DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Centers for Medicare & Medicaid Services 

42 CFR Part 412 

[CMS-1349-P] 

RIN 0938-AQ28 

Medicare Program; Inpatient Rehabilitation Facility 

Prospective Payment System for Federal Fiscal Year 2012; 

Changes in Size and Square Footage of Inpatient 

Rehabilitation Units and Inpatient Psychiatric Units 

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

HHS.

ACTION: Proposed Rule. 

SUMMARY: This proposed rule would implement section 3004 

of the Affordable Care Act, which establishes a new quality 

reporting program that provides for a 2 percent reduction 

in the annual increase factor beginning in 2014 for failure 

to report quality data to the Secretary of Health and Human 

Services. This proposed rule would also update the 

prospective payment rates for inpatient rehabilitation 

facilities (IRFs) for Federal fiscal year 2012 (for 

discharges occurring on or after October 1, 2011 and on or 

before September 30, 2012) as required by the Social 

Security Act (the Act). The Act requires the Secretary to 

publish in the Federal Register on or before the August 1 

that precedes the start of each FY the classification and 
CMS-1349-P 2 

 

weighting factors for the IRF prospective payment system 

(PPS) case-mix groups and a description of the methodology 

and data used in computing the prospective payment rates 

for that fiscal year. We are also proposing to 

consolidate, clarify, and revise existing policies 

regarding IRF hospitals and IRF units of hospitals to 

eliminate unnecessary confusion and enhance consistency. 

Furthermore, in accordance with the general principles of 

the President’s January 18, 2011 Executive Order entitled 

“Improving Regulation and Regulatory Review,” we are 

proposing to amend existing regulatory provisions 

regarding ”new” facilities and changes in the bed size and 

square footage of IRFs and inpatient psychiatric facilities 

(IPFs) to improve clarity and remove obsolete material. 

DATES: To be assured consideration, comments must be 

received at one of the addresses provided below, no later 

than 5 p.m. on ] June 21, 2011.

ADDRESSES: In commenting, please refer to file code 

CMS-1349-P. Because of staff and resource limitations, we 

cannot accept comments by facsimile (FAX) transmission. 

 You may submit comments in one of four ways (please 

choose only one of the ways listed): 

1. Electronically. You may submit electronic 

comments on this regulation to http://www.regulations.gov. 
CMS-1349-P 3 

 

Follow the "Submit a comment" instructions. 

 2. By regular mail. You may mail written comments to 

the following address ONLY: 

 Centers for Medicare & Medicaid Services, 

Department of Health and Human Services, 

Attention: CMS-1349-P, 

P.O. Box 8016, 

Baltimore, MD 21244-8016. 

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 to the following address ONLY: 

 Centers for Medicare & Medicaid Services, 

 Department of Health and Human Services, 

 Attention: CMS-1349-P, 

 Mail Stop C4-26-05, 

 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 before the close 

of the comment period to either of the following addresses: 

a. For delivery in Washington, DC-- 

 Centers for Medicare & Medicaid Services, 

Department of Health and Human Services, 

Room 445-G, Hubert H. Humphrey Building, 
CMS-1349-P 4 

 

 200 Independence Avenue, SW., 

 Washington, DC 20201 

(Because access to the interior of the 

Hubert H. Humphrey 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.) 

b. For delivery in Baltimore, MD-- 

 Centers for Medicare & Medicaid Services, 

Department of Health and Human Services, 

7500 Security Boulevard, 

Baltimore, MD 21244-1850. 

If you intend to deliver your comments to the 

Baltimore address, please call telephone number 

(410) 786-7195 in advance to schedule your arrival with one 

of our staff members. 

 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 following the instructions at the end of 
CMS-1349-P 5 

 

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: 

Gwendolyn Johnson, (410)786-6954, for general information 

about the proposed rule. 

Hillary Loeffler, (410)786-0456, for information about the 

proposed payment rates. 

Stella R. Mandl, (410)786-2547, for information about the 

proposed quality reporting program. 

Susanne Seagrave, (410)786-0044, for information about the 

proposed payment policies. 

SUPPLEMENTARY INFORMATION: 

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.regulations.gov. Follow the search instructions 

on that Web site to view public comments. 

 Comments received timely will also be available for 
CMS-1349-P 6 

 

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 

 To assist readers in referencing sections contained in 

this document, we are providing the following table of 

contents. 

I. Background 

 A. Historical Overview of the Inpatient 

Rehabilitation Facility Prospective Payment System (IRF 

PPS) 

 B. Provisions of the Affordable Care Act Affecting 

the IRF PPS in FY 2012 and Beyond 

 C. Operational Overview of the Current IRF PPS 

II. Summary of Provisions of the Proposed Rule 

A. Proposed Updates to the IRF Federal Prospective 

Payment Rates for Federal Fiscal Year (FY) 2012 

 B. Proposed Revisions to Existing Regulation Text 

III. Proposed Update to the Case-Mix Group (CMG) Relative 

Weights and Average Length of Stay Values for FY 2012

IV. Proposed Updates to the Facility-Level Adjustment 
CMS-1349-P 7 

 

Factors for FY 2012 

 A. Proposed Updates to the IRF Facility-Level 

Adjustment Factors 

 B. Budget Neutrality Methodology for the Proposed 

Updates to the IRF Facility-Level Adjustment Factors 

 C. Proposed Policy for Temporary Cap Adjustments to 

Reflect Interns and Residents Displaced Due to Closure of 

IRFs or IRF Residency Training Programs 

1. Background 

2. Proposed FTE Intern and Resident Temporary Cap 

Adjustment 

3. Proposed Temporary Adjustment to the FTE Cap to 

Reflect Interns and Residents Displaced Due to IRF Closure 

4. Proposed Temporary Adjustment to the FTE Cap to 

Reflect Interns and Residents Displaced Due to a Residency 

Program Closure 

V. Proposed FY 2012 IRF PPS Federal Prospective Payment 

Rates 

 A. Proposed Market Basket Increase Factor, 

Productivity Adjustment, and Labor-Related Share for 

FY 2012 

 1. Proposed Rebasing of the RPL Market Basket for FY 

2012 

 2. Proposed Productivity Adjustment 

 3. Proposed Calculation of the IRF PPS Market Basket 
CMS-1349-P 8 

 

Increase Factor for FY 2012 

 4. Proposed Calculation of the Labor-Related Share 

for FY 2012 

 B. Proposed Area Wage Adjustment 

 C. Description of the Proposed IRF Standard 

Conversion Factor and Payment Rates for FY 2012 

 D. Example of the Methodology for Adjusting the 

Proposed Federal Prospective Payment Rates 

VI. Proposed Update to Payments for High-Cost Outliers 

Under the IRF PPS 

A. Proposed Update to the Outlier Threshold Amount 

for FY 2012 

 B. Proposed Update to the IRF Cost-to-Charge Ratio 

Ceilings 

VII. Impact of the IPPS Data Matching Process Changes on 

the IRF PPS Calculation of the Low-Income Percentage 

Adjustment Factor 

VIII. Proposed Updates to the Policies in 42 CFR 412 

 A. Proposed Consolidation of the Requirements for 

Rehabilitation Hospitals and Rehabilitation Units 

 B. Proposed Revisions to the Regulations at Proposed 

§412.29 

 C. Proposed Revisions to the Requirements for Changes 

in Bed Size and Square Footage 

 D. Proposed Revisions to Enhance Consistency Between 
CMS-1349-P 9 

 

the IRF Coverage and Payment Requirements 

IX. Proposed Quality Reporting Program for IRFs 

A. Background and Statutory Authority 

B. Quality Measures for IRF Quality Reporting 

Program for FY 2014 

1. General 

 2. Considerations in the Selection of the Proposed 

Quality Measures 

 3. FY 2014 Measure #1: Healthcare Associated 

Infection Measure (HAI): Urinary Catheter-Associated 

Urinary Tract Infections (CAUTI) 

 4. FY 2014 Measure #2: Percent of Patients with 

Pressure Ulcers that are New or Worsened 

 5. Potential FY 2014 Measure #3: 30-Day Comprehensive 

All Cause Risk Standardized Readmission Measure 

C. Data Submission Requirements 

1. Proposed Method of Data Submission for HAI 

Measure (CAUTI) 

2. Proposed Method of Data Submission for the 

Percent of Patients with New or Worsened Pressure Ulcer 

Measure. 

3. Potential Method of Data Submission for the 30-

day Comprehensive All-Cause Risk-Standardized Readmission 

Measure. 
CMS-1349-P 10 

 

D. Public Reporting 

E. Quality Measures for Future Consideration for 

Determination of Increase Factors for Future Fiscal Year 

Payments 

F. Proposed New Regulation Text for the IRF Quality 

Reporting Program 

X. Collection of Information Requirements 

XI. Response to Public Comments 

XII. Economic Analyses 

A. Regulatory Impact Analysis 

1. Introduction 

2. Statement of Need 

3. Overall Impacts 

4. Detailed Economic Analysis 

5. Alternatives Considered 

6. Accounting Statement 

7. Conclusion 

B. Regulatory Flexibility Act Analysis 

C. Unfunded Mandates Reform Act Analysis 

XIII. Federalism Analysis 

Regulation Text 

Addendum 

Acronyms 

 To assist the reader, we are listing the acronyms used 

and their corresponding meaning in alphabetical order. 
CMS-1349-P 11 

 

 ADC Average Daily Census 

AHA American Hospital Association 

 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 

BEA Bureau of Economic Analysis 

BIPA Medicare, Medicaid, and SCHIP [State Children’s 

Health Insurance Program] Benefits Improvement 

and Protection Act of 2000, Pub. L. 106-554 

BLS Bureau of Labor Statistics 

CAH Critical Access Hospital 

CAUTI Catheter-Associated Urinary Tract Infection 

CDC Centers for Disease Control and Prevention 

CBSA Core-Based Statistical Area 

CCR Cost-to-Charge Ratio 

CFR Code of Federal Regulations 

CIPI Capital Input Price Index 

CMG Case-Mix Group 

CMS Centers for Medicare & Medicaid Services 

CPI Consumer Price Index 

DSH Disproportionate Share Hospital 

ECI Employment Cost Index 
CMS-1349-P 12 

 

EHR Electronic Health Record 

FI Fiscal Intermediary 

FR Federal Register 

FTE Full-time Equivalent 

FY Federal Fiscal Year 

GDP Gross Domestic Product 

GME Graduate Medical Education 

HAI Healthcare Associated Infection 

HHH Hubert H. Humphrey Building 

HHS Department of Health Human Services 

HIPAA Health Insurance Portability and Accountability 

Act of 1996, Pub. L. 104-191 

HOMER Home Office Medicare Records 

IGI IHS Global Insight 

IME Indirect Medical Education 

I-O Input-Output 

IPF Inpatient Psychiatric Facility 

IPPS Inpatient Prospective Payment System 

IRF Inpatient Rehabilitation Facility 

IRF-PAI Inpatient Rehabilitation Facility-Patient 

Assessment Instrument 

IRF PPS Inpatient Rehabilitation Facility Prospective 

Payment System 

IRVEN Inpatient Rehabilitation Validation and Entry 

LTCH Long Term Care Hospital 
CMS-1349-P 13 

 

LIP Low-Income Percentage 

LOS Length of Stay 

MA Medicare Advantage 

MAC Medicare Administrative Contractor 

MedPAR Medicare Provider Analysis and Review 

MFP Multifactor Productivity 

MMSEA Medicare, Medicaid, and SCHIP Extension Act of 

 2007, Pub. L. 110—173 

MSA Metropolitan Statistical Area 

NAICS North American Industry Classification System 

NHSN National Healthcare Safety Network 

NQF National Quality Forum 

OMB Office of Management and Budget 

PLI Professional Liability Insurance 

PPI Producer Price Indexes 

PPS Prospective Payment System 

QM Quality Measure 

RFA Regulatory Flexibility Act of 1980, 

Pub. L. 96-354 

RIA Regulatory Impact Analysis 

RIC Rehabilitation Impairment Category 

RO Regional Office 

RP Rehabilitation and Psychiatric 

RPL Rehabilitation, Psychiatric, and Long-Term Care 

Hospital 
CMS-1349-P 14 

 

SCHIP State Children’s Health Insurance Program 

SSI Supplemental Security Income 

TEFRA Tax Equity and Fiscal Responsibility Act of 1982, 

Pub. L. 97-248 

I. Background 

A. Historical Overview of the Inpatient Rehabilitation 

Facility Prospective Payment System (IRF PPS) 

Section 4421 of the Balanced Budget Act of 1997 

(Pub. L. 105-33, enacted on August 5, 1997)(BBA), as 

amended by section 125 of the Medicare, Medicaid, State 

Children’s Health Insurance Program (SCHIP) Balanced Budget 

Refinement Act of 1999 (Pub. L. 106-113, enacted on 

November 29, 1999)(BBRA) and by section 305 of the 

Medicare, Medicaid, and SCHIP Benefits Improvement and 

Protection Act of 2000 (Pub. L. 106-554, enacted on 

December 21, 2000)(BIPA) provides for the implementation of 

a per discharge prospective payment system (PPS) under 

section 1886(j) of the Social Security Act (the Act) for 

inpatient rehabilitation hospitals and inpatient 

rehabilitation units of a hospital (hereinafter referred to 

as IRFs). 

Payments under the IRF PPS encompass inpatient 

operating and capital costs of furnishing covered 

rehabilitation services (that is, routine, ancillary, and 

capital costs) but not direct graduate medical education 
CMS-1349-P 15 

 

costs, costs of approved nursing and allied health 

education activities, bad debts, and other services or 

items outside the scope of the IRF PPS. Although a 

complete discussion of the IRF PPS provisions appears in 

the original FY 2002 IRF PPS final rule (66 FR 41316) and 

the FY 2006 IRF PPS final rule (70 FR 47880), we are 

providing below a general description of the IRF PPS for 

fiscal years (FYs) 2002 through 2010. 

Under the IRF PPS from FY 2002 through FY 2005, as 

described in the FY 2002 IRF PPS final rule (66 FR 41316), 

the Federal prospective payment rates were computed across 

100 distinct case-mix groups (CMGs). We constructed 

95 CMGs using rehabilitation impairment categories (RICs), 

functional status (both motor and cognitive), and age (in 

some cases, cognitive status and age may not be a factor in 

defining a CMG). In addition, we constructed five special 

CMGs to account for very short stays and for patients who 

expire in the IRF. 

 For each of the CMGs, we developed relative weighting 

factors to account for a patient's clinical characteristics 

and expected resource needs. Thus, the weighting factors 

accounted for the relative difference in resource use 

across all CMGs. Within each CMG, we created tiers based 

on the estimated effects that certain comorbidities would 

have on resource use. 
CMS-1349-P 16 

 

 We established the Federal PPS rates using a 

standardized payment conversion factor (formerly referred 

to as the budget neutral conversion factor). For a 

detailed discussion of the budget neutral conversion 

factor, please refer to our FY 2004 IRF PPS final rule 

(68 FR 45684 through 45685). In the FY 2006 IRF PPS final 

rule (70 FR 47880), we discussed in detail the methodology 

for determining the standard payment conversion factor. 

 We applied the relative weighting factors to the 

standard payment conversion factor to compute the 

unadjusted Federal prospective payment rates under the 

IRF PPS from FYs 2002 through 2005. Within the structure 

of the payment system, we then made adjustments to account 

for interrupted stays, transfers, short stays, and deaths. 

Finally, we applied the applicable adjustments to account 

for geographic variations in wages (wage index), the 

percentage of low-income patients, location in a rural area 

(if applicable), and outlier payments (if applicable) to 

the IRF's unadjusted Federal prospective payment rates. 

 For cost reporting periods that began on or after 

January 1, 2002 and before October 1, 2002, we determined 

the final prospective payment amounts using the transition 

methodology prescribed in section 1886(j)(1) of the Act. 

Under this provision, IRFs transitioning into the PPS were 

paid a blend of the Federal IRF PPS rate and the payment 
CMS-1349-P 17 

 

that the IRF would have received had the IRF PPS not been 

implemented. This provision also allowed IRFs to elect to 

bypass this blended payment and immediately be paid 

100 percent of the Federal IRF PPS rate. The transition 

methodology expired as of cost reporting periods beginning 

on or after October 1, 2002 (FY 2003), and payments for all 

IRFs now consist of 100 percent of the Federal IRF PPS 

rate. 

 We established a CMS Website as a primary information 

resource for the IRF PPS. The Website URL is 

http://www.cms.gov/InpatientRehabFacPPS/ and may be 

accessed to download or view publications, software, data 

specifications, educational materials, and other 

information pertinent to the IRF PPS. 

Section 1886(j) of the Act confers broad statutory 

authority upon the Secretary to propose refinements to the 

IRF PPS. In the FY 2006 IRF PPS final rule (70 FR 47880) 

and in correcting amendments to the FY 2006 IRF PPS final 

rule (70 FR 57166) that we published on September 30, 2005, 

we finalized a number of refinements to the IRF PPS casemix classification system (the CMGs and the corresponding 

relative weights) and the case-level and facility-level 

adjustments. These refinements included the adoption of 

the Office of Management and Budget’s (OMB) Core-Based 

Statistical Area (CBSA) market definitions, modifications 
CMS-1349-P 18 

 

to the CMGs, tier comorbidities, and CMG relative weights, 

implementation of a new teaching status adjustment for 

IRFs, revision and rebasing of the market basket index used 

to update IRF payments, and updates to the rural, lowincome percentage (LIP), and high-cost outlier adjustments. 

Beginning with the FY 2006 IRF PPS final rule (70 FR 47908 

through 47917), the market basket index used to update IRF 

payments is a market basket reflecting the operating and 

capital cost structures for freestanding IRFs, freestanding 

inpatient psychiatric facilities (IPFs), and long-term care 

hospitals (LTCHs) (hereafter referred to as the 

rehabilitation, psychiatric, and long-term care (RPL) 

market basket). Any reference to the FY 2006 IRF PPS final 

rule in this proposed rule also includes the provisions 

effective in the correcting amendments. For a detailed 

discussion of the final key policy changes for FY 2006, 

please refer to the FY 2006 IRF PPS final rule (70 FR 47880 

and 70 FR 57166). 

 In the FY 2007 IRF PPS final rule (71 FR 48354), we 

further refined the IRF PPS case-mix classification system 

(the CMG relative weights) and the case-level adjustments, 

to ensure that IRF PPS payments would continue to reflect 

as accurately as possible the costs of care. For a 

detailed discussion of the FY 2007 policy revisions, please 

refer to the FY 2007 IRF PPS final rule (71 FR 48354). 
CMS-1349-P 19 

 

 In the FY 2008 IRF PPS final rule (72 FR 44284), we 

updated the Federal prospective payment rates and the 

outlier threshold, revised the IRF wage index policy, and 

clarified how we determine high-cost outlier payments for 

transfer cases. For more information on the policy changes 

implemented for FY 2008, please refer to the FY 2008 IRF 

PPS final rule (72 FR 44284), in which we published the 

final FY 2008 IRF Federal prospective payment rates. 

 After publication of the FY 2008 IRF PPS final rule 

(72 FR 44284), section 115 of the Medicare, Medicaid, and 

SCHIP Extension Act of 2007 (Pub. L. 110-173, enacted on 

December 29, 2007) (MMSEA), amended section 1886(j)(3)(C) 

of the Act to apply a zero percent increase factor for 

FYs 2008 and 2009, effective for IRF discharges occurring 

on or after April 1, 2008. Section 1886(j)(3)(C) of the 

Act required the Secretary to develop an increase factor to 

update the IRF Federal prospective payment rates for each 

FY. Based on the legislative change to the increase 

factor, we revised the FY 2008 Federal prospective payment 

rates for IRF discharges occurring on or after 

April 1, 2008. Thus, the final FY 2008 IRF Federal 

prospective payment rates that were published in the 

FY 2008 IRF PPS final rule (72 FR 44284) were effective for 

discharges occurring on or after October 1, 2007 and on or 

before March 31, 2008; and the revised FY 2008 IRF Federal 
CMS-1349-P 20 

 

prospective payment rates were effective for discharges 

occurring on or after April 1, 2008 and on or before 

September 30, 2008. The revised FY 2008 Federal 

prospective payment rates are available on the CMS Web site 

at 

http://www.cms.gov/InpatientRehabFacPPS/07_DataFiles.asp#To

pOfPage. 

 In the FY 2009 IRF PPS final rule (73 FR 46370), we 

updated the CMG relative weights, the average length of 

stay values, and the outlier threshold; clarified IRF wage 

index policies regarding the treatment of “New England 

deemed” counties and multi-campus hospitals; and revised 

the regulation text in response to section 115 of the MMSEA 

to set the IRF compliance percentage at 60 percent (“the 

60 percent rule”) and continue the practice of including 

comorbidities in the calculation of compliance percentages. 

We also applied a zero percent market basket increase 

factor for FY 2009 in accordance with section 115 of the 

MMSEA. For more information on the policy changes 

implemented for FY 2009, please refer to the FY 2009 

IRF PPS final rule (73 FR 46370), in which we published the 

final FY 2009 IRF Federal prospective payment rates. 

In the FY 2010 IRF PPS final rule (74 FR 39762) and in 

correcting amendments to the FY 2010 IRF PPS final rule 

(74 FR 50712) that we published on October 1, 2009, we 
CMS-1349-P 21 

 

updated the Federal prospective payment rates, the CMG 

relative weights, the average length of stay values, the 

rural, LIP, and teaching status adjustment factors, and the 

outlier threshold; implemented new IRF coverage 

requirements for determining whether an IRF claim is 

reasonable and necessary; and revised the regulation text 

to require IRFs to submit patient assessments on Medicare 

Advantage (MA) (Medicare Part C) patients for use in the 

60 percent rule calculations. Any reference to the FY 2010 

IRF PPS final rule in this proposed rule also includes the 

provisions effective in the correcting amendments. For 

more information on the policy changes implemented for 

FY 2010, please refer to the FY 2010 IRF PPS final rule 

(74 FR 39762 and 74 FR 50712), in which we published the 

final FY 2010 IRF Federal prospective payment rates. 

After publication of the FY 2010 IRF PPS final rule 

(74 FR 39762), section 3401(d) of the Patient Protection 

and Affordable Care Act (Pub. L. 111-148, enacted on 

March 23, 2010) as amended by section 10319 of the same Act 

and by section 1105 of the Health Care and Education 

Reconciliation Act of 2010 (Pub. L. 111-152, enacted on 

March 30, 2010) (collectively, hereafter referred to as 

“The Affordable Care Act”), amended section 1886(j)(3)(C) 

of the Act and added section 1886(j)(3)(D) of the Act. 

Section 1886(j)(3)(C) of the Act requires the Secretary to 
CMS-1349-P 22 

 

estimate a multi-factor productivity adjustment to the 

market basket increase factor, and to apply other 

adjustments as defined by the Act. The productivity 

adjustment applies to FYs from 2012 forward. The other 

adjustments apply to FYs 2010-2019. 

Sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(i) of 

the Act defined the adjustments that were to be applied to 

the market basket increase factors in FYs 2010 and 2011. 

Under these provisions, the Secretary was required to 

reduce the market basket increase factor in FY 2010 by a 

0.25 percentage point adjustment. Notwithstanding this 

provision, in accordance with section 3401(p) of the 

Affordable Care Act, the adjusted FY 2010 rate was only to 

be applied to discharges occurring on or after April 1, 

2010. Based on the self-implementing legislative changes 

to section 1886(j)(3) of the Act, we adjusted the FY 2010 

Federal prospective payment rates as required, and applied 

these rates to IRF discharges occurring on or after 

April 1, 2010 and on or before September 30, 2010. Thus, 

the final FY 2010 IRF Federal prospective payment rates 

that were published in the FY 2010 IRF PPS final rule 

(74 FR 39762) were used for discharges occurring on or 

after October 1, 2009 and on or before March 31, 2010; and 

the adjusted FY 2010 IRF Federal prospective payment rates 

applied to discharges occurring on or after April 1, 2010 
CMS-1349-P 23 

 

and on or before September 30, 2010. The adjusted FY 2010 

Federal prospective payment rates are available on the CMS 

Web site at 

http://www.cms.gov/InpatientRehabFacPPS/07_DataFiles.asp#To

pOfPage. 

In addition, sections 1886(j)(3)(C) and (D) of the Act 

also affected the FY 2010 IRF outlier threshold amount 

because they required an adjustment to the FY 2010 RPL 

market basket increase factor, which changed the standard 

payment conversion factor for FY 2010. Specifically, the 

original FY 2010 IRF outlier threshold amount was 

determined based on the original estimated FY 2010 RPL 

market basket increase factor of 2.5 percent and the 

standard payment conversion factor of $13,661. However, as 

adjusted, the IRF prospective payments are based on the 

adjusted RPL market basket increase factor of 2.25 percent 

and the revised standard payment conversion factor of 

$13,627. To maintain estimated outlier payments for FY 

2010 equal to the established standard of 3 percent of 

total estimated IRF PPS payments for FY 2010, we revised 

the IRF outlier threshold amount for FY 2010 for discharges 

occurring on or after April 1, 2010 and on or before 

September 30, 2010. The revised IRF outlier threshold 

amount for FY 2010 was $10,721. 

Sections 1886(j)(3)(ii)(II) and 1886(j)(3)(D)(i) also 
CMS-1349-P 24 

 

required the Secretary to reduce the market basket increase 

factor in FY 2011 by a 0.25 percentage point adjustment. 

The FY 2011 IRF PPS notice (75 FR 42836) and the correcting 

amendments to the FY 2011 IRF PPS notice (75 FR 70013, 

November 16, 2010) described the required adjustments to 

the FY 2011 and FY 2010 IRF PPS Federal prospective payment 

rates and outlier threshold amount for IRF discharges 

occurring on or after April 1, 2010 and on or before 

September 30, 2011. It also updated the FY 2011 Federal 

prospective payment rates, the CMG relative weights, and 

the average length of stay values. Any reference to the FY 

2011 IRF PPS notice in this proposed rule also includes the 

provisions effective in the correcting amendments. For 

more information on the FY 2010 and FY 2011 adjustments or 

the updates for FY 2011, please refer to the FY 2011 IRF 

PPS notice (75 FR 42836 and 75 FR 70013). 

B. Provisions of the Affordable Care Act Affecting the 

IRF PPS in FY 2012 and Beyond

 The Affordable Care Act included several provisions 

that affect IRF PPS in FYs 2012 and beyond. In addition to 

what was discussed above, section 3401(d) of the Affordable 

Care Act also added section 1886(j)(3)(C)(ii)(I) (providing 

for a “productivity” adjustment” for fiscal year 2012 and 

each subsequent fiscal year). The proposed productivity 

adjustment for FY 2012 is discussed in section V.A.6. of 
CMS-1349-P 25 

 

this proposed rule, and the 0.1 percentage point adjustment 

is discussed in section V.A of this proposed rule. 

Section 1886(j)(3)(C)(ii)(II) of the Act notes that the 

application of these adjustments to the market basket 

update may result in an update that is less than 0.0 for a 

fiscal year and in payment rates for a fiscal year being 

less than such payment rates for the preceding fiscal year. 

 Section 3004(b) of the Affordable Care Act also 

addressed the IRF PPS program. It reassigned the 

previously-designated section 1886(j)(7) of the Act to 

section 1886(j)(8) and inserted a new section 1886(j)(7), 

which contains new requirements for the Secretary to 

establish a quality reporting program for IRFs. Under that 

program, data must be submitted in a form and manner, and 

at a time specified by the Secretary. Beginning in 

FY 2014, section 1886(j)(7)(A)(i) will require application 

of a 2 percentage point reduction of the applicable market 

basket increase factor for IRFs that fail to comply with 

the quality data submission requirements. Application of 

the 2 percentage point reduction may result in an update 

that is less than 0.0 for a fiscal year and in payment 

rates for a fiscal year being less than such payment rates 

for the preceding fiscal year. Reporting-based reductions 

to the market basket increase factor will not be 

cumulative; they will only apply for the FY involved. 
CMS-1349-P 26 

 

 Under section 1886(j)(7)(D)(i) and (ii) of the Act, 

the Secretary is generally required to select quality 

measures for the IRF quality reporting program from those 

that have been endorsed by the consensus-based entity which 

holds a performance measurement contract under section 

1890(a) of the Act. This contract is currently held by the 

National Quality Forum (NQF). So long as due consideration 

is given to measures that have been endorsed or adopted by 

a consensus-based organization, section 1886(j)(7)(D)(ii) 

of the Act authorizes the Secretary to select non-endorsed 

measures for specified areas or medical topics when there 

are no feasible or practical endorsed measure(s). Under 

section 1886(j)(7)(D)(iii) of the Act, the Secretary is 

required to publish the measures that will be used in 

FY 2014 no later than October 1, 2012. 

 Section 1886(j)(7)(E) of the Act requires the 

Secretary to establish procedures for making the IRF PPS 

quality reporting data available to the public. In so 

doing, the Secretary must ensure that IRFs have the 

opportunity to review any such data prior to its release to 

the public. Future rulemaking will address these public 

reporting obligations. 

 The proposed quality reporting program for IRFs, in 

accordance with section 1886(j)(7) of the Act, is discussed 

in detail in section IX. of this proposed rule. 
CMS-1349-P 27 

 

C. Operational Overview of the Current IRF PPS 

 As described in the FY 2002 IRF PPS final rule, upon 

the admission and discharge of a Medicare Part A fee-forservice patient, the IRF is required to complete the 

appropriate sections of a patient assessment instrument, 

designated as the Inpatient Rehabilitation Facility-Patient 

Assessment Instrument (IRF-PAI). In addition, beginning 

with IRF discharges occurring on or after October 1, 2009, 

the IRF is also required to complete the appropriate 

sections of the IRF-PAI upon the admission and discharge of 

each Medicare Part C (Medicare Advantage) patient, as 

described in the FY 2010 IRF PPS final rule. All required 

data must be electronically encoded into the IRF-PAI 

software product. Generally, the software product includes 

patient classification programming called the GROUPER 

software. The GROUPER software uses specific IRF-PAI data 

elements to classify (or group) patients into distinct CMGs 

and account for the existence of any relevant 

comorbidities. 

 The GROUPER software produces a 5-digit CMG number. The 

first digit is an alpha-character that indicates the 

comorbidity tier. The last 4 digits represent the distinct 

CMG number. Free downloads of the Inpatient Rehabilitation 

Validation and Entry (IRVEN) software product, including the 

GROUPER software, are available on the CMS Web site at 
CMS-1349-P 28 

 

http://www.cms.gov/InpatientRehabFacPPS/06_Software.asp. 

 Once a patient is discharged, the IRF submits a 

Medicare claim as a Health Insurance Portability and 

Accountability Act of 1996 (Pub. L. 104-191, enacted on 

August 21, 1996) (HIPAA), compliant electronic claim or, if 

the Administrative Simplification Compliance Act of 2002 

(Pub. L. 107-105, enacted on December 27, 2002) (ASCA) 

permits, a paper claim (a UB-04 or a CMS-1450 as 

appropriate) using the five-digit CMG number and sends it 

to the appropriate Medicare fiscal intermediary (FI) or 

Medicare Administrative Contractor (MAC). Claims submitted 

to Medicare must comply with both ASCA and HIPAA. 

 Section 3 of the ASCA amends section 1862(a) of the 

Act by adding paragraph (22) which requires the Medicare 

program, subject to section 1862(h) of the Act, to deny 

payment under Part A or Part B for any expenses 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, in turn, provides that the Secretary 

shall waive such denial in situations in which there is no 

method available for the submission of claims in an 

electronic form or the entity submitting the claim is a 

small provider. In addition, the Secretary also has the 

authority to waive such denial “in such unusual cases as 

the Secretary finds appropriate.” For more information, 
CMS-1349-P 29 

 

see the “Medicare Program; Electronic Submission of 

Medicare Claims” final rule (70 FR 71008, 

November 25, 2005). CMS instructions for the limited 

number of Medicare claims submitted on paper are available 

at http://www.cms.gov/manuals/downloads/clm104c25.pdf. 

 Section 3 of the ASCA operates in the context of the 

administrative simplification provisions of HIPAA, which 

include, among others, the requirements for transaction 

standards and code sets codified in 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 healthcare providers, to 

conduct covered electronic transactions according to the 

applicable transaction standards. (See the CMS program 

claim memoranda at 

http://www.cms.gov/ElectronicBillingEDITrans/ and listed in 

the addenda to the Medicare Intermediary Manual, Part 3, 

section 3600). 

The Medicare FI or MAC processes the claim through its 

software system. This software system includes pricing 

programming called the “PRICER” software. The PRICER 

software uses the CMG number, along with other specific 

claim data elements and provider-specific data, to adjust 

the IRF's prospective payment for interrupted stays, 

transfers, short stays, and deaths, and then applies the 
CMS-1349-P 30 

 

applicable adjustments to account for the IRF's wage index, 

percentage of low-income patients, rural location, and 

outlier payments. For discharges occurring on or after 

October 1, 2005, the IRF PPS payment also reflects the new 

teaching status adjustment that became effective as of 

FY 2006, as discussed in the FY 2006 IRF PPS final rule 

(70 FR 47880). 

II. Summary of Provisions of the Proposed Rule 

In this proposed rule, we are proposing to update the 

IRF Federal prospective payment rates, to rebase and revise 

the RPL market basket, to implement refinements to the 

methodologies for calculating the LIP adjustment, and to 

establish a new quality reporting program for IRFs in 

accordance with section 1886(j)(7) of the Act. We are also 

proposing to revise existing regulations text for the 

purpose of updating and providing greater clarity. These 

proposals are as follows: 

A. Proposed Updates to the IRF Federal Prospective 

Payment Rates for Federal Fiscal Year (FY) 2012

The proposed updates to the IRF Federal prospective 

payment rates for FY 2012 are as follows: 

● Update the FY 2012 IRF PPS relative weights and 

average length of stay values using the most current and 

complete Medicare claims and cost report data in a budget 

neutral manner, as discussed in section III. of this 
CMS-1349-P 31 

 

proposed rule. 

● Update the FY 2012 IRF facility-level adjustments 

(rural, LIP, and teaching status adjustments) in a budget 

neutral manner using the most current and complete Medicare 

claims and cost report data and by removing the weighting 

methodology previously used to analyze such data, and 

propose a temporary cap adjustment policy for the teaching 

status adjustment to reflect interns and residents 

displaced due to closure of IRFs or IRF residency training 

programs, as discussed in section IV. of this proposed 

rule. 

● Update the FY 2012 IRF PPS payment rates by the 

proposed market basket increase factor, based upon the most 

current data available, with a 0.1 percentage point 

reduction as required by sections 1886(j)(3)(C)(ii)(II) and 

1886(j)(3)(D)(ii) of the Act and a productivity adjustment 

required by section 1886(j)(3)(C)(ii)(I) of the Act, as 

described in section V. of this proposed rule. 

● Update the wage index and the labor-related share 

of the FY 2012 IRF PPS payment rates in a budget neutral 

manner, as discussed in section V. of this proposed rule. 

● Calculate the IRF Standard Payment Conversion 

Factor for FY 2012, as discussed in section V. of this 

proposed rule. 

● Update the outlier threshold amount for FY 2012, as 
CMS-1349-P 32 

 

discussed in section VI. of this proposed rule. 

● Update the cost-to-charge ratio (CCR) ceiling and 

urban/rural average CCRs for FY 2012, as discussed in 

section VI. of this proposed rule. 

● Discuss the impact of the IPPS data matching 

process changes on the IRF PPS calculation of the 

Supplemental Security Income (SSI) ratios used to compute 

the IRF LIP adjustment factor, as discussed in section VII. 

of this proposed rule. 

● Implement the IRF quality reporting program 

provisions of section 1886(j)(7) of the Act, as discussed 

in section IX. of this proposed rule. 

B. Proposed Revisions to Existing Regulation Text

In this proposed rule, we are proposing to revise the 

existing requirements at §412.25(b), §412.25(b)(1), 

§412.25(b)(2), §412.25(b)(3), and §412.25(e)(2)(ii)(A) that 

apply to all units that are excluded from the inpatient 

prospective payment system (IPPS), as described in section 

VIII. of this proposed rule. These proposed revisions 

would affect IRFs and inpatient psychiatric facilities 

(IPFs). 

We are also proposing to relocate and revise the 

existing requirements at §412.23(b), §412.29, and §412.30 

that describe the requirements for facilities to qualify to 

receive payment under the IRF PPS, as described in section 
CMS-1349-P 33 

 

VIII. of this proposed rule. 

Finally, we are proposing to re-designate the existing 

paragraph §412.624(c)(4) as §412.624(c)(5) and add a new 

paragraph §412.624(c)(4) to implement the IRF quality 

reporting program. 
CMS-1349-P 34 

 

III. Proposed Update to the Case-Mix Group (CMG) Relative 

Weights and Average Length of Stay Values for FY 2012 

 As specified in §412.620(b)(1), we calculate a 

relative weight for each CMG that is proportional to the 

resources needed by an average inpatient rehabilitation 

case in that CMG. For example, cases in a CMG with a 

relative weight of 2, on average, will cost twice as much 

as cases in a CMG with a relative weight of 1. Relative 

weights account for the variance in cost per discharge due 

to the variance in resource utilization among the payment 

groups, and their use helps to ensure that IRF PPS payments 

support beneficiary access to care, as well as provider 

efficiency. 

 In this proposed rule, we propose to update the CMG 

relative weights and average length of stay values for 

FY 2012. As required by statute, we always use the most 

recent available data to update the CMG relative weights 

and average lengths of stay. This ensures that the CMG 

relative weights and average length of stay values reflect 

as accurately as possible the current costs of care in 

IRFs. For FY 2012, we are proposing to use the FY 2010 IRF 

claims and FY 2009 IRF cost report data. These data are 

the most current and complete data available at this time. 

Currently, only a small portion of the FY 2010 IRF cost 

report data are available for analysis, but the majority of 
CMS-1349-P 35 

 

the FY 2010 IRF claims data are available for analysis. 

 In this proposed rule, we propose to use the same 

methodology that we used to update the CMG relative weights 

and average length of stay values in the FY 2009 IRF PPS 

final rule (73 FR 46370), which we also used to update the 

CMG relative weights and average length of stay values in 

the FY 2010 IRF PPS final rule (74 FR 39762) and the 

FY 2011 notice (75 FR 42836). 

 In calculating the CMG relative weights, we use a 

hospital-specific relative value method to estimate 

operating (routine and ancillary services) and capital 

costs of IRFs. The process used to calculate the CMG 

relative weights for this proposed rule is as follows: 

 Step 1. We estimate the effects that comorbidities 

have on costs. 

 Step 2. We adjust the cost of each Medicare discharge 

(case) to reflect the effects found in the first step. 

 Step 3. We use the adjusted costs from the second step 

to calculate CMG relative weights, using the hospitalspecific relative value method. 

 Step 4. We normalize the FY 2012 CMG relative weights 

to the same average CMG relative weight from the CMG 

relative weights implemented in the FY 2011 IRF PPS notice 

(75 FR 42836). 

 Consistent with the methodology that we have used to 
CMS-1349-P 36 

 

update the IRF classification system in each instance in 

the past, we are proposing to update the CMG relative 

weights for FY 2012 in such a way that total estimated 

aggregate payments to IRFs for FY 2012 are the same with or 

without the changes (that is, in a budget neutral manner) 

by applying a budget neutrality factor to the standard 

payment amount. To calculate the appropriate proposed 

budget neutrality factor for use in updating the FY 2012 

CMG relative weights, we propose to use the following 

steps: 

 Step 1. Calculate the estimated total amount of IRF 

PPS payments for FY 2012 (with no proposed changes to the 

CMG relative weights). 

 Step 2. Calculate the estimated total amount of IRF 

PPS payments for FY 2012 by applying the proposed changes 

to the CMG relative weights (as discussed above). 

 Step 3. Divide the amount calculated in step 1 by the 

amount calculated in step 2 to determine the proposed 

budget neutrality factor (0.9989) that would maintain the 

same total estimated aggregate payments in FY 2012 with and 

without the proposed changes to the CMG relative weights. 

 Step 4. Apply the proposed budget neutrality factor 

(0.9989) to the FY 2011 IRF PPS standard payment amount 

after the application of the budget-neutral wage adjustment 

factor. 
CMS-1349-P 37 

 

 In section V.C. of this proposed rule, we discuss the 

proposed use of the existing methodology to calculate the 

standard payment conversion factor for FY 2012. 

 Table 1, “Proposed Relative Weights and Average Length 

of Stay Values for Case-Mix Groups,” presents the CMGs, the 

comorbidity tiers, the proposed corresponding relative 

weights, and the proposed average length of stay values for 

each CMG and tier for FY 2012. The average length of stay 

for each CMG is used to determine when an IRF discharge 

meets the definition of a short-stay transfer, which 

results in a per diem case level adjustment. The proposed 

relative weights and average length of stay values shown in 

Table 1 are subject to change for the final rule if more 

recent data become available for use in these analyses. 

TABLE 1: Proposed Relative Weights and Average Length of 

Stay Values for Case-Mix Groups 

 

CMG CMG 

Description 

(M=motor, 

C=cognitive, 

A=age) 

Relative weight Average length of stay 

 Tier1 Tier2 Tier3 None Tier1 Tier2 Tier3 None 

0101 Stroke 

M>51.05 0.7654 0.7177 0.6447 0.6094 10 10 9 8 

0102 Stroke 

M>44.45 and 

M<51.05 and 

C>18.5 0.9487 0.8896 0.7990 0.7553 12 13 10 10 

0103 Stroke 

M>44.45 and 

M<51.05 and 

C<18.5 1.1340 1.0633 0.9551 0.9029 14 14 12 12 

0104 Stroke 

M>38.85 and 

M<44.45 1.1790 1.1055 0.9930 0.9387 15 14 13 12 
CMS-1349-P 38 

 

CMG CMG 

Description 

(M=motor, 

C=cognitive, 

A=age) 

Relative weight Average length of stay 

 Tier1 Tier2 Tier3 None Tier1 Tier2 Tier3 None 

0105 Stroke 

M>34.25 and 

M<38.85 1.3705 1.2850 1.1543 1.0911 16 17 14 14 

0106 Stroke 

M>30.05 and 

M<34.25 1.5762 1.4779 1.3275 1.2549 20 18 16 16 

0107 Stroke 

M>26.15 and 

M<30.05 1.7841 1.6729 1.5026 1.4204 20 20 18 18 

0108 Stroke 

M<26.15 and 

A>84.5 2.2109 2.0731 1.8621 1.7603 31 25 23 22 

0109 Stroke 

M>22.35 and 

M<26.15 and 

A<84.5 2.0470 1.9193 1.7240 1.6297 24 23 20 20 

0110 Stroke 

M<22.35 and 

A<84.5 2.6359 2.4715 2.2200 2.0986 33 29 26 25 

0201 Traumatic brain 

injury 

M>53.35 and 

C>23.5 0.7564 0.6156 0.5707 0.5179 8 8 7 8 

0202 Traumatic brain 

injury 

M>44.25 and 

M<53.35 and 

C>23.5 1.0716 0.8722 0.8085 0.7337 12 12 10 10 

0203 Traumatic brain 

injury 

M>44.25 and 

C<23.5 1.2095 0.9844 0.9125 0.8282 16 11 13 12 

0204 Traumatic brain 

injury 

M>40.65 and 

M<44.25 1.2732 1.0362 0.9605 0.8717 16 12 12 12 

0205 Traumatic brain 

injury 

M>28.75 and 

M<40.65 1.6075 1.3083 1.2128 1.1007 18 18 15 14 

0206 Traumatic brain 

injury 

M>22.05 and 

M<28.75 2.0038 1.6308 1.5117 1.3720 23 19 19 18 

0207 Traumatic brain 

injury 

M<22.05 2.7072 2.2034 2.0425 1.8537 35 27 25 22 

0301 Non-traumatic 

brain injury 

M>41.05 1.0552 0.9514 0.8433 0.7724 12 12 11 10 
CMS-1349-P 39 

 

CMG CMG 

Description 

(M=motor, 

C=cognitive, 

A=age) 

Relative weight Average length of stay 

 Tier1 Tier2 Tier3 None Tier1 Tier2 Tier3 None 

0302 Non-traumatic 

brain injury 

M>35.05 and 

M<41.05 1.3362 1.2049 1.0679 0.9781 12 15 13 13 

0303 Non-traumatic 

brain injury 

M>26.15 and 

M<35.05 1.5891 1.4329 1.2701 1.1632 21 17 15 14 

0304 Non-traumatic 

brain injury 

M<26.15 2.1985 1.9823 1.7570 1.6093 29 23 20 19 

0401 Traumatic spinal 

cord injury 

M>48.45 1.0503 0.8733 0.7923 0.6999 15 14 11 10 

0402 Traumatic spinal 

cord injury 

M>30.35 and 

M<48.45 1.3721 1.1408 1.0351 0.9143 17 14 13 12 

0403 Traumatic spinal 

cord injury 

M>16.05 and 

M<30.35 2.4551 2.0411 1.8520 1.6359 29 26 23 20 

0404 Traumatic spinal 

cord injury 

M<16.05 and 

A>63.5 4.3686 3.6321 3.2955 2.9110 53 39 38 35 

0405 Traumatic spinal 

cord injury 

M<16.05 and 

A<63.5 3.8362 3.1894 2.8938 2.5562 52 38 36 29 

0501 Non-traumatic 

spinal cord injury 

M>51.35 0.6606 0.6293 0.5616 0.4974 10 10 7 7 

0502 Non-traumatic 

spinal cord injury 

M>40.15 and 

M<51.35 0.9871 0.9403 0.8391 0.7432 13 13 11 10 

0503 Non-traumatic 

spinal cord injury 

M>31.25 and 

M<40.15 1.2549 1.1954 1.0668 0.9449 16 14 13 12 

0504 Non-traumatic 

spinal cord injury 

M>29.25 and 

M<31.25 1.5175 1.4455 1.2901 1.1426 18 16 16 14 

0505 Non-traumatic 

spinal cord injury 

M>23.75 and 

M<29.25 1.7660 1.6823 1.5013 1.3297 20 21 18 17 
CMS-1349-P 40 

 

CMG CMG 

Description 

(M=motor, 

C=cognitive, 

A=age) 

Relative weight Average length of stay 

 Tier1 Tier2 Tier3 None Tier1 Tier2 Tier3 None 

0506 Non-traumatic 

spinal cord injury 

M<23.75 2.4771 2.3597 2.1059 1.8651 33 28 24 23 

0601 Neurological 

M>47.75 0.9418 0.7982 0.7277 0.6571 10 11 9 9 

0602 Neurological 

M>37.35 and 

M<47.75 1.2488 1.0584 0.9649 0.8714 12 13 12 11 

0603 Neurological 

M>25.85 and 

M<37.35 1.6123 1.3665 1.2458 1.1250 17 15 14 14 

0604 Neurological 

M<25.85 2.1387 1.8126 1.6525 1.4923 23 21 19 18 

0701 Fracture of lower 

extremity 

M>42.15 0.8008 0.7876 0.7576 0.6765 10 12 10 9 

0702 Fracture of lower 

extremity 

M>34.15 and 

M<42.15 1.0476 1.0304 0.9912 0.8851 12 13 12 12 

0703 Fracture of lower 

extremity 

M>28.15 and 

M<34.15 1.2605 1.2398 1.1926 1.0649 15 15 14 14 

0704 Fracture of lower 

extremity 

M<28.15 1.6299 1.6031 1.5421 1.3770 18 19 18 17 

0801 Replacement of 

lower extremity 

joint M>49.55 0.5585 0.5618 0.5618 0.4879 7 8 7 7 

0802 Replacement of 

lower extremity 

joint M>37.05 

and M<49.55 0.7514 0.7559 0.7559 0.6565 8 11 9 9 

0803 Replacement of 

lower extremity 

joint 

M>28.65 and 

M<37.05 and 

A>83.5 1.0356 1.0417 1.0417 0.9048 11 14 13 12 

0804 Replacement of 

lower extremity 

joint M>28.65 

and M<37.05 and 

A<83.5 0.9151 0.9205 0.9205 0.7995 10 12 11 10 

0805 Replacement of 

lower extremity 

joint 

M>22.05 and 

M<28.65 1.1274 1.1341 1.1341 0.9850 11 14 13 13 
CMS-1349-P 41 

 

CMG CMG 

Description 

(M=motor, 

C=cognitive, 

A=age) 

Relative weight Average length of stay 

 Tier1 Tier2 Tier3 None Tier1 Tier2 Tier3 None 

0806 Replacement of 

lower extremity 

joint M<22.05 1.3774 1.3856 1.3856 1.2034 13 18 16 15 

0901 Other orthopedic 

M>44.75 0.8645 0.7442 0.6738 0.6105 10 10 9 8 

0902 Other orthopedic 

M>34.35 and 

M<44.75 1.1584 0.9973 0.9029 0.8181 13 13 12 11 

0903 Other orthopedic 

M>24.15 and 

M<34.35 1.4813 1.2752 1.1546 1.0461 16 16 14 13 

0904 Other orthopedic 

M<24.15 1.9215 1.6542 1.4977 1.3569 21 20 18 17 

1001 Amputation, 

lower extremity 

M>47.65 1.0282 0.9092 0.8110 0.7260 13 12 10 10 

1002 Amputation, 

lower extremity 

M>36.25 and 

M<47.65 1.3476 1.1916 1.0630 0.9515 16 14 13 12 

1003 Amputation, 

lower extremity 

M<36.25 1.9915 1.7611 1.5709 1.4063 21 21 18 17 

1101 Amputation, nonlower extremity 

M>36.35 1.0359 1.0359 0.9879 0.9237 11 11 12 11 

1102 Amputation, nonlower extremity 

M<36.35 1.5462 1.5462 1.4747 1.3787 14 18 16 16 

1201 Osteoarthritis 

M>37.65 0.8086 0.8086 0.8068 0.7644 13 13 11 10 

1202 Osteoarthritis 

M>30.75 and 

M<37.65 1.0576 1.0576 1.0553 0.9999 16 16 14 13 

1203 Osteoarthritis 

M<30.75 1.2998 1.2998 1.2969 1.2288 13 19 15 15 

1301 Rheumatoid, other 

arthritis M>36.35 0.8929 0.8929 0.8827 0.7872 11 10 11 10 

1302 Rheumatoid, other 

arthritis M>26.15 

and M<36.35 1.1777 1.1777 1.1643 1.0383 17 17 14 13 

1303 Rheumatoid, other 

arthritis M<26.15 1.5197 1.5197 1.5025 1.3399 15 19 18 16 

1401 Cardiac 

M>48.85 0.9414 0.7541 0.6671 0.6032 10 10 9 8 

1402 Cardiac 

M>38.55 and 

M<48.85 1.2639 1.0125 0.8956 0.8098 13 12 11 10 
CMS-1349-P 42 

 

CMG CMG 

Description 

(M=motor, 

C=cognitive, 

A=age) 

Relative weight Average length of stay 

 Tier1 Tier2 Tier3 None Tier1 Tier2 Tier3 None 

1403 Cardiac 

M>31.15 and 

M<38.55 1.5236 1.2205 1.0796 0.9762 18 14 13 12 

1404 Cardiac 

M<31.15 1.9752 1.5823 1.3996 1.2655 24 19 16 15 

1501 Pulmonary 

M>49.25 0.9616 0.9031 0.7771 0.7334 10 11 8 9 

1502 Pulmonary 

M>39.05 and 

M<49.25 1.2069 1.1334 0.9753 0.9205 13 13 11 11 

1503 Pulmonary 

M>29.15 and 

M<39.05 1.4859 1.3954 1.2007 1.1333 16 16 13 13 

1504 Pulmonary 

M<29.15 1.8826 1.7679 1.5212 1.4358 22 19 17 16 

1601 Pain syndrome 

M>37.15 1.1157 0.8649 0.7697 0.7202 12 12 10 10 

1602 Pain syndrome 

M>26.75 and 

M<37.15 1.4950 1.1589 1.0314 0.9650 19 13 13 13 

1603 Pain syndrome 

M<26.75 1.9344 1.4996 1.3345 1.2486 22 18 16 15 

1701 Major multiple 

trauma without 

brain or spinal 

cord injury 

M>39.25 1.0029 0.9213 0.8376 0.7323 10 11 11 10 

1702 Major multiple 

trauma without 

brain or spinal 

cord injury 

M>31.05 and 

M<39.25 1.3284 1.2204 1.1094 0.9700 13 15 14 13 

1703 Major multiple 

trauma without 

brain or spinal 

cord injury 

M>25.55 and 

M<31.05 1.5680 1.4405 1.3095 1.1449 15 16 15 15 

1704 Major multiple 

trauma without 

brain or spinal 

cord injury 

M<25.55 2.0053 1.8423 1.6748 1.4642 26 22 20 18 

1801 Major multiple 

trauma with brain 

or spinal cord 

injury 

M>40.85 1.1875 0.9426 0.9426 0.8659 14 14 12 11 
CMS-1349-P 43 

 

CMG CMG 

Description 

(M=motor, 

C=cognitive, 

A=age) 

Relative weight Average length of stay 

 Tier1 Tier2 Tier3 None Tier1 Tier2 Tier3 None 

1802 Major multiple 

trauma with brain 

or spinal cord 

injury 

M>23.05 and 

M<40.85 1.6397 1.3015 1.3015 1.1956 18 19 15 15 

1803 Major multiple 

trauma with brain 

or spinal cord 

injury M<23.05 2.8012 2.2235 2.2235 2.0426 34 32 26 24 

1901 Guillain Barre 

M>35.95 1.1421 0.9069 0.9069 0.8922 13 14 12 12 

1902 Guillain Barre 

M>18.05 and 

M<35.95 2.1756 1.7276 1.7276 1.6996 22 22 21 21 

1903 Guillain Barre 

M<18.05 3.6633 2.9089 2.9089 2.8618 48 29 35 33 

2001 Miscellaneous 

M>49.15 0.8486 0.7527 0.6748 0.6064 9 10 9 8 

2002 Miscellaneous 

M>38.75 and 

M<49.15 1.1378 1.0093 0.9048 0.8131 12 12 11 10 

2003 Miscellaneous 

M>27.85 and 

M<38.75 1.4370 1.2747 1.1427 1.0269 15 15 13 13 

2004 Miscellaneous 

M<27.85 1.9261 1.7085 1.5316 1.3764 24 20 18 16 

2101 Burns 

M>0 3.0073 2.5965 2.0197 1.7146 34 23 19 18 

5001 Short-stay cases, 

length of stay is 3 

days or fewer 0.1476 3 

5101 Expired, 

orthopedic, length 

of stay is 13 days 

or fewer 0.5867 7 

5102 Expired, 

orthopedic, length 

of stay is 14 days 

or more 1.4693 18 

5103 Expired, not 

orthopedic, length 

of stay is 15 days 

or fewer 0.6951 8 

5104 Expired, not 

orthopedic, length 

of stay is 16 days 

or more 1.8788 23 

 Generally, updates to the CMG relative weights result 
CMS-1349-P 44 

 

in some increases and some decreases to the CMG relative 

weight values. Table 2 shows how the application of the 

proposed revisions for FY 2012 would affect particular CMG 

relative weight values, which affect the overall 

distribution of payments within CMGs and tiers. Note that, 

because we propose to implement the CMG relative weight 

revisions in a budget neutral manner (as described above), 

total estimated aggregate payments to IRFs for FY 2012 

would not be affected as a result of the CMG relative 

weight revisions. However, the proposed revisions would 

affect the distribution of payments within CMGs and tiers. 

TABLE 2: Distributional Affects of the Proposed Changes to 

the CMG Relative Weights (FY 2011 Values Compared With 

FY 2012 Values) 

Percentage Change Number of 

Cases 

Affected 

Percentage of 

Cases 

Affected 

Increased by 15% or more 431 0.1%

Increased by between 5% and 15% 7,807 2.0%

Changed by less than 5% 376,683 96.9%

Decreased by between 5% and 15% 3,612 0.9%

Decreased by 15% or more 58 0.1%

As Table 2 shows, 97 percent of all IRF cases are in 

CMGs and tiers that would experience less than a 5 percent 

change (either increase or decrease) in the CMG relative 

weight value as a result of the proposed revisions for 

FY 2012. The largest increase in the proposed CMG relative 

weight values that affects a particularly large number of 

IRF discharges is a 1.7 percent increase in the CMG 
CMS-1349-P 45 

 

relative weight value for CMG A0704—Fracture of Lower 

Extremity with a motor score of less than 28.15—in the “no 

comorbidity” tier. In the FY 2010 data, 24,162 IRF 

discharges were classified into this CMG and tier. The 

largest decrease in a CMG relative weight value that 

affects a particularly large number of IRF discharges is a 

0.7 percent decrease in the CMG relative weight for CMG 

A0110—Stroke, with a motor score of less than 22.35 and a 

patient age of less than 84.5 years in the “no comorbidity” 

tier. In the FY 2010 IRF claims data, this change affects 

16,975 cases. 

Given the changes in IRFs’ case mix over time, we 

believe that it is important to update the CMG relative 

weights and average length of stay (LOS) values 

periodically to continue to reflect the trends in IRF 

patient populations. As we have more recent data that 

better reflect IRFs’ case mix at this time, we propose the 

updates described in this section.
CMS-1349-P 46 

 

IV. Proposed Updates to the Facility-Level Adjustment 

Factors for FY 2012 

A. Proposed Updates to the IRF Facility-Level Adjustment 

Factors

 Section 1886(j)(3)(A)(v) of the Act confers broad 

authority upon the Secretary to adjust the per unit payment 

rate “by such . . . factors as the Secretary determines are 

necessary to properly reflect variations in necessary costs 

of treatment among rehabilitation facilities.” For 

example, we adjust the Federal prospective payment amount 

associated with a CMG to account for facility-level 

characteristics such as an IRF’s LIP, teaching status, and 

location in a rural area, if applicable, as described in 

§412.624(e). 

 In the FY 2010 IRF PPS final rule (74 FR 39762), we 

updated the adjustment factors for calculating the rural, 

LIP, and teaching status adjustments based on the most 

recent three consecutive years worth of IRF claims data (at 

that time, FY 2006, FY 2007, and FY 2008) and the most 

recent available corresponding IRF cost report data. As 

discussed in the FY 2010 IRF PPS proposed rule 

(74 FR 21060 through 21061), we observed relatively large 

year-to-year fluctuations in the underlying data used to 

compute the adjustment factors, especially the teaching 

status adjustment factor. Therefore, we implemented a 
CMS-1349-P 47 

 

three-year moving average approach to updating the 

facility-level adjustment factors in the FY 2010 IRF PPS 

final rule (74 FR 39762) to provide greater stability and 

predictability of Medicare payments for IRFs. 

 Though the 3-year moving average approach that we 

implemented in FY 2010 improves the year-to-year stability 

and predictability of the facility-level adjustment 

factors, we have continued to estimate unusually large 

year-to-year fluctuations in the teaching status adjustment 

factor. To determine the underlying reasons for these 

large year-to-year fluctuations in the teaching status 

adjustment factor, we analyzed the data and reviewed the 

methodology that we were using to estimate all three of the 

facility-level adjustment factors (that is, the rural, the 

LIP, and the teaching status adjustment factors). We found 

that the unusually large year-to-year fluctuations in the 

teaching status adjustment factors were the result of a 

weighting methodology that we have been applying to the 

regression analysis used to estimate the facility-level 

adjustment factors since the implementation of the IRF PPS. 

This weighted regression methodology assigns greater weight 

to some facilities than to others and, in effect, 

exaggerates the differences among different types of IRF 

facilities. While this weighted regression methodology was 

appropriate when the IRF PPS was first being developed 
CMS-1349-P 48 

 

because we had limited data on which to base the initial 

facility-level adjustment factors, we believe that a more 

appropriate and conservative approach for the current IRF 

PPS is to assign equal weight to all facilities in the 

regression analysis that is used to estimate all of the IRF 

facility-level adjustment factors (that is, the rural, LIP, 

and teaching status adjustment factors). Thus, we propose 

to remove the weighting methodology from our analysis of 

the facility-level adjustment factors and update the IRF 

facility-level adjustment factors for FY 2012 using an 

unweighted regression analysis. The primary effect of the 

proposed change in methodology is to stabilize all three of 

the facility-level adjustment factors (that is, the rural, 

the LIP, and the teaching status adjustment factor) over 

time. However, the proposed change in the methodology also 

has a relatively large affect on our estimate of the LIP 

adjustment factor that we discuss in this section. 

 To update the facility-level adjustment factors for 

FY 2012, we propose using updated data (FY 2008, FY 2009, 

and 2010 IRF claims data and the corresponding year’s cost 

report data or, if unavailable, the most recent available 

cost report data). To analyze the updated data, we propose 

to use a revised methodology from the methodology that we 

used to update the facility-level adjustment factors in the 

FY 2010 IRF PPS final rule (74 FR 39762). The revised 
CMS-1349-P 49 

 

methodology would remove a weighting factor from the 

regression analysis and, instead, assign equal weight to 

all facilities in the regression analysis. Based on 

analysis of the updated data using the proposed unweighted 

regression analysis and the 3-year moving average approach, 

we estimate that IRF PPS payments to IRFs in rural areas 

would be increased by 18.7 percent for FY 2012. In 

addition, to account for the percentage of low-income 

patients that an IRF treats, we estimate that IRF PPS 

payments for FY 2012 would be adjusted using an updated LIP 

adjustment formula of (1 + disproportionate share hospital 

(DSH) patient percentage) raised to the power of (0.1897), 

where the-- 

DSH patient Medicare SSI Days Medicaid, Non-Medicare Days percentage for 

each IRF 

= Total Medicare Days + 

Total Days 

Note that the proposed LIP adjustment factor of 0.1897 is 

substantially lower than the current LIP adjustment factor 

of 0.4613 due to the use of updated data and the proposed 

use of the unweighted regression methodology, which would 

give equal weight to all facilities in the regression. 

Finally, we estimate that IRF PPS payments to eligible IRFs 

that qualify for the teaching status adjustment will be 

adjusted by the following updated formula for FY 2012: 

(1 + full-time equivalent (FTE) interns and 
CMS-1349-P 50 

 

residents/average daily census) raised to the power of 

(0.4888). To calculate the proposed updates to the rural, 

LIP, and teaching status adjustment factors for FY 2012, we 

used the following steps:

[Steps 1 and 2 are performed independently for each of 

3 years of IRF claims data: FY 2008, FY 2009, and FY 2010] 

Step 1. Calculate the average cost per case for each 

IRF in the IRF claims data. 

 Step 2. Use logarithmic regression analysis on average 

cost per case to compute the coefficients for the rural, 

LIP, and teaching status adjustments. For FY 2012, we are 

proposing to update the logarithmic regression analysis so 

that we no longer apply weights to the analysis. The 

proposed unweighted regression analysis gives equal weight 

to all facilities in the regression analysis. 

 Step 3. Calculate a simple mean for each of the 

coefficients across the 3 years of data using logarithms 

for the LIP and teaching status adjustment coefficients 

(because they are continuous variables), but not for the 

rural adjustment coefficient (because the rural variable is 

either zero (if not rural) or 1 (if rural)). To compute 

the proposed LIP and teaching status adjustment factors, we 

convert these factors back out of the logarithmic form. 

 The proposed adjustment factors are subject to change 
CMS-1349-P 51 

 

for the final rule if more recent data become available for 

use in these analyses. 

B. Budget Neutrality Methodology for the Proposed Updates 

to the IRF Facility-Level Adjustment Factors

 Consistent with the way that we implemented changes to 

the IRF facility-level adjustment factors (the rural, LIP, 

and teaching status adjustment factors) in the FY 2006 and 

FY 2010 IRF PPS final rules (70 FR 47880, 70 FR 57166, and 

74 FR 39762), we propose to make changes to the rural, LIP, 

and teaching status adjustment factors for FY 2012 in such 

a way that total estimated aggregate payments to IRFs for 

FY 2012 would be the same with or without the proposed 

changes (that is, in a budget neutral manner) by applying 

budget neutrality factors for each of these three changes 

to the standard payment amount. To calculate the proposed 

budget neutrality factors used to update the rural, LIP, 

and teaching status adjustment factors, we propose to use 

the following steps: 

 Step 1. Using the most recent available data 

(currently FY 2010), calculate the estimated total amount 

of IRF PPS payments that would be made in FY 2012 (without 

applying the proposed changes to the rural, LIP, or 

teaching status adjustment factors). 

 Step 2. Calculate the estimated total amount of IRF 

PPS payments that would be made in FY 2012 if the proposed 
CMS-1349-P 52 

 

update to the rural adjustment factor were applied. 

 Step 3. Divide the amount calculated in step 1 by the 

amount calculated in step 2 to determine the proposed 

budget neutrality factor (0.9998) that would maintain the 

same total estimated aggregate payments in FY 2012 with and 

without the proposed change to the rural adjustment factor. 

Step 4. Calculate the estimated total amount of IRF 

PPS payments that would be made in FY 2012 if the proposed 

update to the LIP adjustment factor were applied. 

 Step 5. Divide the amount calculated in step 1 by the 

amount calculated in step 4 to determine the proposed 

budget neutrality factor (1.0327) that would maintain the 

same total estimated aggregate payments in FY 2012 with and 

without the proposed change to the LIP adjustment factor. 

Step 6. Calculate the estimated total amount of IRF 

PPS payments that would be made in FY 2012 if the proposed 

update to the teaching status adjustment factor were 

applied. 

 Step 7. Divide the amount calculated in step 1 by the 

amount calculated in step 6 to determine the proposed 

budget neutrality factor (1.0024) that would maintain the 

same total estimated aggregate payments in FY 2012 with and 

without the proposed change to the teaching status 

adjustment factor. 

 Step 8. Apply the proposed budget neutrality factors 
CMS-1349-P 53 

 

for the updates to the rural, LIP, and teaching status 

adjustment factors to the FY 2011 IRF PPS standard payment 

amount after the application of the proposed budget 

neutrality factors for the wage adjustment and the CMG 

relative weights. 

 The proposed budget neutrality factors for the 

proposed changes to the rural, LIP, and teaching status 

adjustment factors are subject to change for the final rule 

if more recent data become available for use in these 

analyses or if the proposed payment policies associated 

with the proposed budget neutrality factors change. 

 In section V.C. of this proposed rule, we discuss the 

proposed methodology for calculating the standard payment 

conversion factor for FY 2012. 

C. Proposed Policy for Temporary Cap Adjustments to 

Reflect Interns and Residents Displaced Due to Closure of 

IRFs or IRF Residency Training Programs

1. Background 

In the FY 2006 IRF PPS final rule (70 FR 47880 at 

47928 through 47932), we implemented regulations at 

§412.624(e)(4) to establish a facility-level adjustment for 

IRFs that are, or are part of, teaching hospitals. The 

teaching status adjustment accounts for the higher indirect 

operating costs experienced by hospitals that participate 

in graduate medical education (GME) programs. The payment 
CMS-1349-P 54 

 

adjustments are made based on the number of FTE interns and 

residents training in the IRF and the IRF’s average daily 

census. 

We established the IRF teaching status adjustment in a 

manner that limited the incentives for IRFs to add FTE 

interns and residents for the purpose of increasing their 

teaching status adjustment. We imposed a cap on the number 

of FTE interns and residents that may be counted for 

purposes of calculating the teaching status adjustment. 

The cap limits the number of FTE interns and residents that 

teaching IRFs may count for the purpose of calculating the 

IRF PPS teaching status adjustment, not the number of 

interns and residents teaching institutions can hire or 

train. We calculated the number of FTE interns and 

residents that trained in the IRF during a "base year" and 

used that FTE intern and resident number as the cap. An 

IRF's FTE intern and resident cap is ultimately determined 

based on the final settlement of the IRF's most recent cost 

reporting period ending on or before November 15, 2004. A 

complete discussion of how the IRF teaching status 

adjustment was calculated appears in the FY 2006 IRF PPS 

final rule (70 FR 47880, 47928 through 47932). 

2. Proposed Temporary FTE Intern and Resident Cap 

Adjustment 

Sometimes, interns and residents that are training in 
CMS-1349-P 55 

 

an IRF find themselves unable to complete their training in 

the IRF, either because the IRF closes or closes a 

residency training program (we refer to these interns and 

residents as “displaced”). Although we have not heard of 

any instances where IRFs did not accept displaced interns 

and residents because the additional interns and residents 

would put the facility over the facility’s FTE intern and 

resident cap, we believe that it is important to maintain 

consistent policies with other Medicare PPS systems, to the 

extent feasible. The IPPS indirect medical education (IME) 

adjustment and the direct GME policies contain provisions 

that allow for temporary adjustments to the IME/GME caps 

for IPPS hospitals that train interns and residents that 

are displaced because a hospital closes or closes a medical 

residency training program. CMS has recently proposed to 

include a similar temporary cap adjustment policy for the 

inpatient psychiatric facility (IPF) PPS teaching status 

adjustment outlined in the rate year 2012 IPF PPS proposed 

rule (76 FR 4998 at 5018 through 5020). Consistent with 

the IPPS and the IPF PPS, in this proposed rule, we propose 

to permit a temporary increase in the FTE intern and 

resident cap when an IRF increases the number of FTE 

interns and residents it trains in order to accept 

displaced interns and residents because another IRF closes 

or closes a medical residency training program. 
CMS-1349-P 56 

 

When an IRF temporarily takes on interns and residents 

that are displaced because another IRF closes or closes a 

residency training program, we believe that a temporary 

adjustment to the cap would be appropriate. In these 

situations, interns and residents may have partially 

completed a residency training program at the IRF that has 

closed or closed a training program and may be unable to 

complete their training at another IRF that is already 

training interns and residents up to or in excess of its 

FTE intern and resident cap. We believe that it is 

appropriate to allow temporary adjustments to the FTE caps 

for an IRF that provides residency training to medical 

interns and residents who have partially completed a 

residency training program at an IRF that closes or at an 

IRF that discontinues training interns and residents in a 

residency training program(s). For this reason, we are 

proposing to adopt the following temporary intern and 

resident cap adjustment policies, similar to the temporary 

adjustments to the FTE cap used for acute care hospitals 

and the proposed temporary adjustments to the FTE caps for 

IPFs. 

We are proposing that the cap adjustment would be 

temporary because it is intern and resident specific and 

would only apply to the displaced intern(s) or resident(s) 

until those intern(s) or resident(s) have completed their 
CMS-1349-P 57 

 

training in the program in which they were training at the 

time of the IRF closure or the closure of the program. We 

propose that, as under the IPPS policy for displaced 

interns and residents, the IRF PPS temporary cap adjustment 

would apply only to interns and residents that were still 

training at the IRF at the time the IRF closed or at the 

time the IRF ceased training interns and residents in the 

residency training program(s). Interns and residents who 

leave the IRF, for whatever reason, before the closure of 

the IRF or the closure of the residency training program 

would not be considered displaced interns and residents for 

purposes of the IRF temporary cap adjustment policy. We 

are proposing to adopt the same definition of “closure of a 

hospital residency training program” as it is currently 

defined at §413.79(h)(1)(ii); that is, the hospital ceases 

to offer training for residents in a particular approved 

medical residency training program. Similarly, as under 

the IPPS policy, we are proposing that medical students who 

are accepted into a program at an IRF but the IRF or 

residency training program closes before the individual 

begins training at that IRF are also not considered 

displaced interns and residents for purposes of the IRF 

temporary cap adjustments. We note that although we are 

proposing to adopt a policy under the IRF PPS that is 

consistent with the policy applicable under the IPPS, the 
CMS-1349-P 58 

 

actual caps under the two payment systems are separate and 

distinct. This means, for example, if a program closes at 

an IPPS hospital that has an IRF unit, but the interns and 

residents from that closed program were not rotating into 

the IRF unit when the program closed, then there would be 

no temporary FTE cap adjustment under the IRF PPS, since 

the interns and residents were not displaced from the IRF. 

However, if an IPPS hospital that has an IRF unit closes a 

training program and interns and residents from that 

program were rotating into the IRF unit when the program 

closed, an IRF hospital or IRF unit may temporarily adjust 

their FTE intern and resident cap if they train the 

displaced interns and residents, but only for the portion 

of the training that has to be completed in the IRF setting 

and only if all of the requirements specified in section 

IV.C. of this proposed rule are met. 

3. Proposed Temporary Adjustment to the FTE Cap to Reflect 

Interns and Residents Displaced Due to an IRF Closure 

We are proposing to allow an IRF to receive a 

temporary adjustment to the FTE cap to reflect interns and 

residents added because of another IRF’s closure. The 

temporary cap adjustment is intended to account for medical 

interns and residents who have partially completed a 

medical residency training program at the IRF that has 

closed and may be unable to complete their training at 
CMS-1349-P 59 

 

another IRF because that IRF is already training interns 

and residents up to or in excess of its cap. We are 

proposing this change because IRFs may be reluctant to 

accept additional interns and residents from a closed IRF 

without a temporary adjustment to their caps. For purposes 

of this policy, we are proposing to adopt the IPPS 

definition of “closure of a hospital” in §413.79(h)(1)(i) 

to mean the IRF terminates its Medicare provider agreement 

as specified in §489.52. Therefore, we are proposing to 

allow a temporary adjustment to an IRF’s FTE cap to reflect 

interns and residents added because of an IRF’s closure. 

The proposed policy would be effective for cost reporting 

periods beginning on or after October 1, 2011, when an IRF 

trains an intern or resident from an IRF that closed on or 

after October 1, 2011. We would allow an adjustment to an 

IRF’s FTE cap if the IRF meets the following criteria: 

(a) The IRF is training displaced interns and 

residents from an IRF that closed on or after October 1, 

2011. 

(b) The IRF that is training the displaced interns and 

residents from the closed IRF submits a request for a 

temporary adjustment to its FTE cap to its Medicare 

contractor no later than 60 days after the hospital first 

begins training the displaced interns and residents, and 

documents that the IRF is eligible for this temporary 
CMS-1349-P 60 

 

adjustment to its FTE cap by identifying the interns and 

residents who have come from the closed IRF and have caused 

the IRF to exceed its cap, (or the IRF may already be over 

its cap), and specifies the length of time that the 

adjustment is needed. 

After the displaced interns and residents leave the 

IRF’s training program or complete their residency program, 

the IRF’s cap would revert to its original level. This 

means that the temporary adjustment to the FTE cap would be 

available to the IRF only for the period of time necessary 

for the displaced interns and residents to complete their 

training. Further, as under the IPPS policy, we are also 

proposing that the total amount of temporary cap adjustment 

that can be allotted to all receiving IRFs cannot exceed 

the cap amount of the IRF that closed. 

We also note that section 5506 of the Affordable Care 

Act, “Preservation of Resident Cap Positions from Closed 

Hospitals,” does not apply to IRFs that closed. Section 

5506 of the Affordable Care Act only amends sections 

1886(d) and (h) of the Act for direct GME and IPPS IME 

payments. Therefore, the IME FTE cap redistributions 

under section 5506 of the Affordable Care Act only apply to 

“subsection (d)” IPPS hospitals. Section 5506 of the 

Affordable Care Act has no applicability to the teaching 

status adjustments under the IRF PPS (or the IPF PPS, for 
CMS-1349-P 61 

 

that matter). 

4. Proposed Temporary Adjustment to FTE Cap to Reflect 

Interns and Residents Displaced Due to a Residency Program 

Closure 

 We are proposing that if an IRF ceases training 

interns and residents in a residency training program(s) 

and agrees to temporarily reduce its FTE cap, another IRF 

may receive a temporary adjustment to its FTE cap to 

reflect the addition of the displaced interns and 

residents. For purposes of this policy on closed residency 

programs, we are proposing to adopt the IPPS definition of 

“closure of a hospital residency training program” as 

specified in §413.79(h)(1)(ii) which means that the 

hospital ceases to offer training for interns and residents 

in a particular approved medical residency training 

program. The methodology for adjusting the caps for the 

“receiving IRF” and the “IRF that closed its program” is 

described below. 

a. Receiving IRF 

 We are proposing that an IRF may receive a temporary 

adjustment to its FTE cap to reflect interns and residents 

added because of the closure of another IRF’s residency 

training program for cost reporting periods beginning on or 

after October 1, 2011 if – 
CMS-1349-P 62 

 

● The IRF is training additional interns and 

residents from the residency training program of an IRF 

that closed its program on or after October 1, 2011; and 

● No later than 60 days after the IRF begins to train 

the interns and residents, the IRF submits to its Medicare 

contractor a request for a temporary adjustment to its FTE 

cap, documents that the IRF is eligible for this temporary 

adjustment by identifying the interns and residents who 

have come from another IRF’s closed program and have caused 

the IRF to exceed its cap (or the IRF may already be in 

excess of its cap), specifies the length of time the 

adjustment is needed, and, as explained in more detail 

below, submits to its Medicare contractor a copy of the FTE 

cap reduction statement by the IRF closing the residency 

training program. 

 In general, the proposed temporary adjustment criteria 

established for closed medical residency training programs 

at IRFs is similar to the criteria established for closed 

IRFs. We are proposing that more than 1 IRF may be 

eligible to apply for the temporary adjustment because 

interns and residents from one closed program may rotate to 

different IRFs, or they may complete their training at more 

than one IRF. Also, only to the extent to which an IRF 

would exceed its FTE cap by training displaced interns and 

residents would it be eligible for the temporary 
CMS-1349-P 63 

 

adjustment. Thus, for example, if the IRF has room below 

its cap to take 1 additional displaced FTE intern or 

resident but taking a second displaced FTE intern or 

resident would cause the IRF to exceed its FTE intern and 

resident cap, then the IRF would potentially qualify for a 

temporary cap adjustment for 1 FTE intern or resident, 

not 2. 

b. IRF That Closed Its Program(s) 

We are proposing that an IRF that agrees to train 

interns and residents who have been displaced by the 

closure of another IRF’s residency training program may 

receive a temporary FTE cap adjustment only if the IRF that 

closed its program meets the following criteria – 

● Temporarily reduces its FTE cap by the number of 

FTE interns and residents in each program year training and 

in the program at the time of the program’s closure. The 

yearly reduction would be determined by deducting the 

number of those interns and residents who would have been 

training in the program up to the IRF’s cap during the year 

of the closure, had the program not closed; and 

● No later than 60 days after the interns and 

residents who were in the closed program begin training at 

another IRF, submits to its Medicare contractor a statement 

signed and dated by its representative that specifies that 

it agrees to the temporary reduction in its FTE cap to 
CMS-1349-P 64 

 

allow the IRF training the displaced interns and residents 

to obtain a temporary adjustment to its cap; identifies the 

interns and residents who were training at the time of the 

program’s closure; identifies the IRFs to which the interns 

and residents are transferring once the program closes; and 

specifies the reduction for the applicable program years. 

In addition, we propose under this closed program 

policy that in order for the receiving IRF(s) to qualify 

for a temporary adjustment to their FTE cap, the IRFs that 

are closing their programs would need to reduce their FTE 

cap for the expected duration of time the displaced interns 

and residents would need to finish their training. We are 

proposing this because the IRF that closes the program 

still retains the FTE slots in its cap, even if the IRF 

chooses not to fill the slots with interns and residents. 

We believe that it is inappropriate to allow an increase to 

the receiving IRF’s cap without an attendant decrease to 

the cap of the IRF with the closed program, because the IRF 

that ceased training the interns and residents could fill 

these slots with interns and residents from other programs 

even if the increase and related decrease is only 

temporary. 

We are proposing that the cap reduction for the IRF 

with the closed program would be based on the number of FTE 

interns and residents in each program year that were in the 
CMS-1349-P 65 

 

program at the IRF at the time of the program’s closure, 

and who begin training at another IRF. 

In summary, we are proposing new IRF policies related 

to temporary adjustments to FTE caps to reflect interns and 

residents added due to closure of an IRF or closure of a 

residency training program. Finally, we are proposing that 

the IRFs that meet the proposed criteria would be eligible 

to receive temporary adjustments to their FTE caps for cost 

reporting periods beginning on or after October 1, 2011.
CMS-1349-P 66 

 

V. Proposed FY 2012 IRF PPS Federal Prospective Payment 

Rates 

A. Proposed Market Basket Increase Factor, Productivity 

Adjustment, and Labor-Related Share for FY 2012

 Section 1886(j)(3)(C) of the Act requires the 

Secretary to establish an increase factor that reflects 

changes over time in the prices of an appropriate mix of 

goods and services included in the covered IRF services, 

which is referred to as a market basket index. According 

to section 1886(j)(3)(A)(i) of the Act, the increase factor 

shall be used to update the IRF Federal prospective payment 

rates for each FY. Sections 1886(j)(3)(C)(ii)(II) and 

1886(j)(3)(D)(ii) of the Act require the application of a 

0.1 percentage point reduction to the market basket 

increase factor for FYs 2012 and 2013. In addition, 

section 1886(j)(3)(C)(ii)(I) of the Act requires the 

application of a productivity adjustment, as described 

below. Thus, in this proposed rule, we are proposing to 

update the IRF PPS payments for FY 2012 by a market basket 

increase factor based upon the most current data available, 

with a productivity adjustment as required by 

section 1886(j)(3)(C)(ii)(I) of the Act as described below 

and a 0.1 percentage point reduction as required by 

sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the 

Act. Further, we are proposing to rebase the RPL market 
CMS-1349-P 67 

 

basket from a 2002-based market basket to a 2008-based 

market basket. We typically rebase the RPL market basket 

every 5 to 7 years to ensure that it continues to reflect 

the most accurate account of the cost of relevant goods and 

services. 

 Thus, in this proposed rule, we propose to start with 

a rebased RPL market basket (updated from a 2002 base year 

to a 2008 base year) and then apply a productivity 

adjustment as required by section 1886(j)(3)(C)(ii)(I) of 

the Act and a 0.1 percentage point reduction as required by 

sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the 

Act. In section V.A.1 of this proposed rule, we describe 

the proposed methodology for rebasing the RPL market basket 

from a 2002 base year to a 2008 base year, and then in 

section V.A.2 of this proposed rule, we describe the 

proposed methodology for calculating the productivity 

adjustment as required by section 1886(j)(3)(C)(ii)(I) of 

the Act. Finally, in section V.A.3 of this proposed rule, 

we describe the proposed calculation of the market basket 

increase factor to be used to adjust IRF PPS payments for 

FY 2012. 

1. Proposed Rebasing of the RPL Market Basket for FY 2012 

a. Background

 The input price index (that is, the market basket) 

that was used to develop the IRF PPS was the Excluded 
CMS-1349-P 68 

 

Hospital with Capital market basket. This market basket 

was based on 1997 Medicare cost report data and included 

data for Medicare participating IRFs, IPFs, LTCHs, cancer 

hospitals, and children’s hospitals. Although “market 

basket” technically describes the mix of goods and services 

used in providing hospital care, this term is also commonly 

used to denote the input price index (that is, cost 

category weights and price proxies combined) derived from 

that market basket. Accordingly, the term “market basket”, 

as used in this document, refers to an input price index. 

 Beginning with the FY 2006 IRF PPS final rule 

(70 FR 47908), IRF PPS payments were updated using a 

FY 2002-based RPL market basket reflecting the operating 

and capital cost structures for freestanding IRFs, 

freestanding IPFs, and LTCHs. 

 We excluded cancer and children’s hospitals from the 

RPL market basket because their payments are based entirely 

on reasonable costs subject to rate-of-increase limits 

established under the authority of section 1886(b) of the 

Act, which is implemented at §413.40. Cancer and 

children’s hospitals are not reimbursed through a PPS. 

Also, the FY 2002 cost structures for cancer and children’s 

hospitals are noticeably different than the cost structures 

of freestanding IRFs, freestanding IPFs, and LTCHs. See 

the FY 2006 IRF PPS final rule (70 FR 47908) for a complete 
CMS-1349-P 69 

 

discussion of the FY 2002-based RPL market basket. 

 In the FY 2010 IRF proposed rule (74 FR 21062), we 

expressed our interest in exploring the possibility of 

creating a stand-alone IRF market basket that reflects the 

cost structures of only IRF providers. We noted that, of 

the available options, one is to combine the Medicare cost 

report data from freestanding IRF providers (presently 

incorporated into the FY 2002-based RPL market basket) with 

data from hospital-based IRF providers. We indicated that 

an examination of the Medicare cost report data comparing 

freestanding and hospital-based IRFs revealed considerable 

differences between the two with respect to cost levels and 

cost structures. At that time, we were unable to fully 

understand the differences between these two types of IRF 

providers. As a result, we believed that further research 

was required and we solicited public comment for additional 

information that might help us to better understand the 

reasons for the variations in costs and cost structures, as 

indicated by the cost report data, between freestanding and 

hospital-based IRFs (74 FR 21062). 

 We summarized the public comments we received and our 

responses in the FY 2010 IRF PPS final rule (74 FR 39762, 

39776 through 39777). Despite receiving comments from the 

public on this issue, we remain unable to sufficiently 

understand the observed differences in costs and cost 
CMS-1349-P 70 

 

structures between hospital-based and freestanding IRFs, 

and therefore we do not believe it is appropriate at this 

time to incorporate data from hospital-based IRFs with 

those of freestanding IRFs to create a stand-alone IRF 

market basket. 

 Although we do not believe it would be appropriate to 

propose a stand-alone IRF market basket, we are currently 

exploring the viability of creating two separate market 

baskets from the current RPL, one of which would include 

freestanding IRFs and freestanding IPFs and would be used 

to update payments under both the IPF and IRF payment 

systems. The other would be a stand-alone LTCH market 

basket. Depending on the outcome of our research, we 

anticipate the possibility of proposing a rehabilitation 

and psychiatric (RP) market basket in the next update 

cycle. We welcome public comment on the possibility of 

using this type of market basket to update IRF payments in 

the future. 

 For this update cycle, we are proposing to rebase and 

revise the FY 2002-based RPL market basket by creating a 

proposed FY 2008-based RPL market basket. In the following 

discussion, we provide an overview of the market basket and 

describe the methodologies we propose to use for purposes 

of determining the operating and capital portions of the 

proposed FY 2008-based RPL market basket. 
CMS-1349-P 71 

 

b. Overview of the Proposed FY 2008-Based RPL Market 

Basket

 The proposed FY 2008-based RPL market basket is a 

fixed-weight, Laspeyres-type price index. A Laspeyres 

price index measures the change in price, over time, of the 

same mix of goods and services purchased in the base 

period. Any changes in the quantity or mix of goods and 

services (that is, intensity) purchased over time relative 

to a base period are not measured. 

 The index itself is constructed in three steps. 

First, a base period is selected (in this proposed rule, 

the base period is FY 2008) and total base period 

expenditures are estimated for a set of mutually exclusive 

and exhaustive spending categories with the proportion of 

total costs that each category represents being calculated. 

These proportions are called cost or expenditure weights. 

Second, each expenditure category is matched to an 

appropriate price or wage variable, referred to as a price 

proxy. In nearly every instance, these price proxies are 

derived from publicly available statistical series that are 

published on a consistent schedule (preferably at least on 

a quarterly basis). Finally, the expenditure weight for 

each cost category is multiplied by the level of its 

respective price proxy. The sum of these products (that 

is, the expenditure weights multiplied by their price 
CMS-1349-P 72 

 

levels) for all cost categories yields the composite index 

level of the market basket in a given period. Repeating 

this step for other periods produces a series of market 

basket levels over time. Dividing an index level for a 

given period by an index level for an earlier period 

produces a rate of growth in the input price index over 

that timeframe. 

 As noted above, the market basket is described as a 

fixed-weight index because it represents the change in 

price over time of a constant mix (quantity and intensity) 

of goods and services needed to furnish hospital services. 

The effects on total expenditures resulting from changes in 

the mix of goods and services purchased subsequent to the 

base period are not measured. For example, a hospital 

hiring more nurses to accommodate the needs of patients 

would increase the volume of goods and services purchased 

by the hospital, but would not be factored into the price 

change measured by a fixed-weight hospital market basket. 

Only when the index is rebased would changes in the 

quantity and intensity be captured, with those changes 

being reflected in the cost weights. Therefore, we rebase 

the market basket periodically so the cost weights reflect 

recent changes in the mix of goods and services that 

hospitals purchase (hospital inputs) to furnish inpatient 

care between base periods. 
CMS-1349-P 73 

 

c. Proposed Rebasing and Revising of the RPL Market Basket

 We are inviting public comments on our proposed 

methodological changes to the RPL market basket. The terms 

“rebasing” and “revising,” while often used 

interchangeably, actually denote different activities. 

“Rebasing” means moving the base year for the structure of 

costs of an input price index (for example, in this 

proposed rule, we are proposing to shift the base year cost 

structure for the RPL market basket from FY 2002 to 

FY 2008). “Revising” means changing data sources, price 

proxies, or methods, used to derive the input price index. 

For FY 2012, we are proposing to rebase and revise the 

market basket used to update the IRF PPS. 

(1) Development of Cost Categories and Weights 

(a) Medicare Cost Reports

 The proposed FY 2008-based RPL market basket consists 

of several major cost categories derived from the FY 2008 

Medicare cost reports for freestanding IRFs, freestanding 

IPFs, and LTCHs including wages and salaries, 

pharmaceuticals, professional liability insurance (PLI), 

capital, and a residual. This residual reflects all 

remaining costs that are not captured in the four cost 

categories listed above. The FY 2008 cost reports include 

providers whose cost report begin date is on or between 

October 1, 2007, and September 30, 2008. We choose to use 
CMS-1349-P 74 

 

FY 2008 as the base year because we believe that the 

Medicare cost reports for this year represent the most 

recent, complete set of Medicare cost report data available 

for IRFs, IPFs, and LTCHs. However, there is an issue with 

obtaining data specifically for benefits and contract labor 

from this set of FY 2008 Medicare cost reports since IRFs, 

IPFs, and LTCHs were not required to complete the Medicare 

cost report worksheet from which these data were collected 

(Worksheet S-3, part II). As a result, only a small number 

of providers (less than 30 percent) reported data for these 

categories, and we do not expect these data to improve over 

time. Furthermore, since IRFs, IPFs, and LTCHs were not 

required to submit data for Worksheet S-3, part II in 

previous cost reporting years, we have always had this 

issue of incomplete Medicare cost report data for benefits 

and contract labor (including when we finalized the FY 

2002-based RPL market basket). Due to the incomplete 

benefits and contract labor data for IRFs, IPFs, and LTCHs, 

we propose to develop these cost weights using FY 2008 

Medicare cost report data for IPPS hospitals (similar to 

the method that was used for the FY 2002-based RPL market 

basket). Additional detail is provided later in this 

section. 

 Since our goal is to measure cost shares that are 

reflective of case mix and practice patterns associated 
CMS-1349-P 75 

 

with providing services to Medicare beneficiaries, we are 

proposing to limit our selection of Medicare cost reports 

to those from hospitals that have a Medicare average length 

of stay (LOS) that is within a comparable range of their 

total facility average LOS. We believe this provides a 

more accurate reflection of the structure of costs for 

Medicare covered days. We propose to use the cost reports 

of IRFs and LTCHs with Medicare average LOS within 

15 percent (that is, 15 percent higher or lower) of the 

total facility average LOS for the hospital. This is the 

same edit applied to derive the FY 2002-based RPL market 

basket and generally includes those LTCHs and IRFs with 

Medicare LOS within approximately 5 days of the facility 

average LOS of the hospital. 

 We are proposing to use a less stringent measure of 

Medicare LOS for IPFs. For this provider-type, and in 

order to produce a robust sample size, we propose to use 

those facilities’ Medicare cost reports whose average LOS 

is within 30 or 50 percent (depending on the total facility 

average LOS) of the total facility average LOS. This is 

the same edit applied to derive the FY 2002-based RPL 

market basket. 

 We applied these LOS edits to first obtain a set of 

cost reports for facilities that have a Medicare LOS within 

a comparable range of their total facility LOS. Using this 
CMS-1349-P 76 

 

set of Medicare cost reports, we then calculated cost 

weights for four cost categories and a residual as 

represented by all other costs directly from the FY 2008 

Medicare cost reports for freestanding IRFs, freestanding 

IPFs, and LTCHs (see Table 3 for these four cost categories 

and their associated weights). These Medicare cost report 

cost weights were then supplemented with information 

obtained from other data sources (explained in more detail 

below) to derive the proposed FY 2008-based RPL market 

basket cost weights. 

TABLE 3: Major Cost Categories and Their Respective Cost 

Weights as Calculated Directly from FY 2008 Medicare Cost 

Reports 

Major Cost Categories 

Proposed FY 2008-Based RPL 

Market Basket 

(Percent) 

Wages and salaries 47.371 

Professional Liability Insurance (Malpractice) 0.764 

Pharmaceuticals 6.514 

Capital 8.392 

All other 36.959 

(b) Other Data Sources

 In addition to the IRF, IPF and LTCH Medicare cost 

reports for freestanding IRFs and freestanding IPFs, and 

LTCHs, the other data sources we used to develop the 

proposed FY 2008-based RPL market basket cost weights were 

the FY 2008 IPPS Medicare cost reports and the Benchmark 

Input-Output (I-O) Tables created by the Bureau of Economic 

Analysis (BEA), U.S. Department of Commerce. The FY 2008 
CMS-1349-P 77 

 

Medicare cost reports include providers whose cost report 

begin date is on or between October 1, 2007 and 

September 30, 2008. 

 As noted above, the proposed FY 2008-based RPL cost 

weights for benefits and contract labor were derived using 

FY 2008-based IPPS Medicare cost reports. We used these 

Medicare cost reports to calculate cost weights for Wages 

and Salaries, Benefits, and Contract Labor for IPPS 

hospitals for FY 2008. For the proposed Benefits cost 

weight for the FY 2008-based RPL market basket, the ratio 

of the FY 2008 IPPS Benefits cost weight to the FY 2008 

IPPS Wages and Salaries cost weight was applied to the RPL 

Wages and Salaries cost weight. Similarly, the ratio of 

the FY 2008 IPPS Contract Labor cost weight to the FY 2008 

IPPS Wages and Salaries cost weight was applied to the RPL 

Wages and Salaries cost weight to derive a Contract Labor 

cost weight for the proposed FY 2008-based RPL market 

basket. 

 The All Other cost category is divided into other 

hospital expenditure category shares using the 2002 BEA 

Benchmark I-O data following the removal of the portions of 

the All Other cost category provided in Table 3 that are 

attributable to Benefits and Contract Labor. The BEA 

Benchmark I-O data are scheduled for publication every 

5 years. The most recent data available are for 2002. BEA 
CMS-1349-P 78 

 

also produces Annual I-O estimates; however, the 2002 

Benchmark I-O data represent a much more comprehensive and 

complete set of data that are derived from the 2002 

Economic Census. The Annual I-O is simply an update of the 

Benchmark I-O tables. For the FY 2002-based RPL market 

basket, we used the 1997 Benchmark I-O data. We are 

proposing to use the 2002 Benchmark I-O data in the 

FY 2008-based RPL market basket. Instead of using the less 

detailed Annual I-O data, we inflated the 2002 Benchmark IO data forward to 2008. The methodology we used to inflate 

the data forward involves applying the annual price changes 

from the respective price proxies to the appropriate cost 

categories. We repeat this practice for each year. 

 The “All Other” cost category expenditure shares are 

determined as being equal to each category’s proportion to 

total “all other” based on the inflated 2002 Benchmark I-O 

data. For instance, if the cost for telephone services 

represented 10 percent of the sum of the “all other” 

Benchmark I-O hospital expenditures, then telephone 

services would represent 10 percent of the RPL market 

basket's All Other cost category. 

(2) Final Cost Category Computation 

As stated previously, for this rebasing we are 

proposing to use the Medicare cost reports for IRFs, IPFs, 

and LTCHs to derive four major cost categories. The 
CMS-1349-P 79 

 

proposed FY 2008-based RPL market basket includes two 

additional cost categories that were not broken out 

separately in the FY 2002-based RPL market basket: 

“Administrative and Business Support Services” and 

“Financial Services”. The inclusion of these two 

additional cost categories, which are derived using the 

Benchmark I-O data, is consistent with the addition of 

these two cost categories to the FY 2006-based IPPS market 

basket (74 FR 43845). We are proposing to break out both 

categories so we can better match their respective expenses 

with more appropriate price proxies. A thorough discussion 

of our rationale for each of these cost categories is 

provided in the section V.A.1.c.(3) of this proposed rule. 

Also, the proposed FY 2008-based RPL market basket excludes 

1 cost category: Photo Supplies. The 2002 Benchmark I-O 

weight for this category is considerably smaller than the 

1997 Benchmark I-O weight, presently accounting for less 

than one-tenth of one percentage point of the RPL market 

basket. Therefore, we are proposing to include the photo 

supplies costs in the Chemical cost category weight with 

other similar chemical products.

 We are not proposing to change our definition of the 

labor-related share. However, we are proposing to rename 

our aggregate cost categories from “labor-intensive” and 

“nonlabor-intensive” services to “labor-related” and 
CMS-1349-P 80 

 

“nonlabor-related” services. This is consistent with the 

FY 2006-based IPPS market basket (74 FR 43845). As 

discussed in more detail below and similar to the FY 

2002-based RPL market basket, we classify a cost category 

as labor-related and include it in the labor-related share 

if the cost category is defined as being labor-intensive 

and its cost varies with the local labor market. In 

previous regulations, we grouped cost categories that met 

both of these criteria into labor-intensive services. We 

believe the proposed new labels more accurately reflect the 

concepts that they are intended to convey. We are not 

proposing to change our definition of the labor-related 

share because we continue to classify a cost category as 

labor-related if the costs are labor-intensive and vary 

with the local labor market. 

(3) Selection of Price Proxies 

 After computing the FY 2008 cost weights for the 

proposed rebased RPL market basket, it was necessary to 

select appropriate wage and price proxies to reflect the 

rate of price change for each expenditure category. With 

the exception of the proxy for PLI, all of the proxies for 

the operating portion of the proposed FY 2008-based RPL 

market basket are based on Bureau of Labor Statistics (BLS) 

data and are grouped into one of the following BLS 

categories: 
CMS-1349-P 81 

 

(a) Producer Price Indexes--Producer Price Indexes (PPIs) 

measure price changes for goods sold in markets other than 

the retail market. PPIs are preferable price proxies for 

goods and services that hospitals purchase as inputs 

because these PPIs better reflect the actual price changes 

faced by hospitals. For example, we use a special PPI for 

prescription drugs, rather than the Consumer Price Index 

(CPI) for prescription drugs, because hospitals generally 

purchase drugs directly from a wholesaler. The PPIs that 

we use measure price changes at the final stage of 

production. 

(b) Consumer Price Indexes--CPIs measure change in the 

prices of final goods and services bought by the typical 

consumer. Because they may not represent the price faced 

by a producer, we used CPIs only if an appropriate PPI was 

not available, or if the expenditures were more similar to 

those faced by retail consumers in general rather than by 

purchasers of goods at the wholesale level. For example, 

the CPI for food purchased away from home is used as a 

proxy for contracted food services. 

(c) Employment Cost Indexes--Employment Cost Indexes 

(ECIs) measure the rate of change in employee wage rates 

and employer costs for employee benefits per hour worked. 

These indexes are fixed-weight indexes and strictly measure 

the change in wage rates and employee benefits per hour. 
CMS-1349-P 82 

 

Appropriately, these indexes are not affected by shifts in 

employment mix. 

 We evaluated the price proxies using the criteria of 

reliability, timeliness, availability, and relevance. 

Reliability indicates that the index is based on valid 

statistical methods and has low sampling variability. 

Timeliness implies that the proxy is published regularly, 

preferably at least once a quarter. Availability means 

that the proxy is publicly available. Finally, relevance 

means that the proxy is applicable and representative of 

the cost category weight to which it is applied. The 

proposed CPIs, PPIs, and ECIs selected meet these criteria. 

 Table 4 sets forth the proposed FY 2008-based RPL 

market basket including cost categories, and their 

respective weights and price proxies. For comparison 

purposes, the corresponding FY 2002-based RPL market basket 

cost weights are listed, as well. For example, Wages and 

Salaries are 49.447 percent of total costs in the proposed 

FY 2008-based RPL market basket compared to 52.895 percent 

for the FY 2002-based RPL market basket. Employee Benefits 

are 12.831 percent in the proposed FY 2008-based RPL market 

basket compared to 12.982 percent for the FY 2002-based RPL 

market basket. As a result, compensation costs (Wages and 

Salaries plus Employee Benefits) for the proposed FY 2008-

based RPL market basket are 62.278 percent of total costs 
CMS-1349-P 83 

 

compared to 65.877 percent for the FY 2002-based RPL market 

basket. 

 Following Table 4 is a summary outlining the choice of 

the proxies we propose to use for the operating portion of 

the FY 2008-based RPL market basket. The price proxies 

proposed for the capital portion are described in more 

detail in the capital methodology section (see section 

V.A.1.c.(4) of this proposed rule). 

 We note that the proxies for the operating portion of 

the FY 2008-based RPL market basket are the same as those 

used for the FY 2006-based IPPS operating market basket. 

Because these proxies meet our criteria of reliability, 

timeliness, availability, and relevance, we believe they 

are the best measures of price changes for the cost 

categories. For further discussion on the FY 2006-based 

IPPS market basket, see the IPPS final rule published in 

the August 27, 2009 Federal Register (74 FR 43843). 
CMS-1349-P 84 

 

TABLE 4: Proposed FY 2008-Based RPL Market Basket Cost 

Categories, Weights, and Price Proxies with FY 2002-Based 

RPL Market Basket Cost Weights Included for Comparison 

Cost Categories 

Proposed FY 

2008-Based 

RPL Market 

Basket Cost 

Weights 

FY 

2002-Based 

RPL Market 

Basket Cost 

Weights 

Proposed FY 2008-Based RPL Market Basket Price 

Proxies 

1. Compensation 62.278 65.877 -- 

A. Wages and Salaries1 49.447 52.895 ECI for Wages and Salaries, Civilian Hospital Workers 

B. Employee Benefits1 12.831 12.982 ECI for Benefits, Civilian Hospital Workers 

2. Utilities 1.578 0.656 -- 

A. Electricity 1.125 0.351 PPI for Commercial Electric Power 

B. Fuel, Oil, and Gasoline 0.371 0.108 PPI for Petroleum Refineries 

C. Water and Sewage 0.082 0.197 CPI-U for Water and Sewerage Maintenance 

3. Professional Liability 

Insurance 

0.764 1.161 CMS Hospital Professional Liability Insurance 

Premium Index 

4. All Other Products and 

Services 

26.988 22.158 -- 

A. All Other Products 15.574 13.325 -- 

(1.) Pharmaceuticals 6.514 5.103 PPI for Pharmaceutical Preparations for Human 

Use(Prescriptions) 

(2.) Food: Direct Purchases 2.959 0.873 PPI for Processed Foods and Feeds 

(3.) Food: Contract Services 0.392 0.620 CPI-U for Food Away From Home 

(4.) Chemicals2 1.100 1.100 Blend of Chemical PPIs 

(5.) Medical Instruments 1.795 1.014 PPI for Medical, Surgical, and Personal Aid Devices 

(6.) Photographic Supplies -- 0.096 -- 

(7.) Rubber and Plastics 1.131 1.052 PPI for Rubber and Plastic Products 

(8.) Paper and Printing Products 1.021 1.000 PPI for Converted Paper and Paperboard Products 

(9.) Apparel 0.210 0.207 PPI for Apparel 

(10.) Machinery and Equipment 0.106 0.297 PPI for Machinery and Equipment 

(11.) Miscellaneous Products 0.346 1.963 PPI for Finished Goods less Food and Energy 

B. All Other Services 11.414 8.833 -- 

(1.) Labor-related Services 4.681 5.111 -- 

(a.) Professional Fees: Laborrelated3

2.114 2.892 ECI for Compensation for Professional and Related 

Occupations 

(b.) Administrative and Business 

Support Services4

0.422 n/a ECI for Compensation for Office and Administrative 

Services 

(c.) All Other: Labor-Related 

Services5

2.145 2.219 ECI for Compensation for Private Service Occupations 

(2.) Nonlabor-Related Services 6.733 3.722 -- 

(a.) Professional Fees: 

Nonlabor-Related3

4.211 n/a ECI for Compensation for Professional and Related 

Occupations 

(b.) Financial Services 5 0.853 n/a ECI for Compensation for Financial Activities 

(c.) Telephone Services 0.416 0.240 CPI-U for Telephone Services 

(d.) Postage 0.630 0.682 CPI-U for Postage 

(e.) All Other: Nonlabor-Related 

Services6

0.623 2.800 CPI-U for All Items less Food and Energy 

5. Capital-Related Costs 8.392 10.149 -- 

A. Depreciation 5.519 6.187 -- 

(1.) Fixed Assets 3.286 4.250 BEA chained price index for nonresidential construction 

for hospitals and special care facilities—vintage 

weighted (26 years) 
CMS-1349-P 85 

 

Cost Categories 

Proposed FY 

2008-Based 

RPL Market 

Basket Cost 

Weights 

FY 

2002-Based 

RPL Market 

Basket Cost 

Weights 

Proposed FY 2008-Based RPL Market Basket Price 

Proxies 

(2.) Movable Equipment 2.233 1.937 PPI for Machinery and Equipment—vintage weighted 

(11 years). 

B. Interest Costs 1.954 2.775 -- 

(1.) Government/Nonprofit 0.653 2.081 Average yield on domestic municipal bonds (Bond 

Buyer 20 bonds)—vintage-weighted (26 years) 

(2.) For Profit 1.301 0.694 Average yield on Moody’s Aaa bonds—vintageweighted (26 years) 

C. Other Capital-Related Costs 0.919 1.187 CPI–U for Residential Rent 

Total 100.000 100.000 -- 

Note: Detail may not add to total due to rounding. 

1

Contract Labor is distributed to Wages and Salaries and Employee Benefits based on the share of total 

compensation that each category represents. 

2

To proxy the Chemicals cost category, we used a blended PPI composed of the PPI for Industrial Gases, 

the PPI for Other Basic Inorganic Chemical Manufacturing, the PPI for Other Basic Organic Chemical 

Manufacturing, and the PPI for Soap and Cleaning Compound Manufacturing. For more detail about this 

proxy, see section V.A.1.c.(3).(c).(x) of this proposed rule. 

3

The Professional Fees: Labor-related and Professional Fees: Nonlabor-related cost categories were 

included in one cost category called Professional Fees in the FY 2002-based RPL market basket. For more 

detail about how these new categories were derived, we refer readers to sections V.A.1.c.(3).(c).(xviii) and 

V.A.1.c.(3).(c).(xxi) of this proposed rule. 

4

The Administrative and Business Support Services cost category was contained within All Other: 

Labor-intensive Services cost category in the FY 2002-based RPL market basket. The All Other: 

Labor-intensive Services cost category is renamed the All Other: Labor-related Services cost category for 

the FY 2008-based RPL market basket. 

5

The Financial Services cost category was contained within the All Other: Non-labor Intensive Services 

cost category in the FY 2002-based RPL market basket. The All Other: Non-labor Intensive Services cost 

category is renamed the All Other: Nonlabor-related Services cost category for the FY 2008-based RPL 

market basket. 

(i) Wages and Salaries

 We are proposing to use the ECI for Wages and Salaries 

for Hospital Workers (All Civilian) (BLS series code 

CIU1026220000000I) to measure the price growth of this cost 

category. This same proxy was used in the FY 2002-based 

RPL market basket. 

(ii) Employee Benefits

 We are proposing to use the ECI for Employee Benefits 

for Hospital Workers (All Civilian) to measure the price 

growth of this cost category. This same proxy was used in 
CMS-1349-P 86 

 

the FY 2002-based RPL market basket. 

(iii) Electricity

 We are proposing to use the PPI for Commercial 

Electric Power (BLS series code WPU0542). This same proxy 

was used in the FY 2002-based RPL market basket. 

(iv) Fuel, Oil, and Gasoline

 For the FY 2002-based RPL market basket, this category 

only included expenses classified under North American 

Industry Classification System (NAICS) 21 (Mining). We 

proxied this category using the PPI for Commercial Natural 

Gas (BLS series code WPU0552). For the proposed FY 2008-

based market basket, we are proposing to add costs to this 

category that had previously been grouped in other 

categories. The added costs include petroleum-related 

expenses under NAICS 324110 (previously captured in the 

miscellaneous category), as well as petrochemical 

manufacturing classified under NAICS 325110 (previously 

captured in the chemicals category). These added costs 

represent 80 percent of the hospital industry's fuel, oil, 

and gasoline expenses (or 80 percent of this category). 

Because the majority of the industry's fuel, oil, and 

gasoline expenses originate from petroleum refineries 

(NAICS 324110), we are proposing to use the PPI for 

Petroleum Refineries (BLS series code PCU324110324110) as 

the proxy for this cost category. 
CMS-1349-P 87 

 

(v) Water and Sewage

 We are proposing to use the CPI for Water and Sewerage 

Maintenance (All Urban Consumers) (BLS series code 

CUUR0000SEHG01) to measure the price growth of this cost 

category. This same proxy was used in the FY 2002-based 

RPL market basket. 

(vi) Professional Liability Insurance

 We are proposing to proxy price changes in hospital 

PLI premiums using percentage changes as estimated by the 

CMS Hospital Professional Liability Index. To generate 

these estimates, we collect commercial insurance premiums 

for a fixed level of coverage while holding non-price 

factors constant (such as a change in the level of 

coverage). This method is also used to proxy PLI price 

changes in the Medicare Economic Index (75 FR 73268). This 

same proxy was used in the FY 2002-based RPL market basket. 

(vii) Pharmaceuticals

 We are proposing to use the PPI for Pharmaceuticals 

for Human Use, Prescription (BLS series code WPUSI07003) to 

measure the price growth of this cost category. We note 

that we are not making a change to the PPI that is used to 

proxy this cost category. There was a recent change to the 

BLS naming convention for this series; however, this is the 

same proxy that was used in the FY 2002-based RPL market 

basket. 
CMS-1349-P 88 

 

(viii) Food: Direct Purchases

 We are proposing to use the PPI for Processed Foods 

and Feeds (BLS series code WPU02) to measure the price 

growth of this cost category. This same proxy was used in 

the FY 2002-based RPL market basket. 

(ix) Food: Contract Services

 We are proposing to use the CPI for Food Away From 

Home (All Urban Consumers) (BLS series code CUUR0000SEFV) 

to measure the price growth of this cost category. This 

same proxy was used in the FY 2002-based RPL market basket. 

(x) Chemicals

 We are proposing to use a blended PPI composed of the 

PPI for Industrial Gas Manufacturing (NAICS 325120) (BLS 

series code PCU325120325120P), the PPI for Other Basic 

Inorganic Chemical Manufacturing (NAICS 325180) (BLS series 

code PCU32518-32518-), the PPI for Other Basic Organic 

Chemical Manufacturing (NAICS 325190) (BLS series code 

PCU32519-32519-), and the PPI for Soap and Cleaning 

Compound Manufacturing (NAICS 325610) (BLS series code 

PCU32561-32561-). Using the 2002 Benchmark I-O data, we 

found that these NAICS industries accounted for 

approximately 90 percent of the hospital industry's 

chemical expenses. 

 Therefore, we are proposing to use this blended index 

because we believe its composition better reflects the 
CMS-1349-P 89 

 

composition of the purchasing patterns of hospitals than 

does the PPI for Industrial Chemicals (BLS series code 

WPU061), the proxy used in the FY 2002-based RPL market 

basket. Table 5 below shows the weights for each of the 

four PPIs used to create the blended PPI, which we 

determined using the 2002 Benchmark I-O data. 

TABLE 5: Blended Chemical PPI Weights 

Name 

Weights 

(in 

percent) NAICS 

PPI for Industrial Gas Manufacturing 35% 325120 

PPI for Other Basic Inorganic Chemical Manufacturing 25% 325180 

PPI for Other Basic Organic Chemical Manufacturing 30% 325190 

PPI for Soap and Cleaning Compound Manufacturing 10% 325610 

(xi) Medical Instruments

 We are proposing to use the PPI for Medical, Surgical, 

and Personal Aid Devices (BLS series code WPU156) to 

measure the price growth of this cost category. In the 

1997 Benchmark I-O data, approximately half of the expenses 

classified in this category were for surgical and medical 

instruments. Therefore, we used the PPI for Surgical and 

Medical Instruments and Equipment (BLS series code WPU1562) 

to proxy this category in the FY 2002-based RPL market 

basket. The 2002 Benchmark I-O data show that surgical and 

medical instruments now represent only 33 percent of these 

expenses and that the largest expense category is surgical 

appliance and supplies manufacturing (corresponding to BLS 
CMS-1349-P 90 

 

series code WPU1563). Due to this reallocation of costs 

over time, we are proposing to change the price proxy for 

this cost category to the more aggregated PPI for Medical, 

Surgical, and Personal Aid Devices. 

(xii) Photographic Supplies

 We are proposing to eliminate the cost category 

specific to photographic supplies for the proposed FY 2008 

based RPL market basket. These costs would now be included 

in the Chemicals cost category because the costs are 

presently reported as all other chemical products. 

Notably, although we would be eliminating the specific cost 

category, these costs would still be accounted for within 

the RPL market basket. 

 (xiii) Rubber and Plastics

 We are proposing to use the PPI for Rubber and Plastic 

Products (BLS series code WPU07) to measure price growth of 

this cost category. This same proxy was used in the FY 

2002-based RPL market basket. 

(xiv) Paper and Printing Products

 We are proposing to use the PPI for Converted Paper 

and Paperboard Products (BLS series code WPU0915) to 

measure the price growth of this cost category. This same 

proxy was used in the FY 2002-based RPL market basket. 

(xv) Apparel

 We are proposing to use the PPI for Apparel (BLS 
CMS-1349-P 91 

 

series code WPU0381) to measure the price growth of this 

cost category. This same proxy was used in the FY 2002-

based RPL market basket. 

(xvi) Machinery and Equipment

 We are proposing to use the PPI for Machinery and 

Equipment (BLS series code WPU11) to measure the price 

growth of this cost category. This same proxy was used in 

the FY 2002-based RPL market basket. 

(xvii) Miscellaneous Products

 We are proposing to use the PPI for Finished Goods 

Less Food and Energy (BLS series code WPUSOP3500) to 

measure the price growth of this cost category. Using this 

index would remove the double-counting of food and energy 

prices, which would already be captured elsewhere in the 

market basket. This same proxy was used in the FY 2002-

based RPL market basket. 

(xviii) Professional Fees: Labor-Related

 We are proposing to use the ECI for Compensation for 

Professional and Related Occupations (Private Industry) 

(BLS series code CIS2020000120000I) to measure the price 

growth of this category. It includes occupations such as 

legal, accounting, and engineering services. This same 

proxy was used in the FY 2002-based RPL market basket. 

(xix) Administrative and Business Support Services

 We are proposing to use the ECI for Compensation for 
CMS-1349-P 92 

 

Office and Administrative Support Services (Private 

Industry) (BLS series code CIU2010000220000I) to measure 

the price growth of this category. Previously these costs 

were included in the All Other: Labor-intensive category 

(now renamed the All Other: Labor-related Services 

category), and were proxied by the ECI for Compensation for 

Service Occupations. We believe that this compensation 

index better reflects the changing price of labor 

associated with the provision of administrative services 

and its incorporation represents a technical improvement to 

the market basket. 

(xx) All Other: Labor-Related Services

 We are proposing to use the ECI for Compensation for 

Service Occupations (Private Industry) (BLS series code 

CIU2010000300000I) to measure the price growth of this cost 

category. This same proxy was used in the FY 2002-based 

RPL market basket. 

(xxi) Professional Fees: Nonlabor-Related

 We are proposing to use the ECI for Compensation for 

Professional and Related Occupations (Private Industry) 

(BLS series code CIS2020000120000I) to measure the price 

growth of this category. This is the same price proxy that 

we are proposing to use for the Professional Fees: Laborrelated cost category. 

(xxii) Financial Services
CMS-1349-P 93 

 

 We are proposing to use the ECI for Compensation for 

Financial Activities (Private Industry) (BLS series code 

CIU201520A000000I) to measure the price growth of this cost 

category. Previously these costs were included in the All 

Other: Nonlabor-intensive category (now renamed the All 

Other: Nonlabor-related Services category), and were 

proxied by the CPI for All Items. We believe that this 

compensation index better reflects the changing price of 

labor associated with the provision of financial services 

and its incorporation represents a technical improvement to 

the market basket. 

(xxiii) Telephone Services

 We are proposing to use the CPI for Telephone Services 

(BLS series code CUUR0000SEED) to measure the price growth 

of this cost category. This same proxy was used in the 

FY 2002-based RPL market basket. 

(xxiv) Postage

 We are proposing to use the CPI for Postage (BLS 

series code CUUR0000SEEC01) to measure the price growth of 

this cost category. This same proxy was used in the 

FY 2002-based RPL market basket. 

(xxv) All Other: Nonlabor-Related Services

 We are proposing to use the CPI for All Items Less 

Food and Energy (BLS series code CUUR0000SA0L1E) to measure 

the price growth of this cost category. Previously these 
CMS-1349-P 94 

 

costs were proxied by the CPI for All Items in the FY 2002-

based RPL market basket. We believe that using the CPI for 

All Items Less Food and Energy would remove the 

double counting of changes in food and energy prices, as 

they are already captured elsewhere in the market basket. 

Consequently, we believe that the incorporation of this 

proxy would represent a technical improvement to the market 

basket. 

(4) Proposed Methodology for Capital Portion of the RPL 

Market Basket 

 In the FY 2002-based RPL market basket, we did not 

have freestanding IRF, freestanding IPF, and LTCH 2002 

Medicare cost report data for the capital cost weights, due 

to a change in the 2002 reporting requirements. Therefore, 

we used these hospitals’ 2001 expenditure data for the 

capital cost categories of depreciation, interest, and 

other capital expenses, and inflated the data to a 2002 

base year using relevant price proxies. 

 For the proposed FY 2008-based RPL market basket, we 

are proposing to calculate weights for the proposed RPL 

market basket capital costs using the same set of FY 2008 

Medicare cost reports used to develop the operating share 

for IRFs, IPFs, and LTCHs. To calculate the proposed total 

capital cost weight, we first apply the same LOS edits as 

applied when calculating the operating cost weights as 
CMS-1349-P 95 

 

described above in section V.A.1.c.(1)(a) of this proposed 

rule. The resulting proposed capital weight for the 

FY 2008 base year is 8.392 percent. 

 Lease expenses are unique in that they are not broken 

out as a separate cost category in the RPL market basket, 

but rather are proportionally distributed amongst the cost 

categories of Depreciation, Interest, and Other, reflecting 

the assumption that the underlying cost structure of leases 

is similar to that of capital costs in general. As was 

done in the FY 2002-based RPL market basket, we first 

assumed 10 percent of lease expenses represents overhead 

and assigned those costs to the “Other Capital-Related 

Costs” category accordingly. The remaining lease expenses 

were distributed across the three cost categories based on 

the respective weights of depreciation, interest, and other 

capital not including lease expenses. 

 Depreciation contains two subcategories: (1) Building 

and Fixed Equipment; and (2) Movable Equipment. The 

apportionment between building and fixed equipment and 

movable equipment was determined using the FY 2008 Medicare 

cost reports for freestanding IRFs, freestanding IPFs, and 

LTCHs. This methodology was also used to compute the 

apportionment used in the FY 2002-based RPL market basket 

(70 FR 47912). 

 The total Interest expense cost category is split 
CMS-1349-P 96 

 

between government/nonprofit interest and for-profit 

interest. The FY 2002-based RPL market basket allocated 75 

percent of the total Interest cost weight to 

government/nonprofit interest and proxied that category by 

the average yield on domestic municipal bonds. The 

remaining 25 percent of the Interest cost weight was 

allocated to for-profit interest and was proxied by the 

average yield on Moody's Aaa bonds (70 FR 47912). This was 

based on the FY 2002-based IPPS Capital input price index 

(CIPI) (70 FR 23406) due to insufficient Medicare cost 

report data for freestanding IRFs, freestanding IPFs, and 

LTCHs. For the proposed FY 2008-based RPL market basket, 

we are proposing to derive the split using the FY 2008 

Medicare cost report data on interest expenses for 

government/nonprofit and for-profit freestanding IRFs, 

freestanding IPFs, and LTCHs. Based on these data, we 

calculated a proposed 33/67 split between 

government/nonprofit and for-profit interest. We believe 

it is important that this split reflects the latest 

relative cost structure of interest expenses for RPL 

providers. As stated above, we first apply the LOS edits 

(as described in section V.A.1.c.(1)(a) of this proposed 

rule) prior to calculating this split. Therefore, we are 

using cost reports that are reflective of case mix and 

practice patterns associated with providing services to 
CMS-1349-P 97 

 

Medicare beneficiaries. Using data specific to 

government/nonprofit and for-profit freestanding IRFs, 

freestanding IPFs, and LTCHs as well as the application of 

these LOS edits are the primary reasons for the difference 

in this split relative to the FY 2002-based RPL market 

basket. 

 Because capital is acquired and paid for over time, 

capital expenses in any given year are determined by both 

past and present purchases of physical and financial 

capital. The vintage-weighted capital portion of the 

FY 2008-based RPL market basket is intended to capture the 

long-term consumption of capital, using vintage weights for 

depreciation (physical capital) and interest (financial 

capital). These vintage weights reflect the proportion of 

capital purchases attributable to each year of the expected 

life of building and fixed equipment, movable equipment, 

and interest. We are proposing to use the vintage weights 

to compute vintage-weighted price changes associated with 

depreciation and interest expense. 

 Vintage weights are an integral part of the proposed 

FY 2008-based RPL market basket. Capital costs are 

inherently complicated and are determined by complex 

capital purchasing decisions, over time, based on such 

factors as interest rates and debt financing. In addition, 

capital is depreciated over time instead of being consumed 
CMS-1349-P 98 

 

in the same period it is purchased. The capital portion of 

the proposed FY 2008-based RPL market basket would reflect 

the annual price changes associated with capital costs, and 

would be a useful simplification of the actual capital 

investment process. By accounting for the vintage nature 

of capital, we are able to provide an accurate and stable 

annual measure of price changes. Annual nonvintage price 

changes for capital are unstable due to the volatility of 

interest rate changes and, therefore, do not reflect the 

actual annual price changes for Medicare capital-related 

costs. The capital component of the proposed FY 2008-based 

RPL market basket would reflect the underlying stability of 

the capital acquisition process and provides hospitals with 

the ability to plan for changes in capital payments. 

 To calculate the vintage weights for depreciation and 

interest expenses, we needed a time series of capital 

purchases for building and fixed equipment and movable 

equipment. We found no single source that provides an 

appropriate time series of capital purchases by hospitals 

for all of the above components of capital purchases. The 

early Medicare cost reports did not have sufficient capital 

data to meet this need. Data we obtained from the American 

Hospital Association (AHA) do not include annual capital 

purchases. However, AHA does provide a consistent database 

back to 1963. We used data from the AHA Panel Survey and 
CMS-1349-P 99 

 

the AHA Annual Survey to obtain a time series of total 

expenses for hospitals. We then used data from the AHA 

Panel Survey supplemented with the ratio of depreciation to 

total hospital expenses obtained from the Medicare cost 

reports to derive a trend of annual depreciation expenses 

for 1963 through 2008. 

 To estimate capital purchases using data on 

depreciation expenses, the expected life for each cost 

category (building and fixed equipment, movable equipment, 

and interest) is needed to calculate vintage weights. For 

the FY 2002-based RPL market basket, due to insufficient 

Medicare cost report data for freestanding IRFs, 

freestanding IPFs, and LTCHs, we used 2001 Medicare Cost 

Reports for IPPS hospitals to determine the expected life 

of building and fixed equipment and movable equipment (70 

FR 47913). The FY 2002-based RPL market basket was based 

on an expected life of building and fixed equipment of 23 

years. It used 11 years as the expected life for movable 

equipment. We believed that this data source reflected the 

latest relative cost structure of depreciation expenses for 

hospitals at the time and was analogous to freestanding 

IRFs, freestanding IPFs, and LTCHs. 

 The expected life of any piece of equipment can be 

determined by dividing the value of the asset (excluding 

fully depreciated assets) by its current year depreciation 
CMS-1349-P 100 

 

amount. This calculation yields the estimated useful life 

of an asset if depreciation were to continue at current 

year levels, assuming straight-line depreciation. 

Following a similar method to what was applied for the 

FY 2002-based RPL market basket, we are proposing to use 

the expected life of building and fixed equipment to be 

equal to 26 years, and the expected life of movable 

equipment to be 11 years. These expected lives are 

calculated using FY 2008 Medicare cost reports for IPPS 

hospitals since we are currently unable to obtain robust 

measures of the expected lives for building and fixed 

equipment and movable equipment using the Medicare cost 

reports from freestanding IRFs, freestanding IPFs, and 

LTCHs. 

 We also propose to use the building and fixed 

equipment and movable equipment weights derived from 

FY 2008 Medicare cost reports for freestanding IRFs, 

freestanding IPFs, and LTCHs to separate the depreciation 

expenses into annual amounts of building and fixed 

equipment depreciation and movable equipment depreciation. 

Year-end asset costs for building and fixed equipment and 

movable equipment were determined by multiplying the annual 

depreciation amounts by the expected life calculations. We 

then calculated a time series, back to 1963, of annual 

capital purchases by subtracting the previous year asset 
CMS-1349-P 101 

 

costs from the current year asset costs. From this capital 

purchase time series, we were able to calculate the vintage 

weights for building and fixed equipment and for movable 

equipment. Each of these sets of vintage weights is 

explained in more detail below. 

 For the proposed building and fixed equipment vintage 

weights, we used the real annual capital purchase amounts 

for building and fixed equipment to capture the actual 

amount of the physical acquisition, net of the effect of 

price inflation. This real annual purchase amount for 

building and fixed equipment was produced by deflating the 

nominal annual purchase amount by the building and fixed 

equipment price proxy, BEA's chained price index for 

nonresidential construction for hospitals and special care 

facilities. Because building and fixed equipment have an 

expected life of 26 years, the vintage weights for building 

and fixed equipment are deemed to represent the average 

purchase pattern of building and fixed equipment over 26-

year periods. With real building and fixed equipment 

purchase estimates available from 2008 back to 1963, we 

averaged twenty 26-year periods to determine the average 

vintage weights for building and fixed equipment that are 

representative of average building and fixed equipment 

purchase patterns over time. Vintage weights for each 

26-year period are calculated by dividing the real building 
CMS-1349-P 102 

 

and fixed capital purchase amount in any given year by the 

total amount of purchases in the 26-year period. This 

calculation is done for each year in the 26-year period, 

and for each of the twenty 26-year periods. We used the 

average of each year across the twenty 26-year periods to 

determine the average building and fixed equipment vintage 

weights for the FY 2008-based RPL market basket. 

 For the proposed movable equipment vintage weights, 

the real annual capital purchase amounts for movable 

equipment were used to capture the actual amount of the 

physical acquisition, net of price inflation. This real 

annual purchase amount for movable equipment was calculated 

by deflating the nominal annual purchase amounts by the 

movable equipment price proxy, the PPI for Machinery and 

Equipment. This is the same proxy used for the 

FY 2002-based RPL market basket. Based on our 

determination that movable equipment has an expected life 

of 11 years, the vintage weights for movable equipment 

represent the average expenditure for movable equipment 

over an 11-year period. With real movable equipment 

purchase estimates available from 2008 back to 1963, 

thirty-five 11-year periods were averaged to determine the 

average vintage weights for movable equipment that are 

representative of average movable equipment purchase 

patterns over time. Vintage weights for each 11-year 
CMS-1349-P 103 

 

period are calculated by dividing the real movable capital 

purchase amount for any given year by the total amount of 

purchases in the 11-year period. This calculation was done 

for each year in the 11-year period and for each of the 

thirty-five 11-year periods. We used the average of each 

year across the thirty-five 11-year periods to determine 

the average movable equipment vintage weights for the 

FY 2008-based RPL market basket. 

 For the proposed interest vintage weights, the nominal 

annual capital purchase amounts for total equipment 

(building and fixed, and movable) were used to capture the 

value of the debt instrument. Because we have determined 

that hospital debt instruments have an expected life of 

26 years, the vintage weights for interest are deemed to 

represent the average purchase pattern of total equipment 

over 26-year periods. With nominal total equipment 

purchase estimates available from 2008 back to 1963, twenty 

26-year periods were averaged to determine the average 

vintage weights for interest that are representative of 

average capital purchase patterns over time. Vintage 

weights for each 26-year period are calculated by dividing 

the nominal total capital purchase amount for any given 

year by the total amount of purchases in the 26-year 

period. This calculation is done for each year in the 

26-year period and for each of the twenty 26-year periods. 
CMS-1349-P 104 

 

We used the average of each year across the twenty 26-year 

periods to determine the average interest vintage weights 

for the FY 2008-based RPL market basket. The vintage 

weights for the capital portion of the FY 2002-based RPL 

market basket and the FY 2008-based RPL market basket are 

presented in Table 6. 

TABLE 6: FY 2002 and FY 2008 Vintage Weights for 

Capital-Related Price Proxies 

Building and Fixed Equipment Movable Equipment Interest 

Year FY 2002 

23 years 

FY 2008 

26 years 

FY 2002 

11 years 

FY 2008 

11 years 

FY 2002 

23 years 

FY 2008 

26 years 

1 0.021 0.021 0.065 0.071 0.010 0.010 

2 0.022 0.023 0.071 0.075 0.012 0.012 

3 0.025 0.025 0.077 0.080 0.014 0.014 

4 0.027 0.027 0.082 0.083 0.016 0.016 

5 0.029 0.028 0.086 0.085 0.019 0.018 

6 0.031 0.030 0.091 0.089 0.023 0.020 

7 0.033 0.031 0.095 0.092 0.026 0.021 

8 0.035 0.033 0.100 0.098 0.029 0.024 

9 0.038 0.035 0.106 0.103 0.033 0.026 

10 0.040 0.037 0.112 0.109 0.036 0.029 

11 0.042 0.039 0.117 0.116 0.039 0.033 

12 0.045 0.041 -- -- 0.043 0.035 

13 0.047 0.042 -- -- 0.048 0.038 

14 0.049 0.043 -- -- 0.053 0.041 

15 0.051 0.044 -- -- 0.056 0.043 

16 0.053 0.045 -- -- 0.059 0.046 

17 0.056 0.046 -- -- 0.062 0.049 

18 0.057 0.047 -- -- 0.064 0.052 

19 0.058 0.047 -- -- 0.066 0.053 

20 0.060 0.045 -- -- 0.070 0.053 

21 0.060 0.045 -- -- 0.071 0.055 

22 0.061 0.045 -- -- 0.074 0.056 

23 0.061 0.046 -- -- 0.076 0.060 

24 -- 0.046 -- -- -- 0.063 

25 -- 0.045 -- -- -- 0.064 

26 -- 0.046 -- -- -- 0.068 

Total 1.000 1.000 1.000 1.000 1.000 1.000 

Note: Numbers may not add to total due to rounding. 

 After the capital cost category weights were computed, 

it was necessary to select appropriate price proxies to 

reflect the rate-of-increase for each expenditure category. 
CMS-1349-P 105 

 

We are proposing to use the same price proxies for the 

capital portion of the proposed FY 2008-based RPL market 

basket that were used in the FY 2002-based RPL market 

basket with the exception of the Boeckh Construction Index. 

We replaced the Boeckh Construction Index with BEA’s 

chained price index for nonresidential construction for 

hospitals and special care facilities. The BEA index 

represents construction of facilities such as hospitals, 

nursing homes, hospices, and rehabilitation centers. 

Although these price indices move similarly over time, we 

believe that it is more technically appropriate to use an 

index that is more specific to the hospital industry. We 

believe these are the most appropriate proxies for hospital 

capital costs that meet our selection criteria of 

relevance, timeliness, availability, and reliability. 

 The price proxies (prior to any vintage weighting) for 

each of the capital cost categories are the same as those 

used for the FY 2006-based CIPI as described in the IPPS 

FY 2010 final rule (74 FR at 43857). 

(5) Proposed FY 2012 Market Basket Increase Factor 

 For FY 2012 (that is, beginning October 1, 2011 and 

ending September 30, 2012), we are proposing to use an 

estimate of the proposed FY 2008-based RPL market basket 

increase factor based on the best available data. 

Consistent with historical practice, we estimate the RPL 
CMS-1349-P 106 

 

market basket update for the IRF PPS based on IHS Global 

Insight’s forecast using the most recent available data. 

IHS Global Insight (IGI), Inc. is a nationally recognized 

economic and financial forecasting firm that contracts with 

CMS to forecast the components of the market baskets. 

 Based on IGI’s 1st quarter 2011 forecast with 

historical data through the 4th quarter of 2010, the 

projected market basket increase factor for FY 2012 is 

2.8 percent. Therefore, consistent with our historical 

practice of estimating market basket increases based on the 

best available data, we are proposing a market basket 

increase factor of 2.8 percent for FY 2012. Furthermore, 

because the proposed FY 2012 update is based on the most 

recent market basket estimate for the 12-month period 

(currently 2.8 percent), we are also proposing that if more 

recent data are subsequently available (for example, a more 

recent estimate of the market basket), we would use such 

data, if appropriate, to determine the FY 2012 update in 

the final rule. 

 Using the current FY 2002-based RPL market basket and 

IGI’s 1st quarter 2011 forecast for the market basket 

components, the FY 2012 update would be 2.8 percent. Table 

7 compares the proposed FY 2008-based RPL market basket and 

the FY 2002-based RPL market basket percent changes. 
CMS-1349-P 107 

 

TABLE 7: FY 2002-Based and Proposed FY 2008-Based RPL 

Market Basket Percent Changes, FY 2006 through FY 2014 

Fiscal Year (FY) 

FY 2002-Based RPL Market 

Basket Index Percent Change 

FY 2008-Based Proposed RPL 

Market Basket Index Percent 

Change 

Historical data: 

 FY 2006 3.9 3.7 

 FY 2007 3.4 3.4 

 FY 2008 3.8 3.7 

 FY 2009 2.5 2.7 

 FY 2010 2.3 2.2 

 Average 2006-2010 3.2 3.1 

Forecast: 

 FY 2011 2.6 2.7 

 FY 2012 2.8 2.8 

 FY 2013 2.9 2.9 

 FY 2014 3.0 3.0 

 Average 2011-2014 2.8 2.9 

Note that these market basket percent changes do not include any further adjustments as may be statutorily 

required. 

Source: IHS Global Insight, Inc. 1st quarter 2011 forecast. 

 For FY 2012, the proposed FY 2008-based RPL market 

basket update is the same as the FY 2002-based RPL market 

basket (2.8 percent). The lower total compensation weight 

in the proposed FY 2008-based RPL market basket (62.278 

percent) relative to the FY 2002-based RPL market basket 

(65.877 percent), absent other factors, would have resulted 

in a slightly lower market basket update using the FY 2008-

based RPL market basket. This impact, however, is 

partially offset by the larger weight associated with the 

Professional Fees category. In both market baskets, these 

expenditures are proxied by the ECI for Compensation for 

Professional and Related Services. The weight for 

Professional Fees in the FY 2002-based RPL market basket is 

2.892 percent compared to 6.325 percent in the proposed 
CMS-1349-P 108 

 

FY 2008-based RPL market basket. The net effect is that 

the updates are the same for FY 2012 based on the current 

2002-based RPL market basket and the proposed FY 2008-based 

RPL market basket. 

2. Proposed Productivity Adjustment 

According to Section 1886(j)(3)(C)(i) of the Act, the 

Secretary shall establish an increase factor “based on an 

appropriate percentage increase in a market basket of goods 

and services.” As described in section V.A.1 of this 

proposed rule, we are proposing to estimate the IRF PPS 

increase factor for FY 2012 based on the proposed FY 2008-

based RPL market basket. Section 1886(j)(3)(C)(ii) of the 

Act then requires that, after establishing the increase 

factor for a FY, “the Secretary shall reduce such increase 

factor for FY 2012 and each subsequent FY, by the 

productivity adjustment described in section 

1886(b)(3)(B)(xi)(II)” of the Act. Section 

1886(b)(3)(B)(xi)(II) of the Act sets forth the definition 

of this productivity adjustment. The statute defines the 

productivity adjustment to be equal to the 10-year moving 

average of changes in annual economy-wide private nonfarm 

business multifactor productivity (MFP) (as projected by 

the Secretary for the 10-year period ending with the 

applicable FY, year, cost reporting period, or other annual 

period) (the “MFP adjustment”). The BLS is the agency that 
CMS-1349-P 109 

 

publishes the official measure of private nonfarm business 

MFP. Please see http://www.bls.gov/mfp to obtain the 

historical BLS- published MFP data. 

The projection of MFP is currently produced by IGI, an 

economic forecasting firm. In order to generate a forecast 

of MFP, IGI replicated the MFP measure calculated by the 

BLS using a series of proxy variables derived from IGI’s 

U.S. macroeconomic models. These models take into account 

a very broad range of factors that influence the total U.S. 

economy. IGI forecasts the underlying proxy components 

such as Gross Domestic Product (GDP), capital, and labor 

inputs required to estimate MFP and then combines those 

projections according to the BLS methodology. In Table 8, 

we identify each of the major MFP component series employed 

by the BLS to measure MFP. We also provide the 

corresponding concepts forecasted by IGI and determined to 

be the best available proxies for the BLS series. 

TABLE 8: Multifactor Productivity Component Series 

Employed by the Bureau of Labor Statistics and IHS Global 

Insight 

BLS series IGI series 

Real value-added output, constant 

2005 dollars 

Non-housing non-government non-farm real 

GDP, Billions of chained 2005 dollars – annual 

rate 

Private non-farm business sector 

labor input; 2005=100.00 

Hours of all persons in private nonfarm 

establishments, 2005=100.00, adjusted for labor 

composition effects. 

Aggregate capital inputs; 

2005=100.00 

Real effective capital stock used for full 

employment GDP, Billions of chained 2005 

dollars 
CMS-1349-P 110 

 

IGI found that the historical growth rates of the BLS 

components used to calculate MFP and the IGI components 

identified are consistent across all series and therefore 

suitable proxies for calculating MFP. We have included 

below a more detailed description of the methodology used 

by IGI to construct a forecast of MFP, which is aligned 

closely with the methodology employed by the BLS. For more 

information regarding the BLS method for estimating 

productivity, see the BLS Web site at 

http://www.bls.gov/mfp/mprtech.pdf. 

At the time of this proposed rule, the BLS has 

published a historical time series of private nonfarm 

business MFP for 1987 through 2009, with 2009 being a 

preliminary value. Using this historical MFP series and 

the IGI forecasted series, IGI has developed a forecast of 

MFP for 2010 through 2021, as described below. 

To create a forecast of BLS’ MFP index, the forecasted 

annual growth rates of the “non-housing, non-government, 

non-farm, real GDP”, “hours of all persons in private 

nonfarm establishments adjusted for labor composition,” and 

“real effective capital stock” series (ranging from 2010 to 

2021) are used to “grow” the levels of the “real valueadded output,” “private non-farm business sector labor 

input,” and “aggregate capital input” series published by 

the BLS. Projections of the “hours of all persons” measure 
CMS-1349-P 111 

 

are calculated using the difference between projections of 

the BLS index of output per hour and real GDP. This 

difference is then adjusted to account for changes in labor 

composition in the forecast interval. 

Using these three key concepts, MFP is derived by 

subtracting the contribution of labor and capital inputs 

from output growth. However, in order to estimate MFP, we 

need to understand the relative contributions of labor and 

capital to total output growth. Therefore, two additional 

measures are needed to operationalize the estimation of the 

IGI MFP projection: Labor compensation and capital income. 

The sum of labor compensation and capital income represents 

total income. The BLS calculates labor compensation and 

capital income (in current dollar terms) to derive the 

nominal values of labor and capital inputs. IGI uses the 

“non-government total compensation” and “flow of capital 

services from the total private non-residential capital 

stock” series as proxies for the BLS’ income measures. 

These two proxy measures for income are divided by total 

income to obtain the shares of labor compensation and 

capital income to total income. To estimate labor’s 

contribution and capital’s contribution to the growth in 

total output, the growth rates of the proxy variables for 

labor and capital inputs are multiplied by their respective 

shares of total income. These contributions of labor and 
CMS-1349-P 112 

 

capital to output growth are subtracted from total output 

growth to calculate the “change in the growth rates of 

multifactor productivity”:

MFP = Total output growth — ((labor input growth * labor 

compensation share) + (capital input growth * capital 

income share))

The change in the growth rates (also referred to as 

the compound growth rates) of the IGI MFP are multiplied by 

100 in order to calculate the percent change in growth 

rates (the percent change in growth rates are published by 

the BLS for its historical MFP measure). Finally, the 

growth rates of the IGI MFP are converted to index levels 

based to 2005 to be consistent with the BLS’ methodology. 

For benchmarking purposes, the historical growth rates of 

IGI’s proxy variables were used to estimate a historical 

measure of MFP, which was compared to the historical MFP 

estimate published by the BLS. The comparison revealed 

that the growth rates of the components were consistent 

across all series, and therefore validated the use of the 

proxy variables in generating the IGI MFP projections. The 

resulting MFP index was then interpolated to a quarterly 

frequency using the Bassie method for temporal 

disaggregation. The Bassie technique utilizes an indicator 

(pattern) series for its calculations. IGI uses the index 

of output per hour (published by the BLS) as an indicator 
CMS-1349-P 113 

 

when interpolating the MFP index. 

3. Proposed Calculation of the IRF PPS Market Basket 

Increase Factor for FY 2012 

To calculate the MFP-adjusted IRF PPS increase factor 

for FY 2012, in accordance with section 1886(j)(3)(C) of 

the Act, we propose to start with the FY 2008-based RPL 

market basket increase factor described above in section 

V.A.1. of this proposed rule and subtract from that the MFP 

percentage adjustment described in section V.A.2.of this 

proposed rule. Additionally, in accordance with sections 

1886(j)(3)(C)(ii)(II) and (D)(ii) of the Act, we propose to 

further reduce the MFP-adjusted IRF PPS increase factor by 

0.1 percentage point for FY 2012. 

Specifically, in calculating the MFP percentage 

adjustment, we propose that the end of the 10-year moving 

average of changes in the MFP should coincide with the end 

of the appropriate FY update period. Since the market 

basket update is reduced by the MFP adjustment to determine 

the annual update for the IRF PPS, we believe it is 

appropriate for the numbers associated with both components 

of the calculation (the market basket and the productivity 

adjustment) to line up so that changes in market conditions 

are aligned. Therefore, for the FY 2012 update, the MFP 

adjustment is calculated as the 10-year moving average of 

changes in MFP for the period ending September 30, 2012. 
CMS-1349-P 114 

 

We propose to round the final annual adjustment to the onetenth of 1 percentage point level up or down as applicable 

according to conventional rounding rules (that is, if the 

number we are rounding is followed by 5, 6, 7, 8, or 9, we 

will round the number up; if the number we are rounding is 

followed by 0, 1, 2, 3, or 4, we will round the number 

down). 

Thus, in accordance with section 1886(j)(3)(C) of the 

Act, the proposed IRF PPS increase factor for FY 2012 is 

based on the 1st quarter 2011 forecast of the proposed 

FY 2008-based RPL market basket update, which is estimated 

to be 2.8 percent. This proposed increase factor is then 

reduced by the MFP adjustment (the 10-year moving average 

of MFP for the period ending FY 2012) of 1.2 percentage 

points, based on the proposed methodology described above 

and IHS Global Insight’s 1st quarter 2011 forecast. The 

proposed increase factor for FY 2012 is then further 

reduced by 0.1 percentage point in accordance with sections 

1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the Act. 

The resulting proposed IRF PPS increase factor reduced by 

the productivity adjustment and the “other adjustment” for 

FY 2012 is equal to 1.5 percent, or 2.8 percent less 

1.2 percentage points for the MFP less 0.1 percentage point 

in accordance with sections 1886(j)(3)(C)(ii)(II) and 

1886(j)(3)(D)(ii) of the Act. Consistent with historical 
CMS-1349-P 115 

 

practice, we propose to update the market basket increase 

factor estimate and the MFP adjustment in the final rule to 

reflect the most recent available data. 

4. Proposed Calculation of the Labor-Related Share for 

FY 2012 

 Section 1886(j)(6) of the Act specifies that “[t]he 

Secretary shall adjust the proportion (as estimated by the 

Secretary from time to time) of rehabilitation facilities’ 

costs which are attributable to wages and wage-related 

costs, of the prospective payment rates computed under 

paragraph (3) for area differences in wage levels by a 

factor (established by the Secretary) reflecting the 

relative hospital wage level in the geographic area of the 

rehabilitation facility compared to the national average 

wage level for such facilities. Not later than 

October 1, 2001 (and at least every 36 months thereafter), 

the Secretary shall update the factor under the preceding 

sentence on the basis of information available to the 

Secretary (and updated as appropriate) of the wages and 

wage-related costs incurred in furnishing rehabilitation 

services. Any adjustments or updates made under this 

paragraph for a fiscal year shall be made in a manner that 

assures that the aggregated payments under this subsection 

in the fiscal year are not greater or less than those that 

would have been made in the year without such adjustment.” 
CMS-1349-P 116 

 

 The labor-related share is determined by identifying 

the national average proportion of total costs that are 

related to, influenced by, or vary with the local labor 

market. We continue to classify a cost category as 

labor-related if the costs are labor-intensive and vary 

with the local labor market. Given this, based on our 

definition of the labor-related share, we are proposing to 

include in the labor-related share the sum of the relative 

importance of Wages and Salaries, Employee Benefits, 

Professional Fees: Labor-related, Administrative and 

Business Support Services, All Other: Labor-related 

Services (previously referred to in the FY 2002-based RPL 

market basket as labor-intensive), and a portion of the 

Capital-Related cost weight. 

 Consistent with previous rebasings, the “All Other” 

Labor-related Services cost category is mostly comprised of 

building maintenance and security services (including, but 

not limited to, commercial and industrial machinery and 

equipment repair, nonresidential maintenance and repair, 

and investigation and security services). Because these 

services tend to be labor-intensive and are mostly 

performed at the hospital facility (and therefore, unlikely 

to be purchased in the national market), we believe that 

they meet our definition of labor-related services. 

 As stated in the FY 2006 IRF PPS final rule 
CMS-1349-P 117 

 

(70 FR 47880, 47915), the labor-related share was defined 

as the sum of the relative importance of Wages and 

Salaries, Fringe Benefits, Professional Fees, Laborintensive Services, and a portion of the capital share from 

an appropriate market basket. Therefore, to determine the 

labor-related share for the IRF PPS for FY 2011, we used 

the FY 2002-based RPL market basket cost weights relative 

importance to determine the labor-related share for the IRF 

PPS. 

 For the proposed FY 2008-based RPL market basket 

rebasing, the proposed inclusion of the Administrative and 

Business Support Services cost category into the 

labor-related share remains consistent with the current 

labor-related share because this cost category was 

previously included in the Labor-intensive cost category. 

As previously stated, we are proposing to establish a 

separate Administrative and Business Support Service cost 

category so that we can use the ECI for Compensation for 

Office and Administrative Support Services to more 

precisely proxy these specific expenses. 

 For the FY 2002-based RPL market basket, we assumed 

that all nonmedical professional services (including 

accounting and auditing services, engineering services, 

legal services, and management and consulting services) 

were purchased in the local labor market and, therefore, 
CMS-1349-P 118 

 

all of their associated fees varied with the local labor 

market. As a result, we previously included 100 percent of 

these costs in the labor-related share. In an effort to 

more accurately determine the share of professional fees 

that should be included in the labor-related share, we 

surveyed hospitals regarding the proportion of those fees 

that go to companies that are located beyond their own 

local labor market (the results are discussed below). 

 We continue to look for ways to refine our market 

basket approach to more accurately account for the 

proportion of costs influenced by the local labor market. 

To that end, we conducted a survey of hospitals to 

empirically determine the proportion of contracted 

professional services purchased by the industry that are 

attributable to local firms and the proportion that are 

purchased from national firms. We notified the public of 

our intent to conduct this survey on December 9, 2005 

(70 FR 73250) and received no comments. 

 With approval from the OMB (Control Number 0938-1036), 

we contacted a sample of IPPS hospitals and received 

responses to our survey from 108 hospitals. We believe 

that these data serve as an appropriate proxy for the 

purchasing patterns of professional services for IRFs as 

they are also institutional providers of health care 

services. Using data on FTEs to allocate responding 
CMS-1349-P 119 

 

hospitals across strata (region of the country and 

urban/rural status), we calculated post-stratification 

weights. Based on these weighted results, we determined 

that hospitals purchase, on average, the following portions 

of contracted professional services outside of their local 

labor market: 

• 34 percent of accounting and auditing services. 

• 30 percent of engineering services. 

• 33 percent of legal services. 

• 42 percent of management consulting services. 

 We applied each of these percentages to its respective 

Benchmark I-O cost category underlying the professional 

fees cost category to determine the Professional Fees: 

Nonlabor-related costs. The Professional Fees: Laborrelated costs were determined to be the difference between 

the total costs for each Benchmark I-O category and the 

Professional Fees: Nonlabor-related costs. This is the 

methodology that we used to separate the FY 2008-based RPL 

market basket professional fees category into Professional 

Fees: Labor-related and Professional Fees: Nonlabor-related 

cost categories. In addition to the professional services 

listed above, we also classified expenses under NAICS 55, 

Management of Companies and Enterprises, into the 

Professional Fees cost category as was done in previous 
CMS-1349-P 120 

 

rebasings. The NAICS 55 data are mostly comprised of 

corporate, subsidiary, and regional managing offices, or 

otherwise referred to as home offices. Formerly, all of 

the expenses within this category were considered to vary 

with, or be influenced by, the local labor market and were 

thus included in the labor-related share. Because many 

hospitals are not located in the same geographic area as 

their home office, we analyzed data from a variety of 

sources in order to determine what proportion of these 

costs should be appropriately included in the labor-related 

share. 

 Using data primarily from the Medicare cost reports 

and a CMS database of Home Office Medicare Records (HOMER) 

(a database that provides city and state information 

(addresses) for home offices), we were able to determine 

that 19 percent of the total number of freestanding IRFs, 

IPFs, and LTCHs that had home offices had those home 

offices located in their respective local labor markets--

defined as being in the same Metropolitan Statistical Area 

(MSA). 

 The Medicare cost report requires hospitals to report 

their home office provider numbers. Using the HOMER 

database to determine the home office location for each 

home office provider number, we compared the location of 

the provider with the location of the hospital's home 
CMS-1349-P 121 

 

office. We then placed providers into one of the following 

three groups: 

● Group 1--Provider and home office are located in 

different States. 

● Group 2--Provider and home office are located in 

the same State and same city. 

● Group 3--Provider and home office are located in 

the same State and different city. 

 We found that 63 percent of the providers with home 

offices were classified into Group 1 (that is, different 

State) and, thus, these providers were determined to not be 

located in the same local labor market as their home 

office. Although there were a very limited number of 

exceptions (that is, providers located in different States 

but the same MSA as their home office), the 63 percent 

estimate was unchanged. 

 We found that 9 percent of all providers with home 

offices were classified into Group 2 (that is, same State 

and same city and, therefore, the same MSA). Consequently, 

these providers were determined to be located in the same 

local labor market as their home offices. 

 We found that 27 percent of all providers with home 

offices were classified into Group 3 (that is, same State 

and different city). Using data from the Census Bureau to 

determine the specific MSA for both the provider and its 
CMS-1349-P 122 

 

home office, we found that 10 percent of all providers with 

home offices were identified as being in the same State, a 

different city, but the same MSA. 

 Pooling these results, we were able to determine that 

approximately 19 percent of providers with home offices had 

home offices located within their local labor market (that 

is, 9 percent of providers with home offices had their home 

offices in the same State and city (and, thus, the same 

MSA), and 10 percent of providers with home offices had 

their home offices in the same State, a different city, but 

the same MSA). We are proposing to apportion the NAICS 55 

expense data by this percentage. Thus, we are proposing to 

classify 19 percent of these costs into the Professional 

Fees: Labor-related cost category and the remaining 81 

percent into the Professional Fees: Nonlabor-related 

Services cost category. 

 Using this proposed method and the IHS Global Insight, 

Inc. forecast for the 1st quarter 2011 of the proposed 

FY 2008-based RPL market basket, the IRF labor-related 

share for FY 2012 is the sum of the FY 2012 relative 

importance of each labor-related cost category. Consistent 

with our proposal to update the labor-related share with 

the most recent available data, the labor-related share for 

this proposed rule reflects IHS Global Insight’s 1st 

quarter 2011 forecast of the proposed FY 2008-based RPL 
CMS-1349-P 123 

 

market basket. Table 9 shows the proposed FY 2012 relative 

importance labor-related share using the proposed 

FY 2008-based RPL market basket and the FY 2002-based RPL 

market basket. 

TABLE 9: Comparison of the FY 2011 Relative Importance 

Labor-Related Share based on the FY 2002-Based RPL Market 

Basket and the Proposed FY 2012 Relative Importance LaborRelated Share based on the Proposed FY 2008-Based RPL 

Market Basket 

FY 2011 Relative 

Importance 

Labor-Related 

Share 

Proposed FY 2012 

Relative 

Importance 

Labor-Related 

Share 

Wages and Salaries 52.449 49.066

Employee Benefits 13.971 13.040

Professional Fees: Labor-Related 2.855 2.073

Administrative and Business 

Support Services -- 0.416

All Other: Labor-Related Services 2.109 2.094

Subtotal 71.384 66.689

Labor-Related Portion of Capital 

Costs (46%) 3.887 3.645

Total Labor-Related Share 75.271 70.334

Source: IHS Global Insight, Inc. 1st quarter 2011 forecast. 

 The proposed labor-related share for FY 2012 is the 

sum of the proposed FY 2012 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 2008) and FY 2012. The sum of 

the proposed relative importance for FY 2012 for operating 

costs (Wages and Salaries, Employee Benefits, Professional 

Fees: Labor-Related, Administrative and Business Support 

Services, and All Other: Labor-related Services) would be 
CMS-1349-P 124 

 

66.689 percent, as shown in Table 9. 

 We are proposing that the portion of Capital that is 

influenced by the local labor market is estimated to be 

46 percent, which is the same percentage applied to the 

FY 2002-based RPL market basket. Since the relative 

importance for Capital-Related Costs would be 7.923 percent 

of the proposed FY 2008-based RPL market basket in FY 2012, 

we are proposing to take 46 percent of 7.923 percent to 

determine the proposed labor-related share of Capital for 

FY 2012. The result would be 3.645 percent, which we 

propose to add to 66.689 percent for the operating cost 

amount to determine the total proposed labor-related share 

for FY 2012. Thus, the labor-related share that we propose 

to use for IRF PPS in FY 2012 would be 70.334 percent. 

This proposed labor-related share is determined using the 

same methodology as employed in calculating all previous 

IRF labor-related shares. The wage index and the laborrelated share are adjusted for budget neutrality. 

B. Proposed Area Wage Adjustment

Section 1886(j)(6) of the Act requires the Secretary 

to adjust the proportion of rehabilitation facilities’ 

costs attributable to wages and wage related costs (as 

estimated by the Secretary from time to time) by a factor 

(established by the Secretary) reflecting the relative 

hospital wage level in the geographic area of the 
CMS-1349-P 125 

 

rehabilitation facility compared to the national average 

wage level for those facilities. The Secretary is required 

to update the IRF PPS wage index on the basis of 

information available to the Secretary on the wages and 

wage-related costs to furnish rehabilitation services. Any 

adjustment or updates made under section 1886(j)(6) of the 

Act for a FY are made in a budget neutral manner. 

 In the FY 2009 IRF PPS final rule (73 FR 46378), we 

maintained the methodology described in the FY 2006 IRF PPS 

final rule to determine the wage index, labor market area 

definitions and hold harmless policy consistent with the 

rationale outlined in the FY 2006 IRF PPS final rule 

(70 FR 47880, 47917 through 47926 ). 

 For FY 2012, we are maintaining the policies and 

methodologies described in the FY 2009 IRF PPS final rule 

(73 FR 46378) relating to the labor market area definitions 

and the wage index methodology for areas with wage data. 

Thus, we are using the CBSA labor market area definitions 

and the FY 2011 pre-reclassification and pre-floor hospital 

wage index data. In accordance with section 1886(d)(3)(E) 

of the Act, the FY 2011 pre-reclassification and pre-floor 

hospital wage index is based on data submitted for hospital 

cost reporting periods beginning on or after 

October 1, 2006, and ending September 30, 2007 (that is, 

FY 2007 cost report data). 
CMS-1349-P 126 

 

 The labor market designations made by the OMB include 

some geographic areas where there are no hospitals and, 

thus, no hospital wage index data on which to base the 

calculation of the IRF PPS wage index. We propose to 

continue to use the same methodology discussed in the 

FY 2008 IRF PPS final rule (72 FR 44299) to address those 

geographic areas where there are no hospitals and, thus, no 

hospital wage index data in which to base the calculation 

for the FY 2012 IRF PPS wage index. 

 Additionally, we propose to incorporate the CBSA 

changes published in the most recent OMB bulletin that 

applies to the hospital wage data used to determine the 

current IRF PPS wage index. The changes were nominal and 

did not represent substantive changes to the CBSA-based 

designations. Specifically, OMB added or deleted certain 

CBSA numbers and revised certain titles. The OMB bulletins 

are available at 

http://www.whitehouse.gov/omb/bulletins/index.html. 

 To calculate the wage-adjusted facility payment for 

the payment rates set forth in this proposed rule, we 

multiply the unadjusted Federal payment rate for IRFs by 

the proposed FY 2012 labor-related share based on the 

FY 2008-based RPL market basket (70.334 percent) to 

determine the labor-related portion of the standard payment 

amount. We then multiply the labor-related portion by the 
CMS-1349-P 127 

 

applicable IRF wage index from the tables in the addendum 

to this proposed rule. Table A is for urban areas and 

Table B is for rural areas. 

 Adjustments or updates to the IRF wage index made 

under section 1886(j)(6) of the Act must be made in a 

budget neutral manner. We calculate a proposed budget 

neutral wage adjustment factor as established in the 

FY 2004 IRF PPS final rule (68 FR 45689), codified at 

§412.624(e)(1), as described in the steps below. We use 

the listed steps to ensure that the proposed FY 2012 IRF 

standard payment conversion factor reflects the update to 

the wage indexes (based on the FY 2007 hospital cost report 

data) and the proposed labor-related share in a budget 

neutral manner: 

 Step 1. Determine the total amount of the estimated 

FY 2011 IRF PPS rates, using the FY 2011 standard payment 

conversion factor and the labor-related share and the wage 

indexes from FY 2011 (as published in the FY 2011 IRF PPS 

final rule (75 FR 42836)). 

 Step 2. Calculate the total amount of estimated IRF 

PPS payments using the FY 2011 standard payment conversion 

factor and the proposed FY 2012 labor-related share and 

CBSA urban and rural wage indexes. 

 Step 3. Divide the amount calculated in step 1 by the 

amount calculated in step 2. The resulting quotient is the 
CMS-1349-P 128 

 

proposed FY 2012 budget neutral wage adjustment factor of 

0.9989. 

 Step 4. Apply the proposed FY 2012 budget neutral wage 

adjustment factor from step 3 to the FY 2011 IRF PPS 

standard payment conversion factor after the application of 

the adjusted market basket update to determine the proposed 

FY 2012 standard payment conversion factor. 

 We discuss the calculation of the proposed standard 

payment conversion factor for FY 2012 in section V.C of 

this proposed rule. 

C. Description of the Proposed IRF Standard Conversion 

Factor and Payment Rates for FY 2012

 To calculate the proposed standard payment conversion 

factor for FY 2012, as illustrated in Table 10, we begin by 

applying the proposed adjusted market basket increase 

factor for FY 2012 that was adjusted in accordance with 

sections 1886(j)(3)(C) and (D) of the Act (1.5 percent, or 

2.8 percent less a cumulative total adjustment of 1.3 

percentage points, as described in section V.A.3. of this 

proposed rule), to the standard payment conversion factor 

for FY 2011 ($13,860). Applying the proposed 1.5 percent 

adjusted market basket increase factor for FY 2012 to the 

standard payment conversion factor for FY 2011 of $13,860 

yields a standard payment amount of $14,068. Then, we 

apply the proposed budget neutrality factor for the FY 2012 
CMS-1349-P 129 

 

wage index and labor-related share of 0.9989, which results 

in a standard payment amount of $14,052. Then we apply the 

proposed budget neutrality factor for the revised CMG 

relative weights of 0.9989, which results in a proposed 

standard payment amount of $14,037. Finally, we apply the 

proposed budget neutrality factors for the updates to the 

rural, LIP and IRF teaching status adjustments of 0.9998, 

1.0327, and 1.0024, respectively, which results in a 

proposed standard payment amount of $14,528 for FY 2012. 

TABLE 10: Calculations to Determine the Proposed FY 2012 

Standard Payment Conversion Factor 

Explanation for Adjustment Calculations 

Standard Payment Conversion Factor for FY 2011 $13,860

Payment Update Factor for FY 2012 (1.5 percent), which 

reflects a 2.8 percent market basket increase, reduced by 

a 1.2 percentage point productivity adjustment, and 

reduced by 0.1 percentage point in accordance with 

sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the 

Act x 1.015

Budget Neutrality Factor for the Wage Index and LaborRelated Share x 0.9989

Budget Neutrality Factor for the Revisions to the CMG 

Relative Weights x 0.9989

Budget Neutrality Factor for the Update to the Rural 

Adjustment Factor x

 

0.9998

Budget Neutrality Factor for the Update to the LIP 

Adjustment Factor x

 

1.0327

Budget Neutrality Factor for the Update to the Teaching 

Status Adjustment Factor x

 

1.0024

Proposed FY 2012 Standard Payment Conversion Factor = $14,528

 

After the application of the CMG relative weights described 

in Section III of this proposed rule, to the proposed 
CMS-1349-P 130 

 

FY 2012 standard payment conversion factor ($14,528), the 

resulting proposed unadjusted IRF prospective payment rates 

for FY 2012 are shown in Table 11, “Proposed FY 2012 

Payment Rates.” 

TABLE 11: Proposed FY 2012 Payment Rates 

CMG Payment 

Rate Tier 1 

 Payment 

Rate Tier 2 

 Payment 

Rate Tier 3 

 Payment Rate No 

Comorbidity 

0101 $ 11,119.73 $ 10,426.75 $ 9,366.20 $ 8,853.36 

0102 $ 13,782.71 $ 12,924.11 $ 11,607.87 $ 10,973.00 

0103 $ 16,474.75 $ 15,447.62 $ 13,875.69 $ 13,117.33 

0104 $ 17,128.51 $ 16,060.70 $ 14,426.30 $ 13,637.43 

0105 $ 19,910.62 $ 18,668.48 $ 16,769.67 $ 15,851.50 

0106 $ 22,899.03 $ 21,470.93 $ 19,285.92 $ 18,231.19 

0107 $ 25,919.40 $ 24,303.89 $ 21,829.77 $ 20,635.57 

0108 $ 32,119.96 $ 30,118.00 $ 27,052.59 $ 25,573.64 

0109 $ 29,738.82 $ 27,883.59 $ 25,046.27 $ 23,676.28 

0110 $ 38,294.36 $ 35,905.95 $ 32,252.16 $ 30,488.46 

0201 $ 10,988.98 $ 8,943.44 $ 8,291.13 $ 7,524.05 

0202 $ 15,568.20 $ 12,671.32 $ 11,745.89 $ 10,659.19 

0203 $ 17,571.62 $ 14,301.36 $ 13,256.80 $ 12,032.09 

0204 $ 18,497.05 $ 15,053.91 $ 13,954.14 $ 12,664.06 

0205 $ 23,353.76 $ 19,006.98 $ 17,619.56 $ 15,990.97 

0206 $ 29,111.21 $ 23,692.26 $ 21,961.98 $ 19,932.42 

0207 $ 39,330.20 $ 32,011.00 $ 29,673.44 $ 26,930.55 

0301 $ 15,329.95 $ 13,821.94 $ 12,251.46 $ 11,221.43 

0302 $ 19,412.31 $ 17,504.79 $ 15,514.45 $ 14,209.84 

0303 $ 23,086.44 $ 20,817.17 $ 18,452.01 $ 16,898.97 

0304 $ 31,939.81 $ 28,798.85 $ 25,525.70 $ 23,379.91 

0401 $ 15,258.76 $ 12,687.30 $ 11,510.53 $ 10,168.15 

0402 $ 19,933.87 $ 16,573.54 $ 15,037.93 $ 13,282.95 

0403 $ 35,667.69 $ 29,653.10 $ 26,905.86 $ 23,766.36 

0404 $ 63,467.02 $ 52,767.15 $ 47,877.02 $ 42,291.01 

0405 $ 55,732.31 $ 46,335.60 $ 42,041.13 $ 37,136.47 

0501 $ 9,597.20 $ 9,142.47 $ 8,158.92 $ 7,226.23 

0502 $ 14,340.59 $ 13,660.68 $ 12,190.44 $ 10,797.21 

0503 $ 18,231.19 $ 17,366.77 $ 15,498.47 $ 13,727.51 

0504 $ 22,046.24 $ 21,000.22 $ 18,742.57 $ 16,599.69 

0505 $ 25,656.45 $ 24,440.45 $ 21,810.89 $ 19,317.88 

0506 $ 35,987.31 $ 34,281.72 $ 30,594.52 $ 27,096.17 

0601 $ 13,682.47 $ 11,596.25 $ 10,572.03 $ 9,546.35 

0602 $ 18,142.57 $ 15,376.44 $ 14,018.07 $ 12,659.70 

0603 $ 23,423.49 $ 19,852.51 $ 18,098.98 $ 16,344.00 

0604 $ 31,071.03 $ 26,333.45 $ 24,007.52 $ 21,680.13 
CMS-1349-P 131 

 

CMG Payment 

Rate Tier 1 

 Payment 

Rate Tier 2 

 Payment 

Rate Tier 3 

 Payment Rate No 

Comorbidity 

0701 $ 11,634.02 $ 11,442.25 $ 11,006.41 $ 9,828.19 

0702 $ 15,219.53 $ 14,969.65 $ 14,400.15 $ 12,858.73 

0703 $ 18,312.54 $ 18,011.81 $ 17,326.09 $ 15,470.87 

0704 $ 23,679.19 $ 23,289.84 $ 22,403.63 $ 20,005.06 

0801 $ 8,113.89 $ 8,161.83 $ 8,161.83 $ 7,088.21 

0802 $ 10,916.34 $ 10,981.72 $ 10,981.72 $ 9,537.63 

0803 $ 15,045.20 $ 15,133.82 $ 15,133.82 $ 13,144.93 

0804 $ 13,294.57 $ 13,373.02 $ 13,373.02 $ 11,615.14 

0805 $ 16,378.87 $ 16,476.20 $ 16,476.20 $ 14,310.08 

0806 $ 20,010.87 $ 20,130.00 $ 20,130.00 $ 17,483.00 

0901 $ 12,559.46 $ 10,811.74 $ 9,788.97 $ 8,869.34 

0902 $ 16,829.24 $ 14,488.77 $ 13,117.33 $ 11,885.36 

0903 $ 21,520.33 $ 18,526.11 $ 16,774.03 $ 15,197.74 

0904 $ 27,915.55 $ 24,032.22 $ 21,758.59 $ 19,713.04 

1001 $ 14,937.69 $ 13,208.86 $ 11,782.21 $ 10,547.33 

1002 $ 19,577.93 $ 17,311.56 $ 15,443.26 $ 13,823.39 

1003 $ 28,932.51 $ 25,585.26 $ 22,822.04 $ 20,430.73 

1101 $ 15,049.56 $ 15,049.56 $ 14,352.21 $ 13,419.51 

1102 $ 22,463.19 $ 22,463.19 $ 21,424.44 $ 20,029.75 

1201 $ 11,747.34 $ 11,747.34 $ 11,721.19 $ 11,105.20 

1202 $ 15,364.81 $ 15,364.81 $ 15,331.40 $ 14,526.55 

1203 $ 18,883.49 $ 18,883.49 $ 18,841.36 $ 17,852.01 

1301 $ 12,972.05 $ 12,972.05 $ 12,823.87 $ 11,436.44 

1302 $ 17,109.63 $ 17,109.63 $ 16,914.95 $ 15,084.42 

1303 $ 22,078.20 $ 22,078.20 $ 21,828.32 $ 19,466.07 

1401 $ 13,676.66 $ 10,955.56 $ 9,691.63 $ 8,763.29 

1402 $ 18,361.94 $ 14,709.60 $ 13,011.28 $ 11,764.77 

1403 $ 22,134.86 $ 17,731.42 $ 15,684.43 $ 14,182.23 

1404 $ 28,695.71 $ 22,987.65 $ 20,333.39 $ 18,385.18 

1501 $ 13,970.12 $ 13,120.24 $ 11,289.71 $ 10,654.84 

1502 $ 17,533.84 $ 16,466.04 $ 14,169.16 $ 13,373.02 

1503 $ 21,587.16 $ 20,272.37 $ 17,443.77 $ 16,464.58 

1504 $ 27,350.41 $ 25,684.05 $ 22,099.99 $ 20,859.30 

1601 $ 16,208.89 $ 12,565.27 $ 11,182.20 $ 10,463.07 

1602 $ 21,719.36 $ 16,836.50 $ 14,984.18 $ 14,019.52 

1603 $ 28,102.96 $ 21,786.19 $ 19,387.62 $ 18,139.66 

1701 $ 14,570.13 $ 13,384.65 $ 12,168.65 $ 10,638.85 

1702 $ 19,299.00 $ 17,729.97 $ 16,117.36 $ 14,092.16 

1703 $ 22,779.90 $ 20,927.58 $ 19,024.42 $ 16,633.11 

1704 $ 29,133.00 $ 26,764.93 $ 24,331.49 $ 21,271.90 

1801 $ 17,252.00 $ 13,694.09 $ 13,694.09 $ 12,579.80 

1802 $ 23,821.56 $ 18,908.19 $ 18,908.19 $ 17,369.68 

1803 $ 40,695.83 $ 32,303.01 $ 32,303.01 $ 29,674.89 

1901 $ 16,592.43 $ 13,175.44 $ 13,175.44 $ 12,961.88 

1902 $ 31,607.12 $ 25,098.57 $ 25,098.57 $ 24,691.79 

1903 $ 53,220.42 $ 42,260.50 $ 42,260.50 $ 41,576.23 

2001 $ 12,328.46 $ 10,935.23 $ 9,803.49 $ 8,809.78 
CMS-1349-P 132 

 

CMG Payment 

Rate Tier 1 

 Payment 

Rate Tier 2 

 Payment 

Rate Tier 3 

 Payment Rate No 

Comorbidity 

2002 $ 16,529.96 $ 14,663.11 $ 13,144.93 $ 11,812.72 

2003 $ 20,876.74 $ 18,518.84 $ 16,601.15 $ 14,918.80 

2004 $ 27,982.38 $ 24,821.09 $ 22,251.08 $ 19,996.34 

2101 $ 43,690.05 $ 37,721.95 $ 29,342.20 $ 24,909.71 

5001 $ - $ - $ - $ 2,144.33 

5101 $ - $ - $ - $ 8,523.58 

5102 $ - $ - $ - $ 21,345.99 

5103 $ - $ - $ - $ 10,098.41 

5104 $ - $ - $ - $ 27,295.21 

D. Example of the Methodology for Adjusting the Proposed 

Federal Prospective Payment Rates

 Table 12 illustrates the methodology for adjusting the 

proposed Federal prospective payments (as described in 

sections V.A. through V.C. of this proposed rule). The 

following examples are based on two hypothetical Medicare 

beneficiaries, both classified into CMG 0110 (without 

comorbidities). The proposed unadjusted Federal 

prospective payment rate for CMG 0110 (without 

comorbidities) appears in Table 11. 

 Example: One beneficiary is in Facility A, an IRF 

located in rural Spencer County, Indiana, and another 

beneficiary is in Facility B, an IRF located in urban 

Harrison County, Indiana. Facility A, a rural non-teaching 

hospital has a DSH percentage of 5 percent (which would 

result in a LIP adjustment of 1.0093), a wage index of 

0.8391, and a rural adjustment of 18.7 percent. Facility 

B, an urban teaching hospital, has a DSH percentage of 
CMS-1349-P 133 

 

15 percent (which would result in a LIP adjustment of 

1.0269 percent), a wage index of 0.8896, and a teaching 

status adjustment of 0.0610. 

 To calculate each IRF’s labor and non-labor portion of 

the proposed Federal prospective payment, we begin by 

taking the proposed unadjusted Federal prospective payment 

rate for CMG 0110 (without comorbidities) from Table 11. 

Then, we multiply the proposed labor-related share for 

FY 2012 (70.334 percent) described in section V.A.4 of this 

proposed rule by the proposed unadjusted Federal 

prospective payment rate. To determine the non-labor 

portion of the proposed Federal prospective payment rate, 

we subtract the labor portion of the proposed Federal 

payment from the proposed unadjusted Federal prospective 

payment. 

 To compute the proposed wage-adjusted Federal 

prospective payment, we multiply the labor portion of the 

proposed Federal payment by the appropriate wage index 

found in the addendum in Tables A and B. The resulting 

figure is the wage-adjusted labor amount. Next, we compute 

the proposed wage-adjusted Federal payment by adding the 

wage-adjusted labor amount to the non-labor portion. 

 Adjusting the proposed wage-adjusted Federal payment 

by the facility-level adjustments involves several steps. 

First, we take the wage-adjusted Federal prospective 
CMS-1349-P 134 

 

payment and multiply it by the appropriate rural and LIP 

adjustments (if applicable). Second, to determine the 

appropriate amount of additional payment for the teaching 

status adjustment (if applicable), we multiply the teaching 

status adjustment (0.0610, in this example) by the wageadjusted and rural-adjusted amount (if applicable). 

Finally, we add the additional teaching status payments (if 

applicable) to the wage, rural, and LIP-adjusted Federal 

prospective payment rates. Table 12 illustrates the 

components of the adjusted payment calculation. 

TABLE 12: Example of Computing the Proposed IRF FY 2012 

Federal Prospective Payment 

Steps 

Rural Facility A 

(Spencer Co., IN) 

Urban Facility B 

(Harrison Co., IN) 

1 

Unadjusted Federal 

Prospective Payment $ 30,488.46 $ 30,488.46

2 Labor Share X 0.70334 X 0.70334

3 

Labor Portion of Federal 

Payment = $21,443.75 = $21,443.75

4 

CBSA Based Wage Index 

(shown in the Addendum , 

Tables 1 and 2) X 0.8391 X 0.8896

5 Wage-Adjusted Amount = $17,993.45 = $19,076.36

6 Nonlabor Amount + $9,004.71 + $9,004.71

7 

Wage-Adjusted Federal 

Payment = $27,038.16 = $28,121.07

8 Rural Adjustment X 1.187 X 1.000

9 

Wage- and Rural- Adjusted 

Federal Payment = $32,094.30 = $28,121.07

10 LIP Adjustment X 1.0093 X 1.0269

11 

FY 2012 Wage-, Rural- and 

LIP- Adjusted Federal 

Prospective Payment Rate = $32,392.77 = $28,877.53

12 

FY 2012 Wage- and RuralAdjusted Federal Prospective 

Payment $32,094.30 $28,121.07

13 Teaching Status Adjustment X 0.0000 X 0.0610
CMS-1349-P 135 

 

Steps 

Rural Facility A 

(Spencer Co., IN) 

Urban Facility B 

(Harrison Co., IN) 

14 

Teaching Status Adjustment 

Amount = $0.00 = $1,715.39

15 

FY2012 Wage-, Rural-, and 

LIP-Adjusted Federal 

Prospective Payment Rate + $32,392.77 + $28,877.53

16 

Total FY 2012 Adjusted 

Federal Prospective Payment = $32,392.77 = $30,592.91

Thus, the proposed adjusted payment for Facility A would be 

$32,392.77 and the proposed adjusted payment for Facility B 

would be $30,592.91.
CMS-1349-P 136 

 

VI. Proposed Update to Payments for High-Cost Outliers 

Under the IRF PPS 

A. Proposed Update to the Outlier Threshold Amount for 

FY 2012

 Section 1886(j)(4) of the Act provides the Secretary 

with the authority to make payments in addition to the 

basic IRF prospective payments for cases incurring 

extraordinarily high costs. A case qualifies for an 

outlier payment if the estimated cost of the case exceeds 

the adjusted outlier threshold. We calculate the adjusted 

outlier threshold by adding the IRF PPS payment for the 

case (that is, the CMG payment adjusted by all of the 

relevant facility-level adjustments) and the adjusted 

threshold amount (also adjusted by all of the relevant 

facility-level adjustments). Then, we calculate the 

estimated cost of a case by multiplying the IRF’s overall 

CCR by the Medicare allowable covered charge. If the 

estimated cost of the case is higher than the adjusted 

outlier threshold, we make an outlier payment for the case 

equal to 80 percent of the difference between the estimated 

cost of the case and the outlier threshold. 

 In the FY 2002 IRF PPS final rule (66 FR 41362 through 

41363), we discussed our rationale for setting the outlier 

threshold amount for the IRF PPS so that estimated outlier 

payments would equal 3 percent of total estimated payments. 
CMS-1349-P 137 

 

For the 2002 IRF PPS final rule, we analyzed various 

outlier policies using 3, 4, and 5 percent of the total 

estimated payments, and we concluded that an outlier policy 

set at 3 percent of total estimated payments would optimize 

the extent to which we could reduce the financial risk to 

IRFs of caring for high-cost patients, while still 

providing for adequate payments for all other (non-high 

cost outlier) cases. 

 Subsequently, we updated the IRF outlier threshold 

amount in the FYs 2006 through 2010 IRF PPS final rules and 

the FY 2011 notice (70 FR 47880, 71 FR 48354, 72 FR 44284, 

73 FR 46370, 74 FR 39762, and 75 FR 42836, respectively) to 

maintain estimated outlier payments at 3 percent of total 

estimated payments. We also stated in the FY 2009 final 

rule (73 FR 46370 at 46385) that we would continue to 

analyze the estimated outlier payments for subsequent years 

and adjust the outlier threshold amount as appropriate to 

maintain the 3 percent target. 

 To update the IRF outlier threshold amount for FY 

2012, we propose to use FY 2010 claims data and the same 

methodology that we used to set the initial outlier 

threshold amount in the FY 2002 IRF PPS final rule 

(66 FR 41316 and 41362 through 41363), which is also the 

same methodology that we used to update the outlier 

threshold amounts for FYs 2006 through 2011. Based on an 
CMS-1349-P 138 

 

analysis of this updated data, we estimate that IRF outlier 

payments as a percentage of total estimated payments are 

approximately 2.7 percent in FY 2011. Based on the updated 

analysis, we propose to update the outlier threshold amount 

to $11,822 to maintain estimated outlier payments at 

approximately 3 percent of total estimated aggregate IRF 

payments for FY 2012. 

 The proposed outlier threshold amount of $11,822 for 

FY 2012 is subject to change in the final rule if more 

recent data become available for analysis or if any changes 

are made to any of the other proposed payment policies set 

forth in this proposed rule. 

B. Proposed Update to the IRF Cost-to-Charge Ratio 

Ceilings

 In accordance with the methodology stated in the 

FY 2004 IRF PPS final rule (68 FR 45674, 45692 through 

45694), we apply a ceiling to IRFs’ CCRs. Using the 

methodology described in that final rule, we propose to 

update the national urban and rural CCRs for IRFs, as well 

as the national CCR ceiling for FY 2012, based on analysis 

of the most recent data that is available. We apply the 

national urban and rural CCRs in the following situations: 

● New IRFs that have not yet submitted their first 

Medicare cost report. 

● IRFs whose overall CCR is in excess of the national 
CMS-1349-P 139 

 

CCR ceiling for FY 2012, as discussed below. 

● Other IRFs for which accurate data to calculate an 

overall CCR are not available. 

 Specifically, for FY 2012, we estimate a proposed 

national average CCR of 0.669 for rural IRFs, which we 

calculate by taking an average of the CCRs for all rural 

IRFs using their most recently submitted cost report data. 

Similarly, we estimate a national average CCR of 0.520 for 

urban IRFs, which we calculate by taking an average of the 

CCRs for all urban IRFs using their most recently submitted 

cost report data. We apply weights to both of these 

averages using the IRFs’ estimated costs, meaning that the 

CCRs of IRFs with higher costs factor more heavily into the 

averages than the CCRs of IRFs with lower costs. For this 

proposed rule, we have used the most recent available cost 

report data (FY 2009). This includes all IRFs whose cost 

reporting periods begin on or after October 1, 2008, and 

before October 1, 2009. If, for any IRF, the FY 2009 cost 

report was missing or had an “as submitted” status, we used 

data from a previous fiscal year’s (that is, FY 2004 

through FY 2008) settled cost report for that IRF. We do 

not use cost report data from before FY 2004 for any IRF 

because changes in IRF utilization since FY 2004 resulting 

from the 60 percent rule and IRF medical review activities 

suggest that these older data do not adequately reflect the 
CMS-1349-P 140 

 

current cost of care. 

 In addition, in accordance with past practice, we 

propose to set the national CCR ceiling at 3 standard 

deviations above the mean CCR. Using this method, the 

national CCR ceiling is set at 1.55 for FY 2012. This 

means that, if an individual IRF’s CCR exceeds this ceiling 

of 1.55 for FY 2012, we would replace the IRF’s CCR with 

the appropriate national average CCR (either rural or 

urban, depending on the geographic location of the IRF). 

We estimate the national CCR ceiling by: 

 Step 1. Taking the national average CCR (weighted by 

each IRF’s total costs, as discussed above) of all IRFs for 

which we have sufficient cost report data (both rural and 

urban IRFs combined). 

 Step 2. Estimating the standard deviation of the 

national average CCR computed in step 1. 

 Step 3. Multiplying the standard deviation of the 

national average CCR computed in step 2 by a factor of 3 to 

compute a statistically significant reliable ceiling. 

 Step 4. Adding the result from step 3 to the national 

average CCR of all IRFs for which we have sufficient cost 

report data, from step 1. 

 We note that the proposed national average rural and 

urban CCRs and our estimate of the national CCR ceiling in 

this section are subject to change in the final rule if 
CMS-1349-P 141 

 

more recent data become available for use in these 

analyses.
CMS-1349-P 142 

 

VII. Impact of the IPPS Data Matching Process Changes on 

the IRF PPS Calculation of the Low-Income Percentage 

Adjustment Factor

 Section 1886(j)(3)(A)(v) of the Act confers broad 

authority upon the Secretary to adjust the per unit payment 

rate “by such . . . factors as the Secretary determines are 

necessary to properly reflect variations in necessary costs 

of treatment among rehabilitation facilities.” For 

example, we adjust the Federal prospective payment amount 

associated with a CMG to account for facility-level 

characteristics such as an IRF’s LIP, teaching status, and 

location in a rural area, if applicable, as described in 

§412.624(e). 

 In the FY 2002 IRF PPS final rule (66 FR 41359 through 

41361) that implemented the IRF PPS, we established the IRF 

LIP adjustment. In that final rule, we said that we would 

calculate the LIP adjustment by using the same 

disproportionate share hospital (DSH) patient percentage 

used in the acute IPPS DSH adjustment. 

 The DSH patient percentage is equal to the sum of the 

“Supplemental Security Income (SSI) fraction” and the 

“Medicaid Fraction.” We compute the SSI fraction (also 

known as the “SSI ratio” or the “Medicare fraction”) by 

dividing the number of the facility’s inpatient days that 

are furnished to patients who were entitled to both 
CMS-1349-P 143 

 

Medicare Part A (including patients who are enrolled in a 

Medicare Advantage (Part C) plan) and SSI benefits by the 

facility’s total number of patient days furnished to 

patients entitled to benefits under Medicare Part A 

(including patients who are enrolled in a Medicare 

Advantage (Part C) plan). To determine the number of 

inpatient days for individuals entitled to both Medicare 

Part A and SSI, as required for calculation of the 

numerator of the SSI fraction, CMS matches the Medicare 

records and SSI eligibility records for each IRF’s patients 

during the FY. The data underlying the match process are 

drawn from: (a) The Medicare Provider Analysis and Review 

(MedPAR) data file; and (b) SSI eligibility data provided 

by the Social Security Administration (SSA). CMS recently 

revised this data match. See the FY 2011 IPPS final rule 

(75 FR 50041, 50276). 

As previously stated, it is our policy to calculate 

the LIP adjustment using the same DSH patient percentage 

used in the acute IPPS DSH adjustment. In keeping with 

this long-standing policy, we will use the same matching 

process as IPPS for calculating the SSI fractions for FYs 

2011 and beyond. This process is described in the FY 2011 

IPPS final rule, and will be used to calculate IRFs’ SSI 

fractions for FY 2011. The FY 2011 IPPS final rule 

(75 FR 50277 through 50286) gives information on this 
CMS-1349-P 144 

 

revised data matching process. 
CMS-1349-P 145 

 

VIII. Proposed Updates to the Policies in 42 CFR 412 

 Prior to the implementation of the IRF PPS on 

January 1, 2002, IRFs were paid based on the costs that 

they reported on their Medicare cost reports, subject to 

some limits. To simplify the cost reporting process, both 

for providers and for CMS and the Medicare contractors that 

monitored the cost reports, regulations were put into place 

that carefully defined, for example, when and how providers 

could be considered “new” and when and how they could 

expand their bed size and square footage. Under the IRF 

PPS, however, Medicare pays IRFs according to Federal 

prospective payment rates that are no longer tied to an 

individual IRF’s Medicare cost reports. This new payment 

methodology has made some of the requirements regarding new 

IRFs and IRF expansions obsolete. 

 In addition, prior to 2002, the regulations 

distinguished between freestanding rehabilitation hospitals 

and rehabilitation units of acute care hospitals, with 

separate regulatory sections for the two types of 

facilities even though many of the same requirements 

applied to both. Under the IRF PPS, the distinctions 

between freestanding IRFs and IRF units are no longer 

relevant because both types of facilities are paid the same 

and are subject to the same rules and requirements. The 

current separation of the regulatory sections results in 
CMS-1349-P 146 

 

unnecessary repetition and confusion about which 

regulations apply to which types of facilities. 

 In addition, we added new IRF coverage requirements to 

§412.622(a)(3), (4), and (5) in the FY 2010 IRF PPS final 

rule (74 FR 39762 at 39811 through 39812) for IRF 

discharges occurring on or after January 1, 2010. Several 

of the IRF conditions of payment in the existing §412.23(b) 

and §412.29, including the requirements for preadmission 

screenings to be conducted on all prospective patients, the 

requirements for IRF patients to receive close medical 

supervision, the requirements for plans of care to be 

developed for all IRF patients, and the requirements for 

patients to receive an interdisciplinary approach to care 

in the IRF, mirror some of the IRF coverage requirements in 

§412.622(a)(3), (4), and (5). 

 Finally, in recent years, we have observed an increase 

in the number and complexity of acquisitions and mergers 

occurring in this industry. In some cases, the current 

Medicare rules and requirements for IRFs do not adequately 

address the number and complexity of acquisitions and 

mergers because they simply did not occur when the 

regulations were written. In other cases, regulations were 

written to address issues that do not exist today. 

 For all of these reasons, in this proposed rule we 

propose to consolidate, clarify, and revise the regulations 
CMS-1349-P 147 

 

for inpatient rehabilitation facilities at §412.23(b), 

§412.25(b), §412.29, and §412.30 to update and simplify the 

policies, to eliminate unnecessary repetition and 

confusion, and to enhance the consistency with the IRF 

coverage requirements in §412.622(a)(3), (4), and (5). 

Since the proposed modifications would eliminate 

regulations that may no longer be strictly necessary under 

the IRF PPS, they would enable IRFs to more easily adjust 

to beneficiary changes in demand for IRF services, which 

would improve beneficiary access to these services. The 

proposed modifications would also reduce costs for 

providers and for the government by reducing the amount of 

time and expenditures devoted to adhering to (for 

providers) and enforcing (for the government) regulations 

that may no longer be strictly necessary. Since we have no 

way of determining how many IRFs might take advantage of 

the added flexibility these regulations afford to expand or 

change their operations, we are not able to quantify the 

savings. However, for example, each time an IRF unit 

submits a request to add beds to its facility under the 

current regulations, the Medicare contractor must determine 

whether or not the added IRF beds will be considered “new.” 

To be considered “new,” the beds must be added at the start 

of a cost reporting period, and the hospital must have 

“obtained approval, under State licensure and Medicare 
CMS-1349-P 148 

 

certification, for an increase in its hospital bed capacity 

that is greater than 50 percent of the number of beds it 

seeks to add to the unit.” We believe that the first 

requirement (that beds can only be added at the start of a 

cost reporting period) is difficult, and potentially 

costly, for IRFs that are expanding through new 

construction because the exact timing of the end of a 

construction project is often difficult to predict. 

Construction delays can hamper an IRF’s ability to have the 

construction completed exactly at the start of a cost 

reporting period, which can lead to significant revenue 

loss for the facility if the IRF is unable to add beds 

until the next cost reporting period. We believe that it 

is no longer necessary to require IRF beds to be added at 

the start of a cost reporting period. Further, the current 

regulations require Medicare contractors to expend 

unnecessary resources determining whether the IRF has met 

the second criteria, which requires the hospital to have 

“obtained approval, under State licensure and Medicare 

certification, for an increase in its hospital bed capacity 

that is greater than 50 percent of the number of beds it 

seeks to add to the unit.” The proposed modifications to 

the regulations are designed to simplify the regulations in 

order to minimize the amount of effort that Medicare 

contractors would need to spend enforcing them. Finally, 
CMS-1349-P 149 

 

the proposed modifications would enhance the consistency 

between the IRF coverage and payment requirements. 

 We note that §412.25(b) applies to both IRFs and 

inpatient psychiatric facilities (IPFs), so the proposed 

revisions to §412.25(b) would also affect IPFs in similar 

ways. 

A. Proposed Consolidation of the Requirements for 

Rehabilitation Hospitals and Rehabilitation Units

 Under the IRF PPS, rehabilitation hospitals and 

rehabilitation units of acute care hospitals (and critical 

access hospitals (CAHs)) are paid the same and, with very 

few exceptions, are subject to the same Medicare rules and 

requirements. For this reason, we believe that it is no 

longer necessary to have separate sections in 42 CFR part 

412 that define the requirements for rehabilitation 

hospitals and rehabilitation units of acute care hospitals 

(and CAHs). This leads to excessive repetition and 

potential confusion about which rules apply to which types 

of facilities. 

 Thus, we propose to revise and consolidate the 

regulations for rehabilitation facilities that are 

currently in §412.23(b) (for rehabilitation hospitals), 

§412.29 (for rehabilitation units), and §412.30 (for 

rehabilitation units) into a revised §412.29 that would 

contain the requirements for all IRFs, whether they be 
CMS-1349-P 150 

 

freestanding rehabilitation hospitals or rehabilitation 

units of acute care hospitals (or CAHs). We believe that 

this would simplify the regulations by consolidating the 

majority of the requirements for IRFs into just one subsection of part 412. 

 Although we are proposing slight modifications to the 

regulations in §412.25(b), as discussed in section VII.C. 

of this proposed rule, we are not proposing to move the IRF 

regulations in §412.25 to §412.29 in this proposed rule. 

The regulations in §412.25, such as the requirement to have 

beds that are physically separate from the rest of the 

hospital, the requirement that the unit be serviced by the 

same Medicare contractor as the rest of the hospital, and 

the requirement that the unit be treated as a separate cost 

center for cost finding and apportionment purposes, by 

their nature apply uniquely to units that are part of 

another hospital. Since these requirements are not 

applicable to freestanding IRFs, we do not believe that it 

would be appropriate to include them with the rest of the 

IRF regulations in §412.29 that are intended to apply to 

both freestanding IRF hospitals and to IRF units of 

hospitals. Further, we are not proposing modifications to 

§412.25, other than the proposed changes to §412.25(b) as 

discussed in section VII.C. of this proposed rule, because 

the regulations in §412.25(a) through (g) (excluding (b)) 
CMS-1349-P 151 

 

remain relevant and important for defining IRF units of 

hospitals for payment purposes. 

 However, we propose to replace the text that is 

currently located at §412.23(b) with text that simply 

refers the reader to the requirements in §412.29, and move 

the rest of §412.23(b) and all of §412.30 to §412.29. We 

propose to leave text in §412.23(b) that refers IRFs to the 

requirements they must meet in §412.29 only so that we do 

not disturb the ordering of the rest of §412.23 that 

contain the Medicare regulations for inpatient psychiatric 

facilities, children’s hospitals, and long-term care 

hospitals. Specifically, we propose to move all of the 

text in §412.23(b) to §412.29 except for a new paragraph 

that refers to the requirements in §412.29, which would 

read as follows: “(b) Rehabilitation hospitals. A 

rehabilitation hospital must meet the requirements 

specified in §412.29 to be excluded from the prospective 

payment systems specified in §412.1(a)(1) and to be paid 

under the prospective payment system specified in 

§412.1(a)(3) and in subpart P of this part.” 

B. Proposed Revisions to the Regulations at Proposed 

§412.29 

 As described in section VIII.A. of this proposed rule, 

we propose to replace the text that is currently located at 

§412.23(b) with text that simply refers the reader to the 
CMS-1349-P 152 

 

requirements in §412.29, and move the rest of §412.23(b) 

and all of §412.30 to §412.29. To eliminate any 

unnecessary repetition, and to update and clarify the 

regulations, we are also proposing revisions to the 

language from all three of the current sections, 

§412.23(b), §412.29, and §412.30. As stated in current 

§412.30, a rehabilitation unit can only be considered “new” 

if the hospital has never had a rehabilitation unit before. 

We have encountered circumstances in which a hospital 

closed a rehabilitation unit over 20 years ago and is now 

seeking to re-open the rehabilitation unit, and we believe 

that it would be reasonable to consider the rehabilitation 

unit to be “new.” Thus, we are proposing to revise the 

requirements for an IRF to be considered “new” to indicate 

that an IRF can be considered “new” if it has not been paid 

under the IRF PPS in 42 CFR part 412, subpart P for at 

least 5 calendar years. These proposed requirements would 

now apply equally to both rehabilitation hospitals and 

rehabilitation units of acute care hospitals (or CAHs), and 

would be located in proposed §412.29(c)(1). We believe 

that 5 calendar years would allow a sufficient amount of 

time between an IRF closing and an IRF reopening to prevent 

IRFs from closing and reopening annually to avoid meeting 

certain requirements, while allowing IRFs more flexibility 

to meet changing demand for IRF services. 
CMS-1349-P 153 

 

 In addition, we propose to clarify and simplify the 

rules regarding change of ownership (including mergers) or 

leasing, as defined in §489.18.. Changes of ownership or 

leasing, as defined in §489.18, and mergers in which the 

new owner(s) accept assignment of the previous owner’s 

provider agreements are transfers of the provider 

agreement. Therefore, we propose that IRFs in these 

situations would retain their excluded status and would 

continue to be paid under the IRF PPS before and after the 

change, as long as the IRF continues to meet all of the 

requirements specified in §412.29. However, we propose to 

clarify that a change of ownership (including merger) or 

leasing in which the new owner(s) do not accept assignment 

of the previous owner’s provider agreement would be 

considered a voluntary termination of the provider 

agreement, and the new owner(s) would need to reapply to 

the Medicare program as an initial applicant to operate a 

new IRF. In the case of changes of ownership (including 

mergers) or leasing, we propose that the new owner(s) would 

not be required to wait for 5 calendar years to reapply to 

operate a new IRF, but would be required to complete the 

initial hospital or critical access hospital certification 

process to participate in Medicare as a new IRF. 

 Further, we also propose to revise the regulations 

regarding new IRF beds. The regulations currently in 
CMS-1349-P 154 

 

§412.30(d), which require an IRF to obtain “approval, under 

State licensure and Medicare certification, for an increase 

in its hospital bed capacity that is greater than 50 

percent of the number of beds it seeks to add to the unit,” 

have become less and less relevant under a prospective 

payment system in which payments are no longer based on 

IRFs’ reported costs. Thus, we propose to eliminate these 

requirements and, instead, propose in §412.29(c)(2) that 

IRF beds would be considered “new” if they meet all 

applicable State Certificate of Need and State licensure 

laws and if they get written approval from the appropriate 

CMS regional office (RO), as described below. We propose 

that new IRF beds can be added one time at any point during 

a cost reporting period (instead of at the start of a cost 

reporting period), but we propose to require that a full 

12-month cost reporting period elapse before an IRF that 

has had beds delicensed or decertified can add new beds. 

The reason for this proposed requirement is to prevent IRFs 

from decreasing and increasing bed size every year to avoid 

having to meet certain requirements. We propose to require 

the IRF to obtain written approval from the appropriate CMS 

RO for the addition of the new beds in order to allow the 

CMS RO to verify that a full 12-month cost reporting period 

has elapsed before an IRF that has had beds delicensed or 

decertified can add new beds. 
CMS-1349-P 155 

 

C. Proposed Revisions to the Requirements for Changes in 

Bed Size and Square Footage

 Prior to the IRF PPS and the IPF PPS, excluded units 

(IRFs and IPFs) were paid based on their costs, as reported 

on their Medicare cost reports, subject to certain 

facility-specific cost limits. These cost-based payments 

were determined separately for operating and capital costs. 

Thus, under cost-based payments, the facilities’ capital 

costs were determined, in part, by their bed size and 

square footage. Changes in the bed size and square footage 

would complicate the facilities’ capital cost allocation. 

Thus, the Medicare regulations at §412.25 limited the 

situations under which an IRF or IPF could change its bed 

size and square footage. 

 Under the IRF PPS and IPF PPS, however, a facility’s 

bed size and square footage is not relevant for determining 

the individual facility’s Medicare payment. Thus, we 

believe it is appropriate to modify some of the 

restrictions on a facility’s ability to change its bed size 

and square footage. We are therefore proposing in this 

proposed rule to relax the restrictions on a facility’s 

ability to increase its bed size and square footage. Under 

the proposed requirements in §412.25, an IRF or IPF could 

change (either increase or decrease) its bed size or square 

footage one time at any point in a given cost reporting 
CMS-1349-P 156 

 

period as long as it notifies the CMS RO within 30 days of 

the proposed change and maintains the required 

documentation. We note that any IRF beds that are added to 

an existing IRF during the IRF’s cost reporting period 

would only be considered new through the end of that cost 

reporting period. Further, the new IRF beds would be 

included in the IRF’s compliance review calculations under 

the 60 percent rule specified in §412.29(b) beginning on 

the date that they are first added to the IRF. 

D. Proposed Revisions to Enhance Consistency Between the 

IRF Coverage and Payment Requirements

 In the FY 2010 IRF PPS final rule (74 FR 39762 at 

39788 through 39798), CMS implemented new IRF coverage 

requirements in §412.622(a)(3),(4), and (5). These new IRF 

coverage requirements replaced coverage requirements that 

were 25 years old and no longer reflected current medical 

practice. In updating these coverage requirements, we 

added further specificity to some of the terms that had 

been discussed in the old coverage requirements. For 

example, we more clearly defined in the new IRF coverage 

requirements what we mean by an IRF preadmission screening, 

care planning, and close medical supervision. In the 

proposed revisions to §412.23(b) and §412.29, we propose to 

enhance the consistency between the IRF coverage and 

payment requirements by incorporating some of the added 
CMS-1349-P 157 

 

specificity from the coverage requirements into the same 

requirements for payment. Specifically, we propose to 

clarify that, as in the IRF coverage requirements, IRF 

preadmission screenings must be reviewed and approved by a 

rehabilitation physician prior to each prospective 

patient’s admission to an IRF. As we said in the FY 2010 

IRF PPS final rule (74 FR 39791), we believe that it is 

important to require that a rehabilitation physician 

document the reasoning behind the decision to admit a 

patient to an IRF, to enable medical reviewers to 

understand the rationale for the decision. 

 Further, we propose to clarify, as we did in the 

coverage requirements at §412.622(a)(3)(iv), that close 

medical supervision in an IRF means that the patient 

receives at least 3 face-to-face visits per week by a 

licensed physician with specialized training and experience 

in inpatient rehabilitation to assess the patient both 

medically and functionally, as well as to modify the course 

of treatment as needed to maximize the patient’s capacity 

to benefit from the rehabilitation process. As we stated 

in the FY 2010 IRF PPS final rule (74 FR 39796), we believe 

that at least 3 face-to-face rehabilitation physician 

visits per week are necessary to coordinate the patient’s 

medical needs with his or her functional rehabilitation 

needs while in the facility. 
CMS-1349-P 158 

 

 Finally, we propose to clarify that we believe that 

discharge planning, in addition to assessment of the 

patient’s goals and progress toward those goals, is an 

integral part of the interdisciplinary team approach to 

care that is provided in IRFs. 

 The specific proposed changes to the regulations at 

part 412 are shown in the “Regulation Text” of this 

proposed rule of this proposed rule. We encourage 

stakeholder comment on these proposed changes.
CMS-1349-P 159 

 

IX. Quality Reporting for Inpatient Rehabilitation 

Hospitals 

A. Background and Statutory Authority

 CMS seeks to promote higher quality and more efficient 

health care for Medicare beneficiaries. Our efforts are, 

in part, effectuated by quality reporting programs coupled 

with the public reporting of data collected under those 

programs. The quality reporting programs exist for various 

settings such as hospital inpatient services (the Hospital 

Inpatient Quality Reporting (Hospital IQR) Program), 

hospital outpatient services (the Hospital Outpatient 

Quality Data Reporting Program (HOP QDRP)), and for 

physicians and other eligible professionals the Physician 

Quality Reporting System (formerly called the Physician 

Quality Reporting Initiative, or PQRI). We have also 

implemented quality reporting programs for home health 

agencies and skilled nursing facilities that are based on 

conditions of participation, and an end-stage renal disease 

quality incentive program (ESRD QIP) that links payment to 

performance. 

 Section 3004(b) of the Affordable Care Act added 

section 1886(j)(7) to the Act, which requires the Secretary 

to implement a quality reporting program for Inpatient 

Rehabilitation Facilities (IRFs), including freestanding 

IRF hospitals and IRF units within hospitals. Beginning in 
CMS-1349-P 160 

 

FY 2014, section 1886(j)(7)(A)(i) of the Act requires the 

Secretary to reduce the increase factor with respect to a 

fiscal year by 2 percentage points for any IRFs that do not 

submit data to the Secretary in accordance with 

requirements established by the Secretary for that fiscal 

year. Section 1886(j)(7)(A)(ii)of the Act notes that this 

reduction may result in the increase factor being less than 

0.0 for a fiscal year, and in payment rates under this 

subsection for a fiscal year being less than the payment 

rates for the preceding fiscal year. Any reduction based 

on failure to comply with the reporting requirements is, in 

accordance with section 1886(j)(7)(B) of the Act, limited 

to the particular fiscal year involved. The reductions are 

not to be cumulative and will not be taken into account in 

computing the payment amount under subsection (j) for a 

subsequent fiscal year. 

Section 1886(j)(7)(C) of the Act requires that each 

IRF submit data to the Secretary on quality measures 

specified by the Secretary. The data must be submitted in 

a form and manner, and at a time, specified by the 

Secretary. The Secretary is generally required to specify 

measures that have been endorsed by the entity with a 

contract under section 1890(a) of the Act. This contract 

is currently held by the National Quality Forum (NQF). The 

NQF is a voluntary consensus standard-setting organization 
CMS-1349-P 161 

 

with a diverse representation of consumer, purchaser, 

provider, academic, clinical, and other health care 

stakeholder organizations. The NQF was established to 

standardize health care quality measurement and reporting 

through its consensus development process. We have 

generally adopted NQF-endorsed measures in our reporting 

programs. However, section 1886(j)(7)(D)(ii)of the Act 

provides that “in the case of a specified area or medical 

topic determined appropriate by the Secretary for which a 

feasible and practical measure has not been endorsed by the 

entity with a contract under section 1890(a) of the Act, 

the Secretary may specify a measure that is not so endorsed 

as long as due consideration is given to measures that have 

been endorsed or adopted by a consensus-based organization 

identified by the Secretary." Under section 

1886(j)(7)(D)(iii) of the Act, the Secretary must publish 

the selected measures that will be applicable with respect 

to FY 2014 no later than October 1, 2012. 

Section 1886(j)(7)(E) of the Act requires the 

Secretary to establish procedures for making data submitted 

under the IRF quality reporting program available to the 

public. The Secretary must ensure that an IRF is given the 

opportunity to review the data that is to be made public 

prior to the data being made public. The Secretary must 

report quality measures that relate to services furnished 
CMS-1349-P 162 

 

in inpatient settings in rehabilitation facilities on the 

CMS Web site. 

B. Quality Measures for IRF Quality Reporting Program for 

FY 2014 

1. General 

We propose to adopt 2 quality measures for FY 2014. 

These quality measures are: 1) Urinary Catheter-Associated 

Urinary Tract Infections (CAUTI), and 2) Pressure Ulcers 

that are New or Have Worsened. We also discuss below a 

third measure that we are currently developing and intend 

to propose to adopt for FY 2014 in future rulemaking. That 

measure will be the 30-day Comprehensive All-Cause RiskStandardized Readmission Measure. 

2. Considerations in the Selection of the Proposed Quality 

Measures 

 In implementing the IRF Quality Reporting Program, we 

seek to collect data on measures that will provide 

information on the full spectrum of the quality of care 

being furnished by IRFs while imposing as little burden as 

possible on IRFs. We seek to collect data on valid, 

reliable, and relevant quality measures and to make that 

data available to the public in accordance with applicable 

law. 

We also seek to align new Affordable Care Act 

reporting requirements for IRFs with HHS high priority 
CMS-1349-P 163 

 

conditions and topics, as reflected in the National Quality 

Strategy released by the Secretary 

(http://www.healthcare.gov/center/reports/quality03212011a.

html#es) and to ultimately provide a comprehensive 

assessment of the quality of healthcare delivered. We note 

that adopting a comprehensive set of measures may take 

multiple years because of the time, effort and resources 

required by IRFs and CMS to develop and implement the data 

collection and reporting infrastructure needed to support 

an expanded quality reporting program. Current areas of 

high priority for HHS include patient safety, healthcare 

associated infections, and reduction of avoidable 

readmissions. These priorities are consistent with the aim 

of providing safe, sound care for all patients receiving 

services in any healthcare setting including IRFs. 

In our consideration and selection of a comprehensive 

set of quality measures, we have several objectives. 

First, the measures should align with CMS’ three-part aim 

for better care for individuals, better health for 

populations, and lower cost through improvement. Second, 

the measures should relate to specific priorities in the 

care setting for which they are adopted. For IRFs, these 

include improving patient safety (such as avoiding 

healthcare associated infections (HAI)), reducing adverse 

events, and encouraging better coordination of care and 
CMS-1349-P 164 

 

person-and-family-centered care. Third, the measures 

should address improved quality for the primary role of 

IRFs, which is to address the rehabilitation needs of the 

individual including improved functional status and 

achievement of successful return to the community postdischarge. 

 Other considerations in proposing quality measures 

include alignment with other Medicare quality reporting 

programs and other private sector initiatives; suggestions 

and input received from multiple stakeholders and national 

subject matter experts; seeking measures that have a low 

probability of causing unintended adverse consequences; and 

considering measures that are feasible, that is, measures 

that can be technically implemented within the capacity of 

the CMS infrastructure for data collection, analyses, and -

calculation of reporting and performance rates as 

applicable.

3. FY 2014 Measure #1: Healthcare Associated Infection 

Measure (HAI): Urinary Catheter-Associated Urinary Tract 

Infections (CAUTI) 

The first measure we propose for IRFs for purposes of 

calculating the FY 2014 Increase Factor is an application 

of the NQF-endorsed measure developed by the Centers for 

Disease Control (CDC) for hospitals entitled (NQF# 

0138)"Urinary Catheter-Associated Urinary Tract Infection 
CMS-1349-P 165 

 

[CAUTI] for Intensive Care Unit Patients" to the IRF 

setting. This measure was developed by the CDC to measure 

the percentage of patients with urinary catheter associated 

urinary tract infections in the ICU context. At the time 

of this proposed rule, the measure we are applying, (NQF# 

0138), is undergoing measure maintenance review by NQF 

which may result in a change in how the CDC calculates the 

aggregated data from using a standard rate for CAUTI, to 

the use of a standardized infection ratio (SIR) of 

healthcare associated urinary catheter-associated urinary 

tract infections. We propose to adopt the current measure 

in this rulemaking cycle. However, we intend to propose 

the adoption of any modifications to this measure that may 

result from the NQF review process in future rulemaking. 

We recognize that the NQF has endorsed this measure for the 

hospital setting, but believe that this measure is highly 

relevant to IRFs in that urinary catheters are commonly 

used in the IRF setting. Section 1886(j)(7)(D)(ii) 

provides that “in the case of a specified area or medical 

topic determined appropriate by the Secretary for which a 

feasible and practical measure has not been endorsed by the 

entity with a contract under section 1890(a), the Secretary 

may specify a measure that is not so endorsed as long as 

due consideration is given to measures that have been 

endorsed or adopted by a consensus-based organization 
CMS-1349-P 166 

 

identified by the Secretary." We reviewed the NQF’s 

consensus endorsed measures, and were unable to identify 

any NQF-endorsed measures for urinary catheter-associated 

urinary tract infections for the IRF setting. We are 

unaware of any other measures of urinary tract infections 

that have been approved by voluntary consensus standards 

bodies. 

 Having given due consideration to other measures that 

have been endorsed or adopted by a consensus entity, we 

propose to adopt an application of the NQF-endorsed CAUTI 

measure under the Secretary's authority to select non-NQF 

endorsed measures where NQF-endorsed measures do not exist 

for a specified area or medical topic. While we are 

proposing to adopt the measure under the exception 

authority provided in section 1886(j)(7)(D)(ii), we note 

that we intend to ask NQF to formally extend its 

endorsement of the existing CAUTI measure to the IRF 

setting. 

 Urinary tract infections (UTIs) are a common cause of 

morbidity and mortality. The urinary tract is the most 

common site of healthcare-associated infection, accounting 

for more than 30 percent of infections reported by acute 

care hospitals[1. Healthcare-associated UTIs are commonly 

 

[1Klevens RM, Edward JR, et al. Estimating health care-associated infections and deaths in U.S. hospitals, 

2002. Public Health Reports 2007;122:160-166. 
CMS-1349-P 167 

 

attributed to catheterization of the urinary tract. 

CAUTI can lead to the complications as cystitis, 

pyelonephritis, gram-negative bacteremia, prostatitis, 

epididymitis, and orchitis in males and, less commonly, 

endocarditis, vertebral osteomyelitis, septic arthritis, 

endophthalmitis, and meningitis in all patients. 

Complications associated with CAUTI include discomfort to 

the patient, prolonged hospital stay, and increased cost 

and mortality. Each year, more than 13,000 deaths are 

associated with UTIs[1]. Prevention of CAUTIs is discussed 

in the CDC/HICPAC document, Guideline for Prevention of 

Catheter-associated Urinary Tract Infections[2]. The NQF 

endorsed CAUTI measure we are proposing is currently 

collected by the CDC's National Healthcare Safety Network 

(NHSN), a secure internet-based health surveillance system, 

and we note that the CDC is also collecting data on this 

measure from IRFs. NHSN is currently used, in part, as one 

means by which certain State-mandated reporting and 

surveillance data are collected. 

 The HHS National Action Plan to Prevent HAI 

(http://www.hhs.gov/ash/initiatives/hai/actionplan/index.ht

ml) identified catheter-associated urinary tract infections 

as the leading type of HAI that is largely preventable. 

 

[2] Wong ES. Guideline for prevention of catheter-associated urinary tract infections. Infect 

Control 1981;2:126-30.
CMS-1349-P 168 

 

The technical expert panel (TEP) convened by the CMS 

measure-developer-contractor on February 4, 2011 

(https://www.cms.gov/LTCH-IRF-Hospice-Quality-Reporting/) 

also identified CAUTI as a high priority quality issue for 

IRFs. 

4. FY 2014 Measure #2: Percent of Patients with Pressure 

Ulcers that are New or Worsened 

 The second measure we propose for IRFs for purposes of 

calculating the FY 2014 increase factor is an application 

of a CMS developed NQF-endorsed measure for short-stay 

nursing home patients; (NQF# NH-012-10) "Percent of 

Residents with Pressure Ulcers that Are New or Worsened." 

This is the percentage of patients who have one or more 

stage 2-4 pressure ulcers that are new or worsened, when 

assessed at the time of discharge as compared with the 

patient’s condition when it was assessed at admission. We 

recognize NQF endorsement of this measure is limited to 

short-stay nursing home patients, but believe that this 

measure is highly relevant and a high priority quality 

issue in the care of IRF patients. Currently, there are no 

other NQF-endorsed pressure ulcer measures that are 

applicable to IRFs and we were unable to identify other 

measures for pressure ulcers that have been endorsed or 

adopted for the IRF context by a consensus organization. 

We are also unaware of any other measures of pressure 
CMS-1349-P 169 

 

ulcers that have been approved by voluntary consensus 

standards bodies. For these reasons, we propose to adopt 

an application of this NQF-endorsed measure under the 

Secretary's authority to select non-NQF endorsed measures 

where measures do not exist for a specified area or medical 

topic. We also intend to ask NQF to extend its endorsement 

of the existing short-stay nursing home pressure ulcer 

measure to the IRF setting. 

 Pressure ulcers are high-volume and high-cost adverse 

events across the spectrum of health care settings from 

acute hospitals to home health. Patients in the IRF 

setting may have medically complex conditions and severe 

functional limitations, and are therefore at high risk for 

the development, or worsening, of pressure ulcers. 

Pressure ulcers are serious medical conditions and an 

important measure of quality. Pressure ulcers can lead to 

serious, life-threatening infections, which substantially 

increase the total cost of care. As reported in the 

August 22, 2007, Inpatient Hospital PPS Final Rule for FY 

2008 (72 FR 47205) in 2006 there were 322,946 reported 

cases of Medicare patients with a pressure ulcer as a 

secondary diagnosis in acute care hospitals. 

5. Potential FY 2014 measure #3: 30-day Comprehensive AllCause Risk-Standardized Readmission Measure. 

 Avoidable hospital readmissions are a high priority 
CMS-1349-P 170 

 

for HHS and CMS. We are currently developing settingspecific risk adjusted 30-day all-condition all-cause riskstandardized readmission measures for hospitals, IRFs, long 

term care hospitals and nursing homes. The main features 

of the measure methodology will be consistent with that of 

the NQF-endorsed CMS hospital risk-adjusted 30-day 

readmission measures for the Acute Myocardial Infarction 

(AMI), Heart Failure (HF), Pneumonia and Percutaneous 

Coronary Intervention (PCI). We plan to cover the maximum 

number of patient conditions possible in the all-condition 

measures. We will consult literature and national experts 

and conduct analyses on the types and comorbidities of the 

patients of each setting in order to establish appropriate 

risk–adjustment of the measures as well as the 

meaning/definition of readmission and the appropriate timewindow for readmission for each care setting. To expand 

beyond the condition-specific measures to an all-condition 

readmission measure for each setting, we will conduct 

analyses to determine whether it is statistically and 

clinically sound to derive the all-condition measures from 

one single risk adjustment model, or if it would be better 

to form a composite of multiple models for multiple 

conditions. We plan to use hierarchical logistic 

regression modeling to take into account the effects of the 

clustering of patients and the sample size in the IRF 
CMS-1349-P 171 

 

setting. This measure is expected to be completed in late 

2011, at which time it will be submitted to the entity with 

a contract under section 1890(a) of the Act for 

endorsement. 

 We invite public comments on the proposed quality 

measures for FY 2014: (1) Urinary Catheter-Associated 

Urinary Tract Infections (CAUTI); 2) Pressure Ulcers that 

are New or Have Worsened. We also invite public comment on 

our intent to propose a 30-day Comprehensive All-Cause 

Risk-Standardized Readmission Measure. 

C. Data Submission Requirements

1. Proposed method of data submission for HAI measure 

(CAUTI)

We propose to require that IRFs submit data on the 

Urinary Catheter-Associated Urinary Tract Infection (CAUTI) 

measure through the Centers for Disease Control 

(CDC)/National Healthcare Safety Network (NHSN). As we 

noted above, the NHSN is a secure, Internet-based 

surveillance system maintained by the CDC that can be 

utilized by all types of healthcare facilities in the 

United States, including acute care hospitals, long term 

acute care hospitals, psychiatric hospitals, rehabilitation 

hospitals, outpatient dialysis centers, ambulatory surgery 

centers, and long term care facilities. The NHSN enables 

healthcare facilities to collect and use data about HAIs, 
CMS-1349-P 172 

 

including information on clinical practices known to 

prevent HAIs, information on the incidence or prevalence of 

multidrug-resistant organisms within their organizations, 

and information on other adverse events. Some States use 

the NHSN as a means of collecting state law mandated HAI 

reporting. NHSN collects data via a Web-based tool hosted 

by the CDC (http://www.cdc.gov/). This reporting service 

is provided free of charge to healthcare facilities. 

Additionally, the ability of the CDC to receive NHSN 

measures data from electronic health records (EHR) may be 

possible in the near future. Currently, more than 20 

States require hospitals to report HAIs using NHSN, and the 

CDC supports more 4,000 hospitals that are using the NHSN. 

We propose for IRFs to submit the data elements needed 

to calculate the Urinary Catheter-Associated Urinary Tract 

Infection measure using the NHSN's standard data submission 

requirements which requires submission of data on HAI 

events on all patients. Collecting data on all patients 

will provide CMS with the most robust, accurate reflection 

of the quality of care delivered to Medicare beneficiaries 

as compared with non-Medicare patients. Therefore, to 

measure the quality of care that is delivered to Medicare 

beneficiaries in the IRF setting, we are proposing to 

collect quality data related to HAI events on all patients 

regardless of payor. 
CMS-1349-P 173 

 

CDC/NHSN requirements may include adherence to 

training requirements, use of CDC measure specifications, 

data element definitions, data submission requirements and 

instructions, data reporting timeframes, as well as NHSN 

participation forms and indications to CDC allowing CMS to 

access data for this measure for the IRF quality reporting 

program purposes. Detailed requirements for NHSN 

participation, measure specifications, and data collection 

can be found at http://www.cdc.gov/nhsn/. We propose to 

require IRFs to use the specifications and data collection 

tools for the proposed Urinary Catheter-Associated Urinary 

Tract Infections as required by CDC as of the time that the 

data is submitted. 

For purposes of calculating the FY 2014 increase 

factor we propose to collect data on CAUTI events that 

occur from October 1, 2012 through December 31, 2012, the 

final fiscal quarter of FY 2013. We propose that all 

subsequent IRF quality reporting cycles would be based on a 

full calendar year (CY) cycle (that is January 1 through 

December 31 of the applicable year). For example, the 

FY 2015 payment determinations will be made based on 

CY 2013 data submitted to CDC. We welcome comments on the 

proposed reporting cycle for IRFs. 

Should this proposed measure be finalized, further 

details regarding data submission and reporting 
CMS-1349-P 174 

 

requirements for this measure will be posted on the CMS 

Website http://www.cms.gov/LTCH-IRF-Hospice-QualityReporting/ by no later than January 31, 2012. 

IRFs are also encouraged to visit the CDC Website 

http://www.cdc.gov/nhsn/ in order to review the NHSN 

enrollment and reporting requirements. 

2. Proposed method of data submission for the Percent of 

Patients with New or Worsened Pressure Ulcer measure. 

We seek to implement the IRF Quality Reporting Program 

in a manner that imposes as little burden as possible. 

IRFs already are required to submit certain data for 

purposes of determining payment via the current Inpatient 

Rehabilitation Facility-Patient Assessment Instrument (IRFPAI). The IRF-PAI also includes currently optional 

"quality indicators" (QI). To support the standardized 

collection and calculation of quality measures specifically 

focused on IRF services, we propose to modify the current 

IRF-PAI by replacing the current optional pressure ulcer 

items in the QI section of the IRF-PAI with mandatory 

pressure ulcer data elements for the proposed measure. 

We propose for IRFs to submit the data needed to 

calculate the measure “Percent of Patients with New or 

Worsened Pressure Ulcers” on all Medicare patients. 

Therefore, to measure the quality of care that is delivered 

to Medicare beneficiaries in the IRF setting, we are 
CMS-1349-P 175 

 

proposing to collect quality data related to new or 

worsening pressure ulcers on all Medicare patients. 

We propose to use the IRF-PAI to collect pressure 

ulcer data elements that would be similar to those 

collected through the Minimum Data Set 3.0 (MDS 3.0), which 

is a reporting instrument that is used in nursing homes. A 

draft of the proposed IRF-PAI revisions with the new 

pressure ulcer elements is available on the CMS Web site at 

http://www.cms.gov/InpatientRehabFacPPS/04_IRFPAI.asp#TopOf

Page. The current MDS 3.0 pressure ulcer items evolved as 

an outgrowth of CMS’ work to develop a standardized patient 

assessment instrument, now referred to as CARE (Continuity 

Assessment Record & Evaluation). 

The CARE assessment instrument was developed and 

tested in the post-acute care payment reform demonstration 

(PAC-PRD) which included IRFs as required by section 5008 

of the 2005 Deficit Reduction Act (DRA) (Pub. L. 109-171, 

enacted February 8, 2006) (more information may be found at 

www.pacdemo.rti.org). We note that the MDS data elements 

were supported by the National Pressure Ulcer Advisory 

Panel (NPUAP). We believe that modifying the current IRFPAI pressure ulcer items to be consistent with the 

standardized data elements now used in the MDS 3.0, will 

drive uniformity across settings that will lead to better 

quality of care in IRFs and ultimately, across the 
CMS-1349-P 176 

 

continuum of care settings. If this proposal is finalized, 

additional details regarding the use of modified IRF-PAI 

data elements to calculate this measure will be published 

on the CMS Web site at http://www.cms.gov/LTCH-IRF-HospiceQuality-Reporting/ by no later than January 31, 2012. We 

invite comments on these proposals for the submission of 

data on the proposed quality measure for pressure ulcers. 

3. Potential method of data submission for the 30-day 

Comprehensive All-Cause Risk-Standardized Readmission 

Measure. 

In the FY 2013 rule cycle we anticipate being able to 

propose using claims data otherwise submitted by the IRF as 

the data to calculate this measure. As such, we anticipate 

not needing additional reporting to fulfill the data needs 

if this measure is proposed and adopted. We generally 

anticipate calculating the measure based on 3 years of 

claims data in order to provide a sufficient number of 

discharges to calculate this measure. 

D. Public Reporting

 Under section 1886(j)(7)(E)of the Act, the Secretary 

is required to establish procedures for making data 

submitted by IRFs under the IRF quality reporting program 

available to the public. In accordance with this 

provision, we propose to establish procedures to make the 

data available to the public. We do not intend to make 
CMS-1349-P 177 

 

individual patient data public. We believe that existing 

laws governing access to agency records will adequately 

address requests for such data. We will adopt procedures 

that will ensure that an IRF has the opportunity to review 

the data to be made public prior to the data being made 

public. Additionally, as required under section 

1886(j)(7)(E) of the Act, we will report quality measures 

that relate to services furnished in IRFs on CMS Web site. 

E. Quality Measures for Future Consideration for 

Determination of Increase Factors for Future Fiscal Year 

Payments

 As indicated previously in this section, we ultimately 

seek to adopt a comprehensive set of quality measures to be 

available for widespread use for informed decision making 

and quality improvement. While we are beginning with a 

limited set of measures in the IRF context, we expect to 

expand the measure set through rulemaking which will allow 

us, for example, to assess an IRF patient’s functional 

status and whether he/she has achieved his or her 

rehabilitation goals and potential. As noted above, IRFs 

are currently required to submit certain data for purposes 

of determining payment via the IRF-PAI. The IRF-PAI 

currently includes optional QIs, and, if finalized, it 

would include mandatory data elements for use in the 

calculation of the pressure ulcer measure. Only a small 
CMS-1349-P 178 

 

number of IRFs are currently submitting data on the 

optional QI data elements. 

 We intend to propose a more robust set of measures for 

the IRF quality reporting program in the FY 2013 rulemaking 

cycle for the determination of the FY 2015 payment increase 

factor. We are considering the measures listed in Table 13 

which include, but are not limited to, measure topics 

reported by providers of skilled nursing facility (SNF) 

services for short stay nursing home patients. We invite 

public comment on which quality measures would be 

considered most feasible and useful for IRFs to report for 

purposes of the FY 2015 payment update. 

The quality data on short stay nursing home patients, 

which generates the short stay nursing home measures, are 

generated from the MDS 3.0 data collection vehicle. We are 

currently analyzing the quality data collected by nursing 

homes through the 3.0 version of the MDS which was 

implemented nationally in nursing homes in October 2010. 

Nursing homes are reporting data for long stay residents as 

well as short stay residents. We will be analyzing the 

performance of these nursing home measures through the end 

of 2011 and expect to have findings on their performance in 

the nursing home setting by early 2012. Next steps would 

include analyzing whether any of these measures would be 

appropriate for application in the IRF setting. We would 
CMS-1349-P 179 

 

invite public comment on the application of some or all of 

the short stay nursing home measures listed below. We are 

seeking NQF endorsement of these measures by August 2011. 

These measures may also be found at the NQF website 

www.qualityforum.org/. CMS’ short stay nursing home 

measures undergoing NQF endorsement include NH-010-10 

percent of residents who self-report moderate to severe 

pain; NH-014-10 percent of residents assessed and 

appropriately given the seasonal influenza vaccine; NH-016-

10 percent of residents assessed and appropriately given 

the seasonal pneumococcal vaccine and NH-009-10 percentage 

of residents on a scheduled pain medication regimen on 

admission who self-report a decrease in pain intensity or 

frequency. 

If any of the short stay nursing home measures are 

appropriate for application to the IRF setting we would 

intend to propose some or all of those measures in the 

FY 2013 rule making cycle. Any added measures proposed 

through the FY 2013 rulemaking cycle would apply to the 

payment determination for FY 2015. We expect that any 

measures proposed through the FY 2013 rulemaking cycle 

would require changes to the IRF-PAI as a data collection 

vehicle and changes to the supporting information 

technology (IT) infrastructure. We expect that it would 

take providers, vendors, and CMS approximately one year to 
CMS-1349-P 180 

 

make the necessary changes to their IT systems to support 

the collection and reporting of new or modified IRF-PAI 

data elements. We would expect providers, vendors, and CMS 

to complete any needed changes to their IT systems by 

August 2013. We would intend to propose IRFs submit any 

additional or revised IRF-PAI data elements starting 

October 1, 2013 through December 31, 2013 for the FY 2015 

payment update. Alternatively, we are considering and 

invite public comment on the possibility of basing future 

quality measures on data sources or assessment instruments 

other than the IRF-PAI. As stated earlier, we developed 

and tested the CARE assessment instrument for the postacute demonstration under section 5008 of the DRA. We 

intend to submit a report to Congress by the end of 2011 

with findings from the three year Post Acute Care-Payment 

Reform Demonstration (PAC-PRD) and its use of the CARE 

patient assessment instrument as a data collection vehicle. 

More details on the PAC-PRD which concluded in late 2010 

are available at www.pacdemo.rti.org. We believe that the 

data elements that were collected using this CARE 

standardized assessment instrument could be used across all 

post-acute care sites to measure functional status and 

other factors during treatment and at discharge which are 

key indicators of quality in IRFs and in nursing homes 

treating short stay patients requiring rehabilitative 
CMS-1349-P 181 

 

services. We believe the instrument could be beneficial in 

supporting the submission of data on quality measures by 

IRFs and other care settings by ensuring standardized data 

collection. We invite comments on the use of a 

standardized assessment instrument such as the CARE 

assessment instrument in IRFs to collect data that would 

generate additional quality measures for the IRF quality 

reporting program in the future. 

We also invite public comment on the measures and 

measures topics in Table 13, as well as potential methods 

for collecting quality data on the percent of patients 

whose individually stated goals were met and the percent of 

patients for whom care delivered was consistent with 

patient stated care preferences. During the NQF 

endorsement process for nursing home quality measures 

mentioned above, the NQF steering committee pointed to the 

need for CMS to consider pairing pain measures with a 

measure or measures that reflect patients’ preferences for 

how their care, treatment and symptoms are managed by 

healthcare providers. These items, and other items in 

Table 13, are under consideration for future years. We 

also invite other suggestions regarding our implementation 

of the IRF quality measures program. 

TABLE 13: Possible Future Measures and Topics for the IRF 
CMS-1349-P 182 

 

Quality Reporting Program 

Overarching Goal: Safety and Healthcare Acquired Conditions: Avoidable Adverse 

Events and Serious Reportable Events* 

• Unplanned acute care hospitalizations 

• Falls with Major Injury* ** 

• Falls with major injury per 1000 days. 

• Incidence of venous thromboembolism (VTE), potentially 

preventable. * 

• Poly-pharmacy related injury 

• Medication errors* 

• Stage III and IV Pressure Ulcers** 

Overarching Goal: Safety and Prevention 

• VTE Prophylaxis 

• Patient Immunization for Influenza 

• Patient Immunization for Pneumonia 

• Staff immunization 

Overarching Goal: Safety and Healthcare Acquired Conditions – HAIs 

 • Surgical site infections 

• Multidrug resistant organism infection 

Overarching Goal: Better, Person Centered-Care: Care Coordination/Care 

Outcome 
CMS-1349-P 183 

 

• Functional Change: Change in Motor Score 

• Change in Cognitive Function: Change in Cognitive Score 

• Communication 

• Percent of patients whose individually stated goals were met 

• Care Transitions Measure-3 (CTM-3) 

• Discharge Outcome/Discharge disposition: 

- Home 

- Assisted Living 

- Nursing Home 

- LTCH 

- Hospital 

- Hospice 

• Patient Preferences for care, treatment and management of 

symptoms by healthcare providers 

Overarching Goal: Better, Person Centered-Care: Symptom Management 

• Percent of patients on a scheduled pain management regime on 

admission who report a decrease in pain intensity or frequency 

• Percent of patients with pain assessment conducted and 

documented prior to therapy. 

• Percent of patients who self-report moderate to severe pain. 

• Percent of patients with dyspnea improved within one day of 

assessment. 

Overarching Goal: Better, Person Centered-Care: Experience of Care 

• Patient Survey, e.g., 

 Hospital Consumer Assessment of Healthcare Providers & Systems 

• Percent of patients for whom care delivered was consistent with 

patient stated care preferences. 

*Consistent with NQF Serious Reportable Events 

 **Consistent with HAC Prevalence Measure

F. Proposed New Regulation Text for the IRF Quality 

Reporting Program 

To implement the new IRF quality reporting program, we 

propose to re-designate the existing paragraph 

§412.624(c)(4) as §412.624(c)(5) and add a new paragraph 

§412.624(c)(4). The specific proposed changes to the 

regulations at part 412 are shown in the “Regulation Text” 
CMS-1349-P 184 

 

of this proposed rule of this proposed rule. We encourage 

stakeholder comment on these proposed changes. 

X. 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. 

This proposed rule does not impose any new information 

collection requirements as outlined in the regulation text. 

However, this proposed rule does make reference to 
CMS-1349-P 185 

 

associated information collections that are not discussed 

in the regulation text contained in this document. The 

following is a discussion of these information collections, 

some of which have already received OMB approval. 

As stated in Section IX.B. of the preamble of this 

proposed rule, for purposes of calculating the FY 2014 IRF 

PPS increase factor, we propose that IRFs submit data on 2 

quality measures. These quality measures are: 1) Catheter 

Associated Urinary Tract Infections; and 2) Pressure Ulcers 

that are New or Have Worsened. The aforementioned measures 

will be collected via the following respective means. 

Catheter Associated Urinary Tract Infections (CAUTI)

Regarding the collection of data on the first quality 

measure, Catheter Associated Urinary Tract Infections, we 

propose to require as the form and manner of submission for 

the measure, CAUTI rate per 1000 urinary catheter days, to 

be through the Centers for Disease Control (CDC)/National 

Health Safety Network (NHSN). Data collection by the NHSN 

occurs via a Web-based tool hosted by the CDC. This 

reporting service is provided free of charge to healthcare 

facilities. In fact, some IRFs are already using the NHSN 

to collect and submit this data. With this proposed rule, 

CMS seeks to impose an information collection requirement 

for the CAUTI measure. It should be noted that information 

collection activities associated with the CDC/NHSN are 
CMS-1349-P 186 

 

currently approved under OMB control number 0920-0666. 

Detailed requirements for NHSN participation, measure 

specifications, and data collection can be found at 

http://www.cdc.gov/nhsn/. IRFs must use the current 

specifications and data collection tools for Catheter 

Associated Urinary Tract Infections. 

 CMS does not currently require IRFs to report data to 

NHSN; however, according to the CDC, there are 26 IRFs that 

already submit data to NHSN either voluntarily or per state 

mandate. In order to report data to NHSN, the CDC requires 

the facility to enroll into the NHSN and take specified 

training. As per the NHSN Web site, we estimate that it 

will take 240 minutes (4 hours) to register and complete 

the necessary training provided by the CDC. The estimated 

annual burden associated with this requirement is 268,800 

minutes/4,480 hours (240 minutes x 1,120 IRFs) at an 

estimated cost of $186,323. This cost is estimated using 

the average hourly wage of a Registered Nurse which is 

reported by the U.S. Bureau of Statistics to be $41.59. 

Once each facility has been properly registered into NHSN 

and trained, they will need to submit two types of forms in 

order for CDC to calculate the CAUTI rate per 1,000 urinary 

catheter days. The first form, the Urinary Tract Infection 

(UTI) form, is submitted by facilities for each patient 

with a CAUTI. We estimate that it will take 15 minutes per 
CMS-1349-P 187 

 

form per IRF. This time estimate consists of 5 minutes of 

nursing time needed to collect the clinical data and 10 

minutes of clerical time necessary to enter the data into 

NHSN. We further anticipate that there will be 

approximately 2.25 forms submitted per IRF per month. 

Based on this estimate, we expect for each IRF to expend 

33.75 minutes (0.5625 hours) per month and 405 minutes 

(6.75 hours) per year reporting to NHSN. The estimated 

annual burden to all IRFs in the U.S. for reporting to NHSN 

is 7,735.5 hours. The estimated cost per IRF is $186.14 per 

year. Similarly, the estimated total yearly cost across 

all IRFs is $213,322. These costs are estimated using an 

hourly wage for a Registered Nurse of $41.59 and a Medical 

Billing Clerk/Data Entry person of $20.57 as stated by the 

U.S. Bureau of Labor Statistics. The second form, the 

denominator form, is used to count daily the number of 

patients with an indwelling catheter device. These daily 

counts are summed and only the total for each month is 

submitted to NHSN. While CDC estimates that the 

denominator form takes 5 hours per month to complete, we 

estimate that it will take 2.5 hours per form per IRF per 

month, as the number of patients with an indwelling 

catheter is the only part of this form that IRFs will be 

required to complete. We anticipate that there will be one 

form submitted per IRF per month. Based on this estimate, 
CMS-1349-P 188 

 

we expect for each IRF to expend 150 minutes (2.5 hours) 

per month and 1,800 minutes (30 hours) per year reporting 

to NHSN. The estimated annual burden to all IRFs in the 

U.S. for reporting to NHSN is 34,380 hours. The estimated 

cost per IRF is $1,247.70 per year. Similarly, the 

estimated total yearly cost across all IRFs is $1,429,864. 

These costs are estimated using an hourly wage for a 

Registered Nurse of $41.59. 

Pressure Ulcers that are New or Have Worsened

 As stated in Section IX.C.2 of this preamble, to 

support the standardized collection and calculation of 

quality measures specifically focused on IRF services, we 

propose to modify the current Inpatient Rehabilitation 

Facility-Patient Assessment Instrument (IRF-PAI) by 

replacing and harmonizing the pressure ulcer items with 

data elements similar to those collected through the 

Minimum Data Set 3.0 (MDS 3.0) used in nursing homes. 

Additionally, the MDS 3.0 pressure ulcer items have been 

harmonized with the Continuity Assessment Record and 

Evaluation (CARE) data set, which was developed for and 

broadly tested in the post-acute demonstration as required 

by section 5008 of the Deficit Reduction Act of 

2005(DRA)(Pub. L. 109-171, enacted on February 8, 2006). 

We believe modifying the IRF-PAI pressure ulcer items to be 

consistent with the standardized data elements now used in 
CMS-1349-P 189 

 

the MDS 3.0, and supported by the National Pressure Ulcer 

Advisory Panel (NPUAP), would provide better informed 

decision making and quality improvement in IRFs and 

ultimately, across the continuum of care settings. 

 Since all IRFs are already required to complete and 

transmit IRF-PAIs on all Medicare Part A fee-for-service 

and Medicare Part C (Medicare Advantage) patients in order 

to receive payment from Medicare, and the number of IRFs 

submitting claims to Medicare has remained stable over the 

past several years, we do not estimate that there are any 

IRFs that would need to conduct additional training or setup for completing and transmitting the IRF-PAI. Thus, we 

do not estimate any additional burden on IRFs for these 

activities. In addition, we do not estimate any additional 

burden for IRFs to complete the IRF-PAI with the mandatory 

quality measures as the IRF-PAI currently contains a 

voluntary “Quality Indicators” section. If finalized, the 

voluntary data items will be replaced with the proposed 

pressure ulcer question set. When the original burden 

estimates were completed for the IRF-PAI, we estimated that 

the “Quality Indicators” section of the IRF-PAI would take 

about 10 minutes to complete, and we assumed that all IRFs 

would complete the Quality Indicators items, even though 

completion of this section was voluntary. Thus, removing 

the Quality Indicators items from the IRF-PAI would 
CMS-1349-P 190 

 

decrease the total estimated burden of completing each IRFPAI by about 10 minutes. However, we estimate that it will 

take about 10 minutes to complete the new pressure ulcer 

item that we are proposing to require IRFs to complete as 

part of the new IRF quality reporting program. Since the 

time to complete the items that we are proposing to remove 

from the IRF-PAI is the same as the time to complete the 

new items we are proposing to add, we estimate no net 

change in the amount of time associated with completing 

each IRF-PAI and no net change in burden. 

We will be submitting a revision to the IRF-PAI 

information collection request currently approved under OMB 

control number 0938-0842 for OMB review and approval.

If you comment on these information collection and 

recordkeeping requirements, please do either of the 

following: 

 1. Submit your comments electronically as specified 

in the ADDRESSES section of this proposed rule; or 

 2. Submit your comments to the Office of Information 

and Regulatory Affairs, Office of Management and Budget, 

 Attention: CMS Desk Officer, CMS-1349-P 

 Fax: (202) 395-6974; or 

 Email: OIRA_submission@omb.eop.gov

XI. Response to Public Comments 
CMS-1349-P 191 

 

Because of the large number of public comments we 

normally receive on Federal Register documents, we are not 

able to acknowledge or respond to them individually. We 

will consider all comments we receive by the data and time 

specified in the “DATES” section of this preamble, and, 

when we proceed with a subsequent document, we will respond 

to the comments in the preamble to that document. 

XII. Economic Analyses 

A. Regulatory Impact Analysis 

1. Introduction 

 We have examined the impacts of this proposed rule as 

required by Executive Order 12866 (September 30, 1993, 

Regulatory Planning and Review), Executive Order 13563 on 

Improving Regulation and Regulatory Review (January 18, 

2011), the Regulatory Flexibility Act (September 19, 1980, 

Pub. L. 96-354)(RFA), section 1102(b) of the Social 

Security Act, section 202 of the Unfunded Mandates Reform 

Act of 1995 (Pub. L. 104-4), Executive Order 13132 on 

Federalism (August 4, 1999), and the Congressional Review 

Act (5 U.S.C. 804(2)). 

 Executive Orders 12866 and 13563 direct agencies to 

assess all costs and benefits of available regulatory 

alternatives and, if regulation is necessary, to select 

regulatory approaches that maximize net benefits (including 

potential economic, environmental, public health and safety 
CMS-1349-P 192 

 

effects, distributive impacts, and equity). Executive 

Order 13563 emphasizes the importance of quantifying both 

costs and benefits, of reducing costs, of harmonizing 

rules, and of promoting flexibility. This rule has been 

designated an "economically" significant rule, under 

section 3(f)(1) of Executive Order 12866. Accordingly, the 

rule has been reviewed by the Office of Management and 

Budget. 

 

2. Statement of Need 

 This proposed rule updates the IRF prospective 

payment rates for FY 2012 as required under section 

1886(j)(3)(C) of the Act. It responds to Section 

1886(j)(5) of the Act, which requires the Secretary to 

publish in the Federal Register on or before the August 1 

that precedes the start of each fiscal year, the 

classification and weighting factors for the IRF PPS’s 

case-mix groups and a description of the methodology and 

data used in computing the prospective payment rates for 

that fiscal year. 

 This rule also proposes some policy changes within 

the statutory discretion afforded to the Secretary under 

section 1886(j) of the Act. We believe that the proposed 

policy changes would better align IRF PPS policies with 

those of other Medicare payment systems and would clarify 
CMS-1349-P 193 

 

the current IRF payment regulations. Further, many of the 

proposed policy changes are designed to promote greater 

flexibility in the IRF PPS policies. 

 This proposed rule also implements section 3401(d) of 

the Affordable Care Act, which amended section 

1886(j)(3)(C) of the Act and added section 1886(j)(3)(D) of 

the Act. Section 1886(j)(3)(C) of the Act requires the 

Secretary to estimate a multi-factor productivity 

adjustment to the market basket increase factor, and to 

apply other adjustments as defined by the Act. The 

productivity adjustment applies to FYs from 2012 forward. 

The other adjustments apply to FYs 2010-2019. 

 Finally, this proposed rule discusses the IRF quality 

measures that we are proposing to adopt for the first year 

of implementation of a new IRF quality reporting program, 

as required by section 3004(b) of the Affordable Care Act. 

3. Overall Impacts 

 We estimate that the total impact of these proposed 

changes for estimated FY 2012 payments compared to 

estimated FY 2011 payments would be an increase of 

approximately $120 million (this reflects a $100 million 

increase from the update to the payment rates and a $20 

million increase due to the proposed update to the outlier 

threshold amount to increase estimated outlier payments 
CMS-1349-P 194 

 

from approximately 2.7 percent in FY 2011 to 3 percent in 

FY 2012). 

4. Detailed Economic Analysis 

i. Basis and Methodology of Estimates 

 This proposed rule sets forth updates of the IRF PPS 

rates contained in the FY 2011 notice and proposes updates 

to the CMG relative weights and average length of stay 

values, the facility-level adjustments, the wage index, and 

the outlier threshold for high-cost cases. This proposed 

rule also implements a 0.1 percentage point reduction to 

the proposed FY 2012 rebased RPL market basket increase 

factor (updated from a 2002 base year to a 2008 base year) 

in accordance with sections 1886(j)(3)(C)(ii)(II) and 

1886(j)(3)(D)(ii) of the Act and a 1.2 percent productivity 

adjustment to the proposed FY 2012 rebased RPL market 

basket increase factor as required by 

section 1886(j)(3)(C)(ii)(I) of the Act. 

 We estimate that the FY 2012 impact would be a net 

increase of $120 million in payments to IRF providers (this 

reflects a $100 million estimated increase from the 

proposed update to the payment rates and a $20 million 

estimated increase due to the proposed update to the 

outlier threshold amount to increase the estimated outlier 

payments from approximately 2.7 percent in FY 2011 to 

3.0 percent in FY 2012). The impact analysis in Table 14 
CMS-1349-P 195 

 

of this proposed rule represents the projected effects of 

the proposed policy changes in the IRF PPS for FY 2012 

compared with estimated IRF PPS payments in FY 2011 without 

the proposed policy changes. We estimate the effects by 

estimating payments while holding all other payment 

variables constant. We use the best data available, but we 

do not attempt to predict behavioral responses to these 

proposed changes, and we do not make adjustments for future 

changes in such variables as number of discharges or casemix. 

 We note that certain events may combine to limit the 

scope or accuracy of our impact analysis, because such an 

analysis is future-oriented and, thus, susceptible to 

forecasting errors because of other changes in the 

forecasted impact time period. Some examples could be 

legislative changes made by the Congress to the Medicare 

program that would impact program funding, or changes 

specifically related to IRFs. Although some of these 

changes may not necessarily be specific to the IRF PPS, the 

nature of the Medicare program is such that the changes may 

interact, and the complexity of the interaction of these 

changes could make it difficult to predict accurately the 

full scope of the impact upon IRFs. 

 In updating the rates for FY 2012, we are proposing a 

number of standard annual revisions and clarifications 
CMS-1349-P 196 

 

mentioned elsewhere in this proposed rule (for example, the 

proposed update to the wage index and market basket 

increase factor used to adjust the Federal rates). We 

estimate that these proposed revisions would increase 

payments to IRFs by approximately $100 million (all due to 

the update to the market basket increase factor, since the 

update to the wage index is done in a budget neutral 

manner—as required by statute—and therefore neither 

increases nor decreases aggregate payments to IRFs). 

 The aggregate change in estimated payments associated 

with this proposed rule is estimated to be an increase in 

payments to IRFs of $120 million for FY 2012. The market 

basket increase of $100 million and the $20 million 

increase due to the proposed update to the outlier 

threshold amount to increase estimated outlier payments 

from approximately 2.7 percent in FY 2011 to 3.0 percent in 

FY 2012 would result in a net change in estimated payments 

from FY 2011 to FY 2012 of $120 million. 

 The effects of the proposed changes that impact IRF 

PPS payment rates are shown in Table 14. The following 

proposed changes that affect the IRF PPS payment rates are 

discussed separately below: 

● The effects of the proposed update to the outlier 

threshold amount, from approximately 2.7 to 3.0 percent of 
CMS-1349-P 197 

 

total estimated payments for FY 2012, consistent with 

section 1886(j)(4) of the Act. 

● The effects of the 2.8 percent annual market 

basket update for FY 2012 (using the proposed rebased RPL 

market basket) to IRF PPS payment rates, as required by 

section 1886(j)(3)(A)(i) and section 1886(j)(3)(C) of the 

Act, including a 0.1 percentage point reduction for FY 2012 

in accordance with sections 1886(j)(3)(C)(ii)(II) and 

1886(j)(3)(D)(ii) of the Act and a 1.2 percent productivity 

adjustment as required by section 1886(j)(3)(C)(ii)(I) of 

the Act. 

● The effects of applying the budget-neutral laborrelated share and wage index adjustment, as required under 

section 1886(j)(6) of the Act. 

● The effects of the proposed budget-neutral changes 

to the CMG relative weights and average length of stay 

values, under the authority of section 1886(j)(2)(C)(i) of 

the Act. 

● The effects of the proposed budget-neutral changes 

to the facility-level adjustment factors, as permitted 

under section 1886(j)(3)(A)(v) of the Act. 

● The effect of the data matching process to compute 

the DSH patient percentage used in the IPPS DSH adjustment 

that is also used by IRF PPS to compute the low-income 

percentage adjustment factor. 
CMS-1349-P 198 

 

● The effect of the proposed IRF quality reporting 

program, Beginning in FY 2013. 

● The total proposed change in estimated payments 

based on the FY 2012 proposed policies relative to 

estimated FY 2011 payments without the proposed policies. 

ii. Description of Table 14 

 The table below categorizes IRFs by geographic 

location, including urban or rural location, and location 

with respect to CMS's nine census divisions (as defined on 

the cost report) of the country. In addition, the table 

divides IRFs into those that are separate rehabilitation 

hospitals (otherwise called freestanding hospitals in this 

section), those that are rehabilitation units of a hospital 

(otherwise called hospital units in this section), rural or 

urban facilities, ownership (otherwise called for-profit, 

non-profit, and government), and by teaching status. The 

top row of the table shows the overall impact on the 1,146 

IRFs included in the analysis. 

 The next 12 rows of Table 14 contain IRFs categorized 

according to their geographic location, designation as 

either a freestanding hospital or a unit of a hospital, and 

by type of ownership; all urban, which is further divided 

into urban units of a hospital, urban freestanding 

hospitals, and by type of ownership; and all rural, which 

is further divided into rural units of a hospital, rural 
CMS-1349-P 199 

 

freestanding hospitals, and by type of ownership. There 

are 952 IRFs located in urban areas included in our 

analysis. Among these, there are 749 IRF units of 

hospitals located in urban areas and 203 freestanding IRF 

hospitals located in urban areas. There are 194 IRFs 

located in rural areas included in our analysis. Among 

these, there are 174 IRF units of hospitals located in 

rural areas and 20 freestanding IRF hospitals located in 

rural areas. There are 376 for-profit IRFs. Among these, 

there are 314 IRFs in urban areas and 62 IRFs in rural 

areas. There are 710 non-profit IRFs. Among these, there 

are 589 urban IRFs and 121 rural IRFs. There are 60 

government-owned IRFs. Among these, there are 49 urban 

IRFs and 11 rural IRFs. 

 The remaining three parts of Table 14 show IRFs 

grouped by their geographic location within a region and by 

teaching status. First, IRFs located in urban areas are 

categorized with respect to their location within a 

particular one of the nine CMS geographic regions. Second, 

IRFs located in rural areas are categorized with respect to 

their location within a particular one of the nine CMS 

geographic regions. In some cases, especially for rural 

IRFs located in the New England, Mountain, and Pacific 

regions, the number of IRFs represented is small. Finally, 

IRFs are grouped by teaching status, including non-teaching 
CMS-1349-P 200 

 

IRFs, IRFs with an intern and resident to ADC ratio less 

than 10 percent, IRFs with an intern and resident to ADC 

ratio greater than or equal to 10 percent and less than or 

equal to 19 percent, and IRFs with an intern and resident 

to ADC ratio greater than 19 percent. 

 The estimated impacts of each proposed change to the 

facility categories listed above are shown in the columns 

of Table 14. The description of each column is as follows: 

 Column (1) shows the facility classification 

categories described above. 

 Column (2) shows the number of IRFs in each category 

in our FY 2010 analysis file. 

 Column (3) shows the number of cases in each category 

in our FY 2010 analysis file. 

 Column (4) shows the estimated effect of the proposed 

adjustment to the outlier threshold amount so that 

estimated outlier payments increase from approximately 

2.7 percent in FY 2011 to 3.0 percent of total estimated 

payments for FY 2012. 

 Column (5) shows the estimated effect of the rebased 

market basket update to the IRF PPS payment rates. 

 Column (6) shows the estimated effect of the update to 

the IRF labor-related share and wage index, in a budget 

neutral manner. 
CMS-1349-P 201 

 

 Column (7) shows the estimated effect of the update to 

the CMG relative weights and average length of stay values, 

in a budget neutral manner. 

 Column (8) shows the estimated effects of the updates 

to the facility-level adjustment factors (rural, LIP, and 

teaching status), in a budget neutral manner. 

 Column (9) compares our estimates of the payments per 

discharge, incorporating all of the proposed changes 

reflected in this proposed rule for FY 2012, to our 

estimates of payments per discharge in FY 2011 (without 

these proposed changes). 

 The average estimated increase for all IRFs is 

approximately 1.8 percent. This estimated increase 

includes the effects of the 1.5 percent market basket 

update, which is derived from a 2.8 percent rebased market 

basket update that is reduced by 0.1 percentage point for 

FY 2012 in accordance with sections 1886(j)(3)(C)(ii)(II) 

and 1886(j)(3)(D)(ii) of the Act and by a 1.2 percentage 

point productivity adjustment as required by 

section 1886(j)(3)(C)(ii)(I) of the Act. It also includes 

the 0.3 percent overall estimated increase (the difference 

between 2.7 percent in FY 2011 and 3.0 percent in FY 2012) 

in estimated IRF outlier payments from the proposed update 

to the outlier threshold amount. Because we are making the 

remainder of the proposed changes outlined in this proposed 
CMS-1349-P 202 

 

rule in a budget-neutral manner, they would not affect 

total estimated IRF payments in the aggregate. However, as 

described in more detail in each section, they would affect 

the estimated distribution of payments among providers. 

TABLE 14: Proposed IRF Impact Table for FY 2012 

Facility 

Classification 

Number 

of IRFs 

Number 

of Cases Outlier 

FY 2012 

Adjusted 

Market 

Basket 

Increase 

Factor1

FY2012 

CBSA 

wage 

index and 

laborshare CMG 

Facility 

Adjustments 

Total 

Percent 

Change 

(1) (2) (3) (4) (5) (6) (7) (8) (9) 

Total 1,146 393,611 0.3% 1.5% 0.0% 0.0% 0.0% 1.8% 

Urban unit 749 198,550 0.4 1.5 -0.2 0.0 -0.3 1.4 

Rural unit 174 27,842 0.3 1.5 0.7 0.1 0.6 3.3 

Urban hospital 203 160,607 0.1 1.5 0.0 0.0 0.3 1.8 

Rural hospital 20 6,612 0.1 1.5 1.6 0.0 0.7 3.9 

Urban For-Profit 314 149,735 0.1 1.5 0.1 -0.1 0.2 1.9 

Rural For-Profit 62 12,663 0.2 1.5 1.1 0.1 0.4 3.3 

Urban Non-Profit 589 196,463 0.3 1.5 -0.3 0.0 -0.2 1.4 

Rural Non-Profit 121 19,985 0.3 1.5 0.7 0.1 0.8 3.5 

Urban Government 49 12,959 0.5 1.5 0.2 0.0 -0.8 1.3 

Rural Government 11 1,806 0.5 1.5 1.3 0.2 0.2 3.6 

Urban 952 359,157 0.3 1.5 -0.1 0.0 -0.1 1.6 

Rural 194 34,454 0.3 1.5 0.9 0.1 0.7 3.4 

Urban by region 

Urban New England 32 16,350 0.2 1.5 -1.1 0.0 -0.1 0.5 

Urban Middle 

Atlantic 142 66,074 0.2 1.5 -0.7 0.0 -0.4 0.6 

Urban South Atlantic 130 62,319 0.2 1.5 0.0 0.0 -0.1 1.7 

Urban East North 

Central 188 56,771 0.3 1.5 0.0 0.0 0.2 2.1 

Urban East South 

Central 49 26,281 0.1 1.5 0.4 -0.1 0.6 2.5 

Urban West North 

Central 73 18,001 0.4 1.5 0.0 0.0 -0.1 1.8 

Urban West South 

Central 168 65,894 0.2 1.5 0.5 0.0 0.6 2.8 

Urban Mountain 70 23,787 0.3 1.5 0.2 -0.1 0.2 2.0 

Urban Pacific 100 23,680 0.4 1.5 -0.2 0.0 -1.7 0.0 

Rural by region 

Rural New England 6 1,350 0.6 1.6 0.8 0.1 1.1 4.1 

Rural Middle 

Atlantic 16 3,207 0.1 1.5 1.8 0.1 1.9 5.4 
CMS-1349-P 203 

 

Facility 

Classification 

Number 

of IRFs 

Number 

of Cases Outlier 

FY 2012 

Adjusted 

Market 

Basket 

Increase 

Factor1

FY2012 

CBSA 

wage 

index and 

laborshare CMG Facility 

Adjustments 

Total 

Percent 

Change 

Rural South Atlantic 24 5,958 0.2 1.5 0.8 0.1 0.9 3.4 

Rural East North 

Central 33 5,749 0.3 1.5 0.1 0.1 1.4 3.4 

Rural East South 

Central 23 3,983 0.2 1.5 1.3 0.0 -0.4 2.6 

Rural West North 

Central 31 3,926 0.5 1.5 -0.2 0.1 1.1 3.0 

Rural West South 

Central 50 9,228 0.3 1.5 1.6 0.1 -0.2 3.3 

Rural Mountain 7 666 0.4 1.5 0.3 0.1 1.2 3.5 

Rural Pacific 4 387 1.1 1.5 -0.3 0.0 0.6 2.9 

Teaching status 

Non-teaching 1,029 341,958 0.2 1.5 0.1 0.0 0.5 2.3 

Resident to ADC less 

than 10% 70 36,669 0.3 1.5 -0.4 0.0 -1.9 -0.5 

Resident to ADC 

10%-19% 32 12,272 0.4 1.5 -0.3 0.0 -3.4 -1.9 

Resident to ADC 

greater than 19% 15 2,712 0.5 1.5 -0.6 0.0 -5.3 -3.9 

1

This column reflects the impact of the rebased RPL market basket increase factor for FY 

2012 of 1.5 percent, including a 0.1 percentage point reduction in accordance with 

sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the Act and a 1.2 percent 

productivity adjustment as required by section 1886(j)(3)(C)(ii)(I) of the Act. 

iii. Impact of the Proposed Update to the Outlier Threshold 

Amount 

 In the FY 2011 IRF PPS notice (75 FR 42836), we used 

FY 2009 patient-level claims data (the best, most complete 

data available at that time) to set the outlier threshold 

amount for FY 2011 so that estimated outlier payments would 

equal 3 percent of total estimated payments for FY 2011. 

For this proposed rule, we are proposing to update our 

analysis using more current FY 2010 data. Using the 

updated FY 2010 data, we now estimate that IRF outlier 
CMS-1349-P 204 

 

payments, as a percentage of total estimated payments for 

FY 2011, decreased from 3 percent using the FY 2009 data to 

approximately 2.7 percent using the updated FY 2010 data. 

As a result, we are proposing to adjust the outlier 

threshold amount for FY 2012 to $11,822, reflecting total 

estimated outlier payments equal to 3 percent of total 

estimated payments in FY 2012. 

 The impact of the proposed update to the outlier 

threshold amount (as shown in column 4 of Table 14) is to 

increase estimated overall payments to IRFs by 0.3 percent. 

We do not estimate that any group of IRFs would experience 

a decrease in payments from this proposed update. We 

estimate the largest increase in payments to be a 

1.1 percent increase in estimated payments to rural IRFs in 

the Pacific region. 

iv. Impact of the Proposed Market Basket Update to the IRF 

PPS Payment Rates 

 The proposed adjusted market basket update to the IRF 

PPS payment rates is presented in column 5 of Table 14. 

The proposed FY 2008-based RPL market basket update is the 

same as the FY 2002-based RPL market basket (2.8 percent). 

In the aggregate the proposed update would result in a net 

1.5 percent increase in overall estimated payments to IRFs. 

This net increase reflects the estimated rebased RPL market 

basket increase factor for FY 2012 of 2.8 percent, reduced 
CMS-1349-P 205 

 

by 0.1 percentage point in accordance with sections 

1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the Act and 

a 1.2 percent productivity adjustment as required by 

section 1886(j)(3)(C)(ii)(I) of the Act. 

v. Impact of the Proposed CBSA Wage Index and Labor-Related 

Share 

 In column 6 of Table 14, we present the effects of the 

proposed budget neutral update of the wage index and 

labor-related share. The changes to the wage index and the 

labor-related share are discussed together because the wage 

index is applied to the labor-related share portion of 

payments, so the changes in the two have a combined effect 

on payments to providers. As discussed in section V.A.4 of 

this proposed rule, the labor-related share decreased from 

75.271 percent in FY 2011 to 70.334 percent in FY 2012. 

 In the aggregate, since these updates to the wage 

index and the labor-related share are applied in a budgetneutral manner as required under section 1886(j)(6) of the 

Act, we do not estimate that these updates will affect 

overall estimated payments to IRFs. However, we estimate 

that these proposed changes would have small distributional 

effects. For example, we estimate a 0.9 percent increase 

in payments to rural IRFs, with the largest increase in 

payments of 1.8 percent for rural IRFs in the Mid-Atlantic 

region. We estimate the largest decrease in payments from 
CMS-1349-P 206 

 

the proposed update to the CBSA wage index and laborrelated share to be a 1.1 percent decrease for urban IRFs 

in the New England region. 

vi. Impact of the proposed update to the CMG relative 

weights and average length of stay values 

 In column 7 of Table 14, we present the effects of the 

proposed budget neutral update of the CMG relative weights 

and average length of stay values. In the aggregate we do 

not estimate that these proposed updates will affect 

overall estimated payments to IRFs. However, we estimate 

that these proposed updates will have small distributional 

effects, with the largest increase in payments as a result 

of these updates being a 0.2 percent increase to rural 

government IRFs. The largest estimated decrease in 

payments as a result of these proposed updates is a 0.1 

percent decrease to urban for-profit IRFs and urban IRFs in 

the Mountain region and East South Central region. 

vii. Impact of the proposed update to the rural, LIP, and 

teaching status adjustment factors 

 In column 8 of Table 14, we present the effects of the 

proposed budget neutral update to the rural, LIP, and 

teaching status adjustment factors. In the aggregate, we 

do not estimate that these proposed changes would affect 

overall estimated payments to IRFs. However, we estimate 

that these proposed changes would have small distributional 
CMS-1349-P 207 

 

effects. We estimate the largest increase in payments to 

be a 1.9 percent increase for IRFs in the rural MidAtlantic region. We estimate the largest decrease in 

payments to be a 5.3 percent decrease for teaching IRFs 

with resident to ADC ratios of greater than 19 percent. 

viii. Impact of the IPPS Data Matching Process Changes on 

the IRF PPS Calculation of the Low-Income Percentage 

Adjustment Factor 

 In section VII of this proposed rule, we note the 

recent revision of the data matching process that is used 

to calculate the disproportionate share hospital (DSH) 

patient percentage used in the acute IPPS DSH adjustment. 

As we have stated previously, it is our policy in 

calculating the LIP adjustment factor to use the same 

disproportionate share hospital (DSH) patient percentage 

used in the acute IPPS DSH adjustment. This would include 

the data matching process. We are not able to provide a 

detailed analysis of the impact of the revised data 

matching process. That is, it is not possible to determine 

whether IRF LIP adjustment payments will generally increase 

or decrease, because IRFs’ SSI fractions will vary 

depending on various factors, including the use of a more 

updated MedPAR claims data file, use of a more updated SSI 

eligibility data file, and the other features of the 

revised data matching process. See the FY 2011 IPPS final 
CMS-1349-P 208 

 

rule (75 FR 50663 through 50664) for more information on 

the revised data matching process. 

ix. Impact of the Proposed IRF Quality Reporting Program 

Beginning in FY 2013 

 As discussed in section IX.B. of this proposed rule, 

we propose to begin collecting data on 2 quality measures 

from October 1, 2012 through December 31, 2012 (FY 2013). 

These quality measures are: 1) Catheter Associated Urinary 

Tract Infections; and 2) Pressure Ulcers that are New or 

Have Worsened. As discussed in section X. of this proposed 

rule, we estimate that IRFs would incur costs associated 

with the collection of these data, which we detail below. 

Catheter Associated Urinary Tract Infections

 As stated in section IX.C.1. of this proposed rule, we 

propose to collect data on the first quality measure, 

Catheter Associated Urinary Tract Infections, through the 

Centers for Disease Control (CDC)/National Health Safety 

Network (NHSN). CMS does not currently require IRFs to 

report data to NHSN. However, some IRFs submit data to 

NHSN either voluntarily or per state mandate. According to 

the CDC, 26 IRFs already report data to NHSN. We estimate 

that 1,120 IRFs (1146 minus the 26 IRFs that are already 

reporting data to NHSN) would incur costs for registering 

and completing the necessary training provided by the CDC 

in FY 2012 in preparation for submitting the data beginning 
CMS-1349-P 209 

 

on October 1, 2012 (FY 2013). We estimate that registering 

and completing the necessary training of the required 

personnel at each IRF would take 4 hours at a cost of 

$41.59 per hour, at an estimated cost per IRF of $166.36 

per IRF and a total estimated cost across all IRFs of 

$186,323. 

 Once IRFs begin submitting data to the NHSN on Catheter 

Associated Urinary Tract Infections by October 1, 2012 (FY 

2013), they will need to submit two types of forms in order 

for CDC to calculate the CAUTI rate per 1000 urinary 

catheter days. We estimate that the first form, the 

Urinary Tract Infection (UTI) form, will take 15 minutes 

per reporting episode per IRF and that there will be 

approximately 2.25 NHSN submissions per IRF per month. 

Based on this estimate, we expect for each IRF to expend 

33.75 minutes (0.5625) hours per month and 405 minutes 

(6.75) hours per year reporting to NHSN. The estimated 

annual burden to all IRFs in the U.S. for reporting to NHSN 

is 7,735.5 hours. The estimated yearly cost per IRF is 

$186.14 and the estimated total yearly cost across all IRFs 

is $213,322. While CDC estimates that the second form, the 

denominator form used to count daily the number of patients 

with an indwelling catheter device, will take 5 hours per 

month to complete, we estimate that it will take 2.5 hours 

per form per IRF per month as the number of patients with 

an indwelling catheter is the only part of this form that 
CMS-1349-P 210 

 

IRFs will be required to complete. We anticipate that 

there will be one form submitted per IRF per month and each 

IRF will expend 150 minutes (2.5 hours) per month and 1,800 

minutes (30 hours) per year reporting to NHSN. The 

estimated annual burden to all IRFs in the U.S. for 

reporting to NHSN is 34,380 hours. The estimated cost per 

IRF is $1,247.70 per year and the estimated total yearly 

cost across all IRFs is $1,429,864. These costs are 

estimated using an hourly wage for a Registered Nurse of 

$41.59 and a Medical Billing Clerk/Data Entry person of 

$20.57. 

Pressure Ulcers that are New or Have Worsened

 As stated in Section IX.C.2 of this proposed rule, we 

propose to modify the current IRF-PAI by removing the items 

currently in the “Quality Indicators” section and replacing 

them with pressure ulcer items similar to elements from the 

Minimum Data Set 3.0 (MDS 3.0) nursing home instrument. 

Since all IRFs are already required to complete and 

transmit IRF-PAIs on all Medicare Part A fee-for-service 

and Medicare Part C (Medicare Advantage) patients in order 

to receive payment from Medicare, and since the number of 

IRFs submitting claims to Medicare has remained stable over 

the past several years, we do not estimate that there are 

any IRFs that would need to conduct additional training or 

set-up for completing and transmitting the IRF-PAI. Thus, 
CMS-1349-P 211 

 

we do not estimate any additional cost to IRFs in FY 2012 

for these activities. In addition, since IRFs are already 

transmitting the IRF-PAI form to CMS, we do not estimate 

any additional transmission costs associated with the 

proposed IRF quality reporting program. Further, we do not 

estimate any additional burden for IRFs to complete an IRFPAI with mandatory quality measures as the IRF-PAI 

currently contains a voluntary “Quality Indicators” 

section, which will be replaced with the proposed pressure 

ulcer question set. When the original burden estimates 

were completed for the IRF-PAI, we estimated that the 

“Quality Indicators” section of the IRF-PAI would take 

about 10 minutes to complete, and we assumed that all IRFs 

would complete the Quality Indicators items, even though 

completion of this section was voluntary. Thus, removing 

the Quality Indicators items from the IRF-PAI would 

decrease the total estimated burden of completing each IRFPAI by about 10 minutes. However, we estimate that it will 

take about 10 minutes to complete the new pressure ulcer 

item that we are proposing to require IRFs to complete as 

part of the new IRF quality reporting program. Since the 

time to complete the items that we are proposing to remove 

from the IRF-PAI is the same as the time to complete the 

new items we are proposing to add, we estimate no net 
CMS-1349-P 212 

 

change in the amount of time or the costs associated with 

completing each IRF-PAI. 

5. Alternatives Considered

 Although we have determined that this proposed rule 

will not have a significant economic impact on a 

substantial number of small entities,, we have voluntarily 

prepared a discussion on the alternatives considered to the 

IRF PPS. 

 Section 1886(j)(3)(C) of the Act requires the 

Secretary to update the IRF PPS payment rates by an 

increase factor that reflects changes over time in the 

prices of an appropriate mix of goods and services included 

in the covered IRF services. Thus, we did not consider 

alternatives to updating payments using the estimated RPL 

market basket increase factor for FY 2012. In this 

proposed rule, we are proposing to rebase the RPL market 

basket for FY 2012, as we typically do every 5 to 7 years, 

from a 2002 base year to a 2008 base year. We considered 

not proposing this rebasing of the RPL market basket for 

FY 2012; however, periodically rebasing the RPL market 

basket ensures that it continues to reflect the most 

accurate account of the cost of relevant goods and 

services. For FY 2012, the proposed update on the FY 2008-

based RPL market basket is the same as the FY 2002-based 

RPL market basket (2.8 percent). In accordance with the 
CMS-1349-P 213 

 

recently amended section 1886(j)(3)(C) of the Act, we are 

proposing to update IRF Federal prospective payments in 

this proposed rule by 1.5 percent (which equals the 2.8 

percent estimated rebased RPL market basket increase factor 

for FY 2012 reduced by 0.1 percentage point, as required by 

sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the 

Act and reduced by a 1.2 percent productivity adjustment as 

required by section 1886(j)(3)(C)(ii)(I) of the Act). 

 We considered maintaining the existing CMG relative 

weights and average length of stay values for FY 2012. 

However, in light of recently available data and our desire 

to ensure that the CMG relative weights and average length 

of stay values are as reflective as possible of recent 

changes in IRF utilization and case mix, we believe that it 

is appropriate to update the CMG relative weights and 

average length of stay values at this time to ensure that 

IRF PPS payments continue to reflect as accurately as 

possible the current costs of care in IRFs. 

 We also considered maintaining the existing rural, 

LIP, and teaching status adjustment factors for FY 2012. 

However, as a result of recent changes in IRF utilization 

that have occurred because of changes in the IRF compliance 

percentage and the consequences of recent IRF medical 

necessity reviews, we believe that it is important to 

update these adjustment factors at this time to ensure that 
CMS-1349-P 214 

 

payments to IRFs reflect as accurately as possible the 

current costs of care in IRFs. In estimating the proposed 

updates to the rural, LIP, and teaching status adjustment 

factors, we implemented a 3-year moving average approach to 

updating the facility-level adjustment factors in the FY 

2010 IRF PPS final rule (74 FR 39762) to provide greater 

stability and predictability of Medicare payments for IRFs. 

 We considered maintaining the existing outlier 

threshold amount for FY 2012. However, the proposed update 

to the outlier threshold amount would have a positive 

impact on IRF providers and, therefore, on small entities 

(as shown in Table 14, column 4). If we were to maintain 

the FY 2011 outlier threshold amount, less outlier cases 

would qualify for the additional outlier payments in FY 

2012. Analysis of updated FY 2010 data indicates that 

estimated outlier payments would not equal 3 percent of 

estimated total payments for FY 2012 unless we proposed to 

update the outlier threshold amount. Thus, we believe that 

this update is appropriate for FY 2012. 

6. Accounting Statement 

 As required by OMB Circular A-4 (available at 

http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in 

Table 15 below, we have prepared an accounting statement 

showing the classification of the transfers associated with 

the provisions of this proposed rule. This table provides 
CMS-1349-P 215 

 

our best estimate of the increase in Medicare payments 

under the IRF PPS as a result of the proposed changes 

presented in this proposed rule based on the data for 1,146 

IRFs in our database. 

 TABLE 15.--Accounting Statement: Classification of 

Estimated Transfers, from the 2011 IRF PPS Fiscal Year to 

the 2012 IRF PPS Fiscal Year 

Category Transfers 

Annualized Monetized 

Transfers $120 million 

From Whom to Whom? Federal Government to IRF 

Medicare Providers 

7. Conclusion 

 Overall, the estimated payments per discharge for IRFs 

in FY 2012 are projected to increase by 1.8 percent, 

compared with those in FY 2011, as reflected in column 9 of 

Table 14. IRF payments are estimated to increase 1.6 

percent in urban areas and 3.4 percent in rural areas, per 

discharge, compared with FY 2011. Payments to 

rehabilitation units in urban areas are estimated to 

increase 1.4 percent per discharge. Payments to 

rehabilitation freestanding hospitals in urban areas are 

estimated to increase 1.8 percent per discharge. Payments 

to rehabilitation units in rural areas are estimated to 

increase 3.3 percent per discharge, while payments to 

freestanding rehabilitation hospitals in rural areas are 

estimated to increase 3.9 percent per discharge. 

 Overall, the largest payment increase is estimated at 

5.4 percent for rural IRFs in the Mid-Atlantic region. The 
CMS-1349-P 216 

 

only payment decreases we estimate are a 0.5 percent 

decrease, a 1.9 percent decrease, and a 3.9 percent 

decrease for teaching IRFs with resident to ADC ratios less 

than 10 percent, 10 to 19 percent, and greater than 19 

percent, respectively. 

B. Regulatory Flexibility Act Analysis

 The RFA requires agencies to analyze options for 

regulatory relief of small entities, if a rule has a 

significant impact on a substantial number of small 

entities. For purposes of the RFA, small entities include 

small businesses, nonprofit organizations, and small 

governmental jurisdictions. Most IRFs and most other 

providers and suppliers are small entities, either by 

nonprofit status or by having revenues of $34.5 million in 

any one year. (For details, see the Small Business 

Administration’s Web site at 

http://ecfr.gpoaccess.gov/cgi/t/text/textidx?c=ecfr&sid=2465b064ba6965cc1fbd2eae60854b11&rgn=div8&vi

ew=text&node=13:1.0.1.1.16.1.266.9&idno=13)(refer to 

subsector 622). Because we lack data on individual 

hospital receipts, we cannot determine the number of small 

proprietary IRFs or the proportion of IRFs' revenue that is 

derived from Medicare payments. Therefore, we assume that 

all IRFs (an estimated 1,146 IRFs that are in our analysis 

file by virtue of having submitted at least one IRF claim 
CMS-1349-P 217 

 

to Medicare in FY 2010 that we are able to match to an IRFPAI, of which approximately 60 percent are nonprofit 

facilities) are considered small entities and that Medicare 

payment constitutes the majority of their revenues. The 

Department of Health and Human Services generally uses a 

revenue or cost impact of 3 to 5 percent as a significance 

threshold under the RFA. There is no negative estimated 

impact as a result of this proposed rule that is within the 

significance threshold of 3 to 5 percent. As shown in 

Table 14, we estimate that the net revenue impact, of this 

proposed rule, on all IRFs is to increase estimated 

payments by about 1.8 percent, with an estimated increase 

in payments of 3 percent or higher for some categories of 

IRFs (such as rural IRFs in the New England, Mid-Atlantic, 

South Atlantic, East North Central, West North Central, 

West South Central, and Mountain) and an estimated decrease 

in payments of 3 percent or more for 15 teaching IRFs with 

resident to ADC ratios greater than 19 percent. Therefore, 

the majority of IRFs will experience a net positive 

increase in payments. As a result, the Secretary has 

determined that this proposed rule would not have a 

significant impact on a substantial number of small 

entities. We present, in the Alternatives Considered 

section (XII.A.5) above, an analysis of the alternatives we 

considered for this proposed IRF PPS rule. Medicare fiscal 
CMS-1349-P 218 

 

intermediaries and carriers are not considered to be small 

entities. Individuals and States are not included in the 

definition of a small entity. We solicit comment on the 

RFA analysis. 

 In addition, section 1102(b) of the Act requires us to 

prepare a RIA 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 MSA and has fewer than 100 

beds. Based on the data of the 174 rural units and 20 rural 

hospitals in our database of 1,146 IRFs, we estimate that 

small rural IRF hospitals would receive between 2.6 percent 

and 5.4 percent higher net payments in FY 2012 due to the 

provisions in this proposed rule, with no rural IRF 

hospitals estimated to receive negative net payments. 

Thus, the Secretary has determined that the rates and 

policies set forth in this proposed rule would not have a 

significant impact on the operations of a substantial 

number of small rural hospitals. 

C. Unfunded Mandates Reform Act Analysis 

 Section 202 of the Unfunded Mandates Reform Act of 

1995 also requires that agencies assess anticipated costs 

and benefits before issuing any rule whose mandates require 
CMS-1349-P 219 

 

spending in any one year of $100 million in 1995 dollars, 

updated annually for inflation. In 2011, that threshold 

level is approximately $136 million. This proposed rule 

will not impose spending costs on State, local, or tribal 

governments, in the aggregate, or by the private sector, of 

$136 million. 

XIII. Federalism Analysis 

 Executive Order 13132 establishes certain requirements 

that an agency must meet when it promulgates 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. This 

proposed rule would have no substantial direct effect on 

State and local governments, preempt State law, or otherwise 

have Federalism implications. 
CMS-1349-P 220 

 

List of Subjects in 42 CFR 412 

 Administrative practice and procedure, Health 

facilities, Medicare, Puerto Rico, Reporting and 

recordkeeping requirements. 
CMS-1349-P 221 

 

For the reasons set forth in the preamble, the Centers 

for Medicare & Medicaid Services proposes to amend 42 CFR 

chapter IV as follows: 

PART 412—PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 

SERVICES 

 1. The authority citation for part 412 continues to 

read as follows: 

Authority: Sections 1102, 1862, and 1871 of the 

Social Security Act (42 U.S.C. 1302, 1395y, and 1395hh). 

Subpart B--Hospital Services Subject to and Excluded From 

the Prospective Payment Systems for Inpatient Operating 

Costs and Inpatient Capital-Related Costs 

 2. Section 412.23 is amended by revising paragraph 

(b) to read as follows: 

§412.23 Excluded hospitals: Classifications.

* * * * * 

(b) Rehabilitation hospitals. A rehabilitation 

hospital or unit must meet the requirements specified in 

§412.29 of this subpart to be excluded from the prospective 

payment systems specified in §412.1(a)(1) of this subpart 

and to be paid under the prospective payment system 

specified in §412.1(a)(3) of this subpart and in subpart P 

of this part. 

* * * * * 

3. Section 412.25 is amended by revising paragraphs 
CMS-1349-P 222 

 

(b) and (e)(2)(ii)(A) to read as follows: 

§412.25 Excluded hospital units: Common requirements.

* * * * * 

 (b) Changes in the size of excluded units. Except in 

the special cases noted at the end of this paragraph, 

changes in the number of beds or square footage considered 

to be part of an excluded unit under this section are 

allowed one time during a cost reporting period if the 

hospital notifies its Medicare contractor and the CMS RO in 

writing of the planned change at least 30 days before the 

date of the change. The hospital must maintain the 

information needed to accurately determine costs that are 

attributable to the excluded unit. A change in bed size or 

a change in square footage may occur at any time during a 

cost reporting period and must remain in effect for the 

rest of that cost reporting period. Changes in bed size or 

square footage may be made at any time if these changes are 

made necessary by relocation of a unit to permit 

construction or renovation necessary for compliance with 

changes in Federal, State, or local law affecting the 

physical facility or because of catastrophic events such as 

fires, floods, earthquakes, or tornadoes. 

* * * * * 

 (e) * * * 

 (2) * * * 
CMS-1349-P 223 

 

 (ii)* * * 

(A) For a rehabilitation unit, the requirements 

under §412.29 of this subpart; or 

 * * * * * 

 4. Section 412.29 is revised to read as follows: 

§412.29 Classification Criteria for Payment Under the 

Inpatient Rehabilitation Facility Prospective Payment 

System.

 To be excluded from the prospective payment systems 

described in §412.1(a)(1) of this subpart and to be paid 

under the prospective payment system specified in 

§412.1(a)(3) of this subpart, an inpatient rehabilitation 

hospital or an inpatient rehabilitation unit of a hospital 

(otherwise referred to as an IRF) must meet the following 

requirements: 

 (a) Have (or be part of a hospital that has) a 

provider agreement under part 489 of this chapter to 

participate as a hospital. 

 (b) Except in the case of a “new” IRF or “new” IRF 

beds, as defined in paragraph (c) of this section, an IRF 

must show that, during its most recent, consecutive, and 

appropriate 12-month time period (as defined by CMS or the 

Medicare contractor), it served an inpatient population 

that meets the following criteria: 
CMS-1349-P 224 

 

 (1) For cost reporting periods beginning on or after 

July 1, 2004, and before July 1, 2005, the IRF served an 

inpatient population of whom at least 50 percent, and for 

cost reporting periods beginning on or after July 1, 2005, 

the IRF served an inpatient population of whom at least 

60 percent required intensive rehabilitation services for 

treatment of one or more of the conditions specified at 

paragraph (b)(2) of this section. A patient with a 

comorbidity, as defined at §412.602 of this part, may be 

included in the inpatient population that counts toward the 

required applicable percentage if-- 

 (i) The patient is admitted for inpatient 

rehabilitation for a condition that is not one of the 

conditions specified in paragraph (b)(2) of this section; 

 (ii) The patient has a comorbidity that falls in one 

of the conditions specified in paragraph (b)(2) of this 

section; and 

 (iii) The comorbidity has caused significant decline 

in functional ability in the individual that, even in the 

absence of the admitting condition, the individual would 

require the intensive rehabilitation treatment that is 

unique to inpatient rehabilitation facilities paid under 

subpart P of this part and that cannot be appropriately 

performed in another care setting covered under this title. 

(2) List of conditions. 
CMS-1349-P 225 

 

(i) Stroke. 

(ii) Spinal cord injury. 

(iii) Congenital deformity. 

(iv) Amputation. 

(v) Major multiple trauma. 

(vi) Fracture of femur (hip fracture). 

 (vii) Brain injury. 

 (viii) Neurological disorders, including multiple 

sclerosis, motor neuron diseases, polyneuropathy, muscular 

dystrophy, and Parkinson's disease. 

 (ix) Burns. 

 (x) Active, polyarticular rheumatoid arthritis, 

psoriatic arthritis, and seronegative arthropathies 

resulting in significant functional impairment of 

ambulation and other activities of daily living that have 

not improved after an appropriate, aggressive, and 

sustained course of outpatient therapy services or services 

in other less intensive rehabilitation settings immediately 

preceding the inpatient rehabilitation admission or that 

result from a systemic disease activation immediately 

before admission, but have the potential to improve with 

more intensive rehabilitation. 

 (xi) Systemic vasculidities with joint inflammation, 

resulting in significant functional impairment of 

ambulation and other activities of daily living that have 
CMS-1349-P 226 

 

not improved after an appropriate, aggressive, and 

sustained course of outpatient therapy services or services 

in other less intensive rehabilitation settings immediately 

preceding the inpatient rehabilitation admission or that 

result from a systemic disease activation immediately 

before admission, but have the potential to improve with 

more intensive rehabilitation. 

 (xii) Severe or advanced osteoarthritis 

(osteoarthrosis or degenerative joint disease) involving 

two or more major weight bearing joints (elbow, shoulders, 

hips, or knees, but not counting a joint with a prosthesis) 

with joint deformity and substantial loss of range of 

motion, atrophy of muscles surrounding the joint, 

significant functional impairment of ambulation and other 

activities of daily living that have not improved after the 

patient has participated in an appropriate, aggressive, and 

sustained course of outpatient therapy services or services 

in other less intensive rehabilitation settings immediately 

preceding the inpatient rehabilitation admission but have 

the potential to improve with more intensive 

rehabilitation. (A joint replaced by a prosthesis no 

longer is considered to have osteoarthritis, or other 

arthritis, even though this condition was the reason for 

the joint replacement.) 
CMS-1349-P 227 

 

 (xiii) Knee or hip joint replacement, or both, during 

an acute hospitalization immediately preceding the 

inpatient rehabilitation stay and also meet one or more of 

the following specific criteria: 

 (A) The patient underwent bilateral knee or bilateral 

hip joint replacement surgery during the acute hospital 

admission immediately preceding the IRF admission. 

 (B) The patient is extremely obese with a Body Mass 

Index of at least 50 at the time of admission to the IRF. 

 (C) The patient is age 85 or older at the time of 

admission to the IRF. 

 (c) In the case of new IRFs (as defined in paragraph 

(c)(1) of this section) or new IRF beds (as defined in 

paragraph (c)(2)of this section), the IRF must provide a 

written certification that the inpatient population it 

intends to serve meets the requirements of paragraph (b) of 

this section. This written certification will apply until 

the end of the IRF’s first full 12-month cost reporting 

period or, in the case of new IRF beds, until the end of 

the cost reporting period during which the new beds are 

added to the IRF. 

 (1) New IRFs. An IRF hospital or IRF unit is 

considered new if it has not been paid under the IRF PPS in 

subpart P of this part for at least 5 calendar years. A 

new IRF will be considered new from the point that it first 
CMS-1349-P 228 

 

participates in Medicare as an IRF until the end of its 

first full 12-month cost reporting period. 

 (2) New IRF beds. Any IRF beds that are added to an 

existing IRF must meet all applicable State Certificate of 

Need and State licensure laws. New IRF beds may be added 

one time at any point during a cost reporting period and 

will be considered new for the rest of that cost reporting 

period. A full 12-month cost reporting period must elapse 

between the delicensing or decertification of IRF beds in 

an IRF hospital or IRF unit and the addition of new IRF 

beds to that IRF hospital or IRF unit. Before an IRF can 

add new beds, it must receive written approval from the 

appropriate CMS RO, so that the CMS RO can verify that a 

full 12-month cost reporting period has elapsed since the 

IRF has had beds delicensed or decertified. New IRF beds 

are included in the compliance review calculations under 

paragraph (b) of this section from the time that they are 

added to the IRF. 

 (3) Change of Ownership or Leasing. An IRF hospital 

or IRF unit that undergoes a change of ownership or 

leasing, as defined in §489.18 of this chapter, retains its 

excluded status and will continue to be paid under the 

prospective payment system specified in §412.1(a)(3) of 

this subpart before and after the change of ownership or 

leasing if the new owner(s) of the IRF accept assignment of 
CMS-1349-P 229 

 

the previous owners’ Medicare provider agreement and the 

IRF continues to meet all of the requirements for payment 

under the IRF prospective payment system. If the new 

owner(s) do not accept assignment of the previous owners’ 

Medicare provider agreement, the IRF is considered to be 

voluntarily terminated and the new owner(s) may re-apply to 

participate in the Medicare program. If the IRF does not 

continue to meet all of the requirements for payment under 

the IRF prospective payment system, then the IRF loses its 

excluded status and is paid according to the prospective 

payment systems described in §412.1(a)(1). 

 (4) Mergers. If an IRF hospital (or a hospital with 

an IRF unit) merges with another hospital and the owner(s) 

of the merged hospital accept assignment of the IRF 

hospital’s provider agreement (or the provider agreement of 

the hospital with the IRF unit), then the IRF hospital or 

IRF unit retains its excluded status and will continue to 

be paid under the prospective payment system specified in 

§412.1(a)(3) of this subpart before and after the merger, 

as long as the IRF hospital or IRF unit continues to meet 

all of the requirements for payment under the IRF 

prospective payment system. If the owner(s) of the merged 

hospital do not accept assignment of the IRF hospital’s 

provider agreement (or the provider agreement of the 

hospital with the IRF unit), then the IRF hospital or IRF 
CMS-1349-P 230 

 

unit is considered voluntarily terminated and the owner(s) 

of the merged hospital may reapply to the Medicare program 

to operate a new IRF. 

 (d) Have in effect a preadmission screening procedure 

under which each prospective patient's condition and 

medical history are reviewed to determine whether the 

patient is likely to benefit significantly from an 

intensive inpatient hospital program. Each prospective 

patient’s preadmission screening must be reviewed and 

approved by a rehabilitation physician prior to the 

patient’s admission to the IRF. 

 (e) Ensure that the patients receive close medical 

supervision, as evidenced by at least 3 face-to-face visits 

per week by a licensed physician with specialized training 

and experience in inpatient rehabilitation to assess the 

patient both medically and functionally, as well as to 

modify the course of treatment as needed to maximize the 

patient’s capacity to benefit from the rehabilitation 

process. 

 (f) Furnish, through the use of qualified personnel, 

rehabilitation nursing, physical therapy, and occupational 

therapy, plus, as needed, speech-language pathology, social 

services, psychological services (including 

neuropsychological services), and orthotic and prosthetic 

services. 
CMS-1349-P 231 

 

 (g) Have a director of rehabilitation who-- 

 (1) Provides services to the IRF hospital and its 

inpatients on a full-time basis or, in the case of a 

rehabilitation unit, at least 20 hours per week; 

 (2) Is a doctor of medicine or osteopathy; 

 (3) Is licensed under State law to practice medicine 

or surgery; and 

 (4) Has had, after completing a one-year hospital 

internship, at least 2 years of training or experience in 

the medical-management of inpatients requiring 

rehabilitation services. 

 (h) Have a plan of treatment for each inpatient that 

is established, reviewed, and revised as needed by a 

physician in consultation with other professional personnel 

who provide services to the patient. 

 (i) Use a coordinated interdisciplinary team approach 

in the rehabilitation of each inpatient, as documented by 

the periodic clinical entries made in the patient's medical 

record to note the patient's status in relationship to goal 

attainment and discharge plans, and that team conferences 

are held at least once per week to determine the 

appropriateness of treatment. 

 (j) Retroactive adjustments. If a new IRF (or new 

beds that are added to an existing IRF) are excluded from 

the prospective payment systems specified in §412.1(a)(1) 
CMS-1349-P 232 

 

of this subpart and paid under the prospective payment 

system specified in §412.1(a)(3) of this subpart for a cost 

reporting period under paragraph (c) of this section, but 

the inpatient population actually treated during that 

period does not meet the requirements of paragraph (b) of 

this section, we adjust payments to the IRF retroactively 

in accordance with the provisions in §412.130 of this 

subpart. 

§412.30 [Removed and Reserved] 

5. Section 412.30 is removed and reserved. 

Subpart P--Prospective Payment for Inpatient Rehabilitation 

Hospitals and Rehabilitation Units

 6. Section 412.624 is amended by 

A. Re-designating paragraph (c)(4) as (c)(5). 

B. Adding a new paragraph (c)(4). 

The addition reads as follows: 

§412.624 Methodology for calculating the Federal 

prospective payment rates.

* * * * * 

 (c) * * * 

 (4) Applicable increase factor for fiscal year 2014 

and for subsequent fiscal years. Subject to the provisions 

of paragraphs (c)(4)(i) and (c)(4)(ii) of this section, the 

applicable increase factor for fiscal year 2014 and for 
CMS-1349-P 233 

 

subsequent years for updating the standard payment 

conversion factor is the increase factor described in 

paragraph (a)(3) of this section, including adjustments 

described in paragraph (d) of this section as appropriate. 

 (i) In the case of an IRF that is paid under the 

prospective payment system specified in §412.1(a)(3) of this 

part that does not submit quality data to CMS, in the form 

and manner specified by CMS, the applicable increase factor 

specified in paragraph (a)(3) of this section is reduced by 

2 percentage points. 

 (ii) Any reduction of the increase factor will apply 

only to the fiscal year involved and will not be taken into 

account in computing the applicable increase factor for a 

subsequent fiscal year. 

* * * * * 
CMS-1349-P 234 

Authority: (Catalog of Federal Domestic Assistance Program 

No. 93.773, Medicare--Hospital Insurance; and Program 

No. 93.774, Medicare--Supplementary Medical Insurance 

Program) 

Dated: March 18, 2011 

 _______________________________

Donald M. Berwick, 

Administrator,

 Centers for Medicare & Medicaid 

Services.

Approved: April 18, 2011 

 __________________________________ 

Kathleen Sebelius, 

Secretary. 

BILLING CODE 4120-01-P
CMS-1349-P 235 

The following addendum will not appear in the Code of 

Federal Regulations. 

Addendum 

In this addendum, we provide the wage index tables referred 

to throughout the preamble to this proposed rule. The 

tables presented below are as follows: 

 Table A.—Proposed Inpatient Rehabilitation Facility 

Wage Index for Urban Areas for Discharges Occurring from 

October 1, 2011 through September 30, 2012. 

 Table B—Proposed Inpatient Rehabilitation Facility 

Wage Index for Rural Areas for Discharges Occurring 

from October 1, 2011 through September 30, 2012. 

TABLE A: PROPOSED INPATIENT REHABILITATION FACILITY WAGE 

INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM 

OCTOBER 1, 2011 THROUGH SEPTEMBER 30, 2012 

 Urban Area 

(Constituent Counties) Wage Index

10180 Abilene, TX 

Callahan County, TX 

Jones County, TX 

Taylor County, TX 0.8003

10380 Aguadilla-Isabela-San Sebastián, PR 

Aguada Municipio, PR 

Aguadilla Municipio, PR 

Añasco Municipio, PR 

Isabela Municipio, PR 

Lares Municipio, PR 

Moca Municipio, PR 

Rincón Municipio, PR 

San Sebastián Municipio, PR 0.3471

10420 Akron, OH 

Portage County, OH 

Summit County, OH 0.8843
CMS-1349-P 236 

 Urban Area 

(Constituent Counties) Wage Index

10500 Albany, GA 

Baker County, GA 

Dougherty County, GA 

Lee County, GA 

Terrell County, GA 

Worth County, GA 0.9036

10580 Albany-Schenectady-Troy, NY 

Albany County, NY 

Rensselaer County, NY 

Saratoga County, NY 

Schenectady County, NY 

Schoharie County, NY 0.8653

10740 Albuquerque, NM 

Bernalillo County, NM 

Sandoval County, NM 

Torrance County, NM 

Valencia County, NM 0.9456

10780 Alexandria, LA 

Grant Parish, LA 

Rapides Parish, LA 0.7995

10900 Allentown-Bethlehem-Easton, PA-NJ 

Warren County, NJ 

Carbon County, PA 

Lehigh County, PA 

Northampton County, PA 0.9194

11020 Altoona, PA 

Blair County, PA 0.8620

11100 Amarillo, TX 

Armstrong County, TX 

Carson County, TX 

Potter County, TX 

Randall County, TX 0.8644

11180 Ames, IA 

Story County, IA 0.9970

11260 Anchorage, AK 

Anchorage Municipality, AK 

Matanuska-Susitna Borough, AK 1.1964

11300 Anderson, IN 

Madison County, IN 0.9192

11340 Anderson, SC 

Anderson County, SC 0.8691

11460 Ann Arbor, MI 

Washtenaw County, MI 1.0124
CMS-1349-P 237 

 Urban Area 

(Constituent Counties) Wage Index

11500 Anniston-Oxford, AL 

Calhoun County, AL 0.7918

11540 Appleton, WI 

Calumet County, WI 

Outagamie County, WI 0.9361

11700 Asheville, NC 

Buncombe County, NC 

Haywood County, NC 

Henderson County, NC 

Madison County, NC 0.9001

12020 Athens-Clarke County, GA 

Clarke County, GA 

Madison County, GA 

Oconee County, GA 

Oglethorpe County, GA 0.9659

12060 Atlanta-Sandy Springs-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 0.9549
CMS-1349-P 238 

 Urban Area 

(Constituent Counties) Wage Index

12100 Atlantic City-Hammonton, NJ 

Atlantic County, NJ 1.1129

12220 Auburn-Opelika, AL 

Lee County, AL 0.7190

12260 Augusta-Richmond County, GA-SC 

Burke County, GA 

Columbia County, GA 

McDuffie County, GA 

Richmond County, GA 

Aiken County, SC 

Edgefield County, SC 0.9538

12420 Austin-Round Rock, TX 

Bastrop County, TX 

Caldwell County, TX 

Hays County, TX 

Travis County, TX 

Williamson County, TX 0.9514

12540 Bakersfield, CA 

Kern County, CA 1.1707

12580 Baltimore-Towson, MD 

Anne Arundel County, MD 

Baltimore County, MD 

Carroll County, MD 

Harford County, MD 

Howard County, MD 

Queen Anne's County, MD 

Baltimore City, MD 1.0255

12620 Bangor, ME 

Penobscot County, ME 0.9777

12700 Barnstable Town, MA 

Barnstable County, MA 1.2823

12940 Baton Rouge, LA 

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 0.8583
CMS-1349-P 239 

 Urban Area 

(Constituent Counties) Wage Index

12980 Battle Creek, MI 

Calhoun County, MI 0.9656

13020 Bay City, MI 

Bay County, MI 0.9221

13140 Beaumont-Port Arthur, TX 

Hardin County, TX 

Jefferson County, TX 

Orange County, TX 0.8488

13380 Bellingham, WA 

Whatcom County, WA 1.1390

13460 Bend, OR 

Deschutes County, OR 1.1372

13644 Bethesda-Frederick-Gaithersburg, MD 

Frederick County, MD 

Montgomery County, MD 1.0525

13740 Billings, MT 

Carbon County, MT 

Yellowstone County, MT 0.8674

13780 Binghamton, NY 

Broome County, NY 

Tioga County, NY 0.8719

13820 Birmingham-Hoover, AL 

Bibb County, AL 

Blount County, AL 

Chilton County, AL 

Jefferson County, AL 

St. Clair County, AL 

Shelby County, AL 

Walker County, AL 0.8611

13900 Bismarck, ND 

Burleigh County, ND 

Morton County, ND 0.7348

13980 Blacksburg-Christiansburg-Radford, VA 

Giles County, VA 

Montgomery County, VA 

Pulaski County, VA 

Radford City, VA 0.8314

14020 Bloomington, IN 

Greene County, IN 

Monroe County, IN 

Owen County, IN 0.8989
CMS-1349-P 240 

 Urban Area 

(Constituent Counties) Wage Index

14060 Bloomington-Normal, IL 

McLean County, IL 0.9439

14260 Boise City-Nampa, ID 

Ada County, ID 

Boise County, ID 

Canyon County, ID 

Gem County, ID 

Owyhee County, ID 0.9273

14484 Boston-Quincy, MA 

Norfolk County, MA 

Plymouth County, MA 

Suffolk County, MA 1.2178

14500 Boulder, CO 

Boulder County, CO 1.0065

14540 Bowling Green, KY 

Edmonson County, KY 

Warren County, KY 0.8666

14740 Bremerton-Silverdale, WA 

Kitsap County, WA 1.0667

14860 Bridgeport-Stamford-Norwalk, CT 

Fairfield County, CT 1.2547

15180 Brownsville-Harlingen, TX 

Cameron County, TX 0.9173

15260 Brunswick, GA 

Brantley County, GA 

Glynn County, GA 

McIntosh County, GA 0.9209

15380 Buffalo-Niagara Falls, NY 

Erie County, NY 

Niagara County, NY 0.9530

15500 Burlington, NC 

Alamance County, NC 0.8863

15540 Burlington-South Burlington, VT 

Chittenden County, VT 

Franklin County, VT 

Grand Isle County, VT 0.9947

15764 Cambridge-Newton-Framingham, MA 

Middlesex County, MA 1.1250
CMS-1349-P 241 

 Urban Area 

(Constituent Counties) Wage Index

15804 Camden, NJ 

Burlington County, NJ 

Camden County, NJ 

Gloucester County, NJ 1.0386

15940 Canton-Massillon, OH 

Carroll County, OH 

Stark County, OH 0.8749

15980 Cape Coral-Fort Myers, FL 

Lee County, FL 0.9195

16020 Cape Girardeau-Jackson, MO-IL 

Alexander County, IL 

Bollinger County, MO 

Cape Girardeau County, MO 0.8983

16180 Carson City, NV 

Carson City, NV 1.0465

16220 Casper, WY 

Natrona County, WY 0.9655

16300 Cedar Rapids, IA 

Benton County, IA 

Jones County, IA 

Linn County, IA 0.8844

16580 Champaign-Urbana, IL 

Champaign County, IL 

Ford County, IL 

Piatt County, IL 1.0235

16620 Charleston, WV 

Boone County, WV 

Clay County, WV 

Kanawha County, WV 

Lincoln County, WV 

Putnam County, WV 0.7895

16700 Charleston-North Charleston-Summerville, SC 

Berkeley County, SC 

Charleston County, SC 

Dorchester County, SC 0.9354

16740 Charlotte-Gastonia-Concord, NC-SC 

Anson County, NC 

Cabarrus County, NC 

Gaston County, NC 

Mecklenburg County, NC 

Union County, NC 

York County, SC 0.9420
CMS-1349-P 242 

 Urban Area 

(Constituent Counties) Wage Index

16820 Charlottesville, VA 

Albemarle County, VA 

Fluvanna County, VA 

Greene County, VA 

Nelson County, VA 

Charlottesville City, VA 0.9342

16860 Chattanooga, TN-GA 

Catoosa County, GA 

Dade County, GA 

Walker County, GA 

Hamilton County, TN 

Marion County, TN 

Sequatchie County, TN 0.8829

16940 Cheyenne, WY 

Laramie County, WY 0.9392

16974 Chicago-Naperville-Joliet, 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 1.0593

17020 Chico, CA 

Butte County, CA 1.1533

17140 Cincinnati-Middletown, OH-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 0.9699
CMS-1349-P 243 

 Urban Area 

(Constituent Counties) Wage Index

17300 Clarksville, TN-KY 

Christian County, KY 

Trigg County, KY 

Montgomery County, TN 

Stewart County, TN 0.7888

17420 Cleveland, TN 

Bradley County, TN 

Polk County, TN 0.7731

17460 Cleveland-Elyria-Mentor, OH 

Cuyahoga County, OH 

Geauga County, OH 

Lake County, OH 

Lorain County, OH 

Medina County, OH 0.9050

17660 Coeur d'Alene, ID 

Kootenai County, ID 0.9364

17780 College Station-Bryan, TX 

Brazos County, TX 

Burleson County, TX 

Robertson County, TX 0.9588

17820 Colorado Springs, CO 

El Paso County, CO 

Teller County, CO 0.9481

17860 Columbia, MO 

Boone County, MO 

Howard County, MO 0.8282

17900 Columbia, SC 

Calhoun County, SC 

Fairfield County, SC 

Kershaw County, SC 

Lexington County, SC 

Richland County, SC 

Saluda County, SC 0.8733

17980 Columbus, GA-AL 

Russell County, AL 

Chattahoochee County, GA 

Harris County, GA 

Marion County, GA 

Muscogee County, GA 0.9027

18020 Columbus, IN 

Bartholomew County, IN 0.9434
CMS-1349-P 244 

 Urban Area 

(Constituent Counties) Wage Index

18140 Columbus, OH 

Delaware County, OH 

Fairfield County, OH 

Franklin County, OH 

Licking County, OH 

Madison County, OH 

Morrow County, OH 

Pickaway County, OH 

Union County, OH 1.0141

18580 Corpus Christi, TX 

Aransas County, TX 

Nueces County, TX 

San Patricio County, TX 0.8585

18700 Corvallis, OR 

Benton County, OR 1.0455

18880 Crestview-Fort Walton Beach-Destin, FL 

Okaloosa County, FL 0.8842

19060 Cumberland, MD-WV 

Allegany County, MD 

Mineral County, WV 0.8186

19124 Dallas-Plano-Irving, TX 

Collin County, TX 

Dallas County, TX 

Delta County, TX 

Denton County, TX 

Ellis County, TX 

Hunt County, TX 

Kaufman County, TX 

Rockwall County, TX 0.9860

19140 Dalton, GA 

Murray County, GA 

Whitfield County, GA 0.8622

19180 Danville, IL 

Vermilion County, IL 0.9693

19260 Danville, VA 

Pittsylvania County, VA 

Danville City, VA 0.8168

19340 Davenport-Moline-Rock Island, IA-IL 

Henry County, IL 

Mercer County, IL 

Rock Island County, IL 

Scott County, IA 0.8400
CMS-1349-P 245 

 Urban Area 

(Constituent Counties) Wage Index

19380 Dayton, OH 

Greene County, OH 

Miami County, OH 

Montgomery County, OH 

Preble County, OH 0.9140

19460 Decatur, AL 

Lawrence County, AL 

Morgan County, AL 0.7621

19500 Decatur, IL 

Macon County, IL 0.7916

19660 Deltona-Daytona Beach-Ormond Beach, FL 

Volusia County, FL 0.8736

19740 Denver-Aurora-Broomfield, CO 

Adams County, CO 

Arapahoe County, CO 

Broomfield County, CO 

Clear Creek County, CO 

Denver County, CO 

Douglas County, CO 

Elbert County, CO 

Gilpin County, CO 

Jefferson County, CO 

Park County, CO 1.0718

19780 Des Moines-West Des Moines, IA 

Dallas County, IA 

Guthrie County, IA 

Madison County, IA 

Polk County, IA 

Warren County, IA 0.9621

19804 Detroit-Livonia-Dearborn, MI 

Wayne County, MI 0.9699

20020 Dothan, AL 

Geneva County, AL 

Henry County, AL 

Houston County, AL 

 0.7435

20100 Dover, DE 

Kent County, DE 0.9921

20220 Dubuque, IA 

Dubuque County, IA 0.8774
CMS-1349-P 246 

 Urban Area 

(Constituent Counties) Wage Index

20260 Duluth, MN-WI 

Carlton County, MN 

St. Louis County, MN 

Douglas County, WI 1.0565

20500 Durham-Chapel Hill, NC 

Chatham County, NC 

Durham County, NC 

Orange County, NC 

Person County, NC 0.9664

20740 Eau Claire, WI 

Chippewa County, WI 

Eau Claire County, WI 0.9639

20764 Edison-New Brunswick, NJ 

Middlesex County, NJ 

Monmouth County, NJ 

Ocean County, NJ 

Somerset County, NJ 1.1006

20940 El Centro, CA 

Imperial County, CA 0.9258

21060 Elizabethtown, KY 

Hardin County, KY 

Larue County, KY 0.8449

21140 Elkhart-Goshen, IN 

Elkhart County, IN 0.9465

21300 Elmira, NY 

Chemung County, NY 0.8445

21340 El Paso, TX 

El Paso County, TX 0.8475

21500 Erie, PA 

Erie County, PA 0.8360

21660 Eugene-Springfield, OR 

Lane County, OR 1.1384

21780 Evansville, IN-KY 

Gibson County, IN 

Posey County, IN 

Vanderburgh County, IN 

Warrick County, IN 

Henderson County, KY 

Webster County, KY 0.8433

21820 Fairbanks, AK 

Fairbanks North Star Borough, AK 1.1080
CMS-1349-P 247 

 Urban Area 

(Constituent Counties) Wage Index

21940 Fajardo, PR 

Ceiba Municipio, PR 

Fajardo Municipio, PR 

Luquillo Municipio, PR 0.3883

22020 Fargo, ND-MN 

Cass County, ND 

Clay County, MN 0.8064

22140 Farmington, NM 

San Juan County, NM 0.9339

22180 Fayetteville, NC 

Cumberland County, NC 

Hoke County, NC 0.9323

22220 Fayetteville-Springdale-Rogers, AR-MO 

Benton County, AR 

Madison County, AR 

Washington County, AR 

McDonald County, MO 0.8616

22380 Flagstaff, AZ 

Coconino County, AZ 1.2443

22420 Flint, MI 

Genesee County, MI 1.1496

22500 Florence, SC 

Darlington County, SC 

Florence County, SC 

0.8252

22520 Florence-Muscle Shoals, AL 

Colbert County, AL 

Lauderdale County, AL 0.8144

22540 Fond du Lac, WI 

Fond du Lac County, WI 0.9223

22660 Fort Collins-Loveland, CO 

Larimer County, CO 0.9892

22744 Fort Lauderdale-Pompano Beach-Deerfield Beach, FL 

Broward County, FL 1.0160

22900 Fort Smith, AR-OK 

Crawford County, AR 

Franklin County, AR 

Sebastian County, AR 

Le Flore County, OK 

Sequoyah County, OK 0.7599
CMS-1349-P 248 

 Urban Area 

(Constituent Counties) Wage Index

23060 Fort Wayne, IN 

Allen County, IN 

Wells County, IN 

Whitley County, IN 0.9362

23104 Fort Worth-Arlington, TX 

Johnson County, TX 

Parker County, TX 

Tarrant County, TX 

Wise County, TX 0.9474

23420 Fresno, CA 

Fresno County, CA 1.1422

23460 Gadsden, AL 

Etowah County, AL 0.7180

23540 Gainesville, FL 

Alachua County, FL 

Gilchrist County, FL 0.9160

23580 Gainesville, GA 

Hall County, GA 0.9223

23844 Gary, IN 

Jasper County, IN 

Lake County, IN 

Newton County, IN 

Porter County, IN 0.9084

24020 Glens Falls, NY 

Warren County, NY 

Washington County, NY 0.8507

24140 Goldsboro, NC 

Wayne County, NC 0.9067

24220 Grand Forks, ND-MN 

Polk County, MN 

Grand Forks County, ND 0.7717

24300 Grand Junction, CO 

Mesa County, CO 0.9850

24340 Grand Rapids-Wyoming, MI 

Barry County, MI 

Ionia County, MI 

Kent County, MI 

Newaygo County, MI 0.9169

24500 Great Falls, MT 

Cascade County, MT 0.8289
CMS-1349-P 249 

 Urban Area 

(Constituent Counties) Wage Index

24540 Greeley, CO 

Weld County, CO 0.9496

24580 Green Bay, WI 

Brown County, WI 

Kewaunee County, WI 

Oconto County, WI 0.9586

24660 Greensboro-High Point, NC 

Guilford County, NC 

Randolph County, NC 

Rockingham County, NC 0.8882

24780 Greenville, NC 

Greene County, NC 

Pitt County, NC 0.9370

24860 Greenville-Mauldin-Easley, SC 

Greenville County, SC 

Laurens County, SC 

Pickens County, SC 0.9644

25020 Guayama, PR 

Arroyo Municipio, PR 

Guayama Municipio, PR 

Patillas Municipio, PR 0.3686

25060 Gulfport-Biloxi, MS 

Hancock County, MS 

Harrison County, MS 

Stone County, MS 0.8877

25180 Hagerstown-Martinsburg, MD-WV 

Washington County, MD 

Berkeley County, WV 

Morgan County, WV 0.9254

25260 Hanford-Corcoran, CA 

Kings County, CA 1.1205

25420 Harrisburg-Carlisle, PA 

Cumberland County, PA 

Dauphin County, PA 

Perry County, PA 0.9296

25500 Harrisonburg, VA 

Rockingham County, VA 

Harrisonburg City, VA 0.9158

25540 Hartford-West Hartford-East Hartford, CT 

Hartford County, CT 

Middlesex County, CT 

Tolland County, CT 1.0927
CMS-1349-P 250 

 Urban Area 

(Constituent Counties) Wage Index

25620 Hattiesburg, MS 

Forrest County, MS 

Lamar County, MS 

Perry County, MS 0.7714

25860 Hickory-Lenoir-Morganton, NC 

Alexander County, NC 

Burke County, NC 

Caldwell County, NC 

Catawba County, NC 0.8693

25980 Hinesville-Fort Stewart, GA1

Liberty County, GA 

Long County, GA 0.8958

26100 Holland-Grand Haven, MI 

Ottawa County, MI 0.8632

26180 Honolulu, HI 

Honolulu County, HI 1.1807

26300 Hot Springs, AR 

Garland County, AR 0.9151

26380 Houma-Bayou Cane-Thibodaux, LA 

Lafourche Parish, LA 

Terrebonne Parish, LA 0.7852

26420 Houston-Sugar Land-Baytown, 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 0.9824

26580 Huntington-Ashland, WV-KY-OH 

Boyd County, KY 

Greenup County, KY 

Lawrence County, OH 

Cabell County, WV 

Wayne County, WV 0.8953

26620 Huntsville, AL 

Limestone County, AL 

Madison County, AL 0.9191
CMS-1349-P 251 

 Urban Area 

(Constituent Counties) Wage Index

26820 Idaho Falls, ID 

Bonneville County, ID 

Jefferson County, ID 0.9663

26900 Indianapolis-Carmel, IN 

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 0.9672

26980 Iowa City, IA 

Johnson County, IA 

Washington County, IA 0.9657

27060 Ithaca, NY 

Tompkins County, NY 0.9842

27100 Jackson, MI 

Jackson County, MI 0.9155

27140 Jackson, MS 

Copiah County, MS 

Hinds County, MS 

Madison County, MS 

Rankin County, MS 

Simpson County, MS 0.8042

27180 Jackson, TN 

Chester County, TN 

Madison County, TN 0.8404

27260 Jacksonville, FL 

Baker County, FL 

Clay County, FL 

Duval County, FL 

Nassau County, FL 

St. Johns County, FL 0.8884

27340 Jacksonville, NC 

Onslow County, NC 0.7807

27500 Janesville, WI 

Rock County, WI 0.9415
CMS-1349-P 252 

 Urban Area 

(Constituent Counties) Wage Index

27620 Jefferson City, MO 

Callaway County, MO 

Cole County, MO 

Moniteau County, MO 

Osage County, MO 0.8434

27740 Johnson City, TN 

Carter County, TN 

Unicoi County, TN 

Washington County, TN 0.8105

27780 Johnstown, PA 

Cambria County, PA 0.8090

27860 Jonesboro, AR 

Craighead County, AR 

Poinsett County, AR 0.7757

27900 Joplin, MO 

Jasper County, MO 

Newton County, MO 0.8214

28020 Kalamazoo-Portage, MI 

Kalamazoo County, MI 

Van Buren County, MI 1.0292

28100 Kankakee-Bradley, IL 

Kankakee County, IL 1.0619

28140 Kansas City, MO-KS 

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 0.9652

28420 Kennewick-Pasco-Richland, WA 

Benton County, WA 

Franklin County, WA 0.9976
CMS-1349-P 253 

 Urban Area 

(Constituent Counties) Wage Index

28660 Killeen-Temple-Fort Hood, TX 

Bell County, TX 

Coryell County, TX 

Lampasas County, TX 0.8798

28700 Kingsport-Bristol-Bristol, TN-VA 

Hawkins County, TN 

Sullivan County, TN 

Bristol City, VA 

Scott County, VA 

Washington County, VA 0.7588

28740 Kingston, NY 

Ulster County, NY 0.9075

28940 Knoxville, TN 

Anderson County, TN 

Blount County, TN 

Knox County, TN 

Loudon County, TN 

Union County, TN 0.7842

29020 Kokomo, IN 

Howard County, IN 

Tipton County, IN 0.9130

29100 La Crosse, WI-MN 

Houston County, MN 

La Crosse County, WI 0.9803

29140 Lafayette, IN 

Benton County, IN 

Carroll County, IN 

Tippecanoe County, IN 0.9289

29180 Lafayette, LA 

Lafayette Parish, LA 

St. Martin Parish, LA 0.8489

29340 Lake Charles, LA 

Calcasieu Parish, LA 

Cameron Parish, LA 0.8196

29404 Lake County-Kenosha County, IL-WI 

Lake County, IL 

Kenosha County, WI 1.0781

29420 Lake Havasu City-Kingman, AZ 

Mohave County, AZ 1.0235

29460 Lakeland-Winter Haven, FL 

Polk County, FL 0.8447

29540 Lancaster, PA 

Lancaster County, PA 0.9344
CMS-1349-P 254 

 Urban Area 

(Constituent Counties) Wage Index

29620 Lansing-East Lansing, MI 

Clinton County, MI 

Eaton County, MI 

Ingham County, MI 1.0298

29700 Laredo, TX 

Webb County, TX 0.7914

29740 Las Cruces, NM 

Dona Ana County, NM 0.9296

29820 Las Vegas-Paradise, NV 

Clark County, NV 1.2099

29940 Lawrence, KS 

Douglas County, KS 0.8533

30020 Lawton, OK 

Comanche County, OK 0.8285

30140 Lebanon, PA 

Lebanon County, PA 0.7807

30300 Lewiston, ID-WA 

Nez Perce County, ID 

Asotin County, WA 0.9358

30340 Lewiston-Auburn, ME 

Androscoggin County, ME 0.8903

30460 Lexington-Fayette, KY 

Bourbon County, KY 

Clark County, KY 

Fayette County, KY 

Jessamine County, KY 

Scott County, KY 

Woodford County, KY 0.8817

30620 Lima, OH 

Allen County, OH 0.9271

30700 Lincoln, NE 

Lancaster County, NE 

Seward County, NE 0.9617

30780 Little Rock-North Little Rock-Conway, AR 

Faulkner County, AR 

Grant County, AR 

Lonoke County, AR 

Perry County, AR 

Pulaski County, AR 

Saline County, AR 0.8546
CMS-1349-P 255 

 Urban Area 

(Constituent Counties) Wage Index

30860 Logan, UT-ID 

Franklin County, ID 

Cache County, UT 0.8794

30980 Longview, TX 

Gregg County, TX 

Rusk County, TX 

Upshur County, TX 0.8563

31020 Longview, WA 

Cowlitz County, WA 1.0296

31084 Los Angeles-Long Beach-Glendale, CA 

Los Angeles County, CA 1.2130

31140 Louisville-Jefferson County, KY-IN 

Clark County, IN 

Floyd County, IN 

Harrison County, IN 

Washington County, IN 

Bullitt County, KY 

Henry County, KY 

Meade County, KY 

Nelson County, KY 

Oldham County, KY 

Shelby County, KY 

Spencer County, KY 

Trimble County, KY 0.8896

31180 Lubbock, TX 

Crosby County, TX 

Lubbock County, TX 0.8847

31340 Lynchburg, VA 

Amherst County, VA 

Appomattox County, VA 

Bedford County, VA 

Campbell County, VA 

Bedford City, VA 

Lynchburg City, VA 0.8694

31420 Macon, GA 

Bibb County, GA 

Crawford County, GA 

Jones County, GA 

Monroe County, GA 

Twiggs County, GA 0.9202

31460 Madera-Chowchilla, CA 

Madera County, CA 0.7986
CMS-1349-P 256 

 Urban Area 

(Constituent Counties) Wage Index

31540 Madison, WI 

Columbia County, WI 

Dane County, WI 

Iowa County, WI 1.1294

31700 Manchester-Nashua, NH 

Hillsborough County, NH 0.9869

31740 Manhattan, KS 

Geary County, KS 

Pottawatomie County, KS 

Riley County, KS 0.7847

31860 Mankato-North Mankato, MN 

Blue Earth County, MN 

Nicollet County, MN 0.9083

31900 Mansfield, OH 

Richland County, OH 0.8918

32420 Mayagüez, PR 

Hormigueros Municipio, PR 

Mayagüez Municipio, PR 0.3640

32580 McAllen-Edinburg-Mission, TX 

Hidalgo County, TX 0.8837

32780 Medford, OR 

Jackson County, OR 1.0061

32820 Memphis, TN-MS-AR 

Crittenden County, AR 

DeSoto County, MS 

Marshall County, MS 

Tate County, MS 

Tunica County, MS 

Fayette County, TN 

Shelby County, TN 

Tipton County, TN 0.9268

32900 Merced, CA 

Merced County, CA 1.2359

33124 Miami-Miami Beach-Kendall, FL 

Miami-Dade County, FL 1.0128

33140 Michigan City-La Porte, IN 

LaPorte County, IN 0.9470

33260 Midland, TX 

Midland County, TX 0.9711
CMS-1349-P 257 

 Urban Area 

(Constituent Counties) Wage Index

33340 Milwaukee-Waukesha-West Allis, WI 

Milwaukee County, WI 

Ozaukee County, WI 

Washington County, WI 

Waukesha County, WI 1.0183

33460 Minneapolis-St. Paul-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 

Pierce County, WI 

St. Croix County, WI 1.1143

33540 Missoula, MT 

Missoula County, MT 0.8921

33660 Mobile, AL 

Mobile County, AL 0.7960

33700 Modesto, CA 

Stanislaus County, CA 1.2104

33740 Monroe, LA 

Ouachita Parish, LA 

Union Parish, LA 0.7993

33780 Monroe, MI 

Monroe County, MI 0.8684

33860 Montgomery, AL 

Autauga County, AL 

Elmore County, AL 

Lowndes County, AL 

Montgomery County, AL 0.8442

34060 Morgantown, WV 

Monongalia County, WV 

Preston County, WV 0.8137

34100 Morristown, TN 

Grainger County, TN 

Hamblen County, TN 

Jefferson County, TN 0.7041
CMS-1349-P 258 

 Urban Area 

(Constituent Counties) Wage Index

34580 Mount Vernon-Anacortes, WA 

Skagit County, WA 1.0363

34620 Muncie, IN 

Delaware County, IN 0.8206

34740 Muskegon-Norton Shores, MI 

Muskegon County, MI 0.9809

34820 Myrtle Beach-North Myrtle Beach-Conway, SC 

Horry County, SC 0.8738

34900 Napa, CA 

Napa County, CA 1.4604

34940 Naples-Marco Island, FL 

Collier County, FL 0.9698

34980 Nashville-Davidson—Murfreesboro-Franklin, 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 0.9457

35004 Nassau-Suffolk, NY 

Nassau County, NY 

Suffolk County, NY 1.2315

35084 Newark-Union, NJ-PA 

Essex County, NJ 

Hunterdon County, NJ 

Morris County, NJ 

Sussex County, NJ 

Union County, NJ 

Pike County, PA 1.1460

35300 New Haven-Milford, CT 

New Haven County, CT 1.1515
CMS-1349-P 259 

 Urban Area 

(Constituent Counties) Wage Index

35380 New Orleans-Metairie-Kenner, LA 

Jefferson Parish, LA 

Orleans Parish, LA 

Plaquemines Parish, LA 

St. Bernard Parish, LA 

St. Charles Parish, LA 

St. John the Baptist Parish, LA 

St. Tammany Parish, LA 0.9070

35644 New York-White Plains-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 1.2955

35660 Niles-Benton Harbor, MI 

Berrien County, MI 0.8872

35840 North Port-Bradenton-Sarasota-Venice, FL 

Manatee County, FL 

Sarasota County, FL 0.9481

35980 Norwich-New London, CT 

New London County, CT 1.1215

36084 Oakland-Fremont-Hayward, CA 

Alameda County, CA 

Contra Costa County, CA 1.6354

36100 Ocala, FL 

Marion County, FL 0.8468

36140 Ocean City, NJ 

Cape May County, NJ 1.0879

36220 Odessa, TX 

Ector County, TX 0.9436

36260 Ogden-Clearfield, UT 

Davis County, UT 

Morgan County, UT 

Weber County, UT 0.9267
CMS-1349-P 260 

 Urban Area 

(Constituent Counties) Wage Index

36420 Oklahoma City, OK 

Canadian County, OK 

Cleveland County, OK 

Grady County, OK 

Lincoln County, OK 

Logan County, OK 

McClain County, OK 

Oklahoma County, OK 0.8877

36500 Olympia, WA 

Thurston County, WA 1.1269

36540 Omaha-Council Bluffs, NE-IA 

Harrison County, IA 

Mills County, IA 

Pottawattamie County, IA 

Cass County, NE 

Douglas County, NE 

Sarpy County, NE 

Saunders County, NE 

Washington County, NE 0.9583

36740 Orlando-Kissimmee, FL 

Lake County, FL 

Orange County, FL 

Osceola County, FL 

Seminole County, FL 0.9163

36780 Oshkosh-Neenah, WI 

Winnebago County, WI 0.9566

36980 Owensboro, KY 

Daviess County, KY 

Hancock County, KY 

McLean County, KY 0.8370

37100 Oxnard-Thousand Oaks-Ventura, CA 

Ventura County, CA 1.2377

37340 Palm Bay-Melbourne-Titusville, FL 

Brevard County, FL 0.9211

37380 Palm Coast, FL 

Flagler County, FL 0.8405

37460 Panama City-Lynn Haven-Panama City Beach, FL 

Bay County, FL 0.7954
CMS-1349-P 261 

 Urban Area 

(Constituent Counties) Wage Index

37620 Parkersburg-Marietta-Vienna, WV-OH 

Washington County, OH 

Pleasants County, WV 

Wirt County, WV 

Wood County, WV 0.7455

37700 Pascagoula, MS 

George County, MS 

Jackson County, MS 0.8299

37764 Peabody, MA 

Essex County, MA 1.0979

37860 Pensacola-Ferry Pass-Brent, FL 

Escambia County, FL 

Santa Rosa County, FL 0.8254

37900 Peoria, IL 

Marshall County, IL 

Peoria County, IL 

Stark County, IL 

Tazewell County, IL 

Woodford County, IL 0.9149

37964 Philadelphia, PA 

Bucks County, PA 

Chester County, PA 

Delaware County, PA 

Montgomery County, PA 

Philadelphia County, PA 1.0803

38060 Phoenix-Mesa-Scottsdale, AZ 

Maricopa County, AZ 

Pinal County, AZ 1.0642

38220 Pine Bluff, AR 

Cleveland County, AR 

Jefferson County, AR 

Lincoln County, AR 0.8012

38300 Pittsburgh, PA 

Allegheny County, PA 

Armstrong County, PA 

Beaver County, PA 

Butler County, PA 

Fayette County, PA 

Washington County, PA 

Westmoreland County, PA 0.8605

38340 Pittsfield, MA 

Berkshire County, MA 1.0371
CMS-1349-P 262 

 Urban Area 

(Constituent Counties) Wage Index

38540 Pocatello, ID 

Bannock County, ID 

Power County, ID 0.9507

38660 Ponce, PR 

Juana Díaz Municipio, PR 

Ponce Municipio, PR 

Villalba Municipio, PR 0.4326

38860 Portland-South Portland-Biddeford, ME 

Cumberland County, ME 

Sagadahoc County, ME 

York County, ME 0.9899

38900 Portland-Vancouver-Beaverton, OR-WA 

Clackamas County, OR 

Columbia County, OR 

Multnomah County, OR 

Washington County, OR 

Yamhill County, OR 

Clark County, WA 

Skamania County, WA 1.1476

38940 Port St. Lucie, FL 

Martin County, FL 

St. Lucie County, FL 1.0723

39100 Poughkeepsie-Newburgh-Middletown, NY 

Dutchess County, NY 

Orange County, NY 1.1354

39140 Prescott, AZ 

Yavapai County, AZ 1.2234

39300 Providence-New Bedford-Fall River, RI-MA 

Bristol County, MA 

Bristol County, RI 

Kent County, RI 

Newport County, RI 

Providence County, RI 

Washington County, RI 1.0714

39340 Provo-Orem, UT 

Juab County, UT 

Utah County, UT 0.9321

39380 Pueblo, CO 

Pueblo County, CO 0.8721

39460 Punta Gorda, FL 

Charlotte County, FL 0.8759

39540 Racine, WI 

Racine County, WI 1.0580
CMS-1349-P 263 

 Urban Area 

(Constituent Counties) Wage Index

39580 Raleigh-Cary, NC 

Franklin County, NC 

Johnston County, NC 

Wake County, NC 0.9811

39660 Rapid City, SD 

Meade County, SD 

Pennington County, SD 1.0442

39740 Reading, PA 

Berks County, PA 0.8904

39820 Redding, CA 

Shasta County, CA 1.4134

39900 Reno-Sparks, NV 

Storey County, NV 

Washoe County, NV 1.0419

40060 Richmond, VA 

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 0.9661

40140 Riverside-San Bernardino-Ontario, CA 

Riverside County, CA 

San Bernardino County, CA 1.1570
CMS-1349-P 264 

 Urban Area 

(Constituent Counties) Wage Index

40220 Roanoke, VA 

Botetourt County, VA 

Craig County, VA 

Franklin County, VA 

Roanoke County, VA 

Roanoke City, VA 

Salem City, VA 0.8827

40340 Rochester, MN 

Dodge County, MN 

Olmsted County, MN 

Wabasha County, MN 1.0942

40380 Rochester, NY 

Livingston County, NY 

Monroe County, NY 

Ontario County, NY 

Orleans County, NY 

Wayne County, NY 0.8595

40420 Rockford, IL 

Boone County, IL 

Winnebago County, IL 1.0033

40484 Rockingham County-Strafford County, NH 

Rockingham County, NH 

Strafford County, NH 1.0026

40580 Rocky Mount, NC 

Edgecombe County, NC 

Nash County, NC 0.9034

40660 Rome, GA 

Floyd County, GA 0.8635

40900 Sacramento-Arden-Arcade-Roseville, CA 

El Dorado County, CA 

Placer County, CA 

Sacramento County, CA 

Yolo County, CA 1.4053

40980 Saginaw-Saginaw Township North, MI 

Saginaw County, MI 0.8728

41060 St. Cloud, MN 

Benton County, MN 

Stearns County, MN 1.1042

41100 St. George, UT 

Washington County, UT 0.9133
CMS-1349-P 265 

 Urban Area 

(Constituent Counties) Wage Index

41140 St. Joseph, MO-KS 

Doniphan County, KS 

Andrew County, MO 

Buchanan County, MO 

DeKalb County, MO 1.0302

41180 St. Louis, MO-IL 

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 0.9090

41420 Salem, OR 

Marion County, OR 

Polk County, OR 1.1133

41500 Salinas, CA 

Monterey County, CA 1.5686

41540 Salisbury, MD 

Somerset County, MD 

Wicomico County, MD 0.9005

41620 Salt Lake City, UT 

Salt Lake County, UT 

Summit County, UT 

Tooele County, UT 0.9266

41660 San Angelo, TX 

Irion County, TX 

Tom Green County, TX 0.8303
CMS-1349-P 266 

 Urban Area 

(Constituent Counties) Wage Index

41700 San Antonio, TX 

Atascosa County, TX 

Bandera County, TX 

Bexar County, TX 

Comal County, TX 

Guadalupe County, TX 

Kendall County, TX 

Medina County, TX 

Wilson County, TX 0.8998

41740 San Diego-Carlsbad-San Marcos, CA 

San Diego County, CA 1.1979

41780 Sandusky, OH 

Erie County, OH 0.8686

41884 San Francisco-San Mateo-Redwood City, CA 

Marin County, CA 

San Francisco County, CA 

San Mateo County, CA 1.5733

41900 San Germán-Cabo Rojo, PR 

Cabo Rojo Municipio, PR 

Lajas Municipio, PR 

Sabana Grande Municipio, PR 

San Germán Municipio, PR 0.4560

41940 San Jose-Sunnyvale-Santa Clara, CA 

San Benito County, CA 

Santa Clara County, CA 1.6703
CMS-1349-P 267 

 Urban Area 

(Constituent Counties) Wage Index

41980 San Juan-Caguas-Guaynabo, PR 

Aguas Buenas Municipio, PR 

Aibonito Municipio, PR 

Arecibo Municipio, PR 

Barceloneta Municipio, PR 

Barranquitas Municipio, PR 

Bayamón Municipio, PR 

Caguas Municipio, PR 

Camuy Municipio, PR 

Canóvanas Municipio, PR 

Carolina Municipio, PR 

Cataño Municipio, PR 

Cayey Municipio, PR 

Ciales Municipio, PR 

Cidra Municipio, PR 

Comerío 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 

Loíza Municipio, PR 

Manatí Municipio, PR 

Maunabo Municipio, PR 

Morovis Municipio, PR 

Naguabo Municipio, PR 

Naranjito Municipio, PR 

Orocovis Municipio, PR 

Quebradillas Municipio, PR 

Río 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 0.4296

42020 San Luis Obispo-Paso Robles, CA 

San Luis Obispo County, CA 1.2915
CMS-1349-P 268 

 Urban Area 

(Constituent Counties) Wage Index

42044 Santa Ana-Anaheim-Irvine, CA 

Orange County, CA 1.2162

42060 Santa Barbara-Santa Maria-Goleta, CA 

Santa Barbara County, CA 1.1909

42100 Santa Cruz-Watsonville, CA 

Santa Cruz County, CA 1.6740

42140 Santa Fe, NM 

Santa Fe County, NM 1.0847

42220 Santa Rosa-Petaluma, CA 

Sonoma County, CA 1.6143

42340 Savannah, GA 

Bryan County, GA 

Chatham County, GA 

Effingham County, GA 0.8907

42540 Scranton--Wilkes-Barre, PA 

Lackawanna County, PA 

Luzerne County, PA 

Wyoming County, PA 0.8238

42644 Seattle-Bellevue-Everett, WA 

King County, WA 

Snohomish County, WA 1.1556

42680 Sebastian-Vero Beach, FL 

Indian River County, FL 0.9097

43100 Sheboygan, WI 

Sheboygan County, WI 0.9233

43300 Sherman-Denison, TX 

Grayson County, TX 0.8279

43340 Shreveport-Bossier City, LA 

Bossier Parish, LA 

Caddo Parish, LA 

De Soto Parish, LA 0.8536

43580 Sioux City, IA-NE-SD 

Woodbury County, IA 

Dakota County, NE 

Dixon County, NE 

Union County, SD 0.9091

43620 Sioux Falls, SD 

Lincoln County, SD 

McCook County, SD 

Minnehaha County, SD 

Turner County, SD 0.9299
CMS-1349-P 269 

 Urban Area 

(Constituent Counties) Wage Index

43780 South Bend-Mishawaka, IN-MI 

St. Joseph County, IN 

Cass County, MI 0.9948

43900 Spartanburg, SC 

Spartanburg County, SC 0.9383

44060 Spokane, WA 

Spokane County, WA 1.0571

44100 Springfield, IL 

Menard County, IL 

Sangamon County, IL 0.9130

44140 Springfield, MA 

Franklin County, MA 

Hampden County, MA 

Hampshire County, MA 1.0251

44180 Springfield, MO 

Christian County, MO 

Dallas County, MO 

Greene County, MO 

Polk County, MO 

Webster County, MO 0.8371

44220 Springfield, OH 

Clark County, OH 0.9234

44300 State College, PA 

Centre County, PA 0.8779

44600 Steubenville-Weirton, OH-WV 

Jefferson County, OH 

Brooke County, WV 

Hancock County, WV 0.7315

44700 Stockton, CA 

San Joaquin County, CA 1.2644

44940 Sumter, SC 

Sumter County, SC 0.7860

45060 Syracuse, NY 

Madison County, NY 

Onondaga County, NY 

Oswego County, NY 0.9905

45104 Tacoma, WA 

Pierce County, WA 1.1343
CMS-1349-P 270 

 Urban Area 

(Constituent Counties) Wage Index

45220 Tallahassee, FL 

Gadsden County, FL 

Jefferson County, FL 

Leon County, FL 

Wakulla County, FL 0.8806

45300 Tampa-St. Petersburg-Clearwater, FL 

Hernando County, FL 

Hillsborough County, FL 

Pasco County, FL 

Pinellas County, FL 0.9054

45460 Terre Haute, IN 

Clay County, IN 

Sullivan County, IN 

Vermillion County, IN 

Vigo County, IN 0.9205

45500 Texarkana, TX-Texarkana, AR 

Miller County, AR 

Bowie County, TX 0.7748

45780 Toledo, OH 

Fulton County, OH 

Lucas County, OH 

Ottawa County, OH 

Wood County, OH 0.9432

45820 Topeka, KS 

Jackson County, KS 

Jefferson County, KS 

Osage County, KS 

Shawnee County, KS 

Wabaunsee County, KS 0.8952

45940 Trenton-Ewing, NJ 

Mercer County, NJ 1.0150

46060 Tucson, AZ 

Pima County, AZ 0.9480

46140 Tulsa, OK 

Creek County, OK 

Okmulgee County, OK 

Osage County, OK 

Pawnee County, OK 

Rogers County, OK 

Tulsa County, OK 

Wagoner County, OK 0.8793
CMS-1349-P 271 

 Urban Area 

(Constituent Counties) Wage Index

46220 Tuscaloosa, AL 

Greene County, AL 

Hale County, AL 

Tuscaloosa County, AL 0.8843

46340 Tyler, TX 

Smith County, TX 0.8065

46540 Utica-Rome, NY 

Herkimer County, NY 

Oneida County, NY 0.8471

46660 Valdosta, GA 

Brooks County, GA 

Echols County, GA 

Lanier County, GA 

Lowndes County, GA 0.7941

46700 Vallejo-Fairfield, CA 

Solano County, CA 1.4931

47020 Victoria, TX 

Calhoun County, TX 

Goliad County, TX 

Victoria County, TX 0.8219

47220 Vineland-Millville-Bridgeton, NJ 

Cumberland County, NJ 1.0534

47260 Virginia Beach-Norfolk-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 

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 0.8961

47300 Visalia-Porterville, CA 

Tulare County, CA 1.0738

47380 Waco, TX 

McLennan County, TX 0.8403
CMS-1349-P 272 

 Urban Area 

(Constituent Counties) Wage Index

47580 Warner Robins, GA 

Houston County, GA 0.8028

47644 Warren-Troy-Farmington Hills, MI 

Lapeer County, MI 

Livingston County, MI 

Macomb County, MI 

Oakland County, MI 

St. Clair County, MI 0.9648

47894 Washington-Arlington-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 1.0723

47940 Waterloo-Cedar Falls, IA 

Black Hawk County, IA 

Bremer County, IA 

Grundy County, IA 0.8462

48140 Wausau, WI 

Marathon County, WI 0.9563

48300 Wenatchee-East Wenatchee, WA 

Chelan County, WA 

Douglas County, WA 0.9615

48424 West Palm Beach-Boca Raton-Boynton Beach, FL 

Palm Beach County, FL 0.9934

48540 Wheeling, WV-OH 

Belmont County, OH 

Marshall County, WV 

Ohio County, WV 0.6675
CMS-1349-P 273 

 Urban Area 

(Constituent Counties) Wage Index

48620 Wichita, KS 

Butler County, KS 

Harvey County, KS 

Sedgwick County, KS 

Sumner County, KS 0.8898

48660 Wichita Falls, TX 

Archer County, TX 

Clay County, TX 

Wichita County, TX 0.9566

48700 Williamsport, PA 

Lycoming County, PA 0.7256

48864 Wilmington, DE-MD-NJ 

New Castle County, DE 

Cecil County, MD 

Salem County, NJ 1.0580

48900 Wilmington, NC 

Brunswick County, NC 

New Hanover County, NC 

Pender County, NC 0.9202

49020 Winchester, VA-WV 

Frederick County, VA 

Winchester City, VA 

Hampshire County, WV 1.0002

49180 Winston-Salem, NC 

Davie County, NC 

Forsyth County, NC 

Stokes County, NC 

Yadkin County, NC 0.8939

49340 Worcester, MA 

Worcester County, MA 1.1012

49420 Yakima, WA 

Yakima County, WA 1.0067

49500 Yauco, PR 

Guánica Municipio, PR 

Guayanilla Municipio, PR 

Peñuelas Municipio, PR 

Yauco Municipio, PR 0.3536

49620 York-Hanover, PA 

York County, PA 0.9983

49660 Youngstown-Warren-Boardman, OH-PA 

Mahoning County, OH 

Trumbull County, OH 

Mercer County, PA 0.8625
CMS-1349-P 274 

 Urban Area 

(Constituent Counties) Wage Index

49700 Yuba City, CA 

Sutter County, CA 

Yuba County, CA 1.1043

49740 Yuma, AZ 

Yuma County, AZ 0.9283

1 At this time, there are no hospitals located in this urban area on 

which to base a wage index. 

TABLE B: PROPOSED INPATIENT REHABILITATION FACILITY WAGE 

INDEX FOR RURAL AREAS FOR DISCHARGES OCCURRING FROM 

OCTOBER 1, 2011 THROUGH SEPTEMBER 30, 2012 

State Code Nonurban Area Wage 

Index 

1 Alabama 0.7380

2 Alaska 1.2626

3 Arizona 0.9095

4 Arkansas 0.7222

5 California 1.2056

6 Colorado 0.9933

7 Connecticut 1.1128

8 Delaware 0.9757

10 Florida 0.8409

11 Georgia 0.7566

12 Hawaii 1.1189

13 Idaho 0.7556

14 Illinois 0.8343

15 Indiana 0.8391

16 Iowa 0.8545

17 Kansas 0.7981

18 Kentucky 0.7830

19 Louisiana 0.7712

20 Maine 0.8588

21 Maryland 0.9175

22 Massachusetts1

1.1769

23 Michigan 0.8555

24 Minnesota 0.9038
CMS-1349-P 275 

State Code Nonurban Area Wage 

Index 

25 Mississippi 0.7620

26 Missouri 0.7655

27 Montana 0.8517

28 Nebraska 0.8911

29 Nevada 0.9350

30 New Hampshire 1.0207

31 New Jersey1

----- 

32 New Mexico 0.8911

33 New York 0.8185

34 North Carolina 0.8359

35 North Dakota 0.6831

36 Ohio 0.8561

37 Oklahoma 0.7860

38 Oregon 1.0029

39 Pennsylvania 0.8480

40 Puerto Rico1

0.4047

41 Rhode Island1

----- 

42 South Carolina 0.8413

43 South Dakota 0.8536

44 Tennessee 0.7886

45 Texas 0.7806

46 Utah 0.8649

47 Vermont 0.9591

48 Virgin Islands 0.7993

49 Virginia 0.7841

50 Washington 1.0184

51 West Virginia 0.7474

52 Wisconsin 0.9186

53 Wyoming 0.9528

65 Guam 0.9611

1

 All counties within the State are classified as urban, with the exception of Massachusetts and Puerto Rico. 

Massachusetts and Puerto Rico have areas designated as rural; however, no short-term, acute care hospitals 

are located in the area(s) for FY 2011. The rural Massachusetts wage index is calculated as the average of 

all contiguous CBSAs. The Puerto Rico wage index is the same as FY 2010. 
CMS-1349-P 276 

[FR Doc. 2011-10159 Filed 04/22/2011 at 4:15 pm; Publication 

Date: 04/29/2011]