This document is scheduled to be published in the

Federal Register on 04/27/2015 and available online at

http://federalregister.gov/a/2015-09617, and on FDsys.gov

CMS-1624-P

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1624-P]

RIN 0938-AS45

Medicare Program; Inpatient Rehabilitation Facility Prospective Payment System for 

Federal Fiscal Year 2016

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

ACTION: Proposed rule.

SUMMARY: This proposed rule would update the prospective payment rates for inpatient 

rehabilitation facilities (IRFs) for federal fiscal year (FY) 2016 as required by the statute. We 

are also proposing to adopt an IRF-specific market basket that reflects the cost structures of only 

IRF providers, phase in the revised wage index changes, and revise and update quality measures 

and reporting requirements under the IRF quality reporting program (QRP).

DATES: To be assured consideration, comments must be received at one of the addresses 

provided below, no later than 5 p.m. on June 22, 2015.

ADDRESSES: In commenting, please refer to file code CMS-1624-P. Because of staff and 

resource limitations, we cannot accept comments by facsimile (FAX) transmission.

You may submit comments in one of four ways (please choose only one of the ways 

listed):

1. Electronically. You may submit electronic comments on this regulation to 
http://www.regulations.gov. Follow the "Submit a comment" instructions.

2. By regular mail. You may mail written comments to the following address ONLY:

Centers for Medicare & Medicaid Services,

Department of Health and Human Services,

Attention: CMS-1624-P,

P.O. Box 8016,

Baltimore, MD 21244-8016.

Please allow sufficient time for mailed comments to be received before the close of the 

comment period.

3. By express or overnight mail. You may send written comments to the following 

address ONLY:

Centers for Medicare & Medicaid Services,

Department of Health and Human Services,

Attention: CMS-1624-P,

Mail Stop C4-26-05,

7500 Security Boulevard,

Baltimore, MD 21244-1850.

4. By hand or courier. Alternatively, you may deliver (by hand or courier) your 

written comments ONLY to the following addresses prior to the close of the comment period: 

a. For delivery in Washington, DC--

Centers for Medicare & Medicaid Services,

Department of Health and Human Services,

Room 445-G, Hubert H. Humphrey Building,
200 Independence Avenue, SW.,

Washington, DC 20201

(Because access to the interior of the Hubert H. Humphrey Building is not readily 

available to persons without Federal government identification, commenters are encouraged to 

leave their comments in the CMS drop slots located in the main lobby of the building. A stampin clock is available for persons wishing to retain a proof of filing by stamping in and retaining 

an extra copy of the comments being filed.) 

b. For delivery in Baltimore, MD--

Centers for Medicare & Medicaid Services,

Department of Health and Human Services,

7500 Security Boulevard,

Baltimore, MD 21244-1850. 

If you intend to deliver your comments to the Baltimore address, please call telephone 

number (410) 786-7195 in advance to schedule your arrival with one of our staff members.

Comments erroneously mailed to the addresses indicated as appropriate for hand or 

courier delivery may be delayed and received after the comment period.

For information on viewing public comments, see the beginning of the 

"SUPPLEMENTARY INFORMATION" section.

FOR FURTHER INFORMATION CONTACT:

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

Charles Padgett, (410) 786-2811, for information about the quality reporting program.

Kadie Thomas, (410) 786-0468, or Susanne Seagrave, (410) 786-0044, for information about the 

payment policies and the proposed payment rates.
Catherine Kraemer, (410) 786-0179, for information about the revised wage index.

Bridget Dickensheets, (410) 786-8670, or Heidi Oumarou, (410) 786-7942, for information 

about the IRF-specific market basket.

SUPPLEMENTARY INFORMATION: The IRF PPS Addenda along with other supporting 

documents and tables referenced in this proposed rule are available through the Internet on the 

CMS website at http://www.cms.hhs.gov/Medicare/Medicare-Fee-for-ServicePayment/InpatientRehabFacPPS/. 

Inspection of Public Comments: All comments received before the close of the comment 

period are available for viewing by the public, including any personally identifiable or 

confidential business information that is included in a comment. We post all comments received 

before the close of the comment period on the following website as soon as possible after they 

have been received: http://www.regulations.gov. Follow the search instructions on that website 

to view public comments. 

Comments received timely will also be available for public inspection as they are 

received, generally beginning approximately 3 weeks after publication of a document, at the 

headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To 

schedule an appointment to view public comments, phone 1-800-743-3951.

Executive Summary

A. Purpose

This proposed rule would update the payment rates for IRFs for FY 2016 (that is, for 

discharges occurring on or after October 1, 2015, and on or before September 30, 2016) as 

required under section 1886(j)(3)(C) of the Social Security Act (the Act). Section 1886(j)(5) of 
the Act requires the Secretary to publish in the Federal Register on or before the August 1 that 

precedes the start of each fiscal year, the classification and weighting factors for the IRF PPS’s

case-mix groups and a description of the methodology and data used in computing the 

prospective payment rates for that fiscal year. This proposed rule would also revise and update 

quality measures and reporting requirements under the IRF QRP.

B. Summary of Major Provisions

In this proposed rule, we use the methods described in the FY 2015 IRF PPS final rule 

(79 FR 45872) to propose updates to the federal prospective payment rates for FY 2016 using 

updated FY 2014 IRF claims and the most recent available IRF cost report data. We are also 

proposing to adopt an IRF-specific market basket that reflects the cost structures of only IRF 

providers. We are proposing that the IRF-specific market basket will be used to update the IRF 

PPS base payment rate and to determine the FY 2016 labor-related share. We are also proposing 

to phase in the revised wage index changes, and revise and update quality measures and 

reporting requirements under the IRF QRP.

C. Summary of Impacts

Provision Description Transfers

FY 2016 IRF PPS payment rate 

update

The overall economic impact of this proposed rule is an 

estimated $130 million in increased payments from the 

Federal government to IRFs during FY 2016. 

Provision Description Costs

New quality reporting program 

requirements

The total costs in FY 2016 for IRFs as a result of the 

proposed new quality reporting requirements are estimated 

to be $24,042,291.01.
To assist readers in referencing sections contained in this document, we are providing the 

following Table of Contents.

Table of Contents

I. Background

A. Historical Overview of the IRF PPS 

B. Provisions of the Affordable Care Act Affecting the IRF PPS in FY 2012 and 

Beyond

C. Operational Overview of the Current IRF PPS

II. Summary of Provisions of the Proposed Rule

III. Proposed Update to the Case-Mix Group (CMG) Relative Weights and Average Length 

of Stay Values for FY 2016

IV. Continued Use of FY 2014 Facility-Level Adjustment Factors

V. Proposed FY 2016 IRF PPS Payment Update

A. Background

B. Overview of the Proposed 2012-Based IRF Market Basket

C. Creating an IRF-specific Market Basket

D. Proposed FY 2016 Market Basket Update and Productivity Adjustment

E. Proposed Labor-Related Share for FY 2016

F. Proposed Wage Adjustment

G. Description of the Proposed IRF Standard Payment Conversion Factor and 

Payment Rates for FY 2016

H. Example of the Methodology for Adjusting the Proposed Federal Prospective 

Payment Rates
VI. Proposed Update to Payments for High-Cost Outliers under the IRF PPS

A. Proposed Update to the Outlier Threshold Amount for FY 2016

B. Proposed Update to the IRF Cost-to-Charge Ratio Ceiling and Urban/Rural 

Averages

VII. ICD-10-CM Implementation for IRF PPS

VIII. Revisions and Updates to the IRF QRP

A. Background and Statutory Authority

B. General Considerations Used for Selection of Quality, Resource Use, and Other

Measures for the IRF QRP

C. Policy for Retention of IRF QRP Measures Adopted for Previous Payment 

Determinations

D. Policy for Adopting Changes to IRF QRP Measures

E. Quality Measures Previously Finalized for and Currently Used in the IRF QRP

F. Proposal of Previously Adopted IRF QRP Quality Measures for the FY 2018 

Payment Determination and Subsequent Years

G. Proposed Additional IRF QRP Quality Measures for the FY 2018 Payment 

Determination and Subsequent Years

H. IRF QRP Quality Measures and Measure Concepts under Consideration for 

Future Years 

I. Proposed Form, Manner, and Timing of Quality Data Submission for the FY 2018 

Payment Determination and Subsequent Years

J. Previously Adopted and Proposed Timing for New IRFs to Begin Submitting 

Quality Data under the IRF QRP for the FY 2018 Payment Determination and Subsequent Years
K. IRF QRP Data Completion Thresholds for the FY 2016 Payment Determination 

and Subsequent Years

L. Proposed Suspension of the IRF QRP Data Validation Process for the FY 2016 

Payment Determination and Subsequent Years

M. Previously Adopted and Proposed IRF QRP Submission Exception and Extension 

Requirements for the FY 2017 Payment Determination and Subsequent Years

N. Previously Adopted and Proposed IRF QRP Reconsideration and Appeals 

Procedures for the FY 2017 Payment Determination and Subsequent Years

O. Proposed Public Display of Quality Measure Data for the IRF QRP

P. Proposed Method for Applying the Reduction to the FY 2016 IRF Increase Factor 

for IRFs That Fail to Meet the Quality Reporting Requirements

IX. Collection of Information Requirements

A. Statutory Requirements for Solicitation of Comments

B. Collection of Information Requirements for Updates Related to the IRF QRP

X. Response to Public Comments

XI. Regulatory Impact Analysis

A. Statement of Need

B. Overall Impacts

C. Detailed Economic Analysis 

D. Alternatives Considered

E. Accounting Statement

F. Conclusion
Acronyms, Abbreviations, and Short Forms

Because of the many terms to which we refer by acronym, abbreviation, or short form in 

this final rule, we are listing the acronyms, abbreviation, and short forms used and their 

corresponding terms in alphabetical order.

The Act The Social Security Act 

ADC Average Daily Census 

The Affordable Care Act Patient Protection and Affordable Care Act (Pub. L. 111-148, 

enacted on March 23, 2010) 

AHA American Hospital Association

AHE Average Hourly Earnings

AHIMA American Health Information Management Association 

ASAP Assessment Submission and Processing

ASCA Administrative Simplification Compliance Act (Pub. L. 107-105, 

enacted on December 27, 2002)

BEA Bureau of Economic Analysis

BLS U.S. Bureau of Labor Statistics 

CAH Critical Access Hospitals 

CARE Continuity Assessment Record and Evaluation

CAUTI Catheter-Associated Urinary Tract Infection

CBSA Core-Based Statistical Area 

CCR Cost-to-Charge Ratio

CDC The Centers for Disease Control and Prevention
CDI Clostridium difficile Infection 

CFR Code of Federal Regulations

CMG Case-Mix Group

CMS Centers for Medicare & Medicaid Services

CPI Consumer Price Index

DSH Disproportionate Share Hospital

DSH PP Disproportionate Share Patient Percentage 

ECI Employment Cost Index

EHR Electronic Health Record 

ESRD End-Stage Renal Disease 

FFS Fee-for-Service

FR Federal Register

FY Federal Fiscal Year 

GDP Gross Domestic Product

HAI Healthcare Associated Infection

HCP Health Care Personnel

HHS U.S. Department of Health & Human Services

HIE Health Information Exchange 

HIPAA Health Insurance Portability and Accountability Act of 1996 

(Pub. L. 104-191, enacted on August 21, 1996)

HOMER Home Office Medicare Records

ICD-9-CM International Classification of Diseases, 9th Revision, Clinical 

Modification
ICD-10-CM International Classification of Diseases, 10th Revision, Clinical 

Modification

IGI IHS Global Insight

IMPACT Act Improving Medicare Post-Acute Care Transformation Act of 2014

(Pub. L. 113-185, enacted on October 6, 2014)

I-O Input-Output

IPF Inpatient Psychiatric Facility

IQR Inpatient Quality Reporting Program

IRF Inpatient Rehabilitation Facility 

IRF-PAI Inpatient Rehabilitation Facility-Patient Assessment Instrument 

IRF PPS Inpatient Rehabilitation Facility Prospective Payment System

IRF QRP Inpatient Rehabilitation Facility Quality Reporting Program

IRVEN Inpatient Rehabilitation Validation and Entry 

LIP Low-Income Percentage 

LOS Length of Stay

LPN Licensed Practical Nurse

LTCH Long-Term Care Hospital 

MAC Medicare Administrative Contractor 

MAP Measure Applications Partnership

MA (Medicare Part C) Medicare Advantage 

MedPAC Medicare Payment Advisory Commission 

MDS Minimum Data Set

MFP Multifactor Productivity 

MLN Medicare Learning Network
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007 

(Pub. L. 110-173, enacted on December 29, 2007) 

MRSA Methicillin-Resistant Staphylococcus aureus

MSA Metropolitan Statistical Area

MUC Measures under Consideration 

NAICS North American Industry Classification System

NHSN National Healthcare Safety Network

NPP National Priorities Partnership

NPUAP National Pressure Ulcer Advisory Panel

NQF National Quality Forum 

OMB Office of Management and Budget

ONC Office of the National Coordinator for Health Information 

Technology

OT Occupational Therapists

PAC Post-Acute Care

PAI Patient Assessment Instrument 

PLI Professional Liability Insurance

POA Present on Admission

PPI Producer Price Index

PPS Prospective Payment System 

PRA Paperwork Reduction Act of 1995 (Pub. L. 104-13, enacted on 

May 22, 1995)

PRRB Provider Reimbursement Review Board 
PT Physical Therapist

QIES Quality Improvement Evaluation System

QM Quality Measure

QRP Quality Reporting Program 

RIA Regulatory Impact Analysis 

RIC Rehabilitation Impairment Category

RFA Regulatory Flexibility Act (Pub. L. 96-354, enacted on 

September 19, 1980)

RN Registered Nurse 

RPL Rehabilitation, Psychiatric, and Long-Term Care market basket 

RSRR Risk-standardized readmission rate

SDTI Suspected Deep Tissue Injuries

SIR Standardized Infection Ratio 

SLP Speech-Language Pathologist

SOC Standard Occupational Classification System

SNF Skilled Nursing Facilities 

SRR Standardized Risk Ratio

SSI Supplemental Security Income

TEP Technical Expert Panel

I. Background

A. Historical Overview of the IRF PPS 

Section 1886(j) of the Act provides for the implementation of a per-discharge PPS for 

inpatient rehabilitation hospitals and inpatient rehabilitation units of a hospital (collectively, 
hereinafter referred to as IRFs). Payments under the IRF PPS encompass inpatient operating and 

capital costs of furnishing covered rehabilitation services (that is, routine, ancillary, and capital 

costs), but not direct graduate medical education costs, costs of approved nursing and allied 

health education activities, bad debts, and other services or items outside the scope of the IRF 

PPS. Although a complete discussion of the IRF PPS provisions appears in the original FY 2002 

IRF PPS final rule (66 FR 41316) and the FY 2006 IRF PPS final rule (70 FR 47880), we are 

providing below a general description of the IRF PPS for fiscal years (FYs) 2002 through 2015.

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

PPS final rule (66 FR 41316), the federal prospective payment rates were computed across 

100 distinct case-mix groups (CMGs). We constructed 95 CMGs using rehabilitation 

impairment categories (RICs), functional status (both motor and cognitive), and age (in some 

cases, cognitive status and age may not be a factor in defining a CMG). In addition, we 

constructed five special CMGs to account for very short stays and for patients who expire in the 

IRF.

For each of the CMGs, we developed relative weighting factors to account for a patient’s 

clinical characteristics and expected resource needs. Thus, the weighting factors accounted for 

the relative difference in resource use across all CMGs. Within each CMG, we created tiers 

based on the estimated effects that certain comorbidities would have on resource use.

We established the federal PPS rates using a standardized payment conversion factor 

(formerly referred to as the budget-neutral conversion factor). For a detailed discussion of the 

budget-neutral conversion factor, please refer to our FY 2004 IRF PPS final rule 

(68 FR 45684 through 45685). In the FY 2006 IRF PPS final rule (70 FR 47880), we discussed 

in detail the methodology for determining the standard payment conversion factor. 
We applied the relative weighting factors to the standard payment conversion factor to 

compute the unadjusted federal prospective payment rates under the IRF PPS from FYs 2002 

through 2005. Within the structure of the payment system, we then made adjustments to account 

for interrupted stays, transfers, short stays, and deaths. Finally, we applied the applicable 

adjustments to account for geographic variations in wages (wage index), the percentage of lowincome patients, location in a rural area (if applicable), and outlier payments (if applicable) to the 

IRFs’ unadjusted federal prospective payment rates. 

For cost reporting periods that began on or after January 1, 2002, and before 

October 1, 2002, we determined the final prospective payment amounts using the transition 

methodology prescribed in section 1886(j)(1) of the Act. Under this provision, IRFs 

transitioning into the PPS were paid a blend of the federal IRF PPS rate and the payment that the 

IRFs would have received had the IRF PPS not been implemented. This provision also allowed 

IRFs to elect to bypass this blended payment and immediately be paid 100 percent of the federal 

IRF PPS rate. The transition methodology expired as of cost reporting periods beginning on or 

after October 1, 2002 (FY 2003), and payments for all IRFs now consist of 100 percent of the 

federal IRF PPS rate.

We established a CMS website as a primary information resource for the IRF PPS which 

is available at http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/InpatientRehabFacPPS/index.html. The website may be accessed to download or view 

publications, software, data specifications, educational materials, and other information pertinent 

to the IRF PPS.

Section 1886(j) of the Act confers broad statutory authority upon the Secretary to propose 

refinements to the IRF PPS. In the FY 2006 IRF PPS final rule (70 FR 47880) and in correcting 
amendments to the FY 2006 IRF PPS final rule (70 FR 57166) that we published on 

September 30, 2005, we finalized a number of refinements to the IRF PPS case-mix 

classification system (the CMGs and the corresponding relative weights) and the case-level and 

facility-level adjustments. These refinements included the adoption of the Office of 

Management and Budget’s (OMB) Core-Based Statistical Area (CBSA) market definitions, 

modifications to the CMGs, tier comorbidities, and CMG relative weights, implementation of a 

new teaching status adjustment for IRFs, revision and rebasing of the market basket index used 

to update IRF payments, and updates to the rural, low-income percentage (LIP), and high-cost 

outlier adjustments. Beginning with the FY 2006 IRF PPS final rule (70 FR 47908 through 

47917), the market basket index used to update IRF payments was a market basket reflecting the 

operating and capital cost structures for freestanding IRFs, freestanding inpatient psychiatric 

facilities (IPFs), and long-term care hospitals (LTCHs) (hereafter referred to as the rehabilitation, 

psychiatric, and long-term care (RPL) market basket). Any reference to the FY 2006 IRF PPS 

final rule in this final rule also includes the provisions effective in the correcting amendments. 

For a detailed discussion of the final key policy changes for FY 2006, please refer to the 

FY 2006 IRF PPS final rule (70 FR 47880 and 70 FR 57166). 

In the FY 2007 IRF PPS final rule (71 FR 48354), we further refined the IRF PPS casemix classification system (the CMG relative weights) and the case-level adjustments, to ensure 

that IRF PPS payments would continue to reflect as accurately as possible the costs of care. For 

a detailed discussion of the FY 2007 policy revisions, please refer to the FY 2007 IRF PPS final 

rule (71 FR 48354).

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

payment rates and the outlier threshold, revised the IRF wage index policy, and clarified how we 
determine high-cost outlier payments for transfer cases. For more information on the policy 

changes implemented for FY 2008, please refer to the FY 2008 IRF PPS final rule 

(72 FR 44284), in which we published the final FY 2008 IRF federal prospective payment rates.

After publication of the FY 2008 IRF PPS final rule (72 FR 44284), section 115 of the 

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

December 29, 2007) (MMSEA), amended section 1886(j)(3)(C) of the Act to apply a zero 

percent increase factor for FYs 2008 and 2009, effective for IRF discharges occurring on or after 

April 1, 2008. Section 1886(j)(3)(C) of the Act required the Secretary to develop an increase 

factor to update the IRF federal prospective payment rates for each FY. Based on the legislative 

change to the increase factor, we revised the FY 2008 federal prospective payment rates for IRF 

discharges occurring on or after April 1, 2008. Thus, the final FY 2008 IRF federal prospective 

payment rates that were published in the FY 2008 IRF PPS final rule (72 FR 44284) were 

effective for discharges occurring on or after October 1, 2007, and on or before March 31, 2008; 

and the revised FY 2008 IRF federal prospective payment rates were effective for discharges 

occurring on or after April 1, 2008, and on or before September 30, 2008. The revised FY 2008 

federal prospective payment rates are available on the CMS website at:

http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/DataFiles.html.

In the FY 2009 IRF PPS final rule (73 FR 46370), we updated the CMG relative weights, 

the average length of stay values, and the outlier threshold; clarified IRF wage index policies 

regarding the treatment of “New England deemed” counties and multi-campus hospitals; and 

revised the regulation text in response to section 115 of the MMSEA to set the IRF compliance 

percentage at 60 percent (the “60 percent rule”) and continue the practice of including 
comorbidities in the calculation of compliance percentages. We also applied a zero percent 

market basket increase factor for FY 2009 in accordance with section 115 of the MMSEA. For 

more information on the policy changes implemented for FY 2009, please refer to the FY 2009 

IRF PPS final rule (73 FR 46370), in which we published the final FY 2009 IRF federal 

prospective payment rates. 

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

FY 2010 IRF PPS final rule (74 FR 50712) that we published on October 1, 2009, we updated 

the federal prospective payment rates, the CMG relative weights, the average length of stay 

values, the rural, LIP, teaching status adjustment factors, and the outlier threshold; implemented 

new IRF coverage requirements for determining whether an IRF claim is reasonable and 

necessary; and revised the regulation text to require IRFs to submit patient assessments on 

Medicare Advantage (MA) (Medicare Part C) patients for use in the 60 percent rule calculations. 

Any reference to the FY 2010 IRF PPS final rule in this final rule also includes the provisions 

effective in the correcting amendments. For more information on the policy changes 

implemented for FY 2010, please refer to the FY 2010 IRF PPS final rule (74 FR 39762 and 

74 FR 50712), in which we published the final FY 2010 IRF federal prospective payment rates.

After publication of the FY 2010 IRF PPS final rule (74 FR 39762), section 3401(d) of 

the Patient Protection and Affordable Care Act (Pub. L. 111-148, enacted on March 23, 2010), as 

amended by section 10319 of the same Act and by section 1105 of the Health Care and 

Education Reconciliation Act of 2010 (Pub. L. 111-152, enacted on March 30, 2010) 

(collectively, hereafter referred to as “The Affordable Care Act”), amended section 1886(j)(3)(C) 

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

the Secretary to estimate a multi-factor productivity adjustment to the market basket increase 
factor, and to apply other adjustments as defined by the Act. The productivity adjustment 

applies to FYs from 2012 forward. The other adjustments apply to FYs 2010 to 2019. 

Sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(i) of the Act defined the adjustments that 

were to be applied to the market basket increase factors in FYs 2010 and 2011. Under these 

provisions, the Secretary was required to reduce the market basket increase factor in FY 2010 by 

a 0.25 percentage point adjustment. Notwithstanding this provision, in accordance with 

section 3401(p) of the Affordable Care Act, the adjusted FY 2010 rate was only to be applied to 

discharges occurring on or after April 1, 2010. Based on the self-implementing legislative 

changes to section 1886(j)(3) of the Act, we adjusted the FY 2010 federal prospective payment 

rates as required, and applied these rates to IRF discharges occurring on or after April 1, 2010,

and on or before September 30, 2010. Thus, the final FY 2010 IRF federal prospective payment 

rates that were published in the FY 2010 IRF PPS final rule (74 FR 39762) were used for 

discharges occurring on or after October 1, 2009, and on or before March 31, 2010, and the 

adjusted FY 2010 IRF federal prospective payment rates applied to discharges occurring on or 

after April 1, 2010, and on or before September 30, 2010. The adjusted FY 2010 federal 

prospective payment rates are available on the CMS website at

http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/DataFiles.html.

In addition, sections 1886(j)(3)(C) and (D) of the Act also affected the FY 2010 IRF 

outlier threshold amount because they required an adjustment to the FY 2010 RPL market basket 

increase factor, which changed the standard payment conversion factor for FY 2010. 

Specifically, the original FY 2010 IRF outlier threshold amount was determined based on the 

original estimated FY 2010 RPL market basket increase factor of 2.5 percent and the standard 
payment conversion factor of $13,661. However, as adjusted, the IRF prospective payments are 

based on the adjusted RPL market basket increase factor of 2.25 percent and the revised standard 

payment conversion factor of $13,627. To maintain estimated outlier payments for FY 2010 

equal to the established standard of 3 percent of total estimated IRF PPS payments for FY 2010, 

we revised the IRF outlier threshold amount for FY 2010 for discharges occurring on or after 

April 1, 2010, and on or before September 30, 2010. The revised IRF outlier threshold amount 

for FY 2010 was $10,721.

Sections 1886(j)(3)(c)(ii)(II) and 1886(j)(3)(D)(i) of the Act also required the Secretary 

to reduce the market basket increase factor in FY 2011 by a 0.25 percentage point adjustment. 

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

PPS notice (75 FR 70013) described the required adjustments to the FY 2011 and FY 2010 IRF 

PPS federal prospective payment rates and outlier threshold amount for IRF discharges occurring 

on or after April 1, 2010, and on or before September 30, 2011. It also updated the FY 2011 

federal prospective payment rates, the CMG relative weights, and the average length of stay 

values. Any reference to the FY 2011 IRF PPS notice in this final rule also includes the 

provisions effective in the correcting amendments. For more information on the FY 2010 and 

FY 2011 adjustments or the updates for FY 2011, please refer to the FY 2011 IRF PPS notice 

(75 FR 42836 and 75 FR 70013).

In the FY 2012 IRF PPS final rule (76 FR 47836), we updated the IRF federal 

prospective payment rates, rebased and revised the RPL market basket, and established a new 

quality reporting program for IRFs in accordance with section 1886(j)(7) of the Act. We also 

revised regulation text for the purpose of updating and providing greater clarity. For more 

information on the policy changes implemented for FY 2012, please refer to the FY 2012 IRF 
PPS final rule (76 FR 47836), in which we published the final FY 2012 IRF federal prospective 

payment rates.

The FY 2013 IRF PPS notice (77 FR 44618) described the required adjustments to the 

FY 2013 federal prospective payment rates and outlier threshold amount for IRF discharges 

occurring on or after October 1, 2012, and on or before September 30, 2013. It also updated the 

FY 2013 federal prospective payment rates, the CMG relative weights, and the average length of 

stay values. For more information on the updates for FY 2013, please refer to the FY 2013 

IRF PPS notice (77 FR 44618).

In the FY 2014 IRF PPS final rule (78 FR 47860), we updated the federal prospective 

payment rates, the CMG relative weights, and the outlier threshold amount. We also updated the 

facility-level adjustment factors using an enhanced estimation methodology, revised the list of 

diagnosis codes that count toward an IRF’s 60 percent rule compliance calculation to determine 

“presumptive compliance,” revised sections of the Inpatient Rehabilitation Facility-Patient 

Assessment Instrument (IRF-PAI), revised requirements for acute care hospitals that have IRF 

units, clarified the IRF regulation text regarding limitation of review, updated references to 

previously changed sections in the regulations text, and revised and updated quality measures 

and reporting requirements under the IRF quality reporting program. For more information on 

the policy changes implemented for FY 2014, please refer to the FY 2014 IRF PPS final rule 

(78 FR 47860), in which we published the final FY 2014 IRF federal prospective payment rates.

In the FY 2015 IRF PPS final rule (79 FR 45872), we updated the federal prospective 

payment rates, the CMG relative weights, and the outlier threshold amount. We also further 

revised the list of diagnosis codes that count toward an IRF’s 60 percent rule compliance 

calculation to determine “presumptive compliance,” revised sections of the IRF-PAI, and revised 
and updated quality measures and reporting requirements under the IRF quality reporting 

program. For more information on the policy changes implemented for FY 2015, please refer to 

the FY 2015 IRF PPS final rule (79 FR 45872) and the FY 2015 IRF PPS correction notice 

(79 FR 59121).

B. Provisions of the Affordable Care Act Affecting the IRF PPS in FY 2012 and Beyond

The Affordable Care Act included several provisions that affect the IRF PPS in FYs 2012 

and beyond. In addition to what was previously discussed, section 3401(d) of the Affordable 

Care Act also added section 1886(j)(3)(C)(ii)(I) (providing for a “productivity adjustment” for 

fiscal year 2012 and each subsequent fiscal year). The productivity adjustment for FY 2016 is 

discussed in section V.D. of this proposed rule. Section 3401(d) of the Affordable Care Act 

requires an additional 0.2 percentage point adjustment to the IRF increase factor for FY 2016, as 

discussed in section V.D. of this proposed rule. Section 1886(j)(3)(C)(ii)(II) of the Act notes that 

the application of these adjustments to the market basket update may result in an update that is 

less than 0.0 for a fiscal year and in payment rates for a fiscal year being less than such payment 

rates for the preceding fiscal year.

Section 3004(b) of the Affordable Care Act also addressed the IRF PPS program. It 

reassigned the previously designated section 1886(j)(7) of the Act to section 1886(j)(8) and 

inserted a new section 1886(j)(7), which contains requirements for the Secretary to establish a 

quality reporting program for IRFs. Under that program, data must be submitted in a form and 

manner and at a time specified by the Secretary. Beginning in FY 2014, section 1886(j)(7)(A)(i) 

of the Act requires the application of a 2 percentage point reduction of the applicable market 

basket increase factor for IRFs that fail to comply with the quality data submission requirements. 

Application of the 2 percentage point reduction may result in an update that is less than 0.0 for a 
fiscal year and in payment rates for a fiscal year being less than such payment rates for the 

preceding fiscal year. Reporting-based reductions to the market basket increase factor will not 

be cumulative; they will only apply for the FY involved.

Under section 1886(j)(7)(D)(i) and (ii) of the Act, the Secretary is generally required to 

select quality measures for the IRF quality reporting program from those that have been endorsed 

by the consensus-based entity which holds a performance measurement contract under section 

1890(a) of the Act. This contract is currently held by the National Quality Forum (NQF). So 

long as due consideration is given to measures that have been endorsed or adopted by a 

consensus-based organization, section 1886(j)(7)(D)(ii) of the Act authorizes the Secretary to 

select non-endorsed measures for specified areas or medical topics when there are no feasible or 

practical endorsed measure(s). 

Section 1886(j)(7)(E) of the Act requires the Secretary to establish procedures for making 

the IRF PPS quality reporting data available to the public. In so doing, the Secretary must ensure 

that IRFs have the opportunity to review any such data prior to its release to the public. Future 

rulemaking will address these public reporting obligations. 

C. Operational Overview of the Current IRF PPS 

As described in the FY 2002 IRF PPS final rule, upon the admission and discharge of a 

Medicare Part A Fee-for-Service patient, the IRF is required to complete the appropriate sections 

of a patient assessment instrument (PAI), designated as the IRF-PAI. In addition, beginning with 

IRF discharges occurring on or after October 1, 2009, the IRF is also required to complete the 

appropriate sections of the IRF-PAI upon the admission and discharge of each Medicare Part C 

(Medicare Advantage) patient, as described in the FY 2010 IRF PPS final rule. All required data 

must be electronically encoded into the IRF-PAI software product. Generally, the software 
product includes patient classification programming called the Grouper software. The Grouper

software uses specific IRF-PAI data elements to classify (or group) patients into distinct CMGs 

and account for the existence of any relevant comorbidities.

The Grouper software produces a 5-character CMG number. The first character is an 

alphabetic character that indicates the comorbidity tier. The last 4 characters are numeric 

characters that represent the distinct CMG number. Free downloads of the Inpatient Rehabilitation 

Validation and Entry (IRVEN) software product, including the Grouper software, are available on 

the CMS website at http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/InpatientRehabFacPPS/Software.html.

Once a Medicare Fee-for-Service Part A patient is discharged, the IRF submits a 

Medicare claim as a Health Insurance Portability and Accountability Act of 1996 

(Pub. L. 104-191, enacted on August 21, 1996) (HIPAA) compliant electronic claim or, if the 

Administrative Simplification Compliance Act of 2002 (Pub. L. 107-105, enacted on December 

27, 2002) (ASCA) permits, a paper claim (a UB-04 or a CMS-1450 as appropriate) using the 

five-character CMG number and sends it to the appropriate Medicare Administrative Contractor 

(MAC). In addition, once a Medicare Advantage patient is discharged, in accordance with the 

Medicare Claims Processing Manual, chapter 3, section 20.3 (Pub. 100-04), hospitals (including 

IRFs) must submit an informational-only bill (TOB 111), which includes Condition Code 04 to 

their MAC. This will ensure that the Medicare Advantage days are included in the hospital’s 

Supplemental Security Income (SSI) ratio (used in calculating the IRF low-income percentage 

adjustment) for Fiscal Year 2007 and beyond. Claims submitted to Medicare must comply with 

both ASCA and HIPAA. 

Section 3 of the ASCA amends section 1862(a) of the Act by adding paragraph (22),
which requires the Medicare program, subject to section 1862(h) of the Act, to deny payment 

under Part A or Part B for any expenses for items or services “for which a claim is submitted 

other than in an electronic form specified by the Secretary.” Section 1862(h) of the Act, in turn, 

provides that the Secretary shall waive such denial in situations in which there is no method 

available for the submission of claims in an electronic form or the entity submitting the claim is a 

small provider. In addition, the Secretary also has the authority to waive such denial “in such 

unusual cases as the Secretary finds appropriate.” For more information, see the “Medicare 

Program; Electronic Submission of Medicare Claims” final rule (70 FR 71008). Our instructions 

for the limited number of Medicare claims submitted on paper are available at 

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

Section 3 of the ASCA operates in the context of the administrative simplification 

provisions of HIPAA, which include, among others, the requirements for transaction standards 

and code sets codified in 45 CFR parts 160 and 162, subparts A and I through R (generally 

known as the Transactions Rule). The Transactions Rule requires covered entities, including 

covered health care providers, to conduct covered electronic transactions according to the 

applicable transaction standards. (See the CMS program claim memoranda at 

http://www.cms.gov/ElectronicBillingEDITrans/ and listed in the addenda to the Medicare 

Intermediary Manual, Part 3, section 3600). 

The MAC processes the claim through its software system. This software system 

includes pricing programming called the “Pricer” software. The Pricer software uses the CMG 

number, along with other specific claim data elements and provider-specific data, to adjust the 

IRF’s prospective payment for interrupted stays, transfers, short stays, and deaths, and then 

applies the applicable adjustments to account for the IRF's wage index, percentage of low-
income patients, rural location, and outlier payments. For discharges occurring on or after 

October 1, 2005, the IRF PPS payment also reflects the teaching status adjustment that became 

effective as of FY 2006, as discussed in the FY 2006 IRF PPS final rule (70 FR 47880).

II. Summary of Provisions of the Proposed Rule

In this proposed rule, we propose to update the IRF federal prospective payment rates, 

adopt an IRF-specific market basket that will be used to determine the market basket update and 

labor-related share, phase in the revised wage index changes, and revise and update quality 

measures and reporting requirements under the IRF QRP. 

The proposed updates to the IRF federal prospective payment rates for FY 2016 are as 

follows:

● Update the FY 2016 IRF PPS relative weights and average length of stay values using 

the most current and complete Medicare claims and cost report data in a budget-neutral manner, 

as discussed in section III of this proposed rule.

● Describe the continued use of FY 2014 facility-level adjustment factors as discussed in 

section IV of this proposed rule.

● Adopt the proposed IRF-specific market basket, as discussed in section V of this 

proposed rule. 

● Update the FY 2016 IRF PPS payment rates by the proposed market basket increase 

factor, based upon the most current data available, with a 0.2 percentage point reduction as 

required by sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(iv) of the Act and a proposed 

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

section V of this proposed rule.

● Update the FY 2016 IRF PPS payment rates by the FY 2016 wage index and the labor-
related share in a budget-neutral manner and discuss the proposed wage adjustment transition as 

discussed in section V of this proposed rule.

● Describe the calculation of the IRF standard payment conversion factor for FY 2016, 

as discussed in section V of this proposed rule.

● Update the outlier threshold amount for FY 2016, as discussed in section VI of this 

proposed rule.

● Update the cost-to-charge ratio (CCR) ceiling and urban/rural average CCRs for 

FY 2016, as discussed in section VI of this proposed rule.

● Discuss implementation of International Classification of Diseases, 10th Revision, 

Clinical Modification (ICD-10-CM) for the IRF PPS as discussed in section VII of this proposed 

rule.

● Describe proposed revisions and updates to quality measures and reporting 

requirements under the quality reporting program for IRFs in accordance with section 1886(j)(7) 

of the Act, as discussed in section VIII of this proposed rule.

III. Proposed Update to the CMG Relative Weights and Average Length of Stay Values 

for FY 2016

As specified in §412.620(b)(1), we calculate a relative weight for each CMG that is 

proportional to the resources needed by an average inpatient rehabilitation case in that CMG. 

For example, cases in a CMG with a relative weight of 2, on average, will cost twice as much as 

cases in a CMG with a relative weight of 1. Relative weights account for the variance in cost per 

discharge due to the variance in resource utilization among the payment groups, and their use 

helps to ensure that IRF PPS payments support beneficiary access to care, as well as provider 

efficiency. 
In this proposed rule, we propose to update the CMG relative weights and average length 

of stay values for FY 2016. As required by statute, we always use the most recent available data 

to update the CMG relative weights and average lengths of stay. For FY 2016, we propose to 

use the FY 2014 IRF claims and FY 2013 IRF cost report data. These data are the most current 

and complete data available at this time. Currently, only a small portion of the FY 2014 IRF cost 

report data are available for analysis, but the majority of the FY 2014 IRF claims data are 

available for analysis. 

In this proposed rule, we propose to apply these data using the same methodologies that 

we have used to update the CMG relative weights and average length of stay values each fiscal 

year since we implemented an update to the methodology to use the more detailed CCR data 

from the cost reports of IRF subprovider units of primary acute care hospitals, instead of CCR 

data from the associated primary care hospitals, to calculate IRFs’ average costs per case, as 

discussed in the FY 2009 IRF PPS final rule (73 FR 46372). In calculating the CMG relative 

weights, we use a hospital-specific relative value method to estimate operating (routine and 

ancillary services) and capital costs of IRFs. The process used to calculate the CMG relative 

weights for this proposed rule is as follows:

Step 1. We estimate the effects that comorbidities have on costs.

Step 2. We adjust the cost of each Medicare discharge (case) to reflect the effects found 

in the first step.

Step 3. We use the adjusted costs from the second step to calculate CMG relative 

weights, using the hospital-specific relative value method.

Step 4. We normalize the FY 2016 CMG relative weights to the same average CMG 

relative weight from the CMG relative weights implemented in the FY 2015 IRF PPS final rule 
(79 FR 45872). 

Consistent with the methodology that we have used to update the IRF classification 

system in each instance in the past, we propose to update the CMG relative weights for FY 2016

in such a way that total estimated aggregate payments to IRFs for FY 2016 are the same with or 

without the changes (that is, in a budget-neutral manner) by applying a budget neutrality factor to 

the standard payment amount. To calculate the appropriate budget neutrality factor for use in 

updating the FY 2016 CMG relative weights, we use the following steps:

Step 1. Calculate the estimated total amount of IRF PPS payments for FY 2016 (with no 

changes to the CMG relative weights).

Step 2. Calculate the estimated total amount of IRF PPS payments for FY 2016 by 

applying the changes to the CMG relative weights (as discussed in this proposed rule). 

Step 3. Divide the amount calculated in step 1 by the amount calculated in step 2 to 

determine the budget neutrality factor (1.0000) that would maintain the same total estimated 

aggregate payments in FY 2016 with and without the changes to the CMG relative weights.

Step 4. Apply the budget neutrality factor (1.0000) to the FY 2015 IRF PPS standard 

payment amount after the application of the budget-neutral wage adjustment factor.

In section V.G. of this proposed rule, we discuss the proposed use of the existing 

methodology to calculate the standard payment conversion factor for FY 2016.

Table 1, “Relative Weights and Average Length of Stay Values for Case-Mix Groups,” 

presents the CMGs, the comorbidity tiers, the corresponding relative weights, and the average 

length of stay values for each CMG and tier for FY 2016. The average length of stay for each 

CMG is used to determine when an IRF discharge meets the definition of a short-stay transfer, 

which results in a per diem case level adjustment. 
TABLE 1: Relative Weights and Average Length of Stay Values for Case-Mix Groups

CMG CMG Description 

(M=motor, C=cognitive, A=age)

Relative weight Average length of stay

Tier1 Tier2 Tier3 None Tier1 Tier2 Tier3 None

0101 Stroke 

M>51.05 0.8074 0.7072 0.6585 0.6300 10 9 9 8

0102 Stroke 

M>44.45 and M<51.05 and 

C>18.5 1.0213 0.8946 0.8329 0.7968 11 10 10 10

0103 Stroke 

M>44.45 and M<51.05 and 

C<18.5 1.1406 0.9991 0.9302 0.8899 12 13 12 11

0104 Stroke 

M>38.85 and M<44.45 1.2382 1.0846 1.0098 0.9661 13 13 12 12

0105 Stroke 

M>34.25 and M<38.85 1.4520 1.2718 1.1841 1.1329 14 15 14 14

0106 Stroke 

M>30.05 and M<34.25 1.6190 1.4181 1.3204 1.2632 16 16 15 15

0107 Stroke 

M>26.15 and M<30.05 1.8114 1.5867 1.4773 1.4133 18 17 17 17

0108 Stroke 

M<26.15 and A>84.5 2.2985 2.0133 1.8745 1.7933 24 23 21 21

0109 Stroke 

M>22.35 and M<26.15 and 

A<84.5 2.0987 1.8383 1.7115 1.6374 21 20 19 19

0110 Stroke 

M<22.35 and A<84.5 2.7572 2.4151 2.2486 2.1512 27 27 24 24

0201 Traumatic brain injury 

M>53.35 and C>23.5 0.8167 0.6711 0.6056 0.5721 10 9 8 8

0202 Traumatic brain injury 

M>44.25 and M<53.35 and 

C>23.5 1.0578 0.8692 0.7844 0.7410 11 11 10 9

0203 Traumatic brain injury 

M>44.25 and C<23.5 1.2056 0.9906 0.8939 0.8445 11 12 10 11

0204 Traumatic brain injury 

M>40.65 and M<44.25 1.3276 1.0909 0.9844 0.9300 13 12 11 11

0205 Traumatic brain injury 

M>28.75 and M<40.65 1.5856 1.3028 1.1757 1.1107 15 15 14 13

0206 Traumatic brain injury 

M>22.05 and M<28.75 1.8996 1.5609 1.4086 1.3306 17 18 17 15

0207 Traumatic brain injury 

M<22.05 2.5249 2.0746 1.8722 1.7687 30 24 20 19

0301 Non-traumatic brain injury 

M>41.05 1.1140 0.9299 0.8528 0.7958 10 11 10 10

0302 Non-traumatic brain injury 

M>35.05 and M<41.05 1.3920 1.1620 1.0656 0.9943 13 13 12 12

0303 Non-traumatic brain injury 

M>26.15 and M<35.05 1.6177 1.3504 1.2384 1.1556 16 15 14 14
CMG CMG Description 

(M=motor, C=cognitive, A=age)

Relative weight Average length of stay

Tier1 Tier2 Tier3 None Tier1 Tier2 Tier3 None

0304 Non-traumatic brain injury 

M<26.15 2.1480 1.7930 1.6443 1.5344 22 20 18 17

0401 Traumatic spinal cord injury 

M>48.45 0.9962 0.8479 0.7764 0.7177 10 10 9 10

0402 Traumatic spinal cord injury 

M>30.35 and M<48.45 1.4305 1.2175 1.1149 1.0306 14 14 14 13

0403 Traumatic spinal cord injury 

M>16.05 and M<30.35 2.2868 1.9463 1.7823 1.6475 27 22 19 20

0404 Traumatic spinal cord injury 

M<16.05 and A>63.5 3.8616 3.2865 3.0096 2.7820 44 36 32 33

0405 Traumatic spinal cord injury 

M<16.05 and A<63.5 3.4241 2.9142 2.6687 2.4668 41 34 29 28

0501 Non-traumatic spinal cord injury 

M>51.35 0.8671 0.6910 0.6416 0.5890 9 7 8 8

0502 Non-traumatic spinal cord injury 

M>40.15 and M<51.35 1.1417 0.9098 0.8448 0.7754 12 11 10 10

0503 Non-traumatic spinal cord injury 

M>31.25 and M<40.15 1.4429 1.1499 1.0676 0.9800 14 13 13 12

0504 Non-traumatic spinal cord injury 

M>29.25 and M<31.25 1.6605 1.3232 1.2286 1.1278 16 16 14 13

0505 Non-traumatic spinal cord injury 

M>23.75 and M<29.25 1.9434 1.5487 1.4379 1.3200 19 17 16 16

0506 Non-traumatic spinal cord injury 

M<23.75 2.7170 2.1652 2.0104 1.8454 27 24 22 21

0601 Neurological 

M>47.75 1.0388 0.8197 0.7649 0.6911 10 10 9 9

0602 Neurological 

M>37.35 and M<47.75 1.3344 1.0529 0.9825 0.8878 12 12 11 11

0603 Neurological 

M>25.85 and M<37.35 1.6570 1.3074 1.2201 1.1024 15 14 13 13

0604 Neurological 

M<25.85 2.1771 1.7178 1.6031 1.4485 20 18 17 16

0701 Fracture of lower extremity 

M>42.15 0.9663 0.8091 0.7663 0.6961 11 9 9 9

0702 Fracture of lower extremity 

M>34.15 and M<42.15 1.2542 1.0502 0.9947 0.9035 13 12 12 11

0703 Fracture of lower extremity 

M>28.15 and M<34.15 1.5016 1.2574 1.1909 1.0817 14 14 14 13

0704 Fracture of lower extremity 

M<28.15 1.9536 1.6359 1.5494 1.4073 18 18 17 16

0801 Replacement of lower extremity 

joint M>49.55 0.8023 0.6319 0.5733 0.5295 8 8 7 7

0802 Replacement of lower extremity 

joint M>37.05 and M<49.55 1.0579 0.8332 0.7560 0.6981 10 10 9 9
CMG CMG Description 

(M=motor, C=cognitive, A=age)

Relative weight Average length of stay

Tier1 Tier2 Tier3 None Tier1 Tier2 Tier3 None

0803 Replacement of lower extremity 

joint 

M>28.65 and M<37.05 and 

A>83.5 1.4254 1.1227 1.0186 0.9407 13 12 12 11

0804 Replacement of lower extremity 

joint M>28.65 and M<37.05 and 

A<83.5 1.2747 1.0040 0.9109 0.8412 12 11 11 10

0805 Replacement of lower extremity 

joint 

M>22.05 and M<28.65 1.5372 1.2107 1.0985 1.0145 15 14 12 12

0806 Replacement of lower extremity 

joint M<22.05 1.9126 1.5064 1.3668 1.2622 17 17 15 14

0901 Other orthopedic 

M>44.75 0.9548 0.7679 0.7038 0.6416 10 9 9 8

0902 Other orthopedic 

M>34.35 and M<44.75 1.2720 1.0231 0.9377 0.8547 13 12 11 11

0903 Other orthopedic 

M>24.15 and M<34.35 1.5872 1.2767 1.1701 1.0666 14 14 13 13

0904 Other orthopedic 

M<24.15 2.0061 1.6136 1.4789 1.3481 19 18 16 16

1001 Amputation, lower extremity 

M>47.65 1.0786 0.9456 0.8420 0.7598 11 11 10 10

1002 Amputation, lower extremity 

M>36.25 and M<47.65 1.3378 1.1728 1.0443 0.9423 13 12 12 11

1003 Amputation, lower extremity 

M<36.25 1.9202 1.6835 1.4990 1.3526 18 19 17 16

1101 Amputation, non-lower extremity 

M>36.35 1.3537 1.3537 1.0753 1.0104 13 13 12 11

1102 Amputation, non-lower extremity 

M<36.35 1.7741 1.7741 1.4093 1.3242 16 19 15 16

1201 Osteoarthritis M>37.65 0.9828 0.9542 0.8689 0.8106 9 11 10 10

1202 Osteoarthritis M>30.75 and 

M<37.65 1.1972 1.1624 1.0585 0.9875 11 14 13 12

1203 Osteoarthritis M<30.75 1.4863 1.4431 1.3140 1.2259 14 16 15 14

1301 Rheumatoid, other arthritis 

M>36.35 1.1640 0.9591 0.9044 0.8258 9 11 10 10

1302 Rheumatoid, other arthritis 

M>26.15 and M<36.35 1.4812 1.2205 1.1509 1.0509 15 13 13 13

1303 Rheumatoid, other arthritis 

M<26.15 1.9711 1.6241 1.5314 1.3984 21 18 17 16

1401 Cardiac 

M>48.85 0.9070 0.7454 0.6741 0.6066 9 9 8 8

1402 Cardiac 

M>38.55 and M<48.85 1.2037 0.9893 0.8946 0.8050 11 11 11 10

1403 Cardiac 

M>31.15 and M<38.55 1.4509 1.1924 1.0783 0.9703 13 13 12 12
CMG CMG Description 

(M=motor, C=cognitive, A=age)

Relative weight Average length of stay

Tier1 Tier2 Tier3 None Tier1 Tier2 Tier3 None

1404 Cardiac 

M<31.15 1.8350 1.5081 1.3637 1.2271 17 16 15 14

1501 Pulmonary 

M>49.25 1.0508 0.8465 0.7794 0.7499 11 10 9 9

1502 Pulmonary 

M>39.05 and M<49.25 1.3338 1.0745 0.9893 0.9519 12 12 11 11

1503 Pulmonary 

M>29.15 and M<39.05 1.6182 1.3036 1.2002 1.1549 15 13 13 13

1504 Pulmonary 

M<29.15 2.0127 1.6215 1.4928 1.4364 21 17 15 15

1601 Pain syndrome 

M>37.15 1.1408 0.8388 0.8240 0.7577 11 10 10 9

1602 Pain syndrome 

M>26.75 and M<37.15 1.4837 1.0909 1.0718 0.9854 14 12 12 12

1603 Pain syndrome 

M<26.75 1.9166 1.4093 1.3845 1.2730 15 15 15 15

1701 Major multiple trauma without 

brain or spinal cord injury 

M>39.25 1.0739 0.9109 0.8312 0.7736 10 10 11 9

1702 Major multiple trauma without 

brain or spinal cord injury 

M>31.05 and M<39.25 1.3886 1.1779 1.0748 1.0002 13 14 12 12

1703 Major multiple trauma without 

brain or spinal cord injury 

M>25.55 and M<31.05 1.5890 1.3479 1.2299 1.1446 19 15 14 14

1704 Major multiple trauma without 

brain or spinal cord injury 

M<25.55 2.0894 1.7724 1.6172 1.5051 21 20 18 17

1801 Major multiple trauma with brain 

or spinal cord injury 

M>40.85 1.2728 0.9643 0.8811 0.7840 14 12 11 10

1802 Major multiple trauma with brain 

or spinal cord injury 

M>23.05 and M<40.85 1.8675 1.4148 1.2928 1.1503 19 17 15 14

1803 Major multiple trauma with brain 

or spinal cord injury M<23.05

3.0253 2.2920 2.0942 1.8635 31 26 21 21

1901 Guillain Barre 

M>35.95 1.1501 0.9999 0.9724 0.8501 15 11 11 11

1902 Guillain Barre 

M>18.05 and M<35.95 2.2469 1.9534 1.8997 1.6609 25 22 21 20

1903 Guillain Barre 

M<18.05 3.6057 3.1347 3.0485 2.6652 48 31 28 30

2001 Miscellaneous 

M>49.15 0.9280 0.7626 0.7034 0.6367 9 9 9 8
CMG CMG Description 

(M=motor, C=cognitive, A=age)

Relative weight Average length of stay

Tier1 Tier2 Tier3 None Tier1 Tier2 Tier3 None

2002 Miscellaneous 

M>38.75 and M<49.15 1.2002 0.9863 0.9097 0.8235 11 11 10 10

2003 Miscellaneous 

M>27.85 and M<38.75 1.4940 1.2277 1.1324 1.0250 14 14 13 12

2004 Miscellaneous 

M<27.85 1.9243 1.5813 1.4586 1.3203 18 17 16 15

2101 Burns 

M>0 1.6922 1.6922 1.3135 1.2742 18 19 15 15

5001 Short-stay cases, length of stay is 

3 days or fewer 0.1562 2

5101 Expired, orthopedic, length of stay 

is 13 days or fewer 0.7204 8

5102 Expired, orthopedic, length of stay 

is 14 days or more 1.6962 18

5103 Expired, not orthopedic, length of 

stay is 15 days or fewer 0.7928 9

5104 Expired, not orthopedic, length of 

stay is 16 days or more 1.9018 20

Generally, updates to the CMG relative weights result in some increases and some 

decreases to the CMG relative weight values. Table 2 shows how we estimate that the 

application of the proposed revisions for FY 2016 would affect particular CMG relative weight 

values, which would affect the overall distribution of payments within CMGs and tiers. Note 

that, because we propose to implement the CMG relative weight revisions in a budget-neutral 

manner (as previously described), total estimated aggregate payments to IRFs for FY 2016

would not be affected as a result of the proposed CMG relative weight revisions. However, the 

proposed revisions would affect the distribution of payments within CMGs and tiers.
TABLE 2: Distributional Effects of the Changes to the CMG Relative Weights (FY 2015

Values Compared with FY 2016 Values)

Percentage Change Number of Cases 

Affected

Percentage of Cases 

Affected

Increased by 15% or more 157 0.0

Increased by between 5% and 15% 2,292 0.6

Changed by less than 5% 353,020 99.0

Decreased by between 5% and 15% 1,195 0.3

Decreased by 15% or more 63 0.0

As Table 2 shows, 99 percent of all IRF cases are in CMGs and tiers that would

experience less than a 5 percent change (either increase or decrease) in the CMG relative weight 

value as a result of the proposed revisions for FY 2016. The largest estimated increase in the 

proposed CMG relative weight values that affects the largest number of IRF discharges would be

a 0.2 percent increase in the CMG relative weight value for CMG 0704--Fracture of lower 

extremity, with a motor score less than 28.15-in the “no comorbidity” tier. In the FY 2014

claims data, 17,812 IRF discharges (5.0 percent of all IRF discharges) were classified into this 

CMG and tier. 

The largest decrease in a CMG relative weight value affecting the largest number of IRF 

cases would be a 0.8 percent decrease in the CMG relative weight for CMG 0604—

Neurological, with a motor score less than 25.85-in the “no comorbidity” tier. In the FY 2014

IRF claims data, this change would have affected 8,544 cases (2.4 percent of all IRF cases).

The proposed changes in the average length of stay values for FY 2016, compared with 

the FY 2015 average length of stay values, are small and do not show any particular trends in 

IRF length of stay patterns. 

We invite public comment on our proposed update to the CMG relative weights and 

average length of stay values for FY 2016.
IV. Continued Use of FY 2014 Facility-Level Adjustment Factors 

Section 1886(j)(3)(A)(v) of the Act confers broad authority upon the Secretary to adjust 

the per unit payment rate “by such . . . factors as the Secretary determines are necessary to 

properly reflect variations in necessary costs of treatment among rehabilitation facilities.” Under 

this authority, we currently adjust the federal prospective payment amount associated with a 

CMG to account for facility-level characteristics such as an IRF’s LIP, teaching status, and 

location in a rural area, if applicable, as described in §412.624(e). 

Based on the substantive changes to the facility-level adjustment factors that were 

adopted in the FY 2014 final rule (79 FR 45872, 45882 through 45883), we froze the facilitylevel adjustment factors at the FY 2014 levels for FY 2015 and all subsequent years. For 

FY 2016, we will continue to hold the adjustment factors at the FY 2014 levels as we continue to 

monitor the most current IRF claims data available and continue to evaluate and monitor the 

effects of the FY 2014 changes.

V. Proposed FY 2016 IRF PPS Payment Update

A. Background

Section 1886(j)(3)(C) of the Act requires the Secretary to establish an increase factor that 

reflects changes over time in the prices of an appropriate mix of goods and services included in 

the covered IRF services, which is referred to as a market basket index. According to section 

1886(j)(3)(A)(i) of the Act, the increase factor shall be used to update the IRF federal 

prospective payment rates for each FY. Section 1886(j)(3)(C)(ii)(I) of the Act requires the 

application of a productivity adjustment, as described below. In addition, sections 

1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(iv) of the Act require the application of a 0.2 percentage 

point reduction to the market basket increase factor for FY 2016. Thus, in this proposed rule, we 
propose to update the IRF PPS payments for FY 2016 by a market basket increase factor based 

upon the most current data available, with a productivity adjustment as required by 

section 1886(j)(3)(C)(ii)(I) of the Act, and a 0.2 percentage point reduction as required by 

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

We have utilized various market baskets through the years in the IRF PPS program. 

When we implemented the IRF PPS in January 2002, it used the Excluded Hospital with Capital 

market basket (which was based on 1992 Medicare cost reports for Medicare participating IRFs, 

IPFs, LTCHs, cancer hospitals, and children’s hospitals) as an “input price index” (66 FR 41427 

through 41430). Although ‘‘market basket’’ technically describes the mix of goods and services 

used in providing health care at a given point in time, this term is also commonly used to denote 

the input price index (that is, cost category weights and price proxies) derived from that market 

basket. Accordingly, the term ‘‘market basket,’’ as used in this document, refers to an input 

price index.

Beginning with the FY 2006 IRF PPS final rule (70 FR 47908), we adopted a 2002-based 

RPL market basket for the IRF PPS. This market basket reflected the operating and capital cost 

structures for freestanding IRFs, freestanding IPFs, and LTCHs. Cancer and children’s hospitals 

were excluded from the RPL market basket because their payments are based entirely on 

reasonable costs subject to rate-of-increase limits established under the authority of section 

1886(b) of the Act and not through a PPS. Also, the 2002 cost structures for cancer and 

children’s hospitals were noticeably different than the cost structures of freestanding IRFs, 

freestanding IPFs, and LTCHs. See the FY 2006 IRF PPS final rule (70 FR 47908) for a 

complete discussion of the 2002-based RPL market basket. 

In the FY 2010 IRF proposed rule (74 FR 21062), we expressed an interest in exploring 
the feasibility of creating a stand-alone IRF, or IRF-specific, market basket that reflects the cost 

structures of only IRF providers. But, as we noted in that discussion, Medicare cost report data 

revealed differences between cost levels and cost structures for freestanding and hospital-based 

IRF facilities. As we were unable at that time to fully understand these differences even after 

reviewing explanatory variables such as geographic variation, case mix, urban/rural status, share 

of low income patients, teaching status, and outliers (short stay and high-cost), we noted that we 

would continue to research ways to reconcile the differences and solicited public comment for 

additional information that might help us to better understand the reasons for the observed 

variations (74 FR 21062). We summarized the public comments we received and our responses 

in the FY 2010 IRF PPS final rule (74 FR 39762, 39776 through 39778). Despite receiving 

comments from the public on this issue, however, we were still unable to sufficiently reconcile 

the observed variations, and, therefore, were unable to establish a stand-alone IRF market basket

at that time.

Beginning with the FY 2012 IRF PPS, payments were updated using a 2008-based RPL 

market basket reflecting the operating and capital cost structures for freestanding IRFs,

freestanding IPFs, and LTCHs (76 FR 47849 through 47860). In doing so, we also used a more 

specific composite chemical price proxy; broke the professional fees cost category into two 

separate categories (Labor-related and Nonlabor-related); and added two additional cost 

categories (Administrative and Business Support Services and Financial Services), which were 

previously included in the residual All Other cost category. The FY 2012 IRF PPS proposed rule 

(76 FR 24229 through 24241) and FY 2012 IRF PPS final rule (76 FR 47849 through 47860) 

contain a complete discussion of the development of the 2008-based RPL market basket.

We have continued to work on addressing our concerns regarding the development of a 
stand-alone IRF market basket since our FY 2010 rulemaking cycle and, for the reasons 

described below, we believe using data from hospital-based and freestanding providers to derive 

the market basket cost weights despite their differences in cost levels and cost structures. 

Therefore, for FY 2016, we are proposing to create and adopt a 2012-based IRF market basket, 

using Medicare cost report data for both freestanding and hospital-based IRFs. In the following 

discussion, we provide an overview of the proposed market basket and describe the 

methodologies used to determine the operating and capital portions of the proposed 2012-based 

IRF market basket.

B. Overview of the Proposed 2012-Based IRF Market Basket

The proposed 2012-based IRF market basket is a fixed-weight, Laspeyres-type price 

index. A Laspeyres price index measures the change in price, over time, of the same mix of 

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

and services (that is, intensity) purchased over time relative to a base period are not measured.

The index itself is constructed in 3 steps. First, a base period is selected (in this proposed 

rule the base period is FY 2012), total base period costs are estimated for a set of mutually 

exclusive and exhaustive cost categories, and the proportion of total costs that each cost category 

represents is calculated. These proportions are called cost weights. Second, each cost category 

is matched to an appropriate price or wage variable, referred to as a price proxy. In nearly every 

instance where we have selected price proxies for the various market baskets, these price proxies 

are derived from publicly available statistical series that are published on a consistent schedule 

(preferably at least on a quarterly basis). In cases where a publicly available price series is not 

available (for example, a price index for malpractice insurance), we have collected price data 

from other sources and subsequently developed our own index to capture changes in prices for 
these types of costs. Finally, the cost weight for each cost category is multiplied by the 

established price proxy. The sum of these products (that is, the cost weights multiplied by their 

price levels) for all cost categories yields the composite index level of the market basket for the 

given time period. Repeating this step for other periods produces a series of market basket levels 

over time. Dividing the composite index level of one period by the composite index level for an 

earlier period produces a rate of growth in the input price index over that timeframe.

As previously noted, the market basket is described as a fixed-weight index because it 

represents the change in price over time of a constant mix (quantity and intensity) of goods and 

services needed to furnish IRF services. The effects on total costs resulting from changes in the 

mix of goods and services purchased subsequent to the base period are not measured. For 

example, an IRF hiring more nurses to accommodate the needs of patients would increase the 

volume of goods and services purchased by the IRF, but would not be factored into the price 

change measured by a fixed-weight IRF market basket. Only when the index is rebased would 

changes in the quantity and intensity be captured, with those changes being reflected in the cost 

weights. Therefore, we rebase the market basket periodically so that the cost weights reflect 

recent changes in the mix of goods and services that IRFs purchase (hospital inputs) to furnish 

inpatient care between base periods. 

C. Creating an IRF-Specific Market Basket

As discussed in section V.A of this proposed rule, we have been exploring the 

possibility of creating a stand-alone, or IRF-specific, market basket that reflects the cost 

structures of only IRF providers. The major cost weights for the 2008-based RPL market 

basket were calculated using Medicare cost report data for those providers that complete a 

stand-alone Medicare cost report. We define a “major cost weight” as one for which we are 
able to obtain data from the Medicare cost report for that particular cost category (for example, 

Wages and Salaries). However, the Medicare cost report data does not collect detailed input 

cost data for the more detailed cost categories for which we would like to capture input price 

pressures (for example, Chemicals). Therefore, a public data source is used to identify the costs 

associated with these more detailed cost categories. For the 2008-based RPL market basket, we 

used only data from stand-alone Medicare cost reports due to concerns regarding our ability to 

incorporate Medicare cost report data for hospital-based providers. In the FY 2015 IRF PPS 

final rule (79 FR 45884 through 45886), we presented several of these concerns (as restated 

below) but explained that we would continue to research the possibility of creating an IRFspecific market basket to update IRF PPS payments. 

Since the FY 2015 IRF PPS final rule, we have performed additional research on the 

Medicare cost report data available for hospital-based IRFs and evaluated these concerns. We 

subsequently concluded from this research that Medicare cost report data for both hospitalbased IRFs and freestanding IRFs can be used to calculate the major market basket cost weights 

for a stand-alone IRF market basket. We have developed a detailed methodology to derive 

market basket cost weights that are representative of the universe of IRF providers. We believe 

the use of this proposed 2012-based IRF market basket is a technical improvement over the 

RPL market basket that is currently used to update IRF PPS payments. As a result, in this 

FY 2016 IRF PPS proposed rule, we are proposing to adopt a 2012-based IRF market basket 

that reflects data for both freestanding and hospital-based IRFs. Below we discuss our prior 

concerns and provide reasons for why we believe it is technically feasible to create a standalone IRF market basket using Medicare cost report data for both hospital-based and 

freestanding IRFs.
One concern discussed in the FY 2015 IRF PPS final rule (79 FR 45884) was that the 

cost level differences for hospital-based IRFs relative to freestanding IRFs were not readily 

explained by the specific characteristics of the individual providers and/or the patients that they 

served (for example, characteristics related to case mix, urban/rural status, or teaching status). 

To address this concern, we used regression analysis to evaluate the effect of including hospitalbased IRF Medicare cost report data in the calculation of cost distributions (which refers to how 

costs for certain categories relate to total costs for a particular provider). A more detailed 

description of these regression models can be found in the FY 2015 IRF final rule (79 FR 45884

through 45885). Based on this analysis, we concluded that the inclusion of those IRF providers 

with unexplained variability in costs would not significantly impact the cost weights and, 

therefore, should not be a major cause of concern.

Another concern regarding the incorporation of hospital-based IRF data into the 

calculation of the market basket cost weights was the complexity of the Medicare cost report 

data for these providers. The freestanding IRFs independently submit a Medicare cost report 

for their facilities, making it relatively straightforward to obtain the cost categories necessary to 

determine the major market basket cost weights for such facilities. However, Medicare cost 

report data submitted for a hospital-based IRF are embedded in the Medicare cost report 

submitted for the entire hospital facility in which the IRF is located. To use Medicare cost 

report data from these providers, we needed to determine the appropriate adjustments to apply 

to the data to ensure that the cost weights we use would represent only the hospital-based IRF 

(not the hospital as a whole). Over the past year, we worked to develop detailed methodologies 

to calculate the major cost weights for both freestanding and hospital-based IRFs. We believe 

that our proposed methodologies and the resulting cost weights, described in section V.C.1 of 
this proposed rule, are reasonable and appropriate, but, as noted in that section, we welcome 

public comments on these proposals. 

We also evaluated the differences in cost weights for hospital-based and freestanding 

IRFs and found the most significant differences occurred for salary and pharmaceutical 

costs. Specifically, the hospital-based IRF salary cost shares tend to be lower than those of 

freestanding IRFs while hospital-based IRF pharmaceutical cost shares tend to be higher than 

those of freestanding IRFs. Our proposed methodology for deriving costs for each of these 

categories can be found in section V.C.1 of this proposed rule. We will continue to research 

and monitor these cost shares to ensure these differences are explainable.

In summary, our research over the past year allowed us to evaluate the appropriateness 

of including hospital-based IRF data in the calculation of the major cost weights for an IRF 

market basket. We believe that the proposed methodologies described below give us the ability 

to create a stand-alone IRF market basket that reflects the cost structure of the universe of IRF 

providers. Therefore, we believe that the use of this proposed 2012-based IRF market basket to 

update IRF PPS payments is a technical improvement over the current 2008-based RPL market 

basket, as the major cost weights are based on Medicare cost report data from both freestanding 

and hospital-based IRFs and do not include costs from either IPF or LTCH providers, which 

could have a different cost structure than IRFs.

1. Development of Cost Categories and Weights for the Proposed 2012-Based IRF Market 

Basket

a. Use of Medicare Cost Report Data

The proposed 2012-based IRF market basket consists of seven major cost categories 

derived from the FY 2012 Medicare cost reports (CMS Form 2552-10) for freestanding and 
hospital-based IRFs, consisting of Wages and Salaries, Employee Benefits, Contract Labor, 

Pharmaceuticals, Professional Liability Insurance (PLI), Capital, and a residual category. The 

residual category reflects all remaining costs that are not captured in the other six cost categories. 

The FY 2012 cost reports include providers whose cost reporting period began on or after

October 1, 2011, and prior to September 30, 2012. We selected FY 2012 as the base year 

because the Medicare cost reports for that year were the most recent, complete set of Medicare 

cost report data available for IRFs at the time of development of the proposed IRF market 

basket. 

Since our goal was to establish cost weights that were reflective of case mix and practice 

patterns associated with the services IRFs provide to Medicare beneficiaries, we limited the cost 

reports used to establish the 2012-based IRF market basket to those from facilities that had a 

Medicare average length of stay (LOS) that was relatively similar to their facility average LOS. 

We believe that this trim eliminates statistical outliers and ensures a more accurate market basket 

that reflects the costs generally incurred during a Medicare-covered stay. We defined the 

Medicare average LOS for freestanding IRFs based on what the IRFs reported on line 14 of 

Worksheet S-3, Part I. We defined the Medicare average LOS for hospital-based IRFs based on 

what was reported on line 17 of Worksheet S-3, Part I. We then used the cost reports from IRFs 

with a Medicare average LOS within 15 percent (that is, 15 percent higher or lower) than the 

facility average LOS for IRFs to establish the 2012-based IRF market basket. We apply this 

LOS edit to the data for IRFs to exclude providers that serve a population whose LOS would 

indicate that the patients served are not consistent with a LOS of a typical Medicare patient. This 

process resulted in the exclusion of about eight percent of the freestanding and hospital-based 

IRF Medicare cost reports. Of those excluded, about 18 percent were freestanding IRFs and 
82 percent were hospital-based IRFs. This ratio is relatively consistent with the ratio of the 

universe of freestanding to hospital-based IRF providers. In the FY 2012 IRF PPS final rule 

(76 FR 47850), the same process was used to derive the 2008-based RPL market basket.

We then used the cost reports for IRFs that were not excluded through this process to

calculate the costs for six of the seven major cost categories (Wages and Salaries, Employee 

Benefits, Contract Labor, Professional Liability Insurance, Pharmaceuticals, and Capital) for the 

market basket. 

Similar to the 2008-based RPL market basket major cost weights, the resulting 

2012-based IRF market basket cost weights reflect Medicare allowable costs (routine, ancillary 

and capital) - costs that are eligible for reimbursement through the IRF PPS. We propose to 

define Medicare allowable costs for freestanding facilities as cost centers (CMS Form 2552-10): 

30 through 35, 50 through 76 (excluding 52 and 75), 90 through 91 and 93. We propose to 

define Medicare allowable costs for hospital-based facilities as cost centers (CMS Form 2552-

10): 40, 50 through 76 (excluding 52 and 75), 90 through 91 and 93. 

For freestanding IRFs, total Medicare allowable costs would be equal to the total costs as 

reported on Worksheet B, part I, column 26. For hospital-based IRFs, total Medicare allowable 

costs would be equal to total costs for the IRF inpatient unit after the allocation of overhead costs 

(Worksheet B, part I, column 26, line 41) and a proportion of total ancillary costs. We calculated

the portion of ancillary costs attributable to the hospital-based IRF for a given ancillary cost 

center by multiplying total facility ancillary costs for the specific cost center (as reported on 

Worksheet B, Part I, column 26) by the ratio of IRF Medicare ancillary costs for the cost center 

(as reported on Worksheet D-3, column 3 for hospital-based IRFs) to total Medicare ancillary 

costs for the cost center (equal to the sum of Worksheet D-3, column 3 for all relevant PPS (that 
is, IPPS, IRF, IPF and SNF)). We propose to use these methods to derive levels of total costs for 

IRF providers. With this work complete, we then set about deriving cost levels for six of the 

seven major cost categories. 

(i) Wages and Salaries Costs

For freestanding IRFs, Wages and Salaries costs are derived as the sum of inpatient 

salaries, ancillary salaries and a proportion of overhead (or general service cost center) salaries 

as reported on Worksheet A, column 1. Since overhead salary costs are attributable to the entire 

IRF, we only include the proportion attributable to the Medicare allowable cost centers. We 

estimate the proportion of overhead salaries that are attributed to Medicare allowable costs 

centers by multiplying the ratio of Medicare allowable area salaries to total salaries (Worksheet 

A, column 1, line 200) times total overhead salaries. In the FY 2012 IRF PPS final rule 

(76 FR 47850), a similar methodology was used to derive Wages and Salaries costs in the 

2008-based RPL market basket.

For hospital-based IRFs, Wages and Salaries costs are derived as the sum of inpatient 

unit wages and salaries (Worksheet A, column 1, line 41) and a portion of salary costs 

attributable to total facility ancillary and overhead cost centers as these cost centers are shared 

with the entire facility. We calculate the portion of ancillary salaries attributable to the hospitalbased IRF for a given ancillary cost center by multiplying total facility ancillary salary costs for 

the specific cost center (as reported on Worksheet A, column 1) by the ratio of IRF Medicare 

ancillary costs for the cost center (as reported on Worksheet D-3, column 3 for hospital-based 

IRFs) to total Medicare ancillary costs for the cost center (equal to the sum of Worksheet D-3, 

column 3 for all relevant PPS units [that is, IPPS, IRF, IPF and SNF]). For example, if hospitalbased IRF Medicare physical therapy costs represent 30 percent of the total Medicare physical 
therapy costs for the entire facility, then 30 percent of total facility physical therapy salaries (as 

reported in Worksheet A, column 1, line 66) would be attributable to the hospital-based IRF. We 

believe it is appropriate to use only a portion of the ancillary costs in the market basket cost 

weight calculations since the hospital-based IRF only utilizes a portion of the facility’s ancillary 

services. We believe the ratio of reported IRF Medicare costs to reported total Medicare costs 

provides a reasonable estimate of the ancillary services utilized, and costs incurred, by the 

hospital-based IRF. 

We calculate the portion of overhead salary costs attributable to hospital-based IRFs by 

multiplying the total overhead costs attributable to the hospital-based IRF (sum of columns 4-18 

on Worksheet B, part I, line 41) by the ratio of total facility overhead salaries (as reported on 

Worksheet A, column 1, lines 4-18) to total facility overhead costs (as reported on Worksheet A, 

column 7, lines 4-18). This methodology assumes the proportion of total costs related to salaries 

for the overhead cost center is similar for all inpatient units (that is, acute inpatient or inpatient 

rehabilitation). Since the 2008-based RPL market basket did not include hospital-based 

providers, this proposed methodology cannot be compared to the derivation of Wages and 

Salaries costs in the RPL market basket.

(ii) Employee Benefits Costs 

Effective with our implementation of CMS Form 2552-10, we began collecting 

Employee Benefits and Contract Labor data on Worksheet S-3, Part V. Previously, with CMS 

Form 2540-96, Employee Benefits and Contract Labor data were reported on Worksheet S-3, 

part II, which was applicable to only IPPS providers and, therefore, these data were not available 

for the derivation of the RPL market basket. Due to the lack of such data, the Employee Benefits 

cost weight for the 2008-based RPL market basket was derived by multiplying the 2008-based 
RPL market basket Wages and Salaries cost weight by the ratio of the IPPS hospital market 

basket Employee Benefits cost weight to the IPPS hospital market basket Wages and Salaries 

cost weight. Similarly, the Contract Labor cost weight for the 2008-based RPL market basket 

was derived by multiplying the 2008-based RPL market basket Wages and Salaries cost weight 

by the ratio of the IPPS hospital market basket Contract Labor cost weight to the IPPS hospital 

market basket Wages and Salaries cost weight (see FY 2012 IRF PPS final rule (76 FR 47850

through 47851)).

For FY 2012 Medicare cost report data, while there were providers that did report data on 

Worksheet S-3, part V, many providers did not complete this worksheet. However, our analysis 

indicates that we had a large enough sample to enable us to produce a reasonable Employee 

Benefits cost weight. Specifically, we found that when we recalculated the cost weight after 

weighting to reflect the characteristics of the universe of IRF providers (freestanding and 

hospital-based), it did not have a material effect on the resulting cost weight. We continue to 

encourage all providers to report these data on the Medicare cost report. 

For freestanding IRFs, Employee Benefits costs are equal to the data reported on 

Worksheet S-3, Part V, line 2, column 2. 

For hospital-based IRFs, we calculate total benefits as the sum of benefit costs reported 

on Worksheet S-3 Part V, line 4, column 2, and a portion of ancillary benefits and overhead 

benefits for the total facility. Ancillary benefits attributable to the hospital-based IRF are 

calculated by multiplying ancillary salaries for the hospital-based IRF as determined in the 

derivation of Wages and Salaries for the hospital-based IRF by the ratio of total facility benefits 

to total facility salaries. Similarly, overhead benefits attributable to the hospital-based IRF are 

calculated by multiplying overhead salaries for the hospital-based IRF as determined in the 
derivation of Wages and Salaries for the hospital-based IRF by the ratio of total facility benefits 

to total facility salaries. 

(iii) Contract Labor Costs

Similar to the RPL and IPPS market baskets, Contract Labor costs are primarily 

associated with direct patient care services. Contract labor costs for services such as accounting, 

billing, and legal are estimated using other government data sources. As previously discussed in 

the Employee Benefits section, we now have data reported on Worksheet S-3, Part V that we can 

use to derive the Contract Labor cost weight for the 2012-based IRF market basket. As 

previously noted, for FY 2012 Medicare cost report data, while there were providers that did 

report data on Worksheet S-3, part V, many providers did not complete this worksheet. 

However, our analysis indicates that we had a large enough sample to enable us to produce a 

reasonable Contract Labor cost weight. Specifically, we found that when we recalculated the 

cost weight after weighting to reflect the characteristics of the universe of IRF providers 

(freestanding and hospital-based), it did not have a material effect on the resulting cost weight. 

We continue to encourage all providers to report these data on the Medicare cost report. 

For freestanding IRFs, Contract Labor costs are based on data reported on Worksheet 

S-3, part V, column 1, line 2, and for hospital-based IRFs, Contract Labor costs are based on 

line 4 of this same worksheet.

(iv) Pharmaceuticals Costs

For freestanding IRFs, pharmaceuticals costs are based on non-salary costs reported on 

Worksheet A, column 7, less Worksheet A, column 1, for the pharmacy cost center (line 15) and 

drugs charged to patients cost center (line 73). 

For hospital-based IRFs, pharmaceuticals costs are based on a portion of the non-salary 
pharmacy costs and a portion of the non-salary drugs charged to patient costs reported for the 

total facility. Non-salary pharmacy costs attributable to the hospital-based IRF are calculated by 

multiplying total pharmacy costs attributable to the hospital-based IRF (as reported on 

Worksheet B, column 15, line 41) by the ratio of total non-salary pharmacy costs (Worksheet A, 

column 2, line 15) to total pharmacy costs (sum of Worksheet A, column 1 and 2 for line 15) for 

the total facility. Non-salary drugs charged to patient costs attributable to the hospital-based IRF 

are calculated by multiplying total non-salary drugs charged to patient costs (Worksheet B, 

part I, column 0, line 73, plus Worksheet B, part I, column 15, line 73, less Worksheet A, 

column 1, line 73) for the total facility by the ratio of Medicare drugs charged to patient ancillary 

costs for the IRF unit (as reported on Worksheet D-3 for hospital-based IRFs, line 73, column 3) 

to total Medicare drugs charged to patient ancillary costs for the total facility (equal to the sum of 

Worksheet D-3, line 73, column 3, for all relevant PPS (that is, IPPS, IRF, IPF and SNF)). 

(v) Professional Liability Insurance Costs

For freestanding IRFs, Professional Liability Insurance (PLI) costs (often referred to as 

malpractice costs) are equal to premiums, paid losses and self-insurance costs reported on 

Worksheet S-2, line 118, columns 1 through 3. For hospital-based IRFs, we assume that the PLI 

weight for the total facility is similar to the hospital-based IRF unit since the only data reported 

on this worksheet is for the entire facility, as we currently have no means to identify the 

proportion of total PLI costs that are only attributable to the hospital-based IRF. Therefore, 

hospital-based IRF PLI costs are equal to total facility PLI (as reported on Worksheet S-2, line 

118, columns 1 through 3) divided by total facility costs (as reported on Worksheet A, line 200) 

times hospital-based IRF Medicare allowable total costs. We welcome comments on this 

proposed method of deriving the PLI costs for hospital-based IRFs.
(vi) Capital Costs

For freestanding IRFs, capital costs are equal to Medicare allowable capital costs as 

reported on Worksheet B, Part II, column 26. 

For hospital-based IRFs, capital costs are equal to IRF inpatient capital costs (as reported 

on Worksheet B, part II, column 26, line 41) and a portion of IRF ancillary capital costs. We 

calculate the portion of ancillary capital costs attributable to the hospital-based IRF for a given 

cost center by multiplying total facility ancillary capital costs for the specific ancillary cost 

center (as reported on Worksheet B, Part II, column 26) by the ratio of IRF Medicare ancillary 

costs for the cost center (as reported on Worksheet D-3, column 3 for hospital-based IRFs) to 

total Medicare ancillary costs for the cost center (equal to the sum of Worksheet D-3, column 3 

for all relevant PPS (that is, IPPS, IRF, IPF and SNF). For example, if hospital-based IRF 

Medicare physical therapy costs represent 30 percent of the total Medicare physical therapy costs 

for the entire facility, then 30 percent of total facility physical therapy capital costs (as reported 

in Worksheet B, part II, column 26, line 66) would be attributable to the hospital-based IRF. 

b. Final Major Cost Category Computation

After we derived costs for the six major cost categories for each provider using the 

Medicare cost report data as previously described, we address data outliers using the following 

steps. First, we divide the costs for each of the six categories by total Medicare allowable costs 

calculated for the provider to obtain cost weights for the universe of IRF providers. We then 

remove those providers whose derived cost weights fall in the top and bottom five percent of 

provider specific derived cost weights to ensure the removal of outliers. After the outliers have 

been removed, we sum the costs for each category across all remaining providers. We then 
divide this by the sum of total Medicare allowable costs across all remaining providers to obtain 

a cost weight for the proposed 2012-based IRF market basket for the given category. Finally, we 

calculate the residual “All Other” cost weight that reflects all remaining costs that are not 

captured in the six cost categories listed. See Table 3 for the resulting cost weights for these 

major cost categories that we obtain from the Medicare cost reports.

Table 3: Major Cost Categories as Derived from Medicare Cost Reports

Major Cost Categories

2012-Based IRF 

(Percent)

2008-Based RPL 

(Percent)

Wages and Salaries 45.5 47.4

Employee Benefits110.7 12.3

Contract Labor10.8 2.6

Professional Liability 

Insurance (Malpractice)

0.9 0.8

Pharmaceuticals 5.1 6.5

Capital 8.6 8.4

All Other 28.4 22.0

*Total may not sum to 100 due to rounding.

1. Due to the lack of Medicare cost report data, the Employee Benefits and Contract Labor cost weights 

in the 2008-based RPL market basket were based on the IPPS market basket.

The Wages and Salaries cost weight obtained directly from the Medicare cost reports for 

the proposed 2012-based IRF market basket is approximately 2 percentage points lower than the 

Wages and Salaries cost weight for the 2008-based RPL market basket. This is primarily a result 

of the inclusion of hospital-based IRF data into the 2012-based IRF market basket. The lower 

Employee Benefits and Contract Labor cost weights in the 2012- based IRF market basket 

relative to the 2008-based RPL market basket are due to the incorporation of freestanding and 

hospital-based IRF specific data. The predecessor 2008-based RPL market basket used the IPPS 

market basket to derive the Employee Benefits and Contract Labor cost weights due to the lack 

of data on the Medicare cost reports. The lower pharmaceutical cost weight in the proposed 

2012-based IRF market basket relative to the 2008-based RPL market basket is mostly due to 

freestanding IRFs; the hospital-based IRFs pharmaceuticals cost weight is almost twice as large 
as the freestanding IRF pharmaceuticals cost weight. 

As we did for the 2008-based RPL market basket, we propose to allocate the Contract 

Labor cost weight to the Wages and Salaries and Employee Benefits cost weights based on their 

relative proportions under the assumption that contract labor costs are comprised of both wages 

and salaries and employee benefits. The Contract Labor allocation proportion for Wages and 

Salaries is equal to the Wages and Salaries cost weight as a percent of the sum of the Wages and 

Salaries cost weight and the Employee Benefits cost weight. This rounded percentage is 

81 percent; therefore, we propose to allocate 81 percent of the Contract Labor cost weight to the 

Wages and Salaries cost weight and 19 percent to the Employee Benefits cost weight. Table 4

shows the Wages and Salaries and Employee Benefit cost weights after Contract Labor cost 

weight allocation for both the proposed 2012-based IRF market basket and 2008-based RPL 

market basket. 

Table 4 – Wages and Salaries and Employee Benefits Cost Weights After Contract Labor 

Allocation

Major Cost Categories

2012-Based IRF 2008-Based RPL 

Wages and Salaries 46.1 49.4

Employee Benefits 10.9 12.8

c. Derivation of the Detailed Operating Cost Weights

To further divide the “All Other” residual cost weight estimated from the FY 2012 

Medicare cost report data into more detailed cost categories, we propose to use the 2007 

Benchmark Input-Output (I-O) “Use Tables/Before Redefinitions/Purchaser Value” for NAICS 

622000, Hospitals, published by the Bureau of Economic Analysis (BEA). This data is publicly 

available at the following website: http://www.bea.gov/industry/io_annual.htm 

The BEA Benchmark I–O data are scheduled for publication every five years with the 
most recent data available for 2007. The 2007 Benchmark I–O data are derived from the 2007 

Economic Census and are the building blocks for BEA’s economic accounts. Thus, they 

represent the most comprehensive and complete set of data on the economic processes or 

mechanisms by which output is produced and distributed.1 BEA also produces Annual I–O 

estimates; however, while based on a similar methodology, these estimates reflect less 

comprehensive and less detailed data sources and are subject to revision when benchmark data 

becomes available. Instead of using the less detailed Annual I–O data, we inflate the 

2007 Benchmark I–O data forward to 2012 by applying the annual price changes from the 

respective price proxies to the appropriate market basket cost categories that are obtained from 

the 2007 Benchmark I–O data. We repeat this practice for each year. We then calculate the cost 

shares that each cost category represents of the inflated 2012 data. These resulting 2012 cost 

shares are applied to the All Other residual cost weight to obtain the detailed cost weights for the 

proposed 2012-based IRF market basket. For example, the cost for Food: Direct Purchases 

represents 6.5 percent of the sum of the ‘‘All Other’’ 2007 Benchmark I–O Hospital 

Expenditures inflated to 2012; therefore, the Food: Direct Purchases cost weight represents 

6.5 percent of the 2012-based IRF market basket’s “All Other” cost category (28.4 percent), 

yielding a “final” Food: Direct Purchases cost weight of 1.8 percent in the proposed 2012-based 

IRF market basket (0.065 * 28.4 percent = 1.8 percent). 

Using this methodology, we derive eighteen detailed IRF market basket cost category 

weights from the proposed 2012-based IRF market basket residual cost weight (28.4 percent). 

These categories are: (1) Electricity, (2) Fuel, Oil, and Gasoline (3) Water & Sewerage (4) Food: 

Direct Purchases, (5) Food: Contract Services, (6) Chemicals, (7) Medical Instruments, 

 

1

http://www.bea.gov/papers/pdf/IOmanual_092906.pdf
(8) Rubber & Plastics, (9) Paper and Printing Products, (10) Miscellaneous Products, 

(11) Professional Fees: Labor-related, (12) Administrative and Facilities Support Services, 

(13) Installation, Maintenance, and Repair, (14) All Other Labor-related Services, 

(15) Professional Fees: Nonlabor-related, (16) Financial Services, (17) Telephone Services, and 

(18) All Other Nonlabor-related Services. 

d. Derivation of the Detailed Capital Cost Weights

As described in section V.C.1.a.6 of this proposed rule, we are proposing a CapitalRelated cost weight of 8.6 percent as obtained from the FY 2012 Medicare cost reports for 

freestanding and hospital-based IRF providers. We are proposing to then separate this total 

Capital-Related cost weight into more detailed cost categories. 

Using FY 2012 Medicare cost reports, we are able to group Capital-Related costs into the 

following categories: Depreciation, Interest, Lease, and Other Capital-Related costs. For each 

of these categories, we are proposing to determine separately for hospital-based IRFs and 

freestanding IRFs what proportion of total capital-related costs the category represents. 

For freestanding IRFs, we are proposing to derive the proportions for Depreciation, 

Interest, Lease, and Other Capital-related costs using the data reported by the IRF on Worksheet 

A-7, which is similar to the methodology used for the 2008-based RPL market basket. 

For hospital-based IRFs, data for these four categories are not reported separately for the 

hospital-based IRF; therefore, we are proposing to derive these proportions using data reported 

on Worksheet A-7 for the total facility. We are assuming the cost shares for the overall hospital 

are representative for the hospital-based IRF unit. For example, if depreciation costs make up 

60 percent of total capital costs for the entire facility, we believe it is reasonable to assume that 

the hospital-based IRF would also have a 60 percent proportion because it is a unit contained 
within the total facility. 

To combine each detailed capital cost weight for freestanding and hospital-based IRFs 

into a single capital cost weight for the proposed 2012-based IRF market basket, we are 

proposing to weight together the shares for each of the categories (Depreciation, Interest, Lease, 

and Other Capital-related costs) based on the share of total capital costs each provider type 

represents of the total capital costs for all IRFs for 2012. Applying this methodology, results in 

proportions of total capital-related costs for Depreciation, Interest, Lease and Other Capitalrelated costs that are representative of the universe of IRF providers.

We are also proposing to allocate lease costs across each of the remaining detailed 

capital-related cost categories as was done in the 2008-based RPL market basket. This would 

result in three primary capital-related cost categories in the proposed 2012-based IRF market 

basket: Depreciation, Interest, and Other Capital-Related costs. Lease costs are unique in that 

they are not broken out as a separate cost category in the proposed 2012-based IRF market 

basket. Rather, we are proposing to proportionally distribute these costs among the cost 

categories of Depreciation, Interest, and Other Capital-Related, reflecting the assumption that the 

underlying cost structure of leases is similar to that of capital-related costs in general. As was 

done under the 2008-based RPL market basket, we are proposing to assume that 10 percent of 

the lease costs as a proportion of total capital-related costs represents overhead and assign those 

costs to the Other Capital-Related cost category accordingly. We propose to distribute the 

remaining lease costs proportionally across the three cost categories (Depreciation, Interest, and 

Other Capital-Related) based on the proportion that these categories comprise of the sum of the 

Depreciation, Interest, and Other Capital-related cost categories (excluding lease expenses). This 

is the same methodology used for the 2008-based RPL market basket. The allocation of these 
lease expenses are shown in Table 5.

Finally, we are proposing to further divide the Depreciation and Interest cost categories. 

We are proposing to separate Depreciation into the following two categories: (1) Building and 

Fixed Equipment and (2) Movable Equipment; and proposing to separate Interest into the 

following two categories: (1) Government/Nonprofit and (2) For-profit. 

To disaggregate the Depreciation cost weight, we need to determine the percent of total 

Depreciation costs for IRFs that is attributable to Building and Fixed Equipment, which we 

hereafter refer to as the “fixed percentage.” For the proposed 2012-based IRF market basket, we 

are proposing to use slightly different methods to obtain the fixed percentages for hospital-based 

IRFs compared to freestanding IRFs. 

For freestanding IRFs, we are proposing to use depreciation data from Worksheet A-7 of 

the FY 2012 Medicare cost reports, similar to the methodology used for the 2008-based RPL 

market basket. However, for hospital-based IRFs, we determined that the fixed percentage for 

the entire facility may not be representative of the hospital-based IRF unit due to the entire 

facility likely employing more sophisticated movable assets that are not utilized by the hospitalbased IRF. Therefore, for hospital-based IRFs, we are proposing to calculate a fixed percentage 

using: (1) building and fixture capital costs allocated to the hospital-based IRF unit as reported 

on Worksheet B, part I line 41 and (2) building and fixture capital costs for the top five ancillary 

cost centers utilized by hospital-based IRFs. We propose to weight these two fixed percentages 

(inpatient and ancillary) using the proportion that each capital cost type represents of total capital 

costs in the proposed 2012-based IRF market basket. We are proposing to then weight the fixed 

percentages for hospital-based and freestanding IRFs together using the proportion of total 

capital costs each provider type represents. 
To disaggregate the Interest cost weight, we need to determine the percent of total 

interest costs for IRFs that are attributable to government and nonprofit facilities, which we 

hereafter refer to as the “nonprofit percentage,” as price pressures associated with these types of 

interest costs tend to differ from those for for-profit facilities. For the IRF market basket, we are 

proposing to use interest costs data from Worksheet A-7 of the FY 2012 Medicare cost reports 

for both freestanding and hospital-based IRFs, similar to the methodology used for the 2008-

based RPL market basket. We are proposing to determine the percent of total interest costs that 

are attributed to government and nonprofit IRFs separately for hospital-based and freestanding 

IRFs. We then are proposing to weight the nonprofit percentages for hospital-based and 

freestanding IRFs together using the proportion of total capital costs that each provider type 

represents.

Table 5 provides the detailed capital cost shares obtained from the Medicare cost reports. 

Ultimately, these detailed capital cost shares are applied to the total Capital-Related cost weight 

determined in section V.C.1.a.6 of this proposed rule to split out the total weight of 8.6 percent 

into more detailed cost categories and weights. 

Table 5—Detailed Capital Cost Weights for the Proposed 2012-based IRF Market Basket

Cost Shares Obtained 

from Medicare Cost 

Reports

Proposed Detailed 

Capital Cost Shares 

after Allocation of 

Lease Expenses

Depreciation 61% 74%

 Building and Fixed Equipment 39% 48%

 Movable Equipment 22% 26%

Interest 13% 16%
Cost Shares Obtained 

from Medicare Cost 

Reports

Proposed Detailed 

Capital Cost Shares 

after Allocation of 

Lease Expenses

 Government/Nonprofit 8% 10%

 For Profit 5% 6%

Lease 20% n/a

Other 6% 10%

e. Proposed 2012-based IRF Market Basket Cost Categories and Weights

Table 6 shows the cost categories and weights for the proposed 2012-based IRF market 

basket compared to the 2008-based RPL market basket.

Table 6 – Proposed 2012-based IRF Cost Weights Compared to 2008-based RPL Cost 

Weights

Cost Category

Proposed

2012-

based 

IRF Cost 

Weight

2008-

based 

RPL Cost 

Weight

Total 100.0 100.0

 Compensation 57.0 62.3

 Wages and Salaries 46.1 49.4

 Employee Benefits 10.9 12.8

 Utilities 2.3 1.6

 Electricity 1.0 1.1

 Fuel, Oil, and Gasoline 1.1 0.4

 Water & Sewerage 0.1 0.1

 Professional Liability Insurance 0.9 0.8

 All Other Products and Services 31.2 27.0

 All Other Products 14.0 15.6

 Pharmaceuticals 5.1 6.5

 Food: Direct Purchases 1.8 3.0

 Food: Contract Services 1.1 0.4

 Chemicals 0.7 1.1

 Medical Instruments 2.5 1.8

 Rubber & Plastics 0.6 1.1
Cost Category

Proposed

2012-

based 

IRF Cost 

Weight

2008-

based 

RPL Cost 

Weight

 Paper and Printing Products 1.2 1.0

 Apparel - 0.2

 Machinery and Equipment - 0.1

 Miscellaneous Products 0.9 0.3

 All Other Services 17.2 11.4

 Labor-Related Services 8.8 4.7

 Professional Fees: Labor-related 3.8 2.1

 Administrative and Facilities Support Services 0.9 0.4

 Installation, Maintenance, and Repair 2.1 -

 All Other: Labor-related Services 2.0 2.1

 Nonlabor-Related Services 8.5 6.7

 Professional Fees: Nonlabor-related 3.4 4.2

 Financial services 3.0 0.9

 Telephone Services 0.7 0.4

 Postage - 0.6

 All Other: Nonlabor-related Services 1.4 0.6

 Capital-Related Costs 8.6 8.4

 Depreciation 6.4 5.5

 Fixed Assets 4.1 3.3

 Movable Equipment 2.3 2.2

 Interest Costs 1.4 2.0

 Government/Nonprofit 0.9 0.7

 For Profit 0.5 1.3

 Other Capital-Related Costs 0.8 0.9

*Detail may not add to total due to rounding.

The proposed 2012-based IRF market basket does not include separate cost categories for 

Apparel, Machinery & Equipment, and Postage. Due to the small weights associated with these 

detailed categories and relatively stable price growth in the applicable price proxy, we are 

proposing to include Apparel and Machinery & Equipment in the Miscellaneous Products cost 

category and Postage in the All-Other Nonlabor-related Services. We note that these Machinery 

& Equipment expenses are for equipment that is paid for in a given year and not depreciated over 
the asset’s useful life. Depreciation expenses for movable equipment are reflected in the Capitalrelated costs of the proposed 2012-based IRF market basket. For the proposed 2012-based IRF 

market basket, we are also proposing to include a separate cost category for Installation, 

Maintenance, and Repair.

2. Selection of Price Proxies

After developing the cost weights for the proposed 2012-based IRF market basket, we 

selected the most appropriate wage and price proxies currently available to represent the rate of 

price change for each expenditure category. For the majority of the cost weights, we base the 

price proxies on U.S. Bureau of Labor Statistics (BLS) data and group them into one of the 

following BLS categories:

● Employment Cost Indexes. Employment Cost Indexes (ECIs) measure the rate of 

change in employment wage rates and employer costs for employee benefits per hour worked. 

These indexes are fixed-weight indexes and strictly measure the change in wage rates and 

employee benefits per hour. ECIs are superior to Average Hourly Earnings (AHE) as price 

proxies for input price indexes because they are not affected by shifts in occupation or industry 

mix, and because they measure pure price change and are available by both occupational group 

and by industry. The industry ECIs are based on the North American Industry Classification 

System (NAICS), and the occupational ECIs are based on the Standard Occupational 

Classification System (SOC). 

● Producer Price Indexes. Producer Price Indexes (PPIs) measure price changes for 

goods sold in other than retail markets. PPIs are used when the purchases of goods or services 

are made at the wholesale level.

● Consumer Price Indexes. Consumer Price Indexes (CPIs) measure change in the 
prices of final goods and services bought by consumers. CPIs are only used when the purchases 

are similar to those of retail consumers rather than purchases at the wholesale level, or if no 

appropriate PPIs are available.

We evaluated the price proxies using the criteria of reliability, timeliness, availability, 

and relevance:

● Reliability. Reliability indicates that the index is based on valid statistical methods 

and has low sampling variability. Widely accepted statistical methods ensure that the data were 

collected and aggregated in a way that can be replicated. Low sampling variability is desirable 

because it indicates that the sample reflects the typical members of the population. (Sampling 

variability is variation that occurs by chance because only a sample was surveyed rather than the 

entire population.) 

● Timeliness. Timeliness implies that the proxy is published regularly, preferably at 

least once a quarter. The market baskets are updated quarterly, and therefore, it is important for 

the underlying price proxies to be up-to-date, reflecting the most recent data available. We 

believe that using proxies that are published regularly (at least quarterly, whenever possible) 

helps to ensure that we are using the most recent data available to update the market basket. We 

strive to use publications that are disseminated frequently, because we believe that this is an 

optimal way to stay abreast of the most current data available. 

● Availability. Availability means that the proxy is publicly available. We prefer that 

our proxies are publicly available because this will help ensure that our market basket updates 

are as transparent to the public as possible. In addition, this enables the public to be able to 

obtain the price proxy data on a regular basis. 

● Relevance. Relevance means that the proxy is applicable and representative of the 
cost category weight to which it is applied. The CPIs, PPIs, and Employment Cost Index (ECIs)

that we have selected to propose in this regulation meet these criteria. Therefore, we believe that 

they continue to be the best measure of price changes for the cost categories to which they would 

be applied.

Table 6 lists all price proxies for the proposed 2012-based IRF market basket. Below is a 

detailed explanation of the price proxies we are proposing for each cost category weight. We 

note that many of the proxies for the 2012-based IRF market basket are the same as those used 

for the FY 2008-based RPL market basket. For further discussion on the FY 2008-based RPL

market basket, see the FY 2012 IRF final rule (76 FR 47852 through 47860).

a. Price Proxies for the Operating Portion of the Proposed 2012-Based IRF Market Basket

1. Wages and Salaries

We are proposing to continue to use the ECI for Wages and Salaries for All Civilian 

workers in Hospitals (BLS series code #CIU1026220000000I) to measure the wage rate growth 

of this cost category. This is the same price proxy used in the 2008-based RPL market basket. 

2. Benefits

We are proposing to continue to use the ECI for Total Benefits for All Civilian workers 

in Hospitals to measure price growth of this category. This ECI is calculated using the ECI for 

Total Compensation for All Civilian workers in Hospitals (BLS series code # 

CIU1016220000000I) and the relative importance of wages and salaries within total 

compensation. This is the same price proxy used in the 2008-based RPL market basket. 

3. Electricity

We are proposing to continue to use the PPI for Commercial Electric Power (BLS series 

code #WPU0542) to measure the price growth of this cost category. This is the same price proxy 
used in the 2008-based RPL market basket. 

4. Fuel, Oil, and Gasoline

We are proposing to change the proxy used for the Fuel, Oil, and Gasoline cost category. 

The 2008-based RPL market basket uses the PPI for Petroleum Refineries (BLS series code 

#PCU32411-32411) to proxy these expenses. 

For the proposed 2012-based IRF market basket, we are proposing to use a blend of the 

PPI for Petroleum Refineries and the PPI Commodity for Natural Gas (BLS series code 

#WPU0531). Our analysis of the Bureau of Economic Analysis’ 2007 Benchmark Input-Output 

data (use table before redefinitions, purchaser’s value for NAICS 622000 [Hospitals]), shows 

that Petroleum Refineries expenses accounts for approximately 70 percent and Natural Gas 

accounts for approximately 30 percent of the Fuel, Oil, and Gasoline expenses. Therefore, we 

propose a blend using of 70 percent of the PPI for Petroleum Refineries (BLS series code 

#PCU32411-32411) and 30 percent of the PPI Commodity for Natural Gas (BLS series code 

#WPU0531). We believe that these 2 price proxies are the most technically appropriate indices 

available to measure the price growth of the Fuel, Oil, and Gasoline cost category in the 

proposed 2012-based IRF market basket. 

5. Water and Sewerage

We are proposing to continue to use the CPI for Water and Sewerage Maintenance (BLS 

series code #CUUR0000SEHG01) to measure the price growth of this cost category. This is the 

same proxy used in the 2008-based RPL market basket.

6. Professional Liability Insurance

We are proposing to continue to use the CMS Hospital Professional Liability Index to 
measure changes in PLI premiums. To generate this index, we collect commercial insurance 

premiums for a fixed level of coverage while holding non-price factors constant (such as a 

change in the level of coverage). This is the same proxy used in the 2008-based RPL market

basket. 

7. Pharmaceuticals

We are proposing to continue to use the PPI for Pharmaceuticals for Human Use, 

Prescription (BLS series code #WPUSI07003) to measure the price growth of this cost category. 

This is the same proxy used in the 2008-based RPL market basket.

8. Food: Direct Purchases

We are proposing to continue to use the PPI for Processed Foods and Feeds (BLS series 

code #WPU02) to measure the price growth of this cost category. This is the same proxy used in 

the 2008-based RPL market basket.

9. Food: Contract Purchases

We are proposing to continue to use the CPI for Food Away From Home (BLS series 

code #CUUR0000SEFV) to measure the price growth of this cost category. This is the same 

proxy used in the 2008-based RPL market basket.

10. Chemicals

We are proposing to continue to use a four part blended PPI composed of the PPI for 

Industrial Gas Manufacturing (BLS series code PCU325120325120P), the PPI for Other Basic 

Inorganic Chemical Manufacturing (BLS series code #PCU32518-32518), the PPI for Other 

Basic Organic Chemical Manufacturing (BLS series code #PCU32519-32519), and the PPI for 

Soap and Cleaning Compound Manufacturing (BLS series code #PCU32561-32561). We 

propose updating the blend weights using 2007 Benchmark I-O data, which compared to 2002 
Benchmark I-O data is weighted more toward organic chemical products and weighted less 

toward inorganic chemical products. 

Table 7 shows the proposed weights for each of the four PPIs used to create the blended 

PPI. These are the same four proxies used in the 2008-based RPL market basket; however, the 

blended PPI weights in the 2008-based RPL market baskets were based on 2002 Benchmark I-O 

data.

Table 7: Blended Chemical PPI Weights

Name

Proposed

2012-based 

IRF Weights

2008-

based 

RPL 

Weights NAICS

PPI for Industrial Gas Manufacturing 32% 35% 325120

PPI for Other Basic Inorganic Chemical Manufacturing 17% 25% 325180

PPI for Other Basic Organic Chemical Manufacturing 45% 30% 325190

PPI for Soap and Cleaning Compound Manufacturing 6% 10% 325610

11. Medical Instruments

We are proposing to use a blend for the Medical Instruments cost category. The 2007 

Benchmark Input-Output data shows an approximate 50/50 split between Surgical and Medical 

Instruments and Medical and Surgical Appliances and Supplies for this cost category. Therefore, 

we propose a blend composed of 50 percent of the commodity-based PPI for Surgical and 

Medical Instruments (BLS code #WPU1562) and 50 percent of the commodity-based PPI for 

Medical and Surgical Appliances and Supplies (BLS code #WPU1563). The 2008-based RPL 

market basket uses the single, higher level PPI for Medical, Surgical, and Personal Aid Devices 

(BLS series code #WPU156).

12. Rubber and Plastics

We are proposing to continue to use the PPI for Rubber and Plastic Products (BLS series 

code #WPU07) to measure price growth of this cost category. This is the same proxy used in the 
2008-based RPL market basket.

13. Paper and Printing Products

We are proposing to continue to use the PPI for Converted Paper and Paperboard 

Products (BLS series code #WPU0915) to measure the price growth of this cost category. This 

is the same proxy used in the 2008-based RPL market basket.

14. Miscellaneous Products

We are proposing to continue to use the PPI for Finished Goods Less Food and Energy 

(BLS series code #WPUSOP3500) to measure the price growth of this cost category. This is the 

same proxy used in the 2008-based RPL market basket.

15. Professional Fees: Labor-Related

We are proposing to continue to use the ECI for Total Compensation for Private Industry 

workers in Professional and Related (BLS series code #CIU2010000120000I) to measure the 

price growth of this category. This is the same proxy used in the 2008-based RPL market basket.

16. Administrative and Facilities Support Services

We are proposing to continue to use the ECI for Total Compensation for Private Industry 

workers in Office and Administrative Support (BLS series code #CIU2010000220000I ) to 

measure the price growth of this category. This is the same proxy used in the 2008-based RPL 

market basket.

17. Installation, Maintenance, and Repair

We are proposing to use the ECI for Total Compensation for Civilian workers in 

Installation, Maintenance, and Repair (BLS series code #CIU1010000430000I) to measure the 

price growth of this new cost category. Previously these costs were included in the All Other: 

Labor-related Services category and were proxied by the ECI for Total Compensation for Private 
Industry workers in Service Occupations (BLS series code #CIU2010000300000I). We believe 

that this index better reflects the price changes of labor associated with maintenance-related 

services and its incorporation represents a technical improvement to the market basket.

18. All Other: Labor-Related Services

We are proposing to continue to use the ECI for Total Compensation for Private Industry 

workers in Service Occupations (BLS series code #CIU2010000300000I) to measure the price 

growth of this cost category. This is the same proxy used in the 2008-based RPL market basket.

19. Professional Fees: Nonlabor-Related

We are proposing to continue to use the ECI for Total Compensation for Private Industry 

workers in Professional and Related (BLS series code #CIU2010000120000I) to measure the 

price growth of this category. This is the same proxy used in the 2008-based RPL market basket.

20. Financial Services

We are proposing to continue to use the ECI for Total Compensation for Private Industry 

workers in Financial Activities (BLS series code #CIU201520A000000I) to measure the price 

growth of this cost category. This is the same proxy used in the 2008-based RPL market basket.

21. Telephone Services

We are proposing to continue to use the CPI for Telephone Services (BLS series code 

#CUUR0000SEED) to measure the price growth of this cost category. This is the same proxy 

used in the 2008-based RPL market basket.

22. All Other: Nonlabor-Related Services

We are proposing to continue to use the CPI for All Items Less Food and Energy (BLS 

series code #CUUR0000SA0L1E) to measure the price growth of this cost category. This is the 

same proxy used in the 2008-based RPL market basket.
b. Price Proxies for the Capital Portion of the Proposed 2012-Based IRF Market Basket

1. Capital Price Proxies Prior to Vintage Weighting

We are proposing to apply the same price proxies to the detailed capital-related cost 

categories as were applied in the 2008-based RPL market basket, which are provided in Table 7 

and described below. We are also proposing to continue to vintage weight the capital price 

proxies for Depreciation and Interest to capture the long-term consumption of capital. This 

vintage weighting method is similar to the method used for the 2008-based RPL market basket 

and is described in section V.C.2.b.2 of this proposed rule.

We are proposing to proxy the Depreciation: Building and Fixed Equipment cost 

category by BEA's Chained Price Index for Nonresidential Construction for Hospitals and 

Special Care Facilities (BEA Table 5.4.4. Price Indexes for Private Fixed Investment in 

Structures by Type), the Depreciation: Movable Equipment cost category by the PPI for 

Machinery and Equipment (BLS series code #WPU11), the Nonprofit Interest cost category by 

the average yield on domestic municipal bonds (Bond Buyer 20-bond index), the For-profit 

Interest cost category by the average yield on Moody's Aaa bonds (Federal Reserve), and the 

Other Capital-Related cost category by the CPI-U for Rent of Primary Residence (BLS series 

code #CUUS0000SEHA). We believe these are the most appropriate proxies for IRF 

capital-related costs that meet our selection criteria of relevance, timeliness, availability, and 

reliability.

2. Vintage Weights for Price Proxies

Because capital is acquired and paid for over time, capital-related expenses in any given 

year are determined by both past and present purchases of physical and financial capital. The 

vintage-weighted capital-related portion of the proposed 2012-based IRF market basket is 
intended to capture the long-term consumption of capital, using vintage weights for depreciation 

(physical capital) and interest (financial capital). These vintage weights reflect the proportion of 

capital-related purchases attributable to each year of the expected life of building and fixed 

equipment, movable equipment, and interest. We are proposing to use vintage weights to 

compute vintage-weighted price changes associated with depreciation and interest expenses.

Capital-related costs are inherently complicated and are determined by complex 

capital-related purchasing decisions, over time, based on such factors as interest rates and debt 

financing. In addition, capital is depreciated over time instead of being consumed in the same 

period it is purchased. By accounting for the vintage nature of capital, we are able to provide an 

accurate and stable annual measure of price changes. Annual non-vintage price changes for 

capital are unstable due to the volatility of interest rate changes and, therefore, do not reflect the 

actual annual price changes for IRF capital-related costs. The capital-related component of the 

proposed 2012-based IRF market basket reflects the underlying stability of the capital-related 

acquisition process.

To calculate the vintage weights for depreciation and interest expenses, we first need a 

time series of capital-related purchases for building and fixed equipment and movable 

equipment. We found no single source that provides an appropriate time series of capital-related 

purchases by hospitals for all of the above components of capital purchases. The early Medicare 

cost reports did not have sufficient capital-related data to meet this need. Data we obtained from 

the American Hospital Association (AHA) do not include annual capital-related purchases. 

However, we are able to obtain data on total expenses back to 1963 from the AHA. 

Consequently, we are proposing to use data from the AHA Panel Survey and the AHA Annual 

Survey to obtain a time series of total expenses for hospitals. We are then proposing to use data 
from the AHA Panel Survey supplemented with the ratio of depreciation to total hospital 

expenses obtained from the Medicare cost reports to derive a trend of annual depreciation 

expenses for 1963 through 2012. We propose to separate these depreciation expenses into 

annual amounts of building and fixed equipment depreciation and movable equipment 

depreciation as determined earlier. From these annual depreciation amounts we derive annual 

end-of-year book values for building and fixed equipment and movable equipment using the 

expected life for each type of asset category. While data is not available that is specific to IRFs, 

we believe this information for all hospitals serves as a reasonable alternative for the pattern of 

depreciation for IRFs. 

To continue to calculate the vintage weights for depreciation and interest expenses, we 

also need to account for the expected lives for Building and Fixed Equipment, Movable 

Equipment, and Interest for the proposed 2012-based IRF market basket. We are proposing to 

calculate the expected lives using Medicare cost report data from freestanding and hospital-based 

IRFs. The expected life of any asset can be determined by dividing the value of the asset 

(excluding fully depreciated assets) by its current year depreciation amount. This calculation 

yields the estimated expected life of an asset if the rates of depreciation were to continue at 

current year levels, assuming straight-line depreciation. We are proposing to determine the 

expected life of building and fixed equipment separately for hospital-based IRFs and 

freestanding IRFs, and then weight these expected lives using the percent of total capital costs 

each provider type represents. We are proposing to apply a similar method for movable 

equipment. Using these proposed methods, we determined the average expected life of building 

and fixed equipment to be equal to 23 years, and the average expected life of movable equipment 

to be equal to 11 years. For the expected life of interest, we believe vintage weights for interest 
should represent the average expected life of building and fixed equipment because, based on 

previous research described in the FY 1997 IPPS final rule (61 FR 46198), the expected life of 

hospital debt instruments and the expected life of buildings and fixed equipment are similar. We 

note that for the 2008-based RPL market basket, we used FY 2008 Medicare cost reports for 

IPPS hospitals to determine the expected life of building and fixed equipment and movable 

equipment (76 FR 51763). The 2008-based RPL market basket was based on an expected 

average life of building and fixed equipment of 26 years and an expected average life of movable 

equipment of 11 years, which were both calculated using data for IPPS hospitals. 

Multiplying these expected lives by the annual depreciation amounts results in annual 

year-end asset costs for building and fixed equipment and movable equipment. We then 

calculate a time series, beginning in 1964, of annual capital purchases by subtracting the 

previous year’s asset costs from the current year’s asset costs. 

For the building and fixed equipment and movable equipment vintage weights, we are 

proposing to use the real annual capital-related purchase amounts for each asset type to capture 

the actual amount of the physical acquisition, net of the effect of price inflation. These real 

annual capital-related purchase amounts are produced by deflating the nominal annual purchase 

amount by the associated price proxy as provided earlier in this proposed rule. For the interest 

vintage weights, we are proposing to use the total nominal annual capital-related purchase 

amounts to capture the value of the debt instrument (including, but not limited to, mortgages and 

bonds). Using these capital-related purchase time series specific to each asset type, we are 

proposing to calculate the vintage weights for building and fixed equipment, for movable 

equipment, and for interest. 

The vintage weights for each asset type are deemed to represent the average purchase 
pattern of the asset over its expected life (in the case of building and fixed equipment and 

interest, 23 years, and in the case of movable equipment, 11 years). For each asset type, we used 

the time series of annual capital-related purchase amounts available from 2012 back to 1964. 

These data allow us to derive twenty-seven 23-year periods of capital-related purchases for 

building and fixed equipment and interest, and thirty-nine 11-year periods of capital-related 

purchases for movable equipment. For each 23-year period for building and fixed equipment 

and interest, or 11-year period for movable equipment, we calculate annual vintage weights by 

dividing the capital-related purchase amount in any given year by the total amount of purchases 

over the entire 23-year or 11-year period. This calculation is done for each year in the 23-year or 

11-year period and for each of the periods for which we have data. We then calculate the 

average vintage weight for a given year of the expected life by taking the average of these 

vintage weights across the multiple periods of data. The vintage weights for the capital-related 

portion of the 2008-based RPL market basket and the proposed 2012-based IRF market basket 

are presented in Table 8.

Table 8: 2008-Based RPL market basket and Proposed 2012-based IRF market 

basket Vintage Weights for Capital-Related Price Proxies

Year

Building and Fixed 

Equipment

Movable Equipment Interest

2012-based 

23 years

2008-based 

26 years

2012-

based

11 years

2008-

based

11 years

2012-

based

23 years

2008-

based

26 years

1 0.029 0.021 0.069 0.071 0.017 0.010 

2 0.031 0.023 0.073 0.075 0.019 0.012 

3 0.034 0.025 0.077 0.080 0.022 0.014 

4 0.036 0.027 0.083 0.083 0.024 0.016 

5 0.037 0.028 0.087 0.085 0.026 0.018 

6 0.039 0.030 0.091 0.089 0.028 0.020 

7 0.040 0.031 0.096 0.092 0.030 0.021 

8 0.041 0.033 0.100 0.098 0.032 0.024 

9 0.042 0.035 0.103 0.103 0.035 0.026 

10 0.044 0.037 0.107 0.109 0.038 0.029 
Year

Building and Fixed 

Equipment

Movable Equipment Interest

2012-based 

23 years

2008-based 

26 years

2012-

based

11 years

2008-

based

11 years

2012-

based

23 years

2008-

based

26 years

11 0.045 0.039 0.114 0.116 0.040 0.033 

12 0.045 0.041 -- -- 0.042 0.035 

13 0.045 0.042 -- -- 0.044 0.038 

14 0.046 0.043 -- -- 0.046 0.041 

15 0.046 0.044 -- -- 0.048 0.043 

16 0.048 0.045 -- -- 0.053 0.046 

17 0.049 0.046 -- -- 0.057 0.049 

18 0.050 0.047 -- -- 0.060 0.052 

19 0.051 0.047 -- -- 0.063 0.053 

20 0.051 0.045 -- -- 0.066 0.053 

21 0.051 0.045 -- -- 0.067 0.055 

22 0.050 0.045 -- -- 0.069 0.056 

23 0.052 0.046 -- -- 0.073 0.060

24 -- 0.046 -- -- -- 0.063

25 -- 0.045 -- -- -- 0.064

26 -- 0.046 -- -- -- 0.068

Total 1.000 1.000 1.000 1.000 1.000 1.000

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

The process of creating vintage-weighted price proxies requires applying the vintage 

weights to the price proxy index where the last applied vintage weight in Table 8 is applied to the 

most recent data point. We have provided on the CMS website an example of how the vintage 

weighting price proxies are calculated, using example vintage weights and example price indices. 

The example can be found at the following link: http://www.cms.gov/Research-Statistics-Dataand-Systems/Statistics-Trends-andReports/MedicareProgramRatesStats/MarketBasketResearch.html in the zip file titled “Weight 

Calculations as described in the IPPS FY 2010 Proposed Rule.”

c. Summary of Price Proxies of the Proposed 2012-based IRF Market Basket

Table 9 shows both the operating and capital price proxies for the proposed 2012-based 

IRF market basket.
Table 9: Price Proxies for the Proposed 2012-based IRF Market Basket

Cost Description Price Proxies Weight

Total - IRF12 100.0%

 Compensation 57.0%

 Wages and Salaries ECI for Wages and Salaries for All Civilian workers in Hospitals 46.1%

 Employee Benefits ECI for Total Benefits for All Civilian workers in Hospitals 10.9%

 Utilities 2.3%

 Electricity PPI for Commercial Electric Power 1.0%

 Fuel, Oil, and Gasoline Blend of the PPI for Petroleum Refineries and PPI for Natural Gas 1.1%

 Water & Sewage CPI-U for Water and Sewerage Maintenance 0.1%

 Professional Liability Insurance 0.9%

 Malpractice CMS Hospital Professional Liability Insurance Premium Index 0.9%

 All Other Products and Services 31.2%

 All Other Products 14.0%

 Pharmaceuticals PPI for Pharmaceuticals for human use, prescription 5.1%

 Food: Direct Purchases PPI for Processed Foods and Feeds 1.8%

 Food: Contract Services CPI-U for Food Away From Home 1.1%

 Chemicals Blend of Chemical PPIs 0.7%

 Medical Instruments

Blend of the PPI for Surgical and medical instruments and PPI for Medical 

and surgical appliances and supplies 2.5%

 Rubber & Plastics PPI for Rubber and Plastic Products 0.6%

 Paper and Printing Products PPI for Converted Paper and Paperboard Products 1.2%

 Miscellaneous Products PPI for Finished Goods Less Food and Energy 0.9%

 All Other Services 17.2%

 Labor-Related Services 8.8%

 Professional Fees: Labor-related

ECI for Total compensation for Private industry workers in Professional and 

related 3.8%

 Administrative and Facilities

Support Services

ECI for Total compensation for Private industry workers in Office and 

administrative support 0.9%

 Installation, Maintenance & Repair

ECI for Total compensation for Civilian workers in Installation, maintenance, 

and repair 2.1%

 All Other: Labor-related Services

ECI for Total compensation for Private industry workers in Service 

occupations 2.0%

 Nonlabor-Related Services 8.5%

 Professional Fees: Nonlabor-related

ECI for Total compensation for Private industry workers in Professional and 

related 3.4%

 Financial services ECI for Total compensation for Private industry workers in Financial activities 3.0%

 Telephone Services CPI-U for Telephone Services 0.7%

 All Other: Nonlabor-related Services CPI-U for All Items Less Food and Energy 1.4%

 Capital-Related Costs 8.6%

 Depreciation 6.4%

 Fixed Assets

BEA chained price index for nonresidential construction for hospitals and 

special care facilities - vintage weighted (23 years) 4.1%

 Movable Equipment PPI for machinery and equipment - vintage weighted (11 years) 2.3%

 Interest Costs 1.4%
Cost Description Price Proxies Weight

 Government/Nonprofit

Average yield on domestic municipal bonds (Bond Buyer 20 bonds) - vintage 

weighted (23 years) 0.9%

 For Profit Average yield on Moody's Aaa bonds - vintage weighted (23 years) 0.5%

 Other Capital-Related Costs CPI-U for Rent of primary residence 0.8%

Note: Totals may not sum to 100.0 percent due to rounding

D. Proposed FY 2016 Market Basket Update and Productivity Adjustment

1. Proposed FY 2016 Market Basket Update

For FY 2016, we are proposing to use the proposed 2012-based IRF market basket 

increase factor described in section V.C. of this proposed rule to update the IRF PPS base 

payment rate. Consistent with historical practice, we estimate the market basket update for the 

IRF PPS based on IHS Global Insight’s forecast using the most recent available data. IHS 

Global Insight (IGI), Inc. is a nationally recognized economic and financial forecasting firm with 

which CMS contracts to forecast the components of the market baskets and multifactor 

productivity (MFP).

Based on IGI’s first quarter 2015 forecast with historical data through the fourth quarter 

of 2014, the projected proposed 2012-based IRF market basket increase factor for FY 2016 

would be 2.7 percent. Therefore, consistent with our historical practice of estimating market 

basket increases based on the best available data, we are proposing a market basket increase 

factor of 2.7 percent for FY 2016. We are also proposing that if more recent data are 

subsequently available (for example, a more recent estimate of the market basket) we would use 

such data, to determine the FY 2016 update in the final rule.

For comparison, the 2008-based RPL market basket is projected to be 2.8 percent in 

FY 2016; this estimate is based on IGI’s first quarter 2015 forecast (with historical data through 

the fourth quarter of 2014). Table 10 compares the proposed 2012-based IRF market basket and 

the 2008-based RPL market basket percent changes. 
Table 10: Proposed 2012-Based IRF Market Basket and 2008-Based RPL Market Basket 

Percent Changes, FY 2010 through FY 2018

Fiscal Year (FY)

Proposed 2012-Based IRF 

Market Basket Index 

Percent Change

2008-Based RPL Market Basket 

Index Percent Change

Historical data:

 FY 2010 2.1 2.2

 FY 2011 2.3 2.5

 FY 2012 1.8 2.2

 FY 2013 2.0 2.1

 FY 2014 1.8 1.8

 Average 2010-2014 2.0 2.2

Forecast:

 FY 2015 1.8 2.2

 FY 2016 2.7 2.8

 FY 2017 3.0 3.0

 FY 2018 3.1 3.1

 Average 2015-2018 2.7 2.8

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

Source: IHS Global Insight, Inc. 1st quarter 2015 forecast.

For FY 2016, the proposed 2012-based IRF market basket update (2.7 percent) is a tenth 

of a percentage point lower than the 2008-based RPL market basket (2.8 percent). The 0.1 

percentage point difference stems from the lower Compensation cost weight in the proposed 

2012-based IRF market basket (57.0 percent) compared to the 2008-based RPL market basket 

(62.3 percent) and the lower Pharmaceuticals cost weight in the proposed 2012-based IRF 

market basket (5.1 percent) compared to the 2008-based RPL market basket (6.5 percent). The 

downward pressure on the proposed 2012-based IRF market basket update from these two 

categories is partially offset by the higher All Other Services cost weight in the proposed 2012-

based IRF market basket (17.2 percent) compared to the 2008-based RPL market basket 

(11.4 percent). 

2. Proposed Productivity Adjustment 

According to Section 1886(j)(3)(C)(i) of the Act, the Secretary shall establish an increase 

factor based on an appropriate percentage increase in a market basket of goods and services. As 

described in section V.C and V.D.1. of this proposed rule, we are proposing to estimate the IRF 
PPS increase factor for FY 2016 based on the proposed 2012-based IRF market basket. Section 

1886(j)(3)(C)(ii) of the Act then requires that, after establishing the increase factor for a FY, the 

Secretary shall reduce such increase factor for FY 2012 and each subsequent FY, by the 

productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. Section 

1886(b)(3)(B)(xi)(II) of the Act sets forth the definition of this productivity adjustment. The 

statute defines the productivity adjustment to be equal to the 10-year moving average of changes 

in annual economy-wide private nonfarm business MFP (as projected by the Secretary for the 

10-year period ending with the applicable FY, year, cost reporting period, or other annual period) 

(the “MFP adjustment”). The BLS publishes the official measure of private nonfarm business 

MFP. Please see http://www.bls.gov/mfp for the BLS historical published MFP data. 

MFP is derived by subtracting the contribution of labor and capital input growth from 

output growth. The projections of the components of MFP are currently produced by IGI, a 

nationally recognized economic forecasting firm with which CMS contracts to forecast the 

components of the market basket and MFP. As described in the FY 2012 IRF PPS final rule 

(76 FR 47836, 47858 through 47859), to generate a forecast of MFP, IGI replicated the MFP 

measure calculated by the BLS using a series of proxy variables derived from IGI’s U.S. 

macroeconomic models. In the FY 2012 IRF PPS final rule, we identified each of the major 

MFP component series employed by the BLS to measure MFP as well as provided the 

corresponding concepts determined to be the best available proxies for the BLS series. 

Beginning with the FY 2016 rulemaking cycle, the MFP adjustment is calculated using a revised 

series developed by IGI to proxy the aggregate capital inputs. Specifically, IGI has replaced the 

Real Effective Capital Stock used for Full Employment GDP with a forecast of BLS aggregate 

capital inputs recently developed by IGI using a regression model. This series provides a better 
fit to the BLS capital inputs, as measured by the differences between the actual BLS capital input 

growth rates and the estimated model growth rates over the historical time period. Therefore, we 

are using IGI’s most recent forecast of the BLS capital inputs series in the MFP calculations 

beginning with the FY 2016 rulemaking cycle. A complete description of the MFP projection 

methodology is available on CMS website at: http://www.cms.gov/Research-Statistics-Data-andSystems/Statistics-Trends-andReports/MedicareProgramRatesStats/MarketBasketResearch.html. Although we discuss the IGI 

changes to the MFP proxy series in this proposed rule, in the future, when IGI makes changes to 

the MFP methodology, we will announce them on our website rather than in the annual 

rulemaking.

Using IGI’s first quarter 2015 forecast, the MFP adjustment for FY 2016 (the 10-year 

moving average of MFP for the period ending FY 2016) is projected to be 0.6 percent. Thus, in 

accordance with section 1886(j)(3)(C) of the Act, we propose to base the FY 2016 market basket 

update, which is used to determine the applicable percentage increase for the IRF payments, on 

the most recent estimate of the proposed 2012-based IRF market basket (currently estimated to 

be 2.7 percent based on IGI’s first quarter 2015 forecast). We propose to then reduce this 

percentage increase by the current estimate of the MFP adjustment for FY 2016 of 0.6 

percentage point (the 10-year moving average of MFP for the period ending FY 2016 based on 

IGI’s first quarter 2015 forecast). Following application of the MFP, we further reduce the 

applicable percentage increase by 0.2 percentage point, as required by sections 

1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(iv) of the Act. Therefore, the current estimate of the 

FY 2016 IRF update is 1.9 percent (2.7 percent market basket update, less 0.6 percentage point 

MFP adjustment, less 0.2 percentage point legislative adjustment). Furthermore, we note that if 
more recent data are subsequently available (for example, a more recent estimate of the market 

basket and MFP adjustment), we would use such data to determine the FY 2016 market basket 

update and MFP adjustment in the final rule. 

For FY 2016, the Medicare Payment Advisory Commission (MedPAC) recommends that 

a 0 percent update be applied to IRF PPS payment rates. As discussed, and in accordance with 

sections 1886(j)(3)(C) and 1886(j)(3)(D) of the Act, the Secretary proposes to update IRF PPS 

payment rates for FY 2015 by an adjusted market basket increase factor of 1.9 percent, as section 

1886(j)(3)(C) of the Act does not provide the Secretary with the authority to apply a different 

update factor to IRF PPS payment rates for FY 2016. 

We invite public comment on these proposals.

E. Proposed Labor-Related Share for FY 2016

Section 1886(j)(6) of the Act specifies that the Secretary is to adjust the proportion (as 

estimated by the Secretary from time to time) of rehabilitation facilities’ costs which are 

attributable to wages and wage-related costs, of the prospective payment rates computed under 

section 1886(j)(3) for area differences in wage levels by a factor (established by the Secretary) 

reflecting the relative hospital wage level in the geographic area of the rehabilitation facility 

compared to the national average wage level for such facilities. The labor-related share is 

determined by identifying the national average proportion of total costs that are related to, 

influenced by, or vary with the local labor market. We continue to classify a cost category as 

labor-related if the costs are labor-intensive and vary with the local labor market. As stated in 

the FY 2015 IRF PPS final rule (79 FR 45886), the labor-related share for FY 2015 was defined 

as the sum of the FY 2015 relative importance of Wages and Salaries, Employee Benefits, 

Professional Fees: Labor- Related Services, Administrative and Business Support Services, All 
Other: Labor-related Services, and a portion of the Capital Costs from the 2008-based RPL 

market basket.

Based on our definition of the labor-related share and the cost categories in the proposed 

2012-based IRF market basket, we are proposing to include in the labor-related share for 

FY 2016 the sum of the FY 2016 relative importance of Wages and Salaries, Employee Benefits, 

Professional Fees: Labor- Related, Administrative and Facilities Support Services, Installation, 

Maintenance, and Repair, All Other: Labor-related Services, and a portion of the Capital-Related 

cost weight from the proposed 2012-based IRF market basket. As noted in Section V.C.2.a of 

this proposed rule, for the proposed 2012-based IRF market basket, we have created a separate 

cost category for Installation, Maintenance, and Repair services. These expenses were 

previously included in the “All Other” Labor-related Services cost category in the 2008-based 

RPL market basket, along with other services, including, but not limited to, janitorial, waste 

management, security, and dry cleaning/laundry services. Because these services tend to be 

labor-intensive and are mostly performed at the facility (and, therefore, unlikely to be purchased 

in the national market), we continue to believe that they meet our definition of labor-related 

services.

Similar to the 2008-based RPL market basket, the proposed 2012-based IRF market 

basket includes two cost categories for nonmedical Professional fees (including, but not limited 

to, expenses for legal, accounting, and engineering services). These are Professional Fees: 

Labor-related and Professional Fees: Nonlabor-related. For the proposed 2012-based IRF market 

basket, we propose to estimate the labor-related percentage of non-medical professional fees 

(and assign these expenses to the Professional Fees: Labor-related services cost category) based 

on the same method that was used to determine the labor-related percentage of professional fees 
in the 2008-based RPL market basket. 

To summarize, the professional services survey found that hospitals purchase the 

following proportion of these four services outside of their local labor market: 

● 34 percent of accounting and auditing services.

● 30 percent of engineering services.

● 33 percent of legal services.

● 42 percent of management consulting services.

We applied each of these percentages to the respective Benchmark I–O cost category 

underlying the professional fees cost category to determine the Professional Fees: Nonlaborrelated costs. The Professional Fees: Labor-related costs were determined to be the difference 

between the total costs for each Benchmark I–O category and the Professional Fees: Nonlaborrelated costs. This is the same methodology that we used to separate the 2008-based RPL market 

basket professional fees category into Professional Fees: Labor-related and Professional Fees: 

Nonlabor-related cost categories. For more detail regarding this methodology, see the FY 2012 

IRF final rule (76 FR 47861). 

In addition to the professional services listed, we also classified expenses under NAICS 

55, Management of Companies and Enterprises, into the Professional Fees cost category as was 

done in the 2008-based RPL market basket. The NAICS 55 data are mostly comprised of 

corporate, subsidiary, and regional managing offices, or otherwise referred to as home offices. 

Since many facilities are not located in the same geographic area as their home office, we 

analyzed data from a variety of sources to determine what proportion of these costs should be 

appropriately included in the labor-related share. For the 2012-based IRF market basket, we are 

proposing to derive the home office percentages using data for both freestanding IRF providers 
and hospital-based IRF providers. In the 2008-based RPL market basket, we used the home 

office percentages based on the data reported by freestanding IRFs, IPFs, and LTCHs. 

Using data primarily from the Medicare cost reports and the Home Office Medicare 

Records (HOMER) database that provides the address (including city and state) for home offices, 

we were able to determine that 38 percent of the total number of freestanding and hospital-based 

IRFs that had home offices had those home offices located in their respective local labor 

markets—defined as being in the same Metropolitan Statistical Area (MSA).

The Medicare cost report requires hospitals to report their home office provider numbers. 

Using the HOMER database to determine the home office location for each home office provider 

number, we compared the location of the provider with the location of the hospital’s home 

office. We then placed providers into one of the following two groups:

● Group 1—Provider and home office are located in different MSAs.

● Group 2—Provider and home office are located in the same MSA.

We found that 62 percent of the providers with home offices were classified into Group 1 (that 

is, different MSAs) and, thus, these providers were determined to not be located in the same 

local labor market as their home office. We found that 38 percent of all providers with home 

offices were classified into Group 2 (that is, the same MSA). Given these results, we are 

proposing to classify 38 percent of the Professional Fees costs into the Professional Fees: Laborrelated cost category and the remaining 62 percent into the Professional Fees: Nonlabor-related 

Services cost category. This methodology for apportioning the Professional Fee expenses 

between Labor-related and Nonlabor-related categories was similar to the method used in the 

2008-based RPL market basket. For more details regarding this methodology, see the FY 2012 

IRF final rule (76 FR 47860 through 47863). 
Using this proposed method and the IHS Global Insight, Inc. first quarter 2015 forecast 

for the proposed 2012-based IRF market basket, the proposed IRF labor-related share for 

FY 2016 is the sum of the FY 2016 relative importance of each labor-related cost category. The 

relative importance reflects the different rates of price change for these cost categories between 

the base year (FY 2012) and FY 2016. Table 11 compares the proposed FY 2016 labor-related 

share using the proposed 2012-based IRF market basket relative importance with the FY 2015 

labor-related share using the 2008-based RPL market basket.

The sum of the relative importance for FY 2016 operating costs (Wages and Salaries, 

Employee Benefits, Professional Fees: Labor-related, Administrative and Facilities Support 

Services, Installation Maintenance & Repair Services, and All Other: Labor-related Services) is 

65.7 percent, as shown in Table 11. We are proposing to specify the labor-related share to one 

decimal place, which is consistent with the IPPS labor-related share (79 FR 49990) (currently the 

labor-related share from the RPL market basket is specified to three decimal places).

We are proposing that the portion of Capital that is influenced by the local labor market is 

estimated to be 46 percent, which is the same percentage applied to the 2008-based RPL market 

basket. Since the relative importance for Capital-Related Costs is 8.4 percent of the proposed 

2012-based IRF market basket in FY 2016, we are proposing to take 46 percent of 8.4 percent to 

determine the proposed labor-related share of Capital for 2016. The result would be 3.9 percent, 

which we propose to add to 65.7 percent for the operating cost amount to determine the total 

proposed labor-related share for FY 2016. Thus, the labor-related share that we propose to use 

for IRF PPS in FY 2016 would be 69.6 percent. This proposed labor-related share is determined 

using the same methodology as employed in calculating all previous IRF labor-related shares

(see 76 FR 47862). By comparison, the FY 2015 labor-related share under the 2008-based RPL 
market basket was 69.294 percent. Therefore, the change from the RPL market basket to the IRF 

market basket has only a minimal impact on the labor-related share for IRF providers. 

Table 11: Proposed IRF Labor-Related Share

FY 2016 

Proposed 

Labor-Related 

Share1

FY 2015 Final 

Labor Related 

Share2

Wages and Salaries 46.0 48.271

Employee Benefits 11.0 12.936

Professional Fees: Labor-related 3.8 2.058

Administrative and Facilities Support Services 0.9 0.415

Installation, Maintenance, and Repair 2.1 -

All Other: Labor-related Services 1.9 2.061

Subtotal 65.7 65.741

Labor-related portion of capital (46%) 3.9 3.553

Total Labor-Related Share 69.6 69.294

1. Based on the 2012-based IRF Market Basket, IHS Global Insight, Inc. 1st quarter 2015 forecast.

2. Federal Register 79 FR 45886.

F. Proposed Wage Adjustment

1. Background

Section 1886(j)(6) of the Act requires the Secretary to adjust the proportion of 

rehabilitation facilities’ costs attributable to wages and wage-related costs (as estimated by the

Secretary from time to time) by a factor (established by the Secretary) reflecting the relative 

hospital wage level in the geographic area of the rehabilitation facility compared to the national 

average wage level for those facilities. The Secretary is required to update the IRF PPS wage 

index on the basis of information available to the Secretary on the wages and wage-related costs 

to furnish rehabilitation services. Any adjustment or updates made under section 1886(j)(6) of 

the Act for a FY are made in a budget-neutral manner.

For FY 2016, we propose to maintain the policies and methodologies described in the 

FY 2012 IRF PPS final rule (76 FR 47836, 47863 through 47865) related to the labor market 
area definitions and the wage index methodology for areas with wage data. Thus, we propose to 

use the CBSA labor market area definitions and the FY 2015 pre-reclassification and pre-floor 

hospital wage index data. In accordance with section 1886(d)(3)(E) of the Act, the FY 2015 

pre-reclassification and pre-floor hospital wage index is based on data submitted for hospital cost 

reporting periods beginning on or after October 1, 2010, and before October 1, 2011 (that is, 

FY 2011 cost report data).

The labor market designations made by the OMB include some geographic areas where 

there are no hospitals and, thus, no hospital wage index data on which to base the calculation of 

the IRF PPS wage index. We propose to continue to use the same methodology discussed in the 

FY 2008 IRF PPS final rule (72 FR 44299) to address those geographic areas where there are no 

hospitals and, thus, no hospital wage index data on which to base the calculation for the FY 2016 

IRF PPS wage index.

2. Update

The wage index used for the IRF PPS is calculated using the pre-reclassification and 

pre-floor acute care hospital wage index data and is assigned to the IRF on the basis of the labor 

market area in which the IRF is geographically located. IRF labor market areas are delineated 

based on the Core-Based Statistical Areas (CBSAs) established by the Office of Management 

and Budget (OMB). The current CBSA labor market definitions used in FY 2015 are based on 

OMB standards published on December 27, 2000 (65 FR 82228). As stated in the FY 2015 IRF 

PPS proposed rule (79 FR 26308) and final rule (79 FR 45871), we intend to consider the 

inclusion of the 2010 Census-based CBSA changes in the IRF PPS wage index for FY 2016. 

On February 28, 2013, OMB issued OMB Bulletin No. 13-01, which established revised 

delineations for Metropolitan Statistical Areas, Micropolitan Statistical Areas, and Combined 
Statistical Areas, and provided guidance on the use of the delineations of these statistical areas. 

A copy of this bulletin is available online at 

http://www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b-13-01.pdf. The OMB

bulletin provides the delineations of all Metropolitan Statistical Areas, Metropolitan Divisions, 

Micropolitan Statistical Areas, Combined Statistical Areas, and New England City and Town 

Areas in the United States and Puerto Rico based on the standards published on June 28, 2010, in 

the Federal Register (75 FR 37246 through 37252) and Census Bureau data.

While the revisions OMB published on February 28, 2013 are not as sweeping as the 

changes made when we adopted the CBSA geographic designations in the FY 2006 IRF PPS 

final rule, the February 28, 2013 OMB bulletin does contain a number of significant changes. For 

example, there are new CBSAs, urban counties that become rural, rural counties that become 

urban, and existing CBSAs that are being split apart. However, because the bulletin was not 

issued until February 28, 2013, with supporting data not available until later, and because the 

changes made by the bulletin and their ramifications needed to be extensively reviewed and 

verified, these changes were not incorporated into the hospital wage index until FY 2015. In the 

FY 2015 IRF PPS final rule (79 FR 45886), we stated that we intended to consider changes to 

the wage index based on the most current OMB delineations in this FY 2016 IRF PPS proposed 

rule. As discussed below, we are proposing to implement the new OMB delineations as 

described in the February 28, 2013 OMB Bulletin No. 13-01, for the IRF PPS wage index 

beginning in FY 2016. 

3. Proposed Implementation of New Labor Market Delineations

As discussed in the FY 2015 IRF PPS proposed rule (79 FR 26308) and final rule 

(79 FR 45871), CMS delayed implementing the new OMB statistical area delineations to allow 
for sufficient time to assess the new changes. We believe it is important for the IRF PPS to use 

the latest OMB delineations available to maintain a more accurate and up-to-date payment 

system that reflects the reality of population shifts and labor market conditions. While CMS and 

other stakeholders have explored potential alternatives to the current CBSA-based labor market 

system (we refer readers to the CMS website at www.cms.gov/Medicare/Medicare-Fee-forService-Payment/AcuteInpatientPPS/Wage-Index-Reform.html), no consensus has been 

achieved regarding how best to implement a replacement system. As discussed in the FY 2005 

IPPS final rule (69 FR 49027), while we recognize that MSAs are not designed specifically to 

define labor market areas, we believe they do represent a useful proxy for this purpose. We 

further believe that using the most current OMB delineations would increase the integrity of the 

IRF PPS wage index by creating a more accurate representation of geographic variation in wage 

levels. We have reviewed our findings and impacts relating to the new OMB delineations, and 

have concluded that there is no compelling reason to further delay implementation. Because we 

believe that we have broad authority under section 1886(j)(6) of the Act to determine the labor 

market areas used for the IRF PPS wage index, and because we also believe that the most current 

OMB delineations accurately reflect the local economies and wage levels of the areas in which 

hospitals are currently located, we are proposing to implement the new OMB delineations as 

described in the February 28, 2013 OMB Bulletin No. 13-01, for the IRF PPS wage index 

effective beginning in FY 2016. As discussed below, we are proposing to implement a one-year 

transition with a blended wage index for all providers and a 3 year phase-out of the rural 

adjustment for a subset of providers in FY 2016 to assist providers in adapting to the new OMB 

delineations. We invite comments on this proposal. This proposed transition is discussed in 

more detail below.
a. Micropolitan Statistical Areas

OMB defines a “Micropolitan Statistical Area” as a CBSA associated with at least one 

urban cluster that has a population of at least 10,000, but less than 50,000 (75 FR 37252). We 

refer to these as Micropolitan Areas. After extensive impact analysis, consistent with the 

treatment of these areas under the IPPS as discussed in the FY 2005 IPPS final rule (69 FR 

49029 through 49032), CMS determined the best course of action would be to treat Micropolitan 

Areas as “rural” and include them in the calculation of each state’s IRF PPS rural wage index.

Thus, the IRF PPS statewide rural wage index is determined using IPPS hospital data from 

hospitals located in non-MSA areas, and the statewide rural wage index is assigned to IRFs 

located in those areas. Because Micropolitan Areas tend to encompass smaller population 

centers and contain fewer hospitals than MSAs, we determined that if Micropolitan Areas were 

to be treated as separate labor market areas, the IRF PPS wage index would have included 

significantly more single-provider labor market areas. As we explained in the FY 2006 IRF PPS 

final rule (70 FR 47920 through 47921), recognizing Micropolitan Areas as independent labor 

markets would generally increase the potential for dramatic shifts in year-to-year wage index 

values because a single hospital (or group of hospitals) could have a disproportionate effect on 

the wage index of an area. Dramatic shifts in an area’s wage index from year to year are 

problematic and create instability in the payment levels from year to year, which could make 

fiscal planning for IRFs difficult if we adopted this approach. For these reasons, we adopted a 

policy to include Micropolitan Areas in the state’s rural wage area for purposes of the IRF PPS 

wage index, and have continued this policy through the present.

Based upon the new 2010 Decennial Census data, a number of urban counties have 

switched status and have joined or became Micropolitan Areas, and some counties that once 
were part of a Micropolitan Area, have become urban. Overall, there are fewer Micropolitan 

Areas (541) under the new OMB delineations based on the 2010 Census than existed under the 

latest data from the 2000 Census (581). We believe that the best course of action would be to 

continue the policy established in the FY 2006 IRF PPS final rule (70 FR 47880) and include 

Micropolitan Areas in each state’s rural wage index. These areas continue to be defined as 

having relatively small urban cores (populations of 10,000 to 49,999). We do not believe it 

would be appropriate to calculate a separate wage index for areas that typically may include only 

a few hospitals for the reasons discussed in the FY 2006 IRF PPS final rule (70 FR 47880), and 

as previously discussed. Therefore, in conjunction with our proposal to implement the new 

OMB labor market delineations beginning in FY 2016 and consistent with the treatment of 

Micropolitan Areas under the IPPS, we are proposing to continue to treat Micropolitan Areas as 

“rural” and to include Micropolitan Areas in the calculation of the state’s rural wage index.

b. Urban Counties Becoming Rural

As previously discussed, we are proposing to implement the new OMB statistical area 

delineations (based upon the 2010 decennial Census data) beginning in FY 2016 for the IRF PPS 

wage index. Our analysis shows that a total of 37 counties (and county equivalents) that are 

currently considered part of an urban CBSA would be considered located in a rural area, for IRF 

PPS payment beginning in FY 2016, if we adopt the new OMB delineations. Table 12 lists the 

37 urban counties that would be rural if we finalize our proposal to implement the new OMB 

delineations.
TABLE 12: Counties That Would Transition from Urban to Rural Status

County State

Previous 

CBSA

Previous Urban Area 

(Constituent Counties)

Greene County IN 14020 Bloomington, IN

Anson County NC 16740 Charlotte-Gastonia-Rock Hill, NC-SC

Franklin County IN 17140 Cincinnati-Middletown, OH-KY-IN

Stewart County TN 17300 Clarksville, TN-KY

Howard County MO 17860 Columbia, MO

Delta County TX 19124 Dallas-Fort Worth-Arlington, TX

Pittsylvania County VA 19260 Danville, VA

Danville City VA 19260 Danville, VA

Preble County OH 19380 Dayton, OH

Gibson County IN 21780 Evansville, IN-KY

Webster County KY 21780 Evansville, IN-KY

Franklin County AR 22900 Fort Smith, AR-OK

Ionia County MI 24340 Grand Rapids-Wyoming, MI

Newaygo County MI 24340 Grand Rapids-Wyoming, MI

Greene County NC 24780 Greenville, NC

Stone County MS 25060 Gulfport-Biloxi, MS

Morgan County WV 25180 Hagerstown-Martinsburg, MD-WV

San Jacinto County TX 26420 Houston-Sugar Land-Baytown, TX

Franklin County KS 28140 Kansas City, MO-KS

Tipton County IN 29020 Kokomo, IN

Nelson County KY 31140 Louisville/Jefferson County, KY-IN

Geary County KS 31740 Manhattan, KS
County State

Previous 

CBSA

Previous Urban Area 

(Constituent Counties)

Washington County OH 37620 Parkersburg-Marietta-Vienna, WV-OH

Pleasants County WV 37620 Parkersburg-Marietta-Vienna, WV-OH

George County MS 37700 Pascagoula, MS

Power County ID 38540 Pocatello, ID

Cumberland County VA 40060 Richmond, VA

King and Queen County VA 40060 Richmond, VA

Louisa County VA 40060 Richmond, VA

Washington County MO 41180 St. Louis, MO-IL

Summit County UT 41620 Salt Lake City, UT

Erie County OH 41780 Sandusky, OH

Franklin County MA 44140 Springfield, MA

Ottawa County OH 45780 Toledo, OH

Greene County AL 46220 Tuscaloosa, AL

Calhoun County TX 47020 Victoria, TX

Surry County VA 47260

Virginia Beach-Norfolk-Newport News, VANC

We are proposing that the wage data for all hospitals located in the counties listed in 

Table 12 now be considered rural when their respective state’s rural wage index value is 

calculated. This rural wage index value would be used under the IRF PPS. 

c. Rural Counties Becoming Urban

Analysis of the new OMB delineations (based upon the 2010 decennial Census data) 

shows that a total of 105 counties (and county equivalents) that are currently located in rural 

areas would be located in urban areas, if we finalize our proposal to implement the new OMB 
delineations. Table 13 below lists the 105 rural counties that would be urban if we finalize this 

proposal.

TABLE 13: Counties That Would Transition from Rural to Urban Status

County State

New 

CBSA Urban Area (Constituent Counties)

Utuado Municipio PR 10380 Aguadilla-Isabela, PR

Linn County OR 10540 Albany, OR

Oldham County TX 11100 Amarillo, TX

Morgan County GA 12060 Atlanta-Sandy Springs-Roswell, GA

Lincoln County GA 12260 Augusta-Richmond County, GA-SC

Newton County TX 13140 Beaumont-Port Arthur, TX

Fayette County WV 13220 Beckley, WV

Raleigh County WV 13220 Beckley, WV

Golden Valley County MT 13740 Billings, MT

Oliver County ND 13900 Bismarck, ND

Sioux County ND 13900 Bismarck, ND

Floyd County VI 13980 Blacksburg-Christiansburg-Radford, VA

De Witt County IL 14010 Bloomington, IL

Columbia County PA 14100 Bloomsburg-Berwick, PA

Montour County PA 14100 Bloomsburg-Berwick, PA

Allen County KY 14540 Bowling Green, KY

Butler County KY 14540 Bowling Green, KY

St. Mary’s County MD 15680 California-Lexington Park, MD

Jackson County IL 16060 Carbondale-Marion, IL

Williamson County IL 16060 Carbondale-Marion, IL
County State

New 

CBSA Urban Area (Constituent Counties)

Franklin County PA 16540 Chambersburg-Waynesboro, PA

Iredell County NC 16740 Charlotte-Concord-Gastonia, NC-SC

Lincoln County NC 16740 Charlotte-Concord-Gastonia, NC-SC

Rowan County NC 16740 Charlotte-Concord-Gastonia, NC-SC

Chester County SC 16740 Charlotte-Concord-Gastonia, NC-SC

Lancaster County SC 16740 Charlotte-Concord-Gastonia, NC-SC

Buckingham County VA 16820 Charlottesville, VA

Union County IN 17140 Cincinnati, OH-KY-IN

Hocking County OH 18140 Columbus, OH

Perry County OH 18140 Columbus, OH

Walton County FL 18880 Crestview-Fort Walton Beach-Destin, FL

Hood County TX 23104 Dallas-Fort Worth-Arlington, TX

Somervell County TX 23104 Dallas-Fort Worth-Arlington, TX

Baldwin County AL 19300 Daphne-Fairhope-Foley, AL

Monroe County PA 20700 East Stroudsburg, PA

Hudspeth County TX 21340 El Paso, TX

Adams County PA 23900 Gettysburg, PA

Hall County NE 24260 Grand Island, NE

Hamilton County NE 24260 Grand Island, NE

Howard County NE 24260 Grand Island, NE

Merrick County NE 24260 Grand Island, NE

Montcalm County MI 24340 Grand Rapids-Wyoming, MI

Josephine County OR 24420 Grants Pass, OR

Tangipahoa Parish LA 25220 Hammond, LA
County State

New 

CBSA Urban Area (Constituent Counties)

Beaufort County SC 25940 Hilton Head Island-Bluffton-Beaufort, SC

Jasper County SC 25940 Hilton Head Island-Bluffton-Beaufort, SC

Citrus County FL 26140 Homosassa Springs, FL

Butte County ID 26820 Idaho Falls, ID

Yazoo County MS 27140 Jackson, MS

Crockett County TN 27180 Jackson, TN

Kalawao County HI 27980 Kahului-Wailuku-Lahaina, HI

Maui County HI 27980 Kahului-Wailuku-Lahaina, HI

Campbell County TN 28940 Knoxville, TN

Morgan County TN 28940 Knoxville, TN

Roane County TN 28940 Knoxville, TN

Acadia Parish LA 29180 Lafayette, LA

Iberia Parish LA 29180 Lafayette, LA

Vermilion Parish LA 29180 Lafayette, LA

Cotton County OK 30020 Lawton, OK

Scott County IN 31140 Louisville/Jefferson County, KY-IN

Lynn County TX 31180 Lubbock, TX

Green County WI 31540 Madison, WI

Benton County MS 32820 Memphis, TN-MS-AR

Midland County MI 33220 Midland, MI

Martin County TX 33260 Midland, TX

Le Sueur County MN 33460 Minneapolis-St. Paul-Bloomington, MN-WI

Mille Lacs County MN 33460 Minneapolis-St. Paul-Bloomington, MN-WI

Sibley County MN 33460 Minneapolis-St. Paul-Bloomington, MN-WI
County State

New 

CBSA Urban Area (Constituent Counties)

Maury County TN 34980

Nashville-Davidson—Murfreesboro—Franklin, 

TN

Craven County NC 35100 New Bern, NC

Jones County NC 35100 New Bern, NC

Pamlico County NC 35100 New Bern, NC

St. James Parish LA 35380 New Orleans-Metairie, LA

Box Elder County UT 36260 Ogden-Clearfield, UT

Gulf County FL 37460 Panama City, FL

Custer County SD 39660 Rapid City, SD

Fillmore County MN 40340 Rochester, MN

Yates County NY 40380 Rochester, NY

Sussex County DE 41540 Salisbury, MD-DE

Worcester County MA 41540 Salisbury, MD-DE

Highlands County FL 42700 Sebring, FL

Webster Parish LA 43340 Shreveport-Bossier City, LA

Cochise County AZ 43420 Sierra Vista-Douglas, AZ

Plymouth County IA 43580 Sioux City, IA-NE-SD

Union County SC 43900 Spartanburg, SC

Pend Oreille County WA 44060 Spokane-Spokane Valley, WA

Stevens County WA 44060 Spokane-Spokane Valley, WA

Augusta County VA 44420 Staunton-Waynesboro, VA

Staunton City VA 44420 Staunton-Waynesboro, VA

Waynesboro City VA 44420 Staunton-Waynesboro, VA

Little River County AR 45500 Texarkana, TX-AR
County State

New 

CBSA Urban Area (Constituent Counties)

Sumter County FL 45540 The Villages, FL

Pickens County AL 46220 Tuscaloosa, AL

Gates County NC 47260 Virginia Beach-Norfolk-Newport News, VA-NC

Falls County TX 47380 Waco, TX

Columbia County WA 47460 Walla Walla, WA

Walla Walla County WA 47460 Walla Walla, WA

Peach County GA 47580 Warner Robins, GA

Pulaski County GA 47580 Warner Robins, GA

Culpeper County VA 47894

Washington-Arlington-Alexandria, DC-VA-MDWV

Rappahannock County VA 47894

Washington-Arlington-Alexandria, DC-VA-MDWV

Jefferson County NY 48060 Watertown-Fort Drum, NY

Kingman County KS 48620 Wichita, KS

Davidson County NC 49180 Winston-Salem, NC

Windham County CT 49340 Worcester, MA-CT

We are proposing that when calculating the area wage index, the wage data for hospitals located 

in these counties would be included in their new respective urban CBSAs.

d. Urban Counties Moving to a Different Urban CBSA

In addition to rural counties becoming urban and urban counties becoming rural, several 

urban counties would shift from one urban CBSA to another urban CBSA under our proposal to 

adopt the new OMB delineations. In other cases, applying the new OMB delineations would 
involve a change only in CBSA name or number, while the CBSA continues to encompass the 

same constituent counties. For example, CBSA 29140 (Lafayette, IN), would experience both a 

change to its number and its name, and would become CBSA 29200 (Lafayette-West Lafayette, 

IN), while all of its three constituent counties would remain the same. We are not discussing 

these proposed changes in this section because they are inconsequential changes to the IRF PPS 

wage index. However, in other cases, if we adopt the new OMB delineations, counties would 

shift between existing and new CBSAs, changing the constituent makeup of the CBSAs. 

In one type of change, an entire CBSA would be subsumed by another CBSA. For 

example, CBSA 37380 (Palm Coast, FL) currently is a single county (Flagler, FL) CBSA. 

Flagler County would be a part of CBSA 19660 (Deltona-Daytona Beach-Ormond Beach, FL) 

under the new OMB delineations. 

In another type of change, some CBSAs have counties that would split off to become part 

of, or to form, entirely new labor market areas. For example, CBSA 37964 (Philadelphia 

Metropolitan Division of MSA 37980) currently is comprised of five Pennsylvania counties 

(Bucks, Chester, Delaware, Montgomery, and Philadelphia). Under the new OMB delineations, 

Montgomery, Bucks, and Chester counties would split off and form the new CBSA 33874 

(Montgomery County-Bucks County-Chester County, PA Metropolitan Division of MSA 

37980), while Delaware and Philadelphia counties would remain in CBSA 37964. 

Finally, in some cases, a CBSA would lose counties to another existing CBSA if we 

adopt the new OMB delineations. For example, Lincoln County and Putnam County, WV,

would move from CBSA 16620 (Charleston, WV) to CBSA 26580 (Huntington-Ashland, 

WV-KY-OH). CBSA 16620 would still exist in the new labor market delineations with fewer 
constituent counties. Table 14 lists the urban counties that would move from one urban CBSA to 

another urban CBSA under the new OMB delineations.

TABLE 14: Counties That Would Change to a Different CBSA

Prior CBSA New CBSA County State

11300 26900 Madison County IN

11340 24860 Anderson County SC

14060 14010 McLean County IL

37764 15764 Essex County MA

16620 26580 Lincoln County WV

16620 26580 Putnam County WV

16974 20994 DeKalb County IL

16974 20994 Kane County IL

21940 41980 Ceiba Municipio PR

21940 41980 Fajardo Municipio PR

21940 41980 Luquillo Municipio PR

26100 24340 Ottawa County MI

31140 21060 Meade County KY

34100 28940 Grainger County TN

35644 35614 Bergen County NJ

35644 35614 Hudson County NJ

20764 35614 Middlesex County NJ

20764 35614 Monmouth County NJ

20764 35614 Ocean County NJ

35644 35614 Passaic County NJ
Prior CBSA New CBSA County State

20764 35084 Somerset County NJ

35644 35614 Bronx County NY

35644 35614 Kings County NY

35644 35614 New York County NY

35644 20524 Putnam County NY

35644 35614 Queens County NY

35644 35614 Richmond County NY

35644 35614 Rockland County NY

35644 35614 Westchester County NY

37380 19660 Flagler County FL

37700 25060 Jackson County MS

37964 33874 Bucks County PA

37964 33874 Chester County PA

37964 33874 Montgomery County PA

39100 20524 Dutchess County NY

39100 35614 Orange County NY

41884 42034 Marin County CA

41980 11640 Arecibo Municipio PR

41980 11640 Camuy Municipio PR

41980 11640 Hatillo Municipio PR

41980 11640 Quebradillas Municipio PR

48900 34820 Brunswick County NC

49500 38660 Guánica Municipio PR

49500 38660 Guayanilla Municipio PR
Prior CBSA New CBSA County State

49500 38660 Peñuelas Municipio PR

49500 38660 Yauco Municipio PR

If providers located in these counties move from one CBSA to another under the new 

OMB delineations, there may be impacts, both negative and positive, upon their specific wage 

index values. As discussed below, we propose to implement a transition wage index to adjust for 

these possible impacts.

4. Transition Period

Overall, we believe implementing the new OMB delineations would result in wage index 

values being more representative of the actual costs of labor in a given area. Further, we 

recognize that some providers (10 percent) would have a higher wage index due to our proposed 

implementation of the new labor market area delineations. However, we also recognize that more 

providers (16 percent) would experience decreases in wage index values as a result of our 

proposed implementation of the new labor market area delineations. In prior years, we have 

provided for transition periods when adopting changes that have significant payment 

implications, particularly large negative impacts. As discussed in the FY 2006 IRF PPS final rule 

(70 FR 47921 through 47926), we evaluated several options to ease the transition to the new 

CBSA system. 

In implementing the new CBSA delineations for FY 2016, we continue to have similar 

concerns as those expressed in the FY 2006 IRF PPS final rule. While we believe that 

implementing the latest OMB labor market area delineations would create a more accurate wage 

index system, we recognize that IRFs may experience decreases in their wage index as a result of 

the labor market area changes. Our analysis for the FY 2016 IRF PPS proposed rule indicates 
that a majority of IRFs either expect no change in the wage index or an increase in the wage 

index based on the new CBSA delineations. However, we found that 188 facilities will 

experience a decline in their wage index with 29 facilities experiencing a decline of 5 percent or 

more based on the CBSA changes. Therefore, we believe it would be appropriate to consider, as 

we did in FY 2006, whether or not a transition period should be used to implement these 

proposed changes to the wage index. 

We considered having no transition period and fully implementing the proposed new 

OMB delineations beginning in FY 2016. This would mean that we would adopt the revised 

OMB delineations for all IRF providers on October 1, 2015. However, this would not provide 

any time for IRF providers to adapt to the new OMB delineations. As previously discussed, 

more IRFs would experience a decrease in wage index due to implementation of the proposed 

new OMB delineations than would experience an increase. Thus, we believe that it would be 

appropriate to provide for a transition period to mitigate the resulting short-term instability and 

negative impacts on these IRF providers, and to provide time for these IRFs to adjust to their 

new labor market area delineations.

Furthermore, in light of the comments received during the FY 2006 rulemaking cycle on 

our proposal in the FY 2006 IRF PPS proposed rule (70 FR 30238 through 30240) to adopt the 

new CBSA definitions without a transition period, we continue to believe that a transition period 

is appropriate. Therefore, we propose a similar transition methodology to that used in FY 2006. 

Specifically, for the FY 2016 IRF PPS, we are proposing to implement a budget-neutral one-year 

transition policy. We are proposing that all IRF providers would receive a one-year blended 

wage index using 50 percent of their FY 2016 wage index based on the proposed new OMB 

delineations and 50 percent of their FY 2016 wage index based on the OMB delineations used in 
FY 2015. We are proposing to apply this one-year blended wage index in FY 2016 for all 

geographic areas to assist providers in adapting to these proposed changes. We believe a oneyear, 50/50 blend would mitigate the short-term instability and negative payment impacts due to 

the proposed implementation of the new OMB delineations. This transition policy would be for 

a one-year period, going into effect October 1, 2016, and continuing through September 30, 

2017.

For FY 2006 it was determined that the transition to the current wage index system would 

have significant negative impacts upon IRFs that were originally considered rural, but would be 

considered urban under the new definitions. To alleviate the potentially decreased payments 

associated with switching from rural status to urban status in calculating the IRF area wage index 

for FY 2006, we implemented a 3-year budget-neutral phase-out of the rural adjustment for 

FY 2005 rural IRFs that became urban IRFs in FY 2006 and that experienced a loss in payment 

because of this redesignation. The 3-year transition period was afforded to these facilities 

because, as a group, they experienced a significant reduction in payments due to the labor market 

revisions and the loss of the rural adjustment. This adjustment was in addition to a one-year 

blended wage index (comprised of a 50/50 blend of the FY 2006 MSA-based wage index and the 

FY 2006 CBSA-based wage index) for all IRFs.

Our analysis for the FY 2016 proposed rule indicates that 22 IRFs will experience a 

change in either rural or urban designations. Of these, 19 facilities designated as rural in FY 2015 

would be designated as urban in FY 2016. While 16 of these rural IRFs that would be designated 

as urban under the new CBSA delineations will experience an increase in their wage index, these 

IRFs will lose the 14.9 percent rural adjustment. In many cases, this loss exceeds the urban 

CBSA based increase in the wage index. Consistent with the transition policy adopted in 
FY 2006 (70 FR 47923 through 47927), we considered the appropriateness of applying a 3-year 

phase-out of the rural adjustment for IRFs located in rural counties that would become urban

under the new OMB delineations, given the potentially significant payment impacts for these

facilities. We continue to believe, as discussed in the FY 2006 IRF final rule (70 FR 47880), that 

the phase-out of the rural adjustment transition period for these facilities specifically is 

appropriate because, as a group, we expect these IRFs would experience a steeper and more 

abrupt reduction in their payments compared to other IRFs.

Therefore, in addition to the 1-year transition policy noted, we are proposing a budgetneutral three-year phase-out of the rural adjustment for existing FY 2015 rural IRFs that will 

become urban in FY 2016 and that experience a loss in payments due to changes from the new 

CBSA delineations. Accordingly, the incremental steps needed to reduce the impact of the loss 

of the FY 2015 rural adjustment of 14.9 percent will be phased out over FYs 2016, 2017 and 

2018. This policy will allow rural IRFs which would be classified as urban in FY 2016 to 

receive two-thirds of the 2015 rural adjustment for FY 2016, as well as the blended wage index. 

For FY 2017, these IRFs will receive the full FY 2017 wage index and one-third of the FY 2015 

rural adjustment. For FY 2018, these IRFs will receive the full FY 2018 wage index without a 

rural adjustment. We believe a three-year budget-neutral phase-out of the rural adjustment for 

IRFs that transition from rural to urban status under the new CBSA delineations would best 

accomplish the goals of mitigating the loss of the rural adjustment for existing FY 2015 rural 

IRFs. The purpose of the gradual phase-out of the rural adjustment for these facilities is to 

alleviate the significant payment implications for existing rural IRFs that may need time to adjust 

to the loss of their FY 2015 rural payment adjustment or that experience a reduction in payments 

solely because of this redesignation. As stated, this policy is specifically for rural IRFs that 
become urban in FY 2016 and that experience a loss in payments due to changes from the new 

CBSA delineations. Thus we are not implementing a transition policy for urban facilities that 

become rural in FY 2016 because these IRFs will receive the full rural adjustment of 

14.9 percent beginning October 1, 2015.

For the reasons discussed and based on similar concerns to those we expressed during the 

FY 2006 rulemaking cycle to the proposed adoption of the new CBSA definitions, we are 

proposing to implement a three-year budget-neutral phase-out of the rural adjustment for the 

group of IRFs that during FY 2015 were designated as rural and for FY 2016 are designated as 

urban under the new CBSA system. This is in addition to implementing a one-year blended 

wage index for all IRFs. We considered having no transition, but found that a multi-year 

transition policy would best provide a sufficient buffer for rural IRFs that may experience a 

reduction in payments due to being designated as urban. We believe that the incremental 

reduction of the FY 2015 rural adjustment is appropriate to mitigate a significant reduction in per

case-payment. Alternative timeframes we considered for phasing out the rural adjustment for 

IRFs which would transition from rural to urban status in FY 2016, but we believe that a threeyear budget-neutral phase-out of the rural adjustment would appropriately mitigate the adverse 

payment impacts for these IRFs while also ensuring that payment rates for these facilities are set 

accurately and appropriately. We invite public comment on the proposed policies to adopt the 

new OMB delineations.

The proposed wage index applicable to FY 2016 is set forth in Table A available on the 

CMS website at http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/InpatientRehabFacPPS/Data-Files.html. Table A provides a crosswalk between the 

FY 2015 wage index for a provider using the current OMB delineations in effect in FY 2015 and 
the FY 2016 wage index using the proposed revised OMB delineations, as well as the proposed 

transition wage index values for FY 2016.

To calculate the wage-adjusted facility payment for the payment rates set forth in this 

proposed rule, we multiply the unadjusted federal payment rate for IRFs by the FY 2016 laborrelated share based on the proposed 2012-based IRF market basket (69.6 percent) to determine 

the labor-related portion of the standard payment amount. We then multiply the labor-related 

portion by the applicable IRF wage index from the tables in the addendum to this proposed rule. 

This table is available through the Internet on the CMS website at

http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/DataFiles.html.. 

Adjustments or updates to the IRF wage index made under section 1886(j)(6) of the Act 

must be made in a budget-neutral manner. We calculate a budget-neutral wage adjustment factor 

as established in the FY 2004 IRF PPS final rule (68 FR 45689), codified at §412.624(e)(1), as 

described in the steps below. We use the listed steps to ensure that the FY 2016 IRF standard 

payment conversion factor reflects the update to the wage indexes (based on the FY 2011

hospital cost report data) and the labor-related share in a budget-neutral manner:

Step 1. Determine the total amount of the estimated FY 2015 IRF PPS rates, using the 

FY 2015 standard payment conversion factor and the labor-related share and the wage indexes 

from FY 2015 (as published in the FY 2015 IRF PPS final rule (79 FR 45871)).

Step 2. Calculate the total amount of estimated IRF PPS payments using the FY 2016 

standard payment conversion factor and the FY 2016 proposed labor-related share and CBSA 

urban and rural wage indexes.

Step 3. Divide the amount calculated in step 1 by the amount calculated in step 2. The 
resulting quotient is the FY 2016 budget-neutral wage adjustment factor of 1.0027.

Step 4. Apply the FY 2016 budget-neutral wage adjustment factor from step 3 to the 

FY 2015 IRF PPS standard payment conversion factor after the application of the adjusted 

proposed market basket update to determine the FY 2016 standard payment conversion factor.

We discuss the calculation of the standard payment conversion factor for FY 2016 in 

section V.G of this proposed rule.

We invite public comment on the proposed IRF wage adjustment for FY 2016.

G. Description of the Proposed IRF Standard Payment Conversion Factor and Payment 

Rates for FY 2016

To calculate the proposed standard payment conversion factor for FY 2016, as illustrated 

in Table 15, we begin by applying the proposed adjusted market basket increase factor for 

FY 2016 that was adjusted in accordance with sections 1886(j)(3)(C) and (D) of the Act, to the 

standard payment conversion factor for FY 2015 ($15,198). Applying the proposed 1.9 percent 

adjusted market basket increase for FY 2016 to the standard payment conversion factor for FY 

2015 of $15,198 yields a standard payment amount of $15,487. Then, we apply the proposed 

budget neutrality factor for the FY 2016 wage index and labor-related share of 1.0027, which 

results in a proposed standard payment amount of $15,529. We next apply the proposed budget 

neutrality factors for the revised CMG relative weights of 1.0000, which results in the proposed 

standard payment conversion factor of $15,529 for FY 2016.

TABLE 15: Calculations to Determine the Proposed FY 2016 Standard Payment 

Conversion Factor

Explanation for Adjustment Calculations

Standard Payment Conversion Factor for FY 2015 $15,198

Market Basket Increase Factor for FY 2016 (2.7 percent), reduced by 

0.6 percentage point for the productivity adjustment as required by section 

1886(j)(3)(C)(ii)(I) of the Act, and reduced by 0.2 percentage point in 

accordance with paragraphs 1886(j)(3)(C) and (D) of the Act x 1.019
Explanation for Adjustment Calculations

Budget Neutrality Factor for the Wage Index and Labor-Related Share x 1.0027

Budget Neutrality Factor for the Revisions to the CMG Relative Weights x 1.0000

Proposed FY 2016 Standard Payment Conversion Factor = 15,529

We invite public comment on the proposed FY 2016 standard payment conversion factor.

After the application of the proposed CMG relative weights described in section III of 

this proposed rule, to the proposed FY 2016 standard payment conversion factor ($15,529), the 

resulting proposed unadjusted IRF prospective payment rates for FY 2016 are shown in 

Table 16.

TABLE 16: Proposed FY 2016 Payment Rates

CMG Payment Rate 

Tier 1

Payment Rate 

Tier 2 

Payment Rate 

Tier 3

Payment Rate No 

Comorbidity

0101 $ 12,538.11 $ 10,982.11 $ 10,225.85 $ 9,783.27 

0102 $ 15,859.77 $ 13,892.24 $ 12,934.10 $ 12,373.51 

0103 $ 17,712.38 $ 15,515.02 $ 14,445.08 $ 13,819.26 

0104 $ 19,228.01 $ 16,842.75 $ 15,681.18 $ 15,002.57 

0105 $ 22,548.11 $ 19,749.78 $ 18,387.89 $ 17,592.80 

0106 $ 25,141.45 $ 22,021.67 $ 20,504.49 $ 19,616.23 

0107 $ 28,129.23 $ 24,639.86 $ 22,940.99 $ 21,947.14 

0108 $ 35,693.41 $ 31,264.54 $ 29,109.11 $ 27,848.16 

0109 $ 32,590.71 $ 28,546.96 $ 26,577.88 $ 25,427.18 

0110 $ 42,816.56 $ 37,504.09 $ 34,918.51 $ 33,405.98 

0201 $ 12,682.53 $ 10,421.51 $ 9,404.36 $ 8,884.14 

0202 $ 16,426.58 $ 13,497.81 $ 12,180.95 $ 11,506.99 

0203 $ 18,721.76 $ 15,383.03 $ 13,881.37 $ 13,114.24 

0204 $ 20,616.30 $ 16,940.59 $ 15,286.75 $ 14,441.97 

0205 $ 24,622.78 $ 20,231.18 $ 18,257.45 $ 17,248.06 

0206 $ 29,498.89 $ 24,239.22 $ 21,874.15 $ 20,662.89 

0207 $ 39,209.17 $ 32,216.46 $ 29,073.39 $ 27,466.14 

0301 $ 17,299.31 $ 14,440.42 $ 13,243.13 $ 12,357.98 

0302 $ 21,616.37 $ 18,044.70 $ 16,547.70 $ 15,440.48 

0303 $ 25,121.26 $ 20,970.36 $ 19,231.11 $ 17,945.31 

0304 $ 33,356.29 $ 27,843.50 $ 25,534.33 $ 23,827.70 

0401 $ 15,469.99 $ 13,167.04 $ 12,056.72 $ 11,145.16 
CMG Payment Rate 

Tier 1

Payment Rate 

Tier 2 

Payment Rate 

Tier 3

Payment Rate No 

Comorbidity

0402 $ 22,214.23 $ 18,906.56 $ 17,313.28 $ 16,004.19 

0403 $ 35,511.72 $ 30,224.09 $ 27,677.34 $ 25,584.03 

0404 $ 59,966.79 $ 51,036.06 $ 46,736.08 $ 43,201.68 

0405 $ 53,172.85 $ 45,254.61 $ 41,442.24 $ 38,306.94 

0501 $ 13,465.20 $ 10,730.54 $ 9,963.41 $ 9,146.58 

0502 $ 17,729.46 $ 14,128.28 $ 13,118.90 $ 12,041.19 

0503 $ 22,406.79 $ 17,856.80 $ 16,578.76 $ 15,218.42 

0504 $ 25,785.90 $ 20,547.97 $ 19,078.93 $ 17,513.61 

0505 $ 30,179.06 $ 24,049.76 $ 22,329.15 $ 20,498.28 

0506 $ 42,192.29 $ 33,623.39 $ 31,219.50 $ 28,657.22 

0601 $ 16,131.53 $ 12,729.12 $ 11,878.13 $ 10,732.09 

0602 $ 20,721.90 $ 16,350.48 $ 15,257.24 $ 13,786.65 

0603 $ 25,731.55 $ 20,302.61 $ 18,946.93 $ 17,119.17 

0604 $ 33,808.19 $ 26,675.72 $ 24,894.54 $ 22,493.76 

0701 $ 15,005.67 $ 12,564.51 $ 11,899.87 $ 10,809.74 

0702 $ 19,476.47 $ 16,308.56 $ 15,446.70 $ 14,030.45 

0703 $ 23,318.35 $ 19,526.16 $ 18,493.49 $ 16,797.72 

0704 $ 30,337.45 $ 25,403.89 $ 24,060.63 $ 21,853.96 

0801 $ 12,458.92 $ 9,812.78 $ 8,902.78 $ 8,222.61 

0802 $ 16,428.13 $ 12,938.76 $ 11,739.92 $ 10,840.79 

0803 $ 22,135.04 $ 17,434.41 $ 15,817.84 $ 14,608.13 

0804 $ 19,794.82 $ 15,591.12 $ 14,145.37 $ 13,062.99 

0805 $ 23,871.18 $ 18,800.96 $ 17,058.61 $ 15,754.17 

0806 $ 29,700.77 $ 23,392.89 $ 21,225.04 $ 19,600.70 

0901 $ 14,827.09 $ 11,924.72 $ 10,929.31 $ 9,963.41 

0902 $ 19,752.89 $ 15,887.72 $ 14,561.54 $ 13,272.64 

0903 $ 24,647.63 $ 19,825.87 $ 18,170.48 $ 16,563.23 

0904 $ 31,152.73 $ 25,057.59 $ 22,965.84 $ 20,934.64 

1001 $ 16,749.58 $ 14,684.22 $ 13,075.42 $ 11,798.93 

1002 $ 20,774.70 $ 18,212.41 $ 16,216.93 $ 14,632.98 

1003 $ 29,818.79 $ 26,143.07 $ 23,277.97 $ 21,004.53 

1101 $ 21,021.61 $ 21,021.61 $ 16,698.33 $ 15,690.50 

1102 $ 27,550.00 $ 27,550.00 $ 21,885.02 $ 20,563.50 

1201 $ 15,261.90 $ 14,817.77 $ 13,493.15 $ 12,587.81 

1202 $ 18,591.32 $ 18,050.91 $ 16,437.45 $ 15,334.89 

1203 $ 23,080.75 $ 22,409.90 $ 20,405.11 $ 19,037.00 

1301 $ 18,075.76 $ 14,893.86 $ 14,044.43 $ 12,823.85 
CMG Payment Rate 

Tier 1

Payment Rate 

Tier 2 

Payment Rate 

Tier 3

Payment Rate No 

Comorbidity

1302 $ 23,001.55 $ 18,953.14 $ 17,872.33 $ 16,319.43 

1303 $ 30,609.21 $ 25,220.65 $ 23,781.11 $ 21,715.75 

1401 $ 14,084.80 $ 11,575.32 $ 10,468.10 $ 9,419.89 

1402 $ 18,692.26 $ 15,362.84 $ 13,892.24 $ 12,500.85 

1403 $ 22,531.03 $ 18,516.78 $ 16,744.92 $ 15,067.79 

1404 $ 28,495.72 $ 23,419.28 $ 21,176.90 $ 19,055.64 

1501 $ 16,317.87 $ 13,145.30 $ 12,103.30 $ 11,645.20 

1502 $ 20,712.58 $ 16,685.91 $ 15,362.84 $ 14,782.06 

1503 $ 25,129.03 $ 20,243.60 $ 18,637.91 $ 17,934.44 

1504 $ 31,255.22 $ 25,180.27 $ 23,181.69 $ 22,305.86 

1601 $ 17,715.48 $ 13,025.73 $ 12,795.90 $ 11,766.32 

1602 $ 23,040.38 $ 16,940.59 $ 16,643.98 $ 15,302.28 

1603 $ 29,762.88 $ 21,885.02 $ 21,499.90 $ 19,768.42 

1701 $ 16,676.59 $ 14,145.37 $ 12,907.70 $ 12,013.23 

1702 $ 21,563.57 $ 18,291.61 $ 16,690.57 $ 15,532.11 

1703 $ 24,675.58 $ 20,931.54 $ 19,099.12 $ 17,774.49 

1704 $ 32,446.29 $ 27,523.60 $ 25,113.50 $ 23,372.70 

1801 $ 19,765.31 $ 14,974.61 $ 13,682.60 $ 12,174.74 

1802 $ 29,000.41 $ 21,970.43 $ 20,075.89 $ 17,863.01 

1803 $ 46,979.88 $ 35,592.47 $ 32,520.83 $ 28,938.29 

1901 $ 17,859.90 $ 15,527.45 $ 15,100.40 $ 13,201.20 

1902 $ 34,892.11 $ 30,334.35 $ 29,500.44 $ 25,792.12 

1903 $ 55,992.92 $ 48,678.76 $ 47,340.16 $ 41,387.89 

2001 $ 14,410.91 $ 11,842.42 $ 10,923.10 $ 9,887.31 

2002 $ 18,637.91 $ 15,316.25 $ 14,126.73 $ 12,788.13 

2003 $ 23,200.33 $ 19,064.95 $ 17,585.04 $ 15,917.23 

2004 $ 29,882.45 $ 24,556.01 $ 22,650.60 $ 20,502.94 

2101 $ 26,278.17 $ 26,278.17 $ 20,397.34 $ 19,787.05 

5001 $ - $ - $ - $ 2,425.63 

5101 $ - $ - $ - $ 11,187.09 

5102 $ - $ - $ - $ 26,340.29 

5103 $ - $ - $ - $ 12,311.39 

5104 $ - $ - $ - $ 29,533.05 
H. Example of the Methodology for Adjusting the Proposed Federal Prospective Payment 

Rates

Table 17 illustrates the methodology for adjusting the proposed federal prospective 

payments (as described in sections V.A. through V.F. of this proposed rule). The following 

examples are based on two hypothetical Medicare beneficiaries, both classified into CMG 0110 

(without comorbidities). The proposed unadjusted federal prospective payment rate for 

CMG 0110 (without comorbidities) appears in Table 16.

Example: One beneficiary is in Facility A, an IRF located in rural Spencer County, 

Indiana, and another beneficiary is in Facility B, an IRF located in urban Harrison County, 

Indiana. Facility A, a rural non-teaching hospital has a Disproportionate Share Hospital (DSH) 

percentage of 5 percent (which would result in a LIP adjustment of 1.0156), a wage index of 

0.8416, and a rural adjustment of 14.9 percent. Facility B, an urban teaching hospital, has a DSH 

percentage of 15 percent (which would result in a LIP adjustment of 1.0454 percent), a wage 

index of 0.8599, and a teaching status adjustment of 0.0784.

To calculate each IRF’s labor and non-labor portion of the federal prospective payment, 

we begin by taking the unadjusted federal prospective payment rate for CMG 0110 (without 

comorbidities) from Table 16. Then, we multiply the labor-related share for FY 2016

(69.6 percent) described in section V.D. of this proposed rule by the proposed unadjusted federal 

prospective payment rate. To determine the non-labor portion of the proposed federal 

prospective payment rate, we subtract the labor portion of the proposed federal payment from the 

proposed unadjusted federal prospective payment.

To compute the proposed wage-adjusted federal prospective payment, we multiply the 
labor portion of the proposed federal payment by the appropriate proposed transition wage index, 

which may be found in Table A. This table is available through the Internet on the CMS website 

at http://www.cms.hhs.gov/Medicare/Medicare-Fee-for-ServicePayment/InpatientRehabFacPPS/. The resulting figure is the wage-adjusted labor amount. Next, 

we compute the proposed wage-adjusted federal payment by adding the wage-adjusted labor 

amount to the non-labor portion.

Adjusting the proposed wage-adjusted federal payment by the facility-level adjustments 

involves several steps. First, we take the wage-adjusted federal prospective payment and 

multiply it by the appropriate rural and LIP adjustments (if applicable). Second, to determine the 

appropriate amount of additional payment for the teaching status adjustment (if applicable), we

multiply the teaching status adjustment (0.0784, in this example) by the wage-adjusted and ruraladjusted amount (if applicable). Finally, we add the additional teaching status payments (if 

applicable) to the wage, rural, and LIP-adjusted federal prospective payment rates. Table 17

illustrates the components of the adjusted payment calculation.

TABLE 17: Example of Computing the IRF FY 2016 Federal Prospective Payment

Steps Rural Facility A (Spencer Co., 

IN)

Urban Facility B 

(Harrison Co., IN)

1

Unadjusted Federal Prospective 

Payment $ 33,405.98 

$ 

33,405.98 

2 Labor Share X 0.696 X 0.696

3

Labor Portion of Federal Payment

= $23,250.56 = $23,250.56 

4

CBSA-Based Wage Index (shown 

in the Addendum, Tables 1 and 2)

X 0.8416 X 0.8599

5 Wage-Adjusted Amount = $19,567.67 = $19,993.16 

6 Non-Labor Amount + $ 10,155.42 + $10,155.42 

7 Wage-Adjusted Federal Payment = $29,723.09 = $30,148.58 

8 Rural Adjustment X 1.149 X 1.000

9

Wage- and Rural-Adjusted Federal 

Payment = $34,151.83 = $30,148.58 
Steps Rural Facility A (Spencer Co., 

IN)

Urban Facility B 

(Harrison Co., IN)

10 LIP Adjustment X 1.0156 X 1.0454

11

FY 2016 Wage-, Rural- and LIPAdjusted Federal Prospective 

Payment Rate

= $34,684.60 = $31,517.33 

12

FY 2016 Wage- and RuralAdjusted Federal Prospective 

Payment $34,151.83 $30,148.58 

13 Teaching Status Adjustment X 0 X 0.0784

14

Teaching Status Adjustment 

Amount = $0.00 = $2,363.65 

15

FY 2016 Wage-, Rural-, and LIPAdjusted Federal Prospective 

Payment Rate + $34,684.60 + $31,517.33 

16

Total FY 2016 Adjusted Federal 

Prospective Payment = $34,684.60 = $33,880.97 

Thus, the proposed adjusted payment for Facility A would be $34,684.60, and the 

proposed adjusted payment for Facility B would be $33,880.97.

VI. Proposed Update to Payments for High-Cost Outliers under the IRF PPS

A. Proposed Update to the Outlier Threshold Amount for FY 2016

Section 1886(j)(4) of the Act provides the Secretary with the authority to make payments 

in addition to the basic IRF prospective payments for cases incurring extraordinarily high costs. 

A case qualifies for an outlier payment if the estimated cost of the case exceeds the adjusted 

outlier threshold. We calculate the adjusted outlier threshold by adding the IRF PPS payment for 

the case (that is, the CMG payment adjusted by all of the relevant facility-level adjustments) and 

the adjusted threshold amount (also adjusted by all of the relevant facility-level adjustments). 

Then, we calculate the estimated cost of a case by multiplying the IRF’s overall CCR by the 

Medicare allowable covered charge. If the estimated cost of the case is higher than the adjusted 

outlier threshold, we make an outlier payment for the case equal to 80 percent of the difference 

between the estimated cost of the case and the outlier threshold.
In the FY 2002 IRF PPS final rule (66 FR 41362 through 41363), we discussed our 

rationale for setting the outlier threshold amount for the IRF PPS so that estimated outlier 

payments would equal 3 percent of total estimated payments. For the 2002 IRF PPS final rule, 

we analyzed various outlier policies using 3, 4, and 5 percent of the total estimated payments, 

and we concluded that an outlier policy set at 3 percent of total estimated payments would 

optimize the extent to which we could reduce the financial risk to IRFs of caring for high-cost 

patients, while still providing for adequate payments for all other (non-high cost outlier) cases. 

Subsequently, we updated the IRF outlier threshold amount in the FYs 2006 through 

2015 IRF PPS final rules and the FY 2011 and FY 2013 notices (70 FR 47880, 71 FR 48354, 

72 FR 44284, 73 FR 46370, 74 FR 39762, 75 FR 42836, 76 FR 47836, 76 FR 59256, and 

77 FR 44618, 78 FR 47860, 79 FR 45872, respectively) to maintain estimated outlier payments 

at 3 percent of total estimated payments. We also stated in the FY 2009 final rule (73 FR 46370 

at 46385) that we would continue to analyze the estimated outlier payments for subsequent years 

and adjust the outlier threshold amount as appropriate to maintain the 3 percent target.

To update the IRF outlier threshold amount for FY 2016, we propose to use FY 2014

claims data and the same methodology that we used to set the initial outlier threshold amount in 

the FY 2002 IRF PPS final rule (66 FR 41316 and 41362 through 41363), which is also the same 

methodology that we used to update the outlier threshold amounts for FYs 2006 through 2015. 

Based on an analysis of this updated data, we estimate that IRF outlier payments as a percentage 

of total estimated payments are approximately 3.2 percent in FY 2015. Therefore, we propose to 

update the outlier threshold amount to $9,698 to maintain estimated outlier payments at 

approximately 3 percent of total estimated aggregate IRF payments for FY 2016.

We invite public comment on the proposed update to the FY 2016 outlier threshold 
amount to maintain estimated outlier payments at approximately 3 percent of total estimated IRF 

payments.

B. Proposed Update to the IRF Cost-to-Charge Ratio Ceiling and Urban/Rural Averages

In accordance with the methodology stated in the FY 2004 IRF PPS final rule 

(68 FR 45674, 45692 through 45694), we apply a ceiling to IRFs’ CCRs. Using the 

methodology described in that final rule, we propose to update the national urban and rural CCRs 

for IRFs, as well as the national CCR ceiling for FY 2016, based on analysis of the most recent 

data that is available. We apply the national urban and rural CCRs in the following situations:

● New IRFs that have not yet submitted their first Medicare cost report.

● IRFs whose overall CCR is in excess of the national CCR ceiling for FY 2016, as 

discussed below.

● Other IRFs for which accurate data to calculate an overall CCR are not available. 

Specifically, for FY 2016, we propose to estimate a national average CCR of 0.569 for 

rural IRFs, which we calculated by taking an average of the CCRs for all rural IRFs using their 

most recently submitted cost report data. Similarly, we propose to estimate a national average 

CCR of 0.437 for urban IRFs, which we calculated by taking an average of the CCRs for all 

urban IRFs using their most recently submitted cost report data. We apply weights to both of 

these averages using the IRFs’ estimated costs, meaning that the CCRs of IRFs with higher costs 

factor more heavily into the averages than the CCRs of IRFs with lower costs. For this proposed 

rule, we have used the most recent available cost report data (FY 2013). This includes all IRFs 

whose cost reporting periods begin on or after October 1, 2012, and before October 1, 2013. If, 

for any IRF, the FY 2013 cost report was missing or had an “as submitted” status, we used data 

from a previous fiscal year’s (that is, FY 2004 through FY 2012) settled cost report for that IRF. 
We do not use cost report data from before FY 2004 for any IRF because changes in IRF 

utilization since FY 2004 resulting from the 60 percent rule and IRF medical review activities 

suggest that these older data do not adequately reflect the current cost of care. 

In accordance with past practice, we propose to set the national CCR ceiling at 3 standard 

deviations above the mean CCR. Using this method, the proposed national CCR ceiling would 

be 1.36 for FY 2016. This means that, if an individual IRF’s CCR exceeds this proposed ceiling 

of 1.36 for FY 2016, we would replace the IRF’s CCR with the appropriate proposed national 

average CCR (either rural or urban, depending on the geographic location of the IRF). We 

calculated the proposed national CCR ceiling by:

Step 1. Taking the national average CCR (weighted by each IRF’s total costs, as 

previously discussed) of all IRFs for which we have sufficient cost report data (both rural and 

urban IRFs combined).

Step 2. Estimating the standard deviation of the national average CCR computed in 

step 1.

Step 3. Multiplying the standard deviation of the national average CCR computed in 

step 2 by a factor of 3 to compute a statistically significant reliable ceiling.

Step 4. Adding the result from step 3 to the national average CCR of all IRFs for which 

we have sufficient cost report data, from step 1.

The proposed national average rural and urban CCRs and the proposed national CCR 

ceiling in this section will be updated in the final rule if more recent data becomes available to 

use in these analyses.

We invite public comment on the proposed update to the IRF CCR ceiling and the 

urban/rural averages for FY 2016.
VII. ICD-10-CM Implementation for IRF PPS

In the FY 2015 IRF PPS final rule (79 FR 45872), we finalized conversions from the 

International Classification of Diseases, 9th Revision, Clinical Modification (ICD-9-CM) to the 

ICD-10-CM for the IRF PPS, which will be effective when ICD-10-CM becomes the required 

medical data code set for use on Medicare claims and IRF-PAI submissions. We remind 

providers of IRF services that the implementation date for ICD-10-CM is October 1, 2015. The 

ICD-10-CM lists are available for download from the CMS Web site at

http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/DataFiles.html. 

VIII. Revisions and Updates to the IRF QRP

A. Background and Statutory Authority

Section 3004(b) of the Affordable Care Act amended section 1886(j)(7) of the Act, 

requiring the Secretary to establish the IRF QRP. This program applies to freestanding IRFs, as 

well as IRF units affiliated with either acute care facilities or critical access hospitals (CAHs). 

Beginning with the FY 2014 payment determination and subsequent years, the Secretary is 

required to reduce any annual update to the standard federal rate for discharges occurring during 

such fiscal year by 2 percentage points for any IRF that does not comply with the requirements 

established by the Secretary. 

The Act requires that for the FY 2014 payment determination and subsequent years, each 

IRF submit data on quality measures specified by the Secretary in a form and manner, and at a 

time, specified by the Secretary. The Secretary is required to specify quality measures that are 

endorsed by the entity that holds the contract with the Secretary under section 1890(a) of the Act. 

This entity is currently the NQF. Information regarding the NQF is available at: 
http://www.qualityforum.org/Measuring_Performance/Measuring_Performance.aspx. The Act 

authorizes an exception under which the Secretary may specify non-endorsed quality measures 

for specified areas or medical topics determined appropriate by the Secretary for which a feasible 

or practical measure has not been endorsed by the NQF, as long as due consideration is given to 

NQF-endorsed measures or measures adopted by a consensus organization identified by the 

Secretary. 

Additionally, section 2(a) of the Improving Medicare Post-Acute Care Transformation 

Act of 2014 (IMPACT Act) (Pub. L. 113-185, enacted on Oct. 6, 2014), amended title XVIII of 

the Act by adding section 1899B, titled Standardized Post-Acute Care (PAC) Assessment Data 

for Quality, Payment and Discharge Planning. Section 1899B(c)(1) requires that the Secretary 

specify not later than the applicable specified application date, as defined in section 

1899B(a)(2)(E), quality measures on which IRF providers are required to submit standardized 

patient assessment data described in section 1899B(b)(1) and other necessary data specified by 

the Secretary. Section 1899B(c)(2)(A) requires, to the extent possible, the submission of the 

such quality measure data through the use of a PAC assessment instrument and the modification 

of such instrument as necessary to enable such use; for IRFs, this requirement refers to the IRFPAI. In addition, section 1899B(d)(1) requires that the Secretary specify not later than the 

applicable specified application date, resource use and other measures on which IRF providers 

are required to submit any necessary data specified by the Secretary, which may include 

standardized assessment data in addition to claims data. Furthermore, section 2(c)(2) of the

IMPACT Act amended section 1886(j)(7) of the Act by adding section 1886(j)(7)(F)(i), which 

requires IRF providers to submit to the Secretary data on the quality, resource use, and other 

measures required under sections 1899B(c)(1) and (d)(1) of the Act. Additionally, section 
1886(j)(7)(F)(ii) requires that, beginning in FY 2019 and for each subsequent year, providers 

submit standardized patient assessment data required under section 1899B(b)(1). Under section 

1886(j)(7)(F)(iii), the required data must be submitted in the form and manner, and at the time,

specified by the Secretary.

Section 1899B(c)(1) and (d)(1) of the Act direct CMS to specify measures that relate to at 

least five stated quality domains and three stated resource use and other measure domains. The 

quality measures specified under section 1899B(c)(1) must be with respect to at least the 

following domains:

● Functional status, cognitive function, and changes in function and cognitive function;

● Skin integrity and changes in skin integrity;

● Medication reconciliation;

● Incidence of major falls; and

● Accurately communicating the existence of and providing for the transfer of health 

information and care preferences of an individual to the individual, family caregiver of the 

individual, and providers of services furnishing items and services to the individual when the 

individual transitions (1) from a hospital or CAH to another applicable setting, including a PAC 

provider or the home of the individual, or (2) from a PAC provider to another applicable setting, 

including a different PAC provider, hospital, CAH, or the home of the individual.

The resource use and other measures specified under section 1899B(d)(1) must be with 

respect to at least the following domains:

● Resource use measures, including total estimated Medicare spending per beneficiary;

● Discharge to community; and
● Measures to reflect all-condition risk-adjusted potentially preventable hospital 

readmissions rates.

Sections 1899B(c) and (d) of the Act indicate that data satisfying the eight measure 

domains in the IMPACT Act is the minimum data reporting requirement. Therefore, we may 

specify additional measures and additional domains.

Section 1899B(e)(2)(A) of the Act requires that each measure specified by the Secretary 

under that section be endorsed by the entity that holds the contract with the Secretary under 

section 1890(a) of the Act. This entity is currently the NQF. Information regarding the NQF is 

available at: 

http://www.qualityforum.org/Measuring_Performance/Measuring_Performance.aspx. However, 

under section 1899B(e)(2)(B), the Secretary may specify a measure that has not been so 

endorsed in the case of a specified area of medical topic determined appropriate by the Secretary 

for which a feasible or practical measure has not been endorsed, as long as due consideration is 

given to measures that have been endorsed or adopted by a consensus organization identified by 

the Secretary.

Section 1899B(e)(3) of the Act mandates the use of the pre-rulemaking process of section 

1890A with respect to the measures specified under sections 1899B(c) and (d) and provides that 

the Secretary may use expedited procedures, such as ad-hoc reviews, as necessary in the case of 

a measure required with respect to data submissions during the 1-year period before the 

applicable specified application date. In addition, section 1899B(e)(3)(B)(ii) gives the Secretary 

the option to waive the pre-rulemaking process for a measure if the pre-rulemaking process 

(including through the use of expedited procedures) would result in the inability of the Secretary 

to satisfy any deadline specified in section 1899B with respect to the measure.
Section 1886(j)(7)(E) of the Act requires the Secretary to establish procedures for making 

data submitted under the IRF QRP available to the public, and section 1899B(g) requires public 

reporting of the performance of individual providers on the quality, resource use, and other 

measures beginning not later than 2 years after the applicable specified application date. The 

Secretary must ensure, including through a process consistent with the provisions of section 

1886(b)(3)(B)(viii)(VII), that each IRF is given the opportunity to review the data and 

information that is to be made public and to submit corrections prior to the publication or posting 

of this data. Public reporting of data and information under subsection (g)(1) must be consistent 

with the provisions of section 1886(j)(7)(E). In addition, section 1899B(f)(1), as added by the 

IMPACT Act, requires the Secretary to make confidential feedback reports available to postacute providers on their performance on the measures required under section 1899B(c)(1) and 

(d)(1), beginning 1 year after the applicable specified application date.

For more information on the statutory history of the IRF QRP, please refer to the 

FY 2015 IRF PPS final rule (79 FR 45908). More information on the IMPACT Act is available 

at https://www.govtrack.us/congress/bills/113/hr4994.

As previously stated, the IMPACT Act adds a new section 1899B to the Act that imposes 

new data reporting requirements for certain post-acute care (PAC) providers, including 

IRFs. Sections 1899B(c)(1) and 1899B(d)(1) of the Act collectively require that the Secretary 

specify quality measures and resource use and other measures with respect to certain domains 

not later than the specified application date that applies to each measure domain and PAC 

provider setting. Section 1899B(a)(2)(E) of the Act delineates the specified application dates for 

each measure domain and PAC provider. The IMPACT Act also amends various sections of the 

Act, including section 1886(j)(7), to require the Secretary to reduce the otherwise applicable PPS 
payment to a PAC provider that does not report the new data in a form and manner, and at a 

time, specified by the Secretary. For IRFs, amended section 1886(j)(7)(A)(i) would require the 

Secretary to reduce the payment update for any IRF that does not satisfactorily submit the new 

required data. 

Under the current IRF QRP, the general timeline and sequencing of measure 

implementation occurs as follows: specification of measures; proposal and finalization of 

measures through notice-and-comment rulemaking; IRF submission of data on the adopted 

measures; analysis and processing of the submitted data; notification to IRFs regarding their 

quality reporting compliance with respect to a particular FY; consideration of any 

reconsideration requests; and imposition of a payment reduction in a particular FY for failure to 

satisfactorily submit data with respect to that FY. Any payment reductions that are taken with 

respect to a FY begin approximately one year after the end of the data submission period for that 

fiscal year and approximately 2 years after we first adopt the measure. 

To the extent that the IMPACT Act could be interpreted to shorten this timeline so as to 

require us to reduce an IRF’s PPS payment for failure to satisfactorily submit data on a measure 

specified under section 1899B(c)(1) or (d)(1) of the Act beginning with the same FY as the 

specified application date for that measure, such a timeline would not be feasible. The current 

timeline discussed above reflects operational and other practical constraints, including the time 

needed to specify and adopt valid and reliable measures, collect the data, and determine whether 

an IRF has complied with our quality reporting requirements. It also takes into consideration our 

desire to give IRFs enough notice of new data reporting obligations so that they are prepared to 

timely start reporting the data. Therefore, we intend to follow the same timing and sequence of 

events for measures specified under section 1899B(c)(1) and (d)(1) of the Act that we currently 
follow for other measures specified under the IRF QRP. We intend to specify each of these 

measures no later than the specified application dates set forth in section 1899B(a)(2)(E) of the 

Act and propose to adopt them consistent with the requirements in the Act and Administrative 

Procedure Act. To the extent that we finalize a proposal to adopt a measure for the IRF QRP that 

satisfies an IMPACT Act measure domain, we intend to require IRFs to report data on the 

measure for the fiscal year that begins 2 years after the specified application date for that 

measure. Likewise, we intend to require IRFs to begin reporting any other data specifically 

required under the IMPACT Act for the FY that begins 2 years after we adopt requirements that 

would govern the submission of that data. 

B. General Considerations Used for Selection of Quality, Resource Use, and Other Measures

for the IRF QRP

We refer readers to the FY 2015 IRF PPS final rule (79 FR 45911) for a detailed 

discussion of the considerations we use for the selection of IRF QRP quality measures. In this 

proposed rule, we apply the same considerations to the selection of quality, resource use, and 

other measures required under section 1899B for the IRF QRP, in addition to the considerations 

discussed below.

The quality measures we are proposing address the measure domains that the Secretary is 

required to specify under sections 1899B(c)(1) and (d)(1) of the Act. The totality of the 

measures considered to meet the requirements of the IMPACT Act will evolve, and additional 

measures will be proposed over time as they become available.

To meet the first specified application date applicable to IRFs under section 

1899B(a)(2)(E) of the Act, which is October 1, 2016, we have focused on measures that:
● Correspond to a measure domain in sections 1899B(c)(1) or (d)(1) of the Act and are 

setting-agnostic: for example, falls with major injury and the incidence of pressure ulcers;

● Are currently adopted for 1 or more of our PAC quality reporting programs, are 

already either NQF-endorsed and in use or finalized for use, or already previewed by the 

Measure Applications Partnership (MAP) with support;

● Minimize added burden on IRFs;

● Minimize or avoid, to the extent feasible, revisions to the existing items in assessment 

tools currently in use (for example, the IRF-PAI); and

● Where possible, the avoidance duplication of existing assessment items. 

In our selection and specification of measures, we employ a transparent process in which 

we seek input from stakeholders and national experts and engage in a process that allows for prerulemaking input on each measure, as required by section 1890A of the Act. This process is 

based on a private-public partnership, and it occurs via the MAP. The MAP is composed of 

multi-stakeholder groups convened by the NQF, our current contractor under section 1890 of the 

Act, to provide input on the selection of quality and efficiency measures described in section 

1890(b)(7)(B). The NQF must convene these stakeholders and provide us with the stakeholders’

input on the selection of such measures. We, in turn, must take this input into consideration in 

selecting such measures. In addition, the Secretary must make available to the public by 

December 1 of each year a list of such measures that the Secretary is considering under Title 

XVIII of the Act.

As discussed in section VIII.A. of this proposed rule 1899B(e)(3) provides that the prerulemaking process required by section 1890A of the Act applies to the measures required under 
section 1899B, subject to certain exceptions for expedited procedures or, alternatively, waiver of 

section 1890A.

We initiated an ad hoc MAP process for the review of the quality measures under 

consideration for proposal, in preparation for adoption of those quality measures into the IRF 

QRP that are required by the IMPACT Act, and that must be implemented by October 1, 2016. 

The List of Measures under Consideration (MUC List) under the IMPACT Act was made public 

on February 5, 2015. Under the IMPACT Act, these measures must be standardized so they can 

be applied across PAC settings and must correspond to measure domains specified in sections 

1899B(c)(1) and (d)(1) of the IMPACT Act. The MAP reviewed each IMPACT Act-related 

quality measure proposed in this proposed rule for the IRF QRP, in light of its intended crosssetting use. We refer to sections VIII.F. and VIII.G. of this proposed rule for more information 

on the MAP’s recommendations. The MAP’s final report, MAP Off-Cycle Deliberations 2015: 

Measures under Consideration to Implement Provisions of the IMPACT Act: Final Report, is 

available at 

http://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx. 

As discussed in section VIII.A. of this proposed rule, section 1899B(j) of the Act, 

requires that we allow for stakeholder input, such as through town halls, open door forums, and 

mailbox submissions, before the initial rulemaking process to implement section 1899B. To 

meet this requirement, we provided the following opportunities for stakeholder input: our 

measure development contractor(s) convened a technical expert panel (TEP) that included 

stakeholder experts and patient representatives on February 3, 2015; we provided 2 separate 

listening sessions on February 10th and March 24, 2015; we sought public input during the 

February 9

th 2015 ad hoc MAP process provided for the sole purpose of reviewing the measures 
we are proposing in response to the IMPACT Act. Additionally, we implemented a public mail 

box for the submission of comments in January, 2015, PACQualityInitiative@cms.hhs.gov,

which is listed on our post-acute care quality initiatives website at

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-AcuteCare-Quality-Initiatives/IMPACT-Act-of-2014-and-Cross-Setting-Measures.html, and held a 

National Stakeholder Special Open Door Forum to seek input on the measures on 

February 25, 2015. The slides from the Special Open Door Forum are available at 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-AcuteCare-Quality-Initiatives/IMPACT-Act-of-2014-and-Cross-Setting-Measures.html. 

For measures that do not have NQF endorsement, or which are not fully supported by the 

MAP for the IRF QRP, we are proposing for the IRF QRP for the purposes of satisfying the 

measure domains required under the IMPACT Act that most closely align with the national 

priorities identified in the National Quality Strategy (http://www.ahrq.gov/workingforquality/) 

and for which the MAP supports the measure concept. Further discussion as to the importance 

and high-priority status of these measures in the IRF setting is included under each quality 

measure proposal in this proposed rule. In addition, for measures not endorsed by the NQF, we 

have sought, to the extent practicable, to adopt measures that have been endorsed or adopted by a 

national consensus organization, recommended by multi-stakeholder organizations, and/or 

developed with the input of providers, purchasers/payers, and other stakeholders.

C. Policy for Retention of IRF QRP Measures Adopted for Previous Payment 

Determinations

In the CY 2013 Hospital Outpatient Prospective Payment System/Ambulatory Surgical 

Center (OPPS/ASC) Payment Systems and Quality Reporting Programs final rule (77 FR 68500 
through 68507), we adopted a policy that would allow any quality measure adopted for use in the 

IRF QRP to remain in effect until the measure was actively removed, suspended, or replaced. 

For the purpose of streamlining the rulemaking process, when we initially adopt a measure for 

the IRF QRP for a payment determination, this measure will also be adopted for all subsequent 

years or until we propose to remove, suspend, or replace the measure. For further information on 

how measures are considered for removal, suspension, or replacement, please refer to the 

CY 2013 OPPS/ASC final rule (77 FR 68500 through 68507).

We are not proposing any changes to this policy for retaining IRF QRP measures adopted 

for previous payment determinations.

D. Policy for Adopting Changes to IRF QRP Measures

In the CY 2013 OPPS/ASC final rule (77 FR 68500 through 68507), we adopted a 

subregulatory process to incorporate NQF updates to IRF quality measure specifications that do 

not substantively change the nature of the measure. Substantive changes will be proposed and 

finalized through rulemaking. Regarding what constitutes a substantive versus a nonsubstantive 

change, we expect to make this determination on a measure-by-measure basis. Examples of such 

nonsubstantive changes might include updated diagnosis or procedure codes; medication updates 

for categories of medications, broadening of age ranges, and changes to exclusions for a 

measure. The subregulatory process for nonsubstantive changes will include revision of the IRF 

PAI Manual and posting of updates on CMS website at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/InpatientRehabFacPPS/IRFPAI.html. 

Examples of changes that we might consider to be substantive would be those in which 

the changes are so significant that the measure is no longer the same measure, or when a standard 
of performance assessed by a measure becomes more stringent, such as changes in acceptable 

timing of medication, procedure/process, test administration, or expansion of the measure to a 

new setting.

We are not proposing any changes to this policy for adopting changes to IRF QRP 

measures.

E. Quality Measures Previously Finalized for and Currently Used in the IRF QRP

1. Measures Finalized in the FY 2012 IRF PPS Final Rule

In the FY 2012 IRF PPS final rule (76 FR 47874 through 47878), we adopted applications

of two quality measures for use in the first data reporting cycle of the IRF QRP: (1) an

application of Catheter-Associated Urinary Tract Infection (CAUTI) for Intensive Care Unit

Patients (NQF#0138); and (2) an application of Percent of Residents with Pressure Ulcers That

Are New or Worsened (Short-Stay) (NQF #0678). We adopted applications of these 2 measures

because neither of them, at the time, was endorsed by the NQF for the IRF setting. We also

discussed our plans to propose a 30-Day All-Cause Risk-Standardized Post-IRF Discharge

Hospital Readmission Measure.

2. Measures Finalized in the CY 2013 OPPS/ASC Final Rule

In the CY 2013 OPPS/ASC final rule (77 FR 68500 through 68507), we adopted:

a. National Healthcare Safety Network (NHSN) Catheter Associated Urinary Tract 

Infection (CAUTI) Outcome Measure (NQF #0138) 

In the CY 2013 OPPS/ASC final rule, we adopted the NHSN CAUTI Outcome Measure

(NQF #0138) (replacing an application of this measure that we initially adopted in the FY 2012

IRF PPS (76 FR 47874 through 47886)). Data submission for the NQF-endorsed measure

applies to the FY 2015 adjustments to the IRF PPS annual increase factor and all subsequent
annual increase factors (77 FR 68504 through 68505). Additional information about this measure

can be found at http://www.qualityforum.org/QPS/0138. IRFs submit their CAUTI measure

data to the Centers for Disease Control and Prevention (CDC) NHSN. Details regarding

submission of IRF CAUTI data to the NHSN can be found at the NHSN website at

http://www.cdc.gov/nhsn/inpatient-rehab/index.html.

b. Application of Percent of Residents or Patients with Pressure Ulcers That Are New or 

Worsened (Short-Stay) (NQF #0678)

In the CY 2013 OPPS/ASC final rule (77 FR 68500 through 68507), we adopted a nonrisk-adjusted application of this measure.

3. Measures Finalized in the FY 2014 IRF/PPS Final Rule

For the FY 2016 adjustments to the IRF PPS annual increase factor, we finalized the 

adoption of one additional measure: Influenza Vaccination Coverage among Healthcare 

Personnel (NQF #0431) (78 FR 47902 through 47921). In addition, for the FY 2017 adjustments 

to the IRF PPS annual increase factor, we finalized the adoption of three additional quality 

measures: (1) All-Cause Unplanned Readmission Measure for 30 Days Post-Discharge from 

Inpatient Rehabilitation Facilities; (2) Percent of Residents or Patients Who Were Assessed and 

Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF #0680); and (3) the 

Percent of Residents or Patients with Pressure Ulcers That Are New or Worsened (Short-Stay) 

(NQF #0678). In the FY 2014 IRF PPS final rule (78 FR 47912 through 47916), we also adopted

a revised version of the IRF-PAI (Version 1.2), which providers began using as of October 1, 2014,

for the FY 2017 adjustments to the IRF PPS annual increase factor and subsequent year annual

increase factors.

a. Influenza Vaccination Coverage among Healthcare Personnel (NQF #0431)
In the FY 2014 IRF PPS final rule (78 FR 47905 through 47906), we adopted the CDCdeveloped Influenza Vaccination Coverage among Healthcare Personnel (NQF #0431) quality 

measure that is collected by the CDC via the NHSN. We finalized that the Influenza

Vaccination Coverage among Healthcare Personnel (NQF #0431) measure have its own reporting

period to align with the influenza vaccination season, which is defined by the CDC as October 1

(or when the vaccine becomes available) through March 31. We further finalized that IRFs

submit their data for this measure to the NHSN (http://www.cdc.gov/nhsn/). We also finalized

that for the FY 2016 adjustments to the IRF PPS annual increase factor, data collection will cover

the period from October 1, 2014 (or when the vaccine becomes available) through 

March 31, 2015.

Details related to the use of the NHSN for data submission and information on definitions, 

numerator data, denominator data, data analyses, and measure specifications for the Influenza

Vaccination Coverage among Healthcare Personnel (NQF #0431) measure can be found at

http://www.cdc.gov/nhsn/inpatient-rehab/hcp-vacc/index.html and at

http://www.qualityforum.org/QPS/0431. While IRFs can enter information in NHSN at any

point during the influenza vaccination season for the Influenza Vaccination Coverage among

Healthcare Personnel (NQF #0431) measure, data submission is only required once per influenza 

vaccination season. We finalized that the final deadline for data submission associated with this 

quality measure is May 15th of each year.

b. All-Cause Unplanned Readmission Measure for 30 Days Post- Discharge from Inpatient

Rehabilitation Facilities (NQF #2502)

In the FY 2014 IRF PPS final rule (78 FR 47906 through 47910), we adopted an AllCause Unplanned Readmission Measure for 30 Days Post-Discharge from IRFs. This quality 
measure estimates the risk-standardized rate of unplanned, all-cause hospital readmissions for

cases discharged from an IRF who were readmitted to a short-stay acute care hospital or LTCH,

within 30 days of an IRF discharge. We noted that this is a claims-based measure that will not

require reporting of new data by IRFs and thus will not be used to determine IRF reporting

compliance for the IRF QRP. 

c. Percent of Residents or Patients Who Were Assessed and Appropriately Given the

Seasonal Influenza Vaccine (Short-Stay) (NQF #0680)

In the FY 2014 IRF PPS final rule (78 FR 47906 through 47911), we adopted the Percent 

of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal Influenza 

Vaccine (Short-Stay) (NQF #0680) measure for the IRF QRP. 

We added the data elements needed for this measure to the “Quality Indicator” section of

the IRF-PAI Version 1.2, which became effective on October 1, 2014. These data elements are

harmonized with data elements (O0250: Influenza Vaccination Status) from the Minimum Data 

Set (MDS) 3.0 and the LTCH CARE Data Set Version 2.01, and the specifications and data

elements for this measure are available at http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/InpatientRehabFacPPS/IRFPAI.html.

For purposes of this quality measure, the influenza vaccination season is October 1 (or

when the vaccine becomes available) through March 31 each year. We also finalized that for

the FY 2017 adjustments to the IRF PPS annual increase factor, data collection covers the period

from October 1, 2014 (or when the vaccine becomes available) through March 31, 2015. 

The measure specifications for this measure can be found on the CMS website at 

http://www.qualityforum.org/QPS/0680.
d. Percent of Residents or Patients with Pressure Ulcers That Are New or Worsened (ShortStay) (NQF #0678)

In the FY 2014 IRF PPS final rule (78 FR 47911 through 47912), we adopted the NQFendorsed version of the Percent of Residents or Patients with Pressure Ulcers That Are New or

Worsened (Short-Stay) (NQF #0678), with data collection beginning October 1, 2014, using the 

IRF-PAI Version 1.2, for quality reporting affecting the FY 2017 adjustments to the IRF PPS 

annual increase factor and subsequent year annual increase factors. The measure specifications

for this measure can be found on the CMS website at http://www.qualityforum.org/QPS/0678.

4. Measures Finalized in the FY 2015 IRF-PPS Final Rule

In the FY 2015 IRF-PPS final rule, we adopted two additional quality measures:

a. National Healthcare Safety Network (NHSN) Facility-Wide Inpatient Hospital-Onset 

Methicillin-Resistant Staphylococcus aureus (MRSA) Bacteremia Outcome Measure (NQF 

#1716)

In the FY 2015 IRF PPS final rule (79 FR 45911 through 45913), we adopted the NHSN 

Facility-Wide Inpatient Hospital-Onset MRSA Bacteremia Outcome Measure (NQF #1716), a 

measure of hospital-onset unique blood source MRSA laboratory-identified events among all 

patients in the inpatient rehabilitation facility. This measure was developed by the CDC and is 

NQF-endorsed. We finalized that data submission would start on January 1, 2015, and that 

adjustments to the IRF PPS annual increase factor would begin with FY 2017. Data are 

submitted via the CDC’s NHSN. Details related to the procedures for using the NHSN for data 

submission and information on definitions, numerator data, denominator data, data analyses, and 

measure specifications for the proposed NHSN Facility-Wide Inpatient Hospital-Onset MRSA 

Bacteremia Outcome Measure (NQF #1716) can be found at 
http://www.qualityforum.org/QPS/1716 and http://www.cdc.gov/nhsn/inpatient-rehab/mdrocdi/index.html.

b. National Healthcare Safety Network (NHSN) Facility-Wide Inpatient Hospital-Onset 

Clostridium difficile Infection (CDI) Outcome Measure (NQF #1717)

In the FY 2015 IRF PPS final rule (79 FR 45913 through 45914), we adopted the NHSN 

Facility-Wide Inpatient Hospital-Onset CDI Outcome Measure (NQF #1717), a measure of 

hospital-onset CDI laboratory-identified events among all inpatients in the facility. This measure 

was developed by the CDC and is NQF-endorsed. We finalized that data would be submitted 

starting January 1, 2015, and that adjustments to the IRF PPS annual increase factor would begin 

with FY 2017. Providers will use the CDC/NHSN data collection and submission framework for 

reporting of the proposed NHSN Facility-Wide Inpatient Hospital-Onset CDI Outcome Measure 

(NQF #1717). Details related to the procedures for using the NHSN for data submission and 

information on definitions, numerator data, denominator data, data analyses, and measure 

specifications for the proposed NHSN Facility-Wide Inpatient Hospital-Onset CDI Outcome 

Measure (NQF #1717) can be found at http://www.qualityforum.org/QPS/1717 and 

http://www.cdc.gov/nhsn/inpatient-rehab/mdro-cdi/index.html. 
TABLE 18: Quality Measures Previously Finalized for and Currently Used in the IRF 

Quality Reporting Program

NQF Measure

ID Quality Measure Title

Data 

Submission 

Mechanism

NQF #0138 National Health Safety Network (NHSN) Catheter-Associated

Urinary Tract Infection (CAUTI) Outcome Measure CDC NHSN

NQF #0431 Influenza Vaccination Coverage among Healthcare Personnel CDC NHSN

NQF #0680

Percent of Residents or Patients Who Were Assessed and 

Appropriately Given the Seasonal Influenza Vaccine (ShortStay)IRF-PAI

NQF #0678 Percent of Residents or Patients with Pressure Ulcers That 

Are New or Worsened (Short-Stay) IRF-PAI

NQF #2502 All-Cause Unplanned Readmission Measure for 30 Days 

Post-Discharge from Inpatient Rehabilitation Facilities*

Claims-based

NQF #1716

National Healthcare Safety Network (NHSN) Facility-Wide 

Inpatient Hospital-Onset Methicillin-Resistant 

Staphylococcus aureus (MRSA) Bacteremia Outcome 

Measure

CDC 

NHSN

NQF #1717

National Healthcare Safety Network (NHSN) Facility-Wide 

Inpatient Hospital-Onset Clostridium difficile Infection (CDI) 

Outcome Measure

CDC NHSN

* Claims-based measure; no additional data submission required by IRFs

5. Continuation of Previously Adopted IRF QRP Quality Measures for the FY 2018 

Payment Determination and Subsequent Years

For the FY 2018 adjustments to the IRF PPS annual increase factor, we are retaining the

previously discussed measures: (1) NHSN CAUTI Outcome Measure (NQF #0138); (2) Percent 

of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal Influenza 

Vaccine (Short-Stay) (NQF #0680); (3) Percent of Residents or Patients with Pressure Ulcers 

That Are New or Worsened (Short-Stay) (NQF #0678); (4) All-Cause Unplanned Readmission 

Measure for 30 Days Post-Discharge from IRFs (NQF #2502); (5) Influenza Vaccination

Coverage among Healthcare Personnel (NQF #0431); (6) NHSN Facility-Wide Inpatient 
Hospital-Onset MRSA Bacteremia Outcome Measure (NQF #1716), (7) and NHSN FacilityWide Inpatient Hospital-Onset CDI Outcome Measure (NQF #1717) quality measures. 

F. Proposal of Previously Adopted IRF QRP Quality Measures for the FY 2018 Payment 

Determination and Subsequent Years

For the FY 2018 payment determination and subsequent years, we are proposing to adopt 

two quality measures to reflect NQF endorsement or to meet the requirements of the IMPACT Act: 

(1) All-Cause Unplanned Readmission Measure for 30 Days Post-Discharge from IRFs (NQF #2502); 

and (2) an application of Percent of Residents or Patients with Pressure Ulcers That Are New or 

Worsened (NQF #0678). These quality measures are discussed in more detail below.

1. Proposing Quality Measure to Reflect NQF Endorsement: All-Cause Unplanned 

Readmission Measure for 30 Days Post Discharge from IRFs (NQF #2502)

The All-Cause Unplanned Readmission Measure for 30 Days Post Discharge from IRFs (NQF 

#2502) measure was adopted for use in the IRF QRP in the FY 2014 IRF PPS final rule 

(78 FR 47906 through 47910). We are proposing to adopt this measure for the FY 2018 payment 

determination and subsequent years to reflect that it is NQF-endorsed for use in the IRF setting 

as of December 2014. For current specifications of this measure, please visit

http://www.qualityforum.org/QPS/2502. 

As adopted through the FY 2014 IRF PPS final rule, All-Cause Unplanned Readmission 

Measure for 30 Days Post Discharge from IRFs (NQF #2502) is a Medicare Fee-For-Service (FFS) 

claims-based measure. IRFs would not be required to report any additional data to CMS because 

we would calculate this measure based on claims data that are already reported to the Medicare 

program for payment purposes. We believe there would be no additional data collection burden 

on providers resulting from our implementation of All-Cause Unplanned Readmission Measure for 
30 Days Post Discharge from IRFs (NQF #2502) as part of the IRF QRP. In the FY 2014 IRF PPS 

final rule, we stated that we would provide initial feedback to providers, prior to public reporting 

of this measure, based on Medicare FFS claims data from CY 2013 and CY 2014. 

The description of this measure provided in the FY 2014 IRF PPS final rule 

(78 FR 47906 through 47910) noted this measure was the ratio of the number of risk-adjusted 

predicted unplanned readmissions for each individual IRF to the average number of risk-adjusted 

predicted unplanned readmissions for the same patients treated at the average IRF. This ratio is 

referred to as the standardized risk ratio (SRR). However, the measure specifications compute 

the risk-standardized readmission rate (RSRR) for this measure. The RSRR is the SRR 

multiplied by the overall national raw readmission rate for all IRF stays. The outcome is 

expressed as a percentage rate rather than a ratio. 

This measure, which harmonizes with the Hospital-Wide All-Cause Readmission 

Measure (NQF #1789) currently in use in the Inpatient Quality Reporting Program, continues to 

use the CMS Planned Readmission Algorithm as the main component for identifying planned 

readmissions. This algorithm was refined in the FY 2015 IPPS/LTCH PPS final rule

(79 FR 50211 through 50216). The All-Cause Unplanned Readmission Measure for 30 Days Post 

Discharge from IRFs (NQF #2502) measure for the IRF QRP will utilize the most recently updated 

version of the algorithm. A complete description of the CMS Planned Readmission Algorithm, 

which includes lists of planned diagnoses and procedures, can be found on CMS website 

(http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html). The additional post-acute care 

planned readmission procedures specified for All-Cause Unplanned Readmission Measure for 

30 Days Post Discharge from IRFs (NQF #2502) remain the same as when first adopted through 
FY 2014 IRF PPS final rule. Documentation on the additional post-acute care planned 

readmissions for this measure is available at http://www.qualityforum.org/QPS/2502.

http://www.qualityforum.org/ProjectMeasures.aspx?projectID=73619.

We invite public comments in response to our proposal to adopt the NQF-endorsed

version of All-Cause Unplanned Readmission Measure for 30 Days Post Discharge from IRFs

(NQF #2502) for the IRF QRP for the FY 2018 payment determination and subsequent years.

2. Quality Measure Addressing the Domain of Skin Integrity and Changes in Skin Integrity: 

Percent of Residents or Patients with Pressure Ulcers That Are New or Worsened (Short Stay) 

(NQF #0678)

Section 1899B(c)(1) of the Act directs the Secretary to specify quality measures on which 

PAC providers are required under the applicable reporting provisions to submit standardized 

patient assessment data and other necessary data specified by the Secretary with respect to five 

quality domains, one of which is skin integrity and changes in skin integrity. The specified 

application date by which the Secretary must specify quality measures to address this domain for

IRFs, Skilled Nursing Facilities (SNFs), and LTCHs is October 1, 2016, and for HHAs is 

January 1, 2017. To satisfy these requirements, we are proposing to adopt the measure Percent 

of Residents or Patients with Pressure Ulcers that are New or Worsened (Short-Stay) (NQF 

#0678) that we have already adopted for the IRF QRP as a cross-setting quality measure that 

satisfies the domain of skin integrity and changes in skin integrity. The reporting of data for this 

measure would affect the payment determination for FY 2018 and subsequent years. For the IRF 

setting, the measure assesses the percent of patients with stage 2 through stage 4 pressure ulcers 

that are new or worsened since admission. 
As described in the FY 2012 IRF PPS final rule (76 FR 47876 through 47878), pressure 

ulcers are high-cost adverse events and are an important measure of quality. For information on 

the history and rationale for the relevance, importance, and applicability of this measure in the 

IRF QRP, we refer readers to the FY 2012 IRF PPS final rule and the FY 2014 IRF PPS final 

rule (78 FR 47911 through 47912). Details regarding the specifications for this measure are 

available on the NQF website at http://www.qualityforum.org/QPS/0678.

The IMPACT Act requires the implementation of quality measures and resource use and 

other measures that are standardized and interoperable across PAC settings, as well as the 

reporting of standardized patient assessment data and other necessary data specified by the 

Secretary. This requirement is in line with the NQF Steering Committee report, which stated “to 

understand the impact of pressure ulcers across providers, quality measures addressing 

prevention, incidence, and prevalence of pressure ulcers must be harmonized and aligned.”2 

Percent of Residents or Patients with Pressure Ulcers That Are New or Worsened (Short Stay) 

(NQF #0678) is NQF-endorsed for the IRF setting and has been successfully implemented using 

a harmonized set of data elements in three PAC settings (IRF, LTCH and SNF). As discussed in 

section VIII.E. of this proposed rule, an application of this measure was adopted for the IRF 

QRP in the FY 2012 IRF PPS final rule (76 FR 47876 through 47878) for the FY 2014 payment 

determination and subsequent years, and the current NQF-endorsed version of the measure was

finalized in the FY 2014 IRF PPS final rule (78 FR 47911 through 47912) for the FY 2017

payment determination and subsequent years. The measure has been in use in the IRF QRP 

 

2 National Quality Forum. National voluntary consensus standards for developing a framework for measuring 

quality for prevention and management of pressure ulcers. April 2008. Available from 

http://www.qualityforum.org/Projects/Pressure_Ulcers.aspx.
since October 1, 2012, and currently, IRFs are submitting data for this measure using the IRFPAI. 

The Percent of Residents or Patients with Pressure Ulcers That Are New or Worsened 

(Short Stay) (NQF #0678) measure was adopted for use in the LTCH QRP in the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51748 through 51756) for the FY 2014 payment 

determination and subsequent years, and has been successfully submitted by LTCHs using the 

LTCH Continuity Assessment Record and Evaluation (CARE) Data Set since October 2012. It 

has also been implemented in CMS’ Nursing Home Quality Initiative, using the MDS 3.0 since 

2011, and is currently reported on CMS’ Nursing Home Compare at 

http://www.medicare.gov/nursinghomecompare/search.html.

A TEP convened by our measure development contractor in February 2015 provided 

input on the measure specifications and the feasibility and clinical appropriateness of 

implementing the measure as a cross-setting quality measure under the IMPACT Act of 2014,

for use across PAC settings, including the IRF setting. The TEP supported the implementation 

of this measure across PAC providers and also supported our efforts to standardize this measure 

for cross-provider development. Additionally, the MAP, convened by the NQF, met on 

February 9, 2015 and provided input to CMS. The MAP supported the use of Percent of 

Residents or Patients with Pressure Ulcers That Are New or Worsened (Short-Stay) (NQF 

#0678) in the IRF QRP as a cross-setting quality measure to be specified in accordance with the 

IMPACT Act of 2014. MAP noted that this measure addresses one of its previously identified 

PAC/LTC core concepts as well as an IMPACT Act domain. More information about the 

MAP’s recommendations for this measure is available at: 

http://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx. 
We propose that that data collection for Percent of Residents or Patients with Pressure 

Ulcers That Are New or Worsened (Short-Stay) (NQF #0678) continue to occur through the 

quality indicator section of the IRF-PAI submitted through the Quality Improvement Evaluation 

System (QIES) Assessment Submission and Processing (ASAP) system. IRFs have been 

submitting data on the Percent of Residents or Patients with Pressure Ulcers That Are New or 

Worsened (Short Stay) measure (NQF #0678) through the quality indicator section of the IRFPAI since October 2012. For more information on IRF reporting using the QIES ASAP system 

refer to: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/IRFQuality-Reporting/Technical-Information.html. 

In an effort to further harmonize the data elements across PAC providers, we propose an 

update to the IRF-PAI items used to calculate the Percent of Residents or Patients with Pressure 

Ulcers That Are New or Worsened (Short Stay) measure (NQF #0678) to align with the items 

included in the LTCH CARE Data Set and the MDS 3.0. The proposed modified IRF-PAI items 

used to identify new or worsened pressure ulcers consist of: M0800A: Worsening in Pressure 

Ulcer Status Since Admission, Stage 2; M0800B: Worsening in Pressure Ulcer Status Since 

Admission, Stage 3; and M0800C: Worsening in Pressure Ulcer Status Since Admission, 

Stage 4. We are not proposing a change to the IRF-PAI items used to risk adjust this quality 

measure. These items consist of: FIM® Item 39I (Transfers: Bed, Chair, and Wheelchair), 

FIM® Item 32 (Bowel Frequency of Accidents), I0900A (Peripheral Vascular Disease (PVD)), 

I0900B (Peripheral Arterial Disease (PAD)), I2900A (Diabetes Mellitus), 25A (Height), and 26A 

(Weight). More information about the IRF-PAI items is available at 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/InpatientRehabFacPPS/IRFPAI.html. For more information about the proposed 
changes to the IRF-PAI, see http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/InpatientRehabFacPPS/IRFPAI.html. 

The specifications and data elements for the Percent of Residents or Patients with 

Pressure Ulcers that are New or Worsened (Short Stay) (NQF #0678), are available in the IRFPAI training manual at http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/InpatientRehabFacPPS/IRFPAI.html.

We invite public comment on our proposal to specify and adopt Percent of Residents or 

Patients with Pressure Ulcers That Are New or Worsened (Short Stay) (NQF #0678) for the IRF 

QRP for the FY 2018 payment determination and subsequent years to fulfill the requirements in 

the IMPACT Act. 

Request for public comments regarding future measure development for Percent 

of Residents or Patients with Pressure Ulcers That Are New or Worsened (Short Stay) (NQF 

#0678)

As part of our ongoing measure development efforts, we are considering a future update 

to the numerator of the quality measure Percent of Residents or Patients with Pressure Ulcers 

That Are New or Worsened (Short Stay) (NQF #0678). This update would hold providers 

accountable for the development of unstageable pressure ulcers, including suspected deep tissue 

injuries (sDTIs). Under this possible future change, the numerator of the quality measure would 

be updated to include unstageable pressure ulcers, including sDTIs, that are new or developed in 

the facility, as well as Stage 1 or 2 pressure ulcers that become unstageable due to slough or 

eschar (indicating progression to a Stage 3 or 4 pressure ulcer) after admission. At this time, we 

are not proposing the implementation of this change (that is, including sDTIs and unstageable 
pressure ulcers in the numerator) in the IRF QRP, but are soliciting public comment on this 

potential area of measure development.

Our measure development contractor convened a cross-setting pressure ulcer TEP that 

strongly recommended that we hold providers accountable for the development of new 

unstageable pressure ulcers by including these pressure ulcers in the numerator of the quality 

measure. Although the TEP acknowledged that unstageable pressure ulcers, including sDTIs,

cannot and should not be assigned a numeric stage, panel members recommended that these be 

included in the numerator of Percent of Residents or Patients with Pressure Ulcers That Are New 

or Worsened (Short Stay) (NQF #0678) as a new pressure ulcer if it developed in the facility. 

The TEP also recommended that a Stage 1 or 2 pressure ulcer that becomes unstageable due to 

slough or eschar should be considered worsened, because the presence of slough or eschar 

indicates a full thickness (equivalent to Stage 3 or 4) wound.3,4 These recommendations were 

supported by technical and clinical advisors and the National Pressure Ulcer Advisory Panel 

(NPUAP).5 Furthermore, exploratory data analysis conducted by our measure development 

contractor suggests that the addition of unstageable pressure ulcers, including sDTIs, would

 

3 Schwartz, M., Nguyen, K.H., Swinson Evans, T.M., Ignaczak, M.K., Thaker, S., and Bernard, S.L.: Development 

of a Cross-Setting Quality Measure for Pressure Ulcers: OY2 Information Gathering, Final Report. Centers for 

Medicare & Medicaid Services, November 2013. Available: http://www.cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/Downloads/Development-of-a-Cross-SettingQuality-Measure-for-Pressure-Ulcers-Information-Gathering-Final-Report.pdf.

4 Schwartz, M., Ignaczak, M.K., Swinson Evans, T.M., Thaker, S., and Smith, L.: The Development of a CrossSetting Pressure Ulcer Quality Measure: Summary Report on November 15, 2013, Technical Expert Panel FollowUp Webinar. Centers for Medicare & Medicaid Services, January 2014. Available: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-QualityInitiatives/Downloads/Development-of-a-Cross-Setting-Pressure-Ulcer-Quality-Measure-Summary-Report-onNovember-15-2013-Technical-Expert-Pa.pdf.

5 Schwartz, M., Nguyen, K.H., Swinson Evans, T.M., Ignaczak, M.K., Thaker, S., and Bernard, S.L.: 

Development of a Cross-Setting Quality Measure for Pressure Ulcers: OY2 Information Gathering, Final 

Report. Centers for Medicare & Medicaid Services, November 2013. Available: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-CareQuality-Initiatives/Downloads/Development-of-a-Cross-Setting-Quality-Measure-for-Pressure-UlcersInformation-Gathering-Final-Report.pdf.
increase the observed incidence of new or worsened pressure ulcers at the facility level and may 

improve the ability of the quality measure to discriminate between poor- and high-performing 

facilities. 

We invite public comment to inform our future measure development efforts to include 

unstageable pressure ulcers, including sDTIs, in the numerator of the quality measure Percent of 

Residents or Patients with Pressure Ulcers That Are New or Worsened (Short Stay)

(NQF #0678).

G. Proposed Additional IRF QRP Quality Measures for the FY 2018 Payment 

Determination and Subsequent Years

We are proposing to adopt 6 additional quality measures beginning with the FY 2018 

payment determination. These new proposed quality measures are: (1) an application of Percent of 

Residents Experiencing One or More Falls with Major Injury (Long Stay) (NQF #0674); (2) an 

application of Percent of LTCH Patients with an Admission and Discharge Functional Assessment and 

a Care Plan That Addresses Function (NQF #2631; under review); (3) IRF Functional Outcome 

Measure: Change in Self-Care Score for Medical Rehabilitation Patients (NQF #2633; under review); 

(4) IRF Functional Outcome Measure: Change in Mobility Score for Medical Rehabilitation Patients 

(NQF #2634; under review); (5) IRF Functional Outcome Measure: Discharge Self-Care Score for 

Medical Rehabilitation Patients (NQF #2635; under review); and (6) IRF Functional Outcome 

Measure: Discharge Mobility Score for Medical Rehabilitation Patients (NQF #2636; under review). 

1. Quality Measure Addressing the Domain of the Incidence of Major Falls: An Application of 

Percent of Residents Experiencing One or More Falls with Major Injury (Long Stay) (NQF 

#0674)
Section 1899B(c)(1) of the Act directs the Secretary to specify quality measures on which 

PAC providers are required under the applicable reporting provisions to submit standardized 

patient assessment data and other necessary data specified by the Secretary with respect to five 

quality domains, one of which is the incidence of major falls. The specified application date by 

which the Secretary must specify quality measures to address this domain for IRFs, SNFs, and 

LTCHs is October 1, 2016, and for HHAs is January 1, 2019. To satisfy these requirements, we 

are proposing to adopt an application of Percent of Residents Experiencing One of More Falls 

with Major Injury (Long Stay) (NQF #0674) in the IRF QRP as a cross-setting quality measure

that addresses the domain of incidence of major falls. Data collection would start on October 1, 

2016. The reporting of data for this measure would affect the payment determination for 

FY 2018 and subsequent years. As described in more detail in section VIII.I.2. of this proposed 

rule, the proposed first data collection period is 3 months (October 1, 2016 to December 31, 

2016), and the proposed subsequent data collection periods are 12-months in length and follow 

the calendar year (that is, January 1 to December 31). For the IRF setting, this measure would 

report the percentage of patients who experienced one or more falls with major injury during the 

IRF stay. This measure was developed by CMS and is NQF-endorsed for long-stay residents of 

nursing facilities. 

Research indicates that fall-related injuries are the most common cause of accidental 

death in people aged 65 and older, responsible for approximately 41 percent of accidental deaths 

annually.6 Rates increase to 70 percent of accidental deaths among individuals aged 75 and 

older.7 In addition to death, falls can lead to fracture, soft tissue or head injury, fear of falling, 

 

6 Currie LM. Fall and injury prevention. Annu Rev Nurs Res. 2006;24:39–74.

7 Fuller GF. Falls in the elderly. Am Fam Physician. Apr 1 2000;61(7):2159–2168, 2173–2154.
anxiety, and depression.8

 It is estimated that 10 percent to 25 percent of nursing facility resident 

falls result in fractures and/or hospitalization.9For IRFs, a study of 5,062 patients found 367 

patients (7.25 percent) had 438 falls. Among these 438 falls, 129 (29.5 percent of the falls) 

resulted in an injury, of which 25 (19 percent of falls) were serious.10 A separate study of 754 

stroke patients in an IRF reported 117 patients (15.5 percent) experienced 159 falls. Among these 

159 falls, 13 (8 percent of falls) resulted in a minor injury, and 3 (2 percent of falls) resulted in a 

serious injury.11

Falls also represent a significant cost burden to the entire health care system, with 

injurious falls accounting for 6 percent of medical expenses among those age 65 and older.12 In 

their 2006 work, Sorensen et al. estimate the costs associated with falls of varying severity 

among nursing home residents. Their work suggests that acute-care costs range from $979 for a 

typical case with a simple fracture to $14,716 for a typical case with multiple injuries.13 A 

similar study of hospitalizations of nursing home residents due to serious fall-related injuries 

(intracranial bleed, hip fracture, other fracture) found an average cost of $23,723.14

 

8 Premier Inc. Causes of Falls. 2013. Available: https://www.premierinc.com/qualitysafety/toolsservices/safety/topics/falls/causes_of_falls.jsp.

9 Vu MQ, Weintraub N, Rubenstein LZ. Falls in the nursing home: are they preventable? J Am Med Dir 

Assoc. 2004 Nov-Dec; 5(6):401-6. Review.

10 Frisina PG, Guellnitz R, Alverzo J. A time series analysis of falls and injury in the inpatient 

rehabilitation setting. Rehab Nurs. 2010; 35(4):141-146.

11 Rabadi MH, Rabadi FM, Peterson M. An analysis of falls occurring in patients with stroke on an acute 

rehabilitation unit. Rehab Nurs. 2008; 33(3):104-109.

12 Tinetti ME, Williams CS. The effect of falls and fall injuries on functioning in community-dwelling 

older persons. J Gerontol A Biol Sci Med Sci. 1998 Mar;53(2):M112-9.

13 Sorensen SV, de Lissovoy G, Kunaprayoon D, Resnick B, Rupnow MF, Studenski S. A taxonomy and 

economic consequence of nursing home falls. Drugs Aging. 2006;23(3):251-62.

14 Quigley PA, Campbell RR, Bulat T, Olney RL, Buerhaus P, Needleman J. Incidence and cost of 

serious fall-related injuries in nursing homes. Clin Nurs Res. Feb 2012;21(1):10-23.
According to Morse,

15 78 percent of falls are anticipated physiological falls. Anticipated 

physiological falls are falls among individuals who scored high on a risk assessment scale, 

meaning their risk could have been identified in advance of the fall. To date, studies have 

identified a number of risk factors for falls.16,17,18,19,20,21,22,23,24 The identification of such risk 

factors suggests the potential for health care facilities to reduce and prevent the incidence of falls 

with injuries for their patients. In light of the evidence previously discussed, we are proposing to 

adopt an application of the measure Percent of Residents Experiencing One or More Falls with 

Major Injury (Long Stay) (NQF #0674) for the IRF QRP, with data collection starting on 

October 1, 2016 and affecting the payment determination for FY 2018 and subsequent years. As 

described in more detail in section VIII.I.2. of this proposed rule, the proposed first data 

collection period is 3 months (October 1, 2016 to December 31, 2016), and the proposed 

subsequent data collection periods are 12-months in length and follow the calendar year (that is, 

January 1 to December 31).

 

15 Morse, J. M. (2002) Enhancing the safety of hospitalization by reducing patient falls. Am J Infect 

Control 2002; 30(6): 376–80.

16 Rothschild JM, Bates DW, Leape LL. Preventable medical injuries in older patients. Arch Intern Med. 

2000 Oct 9; 160(18):2717–28.

17 Morris JN, Moore T, Jones R, et al. Validation of long-term and post-acute care quality indicators. 

CMS Contract No: 500–95–0062/T.O. #4. Cambridge, MA: Abt Associates, Inc., June 2003.

18 Avidan AY, Fries BE, James ML, Szafara KL, Wright GT, Chervin RD. Insomnia and hypnotic use, 

recorded in the minimum data set, as predictors of falls and hip fractures in Michigan nursing homes. J 

Am Geriatr Soc. 2005 Jun; 53(6):955–62.

19 Fonad E, Wahlin TB, Winblad B, Emami A, Sandmark H. Falls and fall risk among nursing home 

residents. J Clin Nurs. 2008 Jan; 17(1):126– 34.

20 Currie LM. Fall and injury prevention. Annu Rev Nurs Res. 2006;24:39–74.

21 Ellis AA, Trent RB. Do the risks and consequences of hospitalized fall injuries among older adults in 

California vary by type of fall? J Gerontol A Biol Sci Med Sci. Nov 2001;56(11):M686–692.

22 Chen XL, Liu YH, Chan DK, Shen Q, Van Nguyen H. Chin Med J (Engl). Characteristics associated 

with falls among the elderly within aged care wards in a tertiary hospital: a retrospective. 2010 

Jul;123(13):1668–72.

23 Frisina PG, Guellnitz R, Alverzo J. A time series analysis of falls and injury in the inpatient 

rehabilitation setting. Rehabil Nurs. 2010 JulAug;35(4):141–6, 166.

24 Lee JE, Stokic DS. Risk factors for falls during inpatient rehabilitant Am J Phys Med Rehabil. 2008 

May;87(5):341–50; quiz 351, 422.
The IMPACT Act requires the specification of quality measures and resource use and 

other measures that are standardized and interoperable across PAC settings as well as the 

reporting of standardized patient assessment data and other necessary data specified by the 

Secretary. The Percent of Residents Experiencing One or More Falls with Major Injury (Long 

Stay) (NQF #0674) measure is NQF-endorsed for long-stay residents in nursing homes and has 

been successfully implemented in nursing facilities for long-stay residents. The NQF-endorsed 

measure has been in use as part of CMS’ Nursing Home Quality Initiative since 2011. In 

addition, the measure is currently reported on CMS’ Nursing Home Compare website at 

http://www.medicare.gov/nursinghomecompare/search.html. Further, the measure was adopted 

for use in the LTCH QRP in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50874 through 

50877). In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50290), we revised the data 

collection period for this measure with data collection to begin starting April 1, 2016. 

We reviewed the NQF's consensus endorsed measures and were unable to identify any 

NQF-endorsed cross-setting quality measures focused on falls with a major injury. We are 

unaware of any other cross-setting quality measures for falls with major injury that have been 

endorsed or adopted by another consensus organization. Therefore, we are proposing an 

application of the measure, the Percent of Residents Experiencing One or More Falls with Major 

Injury (Long Stay) (NQF #0674), under the Secretary’s authority to select non-NQF-endorsed 

measures. 

A TEP convened by our measure development contractor provided input on the measure 

specifications, including the feasibility and clinical appropriateness of implementing the measure 

across PAC settings, including the IRF setting. The TEP supported the implementation of this 

measure across PAC settings, including the IRF setting, and also supported our efforts to 
standardize this measure for cross-setting development. Additionally, the NQF-convened MAP 

met on February 9, 2015 and provided input to us on the measure. The MAP conditionally 

supported the use of an application of Percent of Residents Experiencing One or More Falls with 

Major Injury (Long Stay) (NQF #0674) in the IRF QRP as a cross-setting quality measure. More 

information about the MAP’s recommendations for this measure is available at: 

http://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx.

More information on the Percent of Residents Experiencing One or More Falls with 

Major Injury (Long Stay), visit the NQF website: http://www.qualityforum.org/QPS/0674. 

Details regarding the changes made to modify the Percent of Residents Experiencing One or 

More Falls with Major Injury (Long Stay), and updated specifications are located at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/IRF-QualityReporting/IRF-Quality-Reporting-Program-Measures-Information-.html.

We propose that data for this quality measure would be collected using the IRF-PAI with 

submission through the QIES ASAP system. More information on IRF reporting using the QIES 

ASAP system is located at the website: http://www.cms.gov/Medicare/Quality-InitiativesPatient-Assessment 

Instruments/NursingHomeQualityInits/NHQIMDS30TechnicalInformation.html.

Data collected through a revised IRF-PAI would be used to calculate this quality 

measure. Consistent with the IRF-PAI reporting requirements, the application of the Percent of 

Residents Experiencing One or More Falls with Major Injury (Long Stay) (NQF #0674), will 

apply to all Medicare patients discharged from IRFs. Data items in the revised IRF-PAI would 

include: J1800: Any Falls Since Admission, and J1900: Number of Falls Since Admission. 
The calculation of the proposed application of the measure would be based on item 

J1900C: Number of Falls with Major Injury since Admission. The specifications and data 

elements for the application of the Percent of Residents Experiencing One or More Falls with 

Major Injury (Long Stay) (NQF #0674), are available at: http://www.cms.gov/Medicare/QualityInitiatives-Patient-Assessment-Instruments/IRF-Quality-Reporting/IRF-Quality-ReportingProgram-Measures-Information-.html. For more information on the proposed data collection and 

submission timeline for the proposed quality measure, refer to section VIII.I.2 of this proposed 

rule.

We invite public comment on our proposal to adopt an application of Percent of 

Residents Experiencing One or More Falls with Major Injury (Long Stay) (NQF #0674), with 

data collection beginning on October 1, 2016, for the IRF QRP for FY 2018 payment 

determination and subsequent years to fulfill the requirements in the IMPACT Act. 

2. Quality Measure Addressing the Domain of Functional Status, Cognitive Function, and 

Changes in Function and Cognitive Function: Application of Percent of Long-Term Care 

Hospital Patients With an Admission and Discharge Functional Assessment and a Care Plan That 

Addresses Function (NQF #2631; under review)

Section 1899B(c)(1) of the Act directs the Secretary to specify quality measures on which 

PAC providers are required under the applicable reporting provisions to submit standardized 

patient assessment data and other necessary data specified by the Secretary with respect to five 

quality domains, one of which is functional status, cognitive function, and changes in function 

and cognitive function. To satisfy these requirements, we are proposing to specify and adopt an 

application of the quality measure Percent of LTCH Patients with an Admission and Discharge 

Functional Assessment and a Care Plan that Addresses Function (NQF #2631; under review) in 
the IRF QRP as a cross-setting quality measure that addresses the domain of functional status, 

cognitive function, and changes in function and cognitive function. The reporting of data for this 

measure would affect the payment determination for FY 2018 and subsequent years. This 

quality measure reports the percent of patients with both an admission and a discharge functional 

assessment and a goal that addresses function.

The National Committee on Vital and Health Statistics, Subcommittee on Health25,

noted: “[i]information on functional status is becoming increasingly essential for fostering 

healthy people and a healthy population. Achieving optimal health and well-being for 

Americans requires an understanding across the life span of the effects of people's health 

conditions on their ability to do basic activities and participate in life situations, that is, their 

functional status.” This statement is supported by research showing that patient functioning is 

associated with important patient outcomes such as discharge destination and length of stay in 

inpatient settings,26 as well as the risk of nursing home placement and hospitalization of older 

adults living the in community.27 Functioning is important to patients and their family 

members.28, 29, 30

 

25 Subcommittee on Health National Committee on Vital and Health Statistics, "Classifying and 

Reporting Functional Status" (2001).

26 Reistetter TA, Graham JE, Granger CV, Deutsch A, Ottenbacher KJ. Utility of Functional Status for Classifying 

Community Versus Institutional Discharges after Inpatient Rehabilitation for Stroke. Archives of Physical Medicine 

and Rehabilitation, 2010; 91:345-350.

27 Miller EA, Weissert WG. Predicting Elderly People’s Risk for Nursing Home Placement, 

Hospitalization, Functional Impairment, and Mortality: A Synthesis. Medical Care Research and Review, 

57; 3: 259-297.

28 Kurz, A. E., Saint-Louis, N., Burke, J. P., & Stineman, M. G. (2008). Exploring the personal reality of 

disability and recovery: a tool for empowering the rehabilitation process. Qual Health Res, 18(1), 90-105. 

29 Kramer, A. M. (1997). Rehabilitation care and outcomes from the patient's perspective. Med Care, 35(6 Suppl), 

JS48-57.

30 Stineman, M. G., Rist, P. M., Kurichi, J. E., & Maislin, G. (2009). Disability meanings according to 

patients and clinicians: imagined recovery choice pathways. Quality of Life Research, 18(3), 389-398. 
The majority of patients and residents who receive PAC services, such as care provided 

by SNFs, HHAs, IRFs and LTCHs, have functional limitations, and many of these patients are at 

risk for further decline in function due to limited mobility and ambulation.31 The patient 

populations treated by SNFs, HHAs, IRFs and LTCHs vary in terms of their functional abilities 

at the time of the PAC admission and their goals of care. For IRF patients and many SNF 

residents, treatment goals may include fostering the patient’s ability to manage his or her daily 

activities so that the patient can complete self-care and/or mobility activities as independently as 

possible, and if feasible, return to a safe, active, and productive life in a community-based 

setting. For HHA patients, achieving independence within the home environment and promoting 

community mobility may be the goal of care. For other HHA patients, the goal of care may be to 

slow the rate of functional decline to allow the person to remain at home and avoid 

institutionalization.32 Lastly, in addition to having complex medical care needs for an extended 

period of time, LTCH patients often have limitations in functioning because of the nature of their 

conditions, as well as deconditioning due to prolonged bed rest and treatment requirements (for 

example, ventilator use). The clinical practice guideline Assessment of Physical Function33

recommends that clinicians should document functional status at baseline and over time to 

validate capacity, decline, or progress. Therefore, assessment of functional status at admission 

and discharge and establishing a functional goal for discharge as part of the care plan (that is, 

treatment plan) is an important aspect of patient care in all of these PAC providers. 

 

31 Kortebein P, Ferrando A, Lombebeida J, Wolfe R, Evans WJ. Effect of 10 days of bed rest on skeletal 

muscle in health adults. JAMA; 297(16):1772-4.

32 Ellenbecker CH, Samia L, Cushman MJ, Alster K. Patient safety and quality in home health care. 

Patient Safety and Quality: An Evidence-Based Handbook for Nurses. Vol 1.

33 Kresevic DM. Assessment of physical function. In: Boltz M, Capezuti E, Fulmer T, Zwicker D, 

editor(s). Evidence-based geriatric nursing protocols for best practice. 4th ed. New York (NY): Springer 

Publishing Company; 2012. p. 89-103.
Given the variation in patient and resident populations across the PAC providers, the 

functional activities that are typically assessed by clinicians for each type of PAC provider may 

vary. For example, the activity of rolling left and right in bed is an example of a functional 

activity that may be most relevant for low-functioning patients or residents who are chronically 

critically ill. However, certain functional activities, such as eating, oral hygiene, lying to sitting 

on the side of the bed, toilet transfers, and walking or wheelchair mobility, are important 

activities for patients and residents in each PAC provider. 

Although functional assessment data are currently collected in SNFs, HHAs, IRFs and 

LTCHs, this data collection has employed different assessment instruments, scales, and item 

definitions. The data collected cover similar topics, but are not standardized across PAC 

settings. Further, the different sets of functional assessment items are coupled with different 

rating scales, making communication about patient functioning challenging when patients 

transition from one type of provider to another. Collection of standardized functional assessment 

data across SNFs, HHAs, IRFs and LTCHs, using common data items, would establish a 

common language for patient functioning, which may facilitate communication and care 

coordination as patients transition from one type of provider to another. The collection of 

standardized functional status data may also help improve patient or resident functioning during 

an episode of care by ensuring that basic daily activities are assessed at the start and end of each 

episode of care with the aim of determining whether at least one functional goal is established. 

The functional assessment items included in the proposed functional status quality 

measure were originally developed and tested as part of the Post-Acute Care Payment Reform 

Demonstration version of the CARE Item Set, which was designed to standardize assessment of 

patients' status across acute and post-acute providers, including SNFs, HHAs, IRFs and LTCHs. 
The functional status items on the CARE Item Set are daily activities that clinicians typically 

assess at the time of admission and/or discharge to determine patients' or residents’ needs, 

evaluate patient or resident progress and prepare patients or residents and families for a transition 

to home or to another provider.

The development of the CARE Item Set and a description and rationale for each item is 

described in a report entitled "The Development and Testing of the Continuity Assessment 

Record and Evaluation (CARE) Item Set: Final Report on the Development of the CARE Item 

Set: Volume 1 of 3."

34

Reliability and validity testing were conducted as part of CMS' PostAcute Care Payment Reform Demonstration, and we concluded that the functional status items 

have acceptable reliability and validity. A description of the testing methodology and results are 

available in several reports, including the report entitled "The Development and Testing of the 

Continuity Assessment Record And Evaluation (CARE) Item Set: Final Report On Reliability 

Testing: Volume 2 of 3"

35

and the report entitled "The Development and Testing of The 

Continuity Assessment Record And Evaluation (CARE) Item Set: Final Report on Care Item Set 

and Current Assessment Comparisons: Volume 3 of 3."

36

The reports are available on CMS’ 

Post-Acute Care Quality Initiatives webpage at: http://www.cms.gov/Medicare/QualityInitiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/CARE-Item-Setand-B-CARE.html.

The cross-setting function quality measure we are proposing to adopt for the FY 2018 

payment determination and subsequent years is a process measure that is an application of the 

 

34 Barbara Gage et al., "The Development and Testing of the Continuity Assessment Record and 

Evaluation (CARE) Item Set: Final Report on the Development of the CARE Item Set

" (RTI International, 2012).

35 Ibid.

36 Ibid.
quality measure Percent of LTCH Patients with an Admission and Discharge Functional 

Assessment and a Care Plan that Addresses Function (NQF #2631; under review). This quality 

measure was developed by the CMS. It reports the percent of patients with both an admission 

and a discharge functional assessment and a treatment goal that addresses function. The 

treatment goal provides documentation that a care plan with a goal has been established for the 

patient.

This process measure requires the collection of admission and discharge functional status 

data using standardized clinical assessment items, or data elements, that assess specific 

functional activities, that is, self-care, mobility activities. The self-care and mobility function 

activities are coded using a 6-level rating scale that indicates the patient's level of independence 

with the activity; higher scores indicate more independence. For this quality measure, 

documentation of a goal for one of the function items reflects that the patient’s care plan 

addresses function. The function goal is recorded at admission for at least one of the 

standardized self-care or mobility function items using the 6-level rating scale. 

To the extent that a patient has an incomplete stay (for example, for the purpose of being 

admitted to an acute care facility), collection of discharge functional status data might not be 

feasible. Therefore, for patients with incomplete stays, admission functional status data and at 

least one treatment goal would be required, discharge functional status data would not be

required to be reported.

A TEP convened by our measure development contractor provided input on the technical 

specifications of this quality measure, including the feasibility of implementing the measure 

across PAC settings, including the IRF setting. The TEP supported the implementation of this 

measure across PAC providers and also supported our efforts to standardize this measure for 
cross-setting use. Additionally, the MAP met on February 9, 2015 and provided input to us on 

the measure. The MAP conditionally supported the specification of an application of Percent of 

LTCH Patients With an Admission and Discharge Functional Assessment and a Care Plan That 

Addresses Function (NQF #2631; under review) for use in the IRF QRP as a cross-setting 

measure. MAP conditionally supported this measure pending NQF-endorsement and resolution 

of concerns about the use of two different functional status scales for quality reporting and 

payment purposes. MAP reiterated its support for adding measures addressing function, noting 

the group's special interest in this PAC/LTC core concept. More information about the MAPs 

recommendations for this measure is available at: 

http://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx. 

This quality measure was developed by CMS. The specifications are available for review 

at the IRF QRP website: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/IRF-Quality-Reporting/IRF-Quality-Reporting-Program-Measures-Information-

.html. 

We reviewed the NQF's consensus endorsed measures and were unable to identify any 

NQF-endorsed cross-setting quality measures focused on assessment of function for PAC 

patients. We are also unaware of any other cross-setting quality measures for functional 

assessment that have been endorsed or adopted by another consensus organization. Therefore, 

we are proposing to specify and adopt this functional assessment measure for use in the IRF QRP 

for the FY 2018 payment determination and subsequent years under the Secretary's authority to 

select non-NQF-endorsed measures. As described in more detail in section VIII.I.2, of this 

proposed rule, the proposed first data collection period is 3 months (October 1, 2016 to 
December 31, 2016), and the proposed subsequent data collection periods are 12-months in 

length and follow the calendar year (that is, January 1 to December 31).

We are proposing that data for this proposed quality measure be collected using the IRFPAI, with submission through the QIES ASAP system. For more information on IRF QRP 

reporting through the QIES ASAP system, we refer readers to the CMS Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/NursingHomeQualityInits/NHQIMDS30TechnicalInformation.html.

The measure calculation algorithm is: (1) for each IRF stay, the records of Medicare 

patients discharged during the 12-month target time period are identified and counted; this count 

is the denominator; ( 2) the records of Medicare patients with complete stays are identified, and 

the number of these patient stays with complete admission functional assessment data and at 

least one self-care or mobility activity goal and complete discharge functional assessment data is 

counted; (3) the records of Medicare patients with incomplete stays are identified, and the 

number of these patient records with complete admission functional status data and at least one 

self-care or mobility goal is counted; (4) the counts from step 2 (complete IRF stays) and step 3

(incomplete IRF stays) are summed; the sum is the numerator count; and (5) the numerator count 

is divided by the denominator count to calculate this quality measure. 

For purposes of assessment data collection, we propose to add a new section into the IRFPAI. The new proposed section will include new functional status items that will be used to 

calculate the application of the Percent of LTCH Patients with an Admission and Discharge 

Functional Assessment and a Care Plan that Addresses Function (NQF #2631; under review) 

quality measure should this proposed measure be adopted. The items to be added to the IRF-
PAI, which assess specific self-care and mobility activities, would be based on functional items 

included in the Post-Acute Care Payment Reform Demonstration version of the CARE Item Set. 

The specifications and data elements for the quality measure are available at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/IRF-QualityReporting/IRF-Quality-Reporting-Program-Measures-Information-.html.

The proposed function items to be included within the IRF-PAI do not duplicate existing 

items currently used for data collection within the IRF-PAI. While many of the items to be 

included have labels that are similar to existing items on the IRF-PAI, there are several key 

differences between the 2 assessment item sets that may result in variation in the patient 

assessment results. Key differences include: (1) the data collection and associated data 

collection instructions; (2) the rating scales used to score a patient’s level of independence; and 

(3) the item definitions. A description of these differences is provided with the measure 

specifications on CMS website at: http://www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/IRF-Quality-Reporting/IRF-Quality-Reporting-Program-MeasuresInformation-.html

This measure is calculated at two points in time, at admission and discharge (see 

Proposed Form, Manner, and Timing of Quality Data Submission section of the rule).

The items would assess specific self-care and mobility activities, and would be based on 

functional items included in the Post-Acute Care Payment Reform Demonstration version of the 

CARE Item Set. The items have been developed and tested for reliability and validity in SNFs, 

HHAs, IRFs, and LTCHs. More information pertaining to item testing is available on our PostAcute Care Quality Initiatives webpage at: http://www.cms.gov/Medicare/Quality-Initiatives-
Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/CARE-Item-Set-and-BCARE.html.

For more information on the proposed data collection and submission timeline for the 

proposed quality measure refer to section VIII.I.2, of this proposed rule. Additional information 

regarding the items to be added to the IRF-PAI may be found on CMS website at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/IRF-QualityReporting/IRF-Quality-Reporting-Program-Measures-Information-.html.

Lastly, in alignment with the requirements of the IMPACT Act to develop quality 

measures and standardize data for comparative purposes, we believe that evaluating outcomes 

across the post-acute settings using standardized data is an important priority. Therefore, in 

addition to proposing a process-based measure for the domain in the IMPACT Act of 

“Functional status, cognitive function, and changes in function and cognitive function”, which is 

included in this year's proposed rule, we also intend to develop outcomes-based quality 

measures, including functional status and other quality outcome measures to further satisfy 

this domain. These measures will be proposed in future rulemaking to assess functional change 

for each care setting as well as across care settings.

We invite public comments on our proposal to adopt the application of the quality 

measure Percent of LTCH Patients with an Admission and Discharge Functional Assessment and 

a Care Plan that Addresses Function (NQF #2631; under review) for the IRF QRP, with data 

collection starting on October 1, 2016, for the FY 2018 payment determination and subsequent 

years.
3. IRF Functional Outcome Measure: Change in Self-Care Score for Medical Rehabilitation Patients 

(NQF #2633; under review)

The third quality measure that we are proposing for the FY 2018 payment determination 

and subsequent years is an outcome measure entitled IRF Functional Outcome Measure: Change 

in Self-Care Score for Medical Rehabilitation Patients (NQF #2633, under review). This quality 

measure estimates the risk-adjusted mean change in self-care score between admission and 

discharge among IRF patients. This measure is being proposed under the authority of section 

1886(j)(7)(C) of the Act, and is currently under review by the NQF. A summary of the measure 

specifications can be accessed on the NQF website: http://www.qualityforum.org/qps/2633. 

Detailed specifications for this quality measure can be accessed at: 

http://www.qualityforum.org/ProjectTemplateDownload.aspx?SubmissionID=2633. 

IRFs are designed to provide intensive rehabilitation services to patients. Patients 

seeking care in IRFs are those whose illness, injury, or condition has resulted in a loss of 

function, and for whom rehabilitative care is expected to help regain that function. Examples of 

conditions treated in IRFs include stroke, spinal cord injury, hip fracture, brain injury, 

neurological disorders, and other diagnoses characterized by loss of function. 

Given that the primary goal of rehabilitation is improvement in functional status, IRF 

clinicians have traditionally assessed and documented patients’ functional status at admission 

and discharge to evaluate the effectiveness of the rehabilitation care provided to individual 

patients, as well as the effectiveness of the rehabilitation unit or hospital overall. Differences in 

IRF patients’ functional outcomes have been found by geographic region, insurance type, and 

race/ethnicity after adjusting for key patient demographic characteristics and admission clinical 

status. Therefore, we believe there is an opportunity for improvement in this area. For example, 
Reistetter37 examined discharge motor function and functional gain among IRF patients with 

stroke and found statistically significant differences in functional outcomes by U.S. geographic 

region, by insurance type, and race/ethnicity group after risk adjustment. O’Brien and 

colleagues38 found differences in functional outcomes across race/ethnicity groups in their 

analysis of Medicare assessment data for patients with stroke after risk adjustment. O’Brien and 

colleagues39 also noted that the overall IRF length of stay decreased 1.8 days between 2002 and 

2007 and that shorter IRF stays were significantly associated with lower functioning at 

discharge. 

The functional assessment items included in this quality measure were originally 

developed and tested as part of the Post-Acute Care Payment Reform Demonstration version of 

the CARE Tool,40 which was designed to standardize assessment of patients' status across acute 

and post-acute providers, including IRFs, SNFs, HHAs and LTCHs. The functional status items

on the CARE Tool are daily activities that clinicians typically assess at the time of admission 

and/or discharge to determine patients' needs, evaluate patient progress and prepare patients and 

families for a transition to home or to another provider.

This outcome measure requires the collection of admission and discharge functional 

status data by trained clinicians using standardized clinical assessment items, or data elements 

that assess specific functional self-care activities (for example, eating, oral hygiene, toileting 

 

37Reistetter TA, Karmarkar AM, Graham JE, et al. Regional variation in stroke rehabilitation outcomes. 

Arch Phys Med Rehabil.95(1):29-38, Jan. 2014.

38 O'Brien SR, Xue Y, Ingersoll G, et al. Shorter length of stay is associated with worse functional 

outcomes for medicare beneficiaries with stroke. Physical Therapy. 93(12):1592-1602, Dec. 2013.

39 O'Brien SR, Xue Y, Ingersoll G, et al. Shorter length of stay is associated with worse functional 

outcomes for medicare beneficiaries with stroke. Physical Therapy. 93(12):1592-1602, Dec. 2013.

40 Barbara Gage et al., "The Development and Testing of the Continuity Assessment Record and 

Evaluation (CARE) Item Set: Final Report on the Development of the CARE Item Set" (RTI 

International, 2012).
hygiene). The self-care function items are coded using a 6-level rating scale that indicates the 

patient’s level of independence with the activity; higher scores indicate more independence. In 

addition, this measure requires the collection of risk factors data, such as patient functioning 

prior to the current reason for admission, bladder continence, communication ability and 

cognitive function, at the time of admission.

This self-care quality measure will also standardize the collection of functional status 

data, which can improve communication when patients are transferred between providers. Most 

IRF patients receive care in an acute care hospital prior to the IRF stay, and many IRF patients 

receive care from another provider after the IRF stay. Use of standardized clinical data to 

describe a patient ́s status across providers can facilitate communication across providers. 

Rehabilitation programs have traditionally conceptualized functional status in terms of the need 

for assistance from another person. This is the conceptual basis for the IRF-PAI/FIM®* 

instrument (used in IRFs), the MDS function items (used in nursing homes), and the Outcome 

and Assessment Information Set (OASIS) function items (used in home health). However, the 

functional status items on the IRF-PAI, MDS and OASIS are different; the items, item 

definitions when items are similar and rating scales are different. In a patient-centered health 

care system, there is a need for standardized terminology and assessment items because patients 

often receive care from more than 1 provider. The use of standardized items and terminology 

facilitates clinicians speaking a common language that can be understood across clinical 

disciplines and practice settings.

We released draft specifications for the function quality measures, and requested public 

comment between February 21 and March 14, 2014. We received 40 responses from 

stakeholders with comments and suggestions during the public comment period and have 
updated the specifications based on these comments and suggestions. This quality measure was 

submitted to NQF November 9, 2014 and is currently under review by NQF. A summary of the 

measure specifications can be accessed at http://www.qualityforum.org/qps/2633. The detailed 

measure specifications are available for review at the NQF website: 

http://www.qualityforum.org/ProjectTemplateDownload.aspx?SubmissionID=2633. 

Based on the evidence previously discussed, we are proposing to adopt the quality 

measure entitled IRF Functional Outcome Measure: Change in Self-care Score for Medical 

Rehabilitation Patients (NQF #2633; under review), for the IRF QRP for the FY 2018 payment 

determination and subsequent years. As described in more detail in section VIII.I.2. of this 

proposed rule, the proposed first data collection period is 3 months (October 1, 2016 to 

December 31, 2016) for the FY 2018 payment determination, and the proposed subsequent data 

collection periods are 12-months in length and follow the calendar year (that is, January 1 to 

December 31).

The list of measures under consideration for the IRF QRP, including this quality measure, 

was released to the public on December 1, 2014, and early comments were submitted between 

December 1 and December 5, 2014. The MAP met on December 12, 2014, sought public 

comment on this measure from December 23, 2014 to January 13, 2015, and met on January 26, 

2015. The NQF provided the MAP’s input to us as required under section 1890A(a)(3) of the Act

in the final report, MAP 2015 Considerations for Selection of Measures for Federal Programs: 

Post-Acute/Long-Term Care, which is available at 

http://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx. The 

MAP conditionally supported this measure. Refer to section VIII.B. of this proposed rule for 

more information on the MAP.
In section 1886(m)(5)(D)(ii) of the Act, the exception authority provides that in the case 

of a specified area or medical topic determined appropriate by the Secretary for which a feasible 

and practical measure has not been endorsed by the entity with a contract under section 1890(a) 

of the Act, the Secretary may specify a measure that is not so endorsed as long as due 

consideration is given to measures that have been endorsed or adopted by a consensus 

organization identified by the Secretary. We reviewed the NQF’s consensus endorsed measures 

and were unable to identify any NQF-endorsed quality measures focused on assessment of 

functional status for patients in the IRF setting. There are related measures, but they are not 

endorsed for IRFs and several focus on 1 condition (for example, knee or shoulder impairment). 

We are not aware a of any other quality measures for functional assessment that have been 

endorsed or adopted by another consensus organization for the IRF setting. Therefore, we are 

proposing to adopt this measure, IRF Functional Outcome Measure: Change in Self-Care Score for 

Medical Rehabilitation Patients (NQF #2633; under review), for use in the IRF QRP for the 

FY 2018 payment determination and subsequent years under the Secretary’s authority to select 

non-NQF-endorsed measures. 

The specifications and data elements for the quality measure are available at 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/IRF-QualityReporting/IRF-Quality-Reporting-Program-Measures-Information-.html.

We are proposing that data for the proposed quality measure be collected using the IRF-PAI, 

with the submission through the QIES ASAP system. For more information on IRF QRP 

reporting through the QIES ASAP system, refer to CMS website at: 

http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/IRF-QualityReporting/index.html.
We propose to revise the IRF-PAI to include new items that assess functional status and 

the risk factor items, should this proposed measure be adopted. The function items, which assess 

specific self-care functional activities, would be based on functional items included in the PostAcute Care Payment Reform Demonstration version of the CARE Item Set. 

We invite public comments on our proposal to adopt the quality measure entitled IRF 

Functional Outcome Measure: Change in Self-care Score for Medical Rehabilitation Patients 

(NQF #2633, under review) for the IRF QRP, with data collection starting on October 1, 2016, 

for the FY 2018 payment determination and subsequent years. Refer to section VIII.I.2. of this 

proposed rule for more information on the proposed data collection and submission timeline for 

this proposed quality measure. 

4. IRF Functional Outcome Measure: Change in Mobility Score for Medical Rehabilitation Patients 

(NQF #2634; under review)

The fourth quality measure we are proposing for the FY 2018 payment determination and 

subsequent years is an outcome quality measure entitled IRF Functional Outcome Measure: 

Change in Mobility Score for Medical Rehabilitation Patients (NQF #2634; under review). This 

quality measure estimates the risk-adjusted mean change in mobility score between admission 

and discharge among IRF patients. This measure is being proposed under the authority of 

section 1886(j)(7)(C) of the Act, and is currently under review by NQF. A summary of this 

quality measure can be accessed on the NQF website: http://www.qualityforum.org/qps/2634. 

More detailed specifications for this quality measure can be accessed at: 

http://www.qualityforum.org/ProjectTemplateDownload.aspx?SubmissionID=2634.

This outcome measure requires the collection of admission and discharge functional 

status data by trained clinicians using standardized clinical assessment items, or data elements 
that assess specific functional mobility activities (for example, toilet transfer and walking). The 

mobility function items are coded using a 6-level rating scale that indicates the patient’s level of 

independence with the activity; higher scores indicate more independence. In addition, this 

measure requires the collection of risk factors data, such as patient functioning prior to the 

current reason for admission, history of falls, bladder continence, communication ability and 

cognitive function, at the time of admission.

As noted in the previous section, IRFs provide intensive rehabilitation services to patients

with a goal of improving patient functioning. 

We released draft specifications for the function quality measures, and requested public 

comment between February 21 and March 14, 2014. We received 40 responses from 

stakeholders with comments and suggestions during the public comment period, and have 

updated the measures specifications based on these comments and suggestions. The quality 

measure was developed by CMS and was submitted for endorsement review to NQF in 

November 2014. A summary of the quality measure can be accessed on the NQF website: 

http://www.qualityforum.org/qps/2634. More detailed specifications for this quality measure can 

be accessed at: 

http://www.qualityforum.org/ProjectTemplateDownload.aspx?SubmissionID=2634

Based on the evidence previously discussed, we are proposing to adopt for the IRF QRP 

for the FY 2018 payment determination and subsequent years the quality measure entitled IRF 

Functional Outcome Measure: Change in Mobility Score for Medical Rehabilitation Patients 

(NQF #2634; under review). As described in more detail in section VIII.I.2. of this proposed 

rule, the proposed first data collection period is 3 months (October 1, 2016 to 
December 31, 2016), and the proposed subsequent data collection periods are 12-months in 

length and follow the calendar year (that is, January 1 to December 31).

The list of measures under consideration for the IRF QRP, including this quality measure, 

was released to the public on December 1, 2014, and early comments were submitted between 

December 1 and December 5, 2014. The MAP met on December 9 2014, sought public comment 

on this measure from December 23, 2014 to January 13, 2015, and met on January 26, 2015. 

They provided input to us as required under section 1890A(a)(3) of the Act in the final report, 

MAP 2015 Considerations for Selection of Measures for Federal Programs: Post-Acute/LongTerm Care, which is available at 

http://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx. The 

MAP conditionally supported this measure. Refer to section VIII.B. of this proposed rule for 

more information on the MAP.

We reviewed the NQF’s consensus endorsed measures and were unable to identify any 

NQF-endorsed quality measures focused on assessment of functional status for patients in the 

IRF setting. There are related measures--for example, Improvement in ambulation/locomotion 

(NQF #0167), Improvement in bed transferring (NQF #0175), Functional status change for 

patients with Knee impairments (NQF #0422), Functional status change for patients with Hip 

impairments (NQF #423)--but they are not endorsed for IRFs, and several focus on 1 condition 

(for example, knee or hip impairment). We are not aware of any other quality measures for 

functional assessment that have been endorsed or adopted by another consensus organization for 

the IRF setting. Therefore, we are proposing to adopt this measure, IRF Functional Outcome 

Measure: Change in Mobility Score for Medical Rehabilitation Patients (NQF #2634; under 
review), for use in the IRF QRP for the FY 2018 payment determination and subsequent years 

under the Secretary’s authority to select non-NQF-endorsed measures. 

The specifications and data elements for the quality measure are available at 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/IRF-QualityReporting/IRF-Quality-Reporting-Program-Measures-Information-.html.

We are proposing that data for the proposed quality measure be collected using the IRFPAI, with submission through the QIES ASAP system. For more information on IRF QRP 

reporting through the QIES ASAP system, refer to CMS website at: 

http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/IRF-QualityReporting/index.html.

We invite public comments on our proposal to adopt the quality measure entitled IRF 

Functional Outcome Measure: Change in Mobility Score for Medical Rehabilitation Patients 

(NQF #2634; under review) for the IRF QRP, with data collection starting on October 1, 2016, 

for the FY 2018 payment determination and subsequent years. Refer to section VIII.I.2.of this 

proposed rule for more information on the proposed data collection and submission timeline for 

this proposed quality measure.

5. IRF Functional Outcome Measure: Discharge Self-Care Score for Medical Rehabilitation 

Patients (NQF #2635; under review)

The fifth quality measure we are proposing for the FY 2018 payment determination and 

subsequent years is an outcome quality measure entitled: IRF Functional Outcome Measure: 

Discharge Self-Care Score for Medical Rehabilitation Patients (NQF #2635, under review). This 

quality measure estimates the percentage of IRF patients who meet or exceed an expected 

discharge self-care score. This measure is being proposed under the authority of section 
1886(j)(7)(C) of the Act, and is currently under review by NQF. A summary of this quality 

measure can be accessed on the NQF website: http://www.qualityforum.org/qps/2635. More 

detailed specifications for the quality measure can be accessed at: 

http://www.qualityforum.org/ProjectTemplateDownload.aspx?SubmissionID=2635. 

This outcome measure requires the collection of admission and discharge functional 

status data by trained clinicians using standardized clinical assessment items, or data elements 

that assess specific functional mobility activities (that is, eating, oral hygiene, and dressing). The 

self-care function items are coded using a 6-level rating scale that indicates the patient’s level of 

independence with the activity; higher scores indicate more independence. In addition, this 

measure requires the collection of risk factors data, such as patient functioning prior to the 

current reason for admission, bladder continence, communication ability and cognitive function, 

at the time of admission. The data collection required for this measure is the same data required 

to the measure: IRF Functional Outcome Measure: Change in Self-Care Score for Medical 

Rehabilitation Patients (NQF #2635; under review).

As noted in the previous section, IRFs provide intensive rehabilitation services to patients

with a goal of improving patient functioning. 

We released draft specifications for the function quality measures, and requested public 

comment between February 21 and March 14, 2014. We received 40 responses from 

stakeholders with comments and suggestions during the public comment period, and have 

updated all four IRF quality measures specifications based on these comments and suggestions. 

This quality measure was submitted to the NQF on November 9, 2014 and is currently under 

review by NQF. A summary of this quality measure can be accessed on the NQF website: 

http://www.qualityforum.org/qps/2634. More detailed specifications for this quality measure can 
be accessed at: 

http://www.qualityforum.org/ProjectTemplateDownload.aspx?SubmissionID=2634

Based on the evidence previously discussed, we are proposing to adopt for the IRF QRP 

for the FY 2018 payment determination and subsequent years the quality measure entitled IRF 

Functional Outcome Measure: Discharge Self-Care Score for Medical Rehabilitation Patients 

(NQF #2635; under review). 

The list of measures under consideration for the IRF QRP, including this quality measure, 

was released to the public on December 1, 2014, and early comments were submitted between 

December 1 and December 5, 2014. The MAP met on December 9, 2014, sought public 

comment on this measure from December 23, 2014 to January 13, 2015, and met on 

January 26, 2015. They provided input to us as required under section 1890A(a)(3) of the Act in 

the final report, MAP 2015 Considerations for Selection of Measures for Federal Programs: PostAcute/Long-Term Care, which is available at 

http://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx. The 

MAP conditionally supported this measure. Refer to section VIII.B. of this proposed rule for 

more information on the MAP.

We reviewed the NQF’s consensus endorsed measures and were unable to identify any 

NQF-endorsed quality measures focused on assessment of functional status for patients in the 

IRF setting. There are related measures, but they are not endorsed for IRFs and several focus on 

one condition (for example, knee or shoulder impairment). We are not aware of any other 

quality measures for functional outcomes that have been endorsed or adopted by another 

consensus organization for the IRF setting. Therefore, we are proposing to adopt this measure, 

IRF Functional Outcome Measure: Discharge Self-Care Score for Medical Rehabilitation Patients 
(NQF #2635; under review), for use in the IRF QRP for the FY 2018 payment determination and 

subsequent years under the Secretary’s authority to select non-NQF-endorsed measures. As 

described in more detail in section VIII.I.2 of this proposed rule, the proposed first data 

collection period is 3 months (October 1, 2016 to December 31, 2016), and the proposed 

subsequent data collection periods are 12-months in length and follow the calendar year (that is, 

January 1 to December 31).

The specifications and data elements for the quality measure are available at 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/IRF-QualityReporting/IRF-Quality-Reporting-Program-Measures-Information-.html.

We are proposing that data for the proposed quality measure be collected using the IRFPAI, with submission through the QIES ASAP system. For more information on IRF QRP 

reporting through the QIES ASAP system, refer to CMS website at: 

http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/IRF-QualityReporting/index.html.

We invite public comments on our proposal to adopt the quality measure entitled IRF 

Functional Outcome Measure: Discharge Self-Care Score for Medical Rehabilitation Patients 

(NQF #2635, under review) for the IRF QRP, with data collection starting on October 1, 2016, 

for the FY 2018 payment determination and subsequent years. For more information on the 

proposed data collection and submission timeline for this proposed quality measure, refer to 

section VIII.I.2, of this proposed rule.
6. IRF Functional Outcome Measure: Discharge Mobility Score for Medical Rehabilitation 

Patients (NQF #2636; under review)

The sixth quality measure we are proposing for the FY 2016 implementation and the 

FY 2018 payment determination and subsequent years is an outcome quality measure entitled: 

IRF Functional Outcome Measure: Discharge Mobility Score for Medical Rehabilitation Patients 

(NQF #2636; under review). This quality measure estimates the percentage of IRF patients who 

meet or exceed an expected discharge mobility score. This measure is being proposed under the 

authority of section 1886(j)(7)(C) of the Act, and is currently under review by NQF. A summary 

of this quality measure can be accessed on the NQF website: 

http://www.qualityforum.org/qps/2636. More detailed specifications for this quality measure can 

be accessed at: 

http://www.qualityforum.org/ProjectTemplateDownload.aspx?SubmissionID=2636

This outcome measure requires the collection of admission and discharge functional 

status data by trained clinicians using standardized clinical assessment items, or data elements 

that assess specific functional mobility activities (that is, bed mobility and walking). The 

mobility function items are coded using a 6-level rating scale that indicates the patient’s level of 

independence with the activity; higher scores indicate more independence. In addition, this 

measure requires the collection of risk factors data, such as patient functioning prior to the 

current reason for admission, history of falls, bladder continence, communication ability and 

cognitive function, at the time of admission. Note that the data collection required for this 

measure is the same data required to the measure: IRF Functional Outcome Measure: Mobility in 

Self-Care Score for Medical Rehabilitation Patients (NQF #2634; under review).
As noted in the previous section, IRFs provide intensive rehabilitation services to patients

with a goal of improving patient functioning. 

We released draft specifications for the function quality measures, and requested public 

comment between February 21 and March 14, 2014. We received 40 responses from 

stakeholders with comments and suggestions during the public comment period, and have 

updated all 4 IRF quality measures specifications based on these comments and suggestions. 

This quality measure was submitted to the NQF on November 9, 2014 and is currently under 

review by NQF. A summary of this quality measure can be accessed on the NQF website: 

http://www.qualityforum.org/qps/2634. More detailed specifications for this quality measure can 

be accessed at: 

http://www.qualityforum.org/ProjectTemplateDownload.aspx?SubmissionID=2634

Based on the evidence discussed earlier, we are proposing to adopt for the IRF QRP for 

the FY 2018 payment determination and subsequent years the quality measure entitled IRF 

Functional Outcome Measure: Discharge Mobility Score for Medical Rehabilitation Patients 

(NQF #2636; under review). As described in more detail in section VIII.I.2. of this proposed 

rule, the proposed first data collection period is 3 months (October 1, 2016 to 

December 31, 2016), and the proposed subsequent data collection periods are 12-months in 

length and follow the calendar year (that is, January 1 to December 31).

The list of measures under consideration for the IRF QRP, including this quality measure, 

was released to the public on December 1, 2014, and early comments were submitted between 

December 1 and December 5, 2014. The MAP met on December 9, 2014, sought public 

comment on this measure from December 23, 2014 to January 13, 2015, and met on 

January 26, 2015. They provided input to us as required under section 1890A(a)(3) of the Act in 
the final report, MAP 2015 Considerations for Selection of Measures for Federal Programs: PostAcute/Long-Term Care, which is available at

http://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx. The 

MAP conditionally supported this measure. Refer to section VIII.B. of this proposed rule for 

more information on the MAP.

We reviewed the NQF’s consensus endorsed measures and were unable to identify any 

NQF-endorsed quality measures focused on assessment of functional status for patients in the 

IRF setting. There are related measures, but they are not endorsed for IRFs and several focus on 

one condition (for example, knee or shoulder impairment). We are not aware of any other 

quality measures for functional outcomes that have been endorsed or adopted by another 

consensus organization for the IRF setting. Therefore, we are proposing to adopt this measure, 

IRF Functional Outcome Measure: Discharge Mobility Score for Medical Rehabilitation Patients (NQF 

#2636; under review), for use in the IRF QRP for the FY 2018 payment determination and 

subsequent years under the Secretary’s authority to select non-NQF-endorsed measures.

We are proposing that data for this quality measure be collected using the IRF-PAI, with 

submission through the QIES ASAP system. For more information on IRF QRP reporting 

through the QIES ASAP system, refer to CMS website at: http://cms.gov/Medicare/QualityInitiatives-Patient-Assessment-Instruments/IRF-Quality-Reporting/index.html.

We invite public comments on our proposal to adopt the quality measure entitled IRF 

Functional Outcome Measure: Discharge Mobility Score for Medical Rehabilitation Patients 

(NQF #2636; under review) for the IRF QRP, with data collection starting on October 1, 2016, 

for the FY 2018 payment determination and subsequent years. Refer to section IX.C.9.c. of this 
proposed rule for more information on the proposed data collection and submission timeline for 

this quality measure.

TABLE 19: Summary of IRF QRP Measures Affecting the FY 2017 and FY 2018 

Adjustments to the IRF PPS Annual Increase Factor and Subsequent Year 

Increase Factors

Continued IRF QRP Measures Affecting the FY 2017 Adjustments to the IRF PPS Annual

Increase Factor and Subsequent Year Increase Factors:

 NQF #0138: National Health Safety Network (NHSN) Catheter-Associated Urinary Tract 

Infection (CAUTI) Outcome Measure+

 NQF #0431: Influenza Vaccination Coverage among Healthcare Personnel+

 NQF #0680: Percent of Residents or Patients Who Were Assessed and Appropriately 

Given the Seasonal Influenza Vaccine (Short-Stay)

 NQF #1716: National Healthcare Safety Network (NHSN) Facility-Wide Inpatient 

Hospital-Onset Methicillin-Resistant Staphylococcus aureus (MRSA) Bacteremia 

Outcome Measure+

 NQF #1717: National Healthcare Safety Network (NHSN) Facility-Wide Inpatient 

Hospital-Onset Clostridium difficile Infection (CDI) Outcome Measure+

 NQF #2502: All-Cause Unplanned Readmission Measure for 30 Days Post-Discharge 

from IRFs*^

 NQF #0678: Percent of Residents or Patients with Pressure Ulcers That Are New or 

Worsened (Short-Stay)*

Proposed New and Re-Proposed IRF QRP Measures Affecting FY 2018 Adjustments to the IRF 

PPS Annual Increase Factor and Subsequent Year Increase Factors

 NQF #2502: All-Cause Unplanned Readmission Measure for 30 Days Post-Discharge 

from IRFs*^

 NQF #0678: Percent of Residents or Patients with Pressure Ulcers That Are New or 

Worsened (Short-Stay)* (data element source: pressure ulcer items from the LTCH 

CARE Data Set)^^

 NQF #0674: An application of Percent of Residents Experiencing One or More Falls with 

Major Injury (Long Stay) (data element source: Falls items from the Minimum Data Set 

3.0)** ^^^

 NQF #2631; under review: An application of Percent of LTCH Patients with a an 

Admission and Discharge Functional Assessment and a Care Plan that Addressed 

Function (data element source: selected function items from the CARE Tool used during 

the Post-Acute Care Payment Reform Demonstration)*** ^^^

 NQF #2633; under review: IRF Functional Outcome Measure: Change in Self-Care Score 

for Medical Rehabilitation Patients** (data element source: selected function items from 

the CARE Tool used during the Post-Acute Care Payment Reform Demonstration)*** 

^^^

 NQF #2634; under review: IRF Functional Outcome Measure: Change in Mobility Score 

for Medical Rehabilitation Patients (data element source: selected function items from the 

CARE Tool used during the Post-Acute Care Payment Reform Demonstration)*** ^^^

 NQF #2635; under review: IRF Functional Outcome Measure: Discharge Self-Care Score 
for Medical Rehabilitation Patients (data element source: selected function items from the 

CARE Tool used during the Post-Acute Care Payment Reform Demonstration)*** ^^^

 NQF #2636; under review: IRF Functional Outcome Measure: Discharge Mobility Score 

for Medical Rehabilitation Patients (data element source: selected function items from the 

CARE Tool used during the Post-Acute Care Payment Reform Demonstration)***^^^

+Using CDC/NHSN

^Medicare Fee-for-Service claims data

^^ IRF-PAI items would be modified

^^^ New IRF-PAI items would be required

* Re-proposed quality measure for FY2018 and subsequent years

** Not NQF-endorsed for the IRF setting.

***Not NQF-endorsed, CMS submitted the measure for NQF review in November 2014

H. IRF QRP Quality Measures and Measure Concepts under Consideration for Future Years 

We are inviting public comments on relevance and applicability of each of the quality 

measures and quality measure concepts listed in Table 20 for future years in the IRF QRP. 

Specifically, we invite public comments regarding the clinical importance, the feasibility of data 

collection and implementation to inform and improve quality of care delivered to IRF patients.

TABLE 20: Future Measures and Measure Concepts under Consideration for the IRF 

Quality Reporting Program

National Quality Strategy Priority: Patient Safety 

 Venous Thromboembolism Prophylaxis 

 Medication Reconciliation*

National Quality Strategy Priority: Effective Communication and Coordination of Care

 Transfer of health information and care preferences when an individual transitions*

 All-Condition Risk-Adjusted Potentially Preventable Hospital Readmission Rates*

National Quality Strategy Priority: Patient- and Caregiver-Centered Care

 Discharge to Community* 

 Patient Experience of Care

 Percent of Patients with Moderate to Severe Pain 

National Quality Strategy Priority: Affordable Care

 Medicare Spending per Beneficiary*

* Indicates that this is a cross-setting measure domain listed in the IMPACT Act of 2014.
I. Proposed Form, Manner, and Timing of Quality Data Submission for the FY 2018 

Payment Determination and Subsequent Years

1. Background 

Section 1886(j)(7)(C) of the Act requires that, for the FY 2014 payment determination 

and subsequent years, each IRF submit to the Secretary data on quality measures specified by the 

Secretary. In addition, section 1886(j)(7)(F) of the Act, as added by the IMPACT Act, requires 

that, for the FY beginning on the specified application date, as defined in section 1899B(a)(2)(E) 

of the Act, and each subsequent year, each IRF submit to the Secretary data on measures 

specified by the Secretary under section 1899B. The data required under section 1886(j)(7)(C)

and (F) must be submitted in a form and manner, and at a time, specified by the Secretary. As 

required by section 1886(j)(7)(A)(i) of the Act, for any IRF that does not submit data in 

accordance with section 1886(j)(7)(C) and (F) of the Act with respect to a given fiscal year, the

annual increase factor for payments for discharges occurring during the fiscal year must be 

reduced by 2 percentage points.

2. Proposed Timeline for Data Submission under the IRF QRP for the FY 2018 and FY 

2019 Payment Determinations

We propose the following data submission timeline for the quality measures that we have 

proposed for the FY 2018 adjustments to the IRF PPS annual increase factor. We propose that 

IRFs would be required to submit IRF-PAI data on discharges occurring between 

October 1, 2016 and December 31, 2016 (first quarter), for the FY 2018 adjustments to the IRF 

PPS annual increase factor. For FY 2019, we propose that IRFs would be required to submit data 

on discharges occurring between January 1, 2017 and December 31, 2017 (1 year). We propose 

this time frame because we believe this will provide sufficient time for IRFs, and we can put 
processes and procedures in place to meet the additional quality reporting requirements. Given 

that these measures are collected via the IRF-PAI, and IRFs are already familiar with the QIES 

ASAP system, we believe this proposed timeframe will allow IRFs ample opportunity to begin 

reporting the newly proposed measures, should they be finalized. We also propose that the 

quarterly data submission deadlines (for submitting IRF-PAI corrections) for the FY 2018 

adjustments to the IRF PPS annual increase factor occur approximately 135 days after the end of 

the quarter, as outlined in the Table 21. Each quarterly deadline would be the date by which all 

data collected during the preceding quarter would be required to be submitted to us for measures 

using the IRF-PAI. 

We invite public comment on these proposed timelines for data submission for the 

proposed IRF QRP quality measures for the FY 2018 and FY 2019 adjustments to the IRF PPS 

annual increase factor.

Table 21: Data Collection Time Frame and Submission Deadlines for Proposed IRF QRP 

Quality Data for Measures* using IRF-PAI as Data Collection Mechanism, FY 2018 

Adjustments to the Annual Increase Factor 

Quarter 

(Calendar 

Year)

Data Collection Time Frame

Deadline 

Submission of 

IRF-PAI 

Corrections

Annual Increase 

Factor Affected

Quarter 4 

(CY 2016) October 1, 2016 – December 31, 2016 May 15, 2017 FY 2018 

* includes data required for the 3 cross-setting IMPACT Act measures. 

Table 22: Data Collection Time Frame and Submission Deadlines for Re-Proposed and 

Additional IRF QRP Quality Data for Measures using IRF-PAI as Data Collection 

Mechanism, FY 2019 Adjustments to the Annual Increase Factor 

Quarter 

(Calendar 

Year)

Data Collection Time Frame Deadline Submission of 

IRF-PAI Corrections

Annual 

Increase 

Factor 

Affected

Quarter 1 

(CY 2017) January 1, 2017 – March 31, 2017 August 15, 2017 FY 2019 
Quarter 

(Calendar 

Year)

Data Collection Time Frame Deadline Submission of 

IRF-PAI Corrections

Annual 

Increase 

Factor 

Affected

Quarter 2 

(CY 2017) April 1, 2017 – June 30, 2017 November 15, 2017 FY 2019 

Quarter 3 

(CY 2017) July 1, 2017 – September 30, 2017 February 15, 2018 FY 2019 

Quarter 4 

(CY 2017) October 1, 2017 – December 31, 2017 May 15, 2018 FY 2019 

3. Proposed Revision to the Previously Adopted Data Collection Timelines and Submission 

Deadlines 

We are proposing that the quality measures in the IRF QRP have a data collection time 

frame based on the calendar year, unless there is a clinical reason for an alternative data 

collection time frame. For example, for Influenza Vaccination Coverage among Healthcare

Personnel (NQF #0431) and Percent of Residents or Patients Who Were Assessed and

Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF #0680), the data 

collection period is tied to the influenza vaccination season. At this time, three of the quality 

measures submitted via CDC’s NHSN (that is, the CAUTI measure [NQF #0138], the MRSA 

measure [NQF #1716], and the CDI measure [NQF #1717]) use a quarterly data collection time 

frame based on the calendar year. The pressure ulcer measure [NQF #0678], which is submitted 

using the IRF-PAI, follows a fiscal year data collection time frame due to the current fiscal-yearbased release schedule of the IRF-PAI. The two influenza vaccination quality measures (Percent 

of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal Influenza 

Vaccine [NQF #0680], Influenza Vaccination Coverage among Healthcare Personnel [NQF 

#0431]) use a data collection time frame that is consistent with the influenza vaccination season 

(that is, October 1 [or when the vaccine becomes available] to March 31). 
We are proposing to revise the data collection time frame to follow the calendar year, 

unless there is a clinical reason for an alternative data collection time frame. We posit this 

change will simplify the data collection and submission timeframe under the IRF QRP for IRF 

providers. It would also eliminate the situation in which data collection during a quarter in the 

same calendar year can affect two different years of annual payment update determination (that 

is, October 1 to December 31 is first quarter of data collection for quality measures with fiscal 

year data collection time frame and the last quarter of data collection for quality measures with 

calendar data collection time frame). If this proposal was implemented, when additional quality 

measures that use IRF-PAI as the data collection mechanism are adopted for the IRF QRP, the 

first data collection time frame will be 3 months (October to December) and subsequent data 

collection timeframe would follow a calendar year data collection time frame.

We invite public comments on our proposal to adopt calendar data collection timeframes, 

unless there is a clinical reason for an alternative data collection time frame.

4. Proposed Data Submission Mechanisms for the FY 2018 and Subsequent Years Payment 

Determination for Additional IRF QRP Quality Measures and for Revisions to Previously 

Adopted Quality Measures

We are proposing that all IRFs would be required to collect data using a revised IRF-PAI 

Version 1.4 (IRF-PAI 1.4) for the proposed pressure ulcer measure and the additional six quality 

measures: (1) Percent of Residents or Patients with Pressure Ulcers That Are New or Worsened 

(Short-Stay) ((NQF #0678); (2) an application of Percent of Residents Experiencing One or More 

Falls with Major Injury (Long Stay) (NQF #0674); (3) an application of Percent of LTCH Patients 

with an Admission and Discharge Functional Assessment and a Care Plan That Addresses Function 

(NQF #2631; under review); (4) IRF Functional Outcome Measure: Change in Self-Care Score for 
Medical Rehabilitation Patients (NQF #2633; under review); (5) IRF Functional Outcome Measure: 

Change in Mobility Score for Medical Rehabilitation Patients (NQF #2634; under review); (6) IRF 

Functional Outcome Measure: Discharge Self-Care Score for Medical Rehabilitation Patients (NQF 

#2635; under review); and (7) IRF Functional Outcome Measure: Discharge Mobility Score for 

Medical Rehabilitation Patients (NQF #2636; under review). IRF-PAI Version 1.4 would have 

modified pressure ulcer items collected at admission and discharge, new fall items collected at 

discharge, new self-care and mobility functional status items collected at admission and

discharge, and new risk factor items for the self-care and mobility measures collected at 

admission. The proposed IRF-PAI Version 1.4 is available at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/IRF-QualityReporting/IRF-Quality-Reporting-Program-Measures-Information-.html

The QIES ASAP system would remain the data submission mechanism for the IRF-PAI. 

We will release the technical data submission specifications and update the IRF-PAI Training 

Manual to include items related to the new and updated quality measures in CY 2015. Further 

information on data submission of the IRF-PAI for the IRF QRP using the QIES ASAP system is 

available at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/InpatientRehabFacPPS/IRFPAI.html. We invite public comments on these proposals.

J. Previously Adopted and Proposed Timing for New IRFs to Begin Submitting Quality Data 

under the IRF QRP for the FY 2018 Payment Determination and Subsequent Years

In the FY 2015 IRF PPS (79 FR 45918), we finalized that beginning with the FY 2017 

payment determination and that of subsequent fiscal years, new IRFs are required to begin 

reporting data under the IRF QRP requirements no later than the first day of the calendar quarter 

subsequent to the quarter in which it was designated as operating in the Certification and Survey 
Provider Enhanced Reports (CASPER) system. 

To ensure that all IRFs have a minimum amount of time to prepare to submit quality data 

to CMS under the requirements of the IRF QRP, beginning with the FY 2017 payment 

determination, we are proposing that a new IRF be required to begin reporting quality data under 

the IRF QRP by no later than the first day of the calendar quarter subsequent to 30 days after the 

date on its CMS Certification Number (CCN) notification letter. For example, if an IRF’s CCN 

notification letter is dated March 15th, then the IRF would be required to begin reporting quality 

data to CMS beginning on July 1st (March 15 + 30 days = April 14 (quarter 2). The IRF would be 

required to begin collecting quality data on the first day of the quarter subsequent to quarter 2, 

which is quarter 3, or July 1st). The collection of quality data would begin on the first day of the 

calendar year quarter identified as the start date, and would include all IRF admissions and 

subsequent discharges beginning on, and subsequent to, that day; however, the actual submission 

of quality data would be required by previously finalized quarterly deadlines, which fall 

approximately 135 days post the end of each CY quarter. To determine which quality measure 

data an IRF would need to begin submitting, we refer you to section VIII.E of this proposed rule, 

as it will vary depending upon the timing of the CY quarter identified as a start date.

We propose to add the IRF QRP participation requirements at §412.634 and invite public 

comments on our proposal to the participation requirements for new IRFs.

K. IRF QRP Data Completion Thresholds for the FY 2016 Payment Determination and 

Subsequent Years

In the FY 2015 IRF PPS final rule (79 FR 45921 through 45923), we finalized IRF QRP 

thresholds for completeness of IRF data submissions. To ensure that IRFs are meeting an 

acceptable standard for completeness of submitted data, we finalized the policy that, beginning 
with the FY 2016 payment determination and for each subsequent year, IRFs must meet or exceed 

two separate data completeness thresholds: one threshold set at 95 percent for completion of 

quality measures data collected using the IRF-PAI submitted through the QIES and a second 

threshold set at 100 percent for quality measures data collected and submitted using the CDC 

NHSN. 

Additionally, we stated that we will apply the same thresholds to all measures adopted as 

the IRF QRP expands and IRFs begin reporting data on previously finalized measure sets. That 

is, as we finalize new measures through the regulatory process, IRFs will be held accountable for 

meeting the previously finalized data completion threshold requirements for each measure until 

such time that updated threshold requirements are proposed and finalized through a subsequent 

regulatory cycle.

Further, we finalized the requirement that an IRF must meet or exceed both thresholds to 

avoid receiving a 2 percentage point reduction to their annual payment update for a given fiscal 

year, beginning with FY 2016 and for all subsequent payment updates. We are not proposing any 

changes to these policies. Refer to the FY 2015 IRF PPS final rule (79 FR 45921 through 45923) 

for a detailed discussion of the finalized IRF QRP data completion requirements.

L. Proposed Suspension of the IRF QRP Data Validation Process for the FY 2016 Payment 

Determination and Subsequent Years

Validation is intended to provide added assurance of the accuracy of the data that will be 

reported to the public as required by sections 1886(j)(7)(E) and 1899B(g) of the Act. In the 

FY 2015 IRF PPS rule (79 FR 45923), we finalized, for the FY 2016 adjustments to the IRF PPS 

annual increase factor and subsequent years, a process to validate the data submitted for quality 

purposes. At this time we are proposing to temporarily suspend the implementation of this policy. 
We are proposing that, through the suspension of this previously finalized policy, data accuracy 

validation will have no bearing on the applicable FY annual increase factor reduction for FY 2016 

and subsequent years unless and until we propose to either reenact this policy, or propose to adopt 

a new validation policy through future notice-and-comment rulemaking. At this time, we are 

working to develop a more comprehensive data validation policy that is aligned across the PAC 

quality reporting programs, and believe that we can implement a policy that increases the 

efficiency with which data validation is performed. We are also considering ways to reduce the 

labor and cost burden on IRFs through the development of a new data accuracy validation policy. 

We invite comment on our proposal. 

M. Previously Adopted and Proposed IRF QRP Submission Exception and Extension 

Requirements for the FY 2017 Payment Determination and Subsequent Years

In the FY 2014 IRF PPS final rule (78 FR 47920), we finalized a process for IRF 

providers to request and for us to grant exceptions or extensions for the reporting requirements of 

the IRF QRP for one or more quarters, beginning with the FY 2015 payment determination and 

for subsequent years when there are extraordinary circumstances beyond the control of the 

provider. We also finalized a policy that allows us to grant exemptions or extensions to IRFs that 

did not request them when it is determined than an extraordinary circumstance affects an entire 

region or locale. 

In the FY 2015 IRF PPS final rule (79 FR 45920 through 45921), we adopted the policies 

and procedures previously finalized in the FY 2014 IRF PPS final rule for the FY 2017 payment 

determination and that of subsequent years. We also finalized the policy that grant an exception 

or extension to IRFs if we determine that a systemic problem with one of our data collection 

systems directly affected the ability of an IRF to submit data.
We are not proposing any changes to the previously finalized policies and procedures for 

the FY 2018 payment determination and beyond.

In the FY 2014 IRF PPS final rule and the FY 2015 IRF PPS final rule, we stated that 

IRFs must submit request an exception or extension by submitting a written request along with all 

supporting documentation to CMS via email to the IRF QRP mailbox at 

IRFQRPReconsiderations@cms.hhs.gov. We further stated that exception or extension requests 

sent to us through any other channel would not be considered as a valid request for an exception 

or extension from the IRF QRP’s reporting requirements for any payment determination. To be 

considered, a request for an exception or extension must contain all of the requirements as 

outlined on CMS website at: http://www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/IRF-Quality-Reporting/IRF-Quality-Reporting-Reconsideration-andException-and-Extension.html.

We propose to add the IRF QRP Submission Exception and Extension Requirements at 

§412.634. Refer to the FY 2014 IRF PPS final rule (78 FR 47920) and the FY 2015 IRF PPS 

final rule (79 FR 45920 through 45921) for detailed discussions of the IRF QRP Submission 

Exception and Extension Requirements.

N. Previously Adopted and Proposed IRF QRP Reconsideration and Appeals Procedures for 

the FY 2017 Payment Determination and Subsequent Years

At the conclusion of each FY reporting cycle, we review the data received from each IRF 

to determine if the IRF met the reporting requirements set forth for that reporting cycle. IRFs that 

are found to be non-compliant will receive a reduction in the amount of 2 percentage points to 

their annual payment update for the applicable fiscal year. In the FY 2015 IRF PPS final rule 

(79 FR 45919 through 45920), we described and adopted an updated process that enables an IRF 
to request a reconsideration of our initial noncompliance decision in the event that an IRF believes 

that it was incorrectly identified as being subject to the 2-percentage point reduction to its IRF 

PPS annual increase factor due to noncompliance with the IRF QRP reporting requirements for a 

given reporting period.

Any IRF that wishes to submit a reconsideration request must do so by submitting an 

email to CMS containing all of the requirements listed on the IRF program website at 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/IRF-QualityReporting/IRF-Quality-Reporting-Reconsideration-and-Exception-and-Extension.html. Email 

sent to IRFQRPReconsiderations@cms.hhs.gov is the only form of submission that will be 

accepted by us. Any reconsideration requests received through another channel, including U.S. 

postal service or phone, will not be considered as a valid reconsideration request.

We propose to continue using the IRF QRP Reconsideration and Appeals Procedures that 

were adopted in the FY 2015 IRF PPS final rule (79 FR 45919 through 45920) for the FY 2017 

payment determination and subsequent years with an exception regarding the way in which noncompliant IRFs are notified of this determination. 

Currently only IRFs found to be non-compliant with the reporting requirements set forth 

for a given payment determination received a notification of this finding along with instructions 

for requesting reconsideration in the form of a certified United States Postal Service (USPS) 

letter. In an effort to communicate as quickly, efficiently, and broadly as possible with IRFs 

regarding annual compliance, we are proposing changes to our communications method regarding 

annual notification of reporting compliance in the IRF QRP. In addition to sending letters via 

regular USPS mail, beginning with the FY 2016 payment determination and for subsequent fiscal 
years, we propose to use the QIES as a mechanism to communicate to IRFs regarding their 

compliance with the reporting requirements for the given reporting cycle. 

We propose that all Medicare-certified IRF compliance letters be uploaded into the QIES 

system for each IRF to access. Instructions to download files from QIES may be found at 

https://www.qtso.com/irfpai.html. We propose to disseminate communications regarding the 

availability of compliance reports in IRFs’ QIES files through routine channels to IRFs and 

vendors, including, but not limited to, issuing memos, emails, Medicare Learning Network 

(MLN) announcements, and notices on http://www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/IRF-Quality-Reporting/Reconsideration-and-Disaster-WaiverRequests.html. 

The purpose of the compliance letter is to notify an IRF that it has been identified as either 

being compliant or non-compliant with the IRF QRP reporting requirements for the given 

reporting cycle. If the IRF is determined to be non-compliant, then the notification would indicate 

that the IRF is scheduled to receive a 2 percentage point reduction to its upcoming annual 

payment update and that it may file a reconsideration request if it disagrees with this finding. 

IRFs may request a reconsideration of a non-compliance determination through the CMS 

reconsideration request process. We also propose that the notifications of our decision regarding 

all received reconsideration requests will be made available through the QIES system. We are not 

proposing to change the process or requirements for requesting reconsideration. Refer to the 

FY 2015 IRF PPS final rule (79 FR 45919 through 45920) for a detailed discussion of the IRF 

QRP Reconsideration and Appeals Procedures. 

Below, we include a proposal to publish a list of IRFs who successfully meet the reporting 

requirements for the applicable payment determination on the IRF QRP website 
http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/IRF-QualityReporting/. As proposed below, we would also update the list of IRFs who successfully meet the 

reporting requirements after all reconsideration requests have been processed on an annual basis. 

We propose to add the IRF QRP Reconsideration and Appeal Procedures at §412.634.

We invite comment on the proposals to change the communication mechanism to the 

QIES system for the dissemination of compliance notifications and reconsideration decisions and 

to add these processes at §412.634.

O. Proposed Public Display of Quality Measure Data for the IRF QRP

Section 1886(j)(7)(E) of the Act requires the Secretary to establish procedures for making 

the IRF QRP data available to the public. In so doing, the Secretary must ensure that IRFs have 

the opportunity to review any such data with respect to the IRF prior to its release to the public. 

Section 1899B(g) of the Act requires the Secretary to establish procedures for making available 

to the public information regarding the performance of individual PAC providers with respect to 

the measures required under section 1899B beginning not later than 2 years after the applicable 

specified application date. The procedures must ensure, including through a process consistent 

with the process applied under section 1886(b)(3)(B)(viii)(VII) for similar purposes, that each

PAC provider has the opportunity to review and submit corrections to the data and information 

that are to be made public with respect to the PAC provider prior to such data being made public. 

We propose a policy to display performance information regarding the quality measures, as 

applicable, required by the IRF QRP by fall 2016 on a CMS website, such as the Hospital 

Compare website: http://www.hospitalcompare.hhs.gov, after a 30-day preview period. 

Additional information about preview report content and delivery will be announced on the IRF 

QRP website.
The Hospital Compare website is an interactive web tool that assists beneficiaries by 

providing information on hospital quality of care to those who need to select a hospital. It further 

serves to encourage beneficiaries to work with their providers to discuss the quality of care 

provided to patients, thereby providing an additional incentive to providers to improve the quality 

of care that they furnish. As we have done on other CMS compare websites, we will, at some 

point in the future, report public data using a quality rating system that gives each IRF a rating 

between 1 and 5 stars. Initially, however, we will not use the 5-star methodology, until such time 

that we are publically reporting a sufficient number of quality metrics to allow for variation and 

the differentiation between IRFs using this methodology. Decisions regarding how the rating 

system will determine a providers star rating and methods used for calculations, as well as a 

proposed timeline for implementation will be announced via regular IRF QRP communication 

channels, including listening sessions, memos, email notification, provider association calls, Open 

Door Forums, and Web postings. Providers would be notified via CMS listservs, CMS mass emails, and memorandums, IRF QPR website announcements and MLN announcements regarding 

the release of IRF Provider Preview Reports followed by the posting of data.

The initial display of information would contain IRF provider performance on the

following three quality measures: 

 Percent of Residents or Patients with Pressure Ulcers That Are New or Worsened 

(Short Stay) (NQF #0678)

 NHSN CAUTI Outcome Measure (NQF #0138)

 All-Cause Unplanned Readmission Measure for 30 Days Post Discharge From IRFs

(NQF #2502)

For the first 2 listed measures, Percent of Residents or Patients with Pressure Ulcers That 
Are New or Worsened (Short Stay) (NQF #0678) and NHSN CAUTI Outcome Measure (NQF 

#0138), we propose publicly reporting data beginning with data collected on these measures for 

discharges beginning January 1, 2015. Rates would be displayed based on 4 rolling quarters of 

data and would initially be reported using discharges from January 1, 2015 through 

December 31, 2015, for calculation. As each quarter advances, we would add the subsequent 

calendar year quarter and remove the earliest calendar year quarter. For example, initially we 

would use data from discharges occurring from January 1, 2015 through December 31, 2015. The 

next quarter, we would display performance data using discharges that occurred between the dates 

of April 1, 2015 through March 31, 2016, etc. 

For the measure All-Cause Unplanned Readmission Measure for 30 Days Post Discharge 

From IRFs (NQF #2502), we propose to publicly report data beginning with data collected for 

discharges beginning January 1, 2013. Rates would be displayed based on 2 consecutive years of 

data and would initially be reported using discharges from January 1, 2013 through 

December 31, 2014. As each calendar year advances, we would add the subsequent calendar year 

quarter and remove the earliest calendar year quarter. 

Calculations for the CAUTI measure adjust for differences in the characteristics of 

hospitals and patients using a Standardized Infection Ratio (SIR). The SIR is a summary measure 

that takes into account differences in the types of patients a hospital treats. The SIR may take into 

account the type of patient care location, laboratory testing methods, hospital affiliation with a 

medical school, bed size of the hospital, and bed size of specific patient care locations. It 

compares the actual number of Healthcare Associated Infections (HAIs) in a facility or state to a 

national benchmark based on previous years of reported data and adjusts the data based on several 

risk factors. A confidence interval with a lower and upper limit is displayed around each SIR to 
indicate that there is a high degree of confidence that the true value of the SIR lies within that 

interval. An SIR with a lower limit that is greater than 1.0 means that there were more HAIs in a 

facility or state than were predicted, and the facility is classified as "Worse than the U.S. National 

Benchmark". If the SIR has an upper limit that is less than 1, then the facility had fewer HAIs 

than were predicted and is classified as "Better than the U.S. National Benchmark". If the 

confidence interval includes the value of 1, then there is no statistical difference between the 

actual number of HAIs and the number predicted, and the facility is classified as "No Different 

than U.S. National Benchmark". If the number of predicted infections is a specific value less 

than 1, the SIR and confidence interval cannot be calculated.

Calculations for the Percent of Residents or Patients with Pressure Ulcers That Are New 

or Worsened measure application (NQF #0678) will be risk-adjusted. Resident- or patient-level 

covariate risk adjustment is performed. Resident- or patient-level covariates are used in a logistic 

regression model to calculate a resident- or patient-level expected quality measure (QM) score 

(the probability that the resident or patient will evidence the outcome, given the presence or 

absence of patient characteristics measured by the covariates). Then, an average of all resident- or 

patient-level expected QM scores for the facility is calculated to create a facility-level expected 

QM score. The final facility-level adjusted QM score is based on a calculation which combines 

the facility-level expected score and the facility level observed score. Additional information 

about the covariates can be found at: 

http://www.qualityforum.org/QPS/QPSTool.aspx?m=213&e=1#qpsPageState=%7B%22TabType

%22%3A1,%22TabContentType%22%3A2,%22ItemsToCompare%22%3A%5B%5D,%22Stand

ardID%22%3A213,%22EntityTypeID%22%3A1%7D.

Finally, calculation for performance on the measure All-Cause Unplanned Readmission 
Measure for 30 Days Post Discharge from IRFs (NQF #2502) will also be risk-adjusted. The risk 

adjustment methodology is available, along with the specifications for this measure, on our IRF 

Quality Reporting Measures Information webpage at http://www.cms.gov/Medicare/QualityInitiatives-Patient-Assessment-Instruments/IRF-Quality-Reporting/IRF-Quality-ReportingProgram-Measures-Information-.html.

We are currently developing reports that will allow providers to view the data that is 

submitted to CMS via the QIES ASAP system and the CDC’s NHSN (Percent of Residents or 

Patients with Pressure Ulcers That Are New or Worsened (Short Stay) (NQF #0678) and NHSN 

CAUTI Outcome Measure (NQF #0138), respectively). Although initial reports will not allow 

providers to view this data, subsequent iterations of these reports will also include provider 

performance on any currently reported quality measure that is calculated based on CMS claims 

data that we plan on publicly reporting (All-Cause Unplanned Readmission Measure for 30 Days

Post- Discharge from IRFs (NQF #2502)). Although real time results will not be available, the 

report will refresh all of the data submitted at least once a month. We propose a process to give 

providers an opportunity to review and correct data submitted to the QIES ASAP system or to the 

CDC’s NHSN system by utilizing that report. Under this proposed process, providers would to 

have the opportunity to review and correct data they submit on all assessment-based measures. 

Providers can begin submitting data on the first discharge day of any reporting quarter. Providers 

are encouraged to submit data early in the submission schedule so that they can identify errors and 

resubmit data before the quarterly submission deadline. The data would be populated into reports 

that are updated at least once a month with all data that have been submitted. That report would 

contain the provider’s performance on each measure calculated based on assessment submissions 

to the QIES ASAP or CDC NHSN system. We believe that the submission deadline timeframe, 
which is 4.5 months beyond the end of each calendar year quarter, is sufficient time for providers 

to be able to submit, review data, make corrections to the data, and view their data. We note that 

the quarterly data submission deadline/timeframe only applies to the quality indicator section of 

the IRF-PAI, and has no bearing on the current deadline of 27 days that is imposed for payment 

items. We propose that once the provider has an opportunity to review and correct quarterly data 

related to measures submitted via the QIES ASAP or CDC NHSN system, we would consider the 

provider to have been given the opportunity to review and correct this data. We would not allow 

patient-level data correction after the submission deadline or for previous years. This is because 

we must set a deadline to ensure timely computation of measure rates and payment adjustment 

factors. Before we display this information, providers will be permitted 30 days to review their 

information as recorded in the QIES ASAP or CDC NHSN system. 

In addition to our proposal, we are proposing to publish a list of IRFs who successfully 

meet the reporting requirements for the applicable payment determination on the IRF QRP 

website http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/IRFQuality-Reporting/. We propose updating the list after reconsideration requests are processed on 

an annual basis. 

We invite public comment on the listed proposals.

P. Proposed Method for Applying the Reduction to the FY 2016 IRF Increase Factor for 

IRFs That Fail to Meet the Quality Reporting Requirements

As previously noted, section 1886(j)(7)(A)(i) of the Act requires the application of a 

2-percentage point reduction of the applicable market basket increase factor for IRFs that fail to 

comply with the quality data submission requirements. In compliance with 1886(j)(7)(A)(i) of 

the Act, we will apply a 2-percentage point reduction to the applicable FY 2016 market basket 
increase factor (1.9 percent) in calculating an adjusted FY 2016 standard payment conversion 

factor to apply to payments for only those IRFs that failed to comply with the data submission 

requirements. As previously noted, application of the 2-percentage point reduction may result in 

an update that is less than 0.0 for a fiscal year and in payment rates for a fiscal year being less 

than such payment rates for the preceding fiscal year. Also, reporting-based reductions to the 

market basket increase factor will not be cumulative; they will only apply for the FY involved. 

Table 23 shows the calculation of the adjusted FY 2016 standard payment conversion factor that 

will be used to compute IRF PPS payment rates for any IRF that failed to meet the quality 

reporting requirements for the period from January 1, 2014, through December 31, 2014.

TABLE 23: Calculations to Determine the Adjusted FY 2016 Standard Payment 

Conversion Factor for IRFs That Failed to Meet the Quality Reporting 

Requirement

Explanation for Adjustment Calculations

Standard Payment Conversion Factor for FY 2015 $15,198

Market Basket Increase Factor for FY 2016 (2.7 percent), reduced by 

0.6 percentage point for the productivity adjustment as required by section 

1886(j)(3)(C)(ii)(I) of the Act, reduced by 0.2 percentage point in accordance 

with sections 1886(j)(3)(C) and (D) of the Act and further reduced by 

2 percentage points for IRFs that failed to meet the quality reporting 

requirement x 0.9990

Budget Neutrality Factor for the Wage Index and Labor-Related Share x 1.0027

Budget Neutrality Factor for the Revisions to the CMG Relative Weights x 1.0000

Final Adjusted FY 2016 Standard Payment Conversion Factor = 15,224

We invite public comment on the proposed method for applying the reduction to the 

FY 2016 IRF increase factor for IRFs that fail to meet the quality reporting requirements. 

IX. Collection of Information Requirements

A. Statutory Requirement for Solicitation of Comments

Under the Paperwork Reduction Act of 1995 (PRA), we are required to provide 60-day 

notice in the Federal Register and solicit public comment before a collection of information 
requirement is submitted to the Office of Management and Budget (OMB) for review and 

approval. To fairly evaluate whether an information collection should be approved by OMB, 

section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 requires that we solicit comment 

on the following issues:

● The need for the information collection and its usefulness in carrying out the proper 

functions of our agency.

● The accuracy of our estimate of the information collection burden.

● The quality, utility, and clarity of the information to be collected. 

 ● Recommendations to minimize the information collection burden on the affected 

public, including automated collection techniques.

This proposed rule makes reference to associated information collections that are not 

discussed in the regulation text contained in this document. 

B. Collection of Information Requirements for Updates Related to the IRF QRP

Failure to submit data required under section 1886(j)(7)(C) and (F) will result in the 

reduction of the annual update to the standard federal rate for discharges occurring during such 

fiscal year by 2 percentage points for any IRF that does not comply with the requirements 

established by the Secretary. At the time that this analysis was prepared, 91, or approximately 8 

percent, of the 1166 active Medicare-certified IRFs did not receive the full annual percentage 

increase for the FY 2015 annual payment update determination. Information is not available to 

determine the precise number of IRFs that will not meet the requirements to receive the full 

annual percentage increase for the FY 2016 payment determination.

We believe that the burden associated with the IRF QRP is the time and effort associated 

with data collection and reporting. As of April 1, 2015, there are approximately 1132 IRFs 
currently reporting quality data to CMS. In this proposed rule, we are proposing 2 quality 

measures that have already been adopted for the IRF QRP: (1) All-Cause Unplanned 

Readmission Measure for 30 Days Post-Discharge from IRFs (NQF #2502), to establish the 

newly NQF-endorsed status of this measures; and (2) Percent of Residents or Patients with 

Pressure Ulcers That Are New or Worsened (NQF #0678), to establish its use as a cross-setting 

measure that addresses the domain of skin integrity, as required by the IMPACT Act of 2014. 

The All-Cause Unplanned Readmission Measure for 30 Days Post-Discharge from IRFs is a 

Medicare claims-based measure; because claims-based measures can be calculated based on data 

that are already reported to the Medicare program for payment purposes, we believe there will be 

no additional impact. We also believe that there will be no additional burden associated with our 

re-proposal of the measure Percent of Residents or Patients with Pressure Ulcers That Are New 

or Worsened (NQF #0678), as IRFs are already submitting quality data related to this measure. 

We are also proposing to adopt 6 additional quality measures. These 6 new proposed 

quality measures are: (1) an application of Percent of Residents Experiencing One or More Falls 

with Major Injury (Long Stay) (NQF #0674); (2) an application of Percent of LTCH Patients 

with an Admission and Discharge Functional Assessment and a Care Plan that Addresses 

Function (NQF #2631; under review); (3) IRF Functional Outcome Measure: Change in SelfCare Score for Medical Rehabilitation Patients (NQF #2633; under review); (4) IRF Functional 

Outcome Measure: Change in Mobility Score for Medical Rehabilitation Patients (NQF #2634; 

under review); (5) IRF Functional Outcome Measure: Discharge Self-Care Score for Medical 

Rehabilitation Patients (NQF #2635; under review); and (6) IRF Functional Outcome Measure: 

Discharge Mobility Score for Medical Rehabilitation Patients (NQF #2636; under review). 
Additionally we propose that data for these 6 new measures will be collected and reported using 

the IRF-PAI (version 1.4). 

Our burden calculations take into account all “new” items required on the IRF-PAI 

(version 1.4) to support data collection and reporting for these six proposed measures. New items 

will be included on the following assessment: IRF-PAI version 1.4 Admission and Discharge 

assessment. The addition of the new items required to collect the six newly proposed measures 

is for the purpose of achieving standardization of data elements. 

We estimate the additional elements for the six newly proposed measures will take 25.5 

minutes of nursing/clinical staff time to report data on admission and 16.0 minutes of 

nursing/clinical staff time to report data on discharge, for a total of 41.5 minutes. We believe 

that the additional IRF-PAI items we are proposing will be completed by Registered Nurses 

(RN), Occupational Therapists (OT), Speech Language Pathologists (SLP) and/or Physical 

Therapists (PT), depending on the item. We identified the staff type per item based on past 

LTCH and IRF burden calculations in conjunction with expert opinion. Our assumptions for 

staff type were based on the categories generally necessary to perform assessment: RN, OT, 

SLP, and PT. Individual providers determine the staffing resources necessary; therefore, we 

averaged the national average for these labor types and established a composite cost estimate.

This composite estimate was calculated by weighting each salary based on the following 

breakdown regarding provider types most likely to collect this data: RN 59 percent; OT 11 

percent; PT 20 percent; SLP 1 percent. In accordance with OMB control number 0938-0842, we 

estimate 390,748 discharges from all IRFs annually, with an additional burden of 41.5 minutes. 

This would equate to 270,267.37 total hours or 238.75 hours per IRF. We believe this work will 

be completed by RN, OT, PT, and SLP staff, depending on the item. We obtained mean hourly 
wages for these staff from the U.S. Bureau of Labor Statistics’ May 2013 National Occupational 

Employment and Wage Estimates (http://www.bls.gov/oes/current/oes_nat.htm), to account for 

overhead and fringe benefits, we have doubled the mean hourly wage. Per the U.S. Bureau of 

Labor and Statistics, the mean hourly wage for a RN is $33.13. However, to account for 

overhead and fringe benefits, we have double the mean hourly wage, making it $66.26 for an 

RN. The mean hourly wage for an OT is $37.45, doubled to $74.90 to account for overhead and 

fringe benefits. The mean hourly wage for a PT is $39.51, doubled to $79.02 to account for 

overhead and fringe benefits. The mean hourly wage for a SLP is $35.56, doubled to $71.12 to 

account for overhead and fringe benefits. Given these wages and time estimates, the total cost 

related to the six newly proposed measures is estimated at $21,239.33 per IRF annually, or 

$22,529,560.74-$24,042,291.01 for all IRFs annually.

For the discussion purposes, we provided a detailed description of the burden associated 

with the proposed requirements in section XI. of this proposed rule. However, the burden 

associated with the aforementioned requirements is exempt from the PRA under the IMPACT 

Act of 2014. Section 1899B(m) and the sections referenced in section 1899B(a)(2)(B) of the Act 

exempt modifications that are intended to achieve the standardization of patient assessment data. 

The requirement and burden will, however, be submitted to OMB for review and approval when 

the quality measures and the PAC assessment instruments are no longer used to achieve the 

standardization of patient assessment data.

In section VIII.F of this proposed rule, we are proposing 2 quality measures that have 

already been adopted for the IRF QRP: (1) All-Cause Unplanned Readmission Measure for 30 

Days Post Discharge from IRFs (NQF #2502), to establish the newly NQF-endorsed status of 

this measures; and (2) Percent of Residents or Patients with Pressure Ulcers That Are New or 
Worsened (NQF #0678), to establish its use as a cross-setting measure that addresses the domain 

of skin integrity, as required by the IMPACT Act of 2014. The All-Cause Unplanned 

Readmission Measure for 30 Days Post-Discharge from IRFs is a Medicare claims-based 

measure; because claims-based measures can be calculated based on data that are already 

reported to the Medicare program for payment purposes, we believe there will be no additional 

impact as a result of this measure. We also believe that there will be no additional burden 

associated with our proposal of the measure Percent of Residents or Patients with Pressure 

Ulcers That Are New or Worsened (NQF #0678), as IRFs are already submitting quality data 

related to this measure. 

In section VIII.G of this proposed rule, we are also proposing to adopt six new quality 

measures. These 6 proposed quality measures are: (1) an application of Percent of Residents 

Experiencing One or More Falls with Major Injury (Long Stay) (NQF #0674); (2) an application 

of Percent of LTCH Patients with an Admission and Discharge Functional Assessment and a 

Care Plan That Addresses Function (NQF #2631; under review); (3) IRF Functional Outcome 

Measure: Change in Self-Care Score for Medical Rehabilitation Patients (NQF #2633; under 

review); (4) IRF Functional Outcome Measure: Change in Mobility Score for Medical 

Rehabilitation Patients (NQF #2634; under review); (5) IRF Functional Outcome Measure: 

Discharge Self-Care Score for Medical Rehabilitation Patients (NQF #2635; under review); and 

(6) IRF Functional Outcome Measure: Discharge Mobility Score for Medical Rehabilitation 

Patients (NQF #2636; under review). Additionally, we propose that data for the six measures 

will be collected and reported using the IRF-PAI (version 1.4). While the reporting of data on 

quality measures is an information collection, we believe that the burden associated with 

modifications to the IRF-PAI discussed in this proposed rule fall under the PRA exceptions 
provided in 1899B(m) of the Act because they are required to achieve the standardization of 

patient assessment data . Section 1899B(m) of the Act provides that the PRA does not apply to 

section 1899B and the sections referenced in section 1899B(a)(2)(B) of the Act that require

modification to achieve the standardization of patient assessment data. The requirement and 

burden will, however, be submitted to OMB for review and approval when the modifications to 

the IRF-PAI or other applicable PAC assessment instrument are not used to achieve the 

standardization of patient assessment data. Additionally, while quality measures 3, 4, 5, and 6 

listed are not specifically required by the IMPACT Act, the data elements used to inform those 

measures are part of larger set of functional status data items that have been added to the IRFPAI version 1.4, for the purpose of providing standardized data elements under the domain of 

functional status, which is required by the IMPACT Act. These same data elements are used to 

inform different quality measures that we have proposed, each with a different outcome. 

With regard to quality reporting during extraordinary circumstances, section VIII.M of 

this proposed rule, proposes to add a previously finalized process that IRFs may request an 

exception or extension from the FY 2018 payment determination and that of subsequent payment 

determinations. The request must be submitted by e-mail within 90 days from the date that the 

extraordinary circumstances occurred.

While the preparation and submission of the request is an information collection, unlike 

the aforementioned temporary exemption of the data collection requirements for the 6 new 

quality measures, and the 2 re-proposed quality measures, the request is not expected to be 

submitted to OMB for formal review and approval since we estimate less than 2 requests (total) 

per year. Since we estimate fewer than ten respondents annually, the information collection 

requirement and associated burden is not subject as stated in the implementing regulations of the 
PRA (5 CFR 1320.3(c)). 

As discussed in section VIII.N of this proposed rule, this rule proposes to add a 

previously finalized process that will enable IRFs to request reconsiderations of our initial noncompliance decision in the event that it believes that it was incorrectly identified as being subject 

to the 2-percentage point reduction to its annual increase factor due to non-compliance with the 

IRF QRP reporting requirements. We believe the reconsideration and appeals requirements and 

the associated burden would be incurred subsequent to an administrative action. In accordance 

with the implementing regulations for the PRA (5 CFR 1320.4(a)(2) and (c)), the burden 

associated with any information collected subsequent to the administrative action is exempt from 

the requirements of the PRA.

If you comment on these information collection and recordkeeping requirements, please 

submit your comments electronically as specified in the ADDRESSES section of this proposed 

rule.

X. Response to Public Comments

Because of the large number of public comments we normally receive on Federal 

Register documents, we are not able to acknowledge or respond to them individually. We will 

consider all comments we receive by the date and time specified in the “DATES” section of this 

preamble, and, when we proceed with a subsequent document, we will respond to the comments 

in the preamble to that document. 

XI. Regulatory Impact Analysis

A. Statement of Need

This proposed rule updates the IRF prospective payment rates for FY 2016 as required 

under section 1886(j)(3)(C) of the Act. It responds to section 1886(j)(5) of the Act, which 
requires the Secretary to publish in the Federal Register on or before the August 1 that precedes 

the start of each fiscal year, the classification and weighting factors for the IRF PPS’s case-mix 

groups and a description of the methodology and data used in computing the prospective 

payment rates for that fiscal year.

This proposed rule implements sections 1886(j)(3)(C) and (D) of the Act. 

Section 1886(j)(3)(C)(ii)(I) of the Act requires the Secretary to apply a multi-factor productivity 

adjustment to the market basket increase factor, and to apply other adjustments as defined by the 

Act. The productivity adjustment applies to FYs from 2012 forward. The other adjustments 

apply to FYs 2010 through 2019.

This proposed rule also adopts some policy changes within the statutory discretion 

afforded to the Secretary under section 1886(j) of the Act. We propose to adopt an IRF-specific 

market basket, phase in the revised wage index changes, and update quality measures and 

reporting requirements under the IRF quality reporting program. 

B. Overall Impacts

We have examined the impacts of this proposed rule as required by Executive Order 

12866 (September 30, 1993, Regulatory Planning and Review), Executive Order 13563 on 

Improving Regulation and Regulatory Review (January 18, 2011), the Regulatory Flexibility Act 

(September 19, 1980, Pub. L. 96-354) (RFA), section 1102(b) of the Act, section 202 of the 

Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on Federalism 

(August 4, 1999), and the Congressional Review Act (5 U.S.C. 804(2)).

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of 

available regulatory alternatives and, if regulation is necessary, to select regulatory approaches 

that maximize net benefits (including potential economic, environmental, public health and 
safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the 

importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and 

of promoting flexibility. A regulatory impact analysis (RIA) must be prepared for a major final 

rule with economically significant effects ($100 million or more in any 1 year). We estimate the 

total impact of the proposed policy updates described in this proposed rule by comparing the 

estimated payments in FY 2016 with those in FY 2015. This analysis results in an estimated 

$130 million increase for FY 2016 IRF PPS payments. As a result, this proposed rule is 

designated as economically “significant” under section 3(f)(1) of Executive Order 12866, and 

hence a major rule under the Congressional Review Act. Also, the rule has been reviewed by 

OMB.

The Regulatory Flexibility Act (RFA) requires agencies to analyze options for regulatory 

relief of small entities, if a rule has a significant impact on a substantial number of small entities. 

For purposes of the RFA, small entities include small businesses, nonprofit organizations, and 

small governmental jurisdictions. Most IRFs and most other providers and suppliers are small 

entities, either by having revenues of $7.5 million to $38.5 million or less in any 1 year 

depending on industry classification, or by being nonprofit organizations that are not dominant in 

their markets. (For details, see the Small Business Administration's final rule that set forth size 

standards for health care industries, at 65 FR 69432 at 

http://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf, effective March 26, 2012

and updated on July 14, 2014.) Because we lack data on individual hospital receipts, we cannot 

determine the number of small proprietary IRFs or the proportion of IRFs' revenue that is derived 

from Medicare payments. Therefore, we assume that all IRFs (an approximate total of 1,100 

IRFs, of which approximately 60 percent are nonprofit facilities) are considered small entities 
and that Medicare payment constitutes the majority of their revenues. The Department of Health 

and Human Services generally uses a revenue impact of 3 to 5 percent as a significance threshold 

under the RFA. As shown in Table 24, we estimate that the net revenue impact of this proposed

rule on all IRFs is to increase estimated payments by approximately 1.7 percent. However, we 

find that certain individual IRF providers would be expected to experience revenue impacts 

greater than 3 percent. We estimate that approximately 3 IRFs that would transition from urban 

to rural status as a result of the changes to the delineation of CBSAs issued in OMB Bulletin No. 

13-01 would gain the 14.9 percent rural adjustment, and would therefore experience net

increases in IRF PPS payments of 15.2 percent. As a result, we anticipate this proposed rule will 

have a net positive impact on a substantial number of small entities. Medicare Administrative 

Contractors are not considered to be small entities. Individuals and states are not included in the 

definition of a small entity. 

In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis 

if a rule may have a significant impact on the operations of a substantial number of small rural 

hospitals. This analysis must conform to the provisions of section 603 of the RFA. For purposes 

of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located outside 

of a Metropolitan Statistical Area and has fewer than 100 beds. As discussed in detail below, the

rates and policies set forth in this proposed rule will not have a significant impact (not greater 

than 3 percent) on a substantial number of rural hospitals based on the data of the 145 rural units 

and 12 rural hospitals in our database of 1,132 IRFs for which data were available.

Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-04, enacted on 

March 22, 1995) also requires that agencies assess anticipated costs and benefits before issuing 

any rule whose mandates require spending in any 1 year of $100 million in 1995 dollars, updated 
annually for inflation. In 2015, that threshold level is approximately $144 million. This 

proposed rule will not mandate spending costs on state, local, or tribal governments, in the 

aggregate, or by the private sector, of greater than $144 million. 

Executive Order 13132 establishes certain requirements that an agency must meet when it 

promulgates a final rule that imposes substantial direct requirement costs on state and local 

governments, preempts state law, or otherwise has federalism implications. As stated, this 

proposed rule will not have a substantial effect on state and local governments, preempt state 

law, or otherwise have a federalism implication.

C. Detailed Economic Analysis 

1. Basis and Methodology of Estimates

This proposed rule sets forth proposed policy changes and updates to the IRF PPS rates 

contained in the FY 2015 IRF PPS final rule (79 FR 45872). Specifically, this proposed rule 

introduces an IRF-specific market basket. This proposed rule also updates the CMG relative 

weights and average length of stay values, the wage index, and the outlier threshold for high-cost 

cases. This proposed rule applies a MFP adjustment to the FY 2016 IRF market basket increase 

factor in accordance with section 1886(j)(3)(C)(ii)(I) of the Act, and a 0.2 percentage point 

reduction to the FY 2016 IRF market basket increase factor in accordance with sections 

1886(j)(3)(C)(ii)(II) and -(D)(iv) of the Act. Further, this proposed rule proposes revisions to the 

IRF quality reporting requirements that are expected to result in some additional financial effects 

on IRFs. In addition, section IX of this rule discusses the implementation of the required 

2 percentage point reduction of the market basket increase factor for any IRF that fails to meet 

the IRF quality reporting requirements, in accordance with section 1886(j)(7) of the Act. 
We estimate that the impact of the proposed changes and updates described in this 

proposed rule will be a net estimated increase of $130 million in payments to IRF providers. 

This estimate does not include the implementation of the required 2 percentage point reduction 

of the market basket increase factor for any IRF that fails to meet the IRF quality reporting 

requirements (as discussed in section XI.C.9. of this proposed rule). The impact analysis in 

Table 24 of this proposed rule represents the projected effects of the updates to IRF PPS 

payments for FY 2016 compared with the estimated IRF PPS payments in FY 2015. We 

determine the effects by estimating payments while holding all other payment variables constant. 

We use the best data available, but we do not attempt to predict behavioral responses to these 

changes, and we do not make adjustments for future changes in such variables as number of 

discharges or case-mix.

We note that certain events may combine to limit the scope or accuracy of our impact 

analysis, because such an analysis is future-oriented and, thus, susceptible to forecasting errors 

because of other changes in the forecasted impact time period. Some examples could be 

legislative changes made by the Congress to the Medicare program that would impact program 

funding, or changes specifically related to IRFs. Although some of these changes may not 

necessarily be specific to the IRF PPS, the nature of the Medicare program is such that the 

changes may interact, and the complexity of the interaction of these changes could make it 

difficult to predict accurately the full scope of the impact upon IRFs.

In updating the rates for FY 2016, we are proposing standard annual revisions described 

in this proposed rule (for example, the update to the wage and market basket indexes used to 

adjust the federal rates). We are also implementing a productivity adjustment to the FY 2016 

IRF market basket increase factor in accordance with section 1886(j)(3)(C)(ii)(I) of the Act, and 
a 0.2 percentage point reduction to the FY 2016 IRF market basket increase factor in accordance 

with sections 1886(j)(3)(C)(ii)(II) and -(D)(iv) of the Act. We estimate the total increase in 

payments to IRFs in FY 2016, relative to FY 2015, will be approximately $130 million. 

This estimate is derived from the application of the FY 2016 IRF market basket increase 

factor, as reduced by a productivity adjustment in accordance with section 1886(j)(3)(C)(ii)(I) of 

the Act, and a 0.2 percentage point reduction in accordance with sections 1886(j)(3)(C)(ii)(II) 

and -(D)(iv) of the Act, which yields an estimated increase in aggregate payments to IRFs of 

$145 million. Furthermore, there is an additional estimated $15 million decrease in aggregate 

payments to IRFs due to the proposed update to the outlier threshold amount. Outlier payments 

are estimated to decrease under this proposal from approximately 3.2 percent in FY 2015 to 

3.0 percent in FY 2016. Therefore, summed together, we estimate that these updates will result 

in a net increase in estimated payments of $130 million from FY 2015 to FY 2016. 

The effects of the proposed updates that impact IRF PPS payment rates are shown in 

Table 24. The following proposed updates that affect the IRF PPS payment rates are discussed 

separately below:

● The effects of the proposed update to the outlier threshold amount, from 

approximately 3.2 percent to 3.0 percent of total estimated payments for FY 2016, consistent 

with section 1886(j)(4) of the Act.

● The effects of the proposed annual market basket update (using the IRF market 

basket) to IRF PPS payment rates, as required by section 1886(j)(3)(A)(i) and sections 

1886(j)(3)(C) and -(D) of the Act, including a productivity adjustment in accordance with section 

1886(j)(3)(C)(i)(I) of the Act, and a 0.2 percentage point reduction in accordance with sections 

1886(j)(3)(C) and -(D) of the Act.
● The effects of applying the proposed budget-neutral labor-related share and wage 

index adjustment, as required under section 1886(j)(6) of the Act. 

● The effects of the proposed budget-neutral changes to the CMG relative weights 

and average length of stay values, under the authority of section 1886(j)(2)(C)(i) of the Act.

● The total change in estimated payments based on the proposed FY 2016 payment 

changes relative to the estimated FY 2015 payments. 

2. Description of Table 24

 Table 24 categorizes IRFs by geographic location, including urban or rural location, and 

location for CMS's 9 census divisions (as defined on the cost report) of the country. In addition, 

the table divides IRFs into those that are separate rehabilitation hospitals (otherwise called 

freestanding hospitals in this section), those that are rehabilitation units of a hospital (otherwise 

called hospital units in this section), rural or urban facilities, ownership (otherwise called forprofit, non-profit, and government), by teaching status, and by disproportionate share patient 

percentage (DSH PP). The top row of Table 24 shows the overall impact on the 1,132 IRFs 

included in the analysis.

 The next 12 rows of Table 24 contain IRFs categorized according to their geographic 

location, designation as either a freestanding hospital or a unit of a hospital, and by type of 

ownership; all urban, which is further divided into urban units of a hospital, urban freestanding 

hospitals, and by type of ownership; and all rural, which is further divided into rural units of a 

hospital, rural freestanding hospitals, and by type of ownership. There are 975 IRFs located in 

urban areas included in our analysis. Among these, there are 739 IRF units of hospitals located 

in urban areas and 236 freestanding IRF hospitals located in urban areas. There are 157 IRFs 

located in rural areas included in our analysis. Among these, there are 145 IRF units of hospitals 
located in rural areas and 12 freestanding IRF hospitals located in rural areas. There are 403 forprofit IRFs. Among these, there are 348 IRFs in urban areas and 55 IRFs in rural areas. There 

are 658 non-profit IRFs. Among these, there are 566 urban IRFs and 92 rural IRFs. There are 

71 government-owned IRFs. Among these, there are 61 urban IRFs and 10 rural IRFs.

The remaining four parts of Table 24 show IRFs grouped by their geographic location 

within a region, by teaching status, and by DSH PP. First, IRFs located in urban areas are 

categorized for their location within a particular one of the nine Census geographic regions. 

Second, IRFs located in rural areas are categorized for their location within a particular one of 

the nine Census geographic regions. In some cases, especially for rural IRFs located in the New 

England, Mountain, and Pacific regions, the number of IRFs represented is small. IRFs are then 

grouped by teaching status, including non-teaching IRFs, IRFs with an intern and resident to 

average daily census (ADC) ratio less than 10 percent, IRFs with an intern and resident to ADC 

ratio greater than or equal to 10 percent and less than or equal to 19 percent, and IRFs with an 

intern and resident to ADC ratio greater than 19 percent. Finally, IRFs are grouped by DSH PP, 

including IRFs with zero DSH PP, IRFs with a DSH PP less than 5 percent, IRFs with a DSH PP 

between 5 and less than 10 percent, IRFs with a DSH PP between 10 and 20 percent, and IRFs 

with a DSH PP greater than 20 percent. 

The estimated impacts of each policy described in this proposed rule to the facility 

categories listed are shown in the columns of Table 24. The description of each column is as 

follows:

● Column (1) shows the facility classification categories.

● Column (2) shows the number of IRFs in each category in our FY 2014 analysis file.

● Column (3) shows the number of cases in each category in our FY 2014 analysis file.
● Column (4) shows the estimated effect of the proposed adjustment to the outlier 

threshold amount.

● Column (5) shows the estimated effect of the proposed update to the IRF PPS payment 

rates, which includes a productivity adjustment in accordance with section 1886(j)(3)(C)(ii)(I) of 

the Act, and a 0.2 percentage point reduction in accordance with sections 1886(j)(3)(C)(ii)(II) 

and -(D)(iv) of the Act.

● Column (6) shows the estimated effect of the proposed update to the IRF labor-related 

share and wage index, in a budget-neutral manner. This represents the effect of using the most 

recent wage data available, without taking into account the revised OMB delineations. That is, 

the impact represented in this column is solely that of updating from the FY 2015 wage index to 

the FY 2016 wage index without any changes to the OMB delineations.

● Column (7) shows the estimated effect of adopting the updated OMB delineations

for wage index purposes for FY 2016 with the proposed blended FY 2016 wage index.

● Column (8) shows the estimated effect of applying the adjustment factor to payments 

to IRFs in rural areas. It includes the proposed 3 year budget-neutral phase-out of the rural 

adjustment for rural IRFs that are becoming urban IRFs due to the revised OMB delineations. 

● Column (9) shows the estimated effect of the proposed update to the CMG relative 

weights and average length of stay values, in a budget-neutral manner.

● Column (10) compares our estimates of the payments per discharge, incorporating 

all of the proposed policies reflected in this proposed rule for FY 2016 to our estimates of 

payments per discharge in FY 2015. 

The average estimated increase for all IRFs is approximately 1.7 percent. This estimated 

net increase includes the effects of the proposed IRF market basket increase factor for FY 2016 
of 2.7 percent, reduced by a productivity adjustment of 0.6 percentage point in accordance with 

section 1886(j)(3)(C)(ii)(I) of the Act, and further reduced by 0.2 percentage point in accordance 

with sections 1886(j)(3)(C)(ii)(II) and (D)(iv) of the Act. It also includes the approximate 

0.2 percent overall decrease in estimated IRF outlier payments from the proposed update to the 

outlier threshold amount. Since we are making the proposed updates to the IRF wage index and 

the CMG relative weights in a budget-neutral manner, they will not be expected to affect total 

estimated IRF payments in the aggregate. However, as described in more detail in each section, 

they will be expected to affect the estimated distribution of payments among providers.
TABLE 24: IRF Impact Table for FY 2016 (Columns 4 through 10 in percentage) 

Facility Classification

Number 

of IRFs

Number 

of Cases Outlier

IRF 

Market 

Basket 

1

Wage 

Index CBSA

Change 

in Rural 

Adjustm

ent 2

CMG 

Weight

s

Total 

Percent 

Change

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

Total 1,132 390,748 -0.2 1.9 0.0 0.0 0.0 0.0 1.7

Urban unit 739 179,466 -0.4 1.9 0.1 0.0 0.0 0.0 1.6

Rural unit 145 22,721 -0.3 1.9 0.3 -0.2 0.3 0.0 2.0

Urban hospital 236 184,416 -0.1 1.9 -0.1 0.1 0.0 -0.1 1.8

Rural hospital 12 4,145 0.0 1.9 0.2 -0.7 0.0 -0.1 1.3

Urban For-Profit 348 174,797 -0.1 1.9 0.0 0.0 0.0 0.0 1.7

Rural For-Profit 55 9,810 -0.2 1.9 0.1 -0.4 0.2 0.0 1.6

Urban Non-Profit 566 170,965 -0.3 1.9 0.0 0.1 0.0 0.0 1.7

Rural Non-Profit 92 15,588 -0.3 1.9 0.4 -0.3 0.3 0.1 2.1

Urban Government 61 18,120 -0.4 1.9 -0.3 0.0 -0.1 0.1 1.2

Rural Government 10 1,468 -0.3 1.9 0.3 -0.4 0.0 0.1 1.7

Urban 975 363,882 -0.2 1.9 0.0 0.0 0.0 0.0 1.7

Rural 157 26,866 -0.3 1.9 0.3 -0.3 0.3 0.0 1.9

CBSA Change

Urban to Urban 956 359,798 -0.2 1.9 0.0 0.0 0.0 0.0 1.7

Rural to Rural 154 26,278 -0.3 1.9 0.3 -0.3 0.0 0.0 1.6

Urban to Rural 3 588 -0.6 1.9 0.8 0.8 11.7 0.1 15.2

Rural to Urban 19 4,084 -0.3 1.9 0.7 1.3 -3.7 0.0 -0.2

Urban by region

Urban New England 31 16,767 -0.1 1.9 0.7 -0.2 0.0 0.0 2.3

Urban Middle Atlantic 143 57,893 -0.2 1.9 0.1 0.4 0.0 0.0 2.2

Urban South Atlantic 146 69,551 -0.2 1.9 -0.3 -0.1 -0.1 0.0 1.2

Urban East North Central 173 51,589 -0.3 1.9 0.2 -0.1 0.0 0.0 1.8

Urban East South Central 53 24,883 -0.1 1.9 -0.3 -0.1 0.0 0.0 1.4

Urban West North Central 73 18,970 -0.3 1.9 0.1 0.0 0.0 0.0 1.7

Urban West South Central 178 73,231 -0.2 1.9 -0.7 0.0 0.0 0.0 1.0

Urban Mountain 77 25,627 -0.2 1.9 0.7 -0.1 0.0 0.0 2.3

Urban Pacific 101 25,371 -0.4 1.9 0.8 -0.1 0.0 0.0 2.2

Rural by region

Rural New England 5 1,270 -0.2 1.9 0.9 -0.1 0.0 0.0 2.5

Rural Middle Atlantic 12 1,788 -0.2 1.9 2.0 -2.0 0.0 0.1 1.7

Rural South Atlantic 17 4,268 -0.2 1.9 0.2 -0.3 0.3 0.0 1.9

Rural East North Central 31 5,139 -0.3 1.9 -0.1 0.1 1.0 0.0 2.7

Rural East South Central 18 3,228 -0.2 1.9 0.0 -0.2 0.0 0.0 1.6

Rural West North Central 23 2,847 -0.4 1.9 0.4 -0.1 0.0 0.1 1.9

Rural West South Central 42 7,414 -0.2 1.9 0.3 -0.5 0.0 0.0 1.4

Rural Mountain 7 732 -1.0 1.9 -0.2 -0.1 0.0 0.0 0.7

Rural Pacific 2 180 -1.2 1.9 0.8 0.0 0.0 -0.1 1.4

Teaching status

Non-teaching 1,022 345,856 -0.2 1.9 0.0 0.0 0.0 0.0 1.7
Facility Classification

Number 

of IRFs

Number 

of Cases Outlier

IRF 

Market 

Basket 

1

Wage 

Index CBSA

Change 

in Rural 

Adjustm

ent 2

CMG 

Weight

s

Total 

Percent 

Change

Resident to ADC less than 

10% 63 30,362 -0.2 1.9 0.1 -0.2 0.0 0.1 1.7

Resident to ADC 10%-19% 35 12,804 -0.5 1.9 0.2 0.3 0.0 0.0 1.9

Resident to ADC greater 

than 19% 12 1,726 -0.1 1.9 -0.1 -0.3 0.0 -0.1 1.3

Disproportionate share 

patient percentage (DSH 

PP)

DSH PP = 0% 46 11,760 -0.4 1.9 -0.1 -0.1 0.0 0.0 1.4

DSH PP <5% 186 68,487 -0.2 1.9 0.0 0.4 0.0 0.0 2.0

DSH PP 5%-10% 317 130,224 -0.2 1.9 -0.1 -0.1 0.0 0.0 1.5

DSH PP 10%-20% 356 121,758 -0.2 1.9 0.2 -0.1 0.0 0.0 1.8

DSH PP greater than 20% 227 58,519 -0.3 1.9 0.1 -0.1 0.0 0.0 1.6

1This column reflects the impact of the IRF market basket increase factor for FY 2016 (2.7 percent), reduced by 

0.6 percentage point for the productivity adjustment as required by section 1886(j)(3)(C)(ii)(I) of the Act, and 

reduced by 0.2 percentage point in accordance with paragraphs 1886(j)(3)(C) and (D) of the Act.

2

Providers changing from urban to rural status will receive a 14.9 percent rural adjustment, and providers changing 

from rural to urban status will receive 2/3 of the 14.9 percent rural adjustment in FY 2016. For those changing from 

urban to rural, the total impact shown is affected by the outlier threshold increasing, which results in smaller outlier 

payments as part of the total payments. For those changing from rural to urban status, the outlier threshold is being 

lowered by 2/3 of 14.9 percent, which results in more providers being eligible for outlier payments, increasing the 

outlier portion of their total payments. 

3. Impact of the Proposed Update to the Outlier Threshold Amount 

The estimated effects of the proposed update to the outlier threshold adjustment are 

presented in column 4 of Table 24. In the FY 2015 IRF PPS final rule (79 FR 45872), we used 

FY 2013 IRF claims data (the best, most complete data available at that time) to set the outlier 

threshold amount for FY 2015 so that estimated outlier payments would equal 3 percent of total 

estimated payments for FY 2015. 

For this proposed rule, we are updating our analysis using FY 2014 IRF claims data and, 

based on this updated analysis, we estimate that IRF outlier payments as a percentage of total 

estimated IRF payments are 3.2 percent in FY 2015. Thus, we propose to adjust the outlier 

threshold amount in this proposed rule to set total estimated outlier payments equal to 3 percent 

of total estimated payments in FY 2016. The estimated change in total IRF payments for 
FY 2016, therefore, includes an approximate 0.2 percent decrease in payments because the 

estimated outlier portion of total payments is estimated to decrease from approximately 

3.2 percent to 3 percent. 

The impact of this proposed outlier adjustment update (as shown in column 4 of 

Table 24) is to decrease estimated overall payments to IRFs by about 0.2 percent. We estimate 

the largest decrease in payments from the update to the outlier threshold amount to be 

1.2 percent for rural IRFs in the Pacific region. 

4. Impact of the Proposed Market Basket Update to the IRF PPS Payment Rates 

The estimated effects of the proposed market basket update to the IRF PPS payment rates 

are presented in column 5 of Table 24. In the aggregate the proposed update would result in a 

net 1.9 percent increase in overall estimated payments to IRFs. This net increase reflects the 

estimated IRF market basket increase factor for FY 2016 of 2.7 percent, reduced by a 

0.6 percentage point productivity adjustment as required by section 1886(j)(3)(C)(ii)(I) of the 

Act, and further reduced by the 0.2 percentage point in accordance with sections 

1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(iv) of the Act. The market basket increase factor based 

on the IRF market basket (2.7 percent) is currently estimated to be 0.1 percentage point lower 

than the RPL market basket (2.8 percent). This lower update is primarily due to the lower cost 

weights for Compensation and Pharmaceuticals in the proposed IRF market basket.

5. Impact of the Proposed CBSA Wage Index and Labor-Related Share 

In column 6 of Table 24, we present the effects of the proposed budget-neutral update of 

the wage index and labor-related share without taking into account the revised OMB 

delineations, which are presented separately in the next column. The proposed changes to the 

wage index and the labor-related share are discussed together because the wage index is applied 
to the labor-related share portion of payments, so the proposed changes in the two have a 

combined effect on payments to providers. As discussed in section V.D. of this proposed rule, 

we propose to increase the labor-related share from 69.294 percent in FY 2015 to 69.6 percent in 

FY 2016. 

6. Impact of the Updated OMB Delineations

In column 7 of Table 24, we present the effects of the revised OMB delineations, and the 

proposed transition to the new delineations using the blended wage index. 

 In the aggregate, since these proposed updates to the wage index and the labor-related 

share are applied in a budget-neutral manner as required under section 1886(j)(6) of the Act, we 

do not estimate that these proposed updates will affect overall estimated payments to IRFs. 

However, we estimate that these proposed updates will have small distributional effects. For 

example, we estimate the largest increase in payments from the update to the CBSA wage index 

and labor-related share of 0.4 percent for urban IRFs in the Middle Atlantic region. We estimate 

the largest decrease in payments from the proposed update to the CBSA wage index and laborrelated share to be a 2.0 percent decrease for rural IRFs in the Middle Atlantic region. 

7. Impact of the Phase-out of the Rural Adjustment for IRFs Transitioning from Rural to 

Urban Designations

In column 8 of Table 24, we present the effects 3-year phase-out of the rural adjustment 

for IRFs transitioning from rural to urban status under the new CBSA delineations. Under the 

IRF PPS, IRFs located in rural areas receive a 14.9 percent adjustment to their payment rates to 

account for the higher costs incurred in treating beneficiaries in rural areas. Under the new 

CBSA delineations, we estimate that 19 IRFs will transition from rural to urban status for 

purposes of the IRF PPS wage index adjustment in FY 2016. Without the proposed phase-out of 
the rural adjustment, these 19 IRFs would experience an automatic 14.9 percent decrease in 

payments as a result of this change from rural to urban status in FY 2016. To mitigate the effects 

of this relatively large decrease in payments, we are proposing to phase-out the rural adjustment 

for these providers over a 3-year period, as discussed in more detail in section V. of this 

proposed rule. Thus, we are proposing that these IRF would receive 2/3 of the rural adjustment 

in FY 2016, 1/3 of the rural adjustment in FY 2017, and none of the rural adjustment in FY 2018, 

thus giving these IRFs time to adjust to the reduced payments. 

Column 8 shows the effect on providers of this budget-neutral phase-out of the rural 

adjustment for IRFs transitioning from rural to urban status in FY 2016. Under the proposed 

policy, these providers would only experience a reduction in payments of 1/3 of the 14.9 percent 

rural adjustment in FY 2016. As we propose to implement this phase-out in a budget-neutral 

manner, it does not affect aggregate payments to IRFs, but we estimate that this policy would 

have small effects on the distribution of payments to IRFs. The largest increase in payments to 

IRFs as a result of the interaction of the rural adjustment with the changes to the CBSA 

delineations is an 11.7 percent increase to 3 IRFs that transition from urban to rural status under 

the new CBSA delineations. These 3 IRFs will receive the full 14.9 percent rural adjustment for 

FY 2016. The largest decrease in payments to IRFs as a result of this proposed policy change is 

a 3.7 percent decrease in payments to IRFs that transition from rural to urban status under the 

new CBSA delineations. This is a result of these providers only receiving 2/3 of the 14.9 percent 

rural adjustment for FY 2016. We note that the decrease in payments to these providers is 

substantially lessened from what it otherwise would have been as a result of the proposed phaseout of the rural adjustment for these IRFs. 
8. Impact of the Proposed Update to the CMG Relative Weights and Average Length of 

Stay Values. 

In column 9 of Table 24, we present the effects of the proposed budget-neutral update of 

the CMG relative weights and average length of stay values. In the aggregate, we do not 

estimate that these updates will affect overall estimated payments of IRFs. However, we do 

expect these updates to have small distributional effects. The largest estimated increase in 

payments is a 0.1 percent increase for IRFs in the rural Middle Atlantic and rural West North 

Central regions. Rural IRFs in the Pacific region are estimated to experience a 0.1 percent 

decrease in payments due to the CMG relative weights change. 

9. Effects of Proposed Requirements for the IRF QRP for FY 2018

In accordance with section 1886(j)(7) of the Act, we will implement a 2 percentage point 

reduction in the FY 2016 increase factor for IRFs that have failed to report the required quality 

reporting data to us during the most recent IRF quality reporting period. In section VIII.P.A of 

this proposed rule, we discuss the proposed method for applying the 2 percentage point reduction 

to IRFs that fail to meet the IRF QRP requirements. At the time that this analysis was prepared, 

91, or approximately 8 percent, of the 1166 active Medicare-certified IRFs did not receive the 

full annual percentage increase for the FY 2015 annual payment update determination. 

Information is not available to determine the precise number of IRFs that will not meet the 

requirements to receive the full annual percentage increase for the FY 2016 payment 

determination. 

In section VIII.L of this proposed rule, we discuss our proposal to suspend the previously 

finalized data accuracy validation policy for IRFs. While we cannot estimate the increase in the 
number of IRFs that will meet IRF QRP compliance standards at this time, we believe that this 

number will increase due to the temporary suspension of this policy. Thus, we estimate that the 

suspension of this policy will decrease impact on overall IRF payments, by increasing the rate of 

compliance, in addition to decreasing the cost of the IRF QRP to each IRF provider by 

approximately $47,320 per IRF, which was the estimated cost to each IRF provider to the 

implement the previously finalized policy. 

In section VIII.F of this proposed rule, we are proposing 2 quality measures that have 

already been adopted for the IRF QRP: (1) All-Cause Unplanned Readmission Measure for 

30 Days Post Discharge from IRFs (NQF #2502), to establish the newly NQF-endorsed status of 

this measures; and (2) Percent of Residents or Patients with Pressure Ulcers That Are New or 

Worsened (NQF #0678), to establish its use as a cross-setting measure that addresses the domain 

of skin integrity, as required by the IMPACT Act of 2014. The All-Cause Unplanned 

Readmission Measure for 30 Days Post-Discharge from IRFs is a Medicare claims-based 

measure; because claims-based measures can be calculated based on data that are already 

reported to the Medicare program for payment purposes, we believe there will be no additional 

impact as a result of this measure. We also believe that there will be no additional burden 

associated with our proposal of the measure Percent of Residents or Patients with Pressure

Ulcers That Are New or Worsened (NQF #0678), which was proposed to establish its use as a 

cross-setting measure that meets the IMPACT Act requirement of adding a quality measure that 

stratifies the domain of skin integrity, as IRFs are already submitting quality data related to this 

measure. 

In section VIII.G of this proposed rule, we are also proposing to adopt six new quality 

measures. The six proposed quality measures are: (1) an application of Percent of Residents 
Experiencing One or More Falls with Major Injury (Long Stay) (NQF #0674); (2) an application 

of Percent of LTCH Patients with an Admission and Discharge Functional Assessment and a 

Care Plan That Addresses Function (NQF #2631; under review); (3) IRF Functional Outcome 

Measure: Change in Self-Care Score for Medical Rehabilitation Patients (NQF #2633; under 

review); (4) IRF Functional Outcome Measure: Change in Mobility Score for Medical 

Rehabilitation Patients (NQF #2634; under review); (5) IRF Functional Outcome Measure: 

Discharge Self-Care Score for Medical Rehabilitation Patients (NQF #2635; under review); and 

(6) IRF Functional Outcome Measure: Discharge Mobility Score for Medical Rehabilitation 

Patients (NQF #2636; under review). Additionally, we propose that data for these six measures 

will be collected and reported using the IRF-PAI (version 1.4). The total cost related to the six 

proposed measures is estimated at $21,239.33 per IRF annually, or $24,042,291.01 for all IRFs 

annually. This is an average increase of 124 percent to all IRF providers over the burden 

discussed in the FY 2015 IRF PPS Final Rule, which included all quality measures that IRFs are 

required to report under the QRP with the exception of those new quality measures six proposed 

in this proposed rule.

We intend to continue to closely monitor the effects of this new quality reporting 

program on IRF providers and help perpetuate successful reporting outcomes through ongoing 

stakeholder education, national trainings, IRF provider announcements, website postings, CMS 

Open Door Forums, and general and technical help desks.

D. Alternatives Considered

The following is a discussion of the alternatives considered for the IRF PPS updates 

contained in this proposed rule. 
Section 1886(j)(3)(C) of the Act requires the Secretary to update the IRF PPS payment 

rates by an increase factor that reflects changes over time in the prices of an appropriate mix of 

goods and services included in the covered IRF services. In recent years, IRF PPS payment rates 

have been updated by the RPL market basket. Thus, we did consider updating payments using 

the RPL market basket increase factor for FY 2016. However, as stated in section V of this 

proposed rule, we believe the use of an IRF market basket that reflects the cost structