for urban and rural 
hospitals, effective for discharges occurring on or after October 1, 
2006, were presented in Table 8C of the Addendum of that final rule (71 
FR 48303).
    Additionally, in the FY 2007 IPPS final rule (71 FR 48119), under 
the broad authority of section 123 of the BBRA and section 307(b)(1) of 
BIPA, we established under the LTCH PPS SSO policy at Sec.  
412.529(c)(3)(iv)(C) that the FI may use a Statewide average CCR, which 
is established annually by CMS, if it is unable to determine an 
accurate CCR for a LTCH in one of the following three circumstances: 
(1) New LTCHs that have not yet submitted their first Medicare cost 
report (for this purpose, a new LTCH would be defined as an entity that 
has not accepted assignment of an existing hospital's provider 
agreement in accordance with Sec.  489.18); (2) LTCHs whose CCR is in 
excess of the LTCH CCR ceiling; and (3) other LTCHs for whom data with 
which to calculate a CCR are not available (for example, missing or 
faulty data). Other sources of data that the FI may consider in 
determining a LTCH's CCR included data from a different cost reporting 
period for the LTCH, data from the cost reporting period preceding the 
period in which the hospital began to be paid as a LTCH (that is, the 
period of at least 6 months that it was paid as a short-term acute care 
hospital), or data from other comparable LTCHs, such as LTCHs in the 
same chain or in the same region.
    Furthermore, in the FY 2007 IPPS final rule (71 FR 48121), we 
established under Sec.  412.529(c)(3)(iv)(B) that, for discharges 
occurring on or after October 1, 2006, the CCR applied at the time a 
claim is processed will be based on either the most recently settled 
cost report or the most recent tentatively settled cost report, 
whichever is from the latest cost reporting period. Under the broad 
authority of section 123 of the BBRA and section 307(b)(1) of BIPA, in 
that same final rule, we also established at Sec.  412.529(c)(3)(iv)(A) 
that, for discharges occurring on or after October 1, 2006, we may 
specify an alternative to the CCR computed under Sec.  
412.529(c)(3)(iv)(B) (that is, computed from the most recently settled 
cost report or the most recent tentatively settled cost report, 
whichever is later), or a hospital may also request that the FI use a 
different (higher or lower) CCR based on substantial evidence presented 
by the hospital. A complete discussion

[[Page 4809]]

of these revisions to our methodology for determining a LTCH's CCR is 
discussed in the FY 2007 IPPS final rule (71 FR 48119 through 48121).
4. Reconciliation of SSO Cases
    In the FY 2007 IPPS final rule (71 FR 48121 through 48122), under 
the broad authority of section 123 of the BBRA and section 307(b)(1) of 
BIPA, we revised Sec.  412.529(c)(3)(iv)(D) through (E), for discharges 
occurring on or after October 1, 2006, to codify in subpart O of 42 CFR 
part 412 the provisions concerning the reconciliation of LTCH PPS 
outlier payments, including editorial clarifications discussed in 
greater detail below in this section, that would more precisely 
describe the application of those policies.
    Specifically, at Sec.  412.529(c)(3)(iv)(D), similar to our current 
policy, we specified that for discharges occurring on or after October 
1, 2006, any reconciliation of outlier payments will be based on the 
CCR calculated based on a ratio of costs to charges computed from the 
relevant cost report and charge data determined at the time the cost 
report coinciding with the discharge is settled. In addition, at Sec.  
412.529(c)(3)(iv)(E), we specified that for discharges occurring on or 
after October 1, 2006, at the time of any reconciliation, outlier 
payments may be adjusted to account for the time value of any 
underpayments or overpayments. Such an adjustment will be based upon a 
widely available index to be established in advance by the Secretary 
and will be applied from the midpoint of the cost reporting period to 
the date of reconciliation. We made these additional revisions to Sec.  
412.529(c)(3) because we believe that these changes would be more 
consistent with the LTCH PPS single payment rate, and because we 
believe it would be more appropriate and administratively simpler to 
include all of the regulatory provisions concerning the determination 
of LTCH PPS outlier payments applicable under the LTCH PPS regulations 
at subpart O of 42 CFR part 412. (For a complete discussion on the 
revisions made to the SSO reconciliation policy, refer to the FY 2007 
IPPS final rule (71 FR 48121 through 48122).)

B. Proposed Expansion of Special Payment Provisions for LTCH Hospitals 
Within Hospitals (HwHs) and LTCH Satellites: Proposed Expansion of the 
25 Percent Rule to Certain Situations Not Currently Covered Under 
Existing Sec.  412.534

    In the FY 2005 IPPS final rule we established the special payment 
provisions at Sec.  412.534 for LTCHs that are HwHs and for satellites 
of LTCHs that are co-located with host hospitals. In developing that 
policy, we were particularly concerned with patient shifting between 
the host acute care hospitals and the co-located LTCH HwH or satellite 
for financial rather than for medical reasons, a scenario that we 
believed was encouraged by physical proximity, and that resulted in 
inappropriate increased cost to the Medicare program (69 FR 49191). We 
specified in the FY 2005 IPPS final rule that the payment adjustment 
for co-located LTCHs at Sec.  412.534 was also applicable to hospitals 
other than acute care hospitals that served as hosts to both LTCH HwHs 
and satellites of LTCHs and that we had similar concerns to those 
stated above regarding patient shifting between such hosts and their 
co-located LTCHs. However, the vast majority of host hospitals continue 
to be acute care hospitals (69 FR 49198).
    In the FY 2005 IPPS final rule, we quoted the FY 1995 IPPS final 
rule where we first discussed the concern that LTCH HwHs were, in 
effect, operating as step-down units of acute care hospitals. We 
explained that this was inconsistent with the statutory framework and 
that such a configuration could lead to two Medicare bills being 
submitted (one from the acute care hospital and the other from the 
LTCH) for what was essentially one episode of care (69 FR 49191 through 
49192, 59 FR 45389).
    When we first established the separateness and control criteria for 
LTCH HwHs at Sec.  412.22(e) in the FY 1995 IPPS final rule, our main 
objective was to address the shifting of costly, long-stay patients 
from the host to the on-site LTCH, resulting in two hospital stays 
which would result in a financial windfall for both providers. We 
sought to protect the integrity of the IPPS by ensuring that those 
costly, long-stay patients who could reasonably continue treatment in 
an acute care hospital would not be unnecessarily discharged to an 
onsite LTCH, a behavior that would undermine the Medicare IPPS DRG 
payment system for acute care hospitals. We explained that the Federal 
standardized payment amount for the IPPS was based on the average cost 
of an acute care patient across all acute care hospitals. This is 
premised on the assumption that, on average, both high-cost and low-
cost patients are treated at hospitals. Although we might pay a 
hospital less than was expended for a particular costly case, the 
hospital would also receive more than was expended for other less 
costly cases. However, an acute care hospital that consistently 
discharges higher cost patients to a post-acute care setting for the 
purpose of lowering its costs, undercuts the foundation of the IPPS DRG 
payment system which is based on averages, as noted above. In this 
circumstance, the hospital inappropriately would have incurred lower 
costs under the IPPS because the course of acute treatment had not been 
completed and the hospital did not incur those additional costs for 
what would have been the remainder of the patient's stay at the IPPS 
acute care hospital. We were concerned that once that patient was 
discharged from the IPPS acute care hospital, the patient, still under 
active treatment for the same condition, would be admitted to a LTCH, 
thereby generating a second admission and Medicare payment that would 
not have taken place but for the availability of the LTCH (59 FR 45389 
through 45393).
    With the growth of satellite entities, another category of co-
located facility, we established ``separateness and control'' policies 
applicable to satellites of excluded hospitals, which we defined at 
Sec.  412.22(h) as ``a part of a hospital that provides inpatient 
services 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.'' In the FY 2003 IPPS final rule at Sec.  412.22(h), 
we finalized additional regulations governing the satellites of 
hospitals (64 FR 41532 through 41535 and 67 FR 50105 through 50106).
    As detailed in the FY 2005 proposed rule and final rule for the 
IPPS (69 FR 28323 through 28327, 69 FR 49191 through 49214), with the 
explosive growth in the number of LTCH HwHs and concomitant cost to the 
Medicare program, we reevaluated the effectiveness of existing policies 
regarding HwHs. (OSCAR data showed that there were 105 LTCHs in 1993 of 
which 10 were HwHs. By October 2005, there were 373 LTCHs of which most 
were HwHs.) We reconsidered whether our regulations sufficiently 
protected the Medicare program from the problems that we envisioned in 
the FY 1995 IPPS final rule, as discussed in this section. We also 
questioned the effectiveness of the ``performance of basic hospital 
functions'' aspect of the ``separateness and control'' requirements 
alone because we were aware that some co-located providers had been 
establishing complex arrangements among corporate affiliates, and had 
obtained services from those affiliates, masking true corporate 
identities and therein diluting or impairing the effectiveness of the

[[Page 4810]]

separateness criteria in determining whether both hospitals were 
interrelated. While technically remaining within the parameters of the 
rule, these arrangements intermingled corporate interests so that the 
corporate distinctness was lost, thus side-stepping the intent of our 
regulations. (Although we have had similar concerns regarding patient 
movement between host hospitals and their satellites, there had never 
been any ``performance of basic hospital functions'' criteria 
established in Sec.  412.22(h) because satellites are part of another 
hospital, and therefore, share a Medicare provider number with ``the 
hospital of which they are a part'' thus making it administratively 
burdensome to distinguish between the inpatient operating costs of the 
main hospital and its satellite(s).)
    In the FY 2005 IPPS final rule, following serious consideration of 
the public comments that we received on our proposed policy revisions 
for LTCH HwHs and satellites (69 FR 28323 through 28327) and further 
evaluation of the issues, regulatory changes were finalized for HwH 
separateness and control policies at Sec.  412.22(e) and a new payment 
adjustment was established for LTCH HwHs and for satellites of LTCHs at 
Sec.  412.534. (We wish to note that the term ``satellite facility'' in 
this section refers to satellites of excluded hospitals, in particular, 
LTCHs, and does not include satellites of excluded units at Sec.  
412.25.)
    Specifically, in the FY 2005 IPPS final rule (69 FR 49091 through 
49214), effective for cost reporting periods beginning on or after 
October 1, 2004, for LTCHs we eliminated the performance of basic 
hospital functions test under Sec.  412.22(e)(5)(i), the 15 percent 
test under existing Sec.  412.22(e)(5)(ii), and the 75 percent of 
admissions from other than the host criteria at Sec.  
412.22(e)(5)(iii). A LTCH that met administrative separateness and 
control requirements at Sec.  412.22(e)(1)(i) through (e)(1)(iv), under 
our finalized policy, satisfied the LTCH HwH requirements. (As noted 
above in this section, the performance of basic hospital functions test 
does not exist for satellites. Therefore, we did not similarly revise 
Sec.  412.22(h).) However, we established a payment adjustment based 
upon an annual threshold criteria for LTCH HwHs or LTCH satellites at 
Sec.  412.534 of 25 percent (or an applicable percentage) for LTCH 
discharges who were admitted from their host hospitals.
    Section 412.534, Special payment provisions for long-term care 
hospitals within hospitals and satellites of long-term care hospitals, 
provides that if a LTCH HwH or LTCH satellite's discharges that were 
admitted from its host hospital exceed 25 percent (or the applicable 
percentage) of its total Medicare discharges for the LTCH HwH or LTCH 
satellite's cost reporting period, an adjusted payment would be made at 
the lesser of the otherwise payable amount under the LTCH PPS or the 
amount payable under the LTCH PPS that would be equivalent to what 
Medicare would otherwise pay under the IPPS. In determining whether a 
hospital met the 25 percent (or applicable percentage) criterion, 
patients transferred from the host hospital that had already qualified 
for outlier payments at the host would not count as a discharge that 
had been admitted from the host. (We commonly refer to this throughout 
the preamble and regulations text as the discharge not being counted 
towards the applicable threshold.)
    It is important to note that if the hospital exceeds its threshold, 
LTCH discharges admitted from the host before the LTCH exceeds the 25 
percent threshold, would be paid an otherwise unadjusted payment under 
the LTCH PPS. That is, not adjusted by Sec.  412.534.
    We also finalized additional adjustments to the 25 percent policy 
for specific circumstances. For LTCH HwHs or LTCH satellites located in 
a rural area, there is no payment adjustment applied under Sec.  
412.534 if no more than 50 percent rather than 25 percent of the 
Medicare patients discharged were admitted from the host. In addition, 
in determining the percentage of patients admitted from the host, any 
patients that had been Medicare outliers at the host and then 
discharged to the rural LTCH HwH or LTCH satellite would be considered 
as if they were admitted to the LTCH or satellite from a non-host 
hospital. In addition, in the case of a LTCH or LTCH satellite facility 
that was co-located with the only other hospital in the MSA or with an 
MSA-dominant hospital, as defined at Sec.  412.534(e)(4), we provided a 
payment threshold that we believed responded to ``the unique needs of 
these communities'' (69 FR 49207). Under Sec.  412.534(e)(2), we do not 
adjust payments to those LTCH HwHs or LTCH satellite facilities as long 
as the percentage of Medicare patients discharged from the LTCH HwH or 
LTCH satellite that were admitted from the urban single or MSA dominant 
host hospital, did not exceed the percentage of the total Medicare 
discharges in the MSA in which the hospital is located that were 
discharged from the host hospital, for the cost reporting period for 
which the adjustment would be made, but in no case is the percentage 
less than 25 percent or more than 50 percent. In addition, in 
determining the percentage of patients admitted to the LTCH from the 
urban single or MSA dominant host hospital, any patients that had been 
Medicare outliers at the host and then transferred to the LTCH HwH or 
LTCH satellite would be considered as if they were admitted to the LTCH 
from a non-host hospital. (When we refer to ``the 25 percent (or 
applicable percentage)'' patient threshold throughout this proposed 
rule, the ``applicable percentage'' refers to these special adjustments 
that we have provided for the special circumstances of rural, urban 
single, or MSA-dominant hospital or to the percentage associated with 
the transition policy, discussed below in this section.)
    When implementing this policy, we also provided for a 4-year 
transition for existing LTCH HwHs or LTCH satellites that met the 
applicable criteria outlined in the regulations to allow a reasonable 
period during which hosts and co-located LTCH HwH or LTCH satellites 
and specific ``LTCHs under formation'' would be able to adapt to the 
requirements of the new policy. For cost reporting periods beginning on 
or after October 1, 2004 through September 30, 2005, these transitioned 
hospitals were to be grandfathered, with the 1st year as a ``hold 
harmless'' year. However, we required that even for these facilities 
that were being phased-in to the full payment adjustment, in the first 
cost reporting period, the hold harmless year, the percentage of 
discharges admitted from the host hospital to the LTCH could not exceed 
the percentage of discharges admitted from the host hospital to the 
LTCH HwH or LTCH satellite in its FY 2004 cost reporting period. (For 
the purposes of Sec.  412.534, we established the hospital's cost 
reporting period during FY 2004, the last cost reporting period prior 
to the implementation of Sec.  412.534, as a ``base period'' for 
purposes of establishing the gradual phase-in of the full payment 
threshold adjustment (69 FR 49196).
    Therefore, while we allowed for a 4-year transition for those above 
specified LTCH HwHs and satellites for cost reporting periods beginning 
on or after October 1, 2004 and before October 1, 2005 (FY 2005), 
payments to the LTCH hospital or LTCH satellite facility would be 
limited based on the percentage that it had admitted during its FY 2004 
cost reporting period. After the first grandfathered cost reporting 
period, these LTCH HwHs and LTCH satellite facilities were required to 
meet a percentage transition over the 3-year period beginning in FY 
2006. For the second year (cost reporting periods

[[Page 4811]]

beginning on or after October 1, 2005 but before October 1, 2006), the 
percentage of Medicare discharges that may be admitted from the host 
with no adjustment may not exceed the lesser of the percentage of their 
discharges admitted from their host during its FY 2004 cost reporting 
period or 75 percent. For the third year (cost reporting periods 
beginning on or after October 1, 2006 but before October 1, 2007), the 
percentage of Medicare discharges that may be admitted from the host 
with no adjustment may not exceed the lesser of the percentage of its 
Medicare discharges admitted from its host during its FY 2004 cost 
reporting period beginning or 50 percent, and finally, 25 percent (or 
other applicable percentage) beginning with the fourth year (cost 
reporting periods beginning on or after October 1, 2007). Additionally, 
the 25 percent policy for co-located LTCHs is currently implemented in 
a location-specific manner, which means that the computation of the 
percentage of LTCH HwH or LTCH satellite discharges admitted from a 
host is based solely on the admissions from the physically co-located 
host and not from other campuses or remote locations which may share a 
common Medicare provider number with the host.
    Although the payment adjustment at Sec.  412.534 focused on LTCH 
HwHs and satellites of LTCHs and its host hospitals, the relationship 
between a receiving provider and any referring hospital has been an 
issue of concern for the Medicare program, even in the absence of co-
location. Under section 1886(d)(5)(J) of the Act, added by section 4407 
of the BBA of 1997, the Congress provided for a post-acute transfer 
policy which addressed certain patient discharges from acute care 
hospitals that subsequently received additional treatment delivered by 
a second Medicare provider. We believe that the Congress enacted this 
legislation to discourage acute care hospitals from prematurely 
discharging patients to another treatment setting in order to increase 
Medicare payment.
    The Congress' enactment of the legislation authorizing the post-
acute transfer policy is indicative of its serious concerns about 
patient shifting between acute and post-acute providers. In the case of 
the post-acute transfer policy, described above in this section, we 
focused on overpayment, under the IPPS, to the transferring hospital 
when a patient is prematurely discharged to another provider during the 
same episode of illness.
    The payment adjustment for co-located LTCHs at Sec.  412.534 was 
based on concerns similar to those underlying the post-acute transfer 
policy at Sec.  412.4, that is, an inappropriately truncated 
hospitalization at a host facility and an admission to another 
provider, specifically a LTCH, for which an additional Medicare payment 
would be generated. However, the payment adjustment at Sec.  412.534 is 
not applied to the transferring hospital but rather, to discharges from 
the co-located LTCH to which the presumably prematurely discharged 
patient has been admitted. Moreover, although the referring hospital 
under the post-acute transfer policy must be an acute care hospital, 
for the purposes of the payment adjustment at Sec.  412.534, any 
hospital is a potential host if it is co-located with a LTCH HwH or 
LTCH satellite.
    The payment adjustment under Sec.  412.534 applies only to 
determining payments under the LTCH PPS for patients discharged from 
the LTCH or LTCH satellite which had been admitted to the LTCH or LTCH 
satellite from the onsite host hospital. For example, if an IRF was co-
located with an LTCH HwH and upon discharge from the IRF, the patient 
was admitted to the onsite LTCH, upon discharge from the LTCH, Medicare 
payment for that LTCH discharge, would be governed by Sec.  412.534 (69 
FR 49198). This would also be the case for a patient shifted to a LTCH 
from a co-located host acute care hospital following complications from 
a surgical procedure; a patient requiring rehabilitation who has been 
discharged from a host IRF to a LTCH; or a patient who had been an 
inpatient at an IPF and was discharged to an on-site LTCH for care that 
could otherwise have been continued at the host hospital (that a 
significant number of LTCHs specialize in rehabilitation and 
psychiatric cases further supports this point (71 FR 4704 through 
4719)). We believe that it is appropriate to pay the LTCH HwH or LTCH 
satellite that is co-located with an IRF or IPF and exceeds the 
applicable threshold at the IPPS equivalent rate and not a LTCH PPS 
rate that would be equivalent to the amount otherwise paid under the 
IRF or IPF PPS rate, since the HwH and the satellite LTCH are, as we 
explained earlier in this section, facilities that in many ways are 
comparable to an acute care hospital.
    When we proposed the 25 percent (or applicable percentage) payment 
adjustment for co-located LTCHs in the FY 2005 IPPS proposed rule, 
MedPAC expressed concern that the 25 percent patient threshold policy 
would have a significant impact and could possibly lead to an 
inequitable situation for co-located LTCHs, as compared to freestanding 
LTCHs. Among their concerns were the following: freestanding LTCHs also 
have strong relationships with acute care hospitals, and that where on 
average LTCH HwHs receive 61 percent of their patients from their 
hosts, on average freestanding LTCHs receive 42 percent of their 
patients from their primary referring hospital; a 25 percent rule that 
only applied to LTCH HwHs and not to freestanding LTCHs could therefore 
be inequitable; and this approach could be circumvented by an increase 
in the number of freestanding LTCHs instead of LTCH HwHs (69 FR 49211).
    In the RY 2007 LTCH PPS final rule, we also stated that according 
to a commenter, the data indicated ``* * * that it is common practice 
for LTCHs * * * to admit patients from a single-source acute care 
hospitals'' and that 71.2 percent of free-standing LTCHs admit more 
than 25 percent of their patients from a single source acute-care 
hospital (71 FR 27878).
    Additionally, in comments received on a proposed policy to preclude 
common ownership of a host and a HwH (which was not finalized), two 
commenters asserted that the financial incentive to accept 
inappropriate patients from an acute care hospital could exist only 
when the acute care hospital and the LTCH were commonly owned and when 
there was common governance, a situation that ``can exist even without 
co-location, that is, a freestanding LTCH, exempt from the requirements 
of Sec.  412.22(e) could be owned and governed by the hospital from 
which it receives the majority of its referrals'' (69 FR 49202). 
Despite the commenters' assertions, we do not believe that either 
common ownership or co-location are the only circumstances under which 
financial incentives exist for acute care hospitals to prematurely 
discharge Medicare patients to LTCHs for additional treatment during 
the same episode of patient care. In fact, we are aware anecdotally of 
the existence of ``arrangements'' between Medicare acute and post-acute 
hospital-level providers that may not have any ties of ownership or 
governance relating to patient shifting that appear to be based on 
mutual financial gain rather than on significant medical benefits for 
the patient. This could be the case if an acute care hospital 
discharges a Medicare beneficiary who continues to require hospital-
level care, to preclude that patient's case from reaching outlier 
status at the acute care hospital, to an LTCH for additional treatment. 
Under this scenario, Medicare would pay the acute care hospital under 
the IPPS for

[[Page 4812]]

the beneficiary's care but the hospital would be able to avoid both the 
``fixed loss'' amount and absorbing 20 percent of the remaining costs 
of patient care, as established under the IPPS outlier policy at 
subpart F of part 412. However, Medicare would be responsible for an 
additional payment, to the LTCH, under the LTCH PPS upon the patient's 
discharge from the LTCH. Accordingly, we believe that additional 
regulation in this area is both necessary and appropriate in order to 
protect the Medicare Trust Fund when generating two payments under two 
different payment systems for what was essentially one episode of 
beneficiary care.
    When we finalized the payment adjustment at Sec.  412.534 which 
focused solely on co-located LTCHs, that is, LTCH HwHs and satellites 
of LTCHs, and as we subsequently noted in the RY 2007 final rule for 
the LTCH PPS, we took considerable note of these comments and we have 
continued since that time to monitor the relationships between 
referring hospitals and LTCHs (71 FR 27878). Specifically, we have 
analyzed patient claims data from the 2004 MedPAR files for acute care 
patients who are admitted to free-standing LTCHs. We have analyzed the 
discharge and LOS information from this data to evaluate whether there 
is a significant difference in patient shifting behavior between co-
located LTCHs and their host acute care hospitals and those free-
standing LTCHs that admit a majority of their patients from particular 
referring acute care hospitals. (As stated previously, in fact for the 
purposes of the payment adjustment at existing Sec.  412.534, any 
inpatient hospital-level provider is a potential host if it is co-
located with a LTCH HwH or LTCH satellite (69 FR 49198). Similarly, 
free-standing LTCHs also admit patients from sources other than acute 
care hospitals. However, our data reveals that approximately 80 percent 
of all LTCH admissions are from acute care hospitals. Therefore, our 
data analysis discussed below in this section, focuses on the 
relationship between a referring acute care hospital and a LTCH.)
    We also analyzed data on relationships between LTCHs and acute care 
hospitals from which they received a significant percentage of 
referrals. The RY 2005 MedPAR files indicate that only 12.0 percent of 
the then 174 free-standing LTCHs admitted 25 percent or less of their 
Medicare discharges from an individual acute care hospital; for 36.8 
percent of those freestanding LTCHs, the percentage was between 25 and 
50 percent; for 34.5 percent it is between 50 and 75 percent, and for 
16.66 percent of those free-standing LTCHs it was between 75 and 100 
percent of their Medicare discharges that were admitted from one acute 
care hospital. Thus, the data indicates that for over 50 percent of all 
freestanding LTCHs, at least 50 percent of their discharges were for 
patients admitted from an individual acute care hospital.
    Generally, the data reveals minimal differences for cases grouped 
to the same DRG between the ALOS at the acute care hospital prior to an 
admission to a co-located LTCH and the ALOS at a referring acute 
hospital prior to admission to a free-standing LTCH. For example, we 
evaluated data from CY 2004 MedPAR files regarding LTC-DRG 475, 
Respiratory System Diagnosis with Ventilator Support, for both LTCH 
HwHs with more than 25 percent of their discharges admitted from their 
host hospital and free-standing LTCHs with more than 25 percent of 
their discharges admitted from an individual referring hospital. The 
ALOS for patients stays that have not reached outlier status at the 
host prior to being discharged to the co-located LTCH was 12.7 days and 
for free-standing LTCHs, the average LOS at their individual referring 
hospital was 12.9 days. Similarly, for LTC-DRG 416, Septicemia, the 
ALOS at the host acute care hospital was 9.8 days prior to admission to 
the co-located LTCH and the prior ALOS at the individual referring 
acute care hospital was 9.6 days prior to admission to the free-
standing LTCH. We believe that this data indicates considerable 
similarity between the patient shifting behavior at acute care 
hospitals and co-located LTCHs and acute care hospitals and LTCHs that 
are not co-located. We would have expected the LOS at the acute care 
hospital that discharged patients to non-co-located LTCHs to be longer.
    Furthermore, as noted above in this section, we have concentrated 
on the relationships between acute care hospitals and non-co-located 
LTCHs in this discussion, because approximately 80 percent of Medicare 
patients in LTCHs are admitted from acute care hospitals. However, we 
believe that the same concerns, articulated above, would also exist 
when the patient source is not an acute care hospital. There could 
still be a financial incentive on the part of the referring hospital 
(for example, an IRF, to prematurely discharge a beneficiary to a LTCH 
for additional post-acute treatment in order to avoid absorbing high 
treatment costs under the IRF outlier policy at Sec.  412.624(e)(5)) 
that would result in two Medicare payments, one to the initial provider 
and the other to the LTCH for a single episode of beneficiary care. (We 
recognize that a patient could experience a medical crisis while an 
inpatient at an IRF, but typically, the most appropriate setting for 
such urgent care would be a general acute care hospital, rather than a 
LTCH.)
    We believe that this data gives further credence to concerns 
articulated by MedPAC and the assertions made by the Lewin Group in its 
comments on our FY 2005 IPPS proposed rule regarding the ``strong 
relationships'' for referral purposes that exist between many acute 
care hospitals and free-standing LTCHs. Although our decade-old 
concerns, about LTCHs functioning as long-stay or step-down ``units'' 
of acute care hospitals, focused on co-located LTCHs (HwHs and LTCH 
satellites), we believe that this data indicates that many free-
standing LTCHs may also be serving the same purpose as those that are 
co-located, that is, as functional step-down units of their primary 
referring acute care hospital.
    We are also concerned about other attempts to evade our regulations 
at Sec.  412.534. In implementing the HwH regulations at Sec.  
412.22(e) and the satellite regulations at Sec.  412.22(h), we have 
consistently utilized the definition of ``campus'' that was established 
in the provider-based regulations at Sec.  413.65(a)(2) which specifies 
that a campus is ``the physical area immediately adjacent to the 
provider's main buildings, other areas and structures that are not 
strictly contiguous to the main buildings but are located within 250 
yards of the main buildings, and any other areas determined on an 
individual basis, by the CMS regional office, to be part of the 
provider's campus.'' We have become aware of certain LTCH companies 
that have both established new LTCHs and/or are considering relocating 
existing HwHs or LTCH satellites so that they are at least 300 yards 
from the acute care hospital, thus side-stepping the intent of existing 
Sec.  412.534. We believe that our proposals to extend the existing 
payment policy will address the type of ``gaming,'' described above in 
this section, as well as dealing with our concern that LTCHs appear to 
be admitting patients from referring hospitals prior to the delivery of 
a full episode of care so that we are making two payments, one to the 
referring hospital and another much higher payment under the LTCH PPS 
to the LTCH for what is essentially one episode of care. While 
reviewing the following proposals, we would also be interested in 
receiving suggestions as to other ways in which we could

[[Page 4813]]

effectively address attempts to evade the intent of our regulations 
governing patient-shifting between referring hospitals and LTCHs.
    We first noted in the RY 2006 LTCH PPS final rule (71 FR 27878), 
our concern that in many cases the line of ``functional separateness'' 
between free-standing LTCHs and their major referral sources appears to 
have been erased. We believe that our analysis of patient movement 
between these facilities supports these concerns.
    Therefore, under the broad authority conferred on the Secretary by 
section 123 of the BBRA, as amended by section 307(b) of the BIPA to 
implement a prospective payment system for LTCHs, including authority 
to provide for appropriate adjustments to the payment system, we are 
proposing to extend the payment adjustment at Sec.  412.534, presently 
applicable to co-located subclause (I) LTCHs, to all subclause (I) 
LTCHs (section 1886(d)(1)(B)(iv)(I) of the Act), as explained below in 
this section. (For the purposes of the discussion of this proposed 
policy, ``subclause (I) LTCH'' is also intended to include satellites 
of these LTCHs. Our proposal regarding subclause (II) LTCHs, that is 
those LTCHs that meet the definition at section 1886(d)(1)(B)(iv)(II) 
of the Act, is discussed below in this section.) Specifically, at 
proposed Sec.  412.536, we are setting forth proposed regulations that 
govern payments under the LTCH PPS for LTCH and LTCH satellite Medicare 
discharges admitted from non-co-located hospitals. We are proposing 
that the policy provisions of the existing 25 percent (or applicable 
percentage) payment adjustment would apply to any subclause (I) LTCH or 
LTCH satellite regardless of the physical proximity to the hospital 
from which it is accepting admissions. In order to apply this policy at 
all subclause (I) LTCHs and LTCH satellites, we are additionally 
proposing to revise existing Sec.  412.534 to include a new provision 
at proposed Sec.  412.534(h) that would extend the 25 percent (or 
applicable percentage) payment threshold to those grandfathered co-
located subclause (I) LTCH HwHs and LTCH satellites at Sec.  412.22(f) 
and Sec.  412.22(h)(3)(i), respectively, for Medicare discharges that 
had been admitted from the grandfathered LTCH of LTCH satellite 
facility's host for cost reporting periods beginning on or after July 
1, 2007. (We address the issue of satellites of subclause (II) LTCHs 
below in this section.
    We are proposing to add new Sec.  412.536 that will specify a 
comparable payment adjustment governing Medicare discharges from 
subclause (I) LTCHs and LTCH satellites that were admitted from non-co-
located hospitals. We note that under this proposal, the payment 
adjustment at Sec.  412.536 would also apply to those Medicare 
discharges from co-located subclause (I) LTCHs (HwHs and LTCH satellite 
facilities) that have been admitted from hospitals other than those 
with which they are co-located. We believe that this proposed policy 
will address our concerns with LTCHs and LTCH satellites that in many 
cases appear to be functioning like step-down units of acute care 
hospitals.
    Furthermore, we believe it is appropriate that the same analytical 
standards and payment policies be applied by Medicare to all subclause 
(I) LTCHs. Therefore, we are proposing to amend existing Sec.  412.534 
to include subclause (I) grandfathered LTCH HwHs and LTCH satellite 
facilities, as well as proposing to use the same thresholds applicable 
to co-located LTCH HwHs and LTCH satellite facilities for subclause (I) 
LTCHs and LTCH satellite facilities that admit Medicare patients from 
non-co-located hospitals under Sec.  412.536. Specifically, we are 
proposing that for cost reporting periods beginning on or after July 1, 
2007, as we specify in proposed revised Sec.  412.534(h), this payment 
adjustment would include those subclause (I) LTCH HwHs and satellites 
that have been ``grandfathered'' under Sec.  412.22(f) and Sec.  
412.22(h)(3)(i) respectively and that are presently exempted from the 
existing payment adjustment for co-located LTCHs. As noted previously, 
both grandfathered HwHs at Sec.  412.22(f) and satellite facilities at 
Sec.  412.22(h)(3)(i) are permitted to retain their exclusions from the 
IPPS despite not meeting ``separateness and control'' policies with 
regard to their relationships with their host hospitals, as long as 
they continue to comply with applicable Medicare requirements. This 
proposed inclusion of grandfathered LTCH HwHs and LTCH satellites in 
the 25 percent (or applicable percentage) threshold policy would not 
affect their ability to continue to be ``grandfathered'' and excluded 
from the IPPS. Moreover, as noted above, the proposed 25 percent (or 
the applicable percentage) threshold policy governing discharges from 
subclause (I) LTCHs that had been admitted from any individual non-co-
located hospital, at new proposed Sec.  412.536, would also apply in 
determining payments under the LTCH PPS for Medicare discharges from 
LTCH HwHs and LTCH satellites that had been admitted from non-co-
located hospitals other than their hosts, including grandfathered HwHs 
and LTCH satellites. Under the proposed policies applicable to 
grandfathered subclause (I) LTCH HwHs and LTCH satellites, we would pay 
an adjusted amount for those discharged Medicare patients that were 
admitted from their co-located host, under proposed Sec.  412.534(h) or 
from any other referring hospital under proposed Sec.  412.536, in 
excess of the applicable percentage threshold. The grandfathered LTCHs 
and LTCH satellite facility's Medicare discharges that reached outlier 
status at the host, at proposed Sec.  412.534(b), or at the non-co-
located referring hospital, as proposed at Sec.  412.536, would not 
count towards the applicable threshold.
    When we implemented the existing 25 percent (or applicable 
percentage) for cost reporting periods beginning on or after October 1, 
2004, we opted to do so on a ``location-specific'' basis rather than 
based on Medicare provider numbers. That is, we applied the percentage 
threshold payment adjustment only to discharges from a specific 
location of a LTCH HwH or LTCH satellite that were admitted from the 
host hospital with which they share a building or campus. However, 
since implementing this policy, we have been contacted by numerous 
representatives of LTCH chains whose questions appear to indicate that 
the site-specific implementation of the threshold percentage had 
resulted in patient-shifting between hospital locations that shared a 
Medicare provider number and even between separately owned LTCHs (for 
their mutual advantage) that side-stepped the intent of our policy. 
Specifically, we offer the following example of a situation that was 
occurring: a host hospital at Location A was discharging patients to a 
LTCH HwH or satellite at Location B while the host hospital at Location 
B discharged patients to the LTCH HwH or satellite at Location A.
    We believe that since we are proposing to expand the 25 percent 
policy to all subclause (I) LTCHs and LTCH satellite facilities it is 
appropriate to propose inclusion of LTCH HwHs and LTCH satellites, 
grandfathered respectively under Sec.  412.22(f) and Sec.  
412.22(h)(3)(i), in our proposal. The provisions at proposed Sec.  
412.534(h) would apply for Medicare discharges from grandfathered LTCH 
and LTCH satellite facilities admitted from co-located hospitals and 
the provisions at Sec.  412.536 would apply for discharges admitted 
from any individual non-co-located referring hospital. As we noted in 
our RY 2007 final rule regarding grandfathered HwHs, ``[W]e do not 
believe that it is reasonable to assume that by creating a limited 
exception for these hospitals, the Congress was

[[Page 4814]]

immunizing these facilities from any further regulation by the 
Secretary as to their growth and financial impact on the Medicare 
program. We do not believe the Congress was establishing a separate 
class of providers'' (71 FR 48109).
    Furthermore, for those co-located LTCHs already subject to the 25 
percent (or applicable percentage) payment adjustment at existing Sec.  
412.534, the proposed policy expansion at proposed Sec.  412.536 would 
apply to payments under the LTCH PPS for patients discharged from co-
located LTCHs (HwHs and satellites) that were admitted from referral 
sources other than their host hospital(s).
    Therefore, we are proposing that, for cost reporting periods 
beginning on or after July 1, 2007, that a subclause (I) LTCH or LTCH 
satellite that discharges more than 25 percent (or applicable 
percentage) of Medicare patients admitted from any non-co-located 
individual hospital (that had not already reached outlier status, as 
discussed above) would be subject to the proposed payment adjustment at 
proposed Sec.  412.536 for Medicare discharges from that hospital in 
excess of the applicable threshold. Furthermore, we believe that with 
the application of our proposed policy at Sec.  412.536 to Medicare 
discharges from subclause (I) LTCH HwHs and LTCH satellites that were 
admitted from any individual non-co-located referring hospitals, we are 
closing the ``location-specific loophole'' established by the 
implementation of Sec.  412.534, described above. The proposed change 
would affect all LTCHs or LTCH satellite Medicare discharges that were 
admitted from hospitals that are located on a different campus.
    The proposed payment adjustment at proposed Sec.  412.534(h) for 
grandfathered LTCH HwHs and LTCH satellite facilities will track the 
applicable provisions of the existing payment adjustment at Sec.  
412.534. Therefore, we are proposing at Sec.  412.534(h) that for cost 
reporting periods beginning on or after July 1, 2007, the provisions of 
Sec.  412.534 would also apply to grandfathered subclause (I) LTCH HwHs 
and LTCH satellite facilities. Accordingly, under the proposed changes 
to Sec.  412.534, if the percentage of the grandfathered LTCH or LTCH 
satellite's discharged Medicare inpatient population that were admitted 
from its co-located host exceeds 25 percent (or the applicable 
percentage) of the LTCH's Medicare discharges for that cost reporting 
period, an adjusted payment would be made for those discharges that 
were admitted from that hospital beyond the 25 percent threshold (or 
the applicable percent threshold), at the lesser of the otherwise 
payable amount under subpart O of 42 CFR part 412 or the amount payable 
under subpart O that would be equivalent to what Medicare would 
otherwise pay under the rules at subpart A, Sec.  412.1(a). (The 
specifics of this payment formula are explained in considerable detail 
in the RY 2007 LTCH PPS final rule (71 FR 27879).) In addition, we are 
proposing that for cost reporting periods beginning on or after July 1 
2007, that the existing transition to the full 25 percent (or 
applicable percentage) threshold, specified at Sec.  412.534(g) would 
apply, as well to these grandfathered subclause (I) LTCH HwHs and LTCH 
satellites. We provide at existing Sec.  412.534(g), that in order to 
qualify for the transition, the LTCH HwH or LTCH satellite facility 
must have been paid under the provisions of subpart O on October 1, 
2004, or was a hospital paid under the provisions of subpart O on 
October 1, 2005, and whose qualifying period under Sec.  412.23(e) 
began on or before October 1, 2004. We believe that it is appropriate 
to apply the same October 1, 2004 base year to all subclause (I) co-
located HwHs and satellites, including grandfathered subclause (I) LTCH 
HwHs and LTCH satellites, applicable to all other co-located LTCHs. 
Accordingly, the percentage set forth in Sec.  412.534(g)(3), which is 
the lesser of the percentage of patients admitted from the host during 
its FY 2004 cost reporting period or the 50 percent threshold would 
apply to those grandfathered facilities with cost reporting periods 
beginning on or after July 1, 2007 and before October 1, 2007. Those 
grandfathered subclause (I) LTCH HwHs and LTCH satellites with cost 
reporting periods beginning on or after October 1, 2007 have the 25 
percent (or applicable percentage) payment adjustment threshold, as 
specified in Sec.  412.534(g)(4) applied immediately, with no phase-in.
    In proposing the expansion of the 25 percent threshold payment 
adjustment policy for cost reporting periods beginning on or after July 
1, 2007, to all subclause (I) LTCH and LTCH satellite facilities 
(including LTCH HwHs) for Medicare discharges admitted from non-co-
located hospitals, we are proposing at the new Sec.  412.536, to 
generally track the provisions of the payment formula at existing Sec.  
412.534. For example, in determining whether a hospital meets the 25 
percent criterion, Medicare discharges that have already qualified for 
outlier payments at the non-co-located referring hospital would not be 
included in the count of Medicare discharges admitted from the 
referring hospital.
    That is, even though the case would count as a discharge from the 
LTCH and be included in the denominator of the percentage calculation, 
because the patient had been an outlier at the referring hospital the 
case would not count towards determining whether or not the LTCH had 
exceeded the applicable threshold (that is, it would not be included in 
the numerator). An example of this is as follows: If one month prior to 
the end of a cost reporting period, a LTCH discharged 98 Medicare 
patients, 24 of which were admitted from an individual referring 
hospital, and during that last month, two additional patients were 
discharged from the LTCH that had been admitted from that referring 
hospital, at the close of the cost reporting period, there would have 
been a total of 100 discharges from the LTCH and the relevant concern 
would be to determine whether or not those last two cases would have 
caused the LTCH to exceed the 25 percent threshold. If the cases had 
achieved outlier status at the referring hospital, they would be not 
included in the percentage calculation (which would remain, for that 
referring hospital, at \24/100\) and not having caused the LTCH to 
exceed the 25 percent threshold, they would not be included in the 
numerator of the calculation. If both of those LTCH cases had been 
discharged from that referring hospital prior to having achieved 
outlier status, under our proposed policy, the percentage calculation 
would be 26 percent (\26/100\) and, having exceeded the 25 percent 
threshold, Medicare would apply the payment adjustment set forth in 
Sec.  412.536 to the last discharge.
    We are also proposing, under proposed Sec.  412.534, that for those 
patients, the LTCH or LTCH satellite facility would be eligible for 
payment under the LTCH PPS with no adjustment even after the 25 percent 
(or applicable percentage) threshold was exceeded. (As under existing 
Sec.  412.534, proposed Sec.  412.536 will provide that a subclause (I) 
LTCH or LTCH satellite facility's Medicare discharges (including HwHs) 
admitted from any individual non-co-located referring hospital before 
the LTCH exceeds the 25 percent threshold or applicable threshold for 
that hospital would be paid an otherwise unadjusted payment under the 
LTCH PPS.)
    We are also proposing not to extend the proposed payment adjustment 
in Sec.  412.534(h) and Sec.  412.536 to those LTCHs and LTCH satellite 
facilities that we refer to as subclause (II) LTCHs and LTCH 
satellites, established by section

[[Page 4815]]

1886(d)(1)(B)(iv)(II) of the Act. The policy that we are proposing for 
subclause (I) LTCHs and LTCH satellites is based on a calculation of 
the percentage of Medicare discharges that a LTCH admits from an 
individual hospital during a cost reporting period as compared to the 
LTCH's total Medicare discharges during that cost reporting period. 
Because of a significant policy distinction that we made at the start 
of the LTCH PPS for FY 2003, at this time we do not believe that this 
proposed policy should be applied to subclause (II) LTCHs and LTCH 
satellite facilities. With the implementation of the LTCH PPS, we 
revised the Sec.  412.23(e)(2)(i) and (e)(3)(i) to calculate the ALOS 
based solely on Medicare patients who required long-stay 
hospitalizations at subclause (I) LTCHs defined by section 
1886(d)(1)(B)(iv)(I) of the Act; however, we did not change the formula 
for calculating the ALOS for a LTCH governed by section 
1886(d)(1)(B)(iv)(II) of the Act, implemented at Sec.  
412.23(e)(2)(ii), for a ``subclause (II)'' LTCH. We believed that in 
establishing a ``subclause (II)'' LTCH, the Congress provided an 
exception to the general definition of LTCHs under subclause (I). We 
had no reason to believe that the change in methodology for determining 
the average inpatient LOS would better identify the hospitals that the 
Congress intended to exclude under subclause (II) (67 FR 55974). 
Similarly, when we established the existing 25 percent or applicable 
percentage payment adjustment at Sec.  412.534, we determined that its 
application to subclause (II) LTCHs was inappropriate because the 
designation of a subclause (II) LTCH was not dependent upon Medicare 
discharges (69 FR 49205). Therefore, we are not proposing to apply the 
expansion of the 25 percent policy that we are proposing at new Sec.  
412.536 and amended Sec.  412.534 to LTCHs and LTCH satellite 
facilities defined under section 1886(d)(1)(B)(iv)(II) of the Act. The 
existing and proposed amended payment threshold adjustments at Sec.  
412.534 and at proposed Sec.  412.536 for subclause (I) LTCHs and LTCH 
satellites are based solely on percentages of LTCH Medicare discharges. 
As stated above, we continue to believe that since we include both 
Medicare and non-Medicare discharges in our calculations for defining a 
subclause (II) LTCH at Sec.  412.23(e)(2)(ii) that applying a payment 
adjustment that is based solely on Medicare discharges may not be 
appropriate. Furthermore, consistent with our policy not to include 
satellites of subclause (II) LTCHs which were specifically 
grandfathered at Sec.  412.22(h)(3)(ii) in proposed Sec.  412.536, we 
have excluded subclause (II) LTCH satellites in the proposed 
application of the 25 percent payment adjustment for co-located 
grandfathered LTCHs at proposed Sec.  412.534(h).
    In summary, we are proposing a new provision at Sec.  412.534(h) 
that would apply the policies established under existing Sec.  412.534 
to grandfathered subclause (I) LTCH HwHs and LTCH satellites for 
Medicare discharges that were admitted from co-located host hospitals. 
We are also proposing to apply those policies at Sec.  412.534 to 
Medicare discharges admitted from any individual non-co-located 
referring hospitals to all subclause (I)LTCHs and LTCH satellites at 
proposed Sec.  412.536, generally tracking the existing regulation at 
Sec.  412.534, where applicable.
    We are also proposing additional adjustments to the 25 percent 
policy at Sec.  412.536 for specific circumstances in order to be 
consistent with the policy for co-located LTCHs under Sec.  412.534. At 
proposed Sec.  412.536(c) for Medicare discharges from subclause (I) 
LTCHs or LTCH satellites located in rural areas, we are proposing that 
Medicare discharges in excess of 50 percent, rather that 25 percent of 
the LTCH's total Medicare discharges for a cost reporting period from 
an individual non-co-located referring hospital would be subject to the 
payment adjustment specified at proposed Sec.  412.536(c). In addition, 
in the case of a rural subclause (I) LTCH or LTCH satellite facility, 
in determining the percentage of Medicare discharges admitted from a 
non-co-located referring hospital, any patients that had been Medicare 
outliers at the referring hospital and then discharged to the LTCH or 
LTCH satellite are not counted towards the threshold percentage (as 
described above).
    In proposed Sec.  412.536, we are also providing that if the non-
co-located referring hospital is the only other hospital in the MSA or 
an MSA-dominant hospital as defined at proposed Sec.  412.536(e)(4), we 
proposed to allow the subclause (I) LTCH or LTCH satellite facility a 
threshold percentage equal to the non-co-located referring hospital's 
percentage of total Medicare discharges for like hospitals in the MSA 
for the most recent fiscal year that data is available. Consistent with 
our policy at existing Sec.  412.534(e), we also propose to apply a 
floor of 25 percent and a ceiling of 50 percent to this threshold for 
those hospitals described in proposed Sec.  412.536(d)(4). As with the 
existing policy for co-located LTCHs, we believe that this adjusted 
payment threshold responds to ``the unique needs of these communities'' 
(69 FR 49207). Similar to the existing provisions at Sec.  
412.534(e)(2),we would not adjust payments to these hospitals as long 
as the percentage of Medicare patients discharged from the LTCH or LTCH 
satellite that were admitted from the non-co-located referring urban 
single or MSA-dominant hospital, did not exceed this threshold. In 
addition, in determining the percentage of Medicare discharges admitted 
to the LTCH or LTCH satellite facility from the urban single or MSA 
dominant hospital, any patients that had been Medicare outliers at the 
referring hospital before being admitted to the LTCH or LTCH satellite 
would not count towards the applicable threshold, as discussed above.
    The proposed payment adjustment at Sec.  412.536 would be 
synchronized with the phase-in of the current policy adjustment for 
LTCH HwHs and LTCH satellites at existing Sec.  412.534(g). Therefore, 
for cost reporting periods beginning on or after July 1, 2007, and 
before October 1, 2007, the percentage of Medicare discharges that may 
be admitted from the non-co-located referring hospital with no payment 
adjustment is the lesser of the percentage of Medicare discharges 
admitted from the host during its FY 2005 cost reporting period or the 
50 percent threshold. We note that under our proposed provision, at 
Sec.  412.536, subclause (I) LTCHs and LTCH satellite facilities with 
cost reporting periods beginning on or after July 1, 2007, and before 
October 1, 2007, would be limited by the percentage of total Medicare 
discharges admitted from the referring non-co-located hospital during 
the FY 2005 cost reporting period, rather than utilizing the FY 2004 
``base year'' which is applicable under Sec.  412.534. We are also 
proposing that in determining the percentage of Medicare discharges 
admitted from any referring hospital, patients who reached HCO status 
at the referring hospital before being admitted to the LTCH or LTCH 
satellite would not count towards the applicable threshold, as 
discussed above.
    Subclause (I) LTCHs and LTCH satellite facilities with a cost 
reporting period beginning on or after October 1, 2007, would have the 
25 percent (or applicable percentage) payment threshold applied. The 
percentage of Medicare discharges that a subclause (I) LTCH or 
satellite facility may admit from any individual non-co-located 
referring hospital with no payment adjustment for Medicare discharges 
admitted from that hospital may not

[[Page 4816]]

exceed 25 percent or the applicable percentage (the additional 
adjustments for rural, urban-single, or MSA-dominant hospitals).
    It is important to note that we are also proposing that co-located 
subclause (I) LTCHs (HwHs and LTCH satellite facilities) would also be 
subject to the applicable payment adjustment threshold at Sec.  412.536 
for those Medicare discharges admitted from any individual hospital 
with which they are not co-located.
    Finally, in proposing this payment adjustment, we believe that we 
are addressing policy concerns that are consistent with those that we 
originally expressed when we implemented the payment adjustment for 
LTCHs discharging patients that were admitted from co-located 
hospitals.

