60242 Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 403, 412, 413, 418, 460, 

480, 482, 483, 485, and 489 

[CMS–1428–CN2] 

RIN 0938–AM80 

Medicare Program; Changes to the 

Hospital Inpatient Prospective 

Payment Systems and Fiscal Year 2005 

Rates; Corrections 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Correction of final rule. 

SUMMARY: This document corrects 

technical errors in the final rule that 

appeared in the August 11, 2004 

Federal Register entitled ‘‘Medicare 

Program; Changes to the Hospital 

Inpatient Prospective Payment Systems 

and Fiscal Year 2005 Rates.’’ 

DATES: Effective October 1, 2004. 

FOR FURTHER INFORMATION CONTACT: 

James Hart, (410) 786–4548. 

SUPPLEMENTARY INFORMATION: 

I. Background 

In FR Doc. 04–17943 (69 FR 48916, 

August 11, 2004), the final rule entitled 

‘‘Medicare Program; Changes to the 

Hospital Inpatient Prospective Payment 

Systems and Fiscal Year 2005 Rates’’ 

(hereinafter referred to as the FY 2005 

final rule) there were a number of 

technical errors that are identified and 

corrected in section III of this correction 

notice. The provisions in this correction 

notice are effective as if they had been 

included in the FY 2005 final rule. 

Accordingly, the corrections are 

effective on October 1, 2004. 

II. Summary of the Corrections to the 

FY 2005 Final Rule 

A. Corrections to the FY 2005 Rule 

Contained in This Notice 

This correction notice makes a 

number of changes to the FY 2005 final 

rule. Because of the number of 

corrections and the length of some of 

these corrections, we are providing a 

summary of the major corrections 

contained within this notice. 

On page 49022, in the summary of a 

public comment concerning the 

application for new technology add-on 

payments for the Intramedullary 

Skeletal Kinetic Distractor (ISKD), we 

did not accurately describe the issues 

raised by the applicant. Accordingly, in 

this correction notice, we are revising 

the summary of this comment to reflect 

more accurately the comment 

submitted. (See section III, item 11 of 

this notice.) 

On page 49061, we inadvertently 

omitted a comment and response with 

respect to geographic reclassifications 

under section 508 of Public Law 108– 

173. However, we note that the 

comment was considered before 

finalization of our policy. (See item 13 

in section III of this notice.) 

On pages 49070 through 49075, we 

discuss our postacute care transfer 

payment policy. In this discussion, we 

inadvertently omitted several comments 

and responses from this section. 

However, we note that we did consider 

these comments before we finalized our 

policy. Several comments were related 

to the proposal to include DRG 430 in 

the policy under the proposed alternate 

criteria (which we did not adopt in the 

final rule). Many others raised 

arguments that CMS has responded to in 

the past, but which these commenters 

raised again in response to the FY 2005 

proposed rule (69 FR 28196). In 

addition, we inadvertently omitted from 

the final rule a summation of and our 

response to a comment relating to the 

postacute care transfer policy that was 

outside the scope of the proposed rule. 

In the interests of clarity and 

convenience, we are reprinting the 

discussion of comments on this section 

in its entirety, including all comments 

that were inadvertently omitted from 

the final rule, as well as appropriate 

responses to those comments. (See items 

14 and 15 in section III of this notice.) 

On page 49105, we inadvertently 

omitted portions of our policy 

discussion with respect to our decision 

to make an exception for hospitals that 

failed to reclassify as an urban group 

under 42 CFR 412.234. On page 49107, 

we also inadvertently omitted part of 

our policy discussion with respect to 

the special circumstances of sole 

community hospitals in low population 

density States. In addition, on page 

49249, there were technical and 

typographical errors in two sections 

(§ 412.230 and § 412.232) of the 

regulations text regarding criteria for 

hospitals seeking redesignation. We 

note that one of the errors was a result 

of not revising the timeframe in 

§ 412.230(d)(3)(iii)(B) in conjunction 

with adding a new provision in 

§ 412.230(d)(3)(iii)(C). (See items 18, 19, 

21, and 43 in section III of this notice.) 

On page 49090, we inadvertently 

duplicated a comment and response that 

were appropriately included on page 

49155 of the FY 2005 final rule. Also on 

pages 49130 through 49132, we 

inadvertently omitted clarifications to 

the preamble discussion of our policy 

regarding the treatment of hospitals that 

are members of the same affiliated group 

as of July 1, 2003, under section 

1886(h)(7)(A)(iii) of the Act for the 

purposes of payment adjustments for 

indirect medical education (IME) and 

graduate medical education (GME) 

costs. In addition, on page 49132, we 

inadvertently omitted clarifications to 

the preamble discussion of our policies 

regarding the criteria for determining 

hospitals that will receive increases to 

their FTE resident caps under section 

1886(h)(7)(B) of the Act. In section III of 

this notice we correct these errors (see 

section III items 16, 25, and 26 of this 

notice). 

On pages 49221, 49224, and 49271, 

we made technical errors in our 

preamble discussion and regulatory text 

regarding the grandfathering of certain 

critical access hospitals (CAHs) due to 

the new metropolitan statistical areas 

(MSA) definitions for the geographic 

classification of hospitals. As a result, 

we are making corrections to two dates 

and removing an erroneous paragraph of 

regulations text. (See items 39, 42, and 

47 of section III of this notice.) 

On page 49240, we made a technical 

error in the regulations text of 

§ 412.22(e)(1) regarding hospitalswithin-hospitals. In this paragraph, we 

erroneously stated the timeframe for 

which the provision is applicable. (See 

item 41 section III of this notice.) 

On page 49250, in the regulatory text 

changes for § 412.312(e)(3), we 

incorrectly cited the cross-reference to 

the offsetting amounts established for 

extraordinary circumstances exception 

payments under the capital-related costs 

under IPPS. As we had indicated in the 

preamble to the final rule (69 FR 49185 

and 49186), the correct cross-reference 

in both cases in the regulatory text 

should have been § 412.348(e). (See 

section III. item 44 of this notice.) 

On page 49290, we incorrectly stated 

the FY 2005 special capital rate for 

Puerto Rico as $199.02. Consistent with 

the capital rate for Puerto Rico that was 

stated in Table 1D in the Addendum of 

the final rule (69 FR 49294), the rate in 

the narrative of the Addendum should 

have been $199.01. (See section III. item 

50 of this notice.) 

On pages 49738 through 49754, in 

Table 11–FY 2005 LTC–DRGs, Relative 

Weights, Geometric Average Length of 

Stay, and 5⁄6 of the Geometric Average 

Length of Stay, there were inadvertent 

typographical in the published table 

with respect to the geometric average 

length of stay and the 5⁄6 geometric 

average length of stay (columns 4 and 5 

of the table) for a number of the longterm care diagnostic-related groups 

Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 60243

(LTC–DRGs). There were no errors in 

the other columns of the published 

table. However, for clarity and ease of 

reference, we are reprinting the table in 

its entirety. (See item 56 in section III 

of this notice.) 

We are also correcting typographic, 

formatting, or other errors that appear 

on other pages of the FY 2005 final rule, 

as cited in section III. of this notice. 

B. Additional Corrections to the FY 

2005 Final Rule 

We made technical errors in the tables 

related to the wage indexes, geographic 

reclassifications, and IPPS payment 

rates. In section IV. of this notice, we 

discuss these errors in detail. However, 

we are posting the corrected tables on 

the CMS Web site and will issue a 

separate Federal Register document that 

contains corrected tables and addendum 

language and a revised impact analysis. 

III. Correction of Errors 

In FR Doc. 04–17943 (69 FR 48916), 

make the following corrections: 

A. Corrections to Errors in the Preamble 

1. On page 48928, second column, 

lines 39 through 43, the sentence ‘‘The 

proposed restructured DRG 103 

included any principal diagnosis in 

MDC 5, plus one of the following 

surgical procedure codes:’’ is corrected 

to read ‘‘The proposed restructured DRG 

103 is procedure-driven and not based 

on any specific principal diagnosis. 

Assignment to DRG 103 will be based 

on one of the following surgical 

procedure codes:’’

2. On page 48938, second column, at 

the end of line 42 and before line 43, 

add the following sentence: ‘‘We are 

also assigning code 84.59 and codes 

84.60 through 84.69 to the following 

DRGs as discussed above and shown in 

Table 6B: MDC 1, DRGs 531–532; MDC 

21, DRGs 442–443; MDC 24, DRG 486.’’

3. On page 48952, first column, lines 

10 through 26, these lines are deleted 

and the following new text in their 

place: 

‘‘The logic for DRG 315 is modified as 

follows: 

O.R. Procedures 

This list remains the same as V21.0 of 

the GROUPER 

OR 

Principal diagnosis of renal failure 

from DRG 315 

AND 

Non-Operating Room Procedure 

86.07, Insertion of totally implantable 

vascular access device [VAD] 

OR 

Principal Diagnosis 

250.41, Diabetes with renal 

manifestations, type 1, [insulin 

dependent type] [IDDM] [juvenile type], 

not stated as uncontrolled 

250.43, Diabetes with renal 

manifestations, type 1, [insulin 

dependent type] [IDDM] [juvenile type], 

uncontrolled 

AND 

Non-Operating Room Procedures 

52.84, Autotransplantation of cells of 

islets of Langerhans 

52.85, Allotransplantation of cells of 

islets of Langerhans’’. 

4. On page 48975, second column, 

line 56, the term ‘‘diotrecogin’’ is 

corrected to read ‘‘drotrecogin’’. 

5. On page 48976, first column, line 

3, the term ‘‘diotrecogin’’ is corrected to 

read ‘‘drotrecogin’’. 

6. On page 49002, second column, 

a. Lines 2 through 5, the sentence 

‘‘The comment regarding the DRG 

assignment of the treatment for AIP is 

addressed in section II.B.16.i. of this 

final rule.’’ is deleted. 

b. Line 45, the cross-reference 

‘‘section II.B.16.c.’’ is corrected to read 

‘‘section II.B.16.d.’’; and 

c. Line 48, the cross-reference 

‘‘section II.B.16.i.’’ is corrected to read 

‘‘section II.B.16.j.’’. 

7. On page 49003, second column, 

lines 42, the term ‘‘begins’’ is corrected 

to read ‘‘begin’’. 

8. On page 49008, 

a. First column, 

(1) Line 6, the date ‘‘July 2, 2003’’ is 

corrected to read ‘‘July 2, 2002’’.

(2) After line 63 insert the following 

paragraph ‘‘We are finalizing that 

proposal in this final rule.’’

b. Second column, lines 5 and 6, the 

paragraph ‘‘We are finalizing that 

proposal in this final rule’’ is deleted. 

9. On page 49009, third column, lines 

61 through 64, the phrase ‘‘(Craniotomy 

with implantation of chemotherapeutic 

agent or acute complex central nervous 

system principle diagnosis) to which 

Gliadel cases will be assigned.’’ is 

corrected to read ‘‘(Craniotomy with 

Implantation of Chemotherapeutic 

Agent or Acute Complex Central 

Nervous System Principal Diagnosis) to 

which cases involving GLIADEL will 

be assigned.’’

10. On page 49018, second column, 

line 63, the phrase ‘‘stated that that 

based’’ is corrected to read ‘‘stated that 

based’’. 

11. On page 49022, first column, lines 

22 through 55, the paragraph beginning 

with the phrase ‘‘Comment: The 

applicant noted that it’’ is corrected to 

read: 

‘‘Comment: The applicant stated that 

it was inappropriate to use the date of 

FDA approval (May 2, 2001) as the date 

the device was commercially available, 

which the applicant believes should be 

February 2002. The commenter stated 

that the ‘delay between FDA approval 

and commercial availability was due to 

a halt in the production while certain 

changes on the ISKD were validated.’ It 

also noted that the company ‘conducted 

a comprehensive review of its sales 

database’ and has determined that the 

first commercial sales of the device were 

made in February 2002, and as such, the 

costs of the device were not included in 

the FY 2001 MedPAR. The applicant 

reiterated the reasons the device met the 

cost and substantial clinical 

improvement criteria. The applicant 

also stated that if CMS had asked for 

market data in the application, it would 

have provided that information to us 

sooner, and would have had the 

opportunity to present its argument that 

the device did, in fact, have a delay 

between FDA approval and coming to 

the market and respectfully requested 

that we reconsider the application, 

taking these points into consideration.’’

12. On page 49028, second column, 

line 35, the term ‘‘OMB’’ is corrected to 

read ‘‘Census’’. 

13. On page 49061, second column, 

after line 25 and before line 26 insert the 

following 2 paragraphs: 

‘‘Comment: One commenter requested 

that we clarify whether hospitals that 

were approved for reclassification under 

the section 508 of Public Law 108–173 

provision for urban groups could also 

reclassify under the policy, which we 

proposed in our discussion of the 

standardized amount reclassification 

provisions, under which certain 

hospitals that previously were part of 

failed urban group reclassification 

applications for FYs 2004 and 2005 

would be assigned to the MSAs to 

which they had applied in their 

applications for FYs 2004 and 2005. The 

commenter stated that the proposal 

should be construed to provide all 

section 508 hospitals with such an 

assignment and that to do so would 

allow theses hospitals to extend their 

section 508 reclassifications for a 6-

month period, from April 1, 2007 

through September 1, 2007. Finally, the 

commenter recommended that, in 

effecting the extension, ‘the section 508 

reclassifications should be deemed to 

take precedence over the assignment of 

the wage index by CMS so any dilution 

of the target wage index would not 

occur until the 6-month extension 

begins’. 

‘‘Response: In the proposed rule, we 

proposed to exercise the Secretary’s 

authority to provide for ‘exceptions and 

adjustments’ to payments under the 

60244 Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 

IPPS. Specifically, we proposed to 

assign a different wage index to a group 

of hospitals that were unable to 

reclassify because of a reclassification 

criterion that is no longer appropriate 

due to a statutory change. Several 

hospitals, including those described 

above, notified us that they have met the 

requirements that we announced in the 

proposed rule. We acknowledge that we 

had not contemplated a situation such 

as the one described by the commenter. 

Even in light of this circumstance, we 

do not intend to modify our proposal 

because the intent of the proposal was 

to assign a different wage index to a 

group of hospitals that ‘were unable to 

reclassify’ (69 FR 28288) (emphasis 

added). The hospitals described by the 

commenter were approved for 

reclassification under section 508 of 

Public Law 108–173. Finally, section 

508(a)(3) of Public Law 108–173 

provides: ‘Such reclassification shall 

apply with respect to discharges 

occurring during the 3-year period 

beginning with April 1, 2004.’ Because 

the section 508 reclassifications have 

been implemented in accordance with 

Congressional intent, we are clarifying 

in this final rule that the assignment of 

a different wage index, as proposed, is 

applicable only to those applicants that 

were unable to reclassify because of a 

reclassification criterion that is no 

longer appropriate.’’. 

14. On page 49072, third column, line 

33, the phrase ‘‘postacute transfer 

policy’’ is corrected to read ‘‘postacute 

care transfer policy’’. 

15. On pages 49073 through 49075 the 

text beginning on page 49073, first 

column, first full paragraph and ending 

on page 49075, first column, fourth full 

paragraph, is revised to read as follows: 

‘‘Comment: Several commenters 

objected to the proposed alternate 

criteria for DRGs to be included in the 

postacute care transfer policy. Some 

commenters believed that the proposed 

criteria were inappropriate because they 

appeared contrived to ensure that cases 

in the former DRG 483, which had a 

very high DRG weight and resulted in 

significant Medicare payments, would 

not be paid at the higher rate associated 

with those cases. One commenter stated 

that if CMS’ creation of the two new 

DRGs for tracheostomies with and 

without surgical procedures does not 

create less variation in length of stay 

and cost per case, there is no need to 

split DRG 483 and no need to expand 

the transfer policy criteria. The 

commenters argued that if the split of 

DRG 483 into more specific DRGs will 

better account for variations in the 

original DRG, then the historical logic 

behind the transfer policy in these cases 

is no longer valid. Some commenters 

also believed that the alternate criteria 

did not meet the objective of the 

provision, which is to ensure that the 

postacute care transfer policy only 

subjects high-volume DRGs to this 

payment method. 

‘‘Some commenters objected to the 

method by which we proposed the 

change in the criteria for DRGs to 

qualify to be included in the postacute 

transfer policy. They argued that CMS 

should have proposed the criteria and 

accepted comment on the alternate 

criteria and made appropriate changes 

based on those comments before 

applying them to any additional DRGs. 

The commenters were concerned that 

CMS had seemingly arbitrarily created 

the alternate set of criteria and applied 

them to new DRGs in the same rule. 

Many commenters also noted that CMS 

did not provide enough evidence or 

substantial analysis to warrant such a 

change in policy prior to proposing the 

alternate criteria and proposing to apply 

them. Commenters argued that no 

analysis has been done to determine the 

impacts of last year’s changes to the 

criteria for the postacute care transfer 

policy and that to alter the criteria again 

the following year, without any analysis 

of last year’s changes, would be 

premature.

‘‘Several commenters took issue with 

changes to the DRG system having 

impacts on the postacute care transfer 

policy. One commenter stated that, from 

a clinical perspective, many of the 

tracheostomy patients can be ‘weaned’

from the ventilator, and the highest 

success rate occurs when the patients 

are moved ‘in an expedient fashion’ to 

postacute care settings where ‘weaning 

protocols can be applied.’ Other 

commenters asked CMS to recognize 

that ‘there is no other institute to 

transfer these [tracheostomy] patients to’

and that ‘acute hospitals are the only 

settings in which they can be cared for.’

One commenter stated that the different 

case weights of the new DRGs may have 

significant financial impacts on 

providers and that we should reconsider 

the assignment of these new DRGs in 

the policy until sufficient data are 

available to determine if they would 

meet the existing criteria for inclusion 

in the policy. 

‘‘Some commenters recognized the 

need to develop an ‘alternative method 

for historic, qualifying transfer DRGs 

that are eliminated and remapped into 

another existing DRG and/or split into 

two new DRGs due to annual coding 

changes or DRG service refinements’ to 

be included in the postacute care 

transfer policy. However, they still 

objected to the use of the proposed 

alternate criteria when the first set of 

criteria are not met and recommended, 

as a compromise, that CMS adopt the 

use of the alternate criteria only when: 

(1) Cases in an existing DRG are 

remapped or split into two new DRGs, 

as is the situation with DRG 483; (2) 

these cases would remain subject to the 

postacute care transfer policy during a 

‘transitional year’; (3) the existing 

criteria would apply at the end of this 

‘transitional year’; and (4) the individual 

codes or sets of ICD–9–CM diagnosis or 

procedure codes that are remapped 

would not automatically qualify the 

new DRGs for inclusion in the postacute 

care transfer policy unless such 

mapping would result in all cases 

within the new DRG(s) qualifying under 

the existing criteria. This approach 

would exclude the criterion that the 

DRG(s) meet these criteria for both of 

the two most recent fiscal years, as the 

new DRG(s) would not have been in 

existence, and could not have met the 

criteria in those years. 

‘‘Response: We disagree with some of 

the points raised by these commenters. 

In the proposed rule (69 FR 28273), we 

clearly indicated that the alternate 

criteria to be included in the postacute 

care transfer policy still required 

relatively high volumes of postacute 

care transfer cases, as well as very high 

proportions of short-stay transfer cases. 

We specifically chose a very high 

threshold for the percent of these 

postacute care transfer cases that are 

short-stay cases in order to avoid 

including inappropriate DRGs within 

the postacute care transfer policy. In 

many areas of Medicare program policy, 

we employ a threshold of one standard 

deviation or less in order to qualify for 

inclusion to or exclusion from certain 

provisions. In this instance, we 

deliberately chose a much higher 

threshold in order to ensure that only 

those DRGs with the highest rate of 

short-stay postacute care transfers 

would be included in the policy. 

‘‘However, in light of these and other 

comments, we are not adopting the 

proposed alternate criteria in this final 

rule. We note that the postacute care 

transfer policy was not considered at the 

time the decision was made to split DRG 

483. We do not intend to change our 

rationale for reorganizing DRGs into 

more coherent groups or to compromise 

the clinical cohesiveness of the DRG 

system in order to ensure cases are 

included in or excluded from the 

postacute care transfer policy or other 

CMS policies. We have discussed the 

reasons for splitting DRG 483 in section 

II.B.9. of the proposed rule and in this 

final rule. However, we do note that, 

while these cases will continue to be 

Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 60245

included in the postacute care transfer 

policy and subject to per diem 

payments, we anticipate that fewer 

cases will actually receive these reduced 

payments as the new DRGs better reflect 

the resources required to treat these 

patients. As a result, hospitals will have 

less incentive to discharge these 

patients to postacute care. 