VI. Computing the Proposed Adjusted Federal Prospective Payments for 
the 2008 LTCH PPS Rate Year

    In accordance with Sec.  412.525 and as discussed in section IV.C. 
of this proposed rule, the standard Federal rate is adjusted to account 
for differences in area wages by multiplying the labor-related share of 
the standard Federal rate by the appropriate LTCH PPS wage index (as 
shown in Tables 1 and 2 of Addendum A to this proposed rule). The 
standard Federal rate is also adjusted to account for the higher costs 
of hospitals in Alaska and Hawaii by multiplying the nonlabor-related 
share of the standard Federal rate by the appropriate cost-of-living 
factor (shown in Table 3 in section IV.D.2 of this preamble). In the RY 
2007 LTCH PPS final rule (71 FR 27827), we established a standard 
Federal rate of $38,086.04 for the 2007 LTCH PPS rate year. In this 
proposed rule, based on the best available data and the proposed 
policies described in this proposed rule, we are proposing that the 
standard Federal rate for the 2008 LTCH PPS rate year would be 
$38,356.45 as discussed in section IV.C.3. of this preamble. We 
illustrate the methodology that would be used to adjust the proposed 
Federal prospective payments for the 2008 LTCH PPS rate year in the 
following examples:
    Example:
    During the 2008 LTCH PPS rate year, a Medicare patient is in a LTCH 
located in Chicago, Illinois (CBSA 16974). This LTCH is in the final 
year of the wage index phase-in, thus, the proposed full (that is, 
five-fifths) wage index values are applicable. The proposed full LTCH 
PPS wage index value for CBSA 16974 is 1.0751 (see Table 1 in Addendum 
A to this proposed rule). The Medicare patient is classified into LTC-
DRG 9 (Spinal Disorders and Injuries), which has a current relative 
weight of 1.0424 (see Table 3 of Addendum A to this proposed rule).
    To calculate the LTCH's proposed total adjusted Federal prospective 
payment for this Medicare patient, we compute the proposed wage-
adjusted Federal prospective payment amount by multiplying the proposed 
unadjusted standard Federal rate ($38,356.45) by the proposed labor-
related share (75.511 percent) and the proposed wage index value 
(1.0751). This proposed wage-adjusted amount is then added to the 
nonlabor-related portion of the proposed unadjusted standard Federal 
rate (24.489 percent; adjusted for cost of living, if applicable) to 
determine the proposed adjusted Federal rate, which is then multiplied 
by the LTC-DRG relative weight (1.0424) to calculate the proposed total 
adjusted Federal prospective payment for the 2008 LTCH PPS rate year 
($42,250.14). (As discussed in section IV.C.5. of this preamble, for 
the 2008 LTCH PPS rate year, we are no longer proposing to apply a 
transition period BN offset (to account for the costs of the transition 
methodology) in determining the proposed total adjusted Federal 
prospective payment.) Table 6 illustrates the components of the 
calculations in this example.

                                 Table 6
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Unadjusted Proposed Standard Federal Prospective              $38,356.45
 Payment Rate........................................
Proposed Labor-Related Share.........................          x 0.75511
                                                      ------------------
Proposed Labor-Related Portion of the Federal Rate...       = $28,963.34
Proposed Full Wage Index (CBSA 16974)................           x 1.0751
                                                      ------------------
Proposed Wage-Adjusted Labor Share of Federal Rate...       = $31,138.49
Proposed Nonlabor-Related Portion of the Federal Rate        + $9,393.11
 ($38,356.45 x 0.24489)..............................
                                                      ------------------
Proposed Adjusted Federal Rate Amount................       = $40,531.60
LTC-DRG 9 Relative Weight............................           x 1.0424
                                                      ------------------
Proposed Total Adjusted Federal Prospective Payment*.      = $42,250.14
------------------------------------------------------------------------
* We are no longer proposing to apply a transition period BN offset to
  account for the costs of the transition methodology in determining the
  proposed total adjusted Federal prospective payment for RY 2008.)

VII. Transition Period

    To provide a stable fiscal base for LTCHs, under Sec.  412.533, we 
implemented a 5-year transition period whereby a LTCH (except those 
defined as ``new'' under Sec.  412.23(e)(4)) received a LTCH PPS 
payment consisting of a portion based on reasonable cost-based 
reimbursement principles under the TEFRA system and a portion based on 
the Federal prospective payment rate (unless the LTCH elected payment 
based on 100 percent of the Federal rate). As discussed in the August 
30, 2002 final rule (67 FR 56038), we believed that a 5-year phase-in 
provided LTCHs time to adjust their operations and capital financing to 
the LTCH PPS, which is based on prospectively determined Federal 
payment rates. Furthermore, we believed that the 5-year phase-in under 
the LTCH PPS also allowed LTCH personnel to develop proficiency with 
the LTC-DRG coding system, which will result in improvement in the 
quality of the data used for generating our annual determination of 
relative weights and payment rates.
    Under Sec.  412.533, the 5-year transition period for all hospitals 
subject to the LTCH PPS began with the hospital's first cost reporting 
period beginning on or after October 1, 2002 and extends through the 
hospital's last cost reporting period beginning before October 1, 2007. 
During the 5-year transition period, a LTCH's total PPS payment under 
the LTCH PPS was based on two payment percentages--one based on 
reasonable cost-based principles and the other based on the standard 
Federal prospective payment rate. The percentage of the LTCH PPS 
payment based on the LTCH PPS Federal rate increased by 20 percentage 
points each year, while the reasonable portion of the LTCH PPS payment 
based on cost-based principles decreased by 20 percentage points each 
year, for the next 4 fiscal years. For cost reporting periods beginning 
on or after October 1, 2006, Medicare payment to LTCHs will be 
determined entirely under the Federal rate.
    In implementing the LTCH PPS, one of our goals was to transition 
hospitals to prospective payments based on 100 percent of the adjusted 
Federal prospective payment rate as soon as appropriate. Therefore, 
under Sec.  412.533(c), we allowed a LTCH (other than new LTCHs defined 
at Sec.  412.23(e)(4)), which was subject to a blended rate, to elect 
payment based on 100 percent of the Federal rate at the start of any of 
its cost reporting periods during the 5-year transition period.

[[Page 4817]]

Once a LTCH elected to be paid based on 100 percent of the Federal 
rate, it could not revert back to the transition blend.

VIII. Payments to New LTCHs

    Under Sec.  412.23(e)(4), for purposes of Medicare payment under 
the LTCH PPS, we define a new LTCH as a provider of inpatient hospital 
services that meets the qualifying criteria for LTCHs, set forth in 
Sec.  412.23(e)(1) and (e)(2), and under present or previous ownership 
(or both), has its first cost reporting period as a LTCH beginning on 
or after October 1, 2002. As we discussed in the August 30, 2002 final 
rule (67 FR 56040), this definition of new LTCHs should not be confused 
with those LTCHs first paid under the TEFRA payment system for 
discharges occurring on or after October 1, 1997, described in section 
1886(b)(7)(A) of the Act, as added by section 4416 of the Balanced 
Budget Act of 1997 (BBA) (Pub. L. 105-33). As stated in Sec.  
413.40(f)(2)(ii), for cost reporting periods beginning on or after 
October 1, 1997, the payment amount for a ``new'' (post-FY 1998) LTCH 
is the lower of the hospital's net inpatient operating cost per case or 
110 percent of the national median target amount payment limit for 
hospitals in the same class for cost reporting periods ending during FY 
1996, updated to the applicable cost reporting period (see 62 FR 46019, 
August 29, 1997).
    Under Sec.  412.533(d), new LTCHs, as defined in Sec.  
412.23(e)(4), will be paid based on 100 percent of the standard Federal 
rate. As we discussed in the August 30, 2002 final rule (67 FR 56040), 
the transition period was intended to provide existing LTCHs time to 
adjust to payment under the new system. Since these new LTCHs with 
their first cost reporting periods as LTCHs beginning on or after 
October 1, 2002, would not have received payment under reasonable cost-
based reimbursement for the delivery of LTCH services prior to the 
effective date of the LTCH PPS, we did not believe that those new LTCHs 
required a transition period in order to make adjustments to their 
operations and capital financing, as will LTCHs that have been paid 
under the reasonable cost-based methodology.

IX. Method of Payment

    Under Sec.  412.513, a Medicare LTCH patient is classified into a 
LTC-DRG based on the principal diagnosis, up to eight additional 
(secondary) diagnoses, and up to six procedures performed during the 
stay, as well as age, sex, and discharge status of the patient. The 
LTC-DRG is used to determine the Federal prospective payment that the 
LTCH will receive for the Medicare-covered Part A services the LTCH 
furnished during the Medicare patient's stay. Under Sec.  412.541(a), 
the payment is based on the submission of the discharge bill. The 
discharge bill also provides data to allow for reclassifying the stay 
from payment at the full LTC-DRG rate to payment for a case as a SSO 
(under Sec.  412.529) or as an interrupted stay (under Sec.  412.531), 
or to determine if the case will qualify for a HCO payment (under Sec.  
412.525(a)).
    Accordingly, the ICD-9-CM codes and other information used to 
determine if an adjustment to the full LTC-DRG payment is necessary 
(for example, LOS or interrupted stay status) are recorded by the LTCH 
on the Medicare patient's discharge bill and submitted to the Medicare 
FI for processing. The payment represents payment in full, under Sec.  
412.521(b), for inpatient operating and capital-related costs, but not 
for the costs of an approved medical education program, bad debts, 
blood clotting factors, anesthesia services by hospital-employed 
nonphysician anesthetists or the costs of photocopying and mailing 
medical records requested by a Quality Improvement Organization (QIO), 
which are costs paid outside the LTCH PPS.
    As under the previous reasonable cost-based payment system, under 
Sec.  412.541(b), a LTCH may elect to be paid using the periodic 
interim payment (PIP) method described in Sec.  413.64(h) and may be 
eligible to receive accelerated payments as described in Sec.  
413.64(g).
    For those LTCHs that are being paid under the transition 
methodology set forth at Sec.  412.533, for cost reporting periods that 
began on or after October 1, 2002, and before October 1, 2006, the PIP 
amount is based on the transition blend. For those LTCHs that are paid 
based on 100 percent of the standard Federal rate, the PIP amount is 
based on the estimated prospective payment for the year rather than on 
the estimated reasonable cost-based reimbursement. We exclude HCO 
payments that are paid upon submission of a discharge bill from the PIP 
amounts. In addition, Part A costs that are not paid for under the LTCH 
PPS, including Medicare costs of an approved medical education program, 
bad debts, blood clotting factors, anesthesia services by hospital-
employed nonphysician anesthetists and the costs of photocopying and 
mailing medical records requested by a QIO, are subject to the interim 
payment provisions as specified in Sec.  412.541(c).
    Under Sec.  412.541(d), LTCHs with unusually long lengths of stay 
that are not receiving payment under the PIP method may bill on an 
interim basis (60 days after an admission and at intervals of at least 
60 days after the date of the first interim bill) and this should 
include any HCO payment determined as of the last day for which the 
services have been billed.

X. Monitoring

    In the August 30, 2002 final rule (67 FR 56014), we described an 
on-going monitoring component to the new LTCH PPS. Specifically, we 
discussed on-going analysis of the various policies that we believe 
would provide equitable payment for stays that reflect less than the 
full course of treatment and reduce the incentives for inappropriate 
admissions, transfers, or premature discharges of patients that are 
present in a discharge-based PPS. As a result of our data analysis, we 
have revisited a number of our original and even pre-LTCH PPS policies 
in order to address what we believe are behaviors by certain LTCHs that 
lead to inappropriate Medicare payments. In recent Federal Register 
publications, we have proposed and subsequently finalized revisions to 
the interruption of stay policy in the RY 2005 LTCH PPS final rule (69 
FR 25692), and we established a payment adjustment for LTCH HwHs and 
satellites in the FY 2005 IPPS final rule (69 FR 49191 through 49214).
    In section V.A.2., we are revisiting the payment adjustment 
methodology established for SSOs (71 FR 27845) as a consequence of 
recent data analysis and discuss an approach being considered that 
would revise one of the existing four alternatives under the existing 
SSO payment methodology for certain SSO cases to an amount that would 
otherwise be paid under the IPPS.
    As we discuss in section X., our monitoring of discharges between 
acute care hospitals and LTCHs reveals that a significant number of 
LTCHs that are ``free-standing'', that is, not co-located with other 
hospital-level providers (as defined in Sec.  412.22(e) and Sec.  
412.22(h)), admit their patients from one specific acute care hospital. 
When we established the payment adjustment for LTCH HwHs and satellites 
of LTCHs at Sec.  412.534, we stated our concern that these on-site 
LTCHs could be functioning as units of their host (generally, an acute 
care hospital), a configuration that is not permitted in section 
1886(d)(1)(B) of the Act. (The statute specifically allows only for IRF 
and IPF units in acute care hospitals, but not for LTCH units.) As a 
result of our data monitoring and analysis, which is detailed in 
section V.B. of this proposed rule, we propose to expand the existing 
payment adjustment at

[[Page 4818]]

Sec.  412.534 to apply to certain situations not currently covered by 
the existing policy for LTCHs co-located with other hospitals.
    As we discussed in the RY 2004 LTCH PPS final rule (68 FR 34157), 
the Medicare Payment Advisory Commission (MedPAC) endorsed our 
monitoring activity as a primary aspect of the design of the LTCH PPS. 
Furthermore, the Commission pursued an independent research initiative 
that led to a section in MedPAC's June 2004 Report to Congress entitled 
``Defining long-term care hospitals''. This study included 
recommendations that we develop facility and patient criteria for LTCH 
admission and treatment and that we require a review by QIOs to 
evaluate whether LTCH admissions meet criteria for medical necessity 
once the recommended facility and patient criteria are established (70 
FR 24209). In response to the recommendation in MedPAC's June 2004 
Report, we awarded a contract to Research Triangle Institute, 
International (RTI), on September 27, 2004, to conduct a thorough 
examination of the feasibility of implementing MedPAC's 
recommendations.
    We are continuing to pursue our on-going program, existing QIO 
monitoring and studies described in the RY 2006 LTCH PPS final rule (70 
FR 24211), and our considerations of expanding the QIO role in the LTCH 
PPS. Furthermore, RTI has completed its examination of the feasibility 
of implementing MedPAC's recommendations in the June 2004 Report to 
Congress. However, we note that we do not anticipate expanding QIO 
activities during the current scope of work.
    The Executive Summary of RTI's final report is included in Addendum 
B of this proposed rule and is available on our Web site at http://
www.cms.hhs.gov/LongTermCareHospitalPPS/02a_
RTIReports.asp#TopOfPage.

XI. MedPAC Recommendations: The RTI Contract

    With the recommendations of MedPAC's June 2004 Report to Congress 
as a point of departure, RTI evaluated the feasibility of developing 
patient and facility level characteristics for LTCHs to identify and 
distinguish the role of these hospitals as a Medicare provider.
    RTI completed this project in two phases. In Phase I, RTI prepared 
a background report summarizing existing information regarding LTCHs' 
current role in the Medicare system: Their history as Medicare 
participating providers; the types of patients they treat; the criteria 
QIOs currently use to review appropriateness of care in these settings; 
and the types of regulations they face as Medicare participating 
providers. This work reviewed prior analyses of these issues and 
included discussions with MedPAC, other researchers, CMS, the QIOs, and 
the hospital associations.
    In Phase II, RTI collected additional information on tools 
currently used by the QIOs and the industry to assess patient 
appropriateness for admission; analyzed claims to understand 
differences between hospital patients with outlier stays in non-LTCHs 
and those treated in LTCHs; and visited different types of hospitals to 
observe first-hand how LTCH patients differ from those in other 
settings and how this pattern varies in different parts of the country. 
RTI worked with different associations, including the National 
Association of Long Term Hospitals (NALTH), the Acute Long Term 
Hospital Association (ALTHA), the AHA, and the American Medical Peer 
Review Association (AMPRA), as well as several of the larger LTCH 
chains. The final report submitted by RTI summarizes these efforts and 
makes numerous recommendations to CMS regarding LTCHs.
    The reports on both Phase I and Phase II of RTI's research have 
been posted on our Web site at http://www.cms.hhs.gov/
LongTermCareHospitalPPS/02a_RTIReports.asp#TopOfPage. Please note that 
this report does not represent our position or policy. We are currently 
evaluating RTI's recommendations regarding the feasibility of 
developing patient and facility level criteria from several 
standpoints. Most significantly, we are concerned that several of RTI's 
recommendations may require statutory changes. Furthermore, even among 
those recommendations for action that would be accomplished on a 
regulatory level, there are many significant issues that require 
further analysis. We have consistently encouraged meaningful contact 
between RTI and industry stakeholders throughout this research phase of 
the contract. Furthermore, RTI has solicited on-going involvement and 
will continue to seek such input from physicians who treat LTCH type 
patients both in LTCHs and as inpatients in other provider settings in 
forming a technical expert panel (TEP) to further develop some of its 
recommendations. RTI is currently determining the appropriate 
composition of this group, preparing a time table, and preparing an 
agenda for the TEP.
    While the reports from both Phase I and Phase II of RTI's research 
are posted in their entirety on the CMS Web site at http://
www.cms.hhs.gov/LongTermCareHospitalPPS/02a_
RTIReports.asp#TopOfPage, we are including The Executive Summary of 
RTI's Phase II report in Addendum B to this proposed rule. This 
material is being reproduced as received from the contractors and does 
not represent our position or policy.

XII. Payment for Direct Graduate Medical Education (GME) (Sec.  413.79)

    [If you choose to comment on issues in this section, please include 
the caption ``PAYMENT FOR DIRECT GRADUATE MEDICAL EDUCATION'' at the 
beginning of your comments.]

A. GME Background

    Section 1886(h) of the Act, as added by section 9202 of the 
Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 (Pub. L. 
99-272) and implemented in regulations at existing Sec.  413.75 through 
Sec.  413.83, establishes a methodology for determining payments to 
hospitals for the direct costs of approved graduate medical education 
(GME) programs. Section 1886(h)(2) of the Act, as added by COBRA, sets 
forth a payment methodology for direct GME costs involving the 
determination of a hospital-specific, base-period per resident amount 
(PRA) that is calculated by dividing a hospital's allowable costs of 
GME for a base period by its number of residents in the base period. 
The base period is, for most hospitals, the hospital's cost reporting 
period beginning in FY 1984 (that is, the period beginning between 
October 1, 1983, through September 30, 1984). Generally, for cost 
reporting periods beginning on or after July 1, 1985, Medicare direct 
GME payments are calculated by multiplying the hospital's PRA by the 
weighted number of full-time equivalent (FTE) residents working in all 
areas of the hospital (and nonhospital sites, when applicable), and by 
the hospital's Medicare percentage of total inpatient days. In 
addition, as specified in section 1886(h)(2)(D)(ii) of the Act, for 
cost reporting periods beginning between October 1, 1993, through 
September 30, 1995, each hospital-specific PRA for the previous cost 
reporting period is not updated for inflation for any FTE residents who 
are not either a primary care or an obstetrics and gynecology resident. 
As a result, hospitals that trained primary care, and obstetrics and 
gynecology residents, as well as nonprimary care residents in FY 1994 
or FY 1995, have two separate PRAs: One for primary care, and 
obstetrics and gynecology residents; and one for nonprimary care 
residents.

[[Page 4819]]

    The Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106-
113) (BBRA) amended section 1886(h)(2) of the Act to establish a 
methodology for the use of a national average PRA in computing direct 
GME payments for cost reporting periods beginning on or after October 
1, 2000, and on or before September 30, 2005. The BBRA established a 
``floor'' for hospital-specific PRAs that is equal to 70 percent of the 
locality-adjusted national average PRA. In addition, the BBRA 
established a ``ceiling'' that limited the annual inflation update to a 
hospital-specific PRA if the hospital's PRA exceeded 140 percent of the 
locality-adjusted national average PRA. Section 511 of the Benefits 
Improvement and Protection Act of 2000 (Pub. L. 106-554) (BIPA) 
increased the floor established by the BBRA to equal 85 percent of the 
locality-adjusted national average PRA. For purposes of calculating 
direct GME payments, each hospital-specific PRA is compared to the 
floor and the ceiling to determine whether a hospital-specific PRA 
should be revised.
    Section 1886(h)(4)(F) of the Act established limits on the number 
of allopathic and osteopathic residents that a hospital may count for 
purposes of calculating direct GME payments. For most hospitals, the 
limits are the number of allopathic and osteopathic FTE residents 
training in the hospital's most recent cost reporting period ending on 
or before December 31, 1996.

B. Residents Training in Nonhospital Settings

1. Background
    For purposes of direct GME payments, since July 1, 1987, the 
statute allows hospitals to count the time residents spend training in 
sites that are not part of the hospital (referred to as ``nonprovider'' 
or ``nonhospital sites'') under certain conditions. Section 
1886(h)(4)(E) of the Act requires that the Secretary's rules concerning 
computation of FTE residents for purposes of direct GME payments 
``provide that only time spent in activities relating to patient care 
shall be counted and that all the time so spent by a resident under an 
approved medical residency training program shall be counted towards 
the determination of full-time equivalency, without regard to the 
setting in which the activities are performed, if the hospital incurs 
all, or substantially all, of the costs for the training program in 
that setting.'' (Section 1886(h)(4)(E) of the Act, as added by section 
of 9314 of the Omnibus Budget Reconciliation Act of 1986 (Pub. L. 99-
509) (OBRA 86).) Regulations regarding the treatment of time spent by 
residents training in nonhospital sites for purposes of direct GME 
payments were first implemented in the September 29, 1989 final rule 
(54 FR 40286). In regulations adopted in that same rule at Sec.  
413.86(f)(3) (now Sec.  413.78(c)), we stated that a hospital may count 
the time residents spend in nonprovider settings for purposes of direct 
GME payment if the residents spend their time in patient care 
activities and there is a written agreement between the hospital and 
the nonprovider entity stating that the hospital will incur all or 
substantially all of the costs of the program. The regulations at that 
time defined ``all or substantially all'' of the costs to include the 
residents' compensation for the time spent at the nonprovider setting. 
Before October 1, 1997, for IME payment purposes, hospitals were not 
permitted to count the time residents spent training in nonhospital 
settings. Section 4621(b)(2) of the BBA revised section 1886(d)(5)(B) 
of the Act to allow providers to count time residents spend training in 
nonprovider sites for IME purposes, effective for discharges occurring 
on or after October 1, 1997. Specifically, section 1886(d)(5)(B)(iv) of 
the Act was amended to provide that ``all the time spent by an intern 
or resident in patient care activities under an approved medical 
residency program at an entity in a nonhospital setting shall be 
counted towards the determination of full-time equivalency if the 
hospital incurs all, or substantially all, of the costs for the 
training program in that setting.'' In the July 31, 1998 final rule (63 
FR 41004 through 41005) at Sec.  412.105(f)(1)(ii)(C) and Sec.  
413.78(d) (formerly designated Sec.  413.86(f)(4)), we specified the 
requirements a hospital must meet to include the time spent by 
residents training in a nonhospital site in its FTE count for portions 
of cost reporting periods occurring on or after January 1, 1999 for 
purposes of both direct GME and IME payments. Section 413.75(b) 
redefined ``all or substantially all of the costs for the training 
program in the nonhospital setting'' as the residents' salaries and 
fringe benefits (including travel and lodging where applicable), and 
the portion of the cost of teaching physicians' salaries and fringe 
benefits attributable to direct GME. Section 413.78(e) provides that, 
in order for a hospital to be permitted to count FTE residents training 
in a nonhospital setting, a written agreement must be in place between 
the hospital and the nonhospital site providing that the hospital will 
incur the costs of the resident's salary and fringe benefits while the 
resident is training in the nonhospital site. The hospital must also 
provide reasonable compensation to the nonhospital site for supervisory 
teaching activities, and the written agreement must specify that 
compensation amount.
2. Moratorium on Disallowances of Allopathic or Osteopathic Family 
Practice Residents Training Time in Nonhospital Settings, and Questions 
and Answers (Qs&As) on CMS Web Site (Section 713 of the MMA and Sec.  
413.78)
    In order for the hospital to incur ``all or substantially all'' of 
the costs in accordance with the regulations, the actual cost of the 
time spent by teaching physicians in supervising residents in the 
nonhospital setting must be compensated by the hospital. The amount of 
supervisory GME costs is dependent upon the teaching physician's salary 
and the percentage of time that he or she devotes to activities related 
to the residency program at the nonhospital site. (We note that the 
teaching physician's involvement in the provision of patient care is 
not considered attributable to direct GME.) As long as there are 
supervisory GME costs associated with the nonhospital training, the 
hospital must reimburse the nonhospital setting for those costs in 
order to count FTE resident time spent in the nonhospital site for 
purposes of IME and direct GME payments.
    Many hospitals have entered into written agreements with 
nonhospital sites that state that the teaching physician is 
``volunteering'' his or her time in the nonhospital site, and, 
therefore, the hospital is not providing any compensation to the 
teaching physician. Other hospitals have paid only a nominal amount of 
compensation for the supervisory teaching physicians' time in the 
nonhospital setting. Because Sec.  413.78(d) requires that the hospital 
must incur ``all or substantially all'' of the direct GME costs, 
including those costs associated with the teaching physician, 
regardless of whether the written agreement states that the teaching 
physician is ``volunteering,'' we have required that the hospital pay 
these costs in order to count FTE residents training in the nonhospital 
site, as long as these teaching physician costs exist.
    Section 713 of the MMA imposed a 1-year moratorium relating to 
certain nonhospital site teaching physician costs for the period from 
January 1, 2004, through December 31, 2004. During this 1-year period, 
we were required to allow hospitals to count FTE

[[Page 4820]]

allopathic or osteopathic family practice residents training in 
nonhospital settings for IME and direct GME payment purposes without 
regard to the financial arrangement between the hospital and the 
teaching physician practicing in the nonhospital setting to which the 
resident was assigned.
    We instructed our contractors (formerly called ``fiscal 
intermediaries'' or ``FIs'') regarding the effect of section 713 of the 
MMA in the One-Time Notification (OTN), ``Changes to the FY 2004 
Graduate Medical Education (GME) Payments as Required by the Medicare 
Modernization Act of 2003 (MMA)'' (CR 3071, Transmittal 61, issued on 
March 12, 2004). Generally, we stated in the OTN that, when settling 
prior year cost reports during this 1-year period, or for family 
practice residents actually training in nonhospital settings during 
this 1-year period, contractors should allow hospitals to count 
allopathic and osteopathic family practice residents training in a 
nonhospital setting for direct GME and IME payment purposes without 
regard to the financial arrangement between the hospital and the 
nonhospital site pertaining to the teaching physicians' costs 
associated with the residency program. For further information on this 
provision and for a summary of comments and responses related to this 
provision, please refer to the FY 2005 IPPS final rule (69 FR 49176).
    Furthermore, in response to questions and concerns raised by the 
industry and Medicare contractors as to how to determine the costs 
associated with residency training at the nonhospital setting, as well 
as how and when to pay the nonhospital setting for these costs, we 
posted Qs&As on the CMS Web site on April 8, 2005 at http://
www.cms.hhs.gov/AcuteInpatientPPS/Downloads/
nonhospQA.pdf. In the Qs&As, in response to the question of whether 
there are situations where it is acceptable for the teaching physician 
to ``volunteer'' his or her time supervising residents at the 
nonhospital site, we stated that ``* * * the relevant question is not 
whether volunteerism is permissible, but whether there is a cost to the 
nonhospital site for supervising the resident training. If there is a 
cost, the hospital must reimburse the nonhospital site for those 
costs.'' We further stated that we believe in situations where the 
teaching physician receives a predetermined compensation amount for his 
or her time at the nonhospital site that does not vary with the number 
of patients he or she treats, there is a cost for the teaching 
physician time spent in GME activities. In contrast, if the physician's 
compensation at the nonhospital site is based solely on his or her 
billings, there is no cost for teaching physician time spent in GME 
activities. Accordingly, the statute continues to require that a 
hospital must pay ``all or substantially all'' the costs of training 
residents at the nonhospital site in order to count FTE residents 
training at that site, including teaching physician costs, as long as 
those costs exist.
3. Requirements for Written Agreements for Residency Training in 
Nonhospital Settings (Sec.  413.78(e))
    In implementing section 1886(h)(4)(E) of the Act, in order to 
assist contractors in determining whether a hospital incurred ``all or 
substantially all'' of the costs of the program in the nonhospital 
setting, we required in Sec.  413.78(c) and (d) (formerly Sec.  
413.86(f)(3) and (4)) that there must be a written agreement between 
the hospital and the nonhospital site stating that the hospital will 
incur ``all or substantially all'' of the costs of training in the 
nonhospital setting. We later specified at Sec.  413.78(d)(2) that the 
written agreement must indicate the amount of compensation provided by 
the hospital to the nonhospital site for supervisory teaching 
activities.
    In an effort to respond to concerns expressed by hospitals about 
the administrative burden associated with meeting the written agreement 
requirements, in the FY 2005 IPPS final rule (69 FR 49179), at Sec.  
413.78(e), we revised our regulations to allow hospitals to choose to 
either enter into a written agreement with the nonhospital site before 
the hospital may begin to count residents training at the nonhospital 
site, or to pay concurrently for the cost of training at the 
nonhospital setting. That is, in the absence of a written agreement, 
hospitals are required to pay ``all or substantially all'' of the costs 
of the training program in the nonhospital setting by the end of the 
third month following the month in which the training occurs.
4. Modification of the Definition of ``All or Substantially All of the 
Costs for the Training Program in the Nonhospital Setting''
    We have met numerous times with industry representatives with the 
goal of developing a proposal which would respond to the concerns 
expressed by the teaching hospital community about the administrative 
burden associated with determining and documenting that hospitals are 
paying for ``all or substantially all'' of the costs for the training 
in the nonhospital setting. Some industry representatives recently 
suggested that we could ease administrative burdens by modifying the 
requirements hospitals must satisfy to meet the statutory requirement 
to incur ``all or substantially all'' of the costs by allowing a 
teaching physician to attest that at least 90 percent of the teaching 
physician's GME time is spent in patient care activities. However, we 
explained in response that the statutory test is tied to whether the 
hospital has incurred ``all or substantially all'' of the costs of the 
training at that site, not to how the teaching physician's GME time is 
spent. Therefore, we do not believe the attestation proposed by the 
industry adequately addresses the statutory requirement that the 
hospital incur ``all or substantially all'' of the costs of the 
training program at that site. We continue to believe that any Medicare 
policy approach to allowing hospitals to count FTE residents training 
in nonhospital settings for IME and direct GME payment purposes must be 
consistent with the statutory requirement that hospitals incur ``all, 
or substantially all'' of the costs of a training program in a 
nonhospital setting. The statute is clearly concerned about the cost to 
the nonhospital site, and we believe the statute has set a priority to 
move resources, in terms of both residents and funding, out into 
community settings. Therefore, where there is a cost to the nonhospital 
setting for training residents, we believe that the Medicare program is 
obligated to ensure that the nonhospital settings receive the funding 
they are entitled to receive from hospitals under the statute.
    Accordingly, we continue to believe that our current definition of 
``all or substantially all'' of the costs, which is based on the costs 
of the training program at the nonhospital site, is true to the intent 
of the statute. However, to address the industry's concerns related to 
burdensome documentation requirements, we propose to establish an 
alternative methodology that hospitals may choose to use in determining 
and paying for the teaching physician costs attributable to direct GME 
in the nonhospital sites. As we explain below in this section, we are 
proposing to revise the current definition of ``all or substantially 
all'' of the costs to require hospitals to incur a percentage of the 
costs of the training program at the nonhospital site. Our proposal 
also generally incorporates the industry representatives' concept of a 
90 percent threshold, but does not specifically relate it to the 
percentage of time spent by the teaching physician on GME activities, 
as suggested by industry

[[Page 4821]]

representatives. Furthermore, as explained in more detail below in this 
section, in determining whether a hospital has met the 90 percent cost 
threshold, we are proposing to allow hospitals to use certain shortcuts 
or proxies in the place of actual cost data specific to each teaching 
physician at each nonhospital site. However, hospitals would always 
still have the option of calculating the actual teaching physician 
costs and the 90 percent threshold using actual cost data specific to 
all, or some of their applicable teaching physicians. That is, even if 
a hospital chooses to calculate the direct GME costs of a program using 
actual teaching physician time and cost data (as under existing 
regulations) rather than using the proxies, under this proposal, a 
hospital would only be required to pay at least 90 percent of the total 
of the residents' salaries and fringe benefits (including travel and 
lodging where applicable) and the portion of the teaching physicians' 
costs attributable to direct GME for a program at the nonhospital site. 
That is, we are proposing that a hospital would no longer be required 
to pay 100 percent of the residents' salaries and fringe benefits 
(including travel and lodging where applicable), plus the portion of 
the teaching physicians' costs attributable to direct GME at the 
nonhospital site. Instead, we are proposing that a hospital would be 
required to pay for 90 percent of the GME costs of a training program 
in a nonhospital site, and would have a choice between two approaches 
for calculating teaching physician's costs.
    Currently, ``all or substantially all of the costs for the training 
program in the nonhospital setting'' is defined at Sec.  413.75(b) as 
the residents' salaries and fringe benefits (including travel and 
lodging where applicable) and the portion of the cost of teaching 
physicians' salaries and fringe benefits attributable to direct GME. We 
are proposing to define ``all or substantially all of the costs for the 
training program in the nonhospital setting'' under Sec.  413.75(b) 
(prospectively for cost reporting periods beginning on or after July 1, 
2007) to mean at least 90 percent of the total of the costs of the 
residents' salaries and fringe benefits (including travel and lodging 
where applicable) and the portion of the cost of teaching physicians' 
salaries attributable to direct GME. We believe this standard is 
consistent with the statute, in that hospitals would still be required 
to incur substantially all of the costs of training programs in 
nonhospital settings, and we would expect this standard to further 
encourage hospitals to shift training to nonhospital settings as 
intended by the statute. Under this revised definition of ``all or 
substantially all'' of the costs for the training program in the 
nonhospital setting, we would create a 90 percent threshold that 
hospitals must meet in order to count FTE resident time spent training 
at the nonhospital setting for IME and direct GME payment purposes. 
Additionally, under the new definition, hospitals would only have to 
incur a minimum of 90 percent of the costs of the program at a 
nonhospital site to count FTE resident time spent training at the site. 
Furthermore, as is the case with the current definition of ``all or 
substantially all,'' the new definition would not include overhead 
costs.
    We are also soliciting comments on our proposed effective date for 
purposes of both direct GME and IME as to whether this proposal should 
be effective immediately for portions of cost reporting periods 
occurring on or after July 1, 2007, or alternatively, for cost 
reporting periods beginning on or after July 1, 2007. Although an 
effective date of ``portions of cost reporting periods occurring on or 
after July 1, 2007,'' would provide a more immediate response to 
concerns raised by teaching hospitals, we are concerned that 
establishing new policies in the middle of hospitals' cost reporting 
periods presents some logistical challenges, both from an 
implementation and an audit perspective. Therefore, we are proposing 
that the new definition of ``all or substantially all'' of the costs 
would be effective for both direct GME and IME for cost reporting 
periods beginning on or after July 1, 2007, although, as stated above 
in this section, we are specifically soliciting comments on this 
effective date.
    As we explained, rather than adopt the industry's suggested 
standard of 90 percent of the teaching physicians' time spent in 
patient care activities, which we do not believe would be sufficiently 
true to the requirements of the statute, as a compromise, we propose to 
accept that hospitals have incurred ``all or substantially all'' of the 
costs of the program at the nonhospital site (and are therefore 
permitted to count the FTE residents training at the nonhospital site 
for IME and direct GME Medicare payment purposes) if the hospital 
incurs at least 90 percent of the costs of training at that site. Under 
this proposal, a hospital would not have to demonstrate that it has 
incurred the costs of the teaching physician's time if it has otherwise 
incurred at least 90 percent of the nonhospital site training costs by 
paying the residents' salaries and fringe benefits (including travel 
and lodging where applicable) during the time spent training at the 
site. However, if the residents' salaries and fringe benefits 
(including travel and lodging where applicable) account for less than 
90 percent of the costs of training at the nonhospital site, we propose 
the hospital would have to compensate the nonhospital site for its 
teaching physician costs so that the hospital is incurring at least 90 
percent of the training program costs at the nonhospital site. If the 
hospital does not meet the 90 percent threshold by only paying for the 
cost of the residents' salaries and fringe benefits (including travel 
and lodging where applicable), we propose the hospital would have to 
meet the threshold by incurring some portion of the teaching 
physicians' salaries that is attributable to direct GME.
    As previously stated in the Qs&As on the CMS Web site on April 8, 
2005 at http://www.cms.hhs.gov/AcuteInpatientPPS/Downloads/
nonhospQA.pdf (Answer 4), we believe there are typically no 
costs for teaching physician time if the physician's compensation at 
the nonhospital site is based solely and directly on the number of 
patients treated and for which he or she bills, which is the case with 
a solo practitioner. When the solo practitioner is not treating 
patients, he or she is not receiving payment for any other duties at 
the nonhospital site. Therefore, in this instance, there is no cost to 
the nonhospital site for the teaching physician's time. However, in the 
case of a group practice or clinic setting, the physician often 
receives a predetermined payment amount, such as a salary, for his or 
her work at the nonhospital site. This predetermined payment amount 
reflects all of his or her responsibilities at the nonhospital site, 
including treating patients, training residents, and other 
administrative activities (as applicable), and he or she may receive 
that predetermined payment from the nonhospital site regardless of how 
many patients he or she actually treats. The predetermined amount 
implicitly also compensates the physician for supervising residents. A 
portion of this implicit compensation is the cost attributable to 
teaching activities, and, in order to count the residents training at 
that site, the hospital must pay the nonhospital site this amount. 
However, there may be instances in a group practice, where a teaching 
physician is not receiving a form of predetermined compensation for his 
or her work at the nonhospital site.

[[Page 4822]]

For example, three physicians may work in the same office and share 
overhead expenses such as electricity and rent, but otherwise, there is 
no sharing of revenues from patient care activities, and the physicians 
operate as solo practitioners and are not compensated according to some 
predetermined arrangement. In cases such as these, we assume that the 
teaching physician is functioning as a solo practitioner and that 
teaching physician costs for GME training at the nonhospital site are 
zero. Accordingly, this proposal affects members of group practices 
where the teaching physician receives a salary or other form of 
predetermined compensation for his or her work at the nonhospital site. 
However, we note that under our proposal, in the case of solo 
practitioners, hospitals must continue to pay for at least 90 percent 
of the total cost of the residents' salaries and fringe benefits, 
including travel and lodging where applicable.
5. Implementation of a 90 Percent Cost Threshold
    In proposing a new revised definition of ``all or substantially 
all'' of the costs of the program at a nonhospital site, and in 
establishing a 90 percent threshold, there are several variables that 
are important in the methodology for determining the minimum amount 
that a hospital must pay in order to count FTE residents training in a 
nonhospital site. These variables are: teaching physicians' salaries, 
residents' salaries and fringe benefits (including travel and lodging 
where applicable), the number of hours per week that the teaching 
physician spends in direct GME (not billable patient care) activities 
in the nonhospital site, and the number of hours that a nonhospital 
site is open each week. To provide the reader with a context for the 
new methodology that we are proposing, we will first explain the 
methodology briefly, provide two examples, and then proceed to an in-
depth discussion of each variable (see section XII.B.5.b. of the 
preamble of this proposed rule).
a. Methodology
    One of the primary complaints voiced by the hospital industry over 
the past several years is that our policy requiring hospitals to 
determine the portion of the teaching physician cost attributable to 
direct GME in the nonhospital site results in an untenable 
documentation burden since many physicians are reluctant to disclose 
their salary information to the hospitals. One solution to this problem 
suggested by the hospital industry is to use national average physician 
salary information as a proxy for teaching physician-specific salaries 
in the determination of the total cost of the program at a nonhospital 
site. In addition, since the cost of the teaching physician time that 
the hospital must incur is based on the amount of time the teaching 
physician spends in nonpatient care GME activities, the hospital 
industry has been concerned that determining this GME time could 
require burdensome time studies. Therefore, we are proposing to adopt 
an alternative methodology that hospitals may choose to use, instead of 
actual costs, to calculate teaching physician costs in nonhospital 
sites. Using this alternative methodology, to facilitate a less 
burdensome way for a hospital to calculate the teaching physician costs 
associated with GME training at the nonhospital site, we propose to 
allow hospitals to use 3 hours per week as a presumptive standard 
number of hours that a teaching physician spends in nonpatient care GME 
activities at a particular nonhospital site. To determine the 
percentage of the average salary associated with the 3 hours the 
teaching physician is presumed to spend in nonpatient care GME 
activities, we propose that a hospital would divide 3 hours by the 
number of hours the nonhospital site is open each week. Next, we 
propose that the hospital would multiply this percentage of time spent 
in nonpatient care GME activities by the national average salary of 
that teaching physician's specialty to calculate the cost of the 
teaching physician's direct GME time. The cost of the teaching 
physician's direct GME time would then be added to the costs of the 
salaries and fringe benefits (including travel and lodging expenses, 
where applicable) of the FTE resident(s) rotating in that program to 
that nonhospital site to determine the GME costs for that program at 
that site. (If FTE resident(s) are not rotating to a particular 
nonhospital site throughout a whole year, then the national average 
salary of the teaching physician would be prorated accordingly. The 
cost of the residents' salaries and fringe benefits (including travel 
and lodging where applicable) would already be reflective of an FTE 
count). We propose that the hospital must pay at least 90 percent of 
these total GME costs for the program at that nonhospital site in order 
to count the resident(s) training there for direct GME and IME 
purposes. If the hospital is already paying all, or even a portion of 
the residents' salaries and fringe benefits (including travel and 
lodging where applicable), and if the amount that the hospital is 
paying for the residents' salaries and fringe benefits (including 
travel and lodging where applicable) is equal to at least 90 percent of 
the GME costs at the nonhospital site (that is, the 90 percent 
threshold), then the hospital would be considered to be incurring ``all 
or substantially all'' of the costs, and need not incur an additional 
amount for teaching physician compensation to be permitted to include 
the FTE residents training in the nonhospital site in its FTE count for 
purposes of direct GME and IME payments. However, if the costs of the 
residents' salaries and fringe benefits (including travel and lodging 
where applicable) does not equal at least 90 percent of the GME costs 
of the training program at the nonhospital site, then the hospital must 
incur an additional amount for teaching physician costs based on the 
national average salary information until it is incurring at least 90 
percent of the GME costs for that nonhospital site program. That is, 
under the proposed alternative definition of ``all or substantially 
all'' of the costs, a hospital is required to incur at least 90 percent 
of the total GME costs for a particular program at a particular 
nonhospital site. The GME costs of a particular program at a particular 
nonhospital site consist of FTE residents' salaries and fringe benefits 
(including travel and lodging costs where applicable), and the portion 
of teaching physician compensation (which may be based on national 
average survey data) attributable to direct GME. As will be explained 
in more detail below in this section, the hospital always has the 
option of documenting the actual teaching physician's cost using actual 
time or salary information to pay at least 90 percent of the total 
costs of the program at the nonhospital site. In summary, the formula 
for determining the 90 percent threshold, or the minimum amount that a 
hospital must pay for the GME costs of a particular program at a 
particular nonhospital site is:

0.90 x [(sum of each FTE resident's salary + fringe benefits (including 
travel and lodging where applicable)) plus the portion of the teaching 
physician's compensation attributable to direct GME activities.]

    The portion of the teaching physician's compensation attributable 
to direct GME activities may be calculated as follows:

(3/number of hours nonhospital site is open per week) x (national 
average salary for each teaching physician*)

    * The number of teaching physicians included in this formula is 
subject to a 1:1

[[Page 4823]]

resident to teaching physician limit, as explained below in this 
section.

    The following are two examples of the proposed alternative 
methodology:

    Example 1: Assume one teaching physician is supervising one FTE 
resident in a nonhospital site for 1 residency year. The national 
average published salary amount for that teaching physician's 
specialty is $120,000, and he works in a clinic that is open 60 
hours per week. Using the standard of 3 hours spent in GME 
activities per week, the teaching physician spends 5 percent of his 
time in GME activities (that is, 3/60 = 0.05 or 5 percent). To 
determine the cost of the teaching physician's time, the hospital 
may make the following calculation: $120,000 x 0.05 = $6,000. This 
teaching physician's cost is added to the resident's salary and 
fringe benefits to calculate the cost of the training at the 
nonhospital site in the following manner: $6,000 [cost of one 
teaching physician] + $60,000 [actual cost of the FTE residents' 
salary & fringe benefits] = $66,000. To meet the proposed new 
definition of ``all or substantially all,'' the hospital would be 
required to pay at least 90 percent of the costs of the training 
program at the nonhospital site, which in this example equals 
$59,400 (that is, 0.90 x $66,000). Since in this case the cost of 
one FTE resident's salary and fringe benefits is $60,000, the 
hospital could reach the 90 percent cost threshold by simply 
incurring the resident's salary and fringe benefits during training 
at the nonhospital site.
    Example 2: Assume one teaching physician is supervising one FTE 
resident in a nonhospital site for an entire residency year. The 
national average published salary amount for that teaching 
physician's specialty is $200,000, and she works in a clinic that is 
open 40 hours per week. Using the standard of 3 hours spent in GME 
activities per week, the teaching physician spends 7.5 percent of 
her time in GME activities (that is, 3/40 = 0.075 or 7.5 percent). 
To determine the cost of the teaching physician's time, the hospital 
may make the following calculation: $200,000 x 0.075 = $15,000. This 
teaching physician's cost is added to the resident's salary and 
fringe benefits to calculate the cost of the training at the 
nonhospital site in the following manner: $15,000 [cost of one 
teaching physician] + $60,000 [actual cost of the FTE residents' 
salary and fringe benefits] = $75,000. To meet the proposed new 
definition of ``all or substantially all,'' the hospital would be 
required to incur at least 90 percent of the costs of the training 
at the nonhospital site, which in this example equals $67,500 (that 
is, 0.90 x $75,000). Since in this case the cost of one FTE 
resident's salary and fringe benefits is $60,000, the hospital has 
not met the 90 percent threshold by only incurring the resident's 
salary and fringe benefits. The hospital would have to incur at 
least an additional $7,500 of the cost (that is, $67,500 - $60,000) 
to reach the 90 percent threshold to be permitted to count the FTE 
resident for IME and direct GME purposes. Alternatively, the 
hospital could document the actual teaching physician cost using 
time or salary information specific to that teaching physician at 
that site, and use that amount to calculate 90 percent of the actual 
training program costs.
b. Explanation of Variables
    In the following section, we discuss each variable in the proposed 
methodology for determining the cost that a hospital must incur in 
order to count FTE residents training in nonhospital sites, and explain 
our rationale for proposing to employ each of these variables. As 
stated previously, the proposed variables are: teaching physicians' 
salaries; residents' salaries and fringe benefits (including travel and 
lodging where applicable); the number of hours per week that the 
teaching physician spends in nonpatient care GME activities in a 
nonhospital site; and the number of hours that a nonhospital site is 
open each week.
(1) National Average Physician Salary Data by Specialty
    One of the foremost objections voiced by the hospital industry to 
our current policy is the documentation burden associated with 
requesting salary information from individual teaching physicians in 
nonhospital sites. Hospitals believe that many teaching physicians in 
nonhospital sites are reluctant to disclose their personal salary 
information, yet this disclosure is necessary to enable the hospital to 
determine and pay the nonhospital site for the actual costs of the GME 
program in accordance with our current regulations. One suggestion 
mentioned by the hospital industry as an alternative to obtaining 
individual teaching physician-specific salary information is to allow 
hospitals to use national average salary survey data by specialty. We 
understand that there are a number of organizations that conduct annual 
national surveys on physician compensation. We are proposing to allow 
hospitals to use physician compensation survey data as a proxy to 
determine the teaching physician costs associated with GME in a program 
at a particular nonhospital site. For example, one such national 
organization that collects data on physician compensation that we are 
considering using is the American Medical Group Association (AMGA). 
AMGA's 2006 Medical Group Compensation and Financial Survey was 
performed under contract by RSM McGladrey. Founded in 1950, AMGA 
(formerly the American Association of Medical Clinics) is a trade 
association which dedicates itself to making the ``* * * multi-
specialty medical group model the preferred delivery system for 
patient-centered, affordable, quality medical care in America,'' and 
represents 283 medical groups that include an average of 272 
physicians. AMGA's use of the term ``medical group'' is based on the 
American Medical Association's definition of ``group practice,'' which 
is defined as a group that ``includes the provision of health care 
services by three or more physicians who are formally organized as a 
legal entity governed by physicians in which business, clinical, and 
administrative facilities, records and personnel are shared and the 
practice goals, objectives, and values are commonly defined. Income 
from medical services provided by the group is treated as receipts of 
the group and is distributed according to some prearranged plan.'' AMGA 
has been performing surveys like the 2006 Medical Group Compensation 
and Financial Survey since 1986. The 2006 survey was sent to over 2,600 
medical groups, including medical groups that are not members of AMGA. 
To give readers an idea of the average compensation amounts in the 
survey, we have randomly selected 10 specialties included in the 2006 
survey and listed their compensation information in Table 7. If we 
adopt the AMGA survey for use to determine the cost of teaching 
physicians' time attributable to GME, we would make the salary 
information for all specialties accessible to hospitals on our Web site 
and would provide it in a manner similar to Table 7.

                 Table 7.--Physician Salary Information
------------------------------------------------------------------------
                                            Mean salary    Median salary
               *Specialty                  (in dollars)    (in dollars)
------------------------------------------------------------------------
Cardiology..............................        $411,916        $363,081
Dermatology.............................         336,531         306,935
Family Medicine.........................         187,891         178,366
Gynecology and Obstetrics...............         286,418         271,273
Internal Medicine.......................         192,264         183,840

[[Page 4824]]

 
Ophthalmology...........................         307,044         281,112
Pediatrics & Adolescent: General........         191,122         182,186
Physical Medicine and Rehabilitation....         208,442         207,004
Diagnostic Radiology: Non-Interventional         415,521         400,000
General Surgery.........................         331,970        310,736
------------------------------------------------------------------------
*This information was obtained from the 2006 Medical Group Compensation
  and Financial Survey published by the American Medical Group
  Association[supreg] (AMGA). For further information, visit AMGA's Web
  site at http://www.amga.org/.

    We are soliciting comments as to whether we should use the mean or 
median compensation amounts for purposes of determining the teaching 
physicians' cost. In addition, although we recognize that there are 
generally geographic variations in salary amounts within each specialty 
(and, although not included in Table 7, AMGA does provide some detail 
of salaries by geographic area), we are proposing to use the single 
national average or median salary amount for each specialty, rather 
than consider geographic variations, because we would like to simplify 
and streamline the proposed methodology for determining the GME costs 
in nonhospital sites as much as possible. We are specifically 
soliciting comments about whether AMGA's salary information should be 
used, and if not, which other physician compensation survey (or 
possible mix of surveys) would be more appropriate for this purpose, 
and whether we should consider additional factors such as geographic 
variation in physician salaries within each specialty. We note that we 
believe it is important for the organization providing specialty-
specific physician compensation information for this purpose to be one 
that is nationally recognized as an authoritative source. Additionally, 
we believe the data should contain compensation amounts for the fullest 
range possible of specialties and subspecialties, and should be issued 
annually so that hospitals will always have the most current data to 
use in determining the teaching physician costs in nonhospital sites. 
In addition, we would prefer a survey that is available to the public 
at no cost. (We understand that a number of these surveys are 
proprietary.) We are also soliciting comments as to how to make the 
survey data available in the most efficient possible manner.
    Regardless of the survey source that we ultimately use, we are 
proposing that hospitals would use the most recent survey data 
available as of the beginning of the hospital's particular cost 
reporting year. For example--
     If residents are rotating to a particular nonhospital site 
to receive training in family practice in a hospital's cost reporting 
year beginning January 1, 2008, then the hospital would use the family 
practice average salary from the most recently issued survey (in the 
case of AMGA, 2007) as the salary cost of that teaching physician, even 
though that teaching physician may in fact earn more or less than that 
national average salary amount.
     If the teaching physician is a neurologist providing 
residents with neurology training in a nonhospital site in a hospital's 
cost reporting year beginning July 1, 2007, then the hospital would use 
the neurology average salary from most recently issued survey (in the 
case of AMGA, 2006, since AMGA's surveys are typically released in 
August) as the salary cost of that teaching physician.

Determining Teaching Physicians' Cost

    In determining the teaching physicians' cost, the specialty of the 
teaching physician is the relevant criterion, not the specialty of the 
residents that the teaching physician is training in the nonhospital 
site. Generally, we believe the specialty of the teaching physician 
will be self-evident, and the hospital can easily locate the national 
average salary information for that teaching physician's specialty on 
the survey (for example, if family practice residents are rotating to a 
dermatology practice to receive training in dermatology, then the 
national average salary for dermatologists would be used from the 
survey). However, it is possible that the teaching physician is highly 
specialized and the average compensation for his or her subspecialty is 
not listed in the survey we decide to use. In such a case, we are 
proposing that the hospital should use the immediately less-specialized 
form of that specialty applicable to that teaching physician (or the 
hospital may use the physician's actual salary information). For 
example, if residents are receiving training from a forensic 
pathologist, and the national average salary for the subspecialty of 
forensic pathology is not included in the physician compensation 
survey, then we are proposing that the hospital should instead use the 
national average salary for the specialty of pathology to determine the 
cost of that teaching physician. We believe this is the simplest method 
of assigning a national average physician compensation amount in the 
instance where the teaching physician's actual subspecialty is not 
included in the survey. However, we are soliciting comments as to 
whether it is possible or appropriate to use survey data from other 
sources in the event that data is not available from the particular 
survey source.
    In addition, although it may not be a common occurrence, it is 
possible that residents could be receiving training in a nonhospital 
site from a teaching physician that is board certified in more than one 
specialty, but the residents are only receiving training in one of the 
specialties in which the physician is board certified. In this case, we 
are proposing that the national average salary that should be used to 
determine the teaching physician's cost should be the one for the 
specialty in which the teaching physician is training the residents. 
For example, if residents are being supervised by a cardiologist who is 
board certified in internal medicine and cardiology, but the residents 
are training with him or her specifically to learn internal medicine, 
then we are proposing that the hospital should use the national average 
salary for internal medicine, and not cardiology, to determine the 
teaching cost of that physician. That is, in instances where the 
residents are receiving training at a nonhospital site from a teaching 
physician that is board certified in more than one specialty, and it is 
unclear which specialty to use for purposes of assigning a national 
average salary to that physician, we are proposing that the question 
for the hospital to ask is, why are the residents training with that 
physician? If the answer is, ``to receive

[[Page 4825]]

training in Specialty X,'' then the national average salary amount for 
Specialty X should be used to determine the teaching physician's cost. 
If the answer is, ``to receive training in Specialty Y,'' then the 
national average salary amount for Specialty Y should be used to 
determine the teaching physician's cost, regardless of the specific 
board certification that the teaching physician has actually received. 
In general, the hospital, with assistance from the GME Program Director 
as necessary, should be able to document for the Medicare contractor 
the specialty in which the residents are receiving training at the 
nonhospital site, and the national average physician compensation 
amount for that specialty used in paying ``all or substantially all'' 
of the costs, as defined in this proposed rule.
    Multiple Teaching Physicians and Residents: 1:1 Resident to 
Teaching Physician Ratio
    We understand that it is not unusual for several residents in the 
same program to rotate to a particular nonhospital site at the same 
time, and be supervised by one teaching physician, or for residents to 
be supervised by several teaching physicians during their time at that 
nonhospital site. In determining the total costs of the training 
program at the nonhospital site, it is necessary to consider all of the 
residents' salaries and fringe benefits (including travel and lodging 
where applicable), and the teaching physicians' national average 
salaries. However, to maintain administrative simplicity, we are 
proposing to allow hospitals to apply a maximum of a 1:1 resident-to-
teaching physician ratio ``limit'' in determining the total GME costs 
applicable to a program at a nonhospital site. For example, if at the 
nonhospital site there are two teaching physicians and one FTE 
resident, the hospital may determine 90 percent of the total costs of 
the program using a 1:1 resident-to-teaching physician ratio, not a 1:2 
resident-to-teaching physician ratio. The 90 percent threshold would be 
based on the total cost of the one FTE resident (salary and fringe 
benefits, and travel and lodging where applicable) and one teaching 
physician (national average salary for the specialty multiplied by the 
percentage of time spent in nonpatient care GME activities). Similarly, 
if a hospital rotated 3 FTE residents in the same program to a 
particular nonhospital site with 7 physicians, unless the hospital 
documents otherwise, we would assume that all 7 physicians supervise 
the residents at some point during the training, but, for purposes of 
determining the 90 percent threshold, we propose to assume that there 
are only 3 FTE residents being supervised by 3 teaching physicians. 
Accordingly, the 90 percent threshold would be based on the total cost 
of the 3 FTE residents' salaries and fringe benefits (including travel 
and lodging where applicable) and 3 teaching physicians (national 
average salaries for the specialties multiplied by the percentage of 
time spent in nonpatient care GME activities). (In addition, we note 
that the 1:1 limit may be applied to FTE fractions, as well. That is, 
if in the preceding example, 3.5 FTE residents were being supervised by 
7 physicians, the 90 percent threshold would be determined based on the 
costs associated with a resident-to-teaching physician ratio of 
3.5:3.5.)
    In the case of multiple teaching physicians, we must also consider 
that a particular nonhospital site may be staffed by physicians in 
different specialties. For example, an orthopedics practice may include 
orthopedists and radiologists. In this case, we would still maintain 
the 1:1 resident-to-teaching physician limit, even if the teaching 
physicians are in different specialties, unless the hospital can 
document that the number of physicians actually teaching the residents 
is less than the number of FTE residents training at that nonhospital 
site. Once the number of teaching physicians is established, we are 
proposing that the hospital would determine the national average salary 
for each of those teaching physicians from the national survey data, 
and then calculate the average national salary of the mix of physician 
specialties in the practice to be used in computing the 90 percent 
threshold. For example, assume that 3 FTE residents are rotating to an 
orthopedic surgery practice staffed by a total of 7 physicians; 4 are 
orthopedic surgeons, and 3 are diagnostic radiologists. Again, unless 
the hospital documents otherwise, we would assume that all 7 physicians 
supervise the residents at some point during their rotation to this 
practice. First, the hospital would access the national average salary 
for orthopedic surgeons (assume $400,000), and the national average 
salaries for diagnostic radiologists (assume $412,000). Then, the 
hospital would calculate the average salary for these physicians as 
follows: [($400,000 x 4) + ($412,000 x 3)]/7 = $405,143. Next, the 1:1 
resident-to-teaching physician ratio would be applied, such that for 
purposes of determining the 90 percent threshold, there would be 3 FTE 
residents and 3 teaching physicians. Since the 3 teaching physicians 
are not in the same specialty, the hospital would multiply the average 
salary cost of $405,143 by 3 to get the total teaching physician 
salaries for the training program at that site ($405,143 x 3 = 
$1,215,429). The hospital would then multiply $1,215,429 by the 
percentage of time spent by the teaching physicians in nonpatient care 
GME activities (that percentage is 3 hours divided by the number of 
hours the practice is open during a week) to determine the teaching 
physician GME cost for the training program at that site. This teaching 
physician cost is then added to the salaries and fringe benefits 
(including travel and lodging where applicable) of the 3 FTE residents 
to determine the GME cost of the program at that practice, and the 
hospital must ensure that it incurs at least 90 percent of that GME 
cost to count the 3 FTE residents training at the nonhospital site.
    We note that, as we indicated above in this section, if there are 
several physicians in a nonhospital site, we would assume that they all 
supervise the residents at some point during the residents' training. 
However, it may be that in fact only some of the physicians actually 
supervise the residents, while other physicians are not involved in the 
training program at all. The hospital may wish to document that only 
certain physicians are involved in the training program (in order to 
more accurately represent the structure and costs of the training 
program in a particular nonhospital site). Such documentation would 
increase the number of residents relative to teaching physicians that 
is used to calculate the teaching physician costs. That is, using the 
example above where the resident-to-teaching physician limit was 
presumed to be 3:3, since there were actually 3 FTE residents and 7 
physicians, if the hospital can document that only 2 physicians 
supervised the residents (and the other 5 physicians were not involved 
in the GME program at all), then the resident-to-teaching physician 
ratio would be 3:2. As a result, the hospital might be required to 
incur less teaching physician costs, if any, to meet the 90 percent 
threshold.
(2) Residents' Salaries and Fringe Benefits
    The second variable in our proposed methodology for determining the 
costs of a program at a nonhospital site is the salaries and fringe 
benefits (including travel and lodging where applicable) of the FTE 
residents that are rotating to a particular nonhospital site. We 
understand that since the salaries and

[[Page 4826]]

fringe benefits (including travel and lodging where applicable) of most 
residents are already paid by hospitals (either directly, or by 
reimbursing another entity such as a medical school), the portion of 
the actual cost of the residents attributable to training in the 
nonhospital setting can be easily identified and documented by a 
hospital. Therefore, as under existing regulations, in determining the 
90 percent threshold for a particular program at a specific nonhospital 
site, the hospital must use the actual cost of each FTE resident's 
salary and fringe benefits (including travel and lodging where 
applicable). In addition, the cost of the residents will vary by 
specialty and by program year. Furthermore, as with current policy, the 
total residents' costs will be based on the FTE number rotating to a 
particular nonhospital site in a cost reporting period, not the number 
of individuals actually training in a nonhospital site.
(3) The Number of Hours Spent in Nonpatient Care GME Activities in a 
Week and the Number of Hours That the Nonhospital Site Is Open in a 
Week
    The third variable used in the determination of the costs of a 
training program at a nonhospital site is the amount of time that the 
teaching physician(s) spends on direct GME (nonpatient care) activities 
in a week. As we first explained in the July 31, 1998 Federal Register 
(63 FR 40987), and more recently in the August 8, 2005 Qs&As posted on 
the CMS Web site at http://www.cms.hhs.gov/AcuteInpatientPPS/Downloads/
nonhospQA.pdf, determination of the teaching physician costs to the 
nonhospital site is dependent upon the teaching physician's salary and 
the percentage of time he or she devotes to activities related to non-
billable GME activities at the nonhospital site (such as conferences, 
practice management, lectures, and administrative activities like 
resident evaluations). Hospitals and teaching physicians have protested 
that documenting the percentage of time that teaching physicians spend 
on activities relating to nonpatient care GME activities at the 
nonhospital site is an onerous and impractical task. In an effort to 
eliminate the documentation burden on physicians of keeping track of 
the amount of time they spend in nonpatient care GME activities in the 
nonhospital site, rather than require teaching physicians to estimate 
the number of hours per week that they spend in such activities with or 
on behalf of the residents, we are proposing an alternative option that 
hospitals may choose to use to determine the percentage of the teaching 
physician's time that is spent in nonpatient care GME activities. This 
option is an administrative shortcut or a proxy that we are proposing, 
rather than continuing to require in all cases that the hospital must 
document and pay for the actual costs of a training program at a 
nonhospital site. However, a hospital always has the option of 
documenting and paying for at least 90 percent of the costs of a 
program at a nonhospital site using the teaching physician's actual 
salary and information on the time spent in nonpatient care GME 
activities.
    Under the proposed proxy methodology, we would apply a presumed 
standard number of hours spent by teaching physicians in nonpatient 
care GME activities in every nonhospital site. Specifically, we are 
proposing to use a standard of 3 hours per week spent in nonpatient 
care GME activities by teaching physicians. We propose that the 3 hour 
standard would be used in all cases in the formula for determining the 
teaching physician costs at all nonhospital sites, regardless of the 
specialty of the residents or the number of teaching physicians or 
residents training at that nonhospital site. Although some hospital 
industry representatives have stated that the amount of time spent by 
teaching physicians in nonpatient care GME activities in nonhospital 
sites is ``de minimus,'' and, therefore, there is typically little if 
any teaching cost to the nonhospital site, we believe there is also 
evidence indicating that in many cases the teaching physician is 
spending a significant amount of time with or on behalf of the 
residents in nonpatient care GME activities. We believe the standard of 
3 hours of nonpatient care GME activities per week is a reasonable 
proxy based on data collected from surveys conducted by the Association 
of American Medical Colleges (AAMC), the American Osteopathic 
Association (AOA), and the Academic Family Medicine Advocacy Alliance 
(AFMAA), in addition to information compiled from our own informal 
surveys of teaching physicians.
    In September 2005, in response to a request by CMS, the AFMAA, AOA, 
and AAMC conducted informal surveys to determine the amount of time 
spent in nonpatient care activities by teaching physicians in 
nonhospital sites. In the survey results shared with CMS by these 
associations, we received a range of hours for the amount of teaching 
physician time spent per week in nonpatient care GME activities at the 
nonhospital site. Such nonpatient care GME time included time spent by 
the teaching physician in training activities when the patient was not 
present and time spent in administrative activities related to the GME 
program. The surveys showed means ranging from 1.1 to 4.0 hours per 
week and medians of 1.5 to 4.0 hours per week for time spent on 
residency training when patients were not present. The surveys also 
showed means ranging from 1.6 to 4.7 hours per week and medians of 0 to 
2 hours per week for time spent on administrative activities related to 
residency training at the nonhospital site. Given the range of survey 
results, we believe that 3 hours per week serves as a reasonable number 
to use as a shortcut or a proxy for determining teaching physician time 
spent in nonpatient care GME activities at the nonhospital site. As 
previously stated, hospitals always still have the option of 
calculating teaching physician costs and the 90 percent cost threshold 
using actual data (as under current regulations) specific to the number 
of hours the teaching physician spends per week on GME activities at 
the nonhospital site. For example, if a hospital can document that a 
teaching physician actually spends 1.5 hours per week on GME activities 
at the nonhospital site, then the hospital may use 1.5 hours per week 
in calculating the teaching physician cost and the 90 percent cost 
threshold.
    We are proposing to use the standard of 3 hours of nonpatient care 
activities per week as the proxy regardless of the number of FTE 
residents the teaching physician is supervising because we believe that 
when the number of FTE residents at a nonhospital site increases, the 
teaching physician time associated with those FTE residents in many 
instances will increase by only a small multiple. For example, a 
teaching physician would provide a lecture to the residents together, 
rather than separately lecturing each FTE resident training at the 
nonhospital site. Accordingly, the time spent by the teaching physician 
in nonpatient care activities may increase only slightly with each 
additional FTE resident being supervised.
    While we are proposing to use the standard number of hours spent by 
teaching physician(s) in nonpatient care direct GME activities across 
all training occurring at all nonhospital sites (that is, 3 hours per 
week), we are proposing to introduce a fourth variable in the 
determination of the cost of a training program in a nonhospital site 
that will vary depending on the specific nonhospital site. This fourth 
variable is the number of hours that a nonhospital site is open each 
week. Since only a percentage of the teaching physician's

[[Page 4827]]

salary is attributable to direct GME activities, and that percentage is 
based on time he or she devotes to activities related to non-billable 
GME activities at the nonhospital site, we are proposing to determine 
this percentage by dividing the standard number of hours spent in 
nonpatient care GME activities by the number of hours the specific 
nonhospital site is open each week. We are proposing that the numerator 
will always be 3 hours, and the denominator will vary depending on the 
nonhospital site. For example, if FTE residents rotate throughout the 
year to a nonhospital site that is open 40 hours per week, then the 
percentage of time spent by the teaching physician(s) in nonpatient 
care GME activities throughout the year at that site is 3/40 = 0.075 or 
7.5 percent. (If FTE residents rotate to that nonhospital site for only 
a portion of a year, then the ratio of 3/40 would be further multiplied 
by the percentage of the year that the FTE residents train there. For 
example, if the FTE residents only rotate to this nonhospital site for 
3 months of the year, then the percentage of time that the teaching 
physician(s) spends on nonpatient care GME activities at that site 
equals (3/40 x 0.25 = 0.019 or 1.9 percent). Similarly, if FTE 
residents rotate throughout the year to a nonhospital site that is open 
50 hours per week, then the percentage of time spent by the teaching 
physician(s) in nonpatient care direct GME activities throughout the 
year is 3/50 = 0.06 or 6 percent. We recognize that the teaching 
physician(s) may not spend 100 percent of his or her time in that 
nonhospital site. In fact, many teaching physicians spend some of their 
week working in a hospital or other facilities. However, we believe 
that deriving the true amount of time spent by each teaching physician 
in each nonhospital site in nonpatient care GME activities would 
involve the imposition of another form of the documentation burden that 
the hospital industry and teaching physicians have found onerous up to 
this point. This proposed methodology eliminates the need for any time 
studies and it is easy to gather the information needed.
    We also acknowledge that this proposal to use the number of hours 
that a particular nonhospital site is open as a proxy in the 
denominator for determining the percentage of time spent by the 
teaching physician(s) in nonpatient care GME activities could, in some 
extreme instances, result in an unusually high percentage of teaching 
time, which, in turn, would result in a determination of unusually high 
teaching costs. This is so because, since 3 hours is a constant in the 
numerator, the fewer the number of hours the clinic is open (the 
denominator), the greater the calculated percentage of time spent by 
the teaching physician in nonpatient care GME activities. To use an 
extreme example, if a clinic is only open 10 hours a week, then 3/10, 
or 30 percent of the national average salary for the teaching 
physician's specialty would represent the teaching physician's cost 
that would be used to determine 90 percent of the costs of the program 
at the clinic. However, we believe that, for most nonhospital training 
situations, this proposal to use the 3 hour standard and the number of 
hours the nonhospital site is open per week is a reasonable alternative 
to the current procedures for determining the actual teaching 
physician's cost because these proxies are easily obtainable, discrete 
numbers that do not necessitate any time studies. Nevertheless, we are 
soliciting comments on alternative proxies that might be appropriate to 
use in the place of the ratio of 3 hours to the number of hours a 
nonhospital site is open per week. We also note that in the event that 
this proposed methodology for calculating teaching physician costs in a 
particular nonhospital site results in an unrealistic amount, we 
reiterate that a hospital always has the option of determining and 
paying at least 90 percent of the GME costs using actual physician 
salary and teaching time information, for all, or some of its training 
programs occurring in nonhospital settings. In fact, we are proposing 
that a hospital may choose to use a combination of actual information 
and proxy information for determining the teaching physician cost. For 
example, a hospital may choose to use actual physician salary 
information instead of the national average survey data, but use the 3 
hour standard and the number of hours the nonhospital site is open per 
week to determine the percentage of time spent on teaching activities, 
or vice versa. Furthermore, we reiterate that under the proposed new 
definition of ``all or substantially all,'' even if a hospital chooses 
to document the teaching physician cost using actual teaching 
physician-specific information, the hospital need only incur 90 percent 
of the residents' salaries and fringe benefits (including travel and 
lodging where applicable), and the portion of the teaching physicians' 
salaries attributable to direct GME, and not 100 percent of those 
costs.
    Under our proposal, 90 percent of the GME costs for a particular 
program at a particular nonhospital site would be the minimum amount 
that a hospital must pay to count the FTE resident(s) training at that 
site for direct GME and IME purposes. If the hospital is already paying 
the resident's salaries and fringe benefits (including travel and 
lodging where applicable), and if the costs of the resident's salaries 
and fringe benefits are equal to at least 90 percent of the total GME 
costs at the nonhospital site (that is, the 90 percent threshold), then 
the hospital is paying ``all or substantially all'' of the costs in 
accordance with our proposed definition, and need not pay an additional 
amount for teaching physician compensation in order to count the FTE 
residents. However, if the hospital is paying less than 90 percent of 
the costs of the training program at the nonhospital site, then the 
hospital must pay an additional amount toward the teaching physician 
costs until it is paying at least 90 percent of the GME costs for that 
program. We believe our proposal is relatively simple, easy to 
administer, and eliminates the documentation burdens cited by the 
industry as being associated with the current policy. However, we note 
again that even under our proposal, a hospital is not precluded from 
choosing to calculate and pay 90 percent of the teaching costs of a 
program in a nonhospital site in accordance with the existing policy 
requirements. That is, the hospital may still choose to document the 
actual teaching physician cost using actual time and salary information 
from the teaching physician(s) to determine what the true direct GME 
costs are at that nonhospital site. Once the hospital calculates the 
actual direct GME costs, we propose that it would only be required to 
pay at least 90 percent of the actual direct GME costs, consistent with 
our proposed definition of ``all or substantially all of the costs for 
the training program in the nonhospital setting.''
    The following is an additional example of the application of the 
proposed methodology:

    Example:  For the July 2008 through June 2009 academic year, a 
hospital with a family practice program sends 3 FTE residents (in 
different program years) to train at the Family Medicine Center 
(FMC), a nonhospital site. The hospital's cost reporting period 
began on January 1, 2008. The FMC is staffed by 5 physicians, all of 
whom supervise the residents at some point during the year. Four of 
the physicians are family practitioners, and 1 physician is a 
psychiatrist. The FMC is open for 50 hours per week. To determine 
the cost of the teaching physicians, the hospital refers to the most 
recent national average salary amounts on the national survey 
published prior to January 1, 2008, which is the 2007 survey. Assume 
that the national average published salary amount for family 
practice is $180,000, and the national

[[Page 4828]]

average published salary amount for psychiatry is $187,000. Since 
there are multiple physicians in different specialties (absent 
specific documentation provided by the hospital), the average salary 
of one FMC physician is calculated as follows: [($180,000 x 4 family 
practice physicians) + ($187,000 x 1 psychiatrist)]/5 = $181,400. 
Since the residents are on the payroll of the hospital, the hospital 
knows that the total actual cost of the 3 FTE residents' salaries 
and fringe benefits (including travel and lodging, if applicable) is 
$182,000. After applying the 1:1 resident-to-teaching physician 
limit, there are 3 FTE residents to 3 teaching physicians (again, 
absent specific documentation provided by the hospital). Thus, the 
GME cost of the 3 teaching physicians is calculated as follows: 
($181,400 x 3) x (3 hours/50 hours) = $32,652. This teaching 
physicians' cost of $32,652 is added to the residents' cost of 
$182,000 to arrive at the total cost of the training program at the 
nonhospital site of $214,652. To meet the proposed definition of 
``all or substantially all,'' the hospital would be required to pay 
at least 90 percent of the costs of the training program at the 
nonhospital site, which in this example equals $193,187 (that is, 
0.90 x $214,652). Since in this case the cost of the 3 FTE 
residents' salaries and fringe benefits is $182,000, the hospital 
would not reach the 90 percent cost threshold by simply incurring 
the costs associated with the residents. The hospital must pay at 
least an additional $11,187 (that is, $193,187-$182,000) to meet the 
90 percent threshold and satisfy the requirement to pay ``all or 
substantially all'' of the costs of the family practice program at 
the FMC.

C. Other Issues To Be Considered

    Although we are proposing a revised standard for a hospital to 
incur ``all or substantially all of the costs for the training program 
in the nonhospital setting'' in order to count FTE residents training 
in nonhospital sites, the other existing regulations regarding 
nonhospital sites would still generally apply, but would require some 
modification. Under the existing regulations at Sec.  413.78(e), a 
hospital is permitted to count residents training in nonhospital sites 
only if the residents spend their time in patient care activities, and 
the hospital must comply with either of the following: (a) It must pay 
all or substantially all of the costs of the training program in the 
nonhospital site by the end of the third month following the month in 
which the training in the nonhospital site occurred; or (b) it must 
have a written agreement with the nonhospital site that states that the 
hospital will incur the cost of the resident's salary and fringe 
benefits while the resident is training in the nonhospital site and the 
hospital is providing reasonable compensation to the nonhospital site 
for supervisory teaching activities. The written agreement must 
indicate the compensation the hospital is providing to the nonhospital 
site for supervisory teaching activities. We are proposing to add a new 
Sec.  413.78(f) for cost reporting periods beginning on or after July 
1, 2007, to reflect the revised definition of ``all or substantially 
all of the costs for the training program in the nonhospital setting.'' 
First, if a hospital chooses to make concurrent payments; that is, pay 
the training costs by the end of the third month following the month in 
which the training occurred, then we propose that the hospital must be 
able to document for audit purposes that the concurrent payments it 
makes reflects ``all or substantially all'' of the costs, in accordance 
with the new proposed definition at Sec.  413.75(b).
    Alternatively, if the hospital chooses to maintain a written 
agreement with the nonhospital site (which, we note, must be in place 
before the hospital may begin to count residents training at a 
nonhospital site), we are proposing that the new Sec.  413.78(f) would 
state that the written agreement must indicate that the hospital will 
incur at least 90 percent of the total of the costs of the resident's 
salary and fringe benefits (including travel and lodging where 
applicable) while the resident is training in the nonhospital site and 
the portion of the cost of the teaching physician's salary attributable 
to direct GME. We are proposing that the written agreement should 
specify the total compensation amount the hospital will incur to the 
nonhospital site to meet the 90 percent ``all or substantially all'' 
threshold, and whether this amount reflects only residents' salaries 
and fringe benefits (including travel and lodging where applicable), or 
reflects an amount for teaching physician compensation as well. We 
believe the written agreement should specify the total amount of 
nonhospital site training costs the hospital will incur and specify 
what costs are included in that amount because the hospital would need 
to determine up front the amount it must pay to the nonhospital site in 
order to meet the 90 percent threshold and incur ``all or substantially 
all'' of the cost in accordance with our proposed definition. In 
addition, the provision of this information in the written agreement 
will simplify the audit process when the Medicare contractor determines 
whether the amount paid by the hospital to the nonhospital site 
reflects ``all or substantially all'' of the costs of the program in 
the nonhospital site in accordance with the new proposed definition at 
Sec.  413.75(b). We note that regardless of whether a hospital chooses 
to make concurrent payments to the nonhospital site, or to have a 
written agreement, the hospital must demonstrate that it is paying for 
at least 90 percent of the costs of each program at each nonhospital 
site according to the following formula (although actual data may be 
used in place of the proxies):

0.90 x [(sum of each FTE resident's salary + fringe benefits (including 
travel and lodging where applicable)) plus the portion of the teaching 
physician's compensation attributable to direct GME activities].

    The portion of the teaching physician's compensation attributable 
to direct GME activities may be calculated as follows:

(3/number of hours nonhospital site is open per week) x (national 
average salary for each teaching physician).

    If there are no teaching costs (because, for example, the residents 
are rotating to a nonhospital site where the teaching physician is a 
solo practitioner), then the written agreement should indicate that the 
specified compensation amount reflects only residents' salaries and 
fringe benefits (including travel and lodging where applicable) because 
there are no teaching physician costs (since the teaching physician is 
a solo practitioner). Finally, we note that, as under existing 
regulations, if the hospital does choose to have a written agreement 
with the nonhospital site, the hospital must, at a minimum, liquidate 
the costs identified in the written agreement in accordance with the 
regulations at Sec.  413.100(c)(2)(i).
    In addition, we note that under current policy, a hospital may 
choose to provide non-monetary, in-kind compensation rather than 
provide direct financial compensation to the nonhospital site for 
supervisory teaching activities. Under the new proposed definition of 
``all or substantially all,'' a hospital would still be permitted to 
provide in-kind compensation to the nonhospital site, but, as under 
current policy, the hospital must be able to document that the value of 
the in-kind compensation is at least equivalent monetarily to the 
portion of the actual or proxy-based costs for that physician 
attributable to nonpatient care GME activities. That is, the hospital 
must show that the value of in-kind compensation is sufficient to meet 
the 90 percent threshold using the formula stated above in this 
section.
    We also believe it is important to review how the written agreement 
requirements apply when a hospital's residents rotate to nonhospital 
sites such as clinics owned by a medical

[[Page 4829]]

school. As we stated in response to Question 9 on the Qs&As on our Web 
site at http://www.cms.hhs.gov/AcuteInpatientPPS/Downloads/
nonhospQA.pdf, ``rather than having a written agreement with each 
clinic, it would be appropriate for the hospital to have a written 
agreement with the medical school, since the medical school owns the 
clinics. If the residents are training in various medical school 
clinics, the hospital must have written agreement(s) reflecting the 
compensation arrangements for each clinic'' (emphasis added). 
Unfortunately, we have learned of numerous situations where a hospital 
has a single agreement with the medical school in which the hospital 
specifies a lump sum dollar amount that it is paying the medical school 
for GME-related services that the medical school is providing, but 
there is no breakout at all as to the specific training costs 
attributable to individual clinics, or to the specific programs at 
those clinics. Without a breakout of the residents' salaries and fringe 
benefits (including travel and lodging where applicable), and the 
portion of the teaching physicians' salaries attributable to nonpatient 
care GME activities at each nonhospital site, the Medicare contractor 
is unable to determine whether the hospital has properly paid the costs 
of each specialty program at each nonhospital site in accordance with 
the statutory and regulatory requirements. Likewise, under the new 
proposed definition of ``all or substantially all,'' whether hospitals 
pay for the costs of a program at a nonhospital site on a concurrent 
basis, or if they have a written agreement, they must be able to 
document how they are paying for ``all or substantially all'' of the 
costs of a particular program at each nonhospital site. Global 
agreements with lump sum payment amounts, either for teaching physician 
costs or for nonhospital training in general, have not been sufficient 
under existing policy and would not be sufficient under the proposed 
policy. Similarly, as under current policy, if two (or more) hospitals 
both train residents in the same accredited program, and the residents 
rotate to the same nonhospital site(s), the hospitals cannot share the 
costs of that program at that nonhospital site (for example, by 
dividing the FTE residents they wish to count according to some pre-
determined methodology), as this violates the statutory requirement at 
section 1886(h)(4)(E) of the Act that the hospital incur ``all, or 
substantially all, of the costs for the training program in that 
setting'' (emphasis added). Finally, as under current policy, we note 
that in the instance where a hospital is sending residents in several 
different specialty programs to train in the same nonhospital site, and 
it wishes to count all of those FTE residents for purposes of IME and 
direct GME payment, the hospital must be able to document that it is 
separately meeting the ``all or substantially all'' threshold for each 
specialty program at that site. (That is, the hospital would determine 
the 90 percent threshold in accordance with the proposed methodology 
described above separately for multiple teaching physicians and 
residents, and would apply the resident-to-teaching physician ratio 
limit if applicable).
    In summary, we are proposing to revise Sec.  413.75(b) to modify 
the definition of ``all or substantially all of the costs for the 
training program in the nonhospital setting'' to reflect the policies 
in place between January 1, 1999 and July 1, 2007, and our proposed 
policy on or after July 1, 2007. We are revising the definition of 
``all or substantially all of the costs for the training program in the 
nonhospital setting'' to mean: (a) Effective on or after January 1, 
1999 and for cost reporting periods beginning before July 1, 2007, the 
residents' salaries and fringe benefits (including travel and lodging 
where applicable) and the portion of the cost of teaching physicians' 
salaries and fringe benefits attributable to direct graduate medical 
education (GME); and (b) effective for cost reporting periods beginning 
on or after July 1, 2007, at least 90 percent of the total of the costs 
of the residents' salaries and fringe benefits (including travel and 
lodging where applicable) and the portion of the cost of teaching 
physicians' salaries attributable to direct GME.
    In addition, we are proposing to revise Sec.  412.105(f)(1)(ii)(C) 
for IME and add a new Sec.  413.78(f) to reflect the revised 
requirement to pay ``all or substantially all'' of the GME costs in a 
nonhospital site, effective for cost reporting periods beginning on or 
after July 1, 2007.

XIII. Technical Amendment

    In the Revisions to Hospital Inpatient Prospective Payment 
Systems--FY 2007 final rule (71 FR 47870 through 48136), in an 
amendatory instruction to Sec.  412.22(h)(3), we inadvertently omitted 
the words ``introductory text.'' Therefore, paragraphs Sec.  
412.22(h)(3)(i) and (ii) were removed. We are proposing to replace 
Sec.  412.22(h)(3)(i) and (ii) in this proposed rule.

XIV. Waiver of Proposed Rulemaking and Delay in the Effective Date

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite public comment on the proposed rule in 
accordance with 5 U.S.C. section 553(b) of the Administrative Procedure 
Act (APA). The notice of proposed rulemaking includes a reference to 
the legal authority under which the rule is proposed, and the terms and 
substances of the proposed rule or a description of the subjects and 
issues involved. This procedure can be waived, however, if an agency 
finds good cause that a notice-and-comment procedure is impracticable, 
unnecessary, or contrary to the public interest and incorporates a 
statement of the finding and its reasons in the rule issued.
    In addition, we ordinarily provide a 30-day delay in the effective 
date of the provisions of a proposed rule. Section 553(d) of the APA (5 
U.S.C. section 553(d)) ordinarily requires a 30-day delay in the 
effective date of final rules after the date of their publication in 
the Federal Register. This 30-day delay in effective date can be 
waived, however, if an agency finds for good cause that the delay is 
impracticable, unnecessary, or contrary to the public interest, and the 
agency incorporates a statement of the finding and its reasons in the 
rule issued.
    In the Revisions to Hospital Inpatient Prospective Payment 
Systems--FY 2007 Occupational Mix Adjustment to Wage Index; 
Implementation; Final rule (71 FR 47870 through 48136), in an 
amendatory instruction to Sec.  412.22(h)(3), we inadvertently omitted 
the words ``introductory text.'' Therefore, paragraphs Sec.  
412.22(h)(3)(i) and (ii) were removed from the CFR. We believe that 
since we are merely making a technical correction by correcting an 
amendatory instruction and since these paragraphs were subject to 
notice and comment when originally added to the CFR, we have just cause 
to waive additional notice and comment rulemaking at this time. Also, 
it is in the public interest to have these paragraphs reinstated 
immediately because the entities to which these provisions apply may 
believe they will no longer be excluded from the IPPS and may be in the 
process of closing their facilities including transferring patients to 
other facilities. In addition, it is in the public interest to have 
these paragraphs reinstated immediately because they are part of 
current policy. The paragraphs are being added without any changes to 
the language or its intent. For these same reasons, we believe that we 
have

[[Page 4830]]

just cause to waive the 30-day delay in effective date since we are 
correcting an error from the previously published rule and not 
implementing new policy.
    For the reasons stated above in this section, we find that both 
notice and comment and the 30-day delay in effective date for this 
correction are unnecessary and impracticable, and that it is in the 
public interest to make this notice effective in conjunction with the 
final rule to which the corrections apply (and could be contrary to the 
public interest to do otherwise). The technical correction is effective 
as if it had been included in the Revisions to Hospital Inpatient 
Prospective Payment Systems--FY 2007 Occupational Mix Adjustment to 
Wage Index; Implementation; Final rule.

XV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we 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:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of these issues for the 
following sections of this document that contain information collection 
requirements:

Section 413.78 Direct GME Payments: Determination of the Total Number 
of FTE Residents

    Section 413.78(f) outlines the requirements that must be met for 
the time residents spend in non-provider settings to be included in 
determining the number of FTE residents used in the computation of a 
hospital's resident count. A resident must spend his or her time in 
patient care activities; the hospital must incur substantially all of 
the costs of the training program in a nonhospital setting.
    In addition, Sec.  413.78(f)(3) requires that a hospital comply 
with one of the two requirements listed in Sec.  413.78(f)(3)(i) and 
Sec.  413.78(f)(3)(ii).
    Section 413.78(f)(3)(i) states that a hospital must document that 
it is paying for all or substantially all of the costs associated with 
the training program in nonhospital settings. The costs must be 
incurred between the training date and the end of the third month after 
the training date. The burden associated with this requirement is the 
time and effort associated with documenting and maintaining records of 
the incurred costs and subsequent payments made by a hospital.
    Section 413.78(f)(3)(ii) states that a hospital must have a written 
agreement with the nonhospital site. The agreement must state that the 
hospital will incur at least 90 percent of the cost of the resident's 
salary and fringe benefits (and travel and lodging where applicable) 
while the resident is training in the nonhospital site and the portion 
of the cost of the teaching physician's salary is attributable to GME. 
The written agreement must also specify the compensation amount the 
hospital is paying the nonhospital site, and whether this amount 
reflects only residents' salaries and fringe benefits (and travel and 
lodging is applicable), or includes an amount for teaching physician 
compensation. The burden associated with this requirement is the time 
and effort associated with drafting, signing, and maintaining the 
written agreement.
    The requirements listed in Sec.  413.78(f)(3)(i) and Sec.  
413.78(f)(3)(ii) are exempt from the Paperwork Reduction Act of 1995 in 
accordance with Pub. L. 99-272.
    We will be submitting a copy of this proposed rule to OMB for its 
review of the information collection requirements described above. 
These requirements are not effective until they have been approved by 
OMB.
    If you comment on these information collection and recordkeeping 
requirements, please mail copies directly to the following:

Centers for Medicare & Medicaid Services, Office of Strategic 
Operations and Regulatory Affairs, Regulations Development Group, Attn: 
William N. Parham, III, [CMS-1529-P], Room C4-26-05, 7500 Security 
Boulevard, Baltimore, MD 21244-1850; and
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 10235, New Executive Office Building, Washington, DC 
20503, Attn: Carolyn Lovett, CMS Desk Officer, [CMS-1529-P], carolyn_
lovett@omb.eop.gov. Fax (202) 395-6974.

XVI. Regulatory Impact Analysis

    [If you choose to comment on issues in this section, please include 
the caption ``IMPACT'' at the beginning of your comments.]

A. Introduction

    We have examined the impacts of this proposed rule as required by 
Executive Order 12866 (September 1993, Regulatory Planning and Review), 
the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-
354), section 1102(b) of the Act, the Unfunded Mandates Reform Act of 
1995 (UMRA) (Pub. L. 104-4), and Executive Order 13132.
1. Executive Order 12866
    Executive Order 12866 (as amended by Executive Order 13258, which 
merely assigns responsibility of duties) directs agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any one 
year). We are using the proposed rates, factors and policies presented 
in this proposed rule, including updated proposed wage index values, 
and the best available claims and CCR data to estimate the change in 
proposed payments for the 2008 LTCH PPS rate year. Based on the best 
available data for 369 LTCHs, we estimate that the proposed expansion 
of the existing payment provision for co-located LTCHs (HwHs and 
satellites of LTCHs) at existing Sec.  412.534 to certain situations 
not presently covered by existing Sec.  412.534 for subclause (I) LTCHs 
(as discussed in section V.B. of the preamble of this proposed rule), 
in conjunction with the proposed update to the Federal rate for RY 2008 
(discussed in section IV.C. of the preamble of this proposed rule), the 
proposed changes to the area wage adjustment (discussed in section 
IV.D.1. of the preamble of this proposed rule), and the proposed 
increase in the outlier fixed-loss amount (discussed in section 
IV.D.3.c. of the preamble of this proposed rule) for the 2008 LTCH PPS 
rate year, would result in a decrease in estimated payments from the 
2007 LTCH PPS rate year of approximately $80 million (or about 2.0 
percent) for the 369 LTCHs in our database.

[[Page 4831]]

Regarding the approach discussed for addressing our concerns with the 
existing SSO policy presented in section V.A.2. of the preamble of this 
proposed rule, we estimate that such an approach would result in a 
decrease in estimated payments in the 2008 LTCH PPS rate year of about 
an additional $37 million (for a total decrease in estimated aggregate 
payments of $117 million ($80 million plus $37 million) or about 2.9 
percent) for the 369 LTCHs in our database. (An estimate of Medicare 
program payments for LTCH services for the next 5 years is shown in 
section IV.D.5. of the preamble of this proposed rule. The impact of 
the proposed policy change relating to payment for Hospital Direct and 
Indirect Graduate Medical Education Payments (GME) is discussed in 
section XVI.C.2. of this regulatory impact analysis.) The estimated 
impact of the provisions presented in this proposed rule (as detailed 
above) for the 369 LTCHs in our database are in Table 8.

 Table 8.--Estimated Impact of the Provisions of This Proposed Rule \1\
------------------------------------------------------------------------
                                                             Estimated
                                                          percent change
                     Proposed policy                       in estimated
                                                          aggregate LTCH
                                                           PPS payments
------------------------------------------------------------------------
Proposed Payment Rate and Policy Changes:
    Proposed Changes to the Federal Rate \2\............            0.61
    Proposed Changes to the Area Wage Adjustment........           -0.49
    Approach Discussed for SSO Policy...................           -0.91
                                                         ---------------
        Subtotal \3\....................................            -0.7
 
Expansion of the ``25 Percent'' Policy \4\..............            -2.2
                                                         ---------------
    Total \5\ (-0.7% + -2.2%)...........................           -2.9
------------------------------------------------------------------------
\1\ Percent change in estimated aggregate LTCH PPS payments from the
  2007 LTCH PPS rate year to the 2008 LTCH PPS rate year based on the
  best available data for 369 LTCHs.
\2\ As discussed in greater detail in section XV.B.4. of this regulatory
  impact analysis, because about 35 percent of all LTCH cases are
  projected to receive a payment under the existing SSO policy that is
  based either on the estimated cost of the case or the ``IPPS
  comparable amount'' (rather than the proposed Federal rate).
  Therefore, the percent change in estimated aggregate LTCH PPS payments
  due to the proposed changes to the Federal rate, 0.61 percent, is
  slightly less than the proposed update to the Federal rate of 0.71
  percent.
\3\ In absence of including the approach considered for the SSO policy
  (discussed in section V.A.2. of this proposed rule), we estimate that
  in place of the 0.7 percent decrease in estimated aggregate LTCH PPS
  payments, on average, for all LTCHs, there would be 0.25 percent
  increase in estimated aggregate LTCH PPS payments, on average, for all
  LTCHs for all proposed payment rate and policy changes. We also note
  that the estimated percent change for all proposed payment rate and
  policy changes may not exactly equal the sum of the estimated percent
  change for the proposed changes to the Federal rate, the proposed
  changes to the area wage adjustment and the approach discussed for the
  SSO policy due to the effect of estimated changes in aggregate HCO
  payments as well as other interactive effects that cannot be isolated.
 
\4\ Proposed expansion of the existing special payment provision for co-
  located LTCHs (HwHs and satellites of LTCHs) at existing Sec.
  412.534 to certain situations not presently covered by existing Sec.
  412.534 for subclause (I) LTCHs (as discussed in section V.B. of the
  preamble of this proposed rule).
\5\ Total estimated impact of the provisions of this proposed rule (that
  is, sum of the estimated impact of the proposed payment rate and
  policy change, including the approach discussed for the SSO policy,
  and the estimated impact of the expansion of the ``25 percent''
  policy). We note that in absence of including the approach discussed
  for the SSO policy, we project that the total estimated impact of the
  provisions of this proposed rule are projected to result in a 2.0
  percent decrease in estimated aggregate LTCH PPS payments.

    Because the combined distributional effects and estimated changes 
to the Medicare program payments would be greater than $100 million if 
we take into consideration the approach discussed for the SSO policy 
(in section V.A.2. of the preamble of this proposed rule), this 
proposed rule would be considered a major economic rule, as defined in 
this section. We note the $117 million (or 2.9 percent) decrease in 
estimated aggregate LTCH PPS payments resulting from the provisions 
presented in this proposed rule does not reflect changes in LTCH 
admissions or case-mix intensity in estimated LTCH PPS payments, which 
would also affect overall payment changes.
2. Regulatory Flexibility Act (RFA)
    The RFA requires agencies to analyze options for regulatory relief 
of small entities. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are small entities, either by nonprofit status or by having revenues of 
$6 million to $29 million in any 1 year. For purposes of the RFA, 
proprietary hospitals are small entities if they meet the small 
business size standard described above (for further information, see 
the Small Business Administration's regulation at 65 FR 69432, November 
17, 2000). Because we lack data on individual hospital receipts, we 
cannot determine the number of small proprietary LTCHs. Therefore, we 
assume that all LTCHs are considered small entities for the purpose of 
the analysis that follows. Medicare FIs are not considered to be small 
entities. Individuals and States are not included in the definition of 
a small entity.
    Currently, our database of 369 LTCHs includes the data for 78 non-
profit (voluntary ownership control) LTCHs and 246 proprietary LTCHs. 
Of the remaining 45 LTCHs, 13 LTCHs are Government-owned and operated 
and the ownership type of the other 32 LTCHs is unknown (as shown in 
Table 9). The impact of the proposed payment rate and policy changes 
for the 2008 LTCH PPS rate year (including the proposed update to the 
Federal rate, proposed changes to the area wage adjustment, and the 
approach discussed for the SSO policy) is discussed in section 
XVI.B.4.c. of this regulatory impact analysis. The impact of other 
proposed policy changes, such as the effects of the proposed expansion 
of the special payment provisions for LTCHs HwHs and LTCH satellites to 
certain situations not presently covered by Sec.  412.534 for subclause 
(I) LTCHs, is discussed in section XVI.C. of this regulatory impact 
analysis.
    As we discuss in detail throughout the preamble of this proposed 
rule, based on the most recent available LTCH data, we believe that 
although the

[[Page 4832]]

provisions of this proposed rule would result in a decrease in 
estimated aggregate LTCH PPS payments, we believe the resulting LTCH 
PPS payment amounts result in appropriate Medicare payments. However, 
we believe that although appropriate, the provisions of this proposed 
rule could have a significant impact on some small entities (as defined 
above in this section). As also discussed in greater detail below in 
this section, we are unable to determine how significant the impact of 
some of the provisions of this proposed rule may be on small entities 
since we expect many LTCHs to adjust their admission practices if some 
of these provisions are implemented. We note that LTCHS have been 
adapting their behavior in response to the policy changes we have 
implemented over the past few years (for example, the annual update to 
the LTC-DRG relative weights, the ``25 percent policy'' at existing 
Sec.  412.534, the revision to the SSO payment formula at existing 
Sec.  412.529(c)(2), and the zero percent update to the RY 2007 Federal 
rate). Although those policy changes were projected to result in 
decreases in estimated aggregate LTCH PPS payments, the growth in the 
number of LTCHs has continued (although at a reduced rate). Based on 
the most recent available OSCAR data, the number of LTCHs has increased 
over 10 percent in the past 2 years (from October 1, 2004 and October 
1, 2006). Because we acknowledge that many of the affected entities are 
small entities, the analysis discussed throughout the preamble of this 
proposed rule, in conjunction with the discussion presented in greater 
detail below in this section and throughout the remainder of this 
regulatory impact analysis, constitutes our initial RFA. Therefore, in 
this proposed rule, we are soliciting comments on our estimates and 
analysis of the impact of the provisions of this proposed rule on small 
entities.
    The proposed changes presented in this proposed rule, which include 
the proposed payment rate and policy changes and the proposed expansion 
of the ``25 percent'' policy (described above in this section), are 
estimated to result in approximately a 2.0 percent ($80 million) 
decrease in estimated payments per discharge in the 2008 LTCH PPS rate 
year, on average, to all LTCHs. As shown Table 8, taking into 
consideration the approach discussed for the SSO policy in section 
V.A.2. of the preamble of this proposed rule in addition to the 
proposed payment rate and policy changes and the proposed expansion of 
the ``25 percent'' policy (described above in this section), we 
estimate that the provisions of this proposed rule could result in 
approximately a 2.9 percent (or $117 million) decrease in estimated 
payments per discharge in the 2008 LTCH PPS rate year, on average, to 
all LTCHs. Table 8 shows that the proposed payment rate and policy 
changes (including the approach discussed for the SSO policy) is 
projected to result in a 0.7 percent decrease in estimated aggregate 
LTCH PPS payments, and the proposed expansion of the ``25 percent'' 
policy is projected to result in a 2.2 percent decrease in estimated 
aggregate LTCH PPS payments. Thus, the majority of the approximately 
2.9 percent decrease in estimated aggregate payments in the 2008 LTCH 
PPS rate year as compared to the 2007 LTCH PPS rate year would be due 
to the proposed expansion of the special payment provisions for co-
located LTCHs to certain situations not presently covered by existing 
Sec.  412.534 for subclause (I) LTCHs (as discussed in section V.B. of 
this proposed rule).
    As discussed in greater detail in section XVI.C.1. of this 
regulatory impact analysis, because we believe that this proposed 
policy would discourage inappropriate patient shifting to LTCHs and 
would encourage all subclause (I) LTCHs to engage in more appropriate 
admission policies since, under this proposal no payment adjustment 
would be made if the patient has reached HCO status at the co-located 
host (under the proposed revision to Sec.  412.534) or at the referring 
hospital (under proposed Sec.  412.536) prior to being admitted for 
additional post-acute care at the LTCH (as discussed in greater detail 
in section V.B. of this proposed rule). Because we expect that such a 
proposed policy would reduce the financial incentives that may be 
present currently for certain situations not presently covered by 
existing Sec.  412.534 to admit patients prematurely discharged from 
other hospitals, we believe this proposed policy would result in fewer 
admissions to LTCHs before a complete course of patient care is 
provided at the non-co-located referring hospital (under proposed Sec.  
412.536) or co-located referring hospital (under the proposed revision 
to Sec.  412.534). Thus, any change in admission practices as a result 
of this proposed policy would result in less of a decrease in estimated 
aggregate LTCH PPS payments than the 2.2 percent (90 million) estimated 
based on current admission practices. Thus, the projected 2.2 percent 
(decrease in estimated aggregate LTCH PPS payments resulting from this 
proposed policy change would only occur if there were no changes in 
LTCH admission practices. Furthermore, we believe that this proposed 
policy would result in appropriate Medicare payments since, as noted 
above, we expect that such a policy would reduce the financial 
incentives to admit patients prematurely discharged from other 
hospitals and would encourage all LTCHs to engage in more appropriate 
admission policies. For these reasons, although we estimate that, if 
implemented, this proposed policy would result in a decrease in 
estimated aggregate LTCH PPS payments, we do not believe that such a 
projected decrease in estimated aggregate LTCH PPS payments, although 
possibly significant, would adversely affect LTCHs' ability to deliver 
efficient care to Medicare beneficiaries nor would there be an adverse 
affect on Medicare beneficiaries' access to care.
    The impact analysis of proposed payment rate and policy changes in 
Table 9 (including the approach discussed for the SSO policy in section 
V.A.2. of the preamble of this proposed rule) shows that estimated 
payments per discharge are expected to decrease approximately 0.7 
percent, on average, for all LTCHs from the 2007 LTCH PPS rate year as 
compared to the 2008 LTCH PPS rate year. Although we are proposing a 
0.71 percent increase to the Federal rate for RY 2008 (as discussed in 
section IV.C. of this proposed rule), the projected percent decrease in 
estimated payments per discharge from the 2007 LTCH PPS rate year to 
the 2008 LTCH PPS rate year is attributable to the proposed changes to 
the area wage adjustment (discussed in section IV.D.1. of this proposed 
rule), in conjunction with the approach discussed for SSO cases in 
section V.A.2. of this proposed rule, as well as the proposed increase 
to the HCO fixed-loss amount (as discussed in section IV.D.3.c. of this 
proposed rule). (As discussed in greater detail in section XVI.B.4., 
the 2.2 percent decrease in estimated aggregate LTCH PPS payments due 
to the proposed expansion of the ``25 percent policy'' to certain 
situations not presently covered by existing Sec.  412.534 for 
subclause (I) LTCHs is not reflected in Table 9. However, as noted 
above, the impact of that proposed policy is discussed in greater 
detail in section XVI.C.1. of this regulatory impact analysis.)
    As the impact analysis in Table 9 shows, estimated changes to the 
area wage adjustment from RY 2007 to RY 2008 (resulting from both 
established policy and proposed changes presented in section IV.D.1. of 
this proposed rule, as discussed in greater detail below in

[[Page 4833]]

this section) contribute to the decrease in estimated aggregate LTCH 
PPS payments from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate 
year. As discussed in section IV.D.1. of this proposed rule, we are 
proposing to update the wage index values for RY 2008, in accordance 
with the progression of the existing 5-year phase-in of the area wage 
adjustment, based on the most recent available wage data. We believe 
that proposing to update the LTCH PPS wage index based on the most 
recent available wage data would ensure that the LTCH PPS wage index 
adjustment appropriately accounts for and reflects the relative 
hospital wage levels in the geographic area of the hospital as compared 
to the national average hospital wage level. In addition, we are 
proposing to decrease the labor-related share from 75.665 percent to 
75.511 percent under the LTCH PPS for RY 2008 based on the most recent 
available data on the relative importance of the labor-related share of 
operating and capital costs of the LTCH PPS market basket (also 
discussed in section IV.D.1. of this proposed rule). We believe that 
proposing to revise the labor-related share based on the most recent 
available data would appropriately identify the portion of the proposed 
LTCH PPS Federal rate that is adjusted to account for geographic 
differences in area wage levels by applying the applicable proposed 
LTCH PPS wage index value. As discussed in greater detail in section 
IV.D.1. of this proposed rule, we believe that these proposed changes 
to the LTCH PPS area wage adjustment based on the most recent available 
wage data and data on the relative importance of the labor-related 
share of the LTCH PPS market basket, respectively, would result in 
appropriate and accurate LTCH PPS payments for the resources used by 
LTCHs in a given area. Such updated data appropriately reflects 
national differences in area wage levels and identifies the portion of 
the proposed Federal rate that should be adjusted to account for such 
differences in area wages.
    We also note that, even though we have not proposed to make any 
changes to the existing 5-year phase-in of the wage index adjustment 
that was established when the LTCH PPS was implemented (August 30, 
2002; 67 FR 56018), the continued progression of this phase-in also 
contributes to the decrease in estimated aggregate LTCH PPS payments 
for RY 2008. That is, since under the established phase-in of the wage-
index adjustment, LTCHs receive an increasing percentage of the 
applicable full wage index value (which is less than 1.0 for the 
majority of LTCHs), we expect that estimated aggregate LTCH PPS 
payments would decrease from RY 2007 to RY 2008 as a result of the 
progression of the existing 5-year phase-in of the area wage 
adjustment. Thus, the majority of the 0.5 percent decrease in estimated 
payments per discharge, on average, for all LTCHs (see Table 9) is due 
to the existing 5-year phase-in of the wage index adjustment, and is 
not due to proposed policy changes presented in this proposed rule. 
Because the existing 5-year phase-in of the area wage adjustment has 
been a feature of the LTCH PPS since it was implemented beginning 
October 1, 2002, and since a large majority (over 70 percent) of LTCHs 
are located in areas where historically the wage index value is less 
than 1.0, the decrease in estimated aggregate LTCH PPS payments 
resulting from this policy should be anticipated by LTCHs, and 
therefore, already accounted for in their fiscal planning. In addition, 
we note that, although the portion of the decrease in estimated 
aggregate LTCH PPS payments that is due to the existing 5-year phase-in 
of the wage index adjustment is expected, we believe that any change in 
LTCHs' wage index values under this policy is appropriate since LTCHs 
will be receiving an increasing percentage of the applicable full wage 
index value, which, by definition, reflects the relative hospital wage 
levels for the area in which the LTCH is located as compared to the 
national average hospital wage level.
    Because we cannot determine to what extent LTCHs may have planned 
for the decrease in estimated aggregate LTCH PPS payments that is due 
to the existing 5-year phase-in of the area wage adjustment, even 
though the impact may be significant for some LTCHs, we believe that 
most LTCHs would not be adversely affected since, as explained above, 
we believe that the proposed changes to the area wage adjustment (that 
is, the proposed use of update wage data and the proposed change in the 
labor-related share), in conjunction with the continued progression of 
the 5-year phase-in of the area wage adjustment, would result in 
appropriate LTCH PPS payments in RY 2008. For these reasons, we believe 
that the decrease in estimated aggregate LTCH PPS payments resulting 
from proposed changes to the area wage adjustment, although possibly 
significant for some LTCHs, is appropriate and would not adversely 
affect LTCHs' ability to deliver efficient care to Medicare 
beneficiaries nor would there be an adverse affect on Medicare 
beneficiaries' access to care.
    In addition, as also shown in Table 9, the approach for the SSO 
policy discussed in section V.A.2. of this proposed rule would also 
contribute to the estimated 0.7 percent decrease in estimated aggregate 
LTCH PPS payments in RY 2008, on average, for all LTCHs. Under that 
approach, we believe that the LTCH cases that appear to be ``similar 
to'' the same type of cases treated in an acute care hospital and paid 
for under the IPPS, as discussed in greater detail in section V.A.2. of 
this proposed rule, would receive an appropriately adjusted LTCH PPS 
payment to treat such cases. We believe that those SSO cases that are 
``similar to IPPS cases'' most likely do not receive a full course of 
an LTCH-level of treatment in such a short period of time since, in 
general, LTCHs are intended to treat longer stay patients. Although we 
project a decrease in estimated aggregate LTCH PPS with the approach 
discussed for the SSO policy in section V.A.2. of this proposed rule, 
we believe that such an approach would result in appropriate and 
adequate Medicare payments for the treatment of Medicare beneficiaries 
with a LOS is ``similar to'' typical IPPS cases.
    Furthermore, we believe that, if adopted, the approach to the SSO 
policy discussed in section V.A.2. of the preamble of this proposed 
rule would accomplish our stated goal of removing the incentive for 
LTCHs to admit patients for whom a long-term hospital stay is not 
necessary, and therefore, for whom the LTCH would not be providing 
complete treatment. As noted previously, the vast majority of LTCH 
cases, including SSO cases, are admitted to the LTCH directly from an 
acute-care hospital, and therefore, many SSO cases may still be in need 
of acute-level care (as we discuss in greater detail in section V.A.2. 
of the preamble of this proposed rule). Therefore, we believe that in 
response to the approach discussed for the SSO policy in section V.A.2. 
of this proposed rule LTCHs may reduce the number of SSO cases that are 
``similar to IPPS cases'' that they admit (and most of those patients 
would continue to receive treatment at the acute-care hospital). To the 
extent that LTCHs continue to admit SSO cases that are ``similar to 
IPPS cases,'' we believe that this approach to the SSO policy would 
result in an adjusted LTCH PPS payment that is appropriate, as 
discussed above. For these reasons, although we estimate that the 
approach to the SSO policy discussed in section V.A.2. of this proposed 
rule would result in a decrease in estimated

[[Page 4834]]

aggregate LTCH PPS payments, we do not believe that such an impact on 
estimated aggregate LTCH PPS payments, although possibly significant, 
would adversely affect LTCHs' ability to deliver efficient care to 
Medicare beneficiaries nor would there be an adverse affect on Medicare 
beneficiaries' access to care.
    For all of the reasons discussed above in this section, although we 
do not expect an estimated incremental decrease of 2.9 percent 
(approximately $117 million) in estimated aggregate LTCH PPS payments 
to have a significant adverse financial impact on LTCHs, nor do we 
expect there would be an effect on beneficiaries' access to care, we 
acknowledge that the provisions of this proposed rule could have a 
significant impact on some small entities. However, we believe that the 
provisions of this proposed rule would result in appropriate LTCH PPS 
payments in RY 2008. We also note that LTCHs provide some services to 
(and generate revenue from) patients other than Medicare beneficiaries, 
and the revenue to LTCHs from treating those patients is not affected 
by this proposed rule. The analysis presented above, in conjunction 
with the remainder of this section, demonstrates that this proposed 
rule is consistent with the regulatory philosophy and principles 
identified in the RFA. We believe the provisions presented in this 
proposed rule would affect payments to LTCHs, and the effects on some 
LTCHs, although they may be significant, are appropriate (as discussed 
above).
3. Impact on Rural Hospitals
    Section 1102(b) of the Act requires us to prepare a regulatory 
impact analysis if a rule may have a significant impact on the 
operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. As shown in Table 9, we 
are projecting a 2.6 percent decrease in estimated payments per 
discharge for the 2008 LTCH PPS rate year as compared to the 2007 LTCH 
PPS rate year for rural LTCHs as a result of the proposed payment rate 
changes, including the approach discussed for addressing our concerns 
with the existing SSO policy presented in section V.A.2. of the 
preamble of this proposed rule, based on the data of the 25 rural LTCHs 
in our database of 369 LTCHs for which complete data were available.
    As shown in Table 9, the majority of the estimated decrease in 
estimated LTCH PPS payments in the 2008 LTCH PPS rate year as compared 
to the 2007 LTCH PPS rate year for proposed payment rate and policy 
changes for rural LTCHs is due to the proposed change in the area wage 
adjustment (as discussed in greater detail in section V.D.1. of the 
preamble of this proposed rule). Specifically, as discussed above, 
although we are not making any changes to the existing 5-year phase-in 
of the wage index adjustment that was established when the LTCH PPS was 
implemented (August 30, 2002; 67 FR 56018), the continued progression 
of this phase-in contributes to the decrease in estimated payments to 
rural LTCHs for RY 2008. This is because, under the established phase-
in of the wage-index adjustment, LTCHs receive an increasing percentage 
of the applicable full wage index value (which is less than 1.0 for all 
of the 25 rural LTCHs in our database), we expect that estimated 
payments per discharge for rural LTCHs would decrease from RY 2007 to 
RY 2008 as a result of the progression of the 5-year phase-in of the 
wage index adjustment. Thus, the majority of the projected 2.6 percent 
decrease in estimated payments per discharge shown in Table 9 for rural 
LTCHs is due to the existing 5-year phase-in of the wage index 
adjustment, and is not due to proposed policy changes presented in this 
proposed rule. As discussed above, we believe that the decrease in 
estimated aggregate LTCH PPS payments resulting from this existing 
policy should be anticipated by LTCHs, and therefore, already accounted 
for in their fiscal planning. In addition, we note that, although the 
portion of the decrease in estimated aggregate LTCH PPS payments that 
is due to this existing policy is expected, we believe that any change 
in LTCHs' wage index values due to the continued progression of the 
phase-in of the area wage adjustment is appropriate since LTCHs will be 
receiving an increasing percentage of the applicable full wage index 
value, which, by definition, reflects the relative hospital wage levels 
for the area in which the LTCH is located as compared to the national 
average hospital wage level.
    Furthermore, as also explained in greater detail above, we believe 
that the proposed changes to the area wage adjustment presented in this 
proposed rule (that is, the proposed use of update wage data and the 
proposed change in the labor-related share) would result in accurate 
and appropriate LTCH PPS payments in RY 2008 since they are based on 
the most recent available data. Such updated data appropriately reflect 
national differences in area wage levels and identifies the portion of 
the proposed Federal rate that should be adjusted to account for such 
differences in area wages, thereby, resulting in accurate and 
appropriate LTCH PPS payments. Because we cannot determine to what 
extent LTCHs may have planned for the decrease in estimated aggregate 
RY 2008 LTCH PPS payments that results from the existing 5-year phase-
in of the area wage adjustment, we believe that although the effects of 
the proposed changes to the area wage adjustment on some rural LTCH may 
be significant, most rural LTCHs should be not adversely affected 
because those proposed changes are expected to result in appropriate 
LTCH PPS payments in RY 2008.
    We also believe that the proposed expansion of the payment 
adjustment at existing Sec.  412.534 to certain situations not 
presently covered by that policy for subclause (I) LTCHs may have a 
significant adverse impact on some rural LTCHs, although we cannot 
determine how significant for the reasons explained below in this 
section. Even though this proposed policy is estimated to reduce 
estimated aggregate LTCH PPS payments in RY 2008 and may result in a 
significant impact on some rural LTCHs, we also believe, that such 
changes would result in appropriately adjusted LTCH PPS payments (as 
explained below in this section). As discussed in greater detail in 
section V.B. of this proposed rule, in designing features of the 
original ``25 percent policy'' for co-located LTCHs (HwHs and LTCH 
satellites), which we are proposing to extend to certain situations not 
presently covered by existing Sec.  412.534 for subclause (I) LTCHs, we 
provided special treatment for rural hospitals which would increase the 
threshold from 25 percent to 50 percent. When we established the 25 
percent (or applicable percentage) payment adjustment for co-located 
LTCHs at existing Sec.  412.534, after which this proposed payment 
adjustment for situations not presently covered by that policy has been 
modeled, we noted in response to comments that ``the Congress has 
authorized special treatment for rural areas under the Medicare program 
because of the particular geographic and demographic challenges in 
those locations, as well as the difference between the provision and 
availability of medical services as compared to urban areas'' (69 FR 
49206). Therefore, under our proposed policy, we would apply the same

[[Page 4835]]

rationale to certain situations not presently covered by existing Sec.  
412.534 that would occur in subclause (I) LTCHs that are located in 
rural areas. Accordingly, rather than a 25 percent threshold (as is 
being proposed for most urban LTCHs), for rural LTCHs, the payment 
adjustment would be applied only to those LTCH's or LTCH satellite 
facility's Medicare discharges that were admitted from a non-co-located 
referring hospital under proposed Sec.  412.536 or co-located host 
under the proposed revision to Sec.  412.534 that are in excess of 50 
percent of the LTCH's total Medicare discharges for that hospital for 
any cost reporting period. Under this proposal, consistent with the 
existing policy at Sec.  412.534, no payment adjustment would be made 
if the patient has reached HCO status at the referring hospital (under 
proposed Sec.  412.536) or at the co-located host (under the proposed 
revision to Sec.  412.534) prior to being admitted for additional post-
acute care at the LTCH. That is, in calculating the proposed 50 percent 
threshold (for rural LTCHs), patients who achieved HCO status prior to 
admission to the LTCH would not be counted toward the applicable 
threshold under proposed Sec.  412.536 or under the proposed revision 
to Sec.  412.534 (although the admission would still be counted toward 
the LTCH's total Medicare discharges).
    Furthermore, because such a policy would reduce the financial 
incentives for all LTCHs, including rural LTCHs, to admit patients 
prematurely discharged from other hospitals, we believe this proposed 
policy would result in fewer admissions to LTCHs before a complete 
course of patient care is provided at the referring hospital. As noted 
above, any changes in admission practices as a result of this proposed 
policy would result in less of a decrease in estimated aggregate LTCH 
PPS payments than the $90 million estimated based on current admission 
practices. Thus, the decrease in estimated aggregate LTCH PPS payments 
to rural LTCHs resulting from this proposed policy change would only 
occur if there were no change in rural LTCH admission practices. It is 
our intention, under this proposed policy, to discourage LTCHs from 
serving as ``step-down'' units after a patient has been diagnosed and 
received initial treatment at another hospital, a scenario that results 
in two Medicare payments (one to the referring hospital and one to the 
LTCH) for what was essentially one episode of patient care. Rather, it 
is our intent to encourage LTCHs to admit patients who required 
additional long-stay hospital-level treatment following the provision 
of a full episode of care at the referring hospital. For those 
patients, under this proposed policy, Medicare would pay an unadjusted 
amount under the LTCH PPS. We believe that this proposed policy would 
result in more appropriate admission policies by rural LTCHs. 
Therefore, we believe that although the effects on some rural LTCHs of 
the proposed expansion of the payment adjustment at existing Sec.  
412.534 to certain situations not presently covered by that policy for 
subclause (I) LTCHs may be significant, most rural LTCHs should be not 
adversely affected because this proposed policy changes is expected to 
result in changes in admission practices and appropriate payments for 
such cases, as explained above in this section.
    In addition, the approach for SSO policy discussed in section 
V.A.2. of this proposed rule would also contribute to the projected 
decrease in estimated payments to rural LTCHs for RY 2008. As discussed 
below in section XVI.B.4.a. of this regulatory impact analysis, we 
project a slightly larger than average decrease in estimated payments 
per discharge (as compared to urban LTCHs; see column 9 of Table 9) if 
this approach were adopted. About 40 percent of rural LTCHs treat a 
larger than average percentage of SSO cases (in fact, based on FY 2005 
data for a few rural LTCHs, SSO cases represent over half of their 
total cases). However, we are not able to determine whether this 
approach, if adopted, would result in an adverse financial impact on 
rural LTCHs because we believe that most LTCHs (including rural LTCHs) 
would reduce the number of SSO cases that they admit that are ``similar 
to IPPS cases'' (as discussed in greater detail above). (We note that 
although we expect most LTCHs (including rural LTCHs) to admit fewer 
SSO cases under this approach to the SSO policy, most of those patients 
would continue to receive treatment at the acute-care hospital from 
which they are typically discharged immediately prior to their LTCH 
(short-stay) admission.) Thus, the projected 2.6 percent decrease in 
estimated payments per discharge shown in Table 9 for rural LTCHs 
represent an average maximum reduction in estimated aggregate LTCH PPS 
payments in RY 2008, and since we anticipate that LTCHs (including 
rural LTCHs) would admit fewer SSO patients for whom payments would be 
affected by this approach to the SSO policy, if adopted, we believe 
that the actual decrease in rural LTCHs' payments for RY 2008 would be 
less than the 2.6 percent decrease in estimated payments for RY 2008 
shown in Table 9.
    Furthermore, to the extent that rural LTCHs would continue to admit 
SSO cases with a LOS that is ``similar to IPPS cases,'' we believe the 
approach discussed for the SSO policy would result in an appropriate 
adjusted LTCH PPS payment because we believe that many of those SSO 
cases most likely do not receive a full course of a LTCH-level of 
treatment in such a short period of time since, in general, LTCHs are 
intended to treat longer stay patients. Therefore, although we estimate 
the approach discussed for the SSO policy in section V.A.2. of this 
proposed rule could result in a decrease in estimated aggregate LTCH 
PPS payment to rural LTCHs, we do not believe that such an estimated 
impact on rural LTCHs' LTCH PPS payments, even though possibly 
significant, would adversely affect most rural LTCHs because this 
approach would be expected to result in changes in admission practices 
and in appropriate payments for such cases.
    For these reasons, we believe that there may be a significant 
impact on some rural LTCHs resulting from the proposed changes present 
in this proposed rule. However, a portion of the decrease in rural 
LTCHs' estimated payments per discharge from RY 2007 to RY 2008 would 
be less than what we estimate based on current admission practices (as 
explained above in this section). We also believe (as discussed 
previously) a significant portion of the projected decrease in 
estimated payments per discharge for RY 2008, which is due to the 
established phase-in of the wage index adjustment, is not a result of a 
proposed policy change, and may already be accounted for in LTCHs' 
fiscal plans. Therefore, although we believe this proposed rule would 
affect payments to rural LTCHs, and the effects on some rural LTCHs, 
although appropriate, may be significant, we are unable to determine 
how significantly the proposed changes presented in this proposed rule, 
if adopted, would adversely affect rural LTCHs. However, because we 
expect changes in admission practice and appropriate payments, if the 
changes present in this proposed rule are adopted (as discussed above), 
we do not anticipate that the provisions of this proposed rule would 
affect the ability of the vast majority of rural LTCHs to provide cost 
efficient services to Medicare patients nor do we expect there would be 
an adverse effect on beneficiaries' access to care. The analysis 
presented above, in conjunction with the remainder of this regulatory 
impact analysis, demonstrates that this proposed rule is

[[Page 4836]]

consistent with the regulatory philosophy and principles identified in 
section 1102(b) of the Act. (For additional information on the 
estimated impact of the changes on rural LTCHs presented in this 
proposed rule, refer to section XVI.B.4.a. of this regulatory impact 
analysis.) However, in this proposed rule, we are soliciting comments 
on our estimates and analysis of the impact of the provisions of this 
proposed rule on rural LTCHs.
4. Unfunded Mandates
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any one year of 
$100 million in 1995 dollars, updated annually for inflation. That 
threshold level is currently approximately $120 million. This proposed 
rule would not mandate any requirements for State, local, or tribal 
governments, nor would it result in expenditures by the private sector 
of $120 million or more in any 1 year.
5. Federalism
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it publishes a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications.
    We have examined this proposed rule under the criteria set forth in 
Executive Order 13132 and have determined that this proposed rule would 
not have any significant impact on the rights, roles, and 
responsibilities of State, local, or tribal governments or preempt 
State law, based on the 13 State and local LTCHs in our database of 369 
LTCHs for which data were available.
6. Alternatives Considered
    In preamble of this proposed rule, we are setting forth the 
proposed annual update to the payment rates for the LTCH PPS, as well 
as proposing other policy changes and discussing approaches for other 
areas of concern. In this preamble, we specify the statutory authority 
for the provisions that are presented, identify those proposed policies 
(and approaches discussed) when discretion has been exercised, and 
present rationale for our decisions, alternatives that were considered 
and solicit comments on suggested alternatives from commenters (where 
relevant).

B. Anticipated Effects of Proposed Payment Rate Changes

    We discuss the impact of the proposed changes to the payment rates, 
factors, and other payment rate policies presented in the preamble of 
this proposed rule (including the approach discussed for the SSO policy 
in section IV.A.2. of this proposed rule) in terms of their estimated 
fiscal impact on the Medicare budget and on LTCHs. (We note that the 
impact of other policy changes presented in this proposed rule, which 
do not directly affect the LTCH PPS per discharge payment rates (for 
example, the proposed expansion of the existing payment provision for 
co-located LTCHs to certain situations not presently covered by 
existing Sec.  412.534 for subclause (I) LTCHs discussed in section 
V.B. of this proposed rule and the proposed policy change relating to 
GME payments discussed in section XII. of this proposed rule), are not 
included as part of the impact analysis shown in Table 9. However, the 
impact of certain other proposed policies are discussed separately in 
section XVI.C. of this regulatory impact analysis.
1. Budgetary Impact
    Section 123(a)(1) of the BBRA requires that the PPS developed for 
LTCHs ``maintain budget neutrality.'' We believe that the statute's 
mandate for budget neutrality (BN) applies only to the first year of 
the implementation of the LTCH PPS (that is, FY 2003). Therefore, in 
calculating the FY 2003 standard Federal rate under Sec.  
412.523(d)(2), we set total estimated payments for FY 2003 under the 
LTCH PPS so that estimated aggregate payments under the LTCH PPS are 
estimated to equal the amount that would have been paid if the LTCH PPS 
had not been implemented. However, as discussed in greater detail in 
the August 30, 2002 final rule (67 FR 56033 through 56036), the FY 2003 
LTCH PPS standard Federal rate ($34,956.15) was calculated based on all 
LTCHs being paid 100 percent of the standard Federal rate in FY 2003. 
As discussed in section IV.D.5. of this proposed rule, during LTCH rate 
years governed by the 5-year transition period policy set forth at 
Sec.  412.533(a), we applied a BN offset to payments to account for the 
monetary effect of the applicable transition period methodology 
(including the option to elect payments based on 100 percent of the 
Federal rate in lieu of the transition blend methodology) in a given 
LTCH PPS rate year. Specifically, for FY 2003 and RYs 2004 through 
2007, the amount of the transition period BN offset was equal to 1 
minus the ratio of the estimated payments based on 100 percent of the 
LTCH PPS Federal rate to the projected total Medicare program payments 
that would be made under the transition methodology and the option to 
elect payment based on 100 percent of the Federal prospective payment 
rate. However, as we discuss in greater detail in section IV.D.5. of 
this proposed rule, we are no longer projecting a small cost for the 
2008 LTCH PPS rate year (July 1, 2007 through June 30, 2008) even 
though some LTCH's will have a cost reporting period for the 5th year 
of the transition period which will be concluding in the first 3 months 
of the 2008 LTCH PPS rate year. Based on the most recent available 
data, we are projecting that the vast majority of LTCHs would have made 
the election to be paid based on 100 percent of the Federal rate rather 
than the transition blend, which would result in a negligible cost to 
the Medicare program. Therefore, in this proposed rule, we did not 
propose a transition BN offset to all LTCH PPS payments for RY 2008 to 
account for the estimated cost of the transition period methodology 
(including the option to elect payment based on 100 percent of the 
Federal rate) in RY 2008.
2. Impact on Providers
    The basic methodology for determining a per discharge LTCH PPS 
payment is set forth in Sec.  412.515 through Sec.  412.525. In 
addition to the basic LTC-DRG payment (standard Federal rate multiplied 
by the LTC-DRG relative weight), we make adjustments for differences in 
area wage levels, COLA for Alaska and Hawaii, and SSOs. Furthermore, 
LTCHs may also receive HCO payments for those cases that qualify based 
on the threshold established each rate year.
    To understand the impact of the proposed changes to the LTCH PPS 
payment rates and payment rate policy changes discussed in sections IV. 
and V.A. of this proposed rule on different categories of LTCHs for the 
2008 LTCH PPS rate year, it is necessary to estimate payments per 
discharge under the LTCH PPS rates, factors and policies established 
for RY 2007 (established in the RY 2007 LTCH PPS final rule (71 FR 
27798 through 27939)) and to estimate proposed payments per discharge 
that would be made under the proposed LTCH PPS rates, factors and 
policies for the 2008 LTCH PPS rate year (as discussed in the preamble 
of this proposed rule). We also evaluated the change in estimated 2007 
LTCH PPS rate year payments to estimated proposed 2008 LTCH PPS rate 
year

[[Page 4837]]

payments (on a per discharge basis) for each category of LTCHs.
    Hospital groups were based on characteristics provided in the OSCAR 
data, FY 2002 through FY 2004 cost report data in HCRIS, and PSF data. 
Hospitals with incomplete characteristics were grouped into the 
``unknown'' category. Hospital groups include:
     Location: Large Urban/Other Urban/Rural.
     Participation date.
     Ownership control.
     Census region.
     Bed size.
    To estimate the impacts of the proposed payment rates and payment 
rate policy changes among the various categories of existing providers, 
we used LTCH cases from the FY 2005 MedPAR file to estimate payments 
for RY 2007 and to estimate proposed payments for RY 2008 for 369 
LTCHs. While currently there are just under 400 LTCHs, the most recent 
growth is predominantly in for-profit LTCHs that provide respiratory 
and ventilator-dependent patient care. We believe that the discharges 
from the FY 2005 MedPAR data for the 369 LTCHs in our database, which 
includes 246 proprietary LTCHs, provide sufficient representation in 
the LTC-DRGs containing discharges for patients who received LTCH care 
for the most commonly treated LTCH patients' diagnoses.
    As discussed in greater detail in section VII. of this proposed 
rule, under the 5-year transition set forth at Sec.  412.533(a), a 
LTCH's total payment under the LTCH PPS was based on an increasing 
percentage of the Federal rate with a corresponding decrease in the 
percentage of its LTCH PPS payment based on reasonable cost principles. 
However, effective for cost reporting periods beginning on or after 
October 1, 2006, total LTCH PPS payments are based entirely on the 
Federal rate. Therefore, even though some LTCH's will have a cost 
reporting period for the 4th year of the transition period that will be 
concluding in the first 3 months of the 2008 LTCH PPS rate year, the 
portion of those LTCHs' LTCH PPS payments that will be based on 
reasonable cost principles during RY 2008 is negligible relative to 
LTCH PPS payments based on the Federal rate. This is because, as 
discussed in greater detail in section IV.D.5. of this proposed rule, 
based on the most recent available data, we are projecting that the 
vast majority of LTCHs have already made the election to be paid based 
on 100 percent of the Federal rate rather than the transition blend 
prior to the start of their FY 2006 cost reporting period (that is, the 
4th year of the transition period as set forth at Sec.  412.533(a)), 
and even for those few remaining LTCHs paid under the transition blend 
methodology set forth at Sec.  412.533(a), their total LTCH PPS 
payments are now based mostly on the Federal rate (since the transition 
blend percentages for cost reporting periods beginning during FY 2006 
are 80 percent of the Federal rate and 20 percent of the LTCH PPS 
payment based on reasonable cost principles). Therefore, in this 
proposed rule, we are no longer providing a separate impact table 
reflecting the applicable transition blend percentages, which required 
cost data to determine estimated LTCH PPS payments based on reasonable 
cost principles. Accordingly, the impact analyses of the proposed 
payment rates and payment rate policy changes presented below reflects 
estimated LTCH PPS payments to all LTCHs based solely on the Federal 
rate.
    These impacts reflect the estimated ``losses'' or ``gains'' among 
the various classifications of LTCHs for the 2007 LTCH PPS rate year 
(July 1, 2006 through June 30, 2007) compared to the 2008 LTCH PPS rate 
year (July 1, 2007 through June 30, 2008) based on the proposed payment 
rates and payment rate policy changes presented in this proposed rule. 
Prospective payments for the 2007 LTCH rate year were based on the 
standard Federal rate of $38,086.04, the outlier fixed-loss amount of 
$14,887, and the LTCHs' estimated case-mix based on FY 2005 LTCH claims 
data. Estimated proposed prospective payments for the 2008 LTCH PPS 
rate year would be based on the proposed standard Federal rate of 
$38,356.45 (based on the proposed 0.71 percent update discussed in 
section IV.C.3. of the preamble to this proposed rule), the proposed 
outlier fixed-loss amount of $18,774, and the same FY 2005 LTCH claims 
data.
3. Calculation of Prospective Payments
    To estimate per discharge payments under the LTCH PPS, we simulated 
payments on a case-by-case basis by applying the established (for RY 
2007) and proposed (for RY 2008) adjustments for area wage differences 
(as described in section IV.D.1. of the preamble of this proposed 
rule), and the COLA for Alaska and Hawaii (as described in section 
IV.D.2. of the preamble of this proposed rule). As discussed above, we 
also accounted for the existing payment policy for SSOs in RY 2007 and 
the approach for the SSO policy in RY 2008 discussed in section V.A.2. 
of this proposed rule). Additional payments would also be made for HCOs 
(as described in section IV.D.3. of this proposed rule). As noted in 
section IV.D.4. of this proposed rule, we are not proposing to make 
adjustments for rural location, geographic reclassification, indirect 
medical education costs, or a DSH payment for the treatment of low-
income patients because sufficient new data have not been generated 
that would enable us to conduct a comprehensive reevaluation of these 
payment adjustments.
    We adjusted for area wage differences for estimated 2007 LTCH PPS 
rate year payments by computing a weighted average of a LTCH's 
applicable wage index during the period from July 1, 2006 through June 
30, 2007 because some providers may experience a change in the wage 
index phase-in percentage during that period. For cost reporting 
periods beginning on or after October 1, 2005, and before September 30, 
2006 (FY 2006), the labor portion of the Federal rate is adjusted by 
four-fifths of the applicable LTCH PPS wage index. For cost reporting 
periods beginning on or after October 1, 2006, and before September 30, 
2007 (FY 2007), the labor portion of the Federal rate is adjusted by 
five-fifths (that is, the full amount) of the applicable LTCH PPS wage 
index. Therefore, during RY 2007, a provider with a cost reporting 
period that began October 1, 2006, would have 3 months (July 2006 
through September 2006) of payments under the four-fifths wage index 
value and 9 months (October 2006 through June 2007) of payment under 
the (full) five-fifths wage index value. For this provider, we computed 
a blended wage index of 25 percent (3 months/12 months) of the four-
fifths wage index value and 75 percent (9 months/12 months) of the 
(full) five-fifths wage index value. The applicable LTCH PPS wage index 
values for the 2007 LTCH PPS rate year are shown in Tables 1 and 2 of 
the Addendum to the RY 2007 LTCH PPS final rule (71 FR 27906 through 
27930). We adjusted for area wage differences for estimated 2007 LTCH 
PPS rate year payments using the current LTCH PPS labor-related share 
of 75.665 percent (71 FR 27830).
    Similarly, we adjusted for area wage differences for estimated 
proposed 2008 LTCH PPS rate year payments by computing a weighted 
average of a LTCH's applicable wage index during the period from July 
1, 2007, through June 30, 2008, because, although under the established 
phase-in of the wage index adjustment for cost reporting periods 
beginning on or after October 1, 2006, the applicable LTCH wage index 
value is the full (five-fifths) LTCH PPS wage index value, during RY 
2008 some providers will still experience a change in the wage index 
phase-in percentage

[[Page 4838]]

during that period. For example, during RY 2008, a provider with a FY 
2006 cost reporting period that began September 1, 2006, (and will end 
on August 31, 2007,) would have 2 months (July 2007 and August 2007) of 
payments under the proposed four-fifths wage index value and 10 months 
(September 2007 through June 2007) of payment under the proposed (full) 
five-fifths wage index value. For this provider, we computed a blended 
wage index of 16.7 percent (2 months/12 months) of the proposed four-
fifths wage index value and 83.3 percent (10 months/12 months) of the 
proposed (full) five-fifths wage index value. The proposed applicable 
LTCH PPS wage index values for the 2008 LTCH PPS rate year are shown in 
Tables 1 and 2 of Addendum A to this proposed rule. We adjusted for 
area wage differences for estimated 2008 LTCH PPS rate year payments 
using the proposed LTCH PPS labor-related share of 75.511 percent (see 
section IV.D.1.c. of this proposed rule).
    As noted previously in this proposed rule, under the 5-year 
transition set forth at Sec.  412.533(a), a LTCH's total payment under 
the LTCH PPS was based on an increasing percentage of the Federal rate 
with a corresponding decrease in the percentage of the LTCH PPS payment 
that is based on reasonable cost principles. However, effective for 
cost reporting periods beginning on or after October 1, 2006, total 
LTCH PPS payments are based solely on the Federal rate. Therefore, even 
though some LTCH's will have a cost reporting period for the 4th year 
of the transition period that will be concluding in the first 3 months 
of the 2008 LTCH PPS rate year, the portion of those LTCH PPS payments 
that will be based on reasonable cost principles during RY 2008 is 
negligible relative to LTCH PPS payments based on the Federal rate, and 
therefore, we are no longer estimating transition payments as we have 
done in past impact analyses (for example, 71 FR 27892).
    Furthermore, in estimating both RY 2007 and proposed RY 2008 LTCH 
PPS payments, we did not apply a transition period BN offset to 
payments to account for the effect of the 5-year transition methodology 
and election of payment based on 100 percent of the Federal rate on 
Medicare program payments (established in the August 30, 2002 final 
rule (67 FR 56034)). This is because, for RY 2007, we established a 0.0 
percent BN offset (a BN factor of 1.0) to payments to account for the 
effect of the 5-year transition methodology and election of payment 
based on 100 percent of the Federal rate on Medicare program payments 
in RY 2007 (71 FR 27841). As noted above and discussed in greater 
detail in section IV.D.5. of this proposed rule, we are not proposing a 
transition period BN offset to all LTCH PPS payments in RY 2008 to 
account for the estimated cost of the transition period methodology 
(including the option to elect payment based on 100 percent of the 
Federal rate) in RY 2008 since we are projecting that such costs would 
be negligible.
    As noted in Table 9, we show the impact as if all LTCHs would be 
paid 100 percent of the Federal rate since, based on the most recent 
available data and the transition blend percentages set forth at Sec.  
412.533(a), nearly all LTCH PPS payments would be based on 100 percent 
of the applicable LTCH PPS standard Federal rate during the majority of 
RYs 2007 and 2008. Table 9 illustrates the estimated aggregate impact 
of the LTCH PPS among various classifications of LTCHs.
     The first column, LTCH Classification, identifies the type 
of LTCH.
     The second column lists the number of LTCHs of each 
classification type.
     The third column identifies the number of LTCH cases.
     The fourth column shows the estimated payment per 
discharge for the 2007 LTCH PPS rate year.
     The fifth column shows the estimated proposed payment per 
discharge for the 2008 LTCH PPS rate year.
     The sixth column shows the estimated percentage change in 
estimated payments per discharge from the 2007 LTCH PPS rate year to 
the 2008 LTCH PPS rate year for proposed changes to the Federal rate.
     The seventh column shows the percentage change in 
estimated payments per discharge from the 2007 LTCH PPS rate year to 
the 2008 LTCH PPS rate year for proposed changes to the area wage 
adjustment at Sec.  412.525(c) (as discussed in section IV.D.1. of the 
preamble of this proposed rule).
     The eighth column shows the percent change in estimated 
payments per discharge from the 2007 LTCH PPS rate year to the 2008 
LTCH PPS rate year for the approach discussed for addressing our 
concerns with the existing SSO policy at Sec.  412.529 (as discussed in 
section V.A.2. of the preamble of this proposed rule).
     The ninth column shows the estimated percentage change in 
estimated payments per discharge from the 2007 LTCH PPS rate year to 
the 2008 LTCH PPS rate year for all proposed changes (and includes the 
estimated impact of the approach for the SSO policy discussed in 
section V.A.2. of the preamble of this proposed rule).

                  Table 9.--Projected Impact of Proposed Payment Rate and Payment Rate Policy Changes to LTCH PPS Payments for RY 2008*
                      [Estimated 2007 LTCH PPS rate year payments compared to estimated proposed 2008 LTCH PPS rate year payments*]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                            Percent
                                                                                                           increase     Percent     Percent
                                                                                                              in       decrease    decrease     Percent
                                                                                                           estimated    \3\ in      \3\ in     decrease
                                                                                                Average    payments    estimated   estimated    \3\ in
                                                                                    Average    estimated      per      payments    payments    estimated
                                                                                   estimated   proposed    discharge      per         per      payments
                                                                       Number of    RY 2007     RY 2008     from RY    discharge   discharge      per
                   LTCH Classification                     Number of   LTCH PPS    LTCH PPS    LTCH PPS     2007 to     from RY     from RY    discharge
                                                             LTCHs       cases     rate year   rate year  (proposed)  2007 to RY  2007 to RY    from RY
                                                                                    payment     payment     RY 2008    2008 for    2008 for   2007 to RY
                                                                                   per case    per case       for      proposed    approach    2008 for
                                                                                      \1\         \2\      proposed   changes to   discussed      all
                                                                                                          changes to   the area     for the    proposed
                                                                                                              the        wage     SSO policy    changes
                                                                                                            Federal   adjustment     \6\*        \7\*
                                                                                                           rate \4\       \5\
--------------------------------------------------------------------------------------------------------------------------------------------------------
ALL PROVIDERS...........................................         369     129,584     $31,486     $31,278         0.6         0.5         0.9         0.7
BY LOCATION:
    RURAL...............................................          25       5,044      25,100      24,447         0.7         2.2         1.0         2.6
    URBAN...............................................         344     124,540      31,744      31,555         0.6         0.5         0.9         0.6
        LARGE...........................................         181      77,511      32,819      32,768         0.6         0.1         0.9         0.2
        OTHER...........................................         163      47,029      29,974      29,555         0.6         1.1         1.0         1.4

[[Page 4839]]

 
BY PARTICIPATION DATE:
    BEFORE OCT. 1983....................................          15       7,966      26,999      27,157         0.6        -0.1         0.4        -0.6
    OCT. 1983-SEPT. 1993................................          44      22,661      33,171      33,050         0.6         0.3         1.0         0.4
    OCT. 1993-SEPT. 2002................................         207      75,380      31,382      31,169         0.6         0.6         0.9         0.7
    AFTER OCT. 2002.....................................         101      23,163      31,709      31,303         0.6         1.0         1.0         1.3
    UNKNOWN.............................................           2         414      31,888      32,068         0.6        -0.4         0.8        -0.6
BY OWNERSHIP CONTROL:
    VOLUNTARY...........................................          78      26,725      30,329      30,069         0.6         0.6         1.0         0.9
    PROPRIETARY.........................................         246      96,236      31,715      31,532         0.6         0.5         0.9         0.6
    GOVERNMENT..........................................          13       3,087      32,116      31,763         0.6         0.9         0.9         1.1
    UNKNOWN.............................................          32       3,536      33,437      33,072         0.6         0.8         1.0         1.1
BY CENSUS REGION:
    NEW ENGLAND.........................................          14       9,858      26,775      26,984         0.6        -0.4         0.5        -0.8
    MIDDLE ATLANTIC.....................................          28       7,697      32,405      32,063         0.6         1.0         0.9         1.1
    SOUTH ATLANTIC......................................          43      13,684      35,178      34,834         0.6         0.9         1.0         1.0
    EAST NORTH CENTRAL..................................          66      18,555      35,545      35,508         0.6         0.1         0.9         0.1
    EAST SOUTH CENTRAL..................................          28       7,525      31,242      30,611         0.6         1.6         1.2         2.0
    WEST NORTH CENTRAL..................................          18       5,173      34,383      34,057         0.6         0.7         1.0         0.9
    WEST SOUTH CENTRAL..................................         134      52,681      27,848      27,454         0.6         1.2         0.9         1.4
    MOUNTAIN............................................          22       6,378      33,642      33,894         0.6        -1.0         1.1        -0.7
    PACIFIC.............................................          16       8,033      41,224      41,801         0.6        -1.3         0.8        -1.4
BY BED SIZE:
    BEDS: 0-24..........................................          25       4,120      29,754      29,266         0.6         1.1         1.1         1.6
    BEDS: 25-49.........................................         174      43,374      31,469      31,133         0.6         0.9         0.9         1.1
    BEDS: 50-74.........................................          57      22,539      31,860      31,664         0.6         0.4         1.0         0.6
    BEDS: 75-124........................................          45      21,862      32,641      32,473         0.6         0.5         0.9         0.5
    BEDS: 125-199.......................................          23      21,724      30,395      30,286         0.6         0.3         0.9         0.4
    BEDS: 200 +.........................................          13      12,429      30,756      30,869         0.6        -0.2         0.7        -0.4
    UNKNOWN.............................................          32       3,536      33,437      33,072         0.6         0.8         1.0        1.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
\*\ As discussed above in section XVI.A.1. of this regulatory impact analysis, we estimate that the approach discussed for addressing our concerns with
  the existing SSO policy presented in section V.A.2. of the preamble of this proposed rule would result in the decrease in estimated payments in the
  2008 LTCH PPS rate year (approximately an additional $37 million, on average, for all LTCHs as shown in column 8). However, we note that in absence of
  including such an approach, we estimate that in place of the 0.7 percent decrease in estimated payments per discharge, on average, for all LTCHs
  (shown in column 9), there would be 0.3 percent increase in estimated payments per discharge, on average, for all LTCHs from the 2007 LTCH PPS rate
  year to the 2008 LTCH PPS rate year for all proposed payment rate and policy changes presented in the preamble of this proposed rule. We also note
  that, as discussed above in section XVI.B.4. of this regulatory impact analysis, the 2.2 percent decrease in estimated aggregate LTCH PPS payments due
  to the proposed expansion of the special payment provision for co-located LTCHs to certain situations not presently covered by existing Sec.   412.534
  for subclause (I) LTCHs (as discussed in section V.B. of this proposed rule) is not reflected in this impact table. However, the impact of the
  proposed expansion of the ``25 percent'' policy is discussed in greater detail below in section XVI.C.1. of this regulatory impact analysis.
\1\ Estimated average estimated payment per case for the 12-month period of July 1, 2006 through June 30, 2007.
\2\ Estimated proposed average estimated payment per case for the 12-month period of July 1, 2007 through June 30, 2008.
\3\ As the percent change shown in this column represents a percent decrease in estimated payments per discharge, a negative (that is, minus) sign
  indicates a percent increase in estimated payments per discharge and the absence of a sign (that is, a positive sign) indicates a percent decrease in
  estimated payments per discharge.
\4\ Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate year for the proposed changes to the
  Federal rate. (Note, as discussed in section XVI.B.4. of this regulatory impact analysis, because about 35 percent of all LTCH cases are projected to
  receive a payment under the existing SSO policy that is based either on the estimated cost of the case or the ``IPPS comparable amount'' (rather than
  the proposed Federal rate), the percent change in estimated payments per discharge due to the proposed changes to the Federal rate for most of the
  categories of LTCHs, 0.6 percent, is slightly less than the proposed update to the Federal rate of 0.71 percent.)
\5\ Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate year for proposed changes to the area
  wage adjustment policy at Sec.   412.525(c) (as discussed in section V.D.1. of the preamble of this proposed rule).
\6\ Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate year for the approach discussed to
  address our concerns with the existing SSO policy at Sec.   412.529 (presented in section V.A.1.a. of the preamble of this proposed rule).
\7\ Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year (as established in the RY 2007 LTCH PPS final rule (71 FR 27798
  through 27939)) to the 2008 LTCH PPS rate year (as discussed in the preamble of this proposed rule, including the approach to the SSO policy discussed
  in section V.A.2. of this proposed rule) for all of the payment rate and policy provisions presented in the preamble of this proposed rule. Note, this
  column, which shows the percent change in estimated payments per discharge for all proposed changes, may not exactly equal the sum of the percent
  changes in estimated payments per discharge for proposed changes to the Federal rate (column 7), for proposed area wage adjustment changes (column 8)
  and the approach discussed for the SSO policy (column 9) due to the effect of estimated changes in aggregate HCO payments, as well as other
  interactive effects that cannot be isolated.

4. Results
    Based on the most recent available data (as described previously 
for 369 LTCHs), we have prepared the following summary of the impact 
(as shown in Table 9) of the proposed LTCH PPS payment rate and payment 
rate policy changes presented in this proposed rule (including the 
approach to the SSO policy discussed in section V.A.2. of this proposed 
rule). (As noted above, the impact of other policy changes presented in 
this proposed rule, which do not directly affect the LTCH PPS per 
discharge payment rate, such as the proposed expansion of the existing 
payment provision for co-located LTCHs

[[Page 4840]]

to certain situations not presently covered by existing Sec.  412.534 
for subclause (I) LTCHs, are not included as part of the impact 
analysis shown in Table 9. However, the impact of those other proposed 
policies are discussed separately in section XVI.C. of this regulatory 
impact analysis.)
    The impact analysis in Table 9 shows that estimated payments per 
discharge are expected to decrease approximately 0.7 percent, on 
average, for all LTCHs from the 2007 LTCH PPS rate year as compared to 
the 2008 LTCH PPS rate year as a result of the proposed payment rate 
and policy changes presented in this proposed rule. We note that 
although we are proposing a 0.71 percent increase to the Federal rate 
for RY 2008, the impact analysis shown in Table 9 (column 6), only 
shows a 0.6 percent increase in estimated payments per discharge from 
RY 2007 to RY 2008, for most categories of LTCHs, as a result of the 
proposed changes to the Federal rate. The reason that this column shows 
an estimated 0.6 percent increase rather than an estimated 0.7 percent 
increase (based on the proposed 0.71 percent update to the Federal 
rate) is because about 35 percent of all LTCH cases are projected to 
receive a payment under the existing SSO policy. Under either the 
existing SSO policy or the approach for the SSO policy discussed in 
section V.A.2. of this proposed rule, the majority of SSO cases would 
receive an adjusted LTCH PPS payment in RY 2008 that would be based 
either on the estimated cost of the case or the ``IPPS comparable 
amount'' (that is, either under the ``blend amount'' at existing Sec.  
412.529(c)(2)(iv) or the amount discussed in our approach to address 
our concerns with the existing SSO policy) rather than a LTCH PPS 
payment based on the proposed Federal rate. Therefore, because over 30 
percent of all LTCH PPS cases would receive a payment that is not based 
on the proposed Federal rate, the percent change in estimated payments 
per discharge due to the proposed changes to the Federal rate for most 
categories of LTCHs shown in Table 9 is projected to be slightly less 
(0.6 percent) than the proposed 0.71 percent update to the Federal 
rate. Although, we are proposing a 0.71 percent increase to the Federal 
rate for RY 2008, the projected percent decrease in estimated payments 
per discharge from the 2007 LTCH PPS rate year to the 2008 LTCH PPS 
rate year shown in Table 9 is due the proposed changes to the area wage 
adjustment (discussed in section IV.D.1. of this proposed rule), in 
conjunction with the approach to the SSO policy (discussed in section 
V.A.2. of this proposed rule) and the proposed increase to the HCO 
fixed-loss amount (as discussed in section IV.D.3.c. of this proposed 
rule).
    Specifically, as we discussed in greater detail in section IV.D.1. 
of the preamble of this proposed rule, we are proposing to update the 
wage index values for RY 2008 in accordance with the progression of the 
5-year phase-in of the wage index adjustment. We are also proposing to 
decrease the labor-related share from 75.665 percent to 75.511 percent 
under the LTCH PPS beginning in RY 2008. Because this proposed change 
to the labor-related share would lower the portion of the Federal rate 
that is adjusted by the wage index to account for differences in local 
cost variation (in accordance with Sec.  412.525(c)), LTCHs located in 
areas with a proposed RY 2008 wage index value that is greater than 1.0 
would experience a slight decrease in estimated payments per discharge 
as a result of the proposed decrease in the labor-related share. 
Conversely, LTCHs located in areas with a proposed RY 2008 wage index 
value that is less than 1.0 are expected to experience an increase in 
estimated payments per discharge as a result of the proposed decrease 
in the labor-related share since a smaller portion of the Federal rate 
would be adjusted by the proposed wage index to account for differences 
in local cost variation (in accordance with Sec.  412.525(c)). However, 
the effect of the progression of the 5-year phase-in of the wage index 
adjustment, which results in a relatively more significant decrease in 
estimated payments for LTCHs located in areas with a proposed RY 2008 
wage index value that is less than 1.0, would likely offset the effect 
on payments due to the decrease in the labor-related share. 
Consequently, the proposed changes to the wage index adjustment 
presented in this proposed rule for LTCHs located in areas with a 
proposed RY 2008 wage index value that is less than 1.0 are expected to 
also contribute to the projected decrease in estimated payments per 
discharge from RY 2007 as compared to RY 2008.
    In addition, under the approach discussed to address our concerns 
with the existing SSO policy (discussed in section V.A.2. of this 
proposed rule), those LTCH SSO cases with a covered LOS that is less 
than or equal to the IPPS ALOS plus one standard deviation for the same 
DRG would receive a lower adjusted LTCH PPS payment than under the 
current SSO policy. We believe that the LTCH cases meeting the criteria 
stated above appear to be similar to the same type of cases treated in 
an acute care hospital and paid for under the IPPS since one standard 
deviation is a statistical test which measures the certainty of the 
average of a set of measurements for the purpose of this data analysis. 
Accordingly, we believe the approach discussed for the SSO policy could 
be appropriate, given that many of these SSO cases that are ``similar 
to IPPS cases'' most likely do not receive a full course of a LTCH-
level of treatment in such a short period of time since, in general, 
LTCHs are intended to treat longer stay patients. Furthermore, since by 
far the majority of SSO cases were admitted to the LTCH directly from 
an acute-care hospital, they are likely to still be in need of acute-
level care at the time of admission to the LTCH. We believe that this 
may indicate that the LTCH admission is a premature and inappropriate 
discharge from the acute-care hospital and an inappropriate admission 
to the LTCH. We believe that the approach for the SSO policy could 
result in appropriate payments for short-stay cases treated at LTCHs as 
discussed in greater detail in section V.A.2. of this proposed rule.
    Furthermore, as we discussed in greater detail in section IV.D.3.c. 
of the preamble of this proposed rule, given the regulatory requirement 
at Sec.  412.525(a) that estimated outlier payments equal 8 percent of 
estimated total LTCH PPS payments, this decrease in estimated LTCH PPS 
payments for RY 2008 resulting primarily from the proposed changes to 
the SSO policy and the proposed changes to the area wage adjustment 
would require a proposed increase in the HCO fixed-loss amount to 
maintain estimated outlier payments at 8 percent of the estimated total 
LTCH PPS payments (resulting from the proposed payment rate and policy 
changes presented in this proposed rule). Thus, the proposed increase 
in the outlier fixed-loss amount also contributes to the projected 
decrease in estimated payments per discharge from the 2007 LTCH PPS 
rate year to the 2008 LTCH PPS rate year. For example, many LTCHs are 
expected to receive a decrease in HCO payments. As a result of the 
proposed increase to the fixed-loss amount from the 2007 LTCH PPS rate 
year ($14,887) to the 2008 LTCH PPS rate year ($18,774), fewer cases 
would qualify as outlier cases (that is, the estimated cost of the case 
exceeds the outlier threshold). Since many LTCHs are expected to 
receive fewer outlier payments, total estimated payments per discharge 
are expected to decrease slightly from RY 2007 to RY 2008.

[[Page 4841]]

a. Location
    Based on the most recent available data, the majority of LTCHs are 
in urban areas. Approximately 7 percent of the LTCHs are identified as 
being located in a rural area, and approximately 4 percent of all LTCH 
cases are treated in these rural hospitals. The impact analysis 
presented in Table 9 shows that the percent decrease in estimated 
payments per discharge for the 2007 LTCH PPS rate year compared to the 
2008 LTCH PPS rate year for rural LTCHs would be 2.6 percent for all 
proposed changes, and would be 0.6 percent for urban LTCHs for all 
proposed changes.
    The primary reasons that the projected percent decrease in 
estimated payments to rural LTCHs is greater than that for urban LTCHs 
is that rural LTCHs are expected to experience a larger decrease in 
estimated payments due to the approach discussed for the SSO policy 
because, based on the most recent available data, many rural LTCHs 
treat a larger than average percentage of SSO cases (in fact, for a few 
rural LTCHs, SSO cases represent over half of their total cases based 
on FY 2005 data). Furthermore, rural LTCHs are projected to experience 
a higher than average decrease in estimated payments per discharge as a 
result of the proposed changes to the area wage adjustment because the 
proposed wage index for all rural LTCHs is less than 1.0, as explained 
above in this section.
    Large urban LTCHs are projected to experience a 0.2 percent 
decrease in estimated payments per discharge from the 2007 LTCH PPS 
rate year compared to the 2008 LTCH PPS rate year, while other urban 
LTCHs are projected to experience a 1.4 percent decrease in estimated 
payments per discharge from the 2007 LTCH PPS rate year compared to the 
2008 LTCH PPS rate year, as shown in Table 9. Other urban LTCHs are 
projected to experience a higher than average decrease in estimated 
payments per discharge primarily because of the proposed changes to the 
area wage adjustment. This is because the majority of other urban LTCHs 
(over 80 percent) are located in urban areas that have a proposed wage 
index value of less than 1.0, and therefore, would experience a higher 
than average decrease in estimated payments per discharge as a result 
of the proposed changes to the wage index adjustment, as explained 
above. In addition, other urban LTCHs have a slightly higher percentage 
of SSO cases and therefore, are projected to experience a slightly 
higher than average decrease in estimated payments per discharge as a 
result of the approach discussed for the SSO policy (as also discussed 
in greater detail above in this section).
    Large urban LTCHs are projected to experience a lower than average 
decrease in estimated payments per discharge for all changes primarily 
because of the proposed changes to the area wage adjustment because the 
majority of large urban LTCHs are located in urban areas that have a 
proposed wage index value of greater than 1.0, as explained above in 
this section.
b. Participation Date
    LTCHs are grouped by participation date into four categories: (1) 
Before October 1983; (2) between October 1983 and September 1993; (3) 
between October 1993 and September 2002; and (4) after October 2002. 
Based on the most recent available data, the majority (approximately 56 
percent) of the LTCH cases are in hospitals that began participating 
between October 1993 and September 2002, and are projected to 
experience a 0.7 percent decrease in estimated payments per discharge 
from the 2007 LTCH PPS rate year compared to the 2008 LTCH PPS rate 
year, as shown in Table 9.
    Approximately 12 percent of LTCH PPS cases are in LTCHs that began 
participating in Medicare between October 1983 and September 1993, and 
those LTCHs are projected to experience a 0.4 percent decrease in 
estimated payments per discharge from the 2007 LTCH PPS rate year 
compared to the 2008 LTCH PPS rate year, as shown in Table 9. We are 
projecting that LTCHs that began participating in Medicare between 
October 1983 and September 1993 would experience a lower than average 
decrease in estimated payments for RY 2008 primarily because we are 
projecting that these LTCHs are expected to experience a lower than 
average decrease (0.3 percent) in estimated payments per discharge due 
to the proposed changes to the area wage adjustment. This is because 
many of the LTCHs that began participating in Medicare between October 
1983 and September 1993 are located in areas where the proposed RY 2008 
wage index value would be greater than the RY 2007 wage index value, 
and because several of these LTCHs are located in areas that have a 
proposed wage index value of greater than 1.0, (as explained above).
    LTCHs that began participating before October 1983 are projected to 
experience a 0.6 percent increase in estimated payments per discharge 
from the 2007 LTCH PPS rate year compared to the 2008 LTCH PPS rate 
year (see Table 9). We are projecting that LTCHs that began 
participating in Medicare before October 1983 would experience an 
increase in estimated payments for RY 2008 as compared to RY 2007 
primarily because we are projecting that LTCHs in this participation 
date category would experience a slight increase in estimated payments 
in RY 2008 as compared to RY 2007 due to the proposed changes to the 
area wage adjustment. This is because many of the LTCHs that began 
participating in Medicare before October 1983 are located in areas 
where the proposed RY 2008 wage index value would be greater than the 
proposed RY 2007 wage index value, and because several of these LTCHs 
are located in areas that would have a proposed RY 2008 wage index 
value of greater than 1.0, (as discussed in section XVI.B.4. of this 
regulatory impact analysis). In addition, LTCHs that began 
participating in Medicare before October 1983 are expected to 
experience a lower than average decrease in estimated payments due to 
the approach discussed for the SSO policy (discussed in section V.A.2. 
of this proposed rule). Specifically, based on the FY 2005 LTCH claims 
data, the majority of LTCHs in this participation date category treat a 
smaller than average percentage of SSO cases.
    Approximately 27 percent of LTCHs began participating in Medicare 
after October 2002 (that is, the beginning of the LTCH PPS, which was 
implemented for cost reporting periods beginning on or after October 1, 
2002), and those LTCHs are projected to experience a 1.3 percent 
decrease in estimated payments per discharge from the 2007 LTCH PPS 
rate year compared to the 2008 LTCH PPS rate year (see Table 9). We are 
projecting that LTCHs that began participating in Medicare after 
October 2002 will experience a higher than average decrease in 
estimated payments for RY 2008 primarily because we are projecting that 
these LTCHs would experience a larger than average decrease (1.0 
percent) in estimated payments per discharge due to the proposed 
changes to the area wage adjustment. This is because the majority of 
the LTCHs that began participating in Medicare after October 2002 are 
located in areas where the proposed RY 2008 wage index value would be 
less than the RY 2007 wage index value, and because the majority (over 
80 percent) of these LTCHs are located in areas that would have a 
proposed RY 2008 wage index value of less than 1.0, (as discussed above 
in this section).

[[Page 4842]]

c. Ownership Control
    Other than LTCHs whose ownership control type is unknown, LTCHs are 
grouped into three categories based on ownership control type: 
Voluntary; proprietary; and government. Based on the most recent 
available data, approximately 4 percent of LTCHs are identified as 
government-owned and operated. We expect that for these government-
owned and operated LTCHs, estimated 2008 LTCH PPS rate year payments 
per discharge would decrease 1.1 percent in comparison to the 2007 LTCH 
PPS rate year, as shown in Table 9. We are projecting that government-
run LTCHs would experience a higher than average decrease in estimated 
payments in RY 2008 as compared to RY 2007 primarily due to the effect 
of the proposed changes to the area wage adjustment. This is because 
all but 3 of the 13 government-run LTCHs in our database are located in 
areas where the proposed wage index value for RY 2008 is less than 1.0, 
as explained above.
    Similarly, we project that estimated 2008 LTCH PPS rate year 
payments per discharge for voluntary LTCHs, which account for 
approximately 21 percent of LTCHs, would decrease 0.9 percent in 
comparison to estimated 2007 LTCH PPS rate year payments (see Table 9). 
We are projecting that voluntary LTCHs would experience a slightly 
higher than average decrease in estimated payments in RY 2008 as 
compared to RY 2007 due to the proposed changes to the wage index 
adjustment, as well as the approach discussed for the SSO policy. 
Specifically, we expect voluntary LTCHs would experience a slightly 
higher than average decrease in estimated payments in RY 2008 as 
compared to RY 2007 due to the approach discussed for the SSO policy 
since over half (48 LTCHs) of the voluntary LTCHs have a higher than 
average percentage of SSO cases. We expect voluntary LTCHs would 
experience a slightly higher than average decrease in estimated 
payments in RY 2008 as compared to RY 2007 due to the proposed changes 
to the wage index adjustment since over three-quarters (61 LTCHs) of 
the voluntary LTCHs are located in areas where the proposed wage index 
value is less than 1.0 (as discussed above).
    The majority (approximately 67 percent) of LTCHs are identified as 
proprietary. We project that 2008 LTCH PPS rate year estimated payments 
per discharge for these proprietary LTCHs would decrease 0.6 percent in 
comparison to the 2007 LTCH PPS rate year (see Table 9).
d. Census Region
    Estimated payments per discharge for the 2008 LTCH PPS rate year 
are projected to decrease for LTCHs located in most regions (with the 
exception of New England, Mountain, and Pacific regions) in comparison 
to the 2007 LTCH PPS rate year. The percent decrease in estimated 
payments per discharge from the 2007 LTCH PPS rate year to the 2008 
LTCH PPS rate year for most regions is largely attributable to the 
approach discussed for the SSO policy, the proposed changes in the area 
wage adjustment, and the increase in the HCO fixed-loss amount (as 
explained above).
    Of the 9 census regions, we project that the decrease in proposed 
2008 LTCH PPS rate year estimated payments per discharge in comparison 
to the 2007 LTCH PPS rate year would have the largest impact on LTCHs 
in the East South Central and West South Central regions (2.0 percent 
and 0.5 percent, respectively; see Table 9). LTCHs located in both the 
East South Central and West South Central regions are expected to 
experience a higher than average decrease in estimated payments due to 
the proposed changes in the area wage adjustment (1.6 percent for the 
East South Central region, and 1.2 percent for the West South Central 
region, as shown in Table 9). This is because nearly all LTCHs located 
in the East South Central region and the West South Central regions are 
located in areas with a wage index value that is less than 1.0 (as 
described above). In addition, LTCHs are also expected to experience a 
higher than average decrease in estimated payments per discharge due to 
the approach discussed for the SSO policy since many of the LTCHs in 
these two regions have a larger than average percentage of SSO cases 
(based on FY 2005 LTCH claims data).
    We project that proposed 2008 LTCH PPS rate year estimated payments 
per discharge would increase for LTCHs in the New England, Mountain and 
Pacific region in comparison to the 2007 LTCH PPS rate year (0.8 
percent, 0.7 percent and 1.4 percent, respectively; see Table 9). We 
estimate that for LTCHs located in these three regions, the projected 
increases in estimated payments per discharge for the 2008 LTCH PPS 
rate year compared to the 2007 LTCH PPS rate year are largely a result 
of the proposed changes to the area wage adjustment. Specifically, we 
are projecting an increase in estimated LTCH PPS payments due to the 
changes to the area wage adjustment because all LTCHs in the New 
England and Pacific regions and the majority (over 68 percent) of LTCHs 
in the Mountain region are located in areas where the proposed wage 
index value for RY 2008 is greater than 1.0, and because many of the 
LTCHs in these three regions are located in areas where the proposed RY 
2008 wage index value is greater than the RY 2007 wage index value (as 
described above).
e. Bed Size
    LTCHs were grouped into seven categories based on bed size: 0-24 
beds; 25-49 beds; 50-74 beds; 75-124 beds; 125-199 beds; greater than 
200 beds; and unknown bed size.
    We are projecting a decrease in estimated 2008 LTCH PPS rate year 
payments per discharge in comparison to the 2007 LTCH PPS rate year for 
all bed size categories except for the category with greater than 200 
beds. Most LTCHs are in bed size categories where estimated 2008 LTCH 
PPS rate year payments per discharge are projected to decrease between 
1.1 percent and 1.6 percent in comparison to the 2007 LTCH PPS rate 
year (that is, LTCHs with less than 49 beds). As noted above, the 
projected percent increase in estimated payments per discharge from the 
2007 LTCH PPS rate year to the 2008 LTCH PPS rate year is largely 
attributable to the approach discussed for the SSO policy, the proposed 
changes in the area wage adjustment, and the proposed increase in the 
outlier fixed-loss amount (as explained above).
    Estimated payments per discharge for the 2008 LTCH PPS rate year 
for LTCHs with 0-24 beds are projected to decrease the most in 
comparison to the 2007 LTCH PPS rate year (1.6 percent; see Table 9), 
followed by LTCHs with 25-49 beds (1.1 percent; see Table 9). This 
higher than average decrease in estimated payments per discharge for 
LTCHs with less than 49 beds (that is, LTCHs in the 0-24 bed size 
category and LTCHs in the 25-49 bed size category) is largely due to 
the proposed changes to the area wage adjustment and the approach 
discussed for the SSO policy. Specifically, the majority of LTCHs with 
49 beds or less are located in areas where the proposed RY 2008 wage 
index value is less than the RY 2007 wage index value. In addition, the 
majority (over 80 percent) of LTCHs with 49 beds or less are located in 
areas where the proposed RY 2008 wage index is less than 1.0. 
Furthermore, many of the LTCHs with less than 25 beds have a larger 
than average percentage of SSO cases, and therefore, are expected to 
experience a larger than average decrease in estimated payments

[[Page 4843]]

per discharge due to the approach discussed for the SSO policy.
    We project that LTCHs with greater than 200 beds would have a 
slight increase in estimated 2008 LTCH PPS rate year payments per 
discharge in comparison to the 2007 LTCH PPS rate year (0.4 percent; 
see Table 9). This slight increase in estimated payments per discharge 
for LTCHs with greater than 200 beds is primarily due to the proposed 
changes to the area wage adjustment. This is because the majority of 
these LTCHs are located in areas where the proposed RY 2008 wage index 
value is greater than the RY 2007 wage index value, and because 12 of 
the 13 LTCHs with greater than 200 beds are located in an area where 
the proposed RY 2008 wage index value is greater than 1.0 (as described 
above).
5. Effect on the Medicare Program
    Based on actuarial projections, an estimate of Medicare spending 
(total estimated Medicare program payments) for LTCH services over the 
next 5 years based on current LTCH PPS policy (as established in 
previous LTCH PPS final rules) is shown in Table 4 in section IV.D.5. 
of the preamble of this proposed rule. As noted we project that the 
provisions of this proposed rule (including the approach discussed for 
the SSO policy), would result in a decrease in estimated aggregate LTCH 
PPS payments in RY 2008 of about $117 million (or about 2.9 percent) 
for the 369 LTCHs in our database, as explained in greater detail above 
in section XVI.A. of this regulatory impact analysis.
    Consistent with the statutory requirement for BN, as we discussed 
in the August 30, 2002 final rule that implemented the LTCH PPS, in 
developing the LTCH PPS, we intended estimated aggregate payments under 
the LTCH PPS in FY 2003 be projected to equal the estimated aggregate 
payments that would have been made if the LTCH PPS were not 
implemented. Our methodology for estimating payments for purposes of 
the BN calculations for determining the FY 2003 standard Federal rate 
uses the best available data and necessarily reflects assumptions. As 
we collect data from LTCHs, we will monitor payments and evaluate the 
ultimate accuracy of the assumptions used in the BN calculations (that 
is, inflation factors, intensity of services provided, or behavioral 
response to the implementation of the LTCH PPS). As discussed in 
section IV.D.6. of this proposed rule, we still do not have sufficient 
new cost report and claims data generated under the LTCH PPS to enable 
us to conduct a comprehensive reevaluation of our FY 2003 BN 
calculation at this time.
    Section 123 of the BBRA and section 307 of the BIPA provide the 
Secretary with extremely broad authority in developing the LTCH PPS, 
including the authority for appropriate adjustments. In accordance with 
this broad authority, we may discuss in a future proposed rule a 
possible one-time prospective adjustment to the LTCH PPS rates under 
Sec.  412.523(d)(3) on or before July 1, 2008, so that the effect of 
any significant differences between actual payments and estimated 
payments for the first year of the LTCH PPS is not perpetuated in the 
LTCH PPS payment rates for future years.
6. Effect on Medicare Beneficiaries
    Under the LTCH PPS, hospitals receive payment based on the average 
resources consumed by patients for each diagnosis. We do not expect any 
changes in the quality of care or access to services for Medicare 
beneficiaries under the LTCH PPS, but we expect that paying 
prospectively for LTCH services would enhance the efficiency of the 
Medicare program.

C. Impact of Other Proposed Policy Changes

1. Effects of Proposed Policy Expansion of the Special Payment 
Provisions for LTCH HwHs and LTCH Satellites to Certain Situations Not 
Presently Covered by Existing Sec.  412.534 for Subclause (I) LTCHs
    In section V.B. of the preamble to this proposed rule, we are 
proposing to revise Sec.  412.534 and add a Sec.  412.536 to expand the 
existing payment provision for co-located LTCHs (HwHs and satellites of 
LTCHs) to certain situations not presently covered by existing Sec.  
412.534 for subclause (I) LTCHs. Under the existing policy, which was 
finalized for FY 2004, a payment adjustment is applied to those 
discharges from co-located LTCHs that were admitted from host hospitals 
that are in excess of a specified threshold unless those patients had 
reached HCO status at the referring hospital. Following a 4-year phase-
in of this payment adjustment, for cost reporting periods beginning 
during FY 2008, the threshold is 25 percent or an applicable percentage 
established under the regulation that takes into account the particular 
circumstances of rural, urban single, or MSA dominant hospitals. 
Specifically, at existing Sec.  412.534, we have provided that under 
the LTCH PPS, Medicare will pay the lesser of an amount otherwise 
payable under subpart O of 42 CFR part 412 or a LTCH PPS payment amount 
equivalent to what would have been paid under the IPPS for those 
discharges that were not HCOs from the referring hospital and that 
exceed 25 percent (or the applicable percentage) of the LTCH or LTCH 
satellite's Medicare discharges for any cost reporting period (69 FR 
49191 through 49213). We originally established this payment adjustment 
because our data suggested that in many cases, hospitals were 
prematurely shifting patients to co-located LTCHs, and therefore, that 
we were generating a Medicare payment to the first hospital (generally 
an acute care hospital paid under the IPPS) and also an additional 
Medicare payment under the LTCH PPS to an LTCH for what was, in 
essence, one episode of care. Consequently, we believed that in such 
circumstances co-located LTCHs were functioning as step-down units of 
their host hospitals, a configuration which is not permitted under 
section 1886(d)(1)(B) of the Act, which provides for the establishment 
of rehabilitation and psychiatric units of acute care hospitals but 
does not allow LTCH units.
    As detailed in section V.B. of the preamble of this proposed rule, 
our data suggests that many of our concerns regarding patient shifting 
between co-located providers also pertain to those LTCHs that are not 
co-located with other hospitals. The RY 2005 LTCH discharges from the 
MedPAR files indicate that only about 12 percent of the then 174 free-
standing LTCHs admitted 25 percent or less of their Medicare discharges 
from an individual acute care hospital; for about 37 percent of those 
freestanding LTCHs, the percentage was between 25 and 50 percent; for 
about 34 percent, it was between 50 and 75 percent; and for about 17 
percent of those free-standing LTCHs, it was between 75 and 100 percent 
of their Medicare discharges were admitted from one acute care 
hospital. In addition, the RY 2005 LTCH discharges from the MedPAR 
files indicate that for over 50 percent of all LTCHs, at least 50 
percent of their discharges are for patients admitted from an 
individual acute care hospital. Based on this data, as discussed in 
section V.B. of this proposed rule, we have proposed to expand this 
described payment adjustment at existing Sec.  412.534 to apply equally 
to certain situations not presently covered by existing Sec.  412.534 
for subclause (I) LTCHs beginning with cost reporting periods starting 
in RY 2008. Under this proposed policy, if any subclause (I) LTCH's or 
satellite facility's discharges that had been admitted from any non-

[[Page 4844]]

co-located referring hospital (under proposed Sec.  412.536) or from a 
co-located host (under the proposed revision to Sec.  412.534) exceed 
25 percent (or the applicable percentage) for the LTCH's cost reporting 
period, an adjusted payment would be made at the lesser of the 
otherwise payable amount under the LTCH PPS or the LTCH PPS payment 
amount that would be equivalent to what Medicare would otherwise pay 
under the IPPS.
    It is our intent that the proposed revisions would discourage 
inappropriate patient shifting to LTCHs before the referring hospital 
delivers a full episode of patient care. To the extent that LTCHs 
change their behaviors because this proposed policy reduces the 
financial incentives for certain situations not presently covered by 
existing Sec.  412.534 to admit patients prematurely discharged from 
other hospitals, we believe that there would be savings to the Medicare 
program. Specifically, as under the existing policy for co-located 
LTCHs at existing Sec.  412.534, the proposed payment adjustment would 
not apply to either those subclause (I) LTCH discharges admitted from 
non-co-located referring hospitals (under proposed Sec.  412.536) or 
those subclause (I)LTCH HwH or satellite discharges admitted from co-
located host hospitals (under the proposed revision to Sec.  412.534) 
that have already reached HCO status.
    At this time, based on the most recent LTCH claims data available 
and assuming no change in LTCH behavior if this proposed policy were 
implemented, we estimate that the proposed extension of the 25 percent 
(or applicable percentage) threshold at existing Sec.  412.534 to 
certain situations not presently covered by existing Sec.  412.534 
subclause (I) LTCHs would result in savings of $90 million to the 
Medicare program (or 2.2 percent decrease in estimated aggregate LTCH 
PPS payments) in RY 2008. (As noted above, this estimated $90 million 
impact is in addition to the estimated impact of the proposed payment 
rate and policy changes discussed in section XVI.B.4. of this 
regulatory impact analysis. Thus, the projected 2.2 percent decrease in 
estimated aggregate LTCH PPS payments due to this proposed policy is 
included in the 2.9 percent decrease in estimated aggregate LTCH PPS 
payments projected for all of the provisions of this proposed rule, as 
explained in greater detail above in section XVI.A. of this regulatory 
impact analysis.) As discussed above in this section, because we 
believe that this proposed policy would discourage inappropriate 
patient shifting to LTCHs before the non-co-located referring hospital 
or co-located host delivered a full episode of patient care and because 
we believe that this proposed policy would result in appropriate 
Medicare payments under the LTCH PPS, we do not believe that there 
would be an adverse financial impact on LTCHs, nor would there be an 
adverse impact on Medicare beneficiaries' access to care.
2. Effects of Proposed Policy Change Relating to Payment for Direct 
Graduate Medical Education (GME)
    In section XII. of the preamble of this proposed rule, with respect 
to the rules that hospitals must meet to count residents training in 
nonhospital settings for indirect medical education (IME) and direct 
GME payment purposes, we are proposing to revise Sec.  413.75(b) to 
revise the definition of ``all or substantially all of the costs for 
the training program in the nonhospital setting.'' The revised 
definition would be at least 90 percent of the total cost of the 
residents' salaries and fringe benefits (including travel and lodging 
where applicable) and the portion of the cost of teaching physicians' 
salaries attributable to direct GME. This differs from the current 
definition of ``all or substantially all of the costs for the training 
program in the nonhospital setting'' which requires that, to count FTE 
residents training in nonhospital setting, hospitals must pay for 100 
percent of the residents' salaries and fringe benefits, as well as the 
portion of the actual cost of the teaching physicians' salary and 
fringe benefits attributable to GME activities during the time the 
residents are training in the nonhospital site. In addition, under the 
proposed definition of ``all or substantially all'' of the costs, in 
response to hospitals' concerns regarding the difficulty of acquiring 
actual salary data from teaching physicians to document the actual cost 
of the teaching physicians' time spent on GME activities, we are 
proposing to allow hospitals to use certain proxy information, such as 
national average physician compensation amounts, to calculate the cost 
of the teaching physicians' time spent in GME activities in nonhospital 
sites.
    We believe that the administrative burden on hospitals related to 
calculating and documenting that they are paying for all or 
substantially all of the costs of residency training in nonhospital 
sites would be significantly reduced, if not eliminated, under our 
proposal. If the proposed changes are not made, and we continue to 
require that hospitals provide extensive documentation that they are 
paying for ``all'' of the costs of the training program in the 
nonhospital setting, we understand that there is industry concern that 
hospitals may significantly reduce the amount of training occurring in 
nonhospital settings, and may transfer that residency training back to 
hospitals. We further note that the Congress intended to encourage the 
shift of training to nonhospital settings and we believe this proposed 
policy change could facilitate further shifts to nonhospital settings. 
Since we are not proposing a change that would impact the aggregate 
amount of residency training that will occur, and Medicare would 
continue to pay for residency training occurring in hospitals, overall 
Medicare payments for residency training as a result of this proposal 
will remain constant.

D. Accounting Statement

    As discussed in section XVI.A.1. of this regulatory impact 
analysis, including the approach discussed for addressing our concerns 
with the existing SSO policy (presented in section V.A.2. of the 
preamble of this proposed rule) in the impact analysis of this proposed 
rule results in a decrease in estimated aggregate payments of $117 
million (or about 2.9 percent) for the 369 LTCHs in our database. 
Therefore, as required by OMB Circular A-4 (available at http://
www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 10, we have 
prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of this proposed rule. 
Table 10 provides our best estimate of the proposed decrease in 
Medicare payments under the LTCH PPS as a result of the provisions 
presented in this proposed rule based on the data for the 369 LTCHs in 
our database. All expenditures are classified as transfers to Medicare 
providers (that is, LTCHs).

[[Page 4845]]



      Table 10.--Accounting Statement: Classification of Estimated
Expenditures, From the 2007 LTCH PPS Rate Year to the 2008 LTCH PPS Rate
                                  Year
                              [In millions]
------------------------------------------------------------------------
                Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.........  Negative transfer--Estimated
                                          decrease in expenditures:
                                          $117.*
From Whom To Whom?.....................  Federal Government To LTCH
                                          Medicare Providers.
------------------------------------------------------------------------
* As noted above and as discussed in greater detail above in section
  XVI.A.1. of this regulatory impact analysis, we have included the
  approach discussed for addressing our concerns with the existing SSO
  policy in the impact analysis of this proposed rule, which is
  projected to result in a $117 million decrease in estimated aggregate
  LTCH PPS payments from RY 2007 to RY 2008. However, we note that in
  absence of including such an approach, we estimate that the estimated
  impact of the provisions of this proposed rule are projected to result
  in an $80 million decrease in estimated aggregate LTCH PPS payments
  from RY 2007 to RY 2008.

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

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, Reporting and 
recordkeeping requirements.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services would amend 42 CFR chapter IV as set forth below:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

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

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh) and section 124 of Pub. L. 106-113 (113 
Stat. 1501A-332).

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

    2. Section 412.22 is amended by adding paragraphs (h)(3)(i) and 
(ii) to read as follows:


Sec.  412.22  Excluded hospitals and hospital units: General rules.

* * * * *
    (h) * * *
    (3) * * *
    (i) Any hospital structured as a satellite facility on September 
30, 1999, and excluded from the prospective payment systems on that 
date, to the extent the hospital continues operating under the same 
terms and conditions, including the number of beds and square footage 
considered, for the purposes of Medicare participation and payment, to 
be part of the hospital, in effect on September 30, 1999; or
    (ii) Any hospital excluded from the prospective payment systems 
under Sec.  412.23(e)(2)(ii).
* * * * *

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

    3. Section 412.105 is amended by revising paragraph (f)(1)(ii)(C) 
to read as follows:


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

* * * * *
    (f) * * *
    (1) * * *
    (ii) * * *
    (C) Effective for discharges occurring on or after October 1, 1997, 
the time spent by a resident in a nonhospital setting in patient care 
activities, as defined in Sec.  413.75(b) of this subchapter, under an 
approved medical residency training program is counted towards the 
determination of full-time equivalency if the criteria set forth in 
Sec.  413.78(c), (d), (e), or (f) of this subchapter, as applicable, 
are met.
* * * * *

Subpart O--Prospective Payment System for Long-Term Care Hospitals

    4. Section 412.517 is amended by --
    A. Redesignating the introductory text and paragraphs (a), (b), 
(c), and (d) as paragraphs (a) introductory text, (a)(1), (a)(2), 
(a)(3), and (a)(4), respectively.
    B. Adding new paragraph (b).
    The addition reads as follows:


Sec.  412.517  Revision of LTC-DRG group classifications and weighting 
factors.

* * * * *
    (b) Beginning in FY 2008, the annual changes to the LTC-DRG 
classifications and recalibration of the weighting factors described in 
paragraph (a) are made in a budget neutral manner such that estimated 
aggregate LTCH PPS payments are not affected.
    5. Section 412.523 is amended by adding new paragraph (c)(3)(iv) to 
read as follows:


Sec.  412.523  Methodology for calculating the Federal prospective 
payment rates.

* * * * *
    (c) * * *
    (3) * * *
    (iv) For long-term care hospital prospective payment system rate 
year beginning July 1, 2007 and ending June 30, 2008. The standard 
Federal rate for long-term care hospital prospective payment system 
rate year beginning July 1, 2007 and ending June 30, 2008 is the 
standard Federal rate for the previous long-term care hospital 
prospective payment system rate year updated by 0.71 percent. The 
standard Federal rate is adjusted, as appropriate, as described in 
paragraph (d) of this section.
* * * * *
    6. Section 412.534 is amended by--
    A. Revising paragraph (b).
    B. Adding paragraph (h).
    The revision and addition read as follows:


Sec.  412.534  Special payment provisions for long-term care hospitals 
within hospitals and satellites of long-term care hospitals.

* * * * *
    (b) Patients admitted from hospitals not located in the same 
building or on the same campus as the long-term care hospital or long-
term care hospital satellite. Payments to the long-term care hospital 
for patients admitted to the long-term care hospital to a satellite of 
the long-term care hospital from another hospital that is not the co-
located hospital are made under the rules in this subpart with no 
adjustment under this section. For cost reporting periods beginning on 
or after July 1, 2007, payments to the long-term care hospital or long-
term care hospital satellite facility for patients admitted to the LTCH 
hospital or LTCH satellite facility of the long-term care hospital from 
another hospital that is not the co-

[[Page 4846]]

located hospital are subject to the provisions in Sec.  412.536.
* * * * *
    (h) Effective date of policies in this section. The policies set 
forth in this section apply to discharges occurring in cost reporting 
periods beginning on or after July 1, 2007 from long-term care 
hospitals as described in Sec.  412.23(e)(2)(i) that meet criteria in 
Sec.  412.22(f)and satellite facilities of long-term care hospitals as 
described at Sec.  412.22(h)(3)(i).
    7. Section 412.536 is added to read as follows:


Sec.  412.536  Special payment provisions for long-term care hospitals 
and satellites not co-located with other hospitals.

    (a) Scope. For cost reporting periods beginning on or after July 1, 
2007, the policies set forth in this section apply to discharges from 
long-term care hospitals as described in Sec.  412.23(e)(2)(i) and 
satellite facilities of long-term care hospitals described in Sec.  
412.22(h), including satellite facilities of long-term care hospitals 
described in (h)(3)(i) but excluding satellite facilities described in 
(h)(3)(ii).
    (b) For cost reporting periods beginning on or after July 1, 2007, 
payments for discharged patients admitted from a hospital not located 
in the same building or on the same campus as the long-term care 
hospital or long-term care hospital satellite facility will be made 
under either paragraph (b)(1) or paragraph (b)(2) of this section.
    (1) Except as provided in paragraphs (c), (d) or (f) of this 
section, for any cost reporting period beginning on or after July 1, 
2007 in which a long-term care hospital or a long-term care hospital 
satellite facility has a discharged Medicare inpatient population of 
whom no more than 25 percent were admitted to the hospital or the 
satellite facility from any individual hospital, payments for the 
Medicare discharges admitted from that hospital are made under the 
rules at Sec.  412.500 through Sec.  412.541 in this subpart with no 
adjustment under this section.
    (2) Except as provided in paragraph (c), (d), or (f) of this 
section, for any cost reporting period beginning on or after July 1, 
2007 in which a long-term care hospital or long-term care hospital 
satellite facility has a discharged Medicare inpatient population of 
whom more than 25 percent were admitted to the hospital or satellite 
facility from any individual hospital, payment for the Medicare 
discharges who are admitted from that hospital and who cause the long-
term care hospital or satellite facility to exceed the 25 percent 
threshold for discharged patients who have been admitted from that 
referring hospital, are determined at the lesser of the amount 
otherwise payable under this subpart or the amount payable under this 
subpart that is equivalent, as set forth in paragraph (e) of this 
section, to the amount that would be determined under the rules at 
Subpart A, Sec.  412.1(a). Payments for the remainder of the long-term 
care hospital's or satellite facility's patients admitted from that 
referring hospital are made under the rules in this subpart at Sec.  
412.500 through Sec.  412.541 with no adjustment under this section.
    (3) In determining the percentage of Medicare discharges admitted 
to the long-term care hospital or long-term care hospital satellite 
facility from any referring hospital under paragraphs (b)(1) and (b)(2) 
of this section, patients on whose behalf a Medicare outlier payment 
was made to the referring hospital are not counted towards the 25 
percent threshold from that referring hospital.
    (c) Special treatment of rural hospitals. (1) Subject to paragraph 
(f) of this section, in the case of a long-term care hospital or long-
term care hospital satellite facility that is located in a rural area 
as defined in Sec.  412.64(b)(1)(ii)(C) that has a discharged Medicare 
inpatient population of whom more than 50 percent were admitted to the 
long-term care hospital or long-term care hospital satellite facility 
from a hospital, payment for the Medicare discharges who are admitted 
from that hospital and who cause the long-term care hospital or 
satellite facility to exceed the 50 percent threshold for Medicare 
discharges is determined at the lesser of the amount otherwise payable 
under this subpart or the amount payable under this subpart that is 
equivalent, as set forth in paragraph (e) of this section, to the 
amount that is otherwise payable under subpart A, Sec.  412.1(a). 
Payments for the remainder of the long-term care hospital's or long-
term care hospital satellite facility's Medicare discharges admitted 
from the referring hospital are made under the rules in this subpart at 
Sec.  412.500 through Sec.  412.541 with no adjustment under this 
section.
    (2) In determining the percentage of Medicare discharges admitted 
from the referring hospital under paragraph (c)(1) of this section, 
patients on whose behalf a Medicare outlier payment was made at the 
referring hospital are not counted toward the 50 percent threshold.
    (d) Special treatment of urban single or MSA dominant hospitals. 
(1) Subject to paragraph (f) of this section, in the case of a long-
term care hospital or long-term care hospital satellite facility that 
admits Medicare patients from the only other hospital in the MSA or 
from a MSA dominant hospital as defined in paragraph (d)(4) of this 
section, for any cost reporting period beginning on or after July 1, 
2007, in which the long-term care hospital or satellite facility has a 
discharged Medicare inpatient population of whom more than the 
percentage calculated under paragraph (d)(2) of this section were 
admitted to the hospital from the urban single or MSA-dominant 
referring hospital, payment for the Medicare discharges who are 
admitted from the referring hospital and who cause the long-term care 
hospital or long-term care hospital satellite facility to exceed the 
applicable threshold for Medicare discharges who have been admitted 
from the referring hospital is the lesser of the amount otherwise 
payable under this subpart or the amount under this subpart that is 
equivalent, as set forth in paragraph (e) of this section, to the 
amount that otherwise would be determined under Subpart A, Sec.  
412.1(a). Payments for the remainder of the long-term care hospital's 
or satellite facility's Medicare discharges admitted from that 
referring hospital are made under the rules in this subpart at Sec.  
412.500 through Sec.  412.541 with no adjustment under this section.
    (2) For purposes of paragraph (d)(1) of this section, the 
percentage used is the percentage of total Medicare discharges in the 
Metropolitan Statistical Area (MSA) in which the hospital is located 
that are from the referring hospital for the cost reporting period for 
which the adjustment was made, but in no case is less than 25 percent 
or more than 50 percent.
    (3) In determining the percentage of patients admitted from the 
referring hospital under paragraph (d)(1) of this section, patients on 
whose behalf a Medicare outlier payment was made at the referring 
hospital are not counted toward the applicable threshold.
    (4) For purposes of this paragraph, an ``MSA-dominant hospital'' is 
a hospital that has discharged more than 25 percent of the total 
hospital Medicare discharges in the MSA in which the hospital is 
located.
    (e) Calculation of rates. (1) Calculation of long-term care 
hospital prospective payment system amount. CMS calculates an amount 
payable under subpart O equivalent to an amount that would otherwise be 
paid under the hospital inpatient prospective payment system. The 
amount is based on the sum of the applicable hospital inpatient 
prospective payment system operating standardized amount and capital 
Federal rate in effect at the time of the long-term care hospital 
discharge.
    (2) Operating inpatient prospective payment system standardized 
amount.

[[Page 4847]]

The hospital inpatient prospective payment system operating 
standardized amount--
    (i) Is adjusted for the applicable hospital inpatient prospective 
payment system DRG weighting factors;
    (ii) Is adjusted for different area wage levels based on the 
geographic classifications set forth at Sec.  412.64(b)(1)(ii)(A) 
through (C) and the applicable hospital inpatient prospective payment 
system labor-related share, using the applicable hospital inpatient 
prospective payment system wage index value for non-reclassified 
hospitals. For long-term care hospitals located in Alaska and Hawaii, 
this amount is also adjusted by the applicable hospital inpatient 
prospective payment system cost of living adjustment factors;
    (iii) Includes, where applicable, adjustments for indirect medical 
education costs and for the costs of serving a disproportionate share 
of low-income patients.
    (3) Hospital inpatient prospective payment system capital Federal 
rate. The hospital inpatient prospective payment system capital Federal 
rate--
    (i) Is adjusted for the applicable hospital inpatient prospective 
payment system DRG weighting factors;
    (ii) Is adjusted by the applicable geographic adjustment factors, 
including local cost variation based on the applicable geographic 
classifications set forth at Sec.  412.64(b)(1)(ii)(A) through (C) and 
the applicable full hospital inpatient prospective payment system wage 
index value for non-reclassified hospitals, applicable large urban 
location and cost of living adjustment factors for long-term care 
hospitals for Alaska and Hawaii, if applicable;
    (iii) Includes, where applicable, capital inpatient prospective 
payment system adjustments for indirect medical education costs and the 
costs of serving a disproportionate share of low-income patients.
    (4) High cost outlier. An additional payment for high cost outlier 
cases is based on the fixed loss amount established for the hospital 
inpatient prospective payment system.
    (f) Transition period for long-term care hospitals and long-term 
care hospital satellite facilities paid under this subpart. (1) In the 
case of a long-term care hospital or a long-term care hospital 
satellite facility that is paid under the provisions of this subpart, 
for cost reporting periods beginning on or after July 1, 2007, the 
amount paid is based on the following:
    (2) For long term care hospitals or long term care hospital 
satellite facilities with cost reporting period beginning on or after 
July 1, 2007, and before October 1, 2007, the percentage of Medicare 
discharges admitted from the referring hospital with no payment 
adjustment, may not exceed the lesser of the percentage of the long 
term care hospital or long-term care hospital satellite's Medicare 
discharges that were admitted from the referring hospital during the FY 
2005 cost reporting period or 50 percent. In determining the percentage 
of Medicare discharges admitted from the referring hospital under this 
paragraph, patients on whose behalf a Medicare outlier payment was made 
at the referring hospital are not counted toward this threshold.
    (3) For long term care hospitals or long term care hospital 
satellites with cost reporting periods beginning on or after October 1, 
2007, the percentage of Medicare discharges admitted from any referring 
hospital with no payment adjustment, may not exceed 25 percent or the 
applicable percentage determined under paragraph (c) or (d) of this 
section.

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

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

    Authority: Secs. 1102, 1812(d), 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, 1395d(d), 1395f(b), 1395g, 1395l(a), (i), and (n), 
1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww); and sec. 124 of Pub. 
L. 106-133 (113 Stat. 1501A-332).

Subpart F--Specific Categories of Costs

    9. Section 413.75(b) is amended by revising the definition ``all or 
substantially all of the costs for the training program in the 
nonhospital setting'' to read as follows:


Sec.  413.75  Direct GME payments: General requirements.

* * * * *
    (b) * * *
* * * * *
    All or substantially all of the costs for the training program in 
the nonhospital setting means--(1) Effective on or after January 1, 
1999 and for cost reporting periods beginning before July 1, 2007, the 
residents' salaries and fringe benefits (including travel and lodging 
where applicable) and the portion of the cost of teaching physicians' 
salaries and fringe benefits attributable to direct graduate medical 
education (GME); and
    (2) Effective for cost reporting periods beginning on or after July 
1, 2007, at least 90 percent of the total of the costs of the 
residents' salaries and fringe benefits (including travel and lodging 
where applicable) and the portion of the cost of teaching physicians' 
salaries attributable to direct GME.
* * * * *
    10. Section 413.78 is amended by adding new paragraph (f) to read 
as follows:


Sec.  413.78  Direct GME payments: Determination of the total number of 
FTE residents

* * * * *
    (f) For cost reporting periods beginning on or after July 1, 2007, 
the time residents spend in non-provider settings such as freestanding 
clinics, nursing homes, and physicians' offices in connection with 
approved programs may be included in determining the number of FTE 
residents the calculation of a hospital's resident count if the 
following conditions are met--
    (1) The resident spends his or her time in patient care activities.
    (2) The hospital must incur all or substantially all of the costs 
for the training program in the nonhospital setting(s) (in accordance 
with the definition under Sec.  413.75(b)).
    (3) The hospital must comply with one of the following:
    (i) The hospital must document that it is paying for all or 
substantially all of the costs for the training program in a 
nonhospital setting(s) attributable to training that occurs during a 
month by the end of the third month following the month in which the 
training in the nonhospital site occurred; or
    (ii) There is a written agreement between the hospital and the 
nonhospital site that states that the hospital will incur at least 90 
percent of the total of the costs of the resident's salary and fringe 
benefits (and travel and lodging where applicable) while the resident 
is training in the nonhospital site and the portion of the cost of the 
teaching physician's salary attributable to direct GME. The written 
agreement must specify the total amount the hospital will incur, and 
must indicate the portion of this amount that reflects residents' 
salaries and fringe benefits (and travel and lodging where applicable), 
and the portion of this amount that reflects teaching physician 
compensation.
    (4) The hospital is subject to the principles of community support 
and redistribution of costs as specified in Sec.  413.81.


[[Page 4848]]


(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: December 14, 2006.
Leslie V. Norwalk,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: January 24, 2007.
Michael O. Leavitt,
Secretary.


[[Page 4849]]


    Note: The following addenda will not appear in the Code of 
Federal Regulations.

Addendum A

    Addendum A contains the tables referred to throughout the 
preamble to this proposed rule. The tables presented below are as 
follows:
    Table 1: Proposed Long-Term Care Hospital Wage Index for Urban 
Areas for Discharges Occurring from July 1, 2007 through June 30, 
2008.
    Table 2: Proposed Long-Term Care Hospital Wage Index for Rural 
Areas for Discharges Occurring from July 1, 2007 through June 30, 
2008.
    Table 3: FY 2007 LTC-DRG Relative Weights, Geometric Average 
Length of Stay, and five-sixths of the Geometric Average Length of 
Stay (for Short-Stay Outlier Cases) (effective for discharges 
occurring on or after October 1, 2006 through September 30, 2007), 
and the IPPS Average Length of Stay plus one Standard Deviation 
(that could be used under the approach discussed for Short-Stay 
Outlier policy). (Note: The first four columns of this table are the 
same information provided in Table 11 of the FY 2007 IPPS final rule 
(71 FR 48321 through 48320), which has been reprinted here for 
convenience. The fifth column of this table was added to provide 
information on the approach discussed for the short-stay outlier 
policy, discussed in section VI.A.2. of the preamble of this 
proposed rule.)

  Table 1.--Proposed Long-Term Care Hospital Wage Index For Urban Areas
  For Discharges Occurring From July 1, 2007 Through June 30, 2008 \1\
------------------------------------------------------------------------
                                                       Full      4/5ths
      CBSA code          Urban area (constituent       wage       wage
                                counties)           index \2\  index \3\
------------------------------------------------------------------------
10180................  Abilene, TX................     0.8000     0.8400
                         Callahan County, TX
                         Jones County, TX
                         Taylor County, TX
10380................  Aguadilla-Isabela-San           0.3915     0.5132
                        Sebasti[aacute]n, PR.
                         Aguada Municipio, PR
                         Aguadilla Municipio, PR
                         A[ntilde]asco Municipio,
                       PR
                         Isabela Municipio, PR
                         Lares Municipio, PR
                         Moca Municipio, PR
                         Rinc[oacute]n Municipio,
                       PR
                         San Sebasti[aacute]n
                       Municipio, PR
10420................  Akron, OH..................     0.8654     0.8923
                         Portage County, OH
                         Summit County, OH
10500................  Albany, GA.................     0.8991     0.9193
                         Baker County, GA
                         Dougherty County, GA
                         Lee County, GA
                         Terrell County, GA
                         Worth County, GA
10580................  Albany-Schenectady-Troy, NY     0.8720     0.8976
                         Albany County, NY
                         Rensselaer County, NY
                         Saratoga County, NY
                         Schenectady County, NY
                         Schoharie County, NY
10740................  Albuquerque, NM............     0.9458     0.9566
                         Bernalillo County, NM
                         Sandoval County, NM
                         Torrance County, NM
                         Valencia County, NM
10780................  Alexandria, LA.............     0.8006     0.8405
                         Grant Parish, LA
                         Rapides Parish, LA
10900................  Allentown-Bethlehem-Easton,     0.9947     0.9958
                        PA-NJ.
                         Warren County, NJ
                         Carbon County, PA
                         Lehigh County, PA
                         Northampton County, PA
11020................  Altoona, PA................     0.8812     0.9050
                         Blair County, PA
11100................  Amarillo, TX...............     0.9169     0.9335
                         Armstrong County, TX
                         Carson County, TX
                         Potter County, TX
                         Randall County, TX
11180................  Ames, IA...................     0.9760     0.9808
                         Story County, IA
11260................  Anchorage, AK..............     1.2023     1.1618
                         Anchorage Municipality,
                       AK
                         Matanuska-Susitna
                       Borough, AK
11300................  Anderson, IN...............     0.8681     0.8945
                         Madison County, IN
11340................  Anderson, SC...............     0.9017     0.9214

[[Page 4850]]

 
                         Anderson County, SC
11460................  Ann Arbor, MI..............     1.0826     1.0661
                         Washtenaw County, MI
11500................  Anniston-Oxford, AL........     0.7770     0.8216
                         Calhoun County, AL
11540................  Appleton, WI...............     0.9455     0.9564
                         Calumet County, WI
                         Outagamie County, WI
11700................  Asheville, NC..............     0.9216     0.9373
                         Buncombe County, NC
                         Haywood County, NC
                         Henderson County, NC
                         Madison County, NC
12020................  Athens-Clarke County, GA...     0.9856     0.9885
                         Clarke County, GA
                         Madison County, GA
                         Oconee County, GA
                         Oglethorpe County, GA
12060................  Atlanta-Sandy Springs-          0.9762     0.9810
                        Marietta, GA.
                         Barrow County, GA
                         Bartow County, GA
                         Butts County, GA
                         Carroll County, GA
                         Cherokee County, GA
                         Clayton County, GA
                         Cobb County, GA
                         Coweta County, GA
                         Dawson County, GA
                         DeKalb County, GA
                         Douglas County, GA
                         Fayette County, GA
                         Forsyth County, GA
                         Fulton County, GA
                         Gwinnett County, GA
                         Haralson County, GA
                         Heard County, GA
                         Henry County, GA
                         Jasper County, GA
                         Lamar County, GA
                         Meriwether County, GA
                         Newton County, GA
                         Paulding County, GA
                         Pickens County, GA
                         Pike County, GA
                         Rockdale County, GA
                         Spalding County, GA
                         Walton County, GA
12100................  Atlantic City, NJ..........     1.1831     1.1465
                         Atlantic County, NJ
12220................  Auburn-Opelika, AL.........     0.8096     0.8477
                         Lee County, AL
12260................  Augusta-Richmond County, GA-    0.9667     0.9734
                        SC.
                         Burke County, GA
                         Columbia County, GA
                         McDuffie County, GA
                         Richmond County, GA
                         Aiken County, SC
                         Edgefield County, SC
12420................  Austin-Round Rock, TX......     0.9344     0.9475
                         Bastrop County, TX
                         Caldwell County, TX
                         Hays County, TX
                         Travis County, TX
                         Williamson County, TX
12540................  Bakersfield, CA............     1.0725     1.0580
                         Kern County, CA
12580................  Baltimore-Towson, MD.......     1.0088     1.0070
                         Anne Arundel County, MD
                         Baltimore County, MD

[[Page 4851]]

 
                         Carroll County, MD
                         Harford County, MD
                         Howard County, MD
                         Queen Anne's County, MD
                         Baltimore City, MD
12620................  Bangor, ME.................     0.9711     0.9769
                         Penobscot County, ME
12700................  Barnstable Town, MA........     1.2539     1.2031
                         Barnstable County, MA
12940................  Baton Rouge, LA............     0.8084     0.8467
                         Ascension Parish, LA
                         East Baton Rouge Parish,
                       LA
                         East Feliciana Parish, LA
                         Iberville Parish, LA
                         Livingston Parish, LA
                         Pointe Coupee Parish, LA
                         St. Helena Parish, LA
                         West Baton Rouge Parish,
                       LA
                         West Feliciana Parish, LA
12980................  Battle Creek, MI...........     0.9762     0.9810
                         Calhoun County, MI
13020................  Bay City, MI...............     0.9251     0.9401
                         Bay County, MI
13140................  Beaumont-Port Arthur, TX...     0.8595     0.8876
                         Hardin County, TX
                         Jefferson County, TX
                         Orange County, TX
13380................  Bellingham, WA.............     1.1104     1.0883
                         Whatcom County, WA
13460................  Bend, OR...................     1.0743     1.0594
                         Deschutes County, OR
13644................  Bethesda-Gaithersburg-          1.0903     1.0722
                        Frederick, MD.
                         Frederick County, MD
                         Montgomery County, MD
13740................  Billings, MT...............     0.8712     0.8970
                         Carbon County, MT
                         Yellowstone County, MT
13780................  Binghamton, NY.............     0.8786     0.9029
                         Broome County, NY
                         Tioga County, NY
13820................  Birmingham-Hoover, AL......     0.8894     0.9115
                         Bibb County, AL
                         Blount County, AL
                         Chilton County, AL
                         Jefferson County, AL
                         St. Clair County, AL
                         Shelby County, AL
                         Walker County, AL
13900................  Bismarck, ND...............     0.7240     0.7792
                         Burleigh County, ND
                         Morton County, ND
13980................  Blacksburg-Christiansburg-      0.8213     0.8570
                        Radford, VA.
                         Giles County, VA
                         Montgomery County, VA
                         Pulaski County, VA
                         Radford City, VA
14020................  Bloomington, IN............     0.8533     0.8826
                         Greene County, IN
                         Monroe County, IN
                         Owen County, IN
14060................  Bloomington-Normal, IL.....     0.8944     0.9155
                         McLean County, IL
14260................  Boise City-Nampa, ID.......     0.9401     0.9521
                         Ada County, ID
                         Boise County, ID
                         Canyon County, ID
                         Gem County, ID
                         Owyhee County, ID
14484................  Boston-Quincy, MA..........     1.1679     1.1343

[[Page 4852]]

 
                         Norfolk County, MA
                         Plymouth County, MA
                         Suffolk County, MA
14500................  Boulder, CO................     1.0350     1.0280
                         Boulder County, CO
14540................  Bowling Green, KY..........     0.8148     0.8518
                         Edmonson County, KY
                         Warren County, KY
14740................  Bremerton-Silverdale, WA...     1.0913     1.0730
                         Kitsap County, WA
14860................  Bridgeport-Stamford-            1.2659     1.2127
                        Norwalk, CT.
                         Fairfield County, CT
15180................  Brownsville-Harlingen, TX..     0.9430     0.9544
                         Cameron County, TX
15260................  Brunswick, GA..............     1.0164     1.0131
                         Brantley County, GA
                         Glynn County, GA
                         McIntosh County, GA
15380................  Buffalo-Niagara Falls, NY..     0.9424     0.9539
                         Erie County, NY
                         Niagara County, NY
15500................  Burlington, NC.............     0.8674     0.8939
                         Alamance County, NC
15540................  Burlington-South                0.9474     0.9579
                        Burlington, VT.
                         Chittenden County, VT
                         Franklin County, VT
                         Grand Isle County, VT
15764................  Cambridge-Newton-               1.0970     1.0776
                        Framingham, MA.
                         Middlesex County, MA
15804................  Camden, NJ.................     1.0392     1.0314
                         Burlington County, NJ
                         Camden County, NJ
                         Gloucester County, NJ
15940................  Canton-Massillon, OH.......     0.9031     0.9225
                         Carroll County, OH
                         Stark County, OH
15980................  Cape Coral-Fort Myers, FL..     0.9342     0.9474
                         Lee County, FL
16180................  Carson City, NV............     1.0025     1.0020
                         Carson City, NV
16220................  Casper, WY.................     0.9145     0.9316
                         Natrona County, WY
16300................  Cedar Rapids, IA...........     0.8888     0.9110
                         Benton County, IA
                         Jones County, IA
                         Linn County, IA
16580................  Champaign-Urbana, IL.......     0.9644     0.9715
                         Champaign County, IL
                         Ford County, IL
                         Piatt County, IL
16620................  Charleston, WV.............     0.8542     0.8834
                         Boone County, WV
                         Clay County, WV
                         Kanawha County, WV
                         Lincoln County, WV
                         Putnam County, WV
16700................  Charleston-North                0.9145     0.9316
                        Charleston, SC.
                         Berkeley County, SC
                         Charleston County, SC
                         Dorchester County, SC
16740................  Charlotte-Gastonia-Concord,     0.9554     0.9643
                        NC-SC.
                         Anson County, NC
                         Cabarrus County, NC
                         Gaston County, NC
                         Mecklenburg County, NC
                         Union County, NC
                         York County, SC
16820................  Charlottesville, VA........     1.0125     1.0100
                         Albemarle County, VA

[[Page 4853]]

 
                         Fluvanna County, VA
                         Greene County, VA
                         Nelson County, VA
                         Charlottesville City, VA
16860................  Chattanooga, TN-GA.........     0.8948     0.9158
                         Catoosa County, GA
                         Dade County, GA
                         Walker County, GA
                         Hamilton County, TN
                         Marion County, TN
                         Sequatchie County, TN
16940................  Cheyenne, WY...............     0.9060     0.9248
                         Laramie County, WY
16974................  Chicago-Naperville-Joliet,      1.0751     1.0601
                        IL.
                         Cook County, IL
                         DeKalb County, IL
                         DuPage County, IL
                         Grundy County, IL
                         Kane County, IL
                         Kendall County, IL
                         McHenry County, IL
                         Will County, IL
17020................  Chico, CA..................     1.1053     1.0842
                         Butte County, CA
17140................  Cincinnati-Middletown, OH-      0.9601     0.9681
                        KY-IN.
                         Dearborn County, IN
                         Franklin County, IN
                         Ohio County, IN
                         Boone County, KY
                         Bracken County, KY
                         Campbell County, KY
                         Gallatin County, KY
                         Grant County, KY
                         Kenton County, KY
                         Pendleton County, KY
                         Brown County, OH
                         Butler County, OH
                         Clermont County, OH
                         Hamilton County, OH
                         Warren County, OH
17300................  Clarksville, TN-KY.........     0.8436     0.8749
                         Christian County, KY
                         Trigg County, KY
                         Montgomery County, TN
                         Stewart County, TN
17420................  Cleveland, TN..............     0.8109     0.8487
                         Bradley County, TN
                         Polk County, TN
17460................  Cleveland-Elyria-Mentor, OH     0.9400     0.9520
                         Cuyahoga County, OH
                         Geauga County, OH
                         Lake County, OH
                         Lorain County, OH
                         Medina County, OH
17660................  Coeur d'Alene, ID..........     0.9344     0.9475
                         Kootenai County, ID
17780................  College Station-Bryan, TX..     0.9045     0.9236
                         Brazos County, TX
                         Burleson County, TX
                         Robertson County, TX
17820................  Colorado Springs, CO.......     0.9701     0.9761
                         El Paso County, CO
                         Teller County, CO
17860................  Columbia, MO...............     0.8542     0.8834
                         Boone County, MO
                         Howard County, MO
17900................  Columbia, SC...............     0.8933     0.9146
                         Calhoun County, SC
                         Fairfield County, SC

[[Page 4854]]

 
                         Kershaw County, SC
                         Lexington County, SC
                         Richland County, SC
                         Saluda County, SC
17980................  Columbus, GA-AL............     0.8239     0.8591
                         Russell County, AL
                         Chattahoochee County, GA
                         Harris County, GA
                         Marion County, GA
                         Muscogee County, GA
18020................  Columbus, IN...............     0.9318     0.9454
                         Bartholomew County, IN
18140................  Columbus, OH...............     1.0107     1.0086
                         Delaware County, OH
                         Fairfield County, OH
                         Franklin County, OH
                         Licking County, OH
                         Madison County, OH
                         Morrow County, OH
                         Pickaway County, OH
                         Union County, OH
18580................  Corpus Christi, TX.........     0.8564     0.8851
                         Aransas County, TX
                         Nueces County, TX
                         San Patricio County, TX
18700................  Corvallis, OR..............     1.1546     1.1237
                         Benton County, OR
19060................  Cumberland, MD-WV..........     0.8446     0.8757
                         Allegany County, MD
                         Mineral County, WV
19124................  Dallas-Plano-Irving, TX....     1.0075     1.0060
                         Collin County, TX
                         Dallas County, TX
                         Delta County, TX
                         Denton County, TX
                         Ellis County, TX
                         Hunt County, TX
                         Kaufman County, TX
                         Rockwall County, TX
19140................  Dalton, GA.................     0.9093     0.9274
                         Murray County, GA
                         Whitfield County, GA
19180................  Danville, IL...............     0.9266     0.9413
                         Vermilion County, IL
19260................  Danville, VA...............     0.8451     0.8761
                         Pittsylvania County, VA
                         Danville City, VA
19340................  Davenport-Moline-Rock           0.8846     0.9077
                        Island, IA-IL.
                         Henry County, IL
                         Mercer County, IL
                         Rock Island County, IL
                         Scott County, IA
19380................  Dayton, OH.................     0.9037     0.9230
                         Greene County, OH
                         Miami County, OH
                         Montgomery County, OH
                         Preble County, OH
19460................  Decatur, AL................     0.8159     0.8527
                         Lawrence County, AL
                         Morgan County, AL
19500................  Decatur, IL................     0.8172     0.8538
                         Macon County, IL
19660................  Deltona-Daytona Beach-          0.9263     0.9410
                        Ormond Beach, FL.
                         Volusia County, FL
19740................  Denver-Aurora, CO..........     1.0930     1.0744
                         Adams County, CO
                         Arapahoe County, CO
                         Broomfield County, CO
                         Clear Creek County, CO

[[Page 4855]]

 
                         Denver County, CO
                         Douglas County, CO
                         Elbert County, CO
                         Gilpin County, CO
                         Jefferson County, CO
                         Park County, CO
19780................  Des Moines,-West Des            0.9214     0.9371
                        Moines, IA.
                         Dallas County, IA
                         Guthrie County, IA
                         Madison County, IA
                         Polk County, IA
                         Warren County, IA
19804................  Detroit-Livonia-Dearborn,       1.0281     1.0225
                        MI.
                         Wayne County, MI
20020................  Dothan, AL.................     0.7381     0.7905
                         Geneva County, AL
                         Henry County, AL
                         Houston County, AL
20100................  Dover, DE..................     0.9847     0.9878
                         Kent County, DE
20220................  Dubuque, IA................     0.9133     0.9306
                         Dubuque County, IA
20260................  Duluth, MN-WI..............     1.0042     1.0034
                         Carlton County, MN
                         St. Louis County, MN
                         Douglas County, WI
20500................  Durham, NC.................     0.9826     0.9861
                         Chatham County, NC
                         Durham County, NC
                         Orange County, NC
                         Person County, NC
20740................  Eau Claire, WI.............     0.9630     0.9704
                         Chippewa County, WI
                         Eau Claire County, WI
20764................  Edison, NJ.................     1.1190     1.0952
                         Middlesex County, NJ
                         Monmouth County, NJ
                         Ocean County, NJ
                         Somerset County, NJ
20940................  El Centro, CA..............     0.9076     0.9261
                         Imperial County, CA
21060................  Elizabethtown, KY..........     0.8697     0.8958
                         Hardin County, KY
                         Larue County, KY
21140................  Elkhart-Goshen, IN.........     0.9426     0.9541
                         Elkhart County, IN
21300................  Elmira, NY.................     0.8240     0.8592
                         Chemung County, NY
21340................  El Paso, TX................     0.9053     0.9242
                         El Paso County, TX
21500................  Erie, PA...................     0.8827     0.9062
                         Erie County, PA
21604................  Essex County, MA...........     1.0418     1.0334
                         Essex County, MA
21660................  Eugene-Springfield, OR.....     1.0876     1.0701
                         Lane County, OR
21780................  Evansville, IN-KY..........     0.9071     0.9257
                         Gibson County, IN
                         Posey County, IN
                         Vanderburgh County, IN
                         Warrick County, IN
                         Henderson County, KY
                         Webster County, KY
21820................  Fairbanks, AK..............     1.1059     1.0847
                         Fairbanks North Star
                       Borough, AK
21940................  Fajardo, PR................     0.4036     0.5229
                         Ceiba Municipio, PR
                         Fajardo Municipio, PR
                         Luquillo Municipio, PR

[[Page 4856]]

 
22020................  Fargo, ND-MN...............     0.8250     0.8600
                         Cass County, ND
                         Clay County, MN
22140................  Farmington, NM.............     0.8589     0.8871
                         San Juan County, NM
22180................  Fayetteville, NC...........     0.8945     0.9156
                         Cumberland County, NC
                         Hoke County, NC
22220................  Fayetteville-Springdale-        0.8865     0.9092
                        Rogers, AR-MO.
                         Benton County, AR
                         Madison County, AR
                         Washington County, AR
                         McDonald County, MO
22380................  Flagstaff, AZ..............     1.1601     1.1281
                         Coconino County, AZ
22420................  Flint, MI..................     1.0969     1.0775
                         Genesee County, MI
22500................  Florence, SC...............     0.8388     0.8710
                         Darlington County, SC
                         Florence County, SC
22520................  Florence-Muscle Shoals, AL.     0.7843     0.8274
                         Colbert County, AL
                         Lauderdale County, AL
22540................  Fond du Lac, WI............     1.0063     1.0050
                         Fond du Lac County, WI
22660................  Fort Collins-Loveland, CO..     0.9544     0.9635
                         Larimer County, CO
22744................  Fort Lauderdale-Pompano         1.0133     1.0106
                        Beach-Deerfield Beach, FL.
                         Broward County, FL
22900................  Fort Smith, AR-OK..........     0.7731     0.8185
                         Crawford County, AR
                         Franklin County, AR
                         Sebastian County, AR
                         Le Flore County, OK
                         Sequoyah County, OK
23020................  Fort Walton Beach-Crestview-    0.8643     0.8914
                        Destin, FL.
                         Okaloosa County, FL
23060................  Fort Wayne, IN.............     0.9517     0.9614
                         Allen County, IN
                         Wells County, IN
                         Whitley County, IN
23104................  Fort Worth-Arlington, TX...     0.9569     0.9655
                         Johnson County, TX
                         Parker County, TX
                         Tarrant County, TX
                         Wise County, TX
23420................  Fresno, CA.................     1.0943     1.0754
                         Fresno County, CA
23460................  Gadsden, AL................     0.8066     0.8453
                         Etowah County, AL
23540................  Gainesville, FL............     0.9277     0.9422
                         Alachua County, FL
                         Gilchrist County, FL
23580................  Gainesville, GA............     0.8958     0.9166
                         Hall County, GA
23844................  Gary, IN...................     0.9334     0.9467
                         Jasper County, IN
                         Lake County, IN
                         Newton County, IN
                         Porter County, IN
24020................  Glens Falls, NY............     0.8324     0.8659
                         Warren County, NY
                         Washington County, NY
24140................  Goldsboro, NC..............     0.9171     0.9337
                         Wayne County, NC
24220................  Grand Forks, ND-MN.........     0.7949     0.8359
                         Polk County, MN
                         Grand Forks County, ND
24300................  Grand Junction, CO.........     0.9668     0.9734

[[Page 4857]]

 
                         Mesa County, CO
24340................  Grand Rapids-Wyoming, MI...     0.9455     0.9564
                         Barry County, MI
                         Ionia County, MI
                         Kent County, MI
                         Newaygo County, MI
24500................  Great Falls, MT............     0.8598     0.8878
                         Cascade County, MT
24540................  Greeley, CO................     0.9602     0.9682
                         Weld County, CO
24580................  Green Bay, WI..............     0.9787     0.9830
                         Brown County, WI
                         Kewaunee County, WI
                         Oconto County, WI
24660................  Greensboro-High Point, NC..     0.8866     0.9093
                         Guilford County, NC
                         Randolph County, NC
                         Rockingham County, NC
24780................  Greenville, NC.............     0.9432     0.9546
                         Greene County, NC
                         Pitt County, NC
24860................  Greenville, SC.............     0.9804     0.9843
                         Greenville County, SC
                         Laurens County, SC
                         Pickens County, SC
25020................  Guayama, PR................     0.3235     0.4588
                         Arroyo Municipio, PR
                         Guayama Municipio, PR
                         Patillas Municipio, PR
25060................  Gulfport-Biloxi, MS........     0.8915     0.9132
                         Hancock County, MS
                         Harrison County, MS
                         Stone County, MS
25180................  Hagerstown-Martinsburg, MD-     0.9038     0.9230
                        WV.
                         Washington County, MD
                         Berkeley County, WV
                         Morgan County, WV
25260................  Hanford-Corcoran, CA.......     1.0282     1.0226
                         Kings County, CA
25420................  Harrisburg-Carlisle, PA....     0.9402     0.9522
                         Cumberland County, PA
                         Dauphin County, PA
                         Perry County, PA
25500................  Harrisonburg, VA...........     0.9073     0.9258
                         Rockingham County, VA
                         Harrisonburg City, VA
25540................  Hartford-West Hartford-East     1.0894     1.0715
                         Hartford, CT
                         Hartford County, CT
                         Litchfield County, CT
                         Middlesex County, CT
                         Tolland County, CT
25620................  Hattiesburg, MS............     0.7430     0.7944
                         Forrest County, MS
                         Lamar County, MS
                         Perry County, MS
25860................  Hickory-Lenoir-Morganton,       0.9010     0.9208
                        NC.
                         Alexander County, NC
                         Burke County, NC
                         Caldwell County, NC
                         Catawba County, NC
26100................  Holland-Grand Haven, MI....     0.9163     0.9330
                         Ottawa County, MI
26180................  Honolulu, HI...............     1.1096     1.0877
                         Honolulu County, HI
26300................  Hot Springs, AR............     0.8782     0.9026
                         Garland County, AR
26380................  Houma-Bayou Cane-Thibodaux,     0.8082     0.8466
                        LA.
                         Lafourche Parish, LA

[[Page 4858]]

 
                         Terrebonne Parish, LA
26420................  Houston-Sugar Land-Baytown,     1.0008     1.0006
                        TX.
                         Austin County, TX
                         Brazoria County, TX
                         Chambers County, TX
                         Fort Bend County, TX
                         Galveston County, TX
                         Harris County, TX
                         Liberty County, TX
                         Montgomery County, TX
                         San Jacinto County, TX
                         Waller County, TX
26580................  Huntington-Ashland, WV-KY-      0.8997     0.9198
                        OH.
                         Boyd County, KY
                         Greenup County, KY
                         Lawrence County, OH
                         Cabell County, WV
                         Wayne County, WV
26620................  Huntsville, AL.............     0.9007     0.9206
                         Limestone County, AL
                         Madison County, AL
26820................  Idaho Falls, ID............     0.9088     0.9270
                         Bonneville County, ID
                         Jefferson County, ID
26900................  Indianapolis-Carmel, IN....     0.9895     0.9916
                         Boone County, IN
                         Brown County, IN
                         Hamilton County, IN
                         Hancock County, IN
                         Hendricks County, IN
                         Johnson County, IN
                         Marion County, IN
                         Morgan County, IN
                         Putnam County, IN
                         Shelby County, IN
26980................  Iowa City, IA..............     0.9714     0.9771
                         Johnson County, IA
                         Washington County, IA
27060................  Ithaca, NY.................     0.9928     0.9942
                         Tompkins County, NY
27100................  Jackson, MI................     0.9560     0.9648
                         Jackson County, MI
27140................  Jackson, MS................     0.8271     0.8617
                         Copiah County, MS
                         Hinds County, MS
                         Madison County, MS
                         Rankin County, MS
                         Simpson County, MS
27180................  Jackson, TN................     0.8853     0.9082
                         Chester County, TN
                         Madison County, TN
27260................  Jacksonville, FL...........     0.9165     0.9332
                         Baker County, FL
                         Clay County, FL
                         Duval County, FL
                         Nassau County, FL
                         St. Johns County, FL
27340................  Jacksonville, NC...........     0.8231     0.8585
                         Onslow County, NC
27500................  Janesville, WI.............     0.9655     0.9724
                         Rock County, WI
27620................  Jefferson City, MO.........     0.8332     0.8666
                         Callaway County, MO
                         Cole County, MO
                         Moniteau County, MO
                         Osage County, MO
27740................  Johnson City, TN...........     0.8043     0.8434
                         Carter County, TN
                         Unicoi County, TN

[[Page 4859]]

 
                         Washington County, TN
27780................  Johnstown, PA..............     0.8620     0.8896
                         Cambria County, PA
27860................  Jonesboro, AR..............     0.7662     0.8130
                         Craighead County, AR
                         Poinsett County, AR
27900................  Joplin, MO.................     0.8605     0.8884
                         Jasper County, MO
                         Newton County, MO
28020................  Kalamazoo-Portage, MI......     1.0704     1.0563
                         Kalamazoo County, MI
                         Van Buren County, MI
28100................  Kankakee-Bradley, IL.......     1.0083     1.0066
                         Kankakee County, IL
28140................  Kansas City, MO-KS.........     0.9495     0.9596
                         Franklin County, KS
                         Johnson County, KS
                         Leavenworth County, KS
                         Linn County, KS
                         Miami County, KS
                         Wyandotte County, KS
                         Bates County, MO
                         Caldwell County, MO
                         Cass County, MO
                         Clay County, MO
                         Clinton County, MO
                         Jackson County, MO
                         Lafayette County, MO
                         Platte County, MO
                         Ray County, MO
28420................  Kennewick-Richland-Pasco,       1.0343     1.0274
                        WA.
                         Benton County, WA
                         Franklin County, WA
28660................  Killeen-Temple-Fort Hood,       0.8901     0.9121
                        TX.
                         Bell County, TX
                         Coryell County, TX
                         Lampasas County, TX
28700................  Kingsport-Bristol-Bristol,      0.7985     0.8388
                        TN-VA.
                         Hawkins County, TN
                         Sullivan County, TN
                         Bristol City, VA
                         Scott County, VA
                         Washington County, VA
28740................  Kingston, NY...............     0.9367     0.9494
                         Ulster County, NY
28940................  Knoxville, TN..............     0.8249     0.8599
                         Anderson County, TN
                         Blount County, TN
                         Knox County, TN
                         Loudon County, TN
                         Union County, TN
29020................  Kokomo, IN.................     0.9669     0.9735
                         Howard County, IN
                         Tipton County, IN
29100................  La Crosse, WI-MN...........     0.9426     0.9541
                         Houston County, MN
                         La Crosse County, WI
29140................  Lafayette, IN..............     0.8931     0.9145
                         Benton County, IN
                         Carroll County, IN
                         Tippecanoe County, IN
29180................  Lafayette, LA..............     0.8289     0.8631
                         Lafayette Parish, LA
                         St. Martin Parish, LA
29340................  Lake Charles, LA...........     0.7914     0.8331
                         Calcasieu Parish, LA
                         Cameron Parish, LA
29404................  Lake County-Kenosha County,     1.0570     1.0456
                        IL-WI.
                         Lake County, IL

[[Page 4860]]

 
                         Kenosha County, WI
29460................  Lakeland, FL...............     0.8879     0.9103
                         Polk County, FL
29540................  Lancaster, PA..............     0.9589     0.9671
                         Lancaster County, PA
29620................  Lansing-East Lansing, MI...     1.0088     1.0070
                         Clinton County, MI
                         Eaton County, MI
                         Ingham County, MI
29700................  Laredo, TX.................     0.7811     0.8249
                         Webb County, TX
29740................  Las Cruces, NM.............     0.9273     0.9418
                         Dona Ana County, NM
29820................  Las Vegas-Paradise, NV.....     1.1430     1.1144
                         Clark County, NV
29940................  Lawrence, KS...............     0.8365     0.8692
                         Douglas County, KS
30020................  Lawton, OK.................     0.8065     0.8452
                         Comanche County, OK
30140................  Lebanon, PA................     0.8679     0.8943
                         Lebanon County, PA
30300................  Lewiston, ID-WA............     0.9853     0.9882
                         Nez Perce County, ID
                         Asotin County, WA
30340................  Lewiston-Auburn, ME........     0.9126     0.9301
                         Androscoggin County, ME
30460................  Lexington-Fayette, KY......     0.9181     0.9345
                         Bourbon County, KY
                         Clark County, KY
                         Fayette County, KY
                         Jessamine County, KY
                         Scott County, KY
                         Woodford County, KY
30620................  Lima, OH...................     0.9042     0.9234
                         Allen County, OH
30700................  Lincoln, NE................     1.0092     1.0074
                         Lancaster County, NE
                         Seward County, NE
30780................  Little Rock-North Little        0.8890     0.9112
                        Rock, AR.
                         Faulkner County, AR
                         Grant County, AR
                         Lonoke County, AR
                         Perry County, AR
                         Pulaski County, AR
                         Saline County, AR
30860................  Logan, UT-ID...............     0.9022     0.9218
                         Franklin County, ID
                         Cache County, UT
30980................  Longview, TX...............     0.8788     0.9030
                         Gregg County, TX
                         Rusk County, TX
                         Upshur County, TX
31020................  Longview, WA...............     1.0011     1.0009
                         Cowlitz County, WA
31084................  Los Angeles-Long Beach-         1.1760     1.1408
                        Glendale, CA.
                         Los Angeles County, CA
31140................  Louisville-Jefferson            0.9118     0.9294
                        County, KY-IN.
                         Clark County, IN
                         Floyd County, IN
                         Harrison County, IN
                         Washington County, IN
                         Bullitt County, KY
                         Henry County, KY
                         Jefferson County, KY
                         Meade County, KY
                         Nelson County, KY
                         Oldham County, KY
                         Shelby County, KY
                         Spencer County, KY

[[Page 4861]]

 
                         Trimble County, KY
31180................  Lubbock, TX................     0.8613     0.8890
                         Crosby County, TX
                         Lubbock County, TX
31340................  Lynchburg, VA..............     0.8694     0.8955
                         Amherst County, VA
                         Appomattox County, VA
                         Bedford County, VA
                         Campbell County, VA
                         Bedford City, VA
                         Lynchburg City, VA
31420................  Macon, GA..................     0.9519     0.9615
                         Bibb County, GA
                         Crawford County, GA
                         Jones County, GA
                         Monroe County, GA
                         Twiggs County, GA
31460................  Madera, CA.................     0.8154     0.8523
                         Madera County, CA
31540................  Madison, WI................     1.0840     1.0672
                         Columbia County, WI
                         Dane County, WI
                         Iowa County, WI
31700................  Manchester-Nashua, NH......     1.0243     1.0194
                         Hillsborough County, NH
                         Merrimack County, NH
31900................  Mansfield, OH..............     0.9271     0.9417
                         Richland County, OH
32420................  Mayag[uuml]ez, PR..........     0.3848     0.5078
                         Hormigueros Municipio, PR
                         Mayag[uuml]ez Municipio,
                       PR
32580................  McAllen-Edinburg-Mission,       0.8773     0.9018
                        TX.
                         Hidalgo County, TX
32780................  Medford, OR................     1.0818     1.0654
                         Jackson County, OR
32820................  Memphis, TN-MS-AR..........     0.9373     0.9498
                         Crittenden County, AR
                         DeSoto County, MS
                         Marshall County, MS
                         Tate County, MS
                         Tunica County, MS
                         Fayette County, TN
                         Shelby County, TN
                         Tipton County, TN
32900................  Merced, CA.................     1.1471     1.1177
                         Merced County, CA
33124................  Miami-Miami Beach-Kendall,      0.9812     0.9850
                        FL.
                         Miami-Dade County, FL
33140................  Michigan City-La Porte, IN.     0.9118     0.9294
                         LaPorte County, IN
33260................  Midland, TX................     0.9786     0.9829
                         Midland County, TX
33340................  Milwaukee-Waukesha-West         1.0218     1.0174
                        Allis, WI.
                         Milwaukee County, WI
                         Ozaukee County, WI
                         Washington County, WI
                         Waukesha County, WI
33460................  Minneapolis-St. Paul-           1.0946     1.0757
                        Bloomington, MN-WI.
                         Anoka County, MN
                         Carver County, MN
                         Chisago County, MN
                         Dakota County, MN
                         Hennepin County, MN
                         Isanti County, MN
                         Ramsey County, MN
                         Scott County, MN
                         Sherburne County, MN
                         Washington County, MN
                         Wright County, MN

[[Page 4862]]

 
                         Pierce County, WI
                         St. Croix County, WI
33540................  Missoula, MT...............     0.8928     0.9142
                         Missoula County, MT
33660................  Mobile, AL.................     0.7913     0.8330
                         Mobile County, AL
33700................  Modesto, CA................     1.1729     1.1383
                         Stanislaus County, CA
33740................  Monroe, LA.................     0.7997     0.8398
                         Ouachita Parish, LA
                         Union Parish, LA
33780................  Monroe, MI.................     0.9707     0.9766
                         Monroe County, MI
33860................  Montgomery, AL.............     0.8009     0.8407
                         Autauga County, AL
                         Elmore County, AL
                         Lowndes County, AL
                         Montgomery County, AL
34060................  Morgantown, WV.............     0.8423     0.8738
                         Monongalia County, WV
                         Preston County, WV
34100................  Morristown, TN.............     0.7933     0.8346
                         Grainger County, TN
                         Hamblen County, TN
                         Jefferson County, TN
34580................  Mount Vernon-Anacortes, WA.     1.0517     1.0414
                         Skagit County, WA
34620................  Muncie, IN.................     0.8562     0.8850
                         Delaware County, IN
34740................  Muskegon-Norton Shores, MI.     0.9941     0.9953
                         Muskegon County, MI
34820................  Myrtle Beach-Conway-North       0.8810     0.9048
                        Myrtle Beach, SC.
                         Horry County, SC
34900................  Napa, CA...................     1.3374     1.2699
                         Napa County, CA
34940................  Naples-Marco Island, FL....     0.9941     0.9953
                         Collier County, FL
34980................  Nashville-Davidson--            0.9847     0.9878
                        Murfreesboro, TN.
                         Cannon County, TN
                         Cheatham County, TN
                         Davidson County, TN
                         Dickson County, TN
                         Hickman County, TN
                         Macon County, TN
                         Robertson County, TN
                         Rutherford County, TN
                         Smith County, TN
                         Sumner County, TN
                         Trousdale County, TN
                         Williamson County, TN
                         Wilson County, TN
35004................  Nassau-Suffolk, NY.........     1.2662     1.2130
                         Nassau County, NY
                         Suffolk County, NY
35084................  Newark-Union, NJ-PA........     1.1892     1.1514
                         Essex County, NJ
                         Hunterdon County, NJ
                         Morris County, NJ
                         Sussex County, NJ
                         Union County, NJ
                         Pike County, PA
35300................  New Haven-Milford, CT......     1.1953     1.1562
                         New Haven County, CT
35380................  New Orleans-Metairie-           0.8831     0.9065
                        Kenner, LA.
                         Jefferson Parish, LA
                         Orleans Parish, LA
                         Plaquemines Parish, LA
                         St. Bernard Parish, LA
                         St. Charles Parish, LA

[[Page 4863]]

 
                         St. John the Baptist
                       Parish, LA
                         St. Tammany Parish, LA
35644................  New York-White Plains-          1.3177     1.2542
                        Wayne, NY-NJ.
                         Bergen County, NJ
                         Hudson County, NJ
                         Passaic County, NJ
                         Bronx County, NY
                         Kings County, NY
                         New York County, NY
                         Putnam County, NY
                         Queens County, NY
                         Richmond County, NY
                         Rockland County, NY
                         Westchester County, NY
35660................  Niles-Benton Harbor, MI....     0.8915     0.9132
                         Berrien County, MI
35980................  Norwich-New London, CT.....     1.1932     1.1546
                         New London County, CT
36084................  Oakland-Fremont-Hayward, CA     1.5819     1.4655
                         Alameda County, CA
                         Contra Costa County, CA
36100................  Ocala, FL..................     0.8867     0.9094
                         Marion County, FL
36140................  Ocean City, NJ.............     1.0472     1.0378
                         Cape May County, NJ
36220................  Odessa, TX.................     1.0073     1.0058
                         Ector County, TX
36260................  Ogden-Clearfield, UT.......     0.8995     0.9196
                         Davis County, UT
                         Morgan County, UT
                         Weber County, UT
36420................  Oklahoma City, OK..........     0.8843     0.9074
                         Canadian County, OK
                         Cleveland County, OK
                         Grady County, OK
                         Lincoln County, OK
                         Logan County, OK
                         McClain County, OK
                         Oklahoma County, OK
36500................  Olympia, WA................     1.1081     1.0865
                         Thurston County, WA
36540................  Omaha-Council Bluffs, NE-IA     0.9450     0.9560
                         Harrison County, IA
                         Mills County, IA
                         Pottawattamie County, IA
                         Cass County, NE
                         Douglas County, NE
                         Sarpy County, NE
                         Saunders County, NE
                         Washington County, NE
36740................  Orlando-Kissimmee, FL......     0.9452     0.9562
                         Lake County, FL
                         Orange County, FL
                         Osceola County, FL
                         Seminole County, FL
36780................  Oshkosh-Neenah, WI.........     0.9315     0.9452
                         Winnebago County, WI
36980................  Owensboro, KY..............     0.8748     0.8998
                         Daviess County, KY
                         Hancock County, KY
                         McLean County, KY
37100................  Oxnard-Thousand Oaks-           1.1546     1.1237
                        Ventura, CA.
                         Ventura County, CA
37340................  Palm Bay-Melbourne-             0.9443     0.9554
                        Titusville, FL.
                         Brevard County, FL
37460................  Panama City-Lynn Haven, FL.     0.8027     0.8422
                         Bay County, FL
37620................  Parkersburg-Marietta-           0.7977     0.8382
                        Vienna, WV-OH.
                         Washington County, OH

[[Page 4864]]

 
                         Pleasants County, WV
                         Wirt County, WV
                         Wood County, WV
37700................  Pascagoula, MS.............     0.8215     0.8572
                         George County, MS
                         Jackson County, MS
37860................  Pensacola-Ferry Pass-Brent,     0.8000     0.8400
                        FL.
                         Escambia County, FL
                         Santa Rosa County, FL
37900................  Peoria, IL.................     0.8982     0.9186
                         Marshall County, IL
                         Peoria County, IL
                         Stark County, IL
                         Tazewell County, IL
                         Woodford County, IL
37964................  Philadelphia, PA...........     1.0996     1.0797
                         Bucks County, PA
                         Chester County, PA
                         Delaware County, PA
                         Montgomery County, PA
                         Philadelphia County, PA
38060................  Phoenix-Mesa-Scottsdale, AZ     1.0287     1.0230
                         Maricopa County, AZ
                         Pinal County, AZ
38220................  Pine Bluff, AR.............     0.8383     0.8706
                         Cleveland County, AR
                         Jefferson County, AR
                         Lincoln County, AR
38300................  Pittsburgh, PA.............     0.8674     0.8939
                         Allegheny County, PA
                         Armstrong County, PA
                         Beaver County, PA
                         Butler County, PA
                         Fayette County, PA
                         Washington County, PA
                         Westmoreland County, PA
38340................  Pittsfield, MA.............     1.0266     1.0213
                         Berkshire County, MA
38540................  Pocatello, ID..............     0.9400     0.9520
                         Bannock County, ID
                         Power County, ID
38660................  Ponce, PR..................     0.4842     0.5874
                         Juana D[iacute]az
                       Municipio, PR
                         Ponce Municipio, PR
                         Villalba Municipio, PR
38860................  Portland-South Portland-        0.9908     0.9926
                        Biddeford, ME.
                         Cumberland County, ME
                         Sagadahoc County, ME
                         York County, ME
38900................  Portland-Vancouver-             1.1416     1.1133
                        Beaverton, OR-WA.
                         Clackamas County, OR
                         Columbia County, OR
                         Multnomah County, OR
                         Washington County, OR
                         Yamhill County, OR
                         Clark County, WA
                         Skamania County, WA
38940................  Port St. Lucie-Fort Pierce,     0.9833     0.9866
                        FL.
                         Martin County, FL
                         St. Lucie County, FL
39100................  Poughkeepsie-Newburgh-          1.0911     1.0729
                        Middletown, NY.
                         Dutchess County, NY
                         Orange County, NY
39140................  Prescott, AZ...............     0.9836     0.9869
                         Yavapai County, AZ
39300................  Providence-New Bedford-Fall     1.0783     1.0626
                        River, RI-MA.
                         Bristol County, MA
                         Bristol County, RI
                         Kent County, RI

[[Page 4865]]

 
                         Newport County, RI
                         Providence County, RI
                         Washington County, RI
39340................  Provo-Orem, UT.............     0.9537     0.9630
                         Juab County, UT
                         Utah County, UT
39380................  Pueblo, CO.................     0.8753     0.9002
                         Pueblo County, CO
39460................  Punta Gorda, FL............     0.9405     0.9524
                         Charlotte County, FL
39540................  Racine, WI.................     0.9356     0.9485
                         Racine County, WI
39580................  Raleigh-Cary, NC...........     0.9864     0.9891
                         Franklin County, NC
                         Johnston County, NC
                         Wake County, NC
39660................  Rapid City, SD.............     0.8833     0.9066
                         Meade County, SD
                         Pennington County, SD
39740................  Reading, PA................     0.9622     0.9698
                         Berks County, PA
39820................  Redding, CA................     1.3198     1.2558
                         Shasta County, CA
39900................  Reno-Sparks, NV............     1.1963     1.1570
                         Storey County, NV
                         Washoe County, NV
40060................  Richmond, VA...............     0.9177     0.9342
                         Amelia County, VA
                         Caroline County, VA
                         Charles City County, VA
                         Chesterfield County, VA
                         Cumberland County, VA
                         Dinwiddie County, VA
                         Goochland County, VA
                         Hanover County, VA
                         Henrico County, VA
                         King and Queen County, VA
                         King William County, VA
                         Louisa County, VA
                         New Kent County, VA
                         Powhatan County, VA
                         Prince George County, VA
                         Sussex County, VA
                         Colonial Heights City, VA
                         Hopewell City, VA
                         Petersburg City, VA
                         Richmond City, VA
40140................  Riverside-San Bernardino-       1.0904     1.0723
                        Ontario, CA.
                         Riverside County, CA
                         San Bernardino County, CA
40220................  Roanoke, VA................     0.8647     0.8918
                         Botetourt County, VA
                         Craig County, VA
                         Franklin County, VA
                         Roanoke County, VA
                         Roanoke City, VA
                         Salem City, VA
40340................  Rochester, MN..............     1.1408     1.1126
                         Dodge County, MN
                         Olmsted County, MN
                         Wabasha County, MN
40380................  Rochester, NY..............     0.8994     0.9195
                         Livingston County, NY
                         Monroe County, NY
                         Ontario County, NY
                         Orleans County, NY
                         Wayne County, NY
40420................  Rockford, IL...............     0.9989     0.9991
                         Boone County, IL

[[Page 4866]]

 
                         Winnebago County, IL
40484................  Rockingham County-Strafford     1.0159     1.0127
                        County, NH.
                         Rockingham County, NH
                         Strafford County, NH
40580................  Rocky Mount, NC............     0.8854     0.9083
                         Edgecombe County, NC
                         Nash County, NC
40660................  Rome, GA...................     0.9193     0.9354
                         Floyd County, GA
40900................  Sacramento--Arden-Arcade--      1.3372     1.2698
                        Roseville, CA.
                         El Dorado County, CA
                         Placer County, CA
                         Sacramento County, CA
                         Yolo County, CA
40980................  Saginaw-Saginaw Township        0.8874     0.9099
                        North, MI.
                         Saginaw County, MI
41060................  St. Cloud, MN..............     1.0362     1.0290
                         Benton County, MN
                         Stearns County, MN
41100................  St. George, UT.............     0.9265     0.9412
                         Washington County, UT
41140................  St. Joseph, MO-KS..........     1.0118     1.0094
                         Doniphan County, KS
                         Andrew County, MO
                         Buchanan County, MO
                         DeKalb County, MO
41180................  St. Louis, MO-IL...........     0.9005     0.9204
                         Bond County, IL
                         Calhoun County, IL
                         Clinton County, IL
                         Jersey County, IL
                         Macoupin County, IL
                         Madison County, IL
                         Monroe County, IL
                         St. Clair County, IL
                         Crawford County, MO
                         Franklin County, MO
                         Jefferson County, MO
                         Lincoln County, MO
                         St. Charles County, MO
                         St. Louis County, MO
                         Warren County, MO
                         Washington County, MO
                         St. Louis City, MO
41420................  Salem, OR..................     1.0438     1.0350
                         Marion County, OR
                         Polk County, OR
41500................  Salinas, CA................     1.4337     1.3470
                         Monterey County, CA
41540................  Salisbury, MD..............     0.8953     0.9162
                         Somerset County, MD
                         Wicomico County, MD
41620................  Salt Lake City, UT.........     0.9402     0.9522
                         Salt Lake County, UT
                         Summit County, UT
                         Tooele County, UT
41660................  San Angelo, TX.............     0.8362     0.8690
                         Irion County, TX
                         Tom Green County, TX
41700................  San Antonio, TX............     0.8844     0.9075
                         Atascosa County, TX
                         Bandera County, TX
                         Bexar County, TX
                         Comal County, TX
                         Guadalupe County, TX
                         Kendall County, TX
                         Medina County, TX
                         Wilson County, TX
41740................  San Diego-Carlsbad-San          1.1354     1.1083
                        Marcos, CA.

[[Page 4867]]

 
                         San Diego County, CA
41780................  Sandusky, OH...............     0.9302     0.9442
                         Erie County, OH
41884................  San Francisco-San Mateo-        1.5165     1.4132
                        Redwood City, CA.
                         Marin County, CA
                         San Francisco County, CA
                         San Mateo County, CA
41900................  San Germ[aacute]n-Cabo          0.4885     0.5908
                        Rojo, PR.
                         Cabo Rojo Municipio, PR
                         Lajas Municipio, PR
                         Sabana Grande Municipio,
                       PR
                         San Germ[aacute]n
                       Municipio, PR
41940................  San Jose-Sunnyvale-Santa        1.5543     1.4434
                        Clara, CA.
                         San Benito County, CA
                         Santa Clara County, CA
41980................  San Juan-Caguas-Guaynabo,       0.4452     0.5562
                        PR.
                         Aguas Buenas Municipio,
                       PR
                         Aibonito Municipio, PR
                         Arecibo Municipio, PR
                         Barceloneta Municipio, PR
                         Barranquitas Municipio,
                       PR
                         Bayam[oacute]n Municipio,
                       PR
                         Caguas Municipio, PR
                         Camuy Municipio, PR
                         Can[oacute]vanas
                       Municipio, PR
                         Carolina Municipio, PR
                         Cata[ntilde]o Municipio,
                       PR
                         Cayey Municipio, PR
                         Ciales Municipio, PR
                         Cidra Municipio, PR
                         Comer[iacute]o Municipio,
                       PR
                         Corozal Municipio, PR
                         Dorado Municipio, PR
                         Florida Municipio, PR
                         Guaynabo Municipio, PR
                         Gurabo Municipio, PR
                         Hatillo Municipio, PR
                         Humacao Municipio, PR
                         Juncos Municipio, PR
                         Las Piedras Municipio, PR
                         Lo[iacute]za Municipio,
                       PR
                         Manat[iacute] Municipio,
                       PR
                         Maunabo Municipio, PR
                         Morovis Municipio, PR
                         Naguabo Municipio, PR
                         Naranjito Municipio, PR
                         Orocovis Municipio, PR
                         Quebradillas Municipio,
                       PR
                         R[iacute]o Grande
                       Municipio, PR
                         San Juan Municipio, PR
                         San Lorenzo Municipio, PR
                         Toa Alta Municipio, PR
                         Toa Baja Municipio, PR
                         Trujillo Alto Municipio,
                       PR
                         Vega Alta Municipio, PR
                         Vega Baja Municipio, PR
                         Yabucoa Municipio, PR
42020................  San Luis Obispo-Paso            1.1598     1.1278
                        Robles, CA.
                         San Luis Obispo County,
                       CA
42044................  Santa Ana-Anaheim-Irvine,       1.1473     1.1178
                        CA.
                         Orange County, CA
42060................  Santa Barbara-Santa Maria,      1.1091     1.0873
                        CA.
                         Santa Barbara County, CA
42100................  Santa Cruz-Watsonville, CA.     1.5457     1.4366
                         Santa Cruz County, CA
42140................  Santa Fe, NM...............     1.0824     1.0659
                         Santa Fe County, NM
42220................  Santa Rosa-Petaluma, CA....     1.4464     1.3571
                         Sonoma County, CA

[[Page 4868]]

 
42260................  Sarasota-Bradenton-Venice,      0.9868     0.9894
                        FL.
                         Manatee County, FL
                         Sarasota County, FL
42340................  Savannah, GA...............     0.9351     0.9481
                         Bryan County, GA
                         Chatham County, GA
                         Effingham County, GA
42540................  Scranton--Wilkes-Barre, PA.     0.8347     0.8678
                         Lackawanna County, PA
                         Luzerne County, PA
                         Wyoming County, PA
42644................  Seattle-Bellevue-Everett,       1.1434     1.1147
                        WA.
                         King County, WA
                         Snohomish County, WA
42680................  Sebastian-Vero Beach, FL...     0.9573     0.9658
                         Indian River County, FL
43100................  Sheboygan, WI..............     0.9026     0.9221
                         Sheboygan County, WI
43300................  Sherman-Denison, TX........     0.8502     0.8802
                         Grayson County, TX
43340................  Shreveport-Bossier City, LA     0.8865     0.9092
                         Bossier Parish, LA
                         Caddo Parish, LA
                         De Soto Parish, LA
43580................  Sioux City, IA-NE-SD.......     0.9200     0.9360
                         Woodbury County, IA
                         Dakota County, NE
                         Dixon County, NE
                         Union County, SD
43620................  Sioux Falls, SD............     0.9559     0.9647
                         Lincoln County, SD
                         McCook County, SD
                         Minnehaha County, SD
                         Turner County, SD
43780................  South Bend-Mishawaka, IN-MI     0.9842     0.9874
                         St. Joseph County, IN
                         Cass County, MI
43900................  Spartanburg, SC............     0.9174     0.9339
                         Spartanburg County, SC
44060................  Spokane, WA................     1.0447     1.0358
                         Spokane County, WA
44100................  Springfield, IL............     0.8890     0.9112
                         Menard County, IL
                         Sangamon County, IL
44140................  Springfield, MA............     1.0079     1.0063
                         Franklin County, MA
                         Hampden County, MA
                         Hampshire County, MA
44180................  Springfield, MO............     0.8469     0.8775
                         Christian County, MO
                         Dallas County, MO
                         Greene County, MO
                         Polk County, MO
                         Webster County, MO
44220................  Springfield, OH............     0.8593     0.8874
                         Clark County, OH
44300................  State College, PA..........     0.8784     0.9027
                         Centre County, PA
44700................  Stockton, CA...............     1.1442     1.1154
                         San Joaquin County, CA
44940................  Sumter, SC.................     0.8083     0.8466
                         Sumter County, SC
45060................  Syracuse, NY...............     0.9691     0.9753
                         Madison County, NY
                         Onondaga County, NY
                         Oswego County, NY
45104................  Tacoma, WA.................     1.0789     1.0631
                         Pierce County, WA
45220................  Tallahassee, FL............     0.8942     0.9154

[[Page 4869]]

 
                         Gadsden County, FL
                         Jefferson County, FL
                         Leon County, FL
                         Wakulla County, FL
45300................  Tampa-St. Petersburg-           0.9144     0.9315
                        Clearwater, FL.
                         Hernando County, FL
                         Hillsborough County, FL
                         Pasco County, FL
                         Pinellas County, FL
45460................  Terre Haute, IN............     0.8765     0.9012
                         Clay County, IN
                         Sullivan County, IN
                         Vermillion County, IN
                         Vigo County, IN
45500................  Texarkana, TX-Texarkana, AR     0.8104     0.8483
                         Miller County, AR
                         Bowie County, TX
45780................  Toledo, OH.................     0.9586     0.9669
                         Fulton County, OH
                         Lucas County, OH
                         Ottawa County, OH
                         Wood County, OH
45820................  Topeka, KS.................     0.8730     0.8984
                         Jackson County, KS
                         Jefferson County, KS
                         Osage County, KS
                         Shawnee County, KS
                         Wabaunsee County, KS
45940................  Trenton-Ewing, NJ..........     1.0835     1.0668
                         Mercer County, NJ
46060................  Tucson, AZ.................     0.9202     0.9362
                         Pima County, AZ
46140................  Tulsa, OK..................     0.8103     0.8482
                         Creek County, OK
                         Okmulgee County, OK
                         Osage County, OK
                         Pawnee County, OK
                         Rogers County, OK
                         Tulsa County, OK
                         Wagoner County, OK
46220................  Tuscaloosa, AL.............     0.8542     0.8834
                         Greene County, AL
                         Hale County, AL
                         Tuscaloosa County, AL
46340................  Tyler, TX..................     0.8811     0.9049
                         Smith County, TX
46540................  Utica-Rome, NY.............     0.8396     0.8717
                         Herkimer County, NY
                         Oneida County, NY
46660................  Valdosta, GA...............     0.8369     0.8695
                         Brooks County, GA
                         Echols County, GA
                         Lanier County, GA
                         Lowndes County, GA
46700................  Vallejo-Fairfield, CA......     1.5137     1.4110
                         Solano County, CA
47020................  Victoria, TX...............     0.8560     0.8848
                         Calhoun County, TX
                         Goliad County, TX
                         Victoria County, TX
47220................  Vineland-Millville-             0.9832     0.9866
                        Bridgeton, NJ.
                         Cumberland County, NJ
47260................  Virginia Beach-Norfolk-         0.8790     0.9032
                        Newport News, VA-NC.
                         Currituck County, NC
                         Gloucester County, VA
                         Isle of Wight County, VA
                         James City County, VA
                         Mathews County, VA
                         Surry County, VA

[[Page 4870]]

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

[[Page 4871]]

 
                         Clay County, TX
                         Wichita County, TX
48700................  Williamsport, PA...........     0.8139     0.8511
                         Lycoming County, PA
48864................  Wilmington, DE-MD-NJ.......     1.0684     1.0547
                         New Castle County, DE
                         Cecil County, MD
                         Salem County, NJ
48900................  Wilmington, NC.............     0.9835     0.9868
                         Brunswick County, NC
                         New Hanover County, NC
                         Pender County, NC
49020................  Winchester, VA-WV..........     1.0091     1.0073
                         Frederick County, VA
                         Winchester City, VA
                         Hampshire County, WV
49180................  Winston-Salem, NC..........     0.9276     0.9421
                         Davie County, NC
                         Forsyth County, NC
                         Stokes County, NC
                         Yadkin County, NC
49340................  Worcester, MA..............     1.0722     1.0578
                         Worcester County, MA
49420................  Yakima, WA.................     0.9847     0.9878
                         Yakima County, WA
49500................  Yauco, PR..................     0.3854     0.5083
                         Gu[aacute]nica Municipio,
                       PR
                         Guayanilla Municipio, PR
                         Pe[ntilde]uelas
                       Municipio, PR
                         Yauco Municipio, PR
49620................  York-Hanover, PA...........     0.9397     0.9518
                         York County, PA
49660................  Youngstown-Warren-Boardman,     0.8802     0.9042
                        OH-PA.
                         Mahoning County, OH
                         Trumbull County, OH
                         Mercer County, PA
49700................  Yuba City, CA..............     1.0730     1.0584
                         Sutter County, CA
                         Yuba County, CA
49740................  Yuma, AZ...................     0.9109     0.9287
                         Yuma County, AZ
------------------------------------------------------------------------
\1\ As discussed in section IV.D.1.d. of the preamble of this proposed
  rule, because there will no longer be any LTCHs in their cost
  reporting periods that began during FYs 2003, 2004 or 2005 (the first
  3 years of the 5-year wage index phase-in, respectively), we are no
  longer showing the 1/5th, 2/5ths and 3/5ths wage index value. For
  further details on the 5-year phase-in of the wage index, see section
  IV.D.1. of this proposed rule.
\2\ The wage index values are calculated using the same wage data used
  to compute the wage index used by acute care hospitals under the IPPS
  for Federal FY 2007 (that is, fiscal year 2003 audited acute care
  hospital inpatient wage data without regard to reclassification under
  section 1886(d)(8) or section 1886(d)(10) of the Act).
\3\ Four-fifths of the proposed full wage index value, applicable for a
  LTCH's cost reporting period beginning on or after October 1, 2005
  through September 30, 2006 (Federal FY 2006). That is, for a LTCH's
  cost reporting period that begins during Federal FY 2006 and located
  in Chicago, Illinois (CBSA 16974), the 4/5ths wage index value is
  computed as ((4*1.0751) + 1))/5 = 1.0601. For further details on the 5-
  year phase-in of the wage index, see section IV.D.1. of this proposed
  rule.


  Table 2.--Proposed Long-Term Care Hospital Wage Index for Rural Areas
  for Discharges Occurring From July 1, 2007 Through June 30, 2008 \1\
------------------------------------------------------------------------
                                                       Full      4/5ths
      CBSA code               Nonurban area            wage       wage
                                                    index \2\  index \3\
------------------------------------------------------------------------
01...................  Alabama....................     0.7591     0.8073
02...................  Alaska.....................     1.0661     1.0529
03...................  Arizona....................     0.8908     0.9126
04...................  Arkansas...................     0.7307     0.7846
05...................  California.................     1.1454     1.1163
06...................  Colorado...................     0.9325     0.9460
07...................  Connecticut................     1.1709     1.1367
08...................  Delaware...................     0.9705     0.9764
10...................  Florida....................     0.8594     0.8875
11...................  Georgia....................     0.7593     0.8074

[[Page 4872]]

 
12...................  Hawaii.....................     1.0448     1.0358
13...................  Idaho......................     0.8120     0.8496
14...................  Illinois...................     0.8320     0.8656
15...................  Indiana....................     0.8538     0.8830
16...................  Iowa.......................     0.8681     0.8945
17...................  Kansas.....................     0.7998     0.8398
18...................  Kentucky...................     0.7768     0.8214
19...................  Louisiana..................     0.7438     0.7950
20...................  Maine......................     0.8443     0.8754
21...................  Maryland...................     0.8926     0.9141
22...................  Massachusetts \4\..........  .........  .........
23...................  Michigan...................     0.9062     0.9250
24...................  Minnesota..................     0.9153     0.9322
25...................  Mississippi................     0.7738     0.8190
26...................  Missouri...................     0.7927     0.8342
27...................  Montana....................     0.8590     0.8872
28...................  Nebraska...................     0.8677     0.8942
29...................  Nevada.....................     0.8944     0.9155
30...................  New Hampshire..............     1.0853     1.0682
31...................  New Jersey \4\.............  .........  .........
32...................  New Mexico.................     0.8332     0.8666
33...................  New York...................     0.8232     0.8586
34...................  North Carolina.............     0.8588     0.8870
35...................  North Dakota...............     0.7215     0.7772
36...................  Ohio.......................     0.8658     0.8926
37...................  Oklahoma...................     0.7629     0.8103
38...................  Oregon.....................     0.9753     0.9802
39...................  Pennsylvania...............     0.8320     0.8656
40...................  Puerto Rico \4\............  .........  .........
41...................  Rhode Island \4\...........  .........  .........
42...................  South Carolina.............     0.8566     0.8853
43...................  South Dakota...............     0.8480     0.8784
44...................  Tennessee..................     0.7827     0.8262
45...................  Texas......................     0.7965     0.8372
46...................  Utah.......................     0.8140     0.8512
47...................  Vermont....................     0.9744     0.9795
49...................  Virginia...................     0.7940     0.8352
50...................  Washington.................     1.0263     1.0210
51...................  West Virginia..............     0.7607     0.8086
52...................  Wisconsin..................     0.9553     0.9642
53...................  Wyoming....................     0.9295    0.9436
------------------------------------------------------------------------
\1\ As discussed in section IV.D.1.d. of the preamble of this proposed
  rule, because there are no longer any LTCHs in their cost reporting
  periods that began during FYs 2003, 2004 or 2005 (the first 3 years of
  the 5-year wage index phase-in, respectively), we are no longer
  showing the 1/5th, 2/5ths and 3/5ths wage index value. For further
  details on the 5-year phase-in of the wage index, see section IV.D.1.
  of this proposed rule.
\2\ The wage index values are calculated using the same wage data used
  to compute the wage index used by acute care hospitals under the IPPS
  for Federal FY 2007 (that is, fiscal year 2003 audited acute care
  hospital inpatient wage data without regard to reclassification under
  section 1886(d)(8) or section 1886(d)(10) of the Act).
\3\ Four-fifths of the proposed full wage index value, applicable for a
  LTCH's cost reporting period beginning on or after October 1, 2005
  through September 30, 2006 (Federal FY 2006). That is, for a LTCH's
  cost reporting period that begins during Federal FY 2006 and located
  in rural Illinois, the 4/5ths wage index value is computed as
  ((4*0.8320) + 1))/5 = 0.8656. For further details on the 5-year phase-
  in of the wage index, see section IV.D.1. of this proposed rule.
\4\ All counties within the State are classified as urban.


  Table 3.--FY 2007 LTC-DRGs, Relative Weights, Geometric Average Length of Stay, Five-Sixths of the Geometric
               Average Length of Stay and IPPS Average Length of Stay Plus One Standard Deviation
----------------------------------------------------------------------------------------------------------------
                                                                                                    IPPS average
                                                                     Geometric     5/6ths of the  length of stay
       LTC-DRG                Description            Relative     average length     geometric       plus one
                                                      weight          of stay     average length     standard
                                                                                      of stay       deviation*
----------------------------------------------------------------------------------------------------------------
1....................  \5\ CRANIOTOMY AGE >17 W           1.6835            37.1            30.9            16.1
                        CC.
2....................  \6\ CRANIOTOMY AGE >17 W/          1.6835            37.1            30.9             7.1
                        O CC.
3....................  \6\ CRANIOTOMY AGE 0-17..          1.6835            37.1            30.9            20.1
6....................  \6\ CARPAL TUNNEL RELEASE          0.4175            17.0            14.2             4.8
7....................  PERIPH & CRANIAL NERVE &           1.2052            36.1            30.1            15.8
                        OTHER NERV SYST PROC W
                        CC.
8....................  \2\ PERIPH & CRANIAL               0.5594            21.0            17.5             4.2
                        NERVE & OTHER NERV SYST
                        PROC W/O CC.

[[Page 4873]]

 
9....................  SPINAL DISORDERS &                 1.0424            34.0            28.3             9.7
                        INJURIES.
10...................  NERVOUS SYSTEM NEOPLASMS           0.6971            22.1            18.4             9.6
                        W CC.
11...................  \2\ NERVOUS SYSTEM                 0.5594            21.0            17.5             5.7
                        NEOPLASMS W/O CC.
12...................  DEGENERATIVE NERVOUS               0.6788            25.1            20.9             8.4
                        SYSTEM DISORDERS.
13...................  MULTIPLE SCLEROSIS &               0.6003            23.1            19.3             7.4
                        CEREBELLAR ATAXIA.
14...................  INTRACRANIAL HEMORRHAGE            0.6772            24.9            20.8             8.6
                        OR CEREBRALINFARCTION.
15...................  NONSPECIFIC CVA &                  0.7705            26.1            21.8             6.4
                        PRECEREBRAL OCCLUSION W/
                        O INFARCT.
16...................  NONSPECIFIC                        0.6978            23.1            19.3            10.1
                        CEREBROVASCULAR
                        DISORDERS W CC.
17...................  \2\ NONSPECIFIC                    0.5594            21.0            17.5             4.7
                        CEREBROVASCULAR
                        DISORDERS W/O CC.
18...................  CRANIAL & PERIPHERAL               0.7503            25.4            21.2             8.2
                        NERVE DISORDERS W CC.
19...................  CRANIAL & PERIPHERAL               0.4512            19.5            16.3             5.3
                        NERVE DISORDERS W/O CC.
21...................  \3\ VIRAL MENINGITIS.....          0.7819            23.9            19.9             9.9
22...................  \3\ HYPERTENSIVE                   0.7819            23.9            19.9             7.9
                        ENCEPHALOPATHY.
23...................  NONTRAUMATIC STUPOR &              1.0118            29.4            24.5             6.1
                        COMA.
26...................  \6\ SEIZURE & HEADACHE             0.5594            21.0            17.5             6.2
                        AGE 0-17.
27...................  TRAUMATIC STUPOR & COMA,           0.9978            30.6            25.5             7.6
                        COMA >1 HR.
28...................  TRAUMATIC STUPOR & COMA,           0.7983            25.8            21.5             9.1
                        COMA <1 HR AGE >17 W CC.
29...................  \1\ TRAUMATIC STUPOR &             0.4175            17.0            14.2             5.0
                        COMA, COMA <1 HR AGE >17
                        W/O CC.
30**.................  \6\ TRAUMATIC STUPOR &             0.4175            17.0            14.2             2.0
                        COMA, COMA <1 HR AGE 0-
                        17.
31...................  \1\ CONCUSSION AGE >17 W           0.4175            17.0            14.2             6.2
                        CC.
32...................  \6\ CONCUSSION AGE >17 W/          0.4175            17.0            14.2             3.4
                        O CC.
33**.................  \6\ CONCUSSION AGE 0-17..          0.4175            17.0            14.2             1.6
34...................  OTHER DISORDERS OF                 0.7029            23.4            19.5             7.4
                        NERVOUS SYSTEM W CC.
35...................  OTHER DISORDERS OF                 0.5080            21.1            17.6             4.7
                        NERVOUS SYSTEM W/O CC.
36...................  \6\ RETINAL PROCEDURES...          0.5594            21.0            17.5             2.7
37...................  \6\ ORBITAL PROCEDURES...          0.5594            21.0            17.5             6.6
38...................  \6\ PRIMARY IRIS                   0.5594            21.0            17.5             4.3
                        PROCEDURES.
39...................  \6\ LENS PROCEDURES WITH           0.5594            21.0            17.5             3.1
                        OR WITHOUT VITRECTOMY.
40...................  \6\ EXTRAOCULAR                    0.5594            21.0            17.5             6.7
                        PROCEDURES EXCEPT ORBIT
                        AGE >17.
41**.................  \6\ EXTRAOCULAR                    0.5594            21.0            17.5             1.6
                        PROCEDURES EXCEPT ORBIT
                        AGE 0-17.
42...................  \6\ INTRAOCULAR                    0.5594            21.0            17.5             3.7
                        PROCEDURES EXCEPT
                        RETINA, IRIS & LENS.
43...................  \6\ HYPHEMA..............          0.4175            17.0            14.2             4.6
44...................  \3\ ACUTE MAJOR EYE                0.7819            23.9            19.9             7.4
                        INFECTIONS.
45...................  \1\ NEUROLOGICAL EYE               0.4175            17.0            14.2             4.6
                        DISORDERS.
46...................  \2\ OTHER DISORDERS OF             0.5594            21.0            17.5             6.6
                        THE EYE AGE >17 W CC.
47...................  \6\ OTHER DISORDERS OF             0.4175            17.0            14.2             4.7
                        THE EYE AGE >17 W/O CC.
48**.................  \6\ OTHER DISORDERS OF             0.4175            17.0            14.2             2.9
                        THE EYE AGE 0-17.
49...................  \6\ MAJOR HEAD & NECK              1.1625            29.5            24.6             7.1
                        PROCEDURES.
50...................  \6\ SIALOADENECTOMY......          1.1625            29.5            24.6             2.6
51...................  \6\ SALIVARY GLAND                 1.1625            29.5            24.6             4.0
                        PROCEDURES EXCEPT
                        SIALOADENECTOMY.
52...................  \6\ CLEFT LIP & PALATE             1.1625            29.5            24.6             2.1
                        REPAIR.
53...................  \6\ SINUS & MASTOID                1.1625            29.5            24.6             6.2
                        PROCEDURES AGE >17.
54**.................  \6\ SINUS & MASTOID                1.1625            29.5            24.6             3.2
                        PROCEDURES AGE 0-17.
55...................  \4\ MISCELLANEOUS EAR,             1.1625            29.5            24.6             4.3
                        NOSE, MOUTH & THROAT
                        PROCEDURES.
56...................  \6\ RHINOPLASTY..........          1.1625            29.5            24.6             4.1
57...................  \6\ T&A PROC, EXCEPT               0.4175            17.0            14.2             4.9
                        TONSILLECTOMY &/OR
                        ADENOIDECTOMY ONLY, AGE
                        >17.
58**.................  \6\ T&A PROC, EXCEPT               0.4175            17.0            14.2             1.5
                        TONSILLECTOMY &/OR
                        ADENOIDECTOMY ONLY, AGE
                        0-17.
59...................  \6\ TONSILLECTOMY &/OR             0.4175            17.0            14.2             3.6
                        ADENOIDECTOMY ONLY, AGE
                        >17.
60...................  \6\ TONSILLECTOMY &/OR             0.4175            17.0            14.2             2.7
                        ADENOIDECTOMY ONLY, AGE
                        0-17.
61...................  \6\ MYRINGOTOMY W TUBE             0.4175            17.0            14.2            10.2
                        INSERTION AGE >17.
62...................  \6\ MYRINGOTOMY W TUBE             0.4175            17.0            14.2             2.3
                        INSERTION AGE 0-17.
63...................  \4\ OTHER EAR, NOSE,               1.1625            29.5            24.6             7.2
                        MOUTH & THROAT O.R.
                        PROCEDURES.
64...................  EAR, NOSE, MOUTH & THROAT          1.1797            26.2            21.8            10.2
                        MALIGNANCY.
65...................  \1\ DYSEQUILIBRIUM.......          0.4175            17.0            14.2             4.2
66...................  \6\ EPISTAXIS............          0.4175            17.0            14.2             4.8
67...................  \3\ EPIGLOTTITIS.........          0.7819            23.9            19.9             5.8
68...................  OTITIS MEDIA & URI AGE             0.6211            20.3            16.9             5.9
                        >17 W CC.

[[Page 4874]]

 
69...................  \1\ OTITIS MEDIA & URI             0.4175            17.0            14.2             4.5
                        AGE >17 W/O CC.
70...................  \6\ OTITIS MEDIA & URI             0.4175            17.0            14.2             3.6
                        AGE 0-17.
71...................  \6\ LARYNGOTRACHEITIS....          0.5594            21.0            17.5             6.7
72...................  \3\ NASAL TRAUMA &                 0.7819            23.9            19.9             5.2
                        DEFORMITY.
73...................  OTHER EAR, NOSE, MOUTH &           0.7745            22.9            19.1             6.9
                        THROAT DIAGNOSES AGE >17.
74...................  \6\ OTHER EAR, NOSE,               0.4175            17.0            14.2             3.9
                        MOUTH & THROAT DIAGNOSES
                        AGE 0-17.
75...................  MAJOR CHEST PROCEDURES...          1.9944            33.5            27.9            15.4
76...................  OTHER RESP SYSTEM O.R.             2.3982            42.5            35.4            17.2
                        PROCEDURES W CC.
77...................  \2\ OTHER RESP SYSTEM              0.5594            21.0            17.5             7.4
                        O.R. PROCEDURES W/O CC.
78...................  PULMONARY EMBOLISM.......          0.6746            22.6            18.8             9.4
79...................  RESPIRATORY INFECTIONS &           0.8182            22.8            19.0            12.9
                        INFLAMMATIONS AGE >17 W
                        CC.
80...................  RESPIRATORY INFECTIONS &           0.6485            20.9            17.4             8.3
                        INFLAMMATIONSAGE >17 W/O
                        CC.
81...................  \6\ RESPIRATORY                    0.4175            17.0            14.2            10.1
                        INFECTIONS &
                        INFLAMMATIONS AGE 0-17.
82...................  RESPIRATORY NEOPLASMS....          0.8242            21.4            17.8            11.0
83...................  \1\ MAJOR CHEST TRAUMA W           0.4175            17.0            14.2             8.2
                        CC.
84...................  \6\ MAJOR CHEST TRAUMA W/          0.4175            17.0            14.2             4.8
                        O CC.
85...................  PLEURAL EFFUSION W CC....          0.6956            21.4            17.8             9.9
86...................  \6\ PLEURAL EFFUSION W/O           0.4175            17.0            14.2             5.5
                        CC.
87...................  PULMONARY EDEMA &                  1.0295            24.8            20.7            10.3
                        RESPIRATORY FAILURE.
88...................  CHRONIC OBSTRUCTIVE                0.6411            19.3            16.1             7.5
                        PULMONARY DISEASE.
89...................  SIMPLE PNEUMONIA &                 0.6802            20.6            17.2             8.6
                        PLEURISY AGE >17 W CC.
90...................  SIMPLE PNEUMONIA &                 0.4958            17.8            14.8             5.6
                        PLEURISY AGE >17 W/O CC.
91...................  \6\ SIMPLE PNEUMONIA &             0.5594            21.0            17.5             5.3
                        PLEURISY AGE 0-17.
92...................  INTERSTITIAL LUNG DISEASE          0.6638            19.6            16.3             9.4
                        W CC.
93...................  \1\ INTERSTITIAL LUNG              0.4175            17.0            14.2             5.9
                        DISEASE W/O CC.
94...................  PNEUMOTHORAX W CC........          0.6785            21.3            17.8             9.6
95...................  \8\ PNEUMOTHORAX W/O CC..          0.6785            21.3            17.8             5.3
96...................  BRONCHITIS & ASTHMA AGE            0.6230            18.9            15.8             6.7
                        >17 W CC.
97...................  \8\ BRONCHITIS & ASTHMA            0.6230            18.9            15.8             5.2
                        AGE >17 W/O CC.
98...................  \6\ BRONCHITIS & ASTHMA            0.5594            21.0            17.5             4.4
                        AGE 0-17.
99...................  RESPIRATORY SIGNS &                0.9381            24.6            20.5             4.8
                        SYMPTOMS W CC.
100..................  \3\ RESPIRATORY SIGNS &            0.7819            23.9            19.9             3.1
                        SYMPTOMS W/O CC.
101..................  OTHER RESPIRATORY SYSTEM           0.8147            22.2            18.5             6.7
                        DIAGNOSES W CC.
102..................  \1\ OTHER RESPIRATORY              0.4175            17.0            14.2             3.9
                        SYSTEM DIAGNOSES W/O CC.
103***...............  \7\ HEART TRANSPLANT OR            0.0000             0.0             0.0             0.0
                        IMPLANT OF HEART ASSIST
                        SYSTEM.
104..................  \6\ CARDIAC VALVE & OTHER          1.1625            29.5            24.6            22.3
                        MAJOR CARDIOTHORACIC
                        PROC W CARDIAC CATH.
105..................  \6\ CARDIAC VALVE & OTHER          1.1625            29.5            24.6            15.0
                        MAJOR CARDIOTHORACIC
                        PROC W/O CARDIAC CATH.
106..................  \6\ CORONARY BYPASS W              1.1625            29.5            24.6            16.6
                        PTCA.
108..................  \6\ OTHER CARDIOTHORACIC           1.1625            29.5            24.6            17.1
                        PROCEDURES.
110..................  \4\ MAJOR CARDIOVASCULAR           1.1625            29.5            24.6            13.8
                        PROCEDURES W CC.
111..................  \6\ MAJOR CARDIOVASCULAR           1.1625            29.5            24.6             4.9
                        PROCEDURES W/O CC.
113..................  AMPUTATION FOR CIRC                1.3942            36.1            30.1            20.5
                        SYSTEM DISORDERS EXCEPT
                        UPPER LIMB & TOE.
114..................  UPPER LIMB & TOE                   1.2425            33.0            27.5            14.0
                        AMPUTATION FOR CIRC
                        SYSTEM DISORDERS.
117..................  \2\ CARDIAC PACEMAKER              0.5594            21.0            17.5             6.7
                        REVISION EXCEPT DEVICE
                        REPLACEMENT.
118..................  \3\ CARDIAC PACEMAKER              0.7819            23.9            19.9             4.6
                        DEVICE REPLACEMENT.
119..................  \3\ VEIN LIGATION &                0.7819            23.9            19.9             8.8
                        STRIPPING.
120..................  OTHER CIRCULATORY SYSTEM           1.0893            31.4            26.2            15.5
                        O.R. PROCEDURES.
121..................  CIRCULATORY DISORDERS W            0.7451            22.4            18.7            10.1
                        AMI & MAJOR COMP,
                        DISCHARGED ALIVE.
122..................  \2\ CIRCULATORY DISORDERS          0.5594            21.0            17.5             5.3
                        W AMI W/O MAJOR COMP,
                        DISCHARGED ALIVE.
123..................  CIRCULATORY DISORDERS W            0.7858            17.0            14.2             7.6
                        AMI, EXPIRED.
124..................  \4\ CIRCULATORY DISORDERS          1.1625            29.5            24.6             7.0
                        EXCEPT AMI, W CARD CATH
                        & COMPLEX DIAG.
125..................  \1\ CIRCULATORY DISORDERS          0.4175            17.0            14.2             4.1
                        EXCEPT AMI, W CARD CATH
                        W/O COMPLEX DIAG.

[[Page 4875]]

 
126..................  ACUTE & SUBACUTE                   0.8867            26.3            21.9            17.5
                        ENDOCARDITIS.
127..................  HEART FAILURE & SHOCK....          0.6832            21.2            17.7             8.0
128..................  \2\ DEEP VEIN                      0.5594            21.0            17.5             8.0
                        THROMBOPHLEBITIS.
129..................  \1\ CARDIAC ARREST,                0.4175            17.0            14.2             3.5
                        UNEXPLAINED.
130..................  PERIPHERAL VASCULAR                0.6484            22.8            19.0             8.6
                        DISORDERS W CC.
131..................  PERIPHERAL VASCULAR                0.5267            21.0            17.5             5.9
                        DISORDERS W/O CC.
132..................  ATHEROSCLEROSIS W CC.....          0.6621            20.7            17.3             4.3
133..................  \2\ ATHEROSCLEROSIS W/O            0.5594            21.0            17.5             3.2
                        CC.
134..................  HYPERTENSION.............          0.4909            21.7            18.1             4.8
135..................  CARDIAC CONGENITAL &               0.8014            23.8            19.8             6.8
                        VALVULAR DISORDERS AGE
                        >17 W CC.
136..................  \1\ CARDIAC CONGENITAL &           0.4175            17.0            14.2             4.1
                        VALVULAR DISORDERS AGE
                        >17 W/O CC.
137**................   6CARDIAC CONGENITAL &             0.4175            17.0            14.2             3.3
                        VALVULAR DISORDERS AGE 0-
                        17.
138..................  CARDIAC ARRHYTHMIA &               0.6618            21.9            18.3             6.1
                        CONDUCTION DISORDERS W
                        CC.
139..................  \2\ CARDIAC ARRHYTHMIA &           0.5594            21.0            17.5             3.7
                        CONDUCTION DISORDERS W/O
                        CC.
140..................  \1\ ANGINA PECTORIS......          0.4175            17.0            14.2             3.6
141..................  SYNCOPE & COLLAPSE W CC..          0.5891            22.1            18.4             5.3
142..................  \8\ SYNCOPE & COLLAPSE W/          0.5891            22.1            18.4             3.8
                        O CC.
143..................  \1\ CHEST PAIN...........          0.4175            17.0            14.2             3.1
144..................  OTHER CIRCULATORY SYSTEM           0.7715            22.1            18.4             9.6
                        DIAGNOSES W CC.
145..................  OTHER CIRCULATORY SYSTEM           0.4292            17.0            14.2             3.9
                        DIAGNOSES W/O CC.
146..................  \5\ RECTAL RESECTION W CC          1.6835            37.1            30.9            14.6
147..................  \6\ RECTAL RESECTION W/O           0.7819            23.9            19.9             8.5
                        CC.
149..................  \6\ MAJOR SMALL & LARGE            0.7819            23.9            19.9             8.1
                        BOWEL PROCEDURES W/O CC.
150..................  \5\ PERITONEAL                     1.6835            37.1            30.9            17.3
                        ADHESIOLYSIS W CC.
151..................  \6\ PERITONEAL                     0.4175            17.0            14.2             8.2
                        ADHESIOLYSIS W/O CC.
152..................  \5\ MINOR SMALL & LARGE            1.6835            37.1            30.9            12.0
                        BOWEL PROCEDURES W CC.
153..................  \6\ MINOR SMALL & LARGE            1.6835            37.1            30.9             7.1
                        BOWEL PROCEDURES W/O CC.
155..................  \6\ STOMACH, ESOPHAGEAL &          1.6835            37.1            30.9             6.4
                        DUODENAL PROCEDURES AGE
                        >17 W/O CC.
156..................  \6\ STOMACH, ESOPHAGEAL &          1.6835            37.1            30.9            12.1
                        DUODENAL PROCEDURES AGE
                        0-17.
157..................  \3\ ANAL & STOMAL                  0.7819            23.9            19.9             9.3
                        PROCEDURES W CC.
158..................  \6\ ANAL & STOMAL                  0.7819            23.9            19.9             4.1
                        PROCEDURES W/O CC.
159..................  \5\ HERNIA PROCEDURES              1.6835            37.1            30.9             8.2
                        EXCEPT INGUINAL &
                        FEMORAL AGE >17 W CC.
160..................  \1\ HERNIA PROCEDURES              0.4175            17.0            14.2             4.1
                        EXCEPT INGUINAL &
                        FEMORAL AGE >17 W/O CC.
161..................  \6\ INGUINAL & FEMORAL             0.4175            17.0            14.2             7.3
                        HERNIA PROCEDURES AGE
                        >17 W CC.
162..................  \6\ INGUINAL & FEMORAL             0.4175            17.0            14.2             3.1
                        HERNIA PROCEDURES AGE
                        >17 W/O CC.
163..................  \6\ HERNIA PROCEDURES AGE          0.4175            17.0            14.2             4.0
                        0-17.
164..................  \6\ APPENDECTOMY W                 0.7819            23.9            19.9            11.9
                        COMPLICATED PRINCIPAL
                        DIAG W CC.
165..................  \6\ APPENDECTOMY W                 0.7819            23.9            19.9             6.1
                        COMPLICATED
                        PRINCIPALDIAG W/O CC.
166..................  \6\ APPENDECTOMY W/O               0.7819            23.9            19.9             6.8
                        COMPLICATED PRINCIPAL
                        DIAG W CC.
167..................  \6\ APPENDECTOMY W/O               0.7819            23.9            19.9             3.1
                        COMPLICATED PRINCIPAL
                        DIAG W/O CC.
168..................  \5\ MOUTH PROCEDURES W CC          1.6835            37.1            30.9             7.7
169..................  \6\ MOUTH PROCEDURES W/O           0.5594            21.0            17.5             3.5
                        CC.
170..................  OTHER DIGESTIVE SYSTEM             1.6163            35.8            29.8            18.0
                        O.R. PROCEDURES W CC.
171..................  \3\ OTHER DIGESTIVE                0.7819            23.9            19.9             6.7
                        SYSTEM O.R. PROCEDURES W/
                        O CC.
172..................  DIGESTIVE MALIGNANCY W CC          0.8497            21.8            18.2            11.1
173..................  \2\ DIGESTIVE MALIGNANCY           0.5594            21.0            17.5             5.6
                        W/O CC.
174..................  G.I. HEMORRHAGE W CC.....          0.7149            22.9            19.1             7.2
175..................  \2\ G.I. HEMORRHAGE W/O            0.5594            21.0            17.5             4.3
                        CC.
176..................  COMPLICATED PEPTIC ULCER.          0.9514            24.8            20.7             8.0
177..................  \2\ UNCOMPLICATED PEPTIC           0.5594            21.0            17.5             6.8
                        ULCER W CC.
178..................  \6\ UNCOMPLICATED PEPTIC           0.4175            17.0            14.2             4.7
                        ULCER W/O CC.
179..................  INFLAMMATORY BOWEL                 0.8157            23.3            19.4             9.1
                        DISEASE.

[[Page 4876]]

 
180..................  G.I. OBSTRUCTION W CC....          0.9126            22.8            19.0             8.3
181..................  \1\ G.I. OBSTRUCTION W/O           0.4175            17.0            14.2             5.1
                        CC.
182..................  ESOPHAGITIS, GASTROENT &           0.7866            21.8            18.2             6.4
                        MISC DIGESTDISORDERS AGE
                        >17 W CC.
183..................  \1\ ESOPHAGITIS,                   0.4175            17.0            14.2             4.4
                        GASTROENT & MISC DIGEST
                        DISORDERS AGE >17 W/O CC.
184..................  \6\ ESOPHAGITIS,                   0.4175            17.0            14.2             5.6
                        GASTROENT & MISC DIGEST
                        DISORDERS AGE 0-17.
185..................  DENTAL & ORAL DIS EXCEPT           0.6634            23.2            19.3             7.2
                        EXTRACTIONS &
                        RESTORATIONS, AGE >17.
186..................  \6\ DENTAL & ORAL DIS              0.5594            21.0            17.5             5.0
                        EXCEPT EXTRACTIONS &
                        RESTORATIONS, AGE 0-17.
187..................  \6\ DENTAL EXTRACTIONS &           0.5594            21.0            17.5             6.8
                        RESTORATIONS.
188..................  OTHER DIGESTIVE SYSTEM             0.9596            24.4            20.3             8.5
                        DIAGNOSES AGE >17 W CC.
189..................  \2\ OTHER DIGESTIVE                0.5594            21.0            17.5             4.6
                        SYSTEM DIAGNOSES AGE >17
                        W/O CC.
190..................  \6\ OTHER DIGESTIVE                0.5594            21.0            17.5             5.1
                        SYSTEM DIAGNOSES AGE 0-
                        17.
191..................  \5\ PANCREAS, LIVER &              1.6835            37.1            30.9            21.1
                        SHUNT PROCEDURES W CC.
192..................  \6\ PANCREAS, LIVER &              1.6835            37.1            30.9             9.3
                        SHUNT PROCEDURES W/O CC.
193..................  \4\ BILIARY TRACT PROC             1.1625            29.5            24.6            19.7
                        EXCEPT ONLY CHOLECYST W
                        OR W/O C.D.E. W CC.
194..................  \6\ BILIARY TRACT PROC             1.1625            29.5            24.6             9.9
                        EXCEPT ONLY CHOLECYST W
                        OR W/O C.D.E. W/O CC.
195..................  \5\ CHOLECYSTECTOMY W              1.6835            37.1            30.9            16.2
                        C.D.E. W CC.
196..................  \6\ CHOLECYSTECTOMY W              1.1625            29.5            24.6             8.3
                        C.D.E. W/O CC.
197..................  \4\ CHOLECYSTECTOMY                1.1625            29.5            24.6            14.0
                        EXCEPT BY LAPAROSCOPE W/
                        O C.D.E. W CC.
198..................  \6\ CHOLECYSTECTOMY                1.1625            29.5            24.6             6.6
                        EXCEPT BY LAPAROSCOPE W/
                        O C.D.E. W/O CC.
199..................  \3\ HEPATOBILIARY                  0.7819            23.9            19.9            15.2
                        DIAGNOSTIC PROCEDURE FOR
                        MALIGNANCY.
200..................  \5\ HEPATOBILIARY                  1.6835            37.1            30.9            17.5
                        DIAGNOSTIC PROCEDURE FOR
                        NON-MALIGNANCY.
201..................  OTHER HEPATOBILIARY OR             1.5802            28.8            24.0            22.6
                        PANCREAS O.R. PROCEDURES.
202..................  CIRRHOSIS & ALCOHOLIC              0.6011            20.2            16.8             9.9
                        HEPATITIS.
203..................  MALIGNANCY OF                      0.7466            19.6            16.3            10.6
                        HEPATOBILIARY SYSTEM OR
                        PANCREAS.
204..................  DISORDERS OF PANCREAS              0.8853            22.1            18.4             8.5
                        EXCEPT MALIGNANCY.
205..................  DISORDERS OF LIVER EXCEPT          0.6933            23.1            19.3             9.4
                        MALIG,CIRR,ALC HEPA W CC.
206..................  \8\ DISORDERS OF LIVER             0.6933            23.1            19.3             6.0
                        EXCEPT MALIG,CIRR,ALC
                        HEPA W/O CC.
207..................  DISORDERS OF THE BILIARY           0.7295            21.5            17.9             8.4
                        TRACT W CC.
208..................  \1\ DISORDERS OF THE               0.4175            17.0            14.2             4.6
                        BILIARY TRACT W/O CC.
210..................  HIP & FEMUR PROCEDURES             1.4826            41.9            34.9             9.5
                        EXCEPT MAJOR JOINT AGE
                        >17 W CC.
211..................  \6\ HIP & FEMUR                    1.6835            37.1            30.9             6.3
                        PROCEDURES EXCEPT MAJOR
                        JOINT AGE >17 W/O CC.
212..................  \6\ HIP & FEMUR                    1.6835            37.1            30.9             3.8
                        PROCEDURES EXCEPT MAJOR
                        JOINT AGE 0-17.
213..................  AMPUTATION FOR                     1.1871            33.5            27.9            15.2
                        MUSCULOSKELETAL SYSTEM &
                        CONN TISSUE DISORDERS.
216..................  BIOPSIES OF                        1.2147            37.6            31.3             8.8
                        MUSCULOSKELETAL SYSTEM &
                        CONNECTIVE TISSUE.
217..................  WND DEBRID & SKN GRFT              1.2414            36.5            30.4            20.4
                        EXCEPT HAND,FOR
                        MUSCSKELET & CONN TISS
                        DIS.
218..................  \5\ LOWER EXTREM & HUMER           1.6835            37.1            30.9             8.4
                        PROC EXCEPT
                        HIP,FOOT,FEMUR AGE >17 W
                        CC.
219..................  \6\ LOWER EXTREM & HUMER           1.6835            37.1            30.9             4.8
                        PROC EXCEPT
                        HIP,FOOT,FEMUR AGE >17 W/
                        O CC.
220..................  \6\ LOWER EXTREM & HUMER           1.6835            37.1            30.9            10.5
                        PROC EXCEPT
                        HIP,FOOT,FEMUR AGE 0-17.
223..................  \4\ MAJOR SHOULDER/ELBOW           1.1625            29.5            24.6             5.1
                        PROC, OR OTHER UPPER
                        EXTREMITY PROC W CC.
224..................  \1\ SHOULDER,ELBOW OR              0.4175            17.0            14.2             2.8
                        FOREARM PROC,EXC MAJOR
                        JOINT PROC, W/O CC.
225..................  FOOT PROCEDURES..........          0.9550            30.6            25.5             8.7

[[Page 4877]]

 
226..................  SOFT TISSUE PROCEDURES W           1.0626            34.3            28.6            10.6
                        CC.
227..................  \3\ SOFT TISSUE                    0.7819            23.9            19.9             4.0
                        PROCEDURES W/O CC.
228..................  \3\ MAJOR THUMB OR JOINT           0.7819            23.9            19.9             6.7
                        PROC,OR OTH HAND OR
                        WRIST PROC W CC.
229..................  \6\ HAND OR WRIST PROC,            0.4175            17.0            14.2             3.8
                        EXCEPT MAJOR JOINT PROC,
                        W/O CC.
230..................  \5\ LOCAL EXCISION &               1.6835            37.1            30.9             8.8
                        REMOVAL OF INT FIX
                        DEVICES OF HIP & FEMUR.
232..................  \5\ ARTHROSCOPY..........          1.6835            37.1            30.9             4.1
233..................  OTHER MUSCULOSKELET SYS &          1.1724            32.4            27.0            10.8
                        CONN TISS O.R. PROC W CC.
234..................  \6\ OTHER MUSCULOSKELET            0.4175            17.0            14.2             4.1
                        SYS & CONN TISS O.R.
                        PROC W/O CC.
235..................  \3\ FRACTURES OF FEMUR...          0.7819            23.9            19.9             7.4
236..................  FRACTURES OF HIP & PELVIS          0.6802            28.9            24.1             6.8
237..................  \1\ SPRAINS, STRAINS, &            0.4175            17.0            14.2             5.9
                        DISLOCATIONS OF HIP,
                        PELVIS & THIGH.
238..................  OSTEOMYELITIS............          0.8589            28.4            23.7            12.8
239..................  PATHOLOGICAL FRACTURES &           0.6031            20.6            17.2             9.6
                        MUSCULOSKELETAL & CONN
                        TISS MALIGNANCY.
240..................  CONNECTIVE TISSUE                  0.7134            22.4            18.7            10.3
                        DISORDERS W CC.
241..................  \1\ CONNECTIVE TISSUE              0.4175            17.0            14.2             5.6
                        DISORDERS W/O CC.
242..................  SEPTIC ARTHRITIS.........          0.7700            26.2            21.8            10.2
243..................  MEDICAL BACK PROBLEMS....          0.6028            22.3            18.6             7.1
244..................  BONE DISEASES & SPECIFIC           0.5516            22.0            18.3             7.0
                        ARTHROPATHIES W CC.
245..................  BONE DISEASES & SPECIFIC           0.4463            19.4            16.2             4.8
                        ARTHROPATHIES W/O CC.
246..................  \2\ NON-SPECIFIC                   0.5594            21.0            17.5             5.6
                        ARTHROPATHIES.
247..................  SIGNS & SYMPTOMS OF                0.4582            17.6            14.7             5.1
                        MUSCULOSKELETAL SYSTEM &
                        CONN TISSUE.
248..................  TENDONITIS, MYOSITIS &             0.7328            23.2            19.3             7.5
                        BURSITIS.
249..................  AFTERCARE,                         0.6370            24.0            20.0             6.2
                        MUSCULOSKELETAL SYSTEM &
                        CONNECTIVE TISSUE.
250..................  \1\ FX, SPRN, STRN & DISL          0.4175            17.0            14.2             6.0
                        OF FOREARM, HAND, FOOT
                        AGE >17 W CC.
251..................  \6\ FX, SPRN, STRN & DISL          0.4175            17.0            14.2             4.3
                        OF FOREARM, HAND, FOOT
                        AGE >17 W/O CC.
252**................  \6\ FX, SPRN, STRN & DISL          0.5594            21.0            17.5             1.8
                        OF FOREARM, HAND, FOOT
                        AGE 0-17.
253..................  FX, SPRN, STRN & DISL OF           0.5609            24.0            20.0             7.0
                        UPARM,LOWLEG EX FOOT AGE
                        >17 W CC.
254..................  \1\ FX, SPRN, STRN & DISL          0.4175            17.0            14.2             4.7
                        OF UPARM,LOWLEG EX FOOT
                        AGE >17 W/O CC.
255**................  \6\ FX, SPRN, STRN & DISL          0.5594            21.0            17.5             2.9
                        OF UPARM,LOWLEG EX FOOT
                        AGE 0-17.
256..................  OTHER MUSCULOSKELETAL              0.7132            23.6            19.7             7.9
                        SYSTEM & CONNECTIVE
                        TISSUE DIAGNOSES.
257..................  \5\ TOTAL MASTECTOMY FOR           1.6835            37.1            30.9             3.8
                        MALIGNANCY W CC.
258..................  \6\ TOTAL MASTECTOMY FOR           0.7819            23.9            19.9             2.4
                        MALIGNANCY W/O CC.
259..................  \3\ SUBTOTAL MASTECTOMY            0.7819            23.9            19.9             4.1
                        FOR MALIGNANCY W CC.
260..................  \6\ SUBTOTAL MASTECTOMY            0.7819            23.9            19.9             1.9
                        FOR MALIGNANCY W/O CC.
261..................  \2\ BREAST PROC FOR NON-           0.5594            21.0            17.5             3.2
                        MALIGNANCY EXCEPT BIOPSY
                        & LOCAL EXCISION.
262..................  \4\ BREAST BIOPSY & LOCAL          1.1625            29.5            24.6             7.7
                        EXCISION FOR NON-
                        MALIGNANCY.
263..................  SKIN GRAFT &/OR DEBRID             1.2748            38.0            31.7            16.9
                        FOR SKN ULCER OR
                        CELLULITIS W CC.
264..................  SKIN GRAFT &/OR DEBRID             0.8507            29.9            24.9             9.9
                        FOR SKN ULCER OR
                        CELLULITIS W/O CC.
265..................  SKIN GRAFT &/OR DEBRID             1.1019            30.2            25.2            10.7
                        EXCEPT FOR SKIN ULCER OR
                        CELLULITIS W CC.
266..................  \3\ SKIN GRAFT &/OR                0.7819            23.9            19.9             4.7
                        DEBRID EXCEPT FOR SKIN
                        ULCER OR CELLULITIS W/O
                        CC.
267..................  \6\ PERIANAL & PILONIDAL           0.7819            23.9            19.9             6.8
                        PROCEDURES.
268..................  \4\ SKIN, SUBCUTANEOUS             1.1625            29.5            24.6             5.4
                        TISSUE & BREAST PLASTIC
                        PROCEDURES.
269..................  OTHER SKIN, SUBCUT TISS &          1.2075            34.7            28.9            13.4
                        BREAST PROC W CC.

[[Page 4878]]

 
270..................  \3\ OTHER SKIN, SUBCUT             0.7819            23.9            19.9             5.7
                        TISS & BREAST PROC W/O
                        CC.
271..................  SKIN ULCERS..............          0.8269            26.9            22.4            10.7
272..................  MAJOR SKIN DISORDERS W CC          0.6584            23.0            19.2             9.3
273..................  \1\ MAJOR SKIN DISORDERS           0.4175            17.0            14.2             5.9
                        W/O CC.
274..................  MALIGNANT BREAST                   0.7231            21.8            18.2            10.1
                        DISORDERS W CC.
275..................  \6\ MALIGNANT BREAST               0.7819            23.9            19.9             5.2
                        DISORDERS W/O CC.
276..................  \2\ NON-MALIGNANT BREAST           0.5594            21.0            17.5             7.3
                        DISORDERS.
277..................  CELLULITIS AGE >17 W CC..          0.6089            20.9            17.4             8.4
278..................  CELLULITIS AGE >17 W/O CC          0.4254            18.0            15.0             6.1
279..................  \6\ CELLULITIS AGE 0-17..          0.4175            17.0            14.2             5.8
280..................  TRAUMA TO THE SKIN,                0.7148            24.1            20.1             6.3
                        SUBCUT TISS & BREAST AGE
                        >17 W CC.
281..................  \2\ TRAUMA TO THE SKIN,            0.5594            21.0            17.5             4.3
                        SUBCUT TISS & BREAST AGE
                        >17 W/O CC.
282**................  \6\ TRAUMA TO THE SKIN,            0.5594            21.0            17.5             2.2
                        SUBCUT TISS & BREAST AGE
                        0-17.
283..................  MINOR SKIN DISORDERS W CC          0.6876            23.1            19.3             7.2
284..................  \2\ MINOR SKIN DISORDERS           0.5594            21.0            17.5             4.6
                        W/O CC.
285..................  AMPUTAT OF LOWER LIMB FOR          1.2418            31.6            26.3            16.0
                        ENDOCRINE,NUTRIT,&
                        METABOL DISORDERS.
286..................  \6\ ADRENAL & PITUITARY            1.1625            29.5            24.6             8.0
                        PROCEDURES.
287..................  SKIN GRAFTS & WOUND                1.0402            33.0            27.5            15.2
                        DEBRID FOR ENDOC, NUTRIT
                        & METAB DISORDERS.
288..................  \4\ O.R. PROCEDURES FOR            1.1625            29.5            24.6             5.4
                        OBESITY.
289..................  \6\ PARATHYROID                    1.1625            29.5            24.6             3.3
                        PROCEDURES.
290..................  \6\ THYROID PROCEDURES...          1.1625            29.5            24.6             2.8
291..................  \6\ THYROGLOSSAL                   1.1625            29.5            24.6             2.1
                        PROCEDURES.
292..................  OTHER ENDOCRINE, NUTRIT &          1.1549            32.0            26.7            16.9
                        METAB O.R. PROC W CC.
293..................  \8\ OTHER ENDOCRINE,               1.1549            32.0            26.7             7.8
                        NUTRIT & METAB O.R. PROC
                        W/O CC.
294..................  DIABETES AGE >35.........          0.6958            23.9            19.9             6.7
295..................  \2\ DIABETES AGE 0-35....          0.5594            21.0            17.5             5.7
296..................  NUTRITIONAL & MISC                 0.7092            22.3            18.6             7.3
                        METABOLIC DISORDERSAGE
                        >17 W CC.
297..................  NUTRITIONAL & MISC                 0.4596            19.3            16.1             4.6
                        METABOLIC DISORDERS AGE
                        >17 W/O CC.
298..................  \6\ NUTRITIONAL & MISC             0.4175            17.0            14.2             5.3
                        METABOLIC DISORDERS AGE
                        0-17.
299..................  \3\ INBORN ERRORS OF               0.7819            23.9            19.9             8.2
                        METABOLISM.
300..................  ENDOCRINE DISORDERS W CC.          0.7004            23.7            19.8             9.3
301..................  \2\ ENDOCRINE DISORDERS W/         0.5594            21.0            17.5             5.2
                        O CC.
302***...............  \7\ KIDNEY TRANSPLANT....          0.0000             0.0             0.0             0.0
303..................  \6\ KIDNEY AND URETER              0.7819            23.9            19.9             9.7
                        PROCEDURES FOR NEOPLASM.
304..................  \4\ KIDNEY AND URETER              1.1625            29.5            24.6            13.4
                        PROCEDURES FOR NON-
                        NEOPLASM W CC.
305..................  \6\ KIDNEY AND URETER              0.7819            23.9            19.9             4.7
                        PROCEDURES FOR NON-
                        NEOPLASM W/O CC.
306..................  \4\ PROSTATECTOMY W CC...          1.1625            29.5            24.6             9.1
307..................  \6\ PROSTATECTOMY W/O CC.          1.1625            29.5            24.6             2.9
308..................  \4\ MINOR BLADDER                  1.1625            29.5            24.6             8.6
                        PROCEDURES W CC.
309..................  \6\ MINOR BLADDER                  1.1625            29.5            24.6             2.4
                        PROCEDURES W/O CC.
310..................  \4\ TRANSURETHRAL                  1.1625            29.5            24.6             7.2
                        PROCEDURES W CC.
311..................  \6\ TRANSURETHRAL                  1.1625            29.5            24.6             2.7
                        PROCEDURES W/O CC.
312..................  \3\ URETHRAL PROCEDURES,           0.7819            23.9            19.9             8.0
                        AGE >17 W CC.
313..................  \6\ URETHRAL PROCEDURES,           0.7819            23.9            19.9             3.6
                        AGE >17 W/O CC.
314..................  \6\ URETHRAL PROCEDURES,           0.7819            23.9            19.9           360.4
                        AGE 0-17.
315..................  OTHER KIDNEY & URINARY             1.4016            33.9            28.3            11.1
                        TRACT PROCEDURES.
316..................  RENAL FAILURE............          0.8321            22.9            19.1             9.9
317..................  ADMIT FOR RENAL DIALYSIS.          0.9102            24.4            20.3             5.4
318..................  KIDNEY & URINARY TRACT             0.7565            21.0            17.5             9.8
                        NEOPLASMS W CC.
319..................  \6\ KIDNEY & URINARY               0.7819            23.9            19.9             3.9
                        TRACT NEOPLASMS W/O CC.
320..................  KIDNEY & URINARY TRACT             0.6200            21.7            18.1             7.7
                        INFECTIONS AGE >17 W CC.
321..................  KIDNEY & URINARY TRACT             0.4450            18.5            15.4             5.4
                        INFECTIONS AGE >17 W/O
                        CC.
322..................  \6\ KIDNEY & URINARY               0.4175            17.0            14.2             5.2
                        TRACT INFECTIONS AGE 0-
                        17.
323..................  \1\ URINARY STONES W CC,           0.4175            17.0            14.2             4.8
                        &/OR ESW LITHOTRIPSY.
324..................  \1\ URINARY STONES W/O CC          0.4175            17.0            14.2             2.7
325..................  \2\ KIDNEY & URINARY               0.5594            21.0            17.5             5.8
                        TRACT SIGNS & SYMPTOMS
                        AGE >17 W CC.

[[Page 4879]]

 
326..................  \6\ KIDNEY & URINARY               0.4175            17.0            14.2             3.9
                        TRACT SIGNS & SYMPTOMS
                        AGE >17 W/O CC.
327..................  \6\ KIDNEY & URINARY               0.4175            17.0            14.2             2.8
                        TRACT SIGNS & SYMPTOMS
                        AGE 0-17.
328..................  \6\ URETHRAL STRICTURE             0.5594            21.0            17.5             5.4
                        AGE >17 W CC.
329..................  \6\ URETHRAL STRICTURE             0.5594            21.0            17.5             2.4
                        AGE >17 W/O CC.
330**................  \6\ URETHRAL STRICTURE             0.5594            21.0            17.5             1.6
                        AGE 0-17.
331..................  OTHER KIDNEY & URINARY             0.7773            22.5            18.8             8.7
                        TRACT DIAGNOSES AGE >17
                        W CC.
332..................  \1\ OTHER KIDNEY &                 0.4175            17.0            14.2             4.8
                        URINARY TRACT DIAGNOSES
                        AGE >17 W/O CC.
333..................  \6\ OTHER KIDNEY &                 0.4175            17.0            14.2             8.4
                        URINARY TRACT DIAGNOSES
                        AGE 0-17.
334..................  \6\ MAJOR MALE PELVIC              0.4175            17.0            14.2             6.1
                        PROCEDURES W CC.
335..................  \1\ MAJOR MALE PELVIC              0.4175            17.0            14.2             3.7
                        PROCEDURES W/O CC.
336..................  \4\ TRANSURETHRAL                  1.1625            29.5            24.6             4.9
                        PROSTATECTOMY W CC.
337..................  \6\ TRANSURETHRAL                  1.1625            29.5            24.6             2.6
                        PROSTATECTOMY W/O CC.
338..................  \3\ TESTES PROCEDURES,             0.7819            23.9            19.9             9.7
                        FOR MALIGNANCY.
339..................  \3\ TESTES PROCEDURES,             0.7819            23.9            19.9             8.4
                        NON-MALIGNANCY AGE >17.
340**................  \6\ TESTES PROCEDURES,             0.7819            23.9            19.9             2.4
                        NON-MALIGNANCY AGE 0-17.
341..................  \5\ PENIS PROCEDURES.....          1.6835            37.1            30.9             4.4
342..................  \6\ CIRCUMCISION AGE >17.          0.7819            23.9            19.9             4.6
343**................  \6\ CIRCUMCISION AGE 0-17          0.7819            23.9            19.9             1.7
344..................  \3\ OTHER MALE                     0.7819            23.9            19.9             3.9
                        REPRODUCTIVE SYSTEM O.R.
                        PROCEDURES FOR
                        MALIGNANCY.
345..................  \4\ OTHER MALE                     1.1625            29.5            24.6             8.6
                        REPRODUCTIVE SYSTEM O.R.
                        PROC EXCEPT FOR
                        MALIGNANCY.
346..................  \3\ MALIGNANCY, MALE               0.7819            23.9            19.9             9.6
                        REPRODUCTIVE SYSTEM, WCC.
347..................  \1\ MALIGNANCY, MALE               0.4175            17.0            14.2             4.2
                        REPRODUCTIVE SYSTEM, W/O
                        CC.
348..................  \2\ BENIGN PROSTATIC               0.5594            21.0            17.5             6.3
                        HYPERTROPHY W CC.
349..................  \6\ BENIGN PROSTATIC               0.7819            23.9            19.9             4.1
                        HYPERTROPHY W/O CC.
350..................  INFLAMMATION OF THE MALE           0.5606            21.0            17.5             7.0
                        REPRODUCTIVE SYSTEM.
351**................  \6\ STERILIZATION, MALE..          0.7819            23.9            19.9             1.3
352..................  OTHER MALE REPRODUCTIVE            0.8209            27.5            22.9             6.7
                        SYSTEM DIAGNOSES.
353..................  \6\ PELVIC EVISCERATION,           1.1625            29.5            24.6             9.2
                        RADICAL HYSTERECTOMY &
                        RADICAL VULVECTOMY.
354..................  \6\ UTERINE,ADNEXA PROC            1.1625            29.5            24.6             8.2
                        FOR NON-OVARIAN/ADNEXAL
                        MALIG W CC.
355..................  \6\ UTERINE,ADNEXA PROC            1.1625            29.5            24.6             4.2
                        FOR NON-OVARIAN/ADNEXAL
                        MALIG W/O CC.
356..................  \6\ FEMALE REPRODUCTIVE            1.1625            29.5            24.6             2.7
                        SYSTEM RECONSTRUCTIVE
                        PROCEDURES.
357..................  \6\ UTERINE & ADNEXA PROC          1.1625            29.5            24.6            12.3
                        FOR OVARIAN OR ADNEXAL
                        MALIGNANCY.
358..................  \6\ UTERINE & ADNEXA PROC          1.1625            29.5            24.6             5.7
                        FOR NON-MALIGNANCY W CC.
359..................  \6\ UTERINE & ADNEXA PROC          1.1625            29.5            24.6             3.3
                        FOR NON-MALIGNANCY W/O
                        CC.
360..................  \6\ VAGINA, CERVIX &               1.1625            29.5            24.6             3.7
                        VULVA PROCEDURES.
361..................  \6\ LAPAROSCOPY &                  0.4175            17.0            14.2             4.5
                        INCISIONAL TUBAL
                        INTERRUPTION.
362..................  \6\ ENDOSCOPIC TUBAL               0.4175            17.0            14.2             1.0
                        INTERRUPTION.
363..................  \6\ D&C, CONIZATION &              0.4175            17.0            14.2             6.5
                        RADIO-IMPLANT, FOR
                        MALIGNANCY.
364..................  \6\ D&C, CONIZATION                0.4175            17.0            14.2             6.1
                        EXCEPT FOR MALIGNANCY.
365..................  \4\ OTHER FEMALE                   1.1625            29.5            24.6            13.0
                        REPRODUCTIVE SYSTEM O.R.
                        PROCEDURES.
366..................  MALIGNANCY, FEMALE                 0.9106            21.6            18.0            10.2
                        REPRODUCTIVE SYSTEM W CC.
367..................  \1\ MALIGNANCY, FEMALE             0.4175            17.0            14.2             4.6
                        REPRODUCTIVE SYSTEM W/O
                        CC.
368..................  INFECTIONS, FEMALE                 0.7846            21.3            17.8            10.2
                        REPRODUCTIVE SYSTEM.
369..................  \3\ MENSTRUAL & OTHER              0.7819            23.9            19.9             5.1
                        FEMALE REPRODUCTIVE
                        SYSTEM DISORDERS.
370..................  \6\ CESAREAN SECTION W CC          0.4175            17.0            14.2             7.0
371..................  \6\ CESAREAN SECTION W/O           0.4175            17.0            14.2             4.5
                        CC.
372..................  \6\ VAGINAL DELIVERY W             0.4175            17.0            14.2             4.7
                        COMPLICATING DIAGNOSES.
373..................  \6\ VAGINAL DELIVERY W/O           0.4175            17.0            14.2             3.0
                        COMPLICATING DIAGNOSES.
374..................  \6\ VAGINAL DELIVERY W             0.4175            17.0            14.2             4.1
                        STERILIZATION &/ORD&C.
375..................  \6\ VAGINAL DELIVERY W             0.4175            17.0            14.2            11.0
                        O.R. PROC EXCEPT STERIL
                        &/OR D&C.

[[Page 4880]]

 
376..................  \4\ POSTPARTUM & POST              1.1625            29.5            24.6             5.1
                        ABORTION DIAGNOSES W/O
                        O.R. PROCEDURE.
377..................  \6\ POSTPARTUM & POST              0.4175            17.0            14.2             7.2
                        ABORTION DIAGNOSES WO.R.
                        PROCEDURE.
378..................  \6\ ECTOPIC PREGNANCY....          0.4175            17.0            14.2             3.2
379..................  \6\ THREATENED ABORTION..          0.4175            17.0            14.2             4.8
380..................  \6\ ABORTION W/O D&C.....          0.4175            17.0            14.2             2.9
381..................  \6\ ABORTION W D&C,                0.4175            17.0            14.2             3.6
                        ASPIRATION CURETTAGE OR
                        HYSTEROTOMY.
382..................  \6\ FALSE LABOR..........          0.4175            17.0            14.2             2.1
383..................  \1\ OTHER ANTEPARTUM               0.4175            17.0            14.2             5.6
                        DIAGNOSES W MEDICAL
                        COMPLICATIONS.
384..................  \6\ OTHER ANTEPARTUM               0.4175            17.0            14.2             3.6
                        DIAGNOSES W/O MEDICAL
                        COMPLICATIONS.
385**................  \6\ NEONATES, DIED OR              0.4175            17.0            14.2             1.8
                        TRANSFERRED TO ANOTHER
                        ACUTE CARE FACILITY.
386**................  \6\ EXTREME IMMATURITY OR          0.4175            17.0            14.2            17.9
                        RESPIRATORY DISTRESS
                        SYNDROME, NEONATE.
387**................  \6\ PREMATURITY W MAJOR            0.4175            17.0            14.2            13.3
                        PROBLEMS.
388**................  \6\ PREMATURITY W/O MAJOR          0.4175            17.0            14.2             8.6
                        PROBLEMS.
389..................  \6\ FULL TERM NEONATE W            0.4175            17.0            14.2            17.6
                        MAJOR PROBLEMS.
390**................  \6\ NEONATE W OTHER                0.4175            17.0            14.2             3.4
                        SIGNIFICANT PROBLEMS.
391**................  \6\ NORMAL NEWBORN.......          0.4175            17.0            14.2             3.1
392..................  \6\ SPLENECTOMY AGE >17..          1.1625            29.5            24.6            14.5
393**................  \6\ SPLENECTOMY AGE 0-17.          1.1625            29.5            24.6             9.1
394..................  \4\ OTHER O.R. PROCEDURES          1.1625            29.5            24.6            12.1
                        OF THE BLOOD AND BLOOD
                        FORMING ORGANS.
395..................  RED BLOOD CELL DISORDERS           0.6651            21.9            18.3             6.5
                        AGE >17.
396..................  \6\ RED BLOOD CELL                 0.4175            17.0            14.2             4.5
                        DISORDERS AGE 0-17.
397..................  COAGULATION DISORDERS....          0.8276            20.4            17.0             8.2
398..................  RETICULOENDOTHELIAL &              0.6278            20.8            17.3             8.8
                        IMMUNITY DISORDERS W CC.
399..................  \1\ RETICULOENDOTHELIAL &          0.4175            17.0            14.2             5.1
                        IMMUNITY DISORDERS W/O
                        CC.
401..................  \4\ LYMPHOMA & NON-ACUTE           1.1625            29.5            24.6            18.9
                        LEUKEMIA W OTHER O.R.
                        PROC W CC.
402..................  \6\ LYMPHOMA & NON-ACUTE           0.5594            21.0            17.5             6.3
                        LEUKEMIA W OTHER O.R.
                        PROC W/O CC.
403..................  LYMPHOMA & NON-ACUTE               0.8846            23.9            19.9            13.2
                        LEUKEMIA W CC.
404..................  \3\ LYMPHOMA & NON-ACUTE           0.7819            23.9            19.9             6.6
                        LEUKEMIA W/O CC.
405**................  \6\ ACUTE LEUKEMIA W/O             0.7819            23.9            19.9             4.9
                        MAJOR O.R. PROCEDURE AGE
                        0-17.
406..................  \5\ MYELOPROLIF DISORD OR          1.6835            37.1            30.9            15.5
                        POORLY DIFF NEOPL W MAJ
                        O.R.PROC W CC.
407..................  \6\ MYELOPROLIF DISORD OR          1.1625            29.5            24.6             5.5
                        POORLY DIFF NEOPL W MAJ
                        O.R.PROC W/O CC.
408..................  \4\ MYELOPROLIF DISORD OR          1.1625            29.5            24.6            14.0
                        POORLY DIFF NEOPL W
                        OTHER O.R.PROC.
409..................  RADIOTHERAPY.............          0.8416            23.2            19.3             9.5
410..................  CHEMOTHERAPY W/O ACUTE             1.2527            28.7            23.9             5.8
                        LEUKEMIA AS SECONDARY
                        DIAGNOSIS.
411..................  \6\ HISTORY OF MALIGNANCY          0.5594            21.0            17.5             3.3
                        W/O ENDOSCOPY.
412..................  \6\ HISTORY OF MALIGNANCY          0.5594            21.0            17.5             2.1
                        W ENDOSCOPY.
413..................  OTHER MYELOPROLIF DIS OR           0.8429            21.4            17.8            11.0
                        POORLY DIFF NEOPL DIAG W
                        CC.
414..................  \3\ OTHER MYELOPROLIF DIS          0.7819            23.9            19.9             6.4
                        OR POORLY DIFF NEOPL
                        DIAG W/O CC.
417..................  \6\ SEPTICEMIA AGE 0-17..          0.7819            23.9            19.9            10.5
418..................  POSTOPERATIVE & POST-              0.7961            24.1            20.1             9.6
                        TRAUMATIC INFECTIONS.
419..................  \2\ FEVER OF UNKNOWN               0.5594            21.0            17.5             6.8
                        ORIGIN AGE >17 W CC.
420..................  \2\ FEVER OF UNKNOWN               0.5594            21.0            17.5             4.9
                        ORIGIN AGE >17 W/O CC.
421..................  VIRAL ILLNESS AGE >17....          0.7065            20.4            17.0             6.2
422..................  \6\ VIRAL ILLNESS & FEVER          0.4175            17.0            14.2             5.6
                        OF UNKNOWN ORIGIN AGE 0-
                        17.
423..................  OTHER INFECTIOUS &                 1.0426            23.2            19.3            13.2
                        PARASITIC DISEASES
                        DIAGNOSES.
424..................  \5\ O.R. PROCEDURE W               1.6835            37.1            30.9            19.7
                        PRINCIPAL DIAGNOSES OF
                        MENTAL ILLNESS.

[[Page 4881]]

 
425..................  \1\ ACUTE ADJUSTMENT               0.4175            17.0            14.2             5.3
                        REACTION & PSYCHOSOCIAL
                        DYSFUNCTION.
426..................  DEPRESSIVE NEUROSES......          0.4038            22.5            18.8             6.8
427..................  \2\ NEUROSES EXCEPT                0.5594            21.0            17.5             7.3
                        DEPRESSIVE.
428..................  DISORDERS OF PERSONALITY           0.5183            24.5            20.4            11.4
                        & IMPULSE CONTROL.
429..................  ORGANIC DISTURBANCES &             0.5326            24.0            20.0             8.5
                        MENTAL RETARDATION.
430..................  PSYCHOSES................          0.4024            23.1            19.3            12.6
431..................  \2\ CHILDHOOD MENTAL               0.5594            21.0            17.5            10.1
                        DISORDERS.
432..................  \1\ OTHER MENTAL DISORDER          0.4175            17.0            14.2             6.1
                        DIAGNOSES.
433..................  \6\ ALCOHOL/DRUG ABUSE OR          0.4175            17.0            14.2             4.2
                        DEPENDENCE, LEFTAMA.
439..................  SKIN GRAFTS FOR INJURIES.          1.2203            36.0            30.0            13.6
440..................  WOUND DEBRIDEMENTS FOR             1.2248            34.4            28.7            13.4
                        INJURIES.
441..................  \2\ HAND PROCEDURES FOR            0.5594            21.0            17.5             5.2
                        INJURIES.
442..................  OTHER O.R. PROCEDURES FOR          1.3670            34.9            29.1            14.5
                        INJURIES W CC.
443..................  \6\ OTHER O.R. PROCEDURES          0.5594            21.0            17.5             5.6
                        FOR INJURIES W/O CC.
444..................  TRAUMATIC INJURY AGE >17           0.6598            23.2            19.3             6.4
                        W CC.
445..................  \2\ TRAUMATIC INJURY AGE           0.5594            21.0            17.5             4.4
                        >17 W/O CC.
446**................  \6\ TRAUMATIC INJURY AGE           0.5594            21.0            17.5             2.4
                        0-17.
447..................  \2\ ALLERGIC REACTIONS             0.5594            21.0            17.5             3.9
                        AGE >17.
448**................  \6\ ALLERGIC REACTIONS             0.5594            21.0            17.5             2.9
                        AGE 0-17.
449..................  \3\ POISONING & TOXIC              0.7819            23.9            19.9             5.8
                        EFFECTS OF DRUGS AGE >17
                        W CC.
450..................  \2\ POISONING & TOXIC              0.5594            21.0            17.5             2.9
                        EFFECTS OF DRUGS AGE >17
                        W/O CC.
451..................  \6\ POISONING & TOXIC              0.7819            23.9            19.9            14.4
                        EFFECTS OF DRUGS AGE 0-
                        17.
452..................  COMPLICATIONS OF                   0.9275            25.7            21.4             7.8
                        TREATMENT W CC.
453..................  COMPLICATIONS OF                   0.5790            21.6            18.0             4.2
                        TREATMENT W/O CC.
454..................  \3\ OTHER INJURY,                  0.7819            23.9            19.9             6.5
                        POISONING & TOXIC EFFECT
                        DIAG W CC.
455..................  \6\ OTHER INJURY,                  0.7819            23.9            19.9             3.4
                        POISONING & TOXIC EFFECT
                        DIAG W/O CC.
461..................  O.R. PROC W DIAGNOSES OF           1.1466            32.7            27.3             8.8
                        OTHER CONTACT W HEALTH
                        SERVICES.
462..................  REHABILITATION...........          0.5823            22.1            18.4            14.8
463..................  SIGNS & SYMPTOMS W CC....          0.6082            22.9            19.1             6.1
464..................  SIGNS & SYMPTOMS W/O CC..          0.5831            24.3            20.3             4.5
465..................  AFTERCARE W HISTORY OF             0.6877            21.2            17.7             5.5
                        MALIGNANCY AS SECONDARY
                        DIAGNOSIS.
466..................  AFTERCARE W/O HISTORY OF           0.6700            21.7            18.1             7.0
                        MALIGNANCY AS SECONDARY
                        DIAGNOSIS.
467..................  \3\ OTHER FACTORS                  0.7819            23.9            19.9             4.0
                        INFLUENCING HEALTH
                        STATUS.
468..................  EXTENSIVE O.R. PROCEDURE           2.1478            40.5            33.8            21.4
                        UNRELATED TO PRINCIPAL
                        DIAGNOSIS.
469***...............  \7\ PRINCIPAL DIAGNOSIS            0.0000             0.0             0.0             0.0
                        INVALID AS DISCHARGE
                        DIAGNOSIS.
470***...............  \7\ UNGROUPABLE..........          0.0000             0.0             0.0             0.0
471..................  \5\ BILATERAL OR MULTIPLE          1.6835            37.1            30.9             6.2
                        MAJOR JOINT PROCS OF
                        LOWER EXTREMITY.
473..................  ACUTE LEUKEMIA W/O MAJOR           0.9917            25.3            21.1            21.4
                        O.R. PROCEDURE AGE >17.
476..................  \5\ PROSTATIC O.R.                 1.6835            37.1            30.9            17.7
                        PROCEDURE UNRELATED TO
                        PRINCIPAL DIAGNOSIS.
477..................  NON-EXTENSIVE O.R.                 1.5119            35.9            29.9            14.8
                        PROCEDURE UNRELATED TO
                        PRINCIPAL DIAGNOSIS.
479..................  \2\ OTHER VASCULAR                 0.5594            21.0            17.5             3.9
                        PROCEDURES W/O CC.
480***...............  \7\ LIVER TRANSPLANT AND/          0.0000             0.0             0.0             0.0
                        OR INTESTINAL TRANSPLANT.
481..................  \6\ BONE MARROW                    1.1625            29.5            24.6            35.2
                        TRANSPLANT.
482..................  \5\ TRACHEOSTOMY FOR               1.6835            37.1            30.9            17.6
                        FACE,MOUTH & NECK
                        DIAGNOSES.
484..................  \6\ CRANIOTOMY FOR                 1.6835            37.1            30.9            23.1
                        MULTIPLE SIGNIFICANT
                        TRAUMA.
485..................  \6\ LIMB REATTACHMENT,             1.1625            29.5            24.6            14.7
                        HIP & FEMUR PROC FOR
                        MULTIPLE SIGNIFICANT
                        TRAUMA.
486..................  \3\ OTHER O.R. PROCEDURES          0.7819            23.9            19.9            21.8
                        FOR MULTIPLE SIGNIFICANT
                        TRAUMA.
487..................  \4\ OTHER MULTIPLE                 1.1625            29.5            24.6            11.5
                        SIGNIFICANT TRAUMA.
488..................  \4\ HIV W EXTENSIVE O.R.           1.1625            29.5            24.6            29.6
                        PROCEDURE.
489..................  HIV W MAJOR RELATED                0.9436            22.1            18.4            13.3
                        CONDITION.
490..................  HIV W OR W/O OTHER                 0.6456            20.3            16.9             8.5
                        RELATED CONDITION.
491..................  \5\ MAJOR JOINT & LIMB             1.6835            37.1            30.9             4.5
                        REATTACHMENT PROCEDURES
                        OF UPPER EXTREMITY.

[[Page 4882]]

 
492..................  \2\ CHEMO W ACUTE                  0.5594            21.0            17.5            23.1
                        LEUKEMIA AS SDX OR W USE
                        OF HIGH DOSE CHEMO AGENT.
493..................  \4\ LAPAROSCOPIC                   1.1625            29.5            24.6             9.8
                        CHOLECYSTECTOMY W/O
                        C.D.E. W CC.
494..................  \6\ LAPAROSCOPIC                   1.1625            29.5            24.6             4.2
                        CHOLECYSTECTOMY W/O
                        C.D.E. W/O CC.
495***...............  \7\ LUNG TRANSPLANT......          0.0000             0.0             0.0             0.0
496..................  \4\ COMBINED ANTERIOR/             1.1625            29.5            24.6            13.8
                        POSTERIOR SPINAL FUSION.
497..................  \5\ SPINAL FUSION EXCEPT           1.6835            37.1            30.9             8.3
                        CERVICAL W CC.
498..................  \6\ SPINAL FUSION EXCEPT           1.6835            37.1            30.9             5.3
                        CERVICAL W/O CC.
499..................  \5\ BACK & NECK                    1.6835            37.1            30.9             6.6
                        PROCEDURES EXCEPT SPINAL
                        FUSION W CC.
500..................  \4\ BACK & NECK                    1.1625            29.5            24.6             3.3
                        PROCEDURES EXCEPT SPINAL
                        FUSION W/O CC.
501..................  KNEE PROCEDURES W PDX OF           1.2164            33.3            27.8            15.4
                        INFECTION W CC.
502..................  \3\ KNEE PROCEDURES W PDX          0.7819            23.9            19.9             8.7
                        OF INFECTION W/O CC.
503..................  \4\ KNEE PROCEDURES W/O            1.1625            29.5            24.6             6.1
                        PDX OF INFECTION.
504..................  \5\ EXTENSIVE BURNS OR             1.6835            37.1            30.9            48.4
                        FULL THICKNESS BURNS W
                        MV 96+ HRS W SKIN GRAFT.
505..................  \5\ EXTENSIVE BURNS OR             1.6835            37.1            30.9             9.4
                        FULL THICKNESS BURNS W
                        MV 96+ HRS W/O SKIN
                        GRAFT.
506..................  \4\ FULL THICKNESS BURN W          1.1625            29.5            24.6            26.1
                        SKIN GRAFT OR INHAL INJ
                        W CC OR SIG TRAUMA.
507..................  \6\ FULL THICKNESS BURN W          0.4175            17.0            14.2            13.2
                        SKIN GRFT OR INHAL INJ W/
                        O CC OR SIG TRAUMA.
508..................  FULL THICKNESS BURN W/O            0.7588            25.6            21.3            12.1
                        SKIN GRFT OR INHAL INJ W
                        CC OR SIG TRAUMA.
509..................  \1\ FULL THICKNESS BURN W/         0.4175            17.0            14.2             8.6
                        O SKIN GRFT OR INH INJ W/
                        O CC OR SIG TRAUMA.
510..................  NON-EXTENSIVE BURNS W CC           0.6720            22.6            18.8             9.7
                        OR SIGNIFICANT TRAUMA.
511..................  \1\ NON-EXTENSIVE BURNS W/         0.4175            17.0            14.2             5.7
                        O CC OR SIGNIFICANT
                        TRAUMA.
512***...............  \7\ SIMULTANEOUS PANCREAS/         0.0000             0.0             0.0             0.0
                        KIDNEY TRANSPLANT.
513***...............  \7\ PANCREAS TRANSPLANT..          0.0000             0.0             0.0             0.0
515..................  \4\ CARDIAC DEFIBRILLATOR          1.1625            29.5            24.6             5.9
                        IMPLANT W/O CARDIAC CATH.
518..................  \6\ PERCUTANEOUS                   0.4175            17.0            14.2             3.7
                        CARDIOVASC PROC W/O
                        CORONARY ARTERY STENT OR
                        AMI.
519..................  \4\ CERVICAL SPINAL                1.1625            29.5            24.6             7.4
                        FUSION W CC.
520..................  \6\ CERVICAL SPINAL                1.6835            37.1            30.9             2.8
                        FUSION W/O CC.
521..................  \2\ ALCOHOL/DRUG ABUSE OR          0.5594            21.0            17.5             8.4
                        DEPENDENCE W CC.
522..................  \6\ ALCOHOL/DRUG ABUSE OR          0.5594            21.0            17.5            16.7
                        DEPENDENCE W
                        REHABILITATION THERAPY W/
                        O CC.
523..................  \1\ ALCOHOL/DRUG ABUSE OR          0.4175            17.0            14.2             5.8
                        DEPENDENCE W/O
                        REHABILITATION THERAPY W/
                        O CC.
524..................  \2\ TRANSIENT ISCHEMIA...          0.5594            21.0            17.5             4.8
525..................  \6\ OTHER HEART ASSIST             1.6835            37.1            30.9            24.1
                        SYSTEM IMPLANT.
528..................  \6\ INTRACRANIAL VASCULAR          1.6835            37.1            30.9            26.9
                        PROCEDURES W PDX
                        HEMORRHAGE.
529..................  \5\ VENTRICULAR SHUNT              1.6835            37.1            30.9            11.7
                        PROCEDURES W CC.
530..................  \6\ VENTRICULAR SHUNT              1.6835            37.1            30.9             4.5
                        PROCEDURES W/O CC.
531..................  \5\ SPINAL PROCEDURES W            1.6835            37.1            30.9            15.5
                        CC.
532..................  \3\ SPINAL PROCEDURES W/O          0.7819            23.9            19.9             5.9
                        CC.
533..................  \4\ EXTRACRANIAL                   1.1625            29.5            24.6             5.7
                        PROCEDURES W CC.
534..................  \6\ EXTRACRANIAL                   1.1625            29.5            24.6             2.5
                        PROCEDURES W/O CC.
535..................  \5\ CARDIAC DEFIB IMPLANT          1.6835            37.1            30.9            15.6
                        W CARDIAC CATH W AMI/HF/
                        SHOCK.
536..................  \6\ CARDIAC DEFIB IMPLANT          1.1625            29.5            24.6            11.7
                        W CARDIAC CATH W/O AMI/
                        HF/SHOCK.
537..................  LOCAL EXCISION & REMOVAL           1.4672            39.9            33.3            10.8
                        INT FIX DEVICES EXCEPT
                        HIP & FEMUR W CC.
538..................  \4\ LOCAL EXCISION &               1.1625            29.5            24.6             4.5
                        REMOVAL INT FIX DEVICES
                        EXCEPT HIP & FEMUR W/O
                        CC.
539..................  \4\ LYMPHOMA & LEUKEMIA W          1.1625            29.5            24.6            18.1
                        MAJOR O.R. PROCEDURE W
                        CC.
540..................  \6\ LYMPHOMA & LEUKEMIA W          0.4175            17.0            14.2             5.6
                        MAJOR O.R. PROCEDURE W/O
                        CC.
541..................  ECMO OR TRACH W MV 96+             3.8893            58.1            48.4            65.8
                        HRS OR PDX EXC FACE,
                        MOUTH & NECK W MAJ O.R.

[[Page 4883]]

 
542..................  TRACH W MV 96+ HRS OR PDX          2.8689            45.1            37.6            49.1
                        EXC FACE, MOUTH & NECK W/
                        O MAJ O.R.
543..................  \5\ CRANIOTOMY W MAJOR             1.6835            37.1            30.9            20.4
                        DEVICE IMPLANT ORACUTE
                        COMPLEX CNS PDX.
544..................  \5\ MAJOR JOINT                    1.6835            37.1            30.9             6.1
                        REPLACEMENT OR
                        REATTACHMENT OF LOWER
                        EXTREMITY.
545..................  \5\ REVISION OF HIP OR             1.6835            37.1            30.9             7.4
                        KNEE REPLACEMENT.
546..................  \6\ SPINAL FUSION EXC              1.6835            37.1            30.9            13.4
                        CERV WITH CURVATURE OF
                        THE SPINE OR MALIG.
547..................  \6\ CORONARY BYPASS W              1.1625            29.5            24.6            17.8
                        CARDIAC CATH W MAJOR CV
                        DX.
548..................  \6\ CORONARY BYPASS W              1.1625            29.5            24.6            12.0
                        CARDIAC CATH W/O MAJOR
                        CV DX.
549..................  \6\ CORONARY BYPASS W/O            1.1625            29.5            24.6            15.0
                        CARDIAC CATH W MAJOR CV
                        DX.
550..................  \6\ CORONARY BYPASS W/O            1.1625            29.5            24.6             9.3
                        CARDIAC CATH W/O MAJOR
                        CV DX.
551..................  PERMANENT CARDIAC                  1.6035            29.5            24.6            10.3
                        PACEMAKER IMPL W MAJ CV
                        DX OR AICD LEAD OR GNRTR.
552..................  \4\ OTHER PERMANENT                1.1625            29.5            24.6             5.5
                        CARDIAC PACEMAKER
                        IMPLANT W/O MAJOR CV DX.
553..................  OTHER VASCULAR PROCEDURES          1.5837            32.5            27.1            15.8
                        W CC W MAJOR CV DX.
554..................  OTHER VASCULAR PROCEDURES          1.2817            31.6            26.3             9.3
                        W CC W/O MAJOR CV DX.
555..................  \3\ PERCUTANEOUS                   0.7819            23.9            19.9             7.8
                        CARDIOVASCULAR PROC W
                        MAJOR CV DX.
556..................  \6\ PERCUTANEOUS                   0.4175            17.0            14.2             2.9
                        CARDIOVASC PROC W NON-
                        DRUG-ELUTING STENT W/O
                        MAJ CV DX.
557..................  \4\ PERCUTANEOUS                   1.1625            29.5            24.6             6.5
                        CARDIOVASCULAR PROC W
                        DRUG-ELUTING STENT W
                        MAJOR CV DX.
558..................  \6\ PERCUTANEOUS                   0.4175            17.0            14.2             2.6
                        CARDIOVASCULAR PROC W
                        DRUG-ELUTING STENT W/O
                        MAJ CV DX.
559..................  \6\ ACUTE ISCHEMIC STROKE          0.7819            23.9            19.9            10.7
                        WITH USE OF THROMBOLYTIC
                        AGENT.
560..................  BACTERIAL & TUBERCULOUS            0.9308            25.5            21.3            16.9
                        INFECTIONS OF NERVOUS
                        SYSTEM.
561..................  NON-BACTERIAL INFECTIONS           0.8145            22.3            18.6            15.5
                        OF NERVOUS SYSTEM EXCEPT
                        VIRAL MENINGITIS.
562..................  SEIZURE AGE >17 W CC.....          0.6844            23.2            19.3             7.6
563..................  \2\ SEIZURE AGE >17 W/O            0.5594            21.0            17.5             4.9
                        CC.
564..................  HEADACHES AGE >17........          0.7565            24.1            20.1             5.3
565..................  RESPIRATORY SYSTEM                 2.0557            34.7            28.9            23.3
                        DIAGNOSIS WITH
                        VENTILATOR SUPPORT 96+
                        HOURS.
566..................  RESPIRATORY SYSTEM                 1.5445            27.4            22.8            13.2
                        DIAGNOSIS WITH
                        VENTILATOR SUPPORT < 96
                        HOURS.
567..................  \5\ STOMACH, ESOPHAGEAL &          1.6835            37.1            30.9            25.4
                        DUODENAL PROC AGE >17 W
                        CC W MAJOR GI DX.
568..................  \5\ STOMACH, ESOPHAGEAL &          1.6835            37.1            30.9            19.2
                        DUODENAL PROC AGE >17 W
                        CC W/O MAJOR GI DX.
569..................  \5\ MAJOR SMALL & LARGE            1.6835            37.1            30.9            22.5
                        BOWEL PROCEDURES W CC W
                        MAJOR GI DX.
570..................  \5\ MAJOR SMALL & LARGE            1.6835            37.1            30.9            14.9
                        BOWEL PROCEDURES W CC W/
                        O MAJOR GI DX.
571..................  MAJOR ESOPHAGEAL                   0.8214            21.9            18.3             7.5
                        DISORDERS.
572..................  MAJOR GASTROINTESTINAL             0.8505            23.3            19.4            11.0
                        DISORDERS AND PERITONEAL
                        INFECTIONS.
573..................  \5\ MAJOR BLADDER                  1.6835            37.1            30.9            16.7
                        PROCEDURES.
574..................  MAJOR HEMATOLOGIC/                 0.8106            19.7            16.4             9.1
                        IMMUNOLOGIC DIAG EXC
                        SICKLE CELL CRISIS &
                        COAGUL.
575..................  SEPTICEMIA W MV 96+ HOURS          1.6583            27.8            23.2            24.4
                        AGE >17.
576..................  SEPTICEMIA W/O MV 96+              0.7925            23.0            19.2            11.8
                        HOURS AGE >17.
577..................  \6\ CAROTID ARTERY STENT           1.1625            29.5            24.6             3.3
                        PROCEDURE.
578..................  O. R. PROCEDURE W PDX EXC          1.4849            35.7            29.8            26.5
                        POSTOPERATIVE OR POST-
                        TRAUMATIC INFECTION.

[[Page 4884]]

 
579..................  O. R. PROCEDURE W PDX OF           1.2978            35.2            29.3            18.0
                        POSTOPERATIVE OR POST-
                        TRAUMATIC INFECTION.
----------------------------------------------------------------------------------------------------------------
\1\ Relative weights for these LTC-DRGs were determined by assigning these cases to low-volume quintile 1.
\2\ Relative weights for these LTC-DRGs were determined by assigning these cases to low-volume quintile 2.
\3\ Relative weights for these LTC-DRGs were determined by assigning these cases to low-volume quintile 3.
\4\ Relative weights for these LTC-DRGs were determined by assigning these cases to low-volume quintile 4.
\5\ Relative weights for these LTC-DRGs were determined by assigning these cases to low-volume quintile 5.
\6\ Relative weights for these LTC-DRGs were determined by assigning these cases to the appropriate low volume
  quintile because they had no LTCH cases in the FY 2005 MedPAR file.
\7\ Relative weights for these LTC-DRGs were assigned a value of 0.0000.
\8\ Relative weights for these LTC-DRGs were determined after adjusting to account for nonmonotonicity (see step
  5 above).
* ``IPPS Comparable Threshold'' that could be used under the approach discussed for the short-stay outlier
  policy, as discussed in section V.A.2. of the preamble of this proposed rule.
** IPPS hospital statistical data for these LTC-DRGs would be supplemented due to a low volume of IPPS cases.
*** Although IPPS hospital statistical data for these DRGs may be available, a value of zero for the ``IPPS
  Comparable Threshold'' would be assigned for these LTC-DRGs since the relative weights for these LTC-DRGs were
  assigned a value of 0.0000, as discussed in section III. of the preamble of this proposed rule.

Addendum B: Executive Summary of RTI's Report (See http://
www.cms.hhs.gov/LongTermCareHospitalPPS/02a_
RTIReports.asp#TopOfPage for a Copy of the Entire Report)

ES.1 Overview of the Project Purpose

    This project, ``Long-Term Care Hospital (LTCH) Payment System 
Refinement/ Evaluation,'' will assist the Centers for Medicare & 
Medicaid Services (CMS) in developing criteria for assuring 
appropriate and cost-effective use of LTCHs in the Medicare program. 
The Medicare Payment Advisory Commission (MedPAC) recommended that 
CMS examine patient and facility-level criteria to identify and 
distinguish the role of these hospitals as a Medicare provider. This 
project evaluated these criteria and scanned the environment to 
identify feasible options for implementing these types of measures. 
CMS has been particularly interested in the factors that distinguish 
LTCHs from other acute care hospitals.

ES.2 The Project Approach

    RTI completed this project in two phases. In Phase I, RTI 
prepared a background report for CMS summarizing existing 
information regarding LTCHs' current role in the Medicare system: 
their history as Medicare participating providers, the types of 
patients they treat, the criteria Quality Improvement Organizations 
(QIO) currently use to review appropriateness of care in these 
settings, and the types of regulations they face as Medicare 
participating providers. This work reviewed prior analyses of these 
issues and included discussions with MedPAC, other researchers, CMS, 
the QIOs, and the hospital associations.
    In Phase II, RTI collected additional information, including:
     An examination of tools currently used by the QIOs and 
the industry to assess patient appropriateness for admission;
     Analysis of claims to understand variations in the LTCH 
populations and differences between the LTCH populations and those 
treated in other acute hospitals, particularly those that received 
outlier payments for the longer stays;
     Administration of site visits at eight LTCHs and 1 
acute hospital to interview providers regarding the differences 
between LTCH patients and those admitted to other hospitals or 
treated in parts of the country lacking LTCHs.
    In recognition of the heterogeneity of LTCHs, RTI worked with 
each of the different associations, including the National 
Association of Long Term Hospitals (NALTH), the Acute Long Term 
Hospital Association (ALTHA), the American Hospital Association 
(AHA), and the American Medical Rehabilitation Providers Association 
(AMPRA), as well as several of the larger LTCH chains.
    This report summarizes these efforts and makes recommendations 
to CMS regarding the types of criteria needed to distinguish LTCHs 
from other types of hospitals. These criteria will help define LTCH 
patients on the basis of patient care needs or different levels of 
care. They include both patient and facility-level measures. The 
report is organized in six sections:
     Section 1 summarizes the importance of, and the issues 
in, defining criteria for LTCH payments.
     Section 2 provides an overview of the industry growth 
in recent years and an analysis of whether these changes are 
occurring throughout all segments of the LTCH industry. Included 
with these analyses are findings from past work on these issues.
     Section 3 presents analyses of Medicare claims directed 
at understanding the differences in resources, costs, and outcomes 
for LTCH patients and similar cases treated in general acute 
hospitals.
     Section 4 focuses on existing level of care definitions 
and summarizes the tools currently used to make level of care 
determinations by QIOs, hospitals, and healthcare systems, including 
those criteria applied in areas with and without local LTCHs. 
Included are interviews with some of the Medicare QIOs as well as 
analysis of existing tools, such as the InterQualTM level of care 
determination tools.
     Section 5 presents RTI's analysis of hospital margins, 
both LTCH margins and general acute margins for certain types of 
cases. DRG-specific analysis examines the relationship between 
Medicare payments and hospital costs for certain types of cases.
     Section 6 presents RTI's recommendations for 
identifying cases that should qualify for LTCH payments. Fifteen 
recommendations are included which focus on patient-level 
characteristics, facility-level characteristics, issues related to 
creating consistent standards across acute hospitals for these 
medically complex patients, and additional administrative changes 
that would improve CMS' ability to implement their payment policies.

ES.3 Section Summaries

Section 1: Introduction

    This section presents the importance of defining LTCH criteria 
to distinguish cases that qualify for the higher LTCH PPS payments. 
Information is presented that compares the LTCH and IPPS rates, case 
mix weights, and expected length of stay for each DRG. The two 
hospitals are very similar in that LTCHs must meet acute hospital 
certification requirements. However, LTCHs must have average 
Medicare LOS of more than 25 days to qualify for the higher PPS 
payment rate. The base LTCH payment rate is substantially higher 
than the IPPS rate ($38,086 compared to $5,308 in 2007). While both 
types of hospitals have payment factors to adjust for higher and 
lower cost cases, such as short stay and high cost outliers, the 
average cost episode is substantially higher when LTCHs are used as 
part of the episode.
    This section also compares the certification requirements of 
LTCHs to other IPPS-

[[Page 4885]]

excluded hospitals. The Medicare conditions of participation set 
staffing and patient management requirements for hospitals to ensure 
that appropriate care is provided. For the IPPS-excluded hospitals, 
these standards ensure that the provider can meet the specialized 
needs of the populations they are treating, such as those required 
by the acute physical rehabilitation or psychiatric populations.
    Differences in expected patient severity, staff expertise, and 
case mix measurement methods used for LTCHs, IPPS, IRFs, Psychiatric 
hospitals, and SNFs are also presented. In general, the IPPS covers 
the most severely ill cases in their ICU, the LTCHs admit cases that 
are medically complex and equal to an ICU step-down unit in terms of 
intensity and higher staffing needs, IRFs admit cases that are less 
medically complex but highly acute in terms of their functional 
impairments. Psychiatric hospitals and skilled nursing facilities 
have the least medically complex admissions. The lines between each 
group are poorly defined.

Section 2: LTCH Availability

    This section presents information on the changing supply of 
LTCHs. The number of LTCHs has grown markedly since the IPPS was 
established in 1983. Much of the growth has occurred since 1993 when 
the number of LTCHs exploded from 105 hospitals to the current 
number of 383 hospitals as of December 2005. The states with the 
highest number of facilities are also those with the highest number 
of Medicare beneficiaries, including Texas, Louisiana, Ohio, 
Pennsylvania, and Michigan to name a few. The number of states with 
LTCHs has continued growing as well. Many of the new hospitals are 
for-profit organizations which accounted for 58 percent of all 
hospitals in December 2005, up from 45 percent in 1996. The greatest 
growth was in the smaller hospitals with the opening of many 
hospital in hospitals, although this may be changing in response to 
Medicare co-location policies.
    LTCH hospitals generally specialize in three types of 
populations. The majority of cases are medically complex, many of 
whom have respiratory conditions. A second, but smaller group are 
those admitted for rehabilitation services. And a smaller group are 
admitted for longer stay psychiatric services. Specialization in 
different cases is notable by looking at the distributions of cases 
admitted to each hospital. Respiratory-related, psychoses, and 
ventilator cases accounted for the highest proportion of admissions 
at most hospitals (averaging around 15 percent of all admissions/
facility). However, the medians were much lower except in the case 
of ventilator admissions which accounted for 9.3 percent of 
admissions at half the LTCHs in the US. Also notable are the small 
proportion of hospitals that have a very high proportion of their 
cases in certain DRGs. For example, DRG 430: Psychoses accounts for 
62 percent of admissions in a few of the LTCHs.

Section 3: LTCH Populations, Potential Substitutes, and Patient 
Differences Among Hospitals

    This work has been useful for answering the questions identified 
in Section 1, specifically whether there are differences between 
LTCH cases and other inpatient cases in terms of the average program 
payments, beneficiary use levels, and individual outcomes. The first 
half of this section profiled the typical LTCH admission to examine 
the types of cases treated in LTCHs, their associated program costs, 
and this population's use of other services. The results showed that 
many of the types of patients treated in LTCHs are also treated in 
other acute care settings. While the most common LTCH admission is 
DRG 475, the majority of these cases, nationally are treated in IPPS 
settings, both as inlier and outlier populations. Similarly the 
second most frequent LTCH admission, DRG 249 is admitted as a non-
outlier IRF patient or SNF patient almost as often as an LTCH 
patient.
    LTCH patients also use many services during an episode of care. 
These cases are frequently readmitted to the general acute hospital 
(about 40 percent of the time) and may have intervening stays at 
IRFs or SNFs prior to readmission. Also included were comparisons of 
the costs and use for patients in the same DRG groups who were 
treated at other types of inpatient settings. Average costs per case 
differed by type of setting.
    The second part of this section examined the acute care 
admissions to identify differences between the types of cases likely 
to be admitted to an LTCH and other acute discharges in the same 
diagnostic and severity group. The multivariate analysis of this 
issue suggested that severity is an important predictor of LTCH use. 
This supports past work suggesting that LTCH cases have a higher 
severity level, although a large proportion are in APR-DRG group 3, 
as well as group 4. Being located in a state with a large number of 
LTCHs was the most important predictor of LTCH use, all else equal.
    Examining the acute length of stay differences was also useful 
for understanding the relative role of general acute and LTCHs in 
treating these severely ill populations. The multivariate work 
showed that LTCH users have a shorter acute inpatient length stay. 
Understanding whether LTCH hospitals are substituting for services 
already paid to IPPS hospitals or whether LTCHs are providing 
specialized services is not well understood.
    Better measures of acuity are needed to gauge the differences in 
medical or functional impairments between patients using LTCHs and 
those using other settings. Additional work in Phase 3 of this 
project will examine the discharge transitions for acute hospital 
discharges in areas that lack LTCHs. Using propensity score methods 
to match patients on diagnosis, severity, and additional factors, as 
well as control for differences in the availability of services will 
be important for understanding the potential overlap between acute 
and LTCH admissions.

Section 4: Determining Levels of Care

    This section examines current standards in the Medicare program 
and private sector for determining appropriate levels of care. We 
explored three areas: 1) Current Medicare certification rules 
governing acute, LTCH, IRF, and Psychiatric hospital conditions of 
participation; 2) QIO and private sector definitions of populations 
qualifying for different hospital and PAC sites of care; and 3) 
QIO's current roles in reviewing appropriateness of hospital 
admissions. This included interviewing 11 QIOs in states with both 
LTCHs and other PAC providers.
    The Medicare certification rules are important because they set 
standards of practice to ensure appropriate quality of care is 
provided to Medicare beneficiaries. While LTCHs must meet the acute 
inpatient certification requirements, IRF and psychiatric hospitals 
have additional requirements governing the management of their 
patients and the types of staff they must employ. Both types of 
IPPS-excluded hospitals are required to have a physician in charge 
of an interdisciplinary team that includes professionals of varied 
backgrounds, specific to the respective types of patients. Nursing 
and therapy staff are expected to have relevant backgrounds in 
psychiatric or rehabilitation services, respectively. They are to be 
lead by a physician with ``appropriate training'' in the psychiatric 
hospital or ``at least 2 years of rehabilitation training or 
experience'' in the IRF.
    They are also limited to admitting certain populations. All 
psychiatric admissions must be admitted for psychiatric conditions 
and must be actively treated or discharged. IRFs, on the other hand, 
can admit a wide range of rehabilitation populations but 50-75 
percent must be treated for one of 13 groups of conditions or the 
IRF can lose its certification.
    Patient level criteria were also examined. The Medicare program, 
in general, does not specify patient level criteria for LTCHs. IRF 
patients must be well enough to participate in 3 hours therapy/day, 
in general. Psychiatric patients must be actively treated and not 
just admitted for monitoring of a chronic condition. Both IRF and 
psychiatric patients must be improving from treatment or be 
discharged.
    Primary responsibility for monitoring whether Medicare cases are 
admitted to appropriate facilities rests with the Quality 
Improvement Organizations (QIO). QIOs were interviewed regarding the 
tools they use to assess appropriate admissions. Their formal charge 
is to assess whether the services needed could be provided on a more 
economical basis in an alternative setting. However, they do not 
distinguish between types of acute settings.
    The QIOS use several tools, although most use one developed by 
the private sector and used by several other insurers, the InterQual 
TM tool. This tool is a set of clinical algorithms 
intended to create mutually exclusive groups of cases for admission 
to different types of hospitals (acute, LTCH, IRF, psychiatric), as 
well as SNFs and ambulatory services, such as home health and less 
intensive psychiatric services. These tools are guidelines for these 
decisions with final decisions made by physicians or nurses, 
depending on how complicated a case may be. In general, the 
InterQual TM tool is a complex set of conditions and 
treatment needs that identify ICU cases, less intensive hospital 
cases, and other types of admissions. While this tool is widely used 
by QIOs, they have not been using it to distinguish between

[[Page 4886]]

LTCH and general acute admissions nor do the criteria currently 
distinguish between those two groups.
    Some members of the LTCH industry have proposed criteria for 
identifying their patients. However, these criteria lacked 
specificity in several areas and like the InterQual TM 
tool, failed to distinguish between general acute and LTCH 
admissions. However, they suggested that all LTCH cases should be 
medically complex, including any types of rehabilitation or 
psychiatric cases.
    Other parts of the industry suggested that LTCH admissions be 
restricted to 8 types of cases commonly admitted to LTCHs. However, 
these proposals failed to distinguish severity within these 
conditions again, making no distinction between general acute and 
LTCH severity.
    Site visits at eight LTCHs and one acute hospital with a 
respiratory ventilator unit were conducted to understand the 
providers' perceptions of appropriate admissions to these settings. 
Physicians at each site were interviewed regarding the differences 
between the patients they treated and those treated in an acute 
hospital ICU, medical/surgical floor, IRF, or SNF. The LTCH 
physicians perceived themselves as specialists in treating these 
very complicated patients. Many of the patients are having acute 
exacerbations of chronic respiratory conditions, multi-system organ 
failures, and other complications, including wounds and infections. 
The hospitals provide interdisciplinary treatment teams with nurse 
staffing levels that were lower than ICU but higher than general 
units in acute hospitals. Many had ICUs, particularly the free-
standing facilities as patients often had emergent care needs, 
particularly if they were being weaned from a ventilator. The LTCHs 
consistently distinguished their admissions from ICU cases in that 
they only admitted medically stable patients. They perceived the 
acute hospitals' roles to be one of diagnosis and stabilization.
    The acute hospital with a ventilator unit was very similar in 
practice to an LTCH but was paid under the IPPS system. This unit 
was a special unit where respiratory cases were admitted for higher 
levels of monitoring than was available on the general floor and 
interdisciplinary treatment teams cared for the patients. However, 
anecdotal concerns were also raised about the cost of caring for 
these difficult patients under the IPPS payment system.

Section 5: Medicare Margins Analysis

    This section examined LTCH facility financial performance before 
and after the introduction of PPS. We found that aggregate facility 
total margins rose from 4.9% in FY 2002 to 8.9% in FY 2003, and 
Medicare inpatient PPS margins rose from 1.9% to 8.3% in the same 
period. In the first year of implementation, the inter-quartile 
range on LTCH PPS margins was -0.2% to +17.1%. Facilities paid under 
the phased-in rates and public LTCHs were disproportionately 
represented at the lower end of the distribution. Many facilities 
were able to improve their profitability by opting for 100% federal 
rates in year 2, indicating that the base rate was set at a generous 
level relative to average standardized cost per case.
    Median facility PPS margins were highest among for-profits and 
highest for those certified in recent years. Margins were lower for 
those with a higher proportion of high-cost outliers. and--somewhat 
surprisingly--lower for those with a higher proportion of very 
short-stay outliers (stays less than one half the geometric mean 
LOS).
    Case-level margin analyses were conducted for claims in FY 2003 
and 2004 that were paid under the 100% federal rate. Margins varied 
substantially across DRGs, even after stratifying to remove the 
effects of high-cost or short-stay outlier prevalence. Across the 10 
most common reasons for admission, average margins were lowest for 
those in Rehabilitation (-0.1%) and highest for those in Ventilator 
Support (21.3%). Across all cases the aggregate margin was 12.4%, 
but it was 17.4% for inlier cases, 13.8% for short-stay outlier 
cases and -14.3% for high-cost outlier cases. The variation in 
profitability across DRGs was even greater in multivariate models 
that were able to control for fixed hospital-specific effects, as 
well as outlier status.
    In fiscal 2004, the median margin for LTCH Ventilator Support 
cases was 23.1%. We found that in IPPS settings, the median for 
cases in that same DRG 475 was 13.1%. The mean 1.4%, indicating some 
cases had very large losses. There is an unusually large amount of 
within-DRG variation in the IPPS setting; among the roughly half of 
cases staying 10 days or less, the median margin was 42.6%, compared 
to negative 27.1% for those staying 10 days or more. IPPS margins 
were slightly lower for the Ventilator Support cases that 
transferred to LTCHs than for those with other discharge 
dispositions. Setting-specific profit differentials require further 
study using a complete episode-of-care file, to adjust for changes 
in DRGs across inpatient settings and to control adequately for 
possible patient selection effects.
    We conclude that underlying high LTCH profitability stems from a 
generous base rate during the first two PPS years. However, 
substantial variation in profitability across DRGs `` including the 
unusually high margins that we found for Ventilator cases and other 
respiratory-related DRGs `` stems from bias in the DRG weights that 
causes systematic understatement of costs for cases using relatively 
more ancillary services. This is a design problem within LTCH PPS 
that can only be addressed with improved cost-based weights.

Section 6: Recommendations for Identifying Appropriate LTCH Cases

    Based on the findings in this report, this Section provides 
recommendations and discussions for developing patient level 
criteria, facility level criteria, creating more consistency between 
general acute and LTCH payment and certification rules, and several 
administrative issues related to LTCH identification methods. 
Complete discussions accompany each recommendation in Section 6.

A. Patient-Level Recommendations

    Recommendation 1: Restrict LTCH admissions to cases that meet 
certain medical conditions, including having a primary diagnosis 
that is medical in nature, not function or psychiatric, and meeting 
a certain level of medical complexity that reflects severely ill 
populations.
    Recommendation 2: Require LTCH Admissions to be discharged if 
not having diagnostic procedures or improving with treatment, such 
as those receiving long term ventilator management.
    Recommendation 3: Develop a list of criteria to measure medical 
severity for hospital admissions.
    Recommendation 4: Establish a Technical Advisory Group.
    Recommendation 5: Establish a data collection mechanism to 
collect this information.
    Recommendation 6: Require LTCHs to collect functional measures 
as well as physiologic measures on all patients receiving physical, 
occupational, or speech and language pathology services.

B. Facility Level Recommendations

    Recommendation 7: Standardize conditions of participation and 
set staffing requirements to ensure appropriate staff for treating 
medically complex cases.
    Recommendation 8: Keep the 25 day average length stay 
requirement in place to limit LTCH's incentives to unbundle and 
clearly delineate between general and long term acute patients.

C. Recommendations To Improve Consistency Between General Acute and 
Long Term Acute Hospital Payment and Certification Policies

    Recommendation 9: Allow LTCHs, like general acute hospitals, to 
open certified, distinct-part rehabilitation and psychiatric units 
if CMS finds that restricting LTCH admissions to the medically 
complex cases results in access problems for IRF or psychiatric 
patient populations.
    Recommendation 10: Require LTCHs to meet the same regulatory 
restrictions as general acute hospitals by limiting their allowance 
to only one of each type of distinct-part unit.
    Recommendation 11: Establish payment rules that provide a 
disincentive for LTCHs to transfer cases early to other post acute 
settings.
    Recommendation 12: Conduct additional research to examine costs 
associated with different segments of an acute episode for medically 
complex patients. This should also include an examination of the 
IPPS margins for common types of LTCH cases.

D. Administrative Recommendations

    Recommendation 13: Establish a provider identification code for 
satellite facilities and hospitals in hospitals (HIH).
    Recommendation 14: Strengthen the requirement for parent 
facilities to report satellite locations by requiring them to be 
identified on the cost report.
    Recommendation 15: Clarify QIO roles in overseeing 
appropriateness of admissions of LTCHs.

[FR Doc. 07-392 Filed 1-25-07; 4:30 pm]
BILLING CODE 4120-01-P