‘‘We also note that, if acute care 

settings are the only appropriate place 

that tracheostomy patients can receive 

proper care, as reported by one 

commenter, then DRG 483 into which 

these claims fall would not have a high 

percentage of short-stay transfers (they 

currently account for 42 percent of all 

transfer cases in this DRG), and it would 

not have been included in the postacute 

care transfer policy. This commenter’s 

statement is also contrary to another 

commenter’s statement that we 

summarized, which stated that the 

appropriate place for these patients to 

be weaned from ventilators is at 

postacute care facilities. Lastly, since 

the postacute care transfer policy was 

implemented in FY 1999, we have 

accumulated 5 years’ worth of data 

containing these cases. These data show 

that these cases are appropriate 

candidates for the postacute care 

transfer policy. 

‘‘Comment: Other commenters 

continued to argue that the postacute 

care transfer policy goes against the 

premise of the DRG system that is 

intended to pay the average of the costs 

of all cases in a DRG, short lengths of 

stay and longer lengths of stay. The 

commenters asserted that to reduce the 

payment for the shorter stay cases 

without providing a mechanism to 

recover the costs associated with the 

longer stay cases (other than outlier 

payments) is unfair to hospitals. One 

commenter quoted the Medicare Guide, 

which has acknowledged ‘division of a 

prospective payment amount, on a per 

diem or other basis, undercuts the 

principles and objectives of the 

prospective payment system.’

Commenters also continued to argue 

that the premise behind the transfer 

policy is biased, based on an 

assumption of gaming by providers, and 

that it punishes providers for providing 

the appropriate level of care at the right 

time and place. Commenters argued that 

the policy creates an administrative 

burden on claims processing that has 

caused payment delays and 

‘inappropriate denials of hospital bills.’

They also noted a geographic bias 

against regions that have access to 

greater capital, resources, and postacute 

care facilities, and that traditionally 

have had shorter lengths of stay for their 

patients than other regions of the 

country. 

‘‘Commenters also argued that the 

policy should be repealed in its entirety, 

rather than expanded, because it creates 

a perverse incentive for hospitals to 

keep patients longer and to deny them 

appropriate care in postacute care 

facilities when it is needed. Many 

commenters also argued that CMS has 

failed to provide analysis showing the 

continued need for the postacute care 

transfer policy, much less the need to 

expand it, especially considering that 

the majority of postacute care facilities 

are now paid for in their own 

prospective payment systems. 

Commenters continued to argue that 

‘CMS has presented no evidence that 

hospitals are discharging patients before 

they are ready.’

‘‘Response: We have addressed many 

of these concerns in previous rules and 

continue to find them unconvincing. We 

again note that the requirement to treat 

certain qualified discharges to postacute 

care as transfers was added by section 

4407 of the Balanced Budget Act of 

1997. That law initially required CMS to 

identify DRGs with high volumes of 

transfer cases to postacute care settings. 

Since then, we have found that the 

policy is quite appropriate and analysis 

of the use of postacute care has 

consistently demonstrated that the 

frequency of use of postacute care 

facilities continues to rise. Although 

many of the postacute care facilities are 

now paid under their own prospective 

payment systems, we continue to find 

that is inappropriate for Medicare to 

make two full payments for the 

treatment of these patients. 

Furthermore, we do not believe it is 

appropriate to reimburse acute care 

hospitals at the full DRG amount when 

many patients who are transferred to 

postacute care early do not receive the 

full care and build up the same costs at 

the acute care facility. Therefore, 

because the majority of patients 

comprising short-stay transfers receive 

the majority of their care at postacute 

care facilities, we continue to believe 

that full payment to those postacute care 

facilities and reduced payment to acute 

facilities for these cases are merited. 

‘‘Comment: Commenters argued that 

because no analysis had been done to 

see if the postacute care transfer policy 

led to unnecessarily extended hospital 

stays in order to avoid the adjustment, 

no further expansion of the policy 

should occur until a full impact analysis 

is performed. Commenters asked 

specifically that the analysis include a 

focus on payments, quality of service, 

and behavioral changes.

‘‘Response: Many studies have been 

done to analyze the postacute care 

transfer policy by MedPAC, the Office of 

Inspector General, and others. These 

studies all support the need for the 

policy and generally support expansion 

of the policy to additional DRGs where 

appropriate. The OIG reports 

specifically address hospital compliance 

with the original 10 DRG policy. These 

reports frequently cite examples of 

hospitals that try to avoid the policy 

requirements by miscoding transfers as 

regular discharges. Because medical 

review is not frequently done in these 

audits, the reports do not usually 

examine whether hospitals are keeping 

patients too long to avoid the reduced 

payments. We have strongly warned 

hospitals that keeping patients in acute 

care merely to avoid application of the 

postacute care transfer policy is 

inappropriate. Further, we note that the 

reference to hospitals gaming the system 

is the opposite of the gaming that we 

normally reference with the policy, but 

leads to the same result: inappropriate 

payments. The commenters’ reference to 

such practices further demonstrates that 

we have grounds to believe gaming still 

occurs and, therefore the postacute care 

transfer policy should be continued and 

further expansions as indicated by our 

analysis, should be considered. 

‘‘Comment: Some commenters 

suggested that in place of the proposed 

alternate criteria, we should adopt a 

policy of keeping cases within the scope 

of the postacute care transfer policy 

permanently once they initially qualify 

for inclusion in the policy. These 

commenters noted that removing DRGs 

from the postacute care transfer policy 

makes the payment system less stable 

and results in inconsistent incentives 

over time. They also argued that ‘‘a drop 

in the number of transfers to postacute 

settings is to be expected after the 

transfer policy is applied to a DRG, but 

the frequency of transfers may well rise 

again if the DRG is removed from the 

policy.’’ Other commenters expressed 

concern about our changing of the 

policy criteria in 2 consecutive years. 

These commenters argued that such 

frequent changes in policy give the 

appearance that the policy has been 

contrived to achieve certain desired 

results and make the regulatory process 

unpredictable and unfair. They further 

imply that these ‘‘band-aid fixes’’ to the 

20-year old Medicare system do not 

bode well for the confidence of outside 

organizations in regards to the program. 

‘‘Response: We did consider 

grandfathering cases already included in 

the policy because this approach is, on 

the surface, the simplest method of 

ensuring these cases continue to be paid 

60246 Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 

appropriately. However, we determined 

that in order to adopt this approach, we 

would also need to determine an 

appropriate timeframe for the 

grandfathering period. We did not 

believe that we could adequately predict 

or project what timeframe would be 

appropriate, not only in the case of the 

splitting of DRG 483 into DRGs 541 and 

542, but also for future situations where 

this kind of split may occur. Therefore, 

we tried to develop appropriate, 

alternative criteria based on actual case 

data that could be monitored and 

applied from year to year. 

‘‘However, due to the large number of 

comments received and the strong 

arguments they have raised in favor of 

a more straightforward approach, we 

have decided not to adopt the alternate 

criteria proposed in the May 18, 2004 

proposed rule. Instead, in this final rule, 

we are adopting the policy of simply 

grandfathering, for a period of 2 years, 

any cases that were previously included 

within a DRG that has split, when the 

split DRG qualified for inclusion in the 

postacute care transfer policy for both of 

the previous 2 years. Under this policy, 

the cases that were previously assigned 

to DRG 483, and that will now fall into 

DRGs 541 and 542, will continue to be 

subject to the postacute care transfer 

policy for the next 2 years. We will 

monitor the frequency with which these 

cases are transferred to postacute care 

settings and the percentage of these 

cases that are short-stay transfer cases. 

Because we are not adopting the 

proposed alternate criteria for DRG 

inclusion in the postacute care transfer 

policy at this time, DRG 430 (Psychoses) 

does not meet the criteria for inclusion 

and will not be subject to the postacute 

care transfer policy for FY 2005. 

‘‘We appreciate the recommendation 

to address situations such as the 

splitting of DRGs by simply including 

all cases within the postacute care 

transfer policy permanently once they 

have initially qualified. While we are 

not adopting this policy at this time, we 

will actively consider it for adoption at 

a later date. Meanwhile, we believe that 

grandfathering the cases formerly 

included in DRG 483 for 2 years is an 

appropriate interim measure that 

ensures a consistent payment approach 

to these cases while affording us 

sufficient time to undertake a thorough 

review of this issue. In the meantime, 

we welcome comments on how to treat 

the cases formerly included in a split 

DRG after the grandfathering period. We 

note that, if we were to adopt the policy 

recommended by the commenter, cases 

in DRGs 263 and 264 would again 

become subject to the policy. As noted 

above, these DRGs are already very close 

to meeting the criteria required to be reincluded in the policy. However, we 

will monitor cases until next year or 

until such time that another change to 

this policy is warranted. 

‘‘Comment: Several commenters 

disagreed with our proposal to add DRG 

430 to the list of DRGs subject to the 

postacute care transfer policy. They 

argued that DRG 430 has been in 

existence since the start of the postacute 

care transfer policy and CMS has never 

previously considered it appropriate to 

include this DRG in the policy. Only 

now that CMS has proposed to add 

alternative criteria does it qualify for 

inclusion in the policy. Furthermore, 

they argued that it is unfair for CMS to 

remove the potential for $25 million in 

payments at a time when hospitals are 

already having staff shortages and 

difficulty keeping nurses and accessing 

capital to treat patients. 

‘‘Response: We note that the number 

of transfer cases in this DRG was already 

near the 14,000 threshold (12,202 

transfer cases in our analysis in the 

proposed rule using the FY 2003 

MedPAR) necessary to meet the existing 

criteria. The percentage of short-stay 

transfer cases in DRG 430 easily meets 

the criteria for both the existing 

criterion (10 percent) and the proposed 

alternative criterion (2 standard 

deviations above the mean across all 

DRGs, or 37 percent in FY 2005). 

Therefore, we do not believe the 

addition of this DRG under the 

proposed alternative criteria was 

unjustified. However, as we discuss in 

this final rule, we are modifying our 

proposal in a way that this DRG will not 

be added to the postacute care transfer 

policy. 

‘‘The table below displays the 30 

DRGs that we are including in the 

postacute care transfer policy, effective 

for discharges occurring on or after 

October 1, 2004. This table includes the 

effects of dropping DRG 483, which we 

are deleting from the DRG list, and 

adding the two new DRGs 541 and 542 

that will now incorporate the cases 

formerly assigned to DRG 483. As 

discussed above, these cases are being 

grandfathered into the policy for 2 

years. The other DRGs meet the criteria 

specified above during both of the 2 

most recent years for which data were 

available prior to the publication of this 

final rule (FYs 2002 and 2003), as well 

as their paired-DRG if one of the DRGs 

meeting the criteria includes a CC/noCC split.

DRG DRG title 

12 ................................................. Degenerative Nervous System Disorders. 

14 ................................................. Intracranial Hemorrhage and Stroke with Infarction. 

24 ................................................. Seizure and Headache Age > 17 With CC. 

25 ................................................. Seizure and Headache Age > 17 Without CC. 

88 ................................................. Chronic Obstructive Pulmonary Disease. 

89 ................................................. Simple Pneumonia and Pleurisy Age > 17 With CC. 

90 ................................................. Simple Pneumonia and Pleurisy Age > 17 Without CC. 

113 ............................................... Amputation for Circulatory System Disorders Except Upper Limb and Toe. 

121 ............................................... Circulatory Disorders With AMI and Major Complication, Discharged Alive. 

122 ............................................... Circulatory Disorders With AMI Without Major Complications Discharged Alive. 

127 ............................................... Heart Failure & Shock. 

130 ............................................... Peripheral Vascular Disorders With CC. 

131 ............................................... Peripheral Vascular Disorders Without CC. 

209 ............................................... Major Joint and Limb Reattachment Procedures of Lower Extremity. 

210 ............................................... Hip and Femur Procedures Except Major Joint Age > 17 With CC. 

211 ............................................... Hip and Femur Procedures Except Major Joint Age > 17 Without CC. 

236 ............................................... Fractures of Hip and Pelvis. 

239 ............................................... Pathological Fractures and Musculoskeletal and Connective Tissue Malignancy. 

277 ............................................... Cellulitis Age > 17 With CC. 

278 ............................................... Cellulitis Age > 17 Without CC. 

294 ............................................... Diabetes Age > 35. 

296 ............................................... Nutritional and Miscellaneous Metabolic Disorders Age > 17 With CC. 

297 ............................................... Nutritional and Miscellaneous Metabolic Disorders Age > 17 Without CC. 

Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 60247

DRG DRG title 

320 ............................................... Kidney and Urinary Tract Infections Age > 17 With CC. 

321 ............................................... Kidney and Urinary Tract Infections Age > 17 Without CC. 

395 ............................................... Red Blood Cell Disorders Age > 17. 

429 ............................................... Organic Disturbances and Mental Retardation. 

468 ............................................... Extensive O.R. Procedure Unrelated to Principal Diagnosis. 

541 (formerly 483) ....................... Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth and Neck 

Diagnoses With Major O.R. Procedure. 

542 (formerly 483) ....................... Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth and Neck 

Diagnoses Without Major O.R. Procedure. 

‘‘Section 1886(d)(5)(J)(i) of the Act 

recognizes that, in some cases, a 

substantial portion of the costs of care 

is incurred in the early days of the 

inpatient stay. Similar to the policy for 

transfers between two acute care 

hospitals, the transferring hospital in a 

postacute care transfer receives twice 

the per diem rate for the first day of 

treatment and the per diem rate for each 

following day of the stay before the 

transfer, up to the full DRG payment. 

However, three of the DRGs subject to 

the postacute care transfer policy 

exhibit a disproportionate share of costs 

very early in the hospital stay in 

postacute care transfer situations. For 

these DRGs, hospitals receive 50 percent 

of the full DRG payment plus the single 

per diem (rather than double the per 

diem) for the first day of the stay and 

50 percent of the per diem for the 

remaining days of the stay, up to the full 

DRG payment. 

‘‘In previous years, we determined 

that DRGs 209 and 211 met this cost 

threshold and qualified to receive this 

special payment methodology. Because 

DRG 210 is paired with DRG 211, we 

include payment for cases in that DRG 

for the same reason we include paired 

DRGs in the postacute care transfer 

policy (to eliminate any incentive to 

code incorrectly in order to receive 

higher payment for those cases). The FY 

2003 MedPAR data show that DRGs 209 

and 211 continue to have charges on the 

first day of the stay that are higher than 

50 percent of the average charges in the 

DRGs. Therefore, we proposed to 

continue the special payment 

methodology for DRGs 209, 210, and 

211 for FY 2005 (69 FR 28274). 

‘‘We received no comments on this 

proposal. Therefore, we will continue 

the special payment methodology for 

these DRGs in FY 2005. 

Out-of-Scope Comments 

‘‘Comment: One commenter requested 

that we require physicians and 

postacute care facilities to notify the 

original treating hospital that a patient 

has been treated within 3 days at 

another facility. The commenter 

indicated that this step would reduce 

the burden on hospitals in relation to 

the postacute transfer policy. 

‘‘Response: While we appreciate the 

commenter’s concern to reduce the 

burdens on hospitals, we are reluctant 

to impose this burden on other entities, 

especially since these other entities are 

not affected by the payment decisions 

that are involved. 

‘‘Comment: One commenter asked 

that CMS clarify if the services included 

within the scope of the postacute care 

transfer policy include activities of daily 

living, or if the intent of the regulation 

is only for skilled services as provided 

by a SNF (such as physical therapy and 

wound care). 

‘‘Response: This comment was 

outside the scope of the proposed rule. 

Nevertheless, as stated above, the 

regulation defines a qualified discharge 

for purposes of the postacute care 

transfer policy as including a discharge 

to ‘[h]ome health services provided by 

a home health agency, if the services 

relate to the condition or diagnosis for 

which the individual received inpatient 

hospital services, and if the home health 

services are provided within an 

appropriate period (as determined by 

the Secretary).’ We have specified the 

appropriate time period during which 

we will consider a discharge to home 

health services to constitute a transfer as 

within 3 days of the date of discharge 

from the hospital. We also believe that, 

because the service is required to be 

related to the condition or diagnosis for 

which the individual received inpatient 

hospital services, the treatment received 

from a home health agency that would 

fall within the purview of the postacute 

care transfer policy would be 

specialized, skilled services (for 

example, physical therapy is a standard 

of care following hip replacement 

surgery). However, because some 

patients are discharged to home after 

receiving inpatient care, and because 

some patients live in nursing homes that 

provide assisted living services, these 

claims would still be considered 

transfers if the nursing facility’s 

provider number indicates that the 

services provided are skilled in nature 

(that is, an SNF rather than a nursing 

home).’’

16. On page 49090, first column, lines 

4 through 45, the lines are deleted. 

17. On page 49103, third column, 

lines 46 through 58, the two sentences 

‘‘In light of its concerns, the commenter 

recommends that CMS establish a 

separate exception for major rural 

teaching hospitals by revising § 412.230 

to add two provisions. The commenter 

believes that adoption of the suggested 

rules would allow a major teaching 

hospital to reclassify to an MSA where 

a substantial number of its competing 

hospitals are located within the same 

census region, thus affording them the 

flexibility to reclassify to an appropriate 

MSA.’’ are corrected to read ‘‘In light of 

its concerns, the commenter 

recommends that CMS establish a 

separate exception for major rural 

teaching hospitals by revising § 412.230 

to eliminate the proximity requirement 

for rural, major teaching hospitals who 

seek reclassification to a large urban 

area within their census region that 

includes 5 or more major teaching 

hospitals. The commenter also 

recommended elimination of the wage 

comparability test of § 412.230(e)(1)(iii) 

for rural hospitals that were major 

teaching hospitals as of September 30, 

2004.’’. 

18. On page 49104, 

a. First column, 

(1) Line 48, the phrase ‘‘proximity 

criteria because’’ is corrected to read 

‘‘proximity criteria in § 412.230(b) 

because’’;

(2) Line 55, after the parenthetical 

phrase ‘‘(§ 412.230(a)(3))’’, insert the 

following phrase ‘‘and will generally be 

reclassified to the urban area closest to 

the hospital’’; and 

(3) Lines 55 through 58, the sentence 

‘‘In addition, rural referral centers (and 

SCHs) may also reclassify to any MSA 

to which they qualify under 

§ 412.230(b).’’ is corrected to read ‘‘In 

the alternative, RRCs (and SCHs) also 

have the opportunity to meet the 

proximity criteria of § 412.230(b) and 

seek reclassification to an area for which 

they met the proximity rules.’’. 

b. Second column, 

60248 Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 

(1) Line 4, preceding the sentence that 

begins ‘‘Therefore we are not’’ insert the 

following sentence: 

‘‘We note that under § 412.230(e)(3), 

RRCs are already exempt from the 

criterion in § 412.230(e)(1)(iii) regarding 

the average hourly wage.’’. 

(2) Lines 27 through 33, the sentence 

‘‘In keeping with the proposal to define 

labor market areas as MSAs, including 

those in New England, the criteria and 

conditions for redesignation set forth in 

§ 412.230 will be applicable to New 

England hospitals seeking to reclassify.’’

is corrected to read ‘‘In keeping with our 

policy of defining labor market areas as 

MSAs, including those in New England, 

the criteria and conditions for 

redesignation set forth in § 412.230 will 

be applicable to individual New 

England hospitals seeking to reclassify 

and the conditions for reclassification as 

a group set forth in § 412.234 will be 

applicable to New England hospitals 

seeking to reclassify as a group.’’. 

(3) Lines 56 through 58, the phrase 

‘‘we believe it would be appropriate to 

make an adjustment to the hospital’s 

wage index by assigning,’’ is corrected 

to read ‘‘we proposed to make an 

adjustment to certain hospitals’ wage 

indexes by assigning,’’. 

c. Third column, 

(1) Line 10, the phrase ‘‘failed to 

reclassify’’ is corrected to read ‘‘applied 

but failed to reclassify’’; 

(2) Line 15, the phrase ‘‘any hospital 

whose’’ is corrected to read ‘‘we 

proposed that any hospital whose’’; 

(3) Line 27, the phrase ‘‘wish to’’ is 

corrected to read ‘‘wished to’’; and 

(4) Lines 35 through 48, the text 

beginning with the phrase ‘‘We further 

stated that the notification should only 

contain:’’ and ending with the phrase 

‘‘and FY 2005.’’ is corrected by deleting 

that text; and 

(5) Lines 60 through 68, the two 

sentences ‘‘We proposed to exercise the 

Secretary’s authority to provide for 

‘exceptions and adjustments’ to 

payments under the IPPS. To assign a 

different wage index to a group of 

hospitals that were unable to reclassify 

because of a reclassification criterion 

that is no longer appropriate due to a 

statutory change.’’ is corrected to read 

‘‘We proposed to exercise the 

Secretary’s authority to provide for 

‘exceptions and adjustments’ to 

payments under the IPPS to assign a 

different wage index to a group of 

hospitals that applied but were unable 

to reclassify solely because of a 

reclassification criterion that is no 

longer appropriate due to a statutory 

change.’’

19. On page 49105, 

a. First column, 

(1) After line 12 and before line 13, 

insert the following paragraph: 

‘‘By providing relief only to hospitals 

that applied but failed to reclassify as a 

group under § 412.234 for FYs 2004 and 

2005, we are applying meaningful limits 

to the scope of the exception. We are 

limiting our relief only to hospitals who 

previously demonstrated the intent to 

reclassify and met all of the criteria for 

group reclassification but not for the 

standardized amount reclassification 

criterion under § 412.234(c). Moreover, 

hospitals that submitted a group 

application specified their preferences 

regarding the MSA or MSAs to which 

they sought to be reclassified and in this 

final rule we are allowing hospitals that 

qualify under this exception to 

reclassify only to the MSA or MSAs 

specified in the previously submitted 

group application. By limiting the 

exception in this way, hospitals that had 

no intent to reclassify in the past will be 

prevented from submitting an 

application for reclassification now 

based on the reconfiguration of the 

MSAs. We note that we did not receive 

any comments regarding our decision to 

limit the scope of the exception to 

hospitals that had previously submitted 

a group application for 

reclassification.’’; and 

(2) Lines 15 through 18, the phrase 

‘‘hospitals that were unable to reclassify 

as a group solely because they failed to 

meet the standardized amount criterion 

in either FY 2004 or FY 2005.’’ is 

corrected to read ‘‘hospitals with failed 

applications for either FY 2004 or FY 

2005.’’; 

(3) After line 68, add the following 

three sentences: ‘‘We believe these 

criteria are reasonable because the 

hospitals that failed to reclassify are 

required to compete in their counties 

with a high number of hospitals that 

were successful in reclassifying and 

who may be able to pay significantly 

higher wages because of their higher 

indexes. In addition, these hospitals 

applied for reclassification for FY 2004 

or FY 2005 but failed to receive it solely 

on the basis of a criterion that no longer 

exists due to changes in the statute. 

(Since reclassification lasts for a 3-year 

period, we have allowed hospitals that 

sought group reclassification for either 

FY 2004 or FY 2005, and who also meet 

all of the other criteria above, to receive 

this special exception.)’’. 

b. Third column, lines 1 through 8, 

the phrase ‘‘that are, under the new 

MSA designations and the same CMSA 

under the former MSA designations 

qualify as meeting the proximity 

requirement for reclassification to the 

urban area to which they seek 

redesignation.’’ ’ is corrected to read 

‘‘that are in the same Combined 

Statistical Area (CSA) (under the MSA 

definitions announced by the OMB on 

June 6, 2003); or in the same 

Consolidated Metropolitan Statistical 

Area (CMSA) under the standards 

published by the OMB on March 30, 

1990) as the urban area to which they 

seek redesignation qualify as meeting 

the proximity requirement for 

reclassification to the urban area to 

which they seek redesignation.’’ ’.

20. On page 49106, second column, 

(a) Line 57, the phrase ‘‘adjacency 

and’’ is deleted; 

(b) Lines 58 and 59, the phrase 

‘‘§ 412.230(a)(2) therefore, ‘‘is corrected 

to read ‘‘§ 412.230(a)(2). Therefore, ‘‘; 

and 

(c) Line 62, after the phrase ‘‘to 

reclassify.’’ insert the following 

sentence: ‘‘However, RRCs and SCHs, if 

they wish to, can —in the alternative—

seek reclassification to an area for which 

they can demonstrate close proximity 

under § 412.230(b).’’. 

21. On page 49107, third column, line 

66, after the phrase ‘‘is warranted.’’

insert the following 2 sentences: ‘‘In 

addition, given that many of the 

hospitals in the low population density 

States were already reclassified in 

accordance with section 508 of Pub. L. 

108–173, we believe it is reasonable to 

ensure that the SCHs that were not 

reclassified are not put at a significant 

disadvantage. Hospitals that were not in 

the low-population density States 

identified in the section 508 notice will 

not suffer the same competitive 

disadvantage vis-a`-vis other hospitals in 

their State.’’

22. On page 49108, first column, 

a. Line 30, the phrase ‘‘hospitals in 

the area.’’ is corrected to read ‘‘hospitals 

in the area (not including the hospital 

itself).’’; and 

b. Line 37, the phrase ‘‘hospitals in 

the area.’’ is corrected to read ‘‘hospitals 

in the area (not including the hospital 

itself).’’. 

23. On page 49115, first column, line 

4, the phrase ‘‘with less than 250 beds’’

is corrected to read ‘‘has less than 250 

beds’’. 

24. On page 49116, third column, 

a. Line 2, the phrase ‘‘that lent 

financial support to the subject’’ is 

corrected to read ‘‘to lend financial 

support to the distressed’’. 

b. Lines 3 through 20, the four 

sentences ‘‘A formal merger between the 

two hospitals has been opposed by the 

state’s Attorney General. The subject 

hospital’s residency programs have not 

grown to the level maintained prior to 

the petition for closure and the hospital 

was training residents well below its 

FTE resident cap during the reference 

Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 60249

cost reporting period. As such, the 

hospital believes that its FTE resident 

caps will be reduced pursuant to section 

422. The commenter requests that the 

hospital be exempt from FTE resident 

cap reductions and that this exemption 

extend to the Medicare GME affiliated 

group of which the hospital is a part of 

to preserve the group’s future ability to 

build their teaching programs.’’ are 

corrected to read ‘‘A formal merger 

between the two hospitals was desired 

by the hospitals, but has been opposed 

by the State’s Attorney General. The 

distressed hospital’s residency programs 

have not grown to the level that was 

maintained prior to the petition for 

closure and, thus, the number of FTE 

residents the hospital was training is 

well below its FTE resident cap during 

the reference cost reporting period. As 

such, the hospital believes that its FTE 

resident caps will be reduced in 

accordance with section 1886(h)(7)(A) 

of the Act. The commenter requested 

that the hospital be exempt from the 

FTE resident cap reductions and that 

this exemption extend to the Medicare 

GME affiliated group of which the 

hospital is a part in order to preserve the 

group’s future ability to build its 

teaching programs.’’. 

25. On page 49130, 

a. First column, entire columns (lines 

1 through 64) the text beginning with 

the phrase ‘‘regarding affiliated groups 

(63 FR 26338)’’ and ending with the 

phrase ‘‘basis, a hospital had trained 

fewer’’ is corrected to read ‘‘regarding 

affiliated groups at §§ 413.86(b) and 

(g)(4)(iv), (also described at 63 FR 

26338, May 12, 1998), we note that a 

single hospital could have several 

Medicare GME affiliation agreements 

with several different ‘affiliated groups.’

However, for purposes of applying the 

provision at section 1886(h)(7)(A)(iii) of 

Act, we will use a broader definition of 

the affiliated group. Specifically, for 

purposes of comparing aggregate FTE 

resident caps to aggregate FTE counts, 

we will include every hospital that has 

an affiliation agreement (as of July 1, 

2003) in common with any other 

hospital (the commonly affiliated 

group). Then, for direct GME and IME 

respectively, the fiscal intermediaries 

will identify the ‘1996’ FTE resident 

caps (subject to permanent adjustments 

for new programs, if applicable), and the 

unweighted allopathic and osteopathic 

FTE resident counts for each hospital 

that is part of that commonly affiliated 

group for each affiliated hospital’s cost 

report that includes July 1, 2003. (Note 

that since the 1996 cap and FTE count 

information from the cost report that 

includes July 1, 2003 is being used for 

purposes of section 1886(h)(7)(iii) of the 

Act, the caps as amended in accordance 

with the July 1, 2003 affiliation 

agreement are irrelevant for this portion 

of the analysis). In many cases, the 

hospitals in the commonly affiliated 

group will not all have the same fiscal 

year end (FYE). Therefore, for example, 

for a hospital with a FYE of June 30, the 

fiscal intermediary will identify the FTE 

resident cap (that is, the ‘1996’ cap, 

subject to permanent adjustments for 

new programs, if applicable) and the 

unweighted allopathic and osteopathic 

FTE resident count from the hospital’s 

FYE June 30, 2004 cost report. For a 

hospital with a FYE of December 31, the 

fiscal intermediary will identify, for IME 

and direct GME, respectively, the FTE 

resident cap (that is, the ‘1996’ cap, 

subject to permanent adjustments for 

new programs, if applicable) and the 

unweighted allopathic and osteopathic 

FTE resident count from the hospital’s 

FYE December 31, 2003 cost report. 

Next, the fiscal intermediary will add 

the FTE resident caps for all the 

hospitals in the commonly affiliated 

group to determine the aggregate FTE 

resident cap, and will add the FTE 

resident counts from all those hospitals’

cost reports that include July 1, 2003, to 

determine the aggregate FTE resident 

count for the commonly affiliated group. 

If the aggregate FTE resident count for 

the commonly affiliated group is equal 

to or exceeds the aggregate FTE resident 

cap, then no reductions would be made 

under section 1886(h)(7)(A)(i) of the Act 

to the FTE resident caps of any of the 

hospitals in the commonly affiliated 

group. Each hospital’s FTE resident cap 

would not be reduced effective July 1, 

2005, even if, on a hospital-specific 

basis, a hospital trained fewer’’; 

b. Second column, the entire column 

(lines 1 through 63), the text beginning 

with the phrase ‘‘residents in its cost 

report that includes’’ and ending with 

the figure ‘‘3.04.’’ is corrected to read 

‘‘residents in its cost reporting period 

that includes July 1, 2003, than its 

adjusted ‘affiliated’ cap. However, if the 

aggregate FTE resident count for the 

commonly affiliated group is below its 

aggregate FTE resident cap, there would 

be a reduction in FTE resident cap(s) 

that is equal to 75 percent of the 

difference between the aggregate FTE 

resident cap and the aggregate FTE 

resident count for the commonly 

affiliated group. In these cases, for each 

hospital in the commonly affiliated 

group, the fiscal intermediary will 

determine the following information for 

the cost report that includes July 1, 

2003: 

(1) The individual hospital’s ‘1996’

FTE resident cap (subject to permanent 

adjustments for new programs, if 

applicable)—for IME from worksheet E, 

Part A of the Medicare cost report, the 

sum of lines 3.04 and 3.05; for direct 

GME from worksheet E–3, Part IV of the 

Medicare cost report, the sum of lines 

3.01 and 3.02. 

(2) The individual hospital’s 

‘affiliated’ FTE resident cap—for IME, 

line 3.07 of worksheet E, Part A; for 

direct GME, line 3.04 of worksheet E–

3 Part IV.

(3) The individual hospital’s total 

number of allopathic and osteopathic 

FTE residents—for IME, line 3.08; for 

direct GME, line 3.05. 

(4) For IME and GME, respectively, 

the difference between the aggregate 

1996 FTE resident cap and the aggregate 

FTE resident count for all of the 

commonly affiliated hospitals—for IME, 

S line 3.08 minus S (lines 3.04 + 3.05); 

for direct GME, S line 3.05 minus S

(lines 3.01 + 3.02). Note, if the aggregate 

FTE resident count is greater than or 

equal to the aggregate 1996 FTE resident 

cap, stop here; there will be no 

reduction under section 1886(h)(7)(A)(i) 

of the Act to the FTE resident cap of any 

individual hospital within the 

commonly affiliated group. 

Alternatively, if the aggregate FTE 

resident count is less than the aggregate 

1996 FTE resident cap, the aggregate 

reduction under section 1886(h)(7)(A)(i) 

of the Act to the FTE resident caps for 

hospitals in the commonly affiliated 

group will be based on this calculation; 

reductions to individual hospitals are 

calculated as indicated below. 

(5) For IME, for those hospitals whose 

FTE resident count from line 3.08 is 

greater than or equal to the ‘affiliated’

FTE resident cap on line 3.07, indicate 

’zero.’ For direct GME, for those 

hospitals whose FTE resident count 

from line 3.05 is greater than or equal 

to the ‘‘affiliated’’ FTE resident cap on 

line 3.04, indicate ‘zero.’ For IME, for 

those hospitals whose FTE resident 

count from line 3.08 is less than the 

‘affiliated’ FTE resident cap on line 

3.07, calculate the difference between 

the hospital’s ‘affiliated’ FTE resident 

cap and the hospital’s FTE resident 

count—line 3.08 minus line 3.07. For 

direct GME, for those hospitals whose 

FTE resident count from line 3.05 is less 

than the ‘affiliated’ FTE resident cap on 

line 3.04, calculate the difference 

between the hospital’s ‘affiliated’ FTE 

resident cap and the hospital’s FTE 

resident count—line 3.05 minus line 

3.04. 

c. Third column, the entire column 

(lines 1 through 63), the text beginning 

with the phrase ‘‘(6) For IME and direct 

GME’’ and ending with the phrase 

‘‘table below.’’ is corrected to read as 

follows: 

60250 Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 

‘‘(6) For IME and direct GME, 

respectively, determine the total amount 

by which the aggregate ‘affiliated’ FTE 

resident count for the commonly 

affiliated group is below the aggregate 

FTE resident cap for the group by 

adding together the amounts determined 

for each hospital under step 5. 

‘‘(7) For IME and direct GME, 

respectively, calculate a pro rata cap 

reduction for each hospital by dividing 

the hospital-specific amount calculated 

in step 5 by the total for all of the 

commonly affiliated hospitals 

calculated in step 6, and multiply by the 

total amount calculated in step 4 (that 

is, (step 5/step 6) × step 4)). 

‘‘(8) For IME and direct GME, 

respectively, determine the reduction to 

the FTE resident cap for each hospital 

under section 1886(h)(7)(A)(i) of the Act 

by multiplying the pro rata cap 

reduction from step 7 by 0.75. 

‘‘(9) For IME and direct GME, 

respectively, determine the FTE resident 

cap for each hospital by subtracting the 

reduction to the FTE resident cap 

calculated in step 8 from the ‘1996’ FTE 

resident cap in step 1. This is the 

hospital’s FTE resident cap effective 

July 1, 2005. 

‘‘The following is an example of how 

the reductions to the FTE resident caps 

will be determined where the aggregate 

FTE resident counts for hospitals in a 

commonly affiliated group as of July 1, 

2003 are below the hospitals’ aggregate 

FTE resident caps for the hospitals’ cost 

reporting periods that include July 1, 

2003. (This example illustrates 

reductions to the IME caps only, but the 

methodology is the same for reductions 

to the direct GME caps): 

‘‘Hospitals A, B, and C are affiliated 

for the academic year beginning July 1, 

2003. Hospital C is also affiliated with 

Hospitals D and E for the academic year 

beginning July 1, 2003. Thus, the 

commonly affiliated group for purposes 

of determining possible FTE cap 

reductions under section 

1886(h)(7)(A)(iii) of the Act consists of 

Hospitals A, B, C, D, and E. Hospital A’s 

and B’s cost report that includes July 1, 

2003 is their FYE June 30, 2004. 

Hospital C’s and D’s cost report that 

includes July 1, 2003 is their FYE 

December 31, 2003, and Hospital E’s 

cost report that includes July 1, 2003 is 

its FYE September 30, 2003. Using steps 

1 through 9 above, the reductions to the 

FTE resident caps of those hospitals in 

the affiliated group that trained a 

number of FTE residents in their cost 

reporting period that includes July 1, 

2003, that is below their ‘affiliated’ FTE 

resident caps are determined in the 

table below.’’

26. On page 49131, 

a. First column, 

(1) Lines 1 and 2, the phrase ‘‘trained 

residents’’ is corrected to read ‘‘trained 

a number of residents’’; 

(2) Lines 16 through 18, the phrase 

‘‘minimizes the reductions to Hospital 

D’s and E’s ‘1996’ FTE resident caps 

through the calculation of a pro rata’’ is 

corrected to read ‘‘partially offsets the 

reduction to Hospital D’s and E’s FTE 

resident caps through the application of 

a pro rata’’; 

(3) Line 22, the phrase ‘‘the actual cap 

reduction’’ is corrected to read ‘‘the cap 

reduction’’; 

(4) Lines 33 through 44, the sentence 

‘‘We note that the total final FTE 

resident cap effective July 1, 2005 is 410 

FTEs (the total under step 9), which, 

mathematically, is the same as 

subtracting 400 (the total FTEs trained 

in the group) from 440 (the aggregate 

‘‘1996’’ FTE residents caps) multiplying 

by 75 percent, and subtracting the result 

from the original aggregate cap of 440 

(that is, [440¥(0.75 (440¥400))] = 

410).’’ is corrected to read ‘‘We note that 

the aggregate total final FTE resident 

cap for the hospitals in the commonly 

affiliated group, effective July 1, 2005, is 

410 (the total under step 9), which, 

mathematically, is the same as 

subtracting 400 (the aggregate total FTE 

residents trained in the group) from 440 

(the aggregate ‘‘1996’’ FTE resident 

caps), multiplying by 75 percent, and 

subtracting the result from the original 

aggregate FTE resident cap of 440 

(440¥(0.75(440¥400))] = 410).’’; and 

(5) Lines 44 through 49 and second 

column, lines 1 through 11, delete the 

paragraph that begins ‘‘We also note that 

the reductions to’’. 

b. Second column, lines 12 through 

49 and third column lines 1 through 12, 

the paragraph that begins with the 

phrase ‘‘We believe’’ and ends with the 

phrase ‘‘of the Act.’’ is corrected to read 

‘‘We believe this final policy concerning 

the application of sections 

1886(h)(7)(A)(i) and (iii) of the Act to 

hospitals that are affiliated ‘as of July 1, 

2003’ addresses the commenters’

concerns in that it protects hospitals 

from any reduction in their FTE resident 

caps if the aggregate FTE resident 

counts for the commonly affiliated 

group equal or exceed the aggregate FTE 

resident caps, and, in some cases, can 

limit the reductions in FTE resident 

caps. We believe this final policy also 

addresses the commenters’ concerns 

that hospitals in an affiliated group as 

of July 1, 2003, should be allowed to 

modify their affiliation agreements as 

late as June 30, 2004, in order to reflect 

the resident rotations that actually 

occurred among the affiliated hospitals, 

and that the policy should be applied 

using a contemporaneous comparison of 

FTE resident counts and affiliated caps. 

Under our final policy, we will use the 

hospitals’ affiliated FTE resident caps as 

reported on the cost report, which 

allows for modifications to the July 1, 

2003, affiliation agreement by June 30, 

2004, and a comparison of 

contemporaneous FTE resident caps and 

counts. The commenters also requested 

that we provide an extra opportunity for 

hospitals that were affiliated ‘‘as of July 

1, 2003’’ to modify their affiliation 

agreements after publication of the final 

rule, if the final policy is significantly 

different from the proposed policy. We 

do not believe it is appropriate to allow 

hospitals to modify their affiliation 

agreements after publication of the final 

rule. The only reason we allow hospitals 

to modify their agreements by June 30 

of an academic year is to allow 

adjustment to the FTE counts of each 

hospital in the affiliation to reflect the 

realities of the cross-training that 

occurred within that academic year. 

Thus, the decision as to whether or not 

an affiliation agreement should be 

modified should be based solely on 

whether the FTE counts first reflected in 

the affiliation agreement on July 1 of a 

year differ from the actual FTEs that 

trained at each hospital during the year. 

We expect that if affiliated hospitals 

experienced changes in resident 

rotations during the academic year that 

were not reflected in their affiliation 

agreement, they would have modified 

their affiliation agreement by the 

conclusion of the academic year as is 

permitted under our current policy. We 

do not believe it is appropriate to allow 

an additional opportunity for hospitals 

to modify their affiliation agreements for 

other purposes.’’. 

c. Third column, 

(1) Lines 15 through 17, the phrase 

‘‘located in an other than large urban 

area is part of an affiliated group as of 

July 1, 2003 with a rural hospital that 

has’’ is corrected to read ‘‘located in an 

‘other than large’ urban area is part of 

an affiliated group as of July 1, 2003, 

that includes a rural hospital that has’’; 

(2) Lines 18 through 26, the sentence 

‘‘The commenter stated that while the 

rural hospital is exempt from reductions 

to its FTE resident caps, the urban 

hospital could be ‘penalized’ because of 

the slots acquired under the affiliation 

agreement with the rural hospital, if the 

urban hospital did not fill all of those 

slots in its reference cost reporting 

period.’’ is corrected to read ‘‘The 

commenter stated that, while the rural 

hospital is exempt from reductions to its 

FTE resident caps, the urban hospital 

could be ‘penalized’ if, in its reference 

cost reporting period, the urban hospital 

Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 60251

did not fill all of the slots it acquired 

under the affiliation agreement with the 

rural hospital.’’; 

(3) Line 18, the phrase ‘‘that CMS 

carve out’’ is corrected to read ‘‘that 

CMS ‘carve out.’’’; and 

(4) Line 34, the phrase ‘‘of unused 

residency slots’’ is corrected to read ‘‘of 

‘‘unused’’ residency slots’’. 

(5) Lines 39 through 41, the phrase 

‘‘we cannot exempt other hospitals 

outright from possible reductions to 

their FTE resident caps.’’ is corrected to 

read ‘‘section 1886(h)(7)(A) of the Act 

does not provide for exemptions from 

possible reductions to FTE resident 

caps.’’; 

(6) Line 44, the phrase ‘‘part of an 

affiliated group’’ is corrected to read 

‘‘part of a commonly affiliated group’’; 

and 

(7) Line 50, the phrase ‘‘‘1996’’’ FTE 

resident caps’’ is corrected to read ‘‘FTE 

resident caps’’. 

27. On page 49132, 

a. First column 

(1) Lines 3 through 11, the sentence 

‘‘But if the aggregate FTE resident 

counts are below the aggregate 

‘‘affiliated’’ FTE resident caps, then 

(except for rural hospitals with less than 

250 beds), a hospital in the affiliated 

group that trained less FTE residents 

than its individual ‘‘affiliated’’ FTE 

resident cap would have its ‘‘1996’’ FTE 

resident cap reduced’’ is corrected to 

read ‘‘However, if the group’s aggregate 

FTE resident count is below its 

aggregate FTE resident cap, then (except 

for rural hospitals with less than 250 

beds), a hospital in the affiliated group 

that trained fewer FTE residents than its 

individual ‘‘affiliated’’ FTE resident cap 

would have its FTE resident cap 

reduced under section 1886(h)(7)(A)(i) 

of the Act.’’; 

(2) Lines 15 through 21, the phrase 

‘‘the hospital(s) with which it was 

affiliated as of July 1, 2003, the 

aggregate FTE resident counts were 

below the aggregate ‘affiliated’ FTE 

resident caps and the urban hospital 

was also training fewer residents than 

its ‘affiliated’ cap.’’ is corrected to read 

‘‘the hospital(s) that are part of its 

commonly affiliated group as of July 1, 

2003, the aggregate FTE resident counts 

were below the aggregate FTE resident 

caps and the urban hospital was also 

training fewer residents than its 

‘affiliated’ cap.’’; and

(3) Lines 21 through 38, the two 

sentences ‘‘However, since the rural 

hospital’s FTE resident caps are 

protected from reductions under section 

1886(h)(7)(A)(i)(II) of the Act, the urban 

hospital could continue to affiliate with 

the rural hospital on and after July 1, 

2005, and, to the extent that the rural 

hospital has FTE slots available to 

‘‘lend’’ to the urban hospital, the urban 

hospital could receive a temporary 

increase to its FTE resident caps via the 

affiliation agreement with the rural 

hospital. Therefore, although this urban 

hospital may lose slots under section 

1886(h)(7)(A)(i) of the Act, it may be 

able to receive additional slots 

temporarily by affiliating with the rural 

hospital.’’ are corrected to read ‘‘Since 

the rural hospital’s FTE resident caps 

are protected from reductions under 

section 1886(h)(7)(A)(i)(II) of the Act, its 

FTE resident cap would not be reduced 

regardless of the comparison between its 

FTE resident counts and caps. Thus, the 

urban hospital could continue to 

affiliate with the rural hospital on and 

after July 1, 2005, and, to the extent that 

the rural hospital has FTE slots 

available within its FTE resident cap to 

‘‘lend’’ to the urban hospital, the urban 

hospital could receive a temporary 

increase to its FTE resident caps via an 

affiliation agreement with the rural 

hospital. Therefore, although this urban 

hospital’s FTE resident cap may be 

subject to reduction under section 

1886(h)(7)(A)(i) of the Act, the hospital 

may be able to receive a temporary 

adjustment to its FTE resident cap by 

affiliating with the rural hospital in 

subsequent academic years.’’

(4) Lines 43 through 69 and the 

second column lines 1 through 30, the 

text beginning with the phrase 

‘‘Comment: One commenter noted that’’

and ending with the phrase ‘‘the 

reference affiliated resident FTE cap.’’ is 

corrected to read: 

‘‘Comment: One commenter noted 

that in the May 18, 2004 proposed rule 

(69 FR 28297), a hospital’s reference 

resident level would be compared to the 

hospital’s reference FTE resident cap as 

adjusted by applicable Medicare GME 

affiliation agreements. The commenter 

asked for clarification regarding the 

treatment of a hospital that, absent an 

affiliation agreement, has an FTE 

resident cap of zero, but the hospital 

received a temporary increase to its FTE 

resident cap by participating in a 

Medicare GME affiliated group. The 

commenter stated that in its reference 

period, the hospital’s resident level was 

below its FTE cap as adjusted by the 

affiliation agreement and asked if, as a 

result, CMS would reduce its FTE 

resident cap below zero.’’

‘‘Response: An FTE resident cap 

would not be reduced below zero. That 

is, if the hospital’s cap without any 

adjustment under an affiliation 

agreement is zero, the hospital’s FTE 

resident cap would not be reduced to a 

negative number if its reference resident 

level is below the affiliated resident FTE 

cap for the reference period.’’. 

28. On page 49139, first column, lines 

15 and 16, the phrase ‘‘As we have 

stated in this final rule, each application 

by a hospital’’ is corrected to read ‘‘Each 

application by a hospital’’. 

29. On page 49148, first column, lines 

36 and 37, the phrase ‘‘score of 4 

(expanding geriatrics program, Medicare 

physician scarcity area, residents’’ is 

corrected to read ‘‘score of 5 (expanding 

geriatrics program, which is also a 

primary care program, Medicare 

physician scarcity area, residents’’. 

30. On page 49149, first column, line 

12, the citation ‘‘§ 413.75(b)’’ is 

corrected to read ‘‘existing § 413.86(b)’’. 

31. On page 49158, second column, 

a. Line 47, the phrase ‘‘a criterion’’ is 

corrected to read ‘‘a ‘bright line ‘

criterion’’. 

b. Line 56, at the end of the sentence 

add the following sentence ‘‘The 

commenter stated that contrary to the 

authority provided to CMS in section 

422 of Pub. L. 108–173, the agency’s 

proposal would result in the 

redistribution of these resident positions 

in ‘some wholesale manner’.’’

32. On page 49159, second column, 

lines 55 through 61, the sentence ‘‘The 

Congress did, however, recognize the 

unique status of reductions in FTE 

resident counts attributable to a 

hospital’s participation in a 

demonstration project or the VRRP in 

the statute at section 1886(h)(7)(B)(vi) of 

the Act.’’ is deleted. 

33. On page 49165, last bulleted item, 

last line, the phrase ‘‘in its existing 

programs.’’ is corrected to read ‘‘in its 

existing programs or the 2004 fill rate 

information of all of the programs at the 

hospital.’’

34. On page 49168, fourth boxed 

paragraph C11, last line, the phrase 

‘‘defined under 413.75(b)’’ is corrected 

to read ‘‘defined under existing 

§ 413.86(b).’’

35. On page 49172, 

a. Second column, lines 26 through 

38, the phrase ‘‘effective October 1, 

2004, if a hospital can document that a 

particular resident matches 

simultaneously for a first year of 

training in a clinical base year, and for 

a second year of training in the specialty 

program in which the resident intends 

to seek board certification, the resident’s 

initial residency period would be based 

on the specific specialty program for the 

subsequent year(s) of training in which 

the resident matches and not on the 

clinical base year program.’’ is corrected 

to read ‘‘effective for portions of cost 

reporting periods beginning on or after 

October 1, 2004, if a hospital can 

document that a particular resident 

60252 Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 

matches simultaneously for a first year 

of training in a clinical base year, and 

for a second year of training in a 

different specialty program, the 

resident’s initial residency period 

would be based on the specific specialty 

program for the subsequent year(s) of 

training in which the resident matches 

and not on the clinical base year 

program.’’

b. Third column, line 44, the phrase 

‘‘we are able to’’ is corrected to read 

‘‘under current policy, we have been 

able to’’. 

c. Third column, line 65, ‘‘effective 

October 1, 2004’’ is corrected to read, 

‘‘effective for portions of cost reporting 

periods beginning on or after October 1, 

2004.’’

36. On page 49178, third column, 

lines 48 and 49, the phrase ‘‘to financial 

intermediaries’’ is corrected to read ‘‘to 

fiscal intermediaries’’. 

37. On page 49180,

a. First column, line 3, the phrase ‘‘we 

are also proposing’’ is corrected to read 

‘‘we also proposed’’. 

b. Third column, lines 18 and 19, the 

phrase ‘‘because we are proposing to’’ is 

corrected to read ‘‘because we proposed 

to’’. 

38. On page 49219, 

a. Second column, line 62, the 

citation ‘‘§ 485.649’’ is corrected to read 

‘‘§ 485.647’’; 

b. Third column, line 1, the phrase 

‘‘to clarify that. Payment to the CAH 

for’’ is corrected to read ‘‘to clarify that 

payment to the CAH for’’. 

39. On page 49221, third column, line 

53, the date ‘‘December 31, 2005’’ is 

corrected to read ‘‘September 30, 2006’’. 

40. On page 49222, first column, line 

22, the phrase ‘‘§ 489.24(d) to 

§ 489.24(d)’’ is corrected to read 

‘‘§ 489.24(d) to § 489.24(e)’’.

Corrections to the Regulations Text

§ 412.22 [Corrected]

■ 41. On page 49240, third column, in 

§ 412.22 paragraph (e)(1) introductory 

text is corrected to read:

* * * * *

(1) Except as specified in paragraph (f) 

of this section, for cost reporting periods 

beginning on or after October 1, 1997—

* * * * *

§ 412.103 [Corrected]

■ 42. On page 49244, third column, line 

2, in § 412.103(a)(4), the date ‘‘January 1, 

2004’’ is corrected to read ‘‘October 1, 

2006’’.

§ 412.230 [Corrected]

■ 43. On page 49249,

■ a. First column, 1. In the amendatory 

instruction 21 for § 412.230, the 

instruction, ‘‘I. Revising redesignated 

paragraphs (d)(3)(i), (d)(3)(ii), and 

adding (d)(3)(iii(C).’’ is corrected to read 

‘‘I. Revising redesignated paragraphs 

(d)(3)(i), (d)(3)(ii), revising paragraph 

(d)(3)(iii) (B) and adding paragraph 

(d)(3)(iii)(C).’’; and

■ 2. In § 412.230(a)(1)(ii), lines 3 and 4, 

the phrase ‘‘from a rural area to another 

urban area’’ is corrected to read ‘‘from an 

urban area to another urban area’’.

■ b. Second column,

1. Section 412.230(d)(3)(ii) is 

corrected by adding the following 

paragraph (d)(3)(ii)(B):

* * * * *

(B) With respect to redesignations for 

Federal fiscal years 2002 through 2005, 

the hospitals average hourly wage is, in 

the case of a hospital located in a rural 

area, at least 106 percent and in the case 

of a hospital located in an urban area, 

at least 108 percent of the average 

hourly wage of hospitals in the area in 

which the hospital is located.

* * * * *

■ 2. In § 412.230(d)(3)(iii) (C), the phrase 

‘‘108 percent’’ is corrected to read ‘‘at 

least 108 percent’’.

§ 412.232 [Corrected]

■ 3. In § 412.232(a)(1)(i), the year ‘‘2005’’

is corrected to read ‘‘2006’’;

■ 4. In § 412.232(a)(1)(ii), the phrase 

‘‘fiscal years 2005’’ is corrected to read 

‘‘fiscal year 2006’’; and

■ 5. In § 412.232(a)(4)(ii), the year 

‘‘2005’’ is corrected to read ‘‘2006’’.

§ 412.312 [Corrected]

■ 44. On page 49250, second column, in 

§ 412.312(e)(3), the cross-reference 

‘‘§ 412.348(c)’’ is corrected to read 

‘‘§ 412.348(e)’’ in two places.

§ 413.77 [Corrected]

■ 45. On page 49258, first column, 

§ 413.77(f) is corrected to read as follows:

* * * * *

(f) Residency match. Effective for 

portions of cost reporting periods 

beginning on or after October 1, 2004, 

with respect to a resident who matches 

simultaneously for a first year of 

training in a primary care specialty, and 

for an additional year(s) of training in a 

nonprimary care specialty, the per 

resident amount that is used to 

determine direct GME payment with 

respect to that resident is the 

nonprimary care per resident amount 

for the first year of training in the 

primary care specialty and for the 

duration of the resident’s training in the 

nonprimary care specialty.

* * * * *

§ 413.79 [Corrected]

■ 46. On page 49259, second column, 

§ 413.79(a)(10) is corrected to read as 

follows:

* * * * *

(a) * * * 

(10) Effective for cost reporting 

periods beginning on or after October 1, 

2004, if a hospital can document that a 

resident simultaneously matched for 

one year of training in a particular 

specialty program, and for a subsequent 

year(s) of training in a different 

specialty program, the resident’s initial 

residency period will be determined 

based on the period of board eligibility 

associated with the program for which 

the resident matched for the subsequent 

year(s) of training.

* * * * *

§ 485.610 [Corrected]

■ 47. On page 49271,

■ a. Second column, § 485.610 is 

corrected by deleting paragraph (b)(3).

■ b. Third column,

■ 1. In § 485.610(c), in the last line, the 

phrase ‘‘after October 1, 2006’’ is 

corrected to read ‘‘after January 1, 2006’’; 

and

§ 485.620 [Corrected]

■ 2. In § 485.620(a), the cross-reference 

‘‘§ 485.646’’ is corrected to read 

‘‘§ 485.647’’.

Corrections to the Addendum 

48. On page 49277, 

a. First column, 

(1) Lines 17 and 18, the phrase 

‘‘hearings and investigations, significant 

charge increases by hospitals, charges’’

is corrected to read ‘‘hearings and 

investigations concerning significant 

charge increases by hospitals, charges’’; 

and 

(2) Second full paragraph, lines 61 

through 65, the sentence, ‘‘This problem 

has now been resolved and along with 

the reasons stated above recommended 

that revert to a methodology using costs 

when calculating the annual outlier 

threshold.’’ is corrected to read 

‘‘Because this problem has now been 

resolved, and for the reasons stated 

above, the commenter recommended 

that we revert to a methodology using 

costs when calculating the annual 

outlier threshold.’’

b. Third column, line 69, the phrase 

‘‘data in updating charges, themselves.’’

is corrected by removing the comma to 

read ‘‘data in updating charges 

themselves.’’

49. On page 49278, third column, 

a. Line 35 the figure ‘‘3.5’’ is corrected 

to read ‘‘3.6’’; and 

b. Line 36, the figure ‘‘1.6’’ is 

corrected to read ‘‘1.5’’. 

Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 60253

50. On page 49290, second column, 

line 22 the figure ‘‘$199.02’’ is corrected 

to read ‘‘$199.01’’. 

51. On pages 49612 through 49622, in 

Table 6A—New Diagnosis Codes the 

table is corrected by revising column 4 

for listed entries to read as follows: 

BILLING CODE 4120–01–P


ER07OC04.000</GPH>
60254 Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 


ER07OC04.001</GPH>
Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 60255


ER07OC04.002</GPH>
60256 Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 


ER07OC04.003</GPH>
Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 60257


ER07OC04.004</GPH>
60258 Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 


ER07OC04.005</GPH>
Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 60259


ER07OC04.006</GPH>
60260 Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 


ER07OC04.007</GPH>
Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 60261


ER07OC04.008</GPH>
60262 Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 


ER07OC04.009</GPH>
Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 60263


ER07OC04.010</GPH>
60264 Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 


ER07OC04.011</GPH>
Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 60265


ER07OC04.012</GPH>
60266 Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 

52. On page 49628, in Table 6C.—

Invalid Diagnosis Codes, the table is 

corrected by adding the following 

footnote at the end of the table:

109Assigned to the Secondary Diagnosis list 

that defines a Major Complication.

53. On page 49631, in Table 6E.—

Revised Diagnosis Code Titles, fourth 

entry, the MDC (column 4) is revised to 

read as follows:

Diagnosis code Description CC MDC DRG 

250.63 ......................... Diabetes with neurological manifestations, type I [juvenile type], uncontrolled ...................... Y PRE 

1 

512,513 

18,19. 

54. On page 49640, in Table 6E.—

Revised Diagnosis Code Titles, the table 

is corrected by adding the two footnotes 

at the end of the table to read as follows:

1Classified as a Major Problem. 

2Classified as a Major Related Condition.

55. On page 49641, in Table 6F.—

Revised Procedure Code Titles, second 

and third entry, the MDC (column 4) is 

revised to read as follows:

Procedure code Description OR MDC DRG 

01.22 ........................... Removal of intracranial neurostimulator lead(s) ................................................... Y 1 

17 

1, 2, 3. 

406, 407, 539, 540. 

02.93 ........................... Implantation or replacement of intracranial neurostimulator lead(s) .................... Y 1 

17 

21 

24 

1, 2, 3. 

406, 407, 539, 540. 

442, 443. 

486. 

56. On pages 49738 through 49754, 

Table 11.—FY 2005 LTC–DRGs, Relative 

Weights, Geometric Average Length Of 

Stay, and 5⁄6ths of the Geometric 

Average Length of Stay, the table is 

corrected to read as follows:

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ER07OC04.013</GPH>
60268 Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 


ER07OC04.014</GPH>
Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 60269


ER07OC04.015</GPH>
60270 Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 


ER07OC04.016</GPH>
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BILLING CODE 4120–01–C

IV. Correction of Errors in Wage Index, 

Geographic Reclassification, and IPPS 

Payment Rate Tables and Related 

Addendum Language 

We are correcting technical errors in 

the tables and addendum language of 

the FY 2005 final rule relating to the 

wage indexes, geographic 

reclassifications, IPPS payment rates. 

CMS and the fiscal intermediaries made 

errors in handling the data used to 

calculate certain average hourly wages, 

wage indexes, and capital geographic 

adjustment factors published in Tables 

2, 3A1, 3A2, 3B1, 3B2, 4A1, 4A2, 4B1, 4B2, 

4C1, 4C2, 4G, 4H. This mishandling of 

data also caused technical errors in the 

average hourly wage data comparison 

used to formulate the list of counties 

qualifying for the out-migration 

adjustment published in Table 4J. 

In addition, there were technical 

errors in hospital geographic 

reclassification data displayed in Tables 

9A1 and 9A2. We also inadvertently 

omitted information and made 

typographical errors in several of the 

entries published in Table 9B. 

We have corrected the errors in the 

wage tables and geographic 

reclassification tables. These corrected 

tables are posted and available on the 

CMS Web site at: http://

www.cms.hhs.gov/providers/hipps/

ippswage.asp. These corrected tables are 

effective for discharges occurring on or 

after October 1, 2004. We note that the 

corrected tables, addendum language 

and revised impact analysis, will be 

included in a forthcoming correction 

notice to be published in the Federal 

Register. 

As a result of the revisions to the 

wage index tables, the FY 2005 hospital 

inpatient PPS operating and capital 

payment rates, published in Table 1A, 

1B, 1C, and 1D also have been revised. 

The revised rates are posted and 

available on the CMS Web site at: http:/

/www.cms.hhs.gov/providers/hipps/. 

The corrections to the hospital inpatient 

PPS operating and capital payment rates 

are effective for discharges occurring on 

or after October 1, 2004. We note that 

the corrected payment rate tables will 

also be published in the Federal 

Register. 

V. Waiver of Proposed Rulemaking and 

Delay in Effective Date 

We ordinarily publish a notice of 

proposed rulemaking in the Federal 

Register to provide a period for public 

comment before the provisions of a rule 

take effect in accordance with section 

553(b) of the Administrative Procedure 

Act (APA) (5 U.S.C. 553(b)). We also 

ordinarily provide a 30-day delay in the 

effective date of the provisions of a 


ER07OC04.017</GPH>
60272 Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / Rules and Regulations 

notice in accordance with section 553(d) 

of the APA (5 U.S.C. 553(d)). However, 

we can waive both the notice and 

comment procedure and the 30-day 

delay in effective date if the Secretary 

finds, for good cause, that a notice and 

comment process is impracticable, 

unnecessary or contrary to the public 

interest, and incorporates a statement of 

the finding and the reasons therefore in 

the notice. 

The policies and payment 

methodology expressed in the FY 2005 

final rule have previously been 

subjected to notice and comment 

procedures. This correction notice 

merely provides technical corrections to 

the FY 2005 final rule that was 

promulgated through notice and 

comment rulemaking, and does not 

make substantive changes to the policies 

or payment methodology that were 

expressed in the final rule. For example, 

this notice corrects typographical errors, 

inserts comments and responses that 

were inadvertently omitted from the 

final rule, makes clarifications to the 

preamble and regulations text, and 

revises inaccurate tabular data. 

Therefore, we find it unnecessary to 

undertake further notice and comment 

procedures with respect to this 

correction notice. We also believe it is 

in the public interest to waive notice 

and comment procedures and the 30-

day delay in effective date for this 

notice. This correction notice is 

intended to ensure that the FY 2005 

final rule accurately reflects the policies 

expressed in the final rule, and that the 

corrected information is made available 

to the public prior to October 1, 2004, 

the date on which the final rule 

becomes effective. 

For the reasons stated above, we find 

that both notice and comment and the 

30-day delay in effective date for this 

correction notice are unnecessary and 

impracticable, and that it is in the 

public interest to make this notice 

effective in conjunction with the final 

rule to which the corrections apply (and 

would be contrary to the public interest 

to do otherwise). Therefore, we find 

there is good cause to waive notice and 

comment procedures and the 30-day 

delay in effective date for this correction 

notice.

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program)

Dated: September 30, 2004. 

Ann C. Agnew, 

Executive Secretary to the Department.

[FR Doc. 04–22389 Filed 9–30–04; 4:44 pm] 

BILLING CODE 4120–01–P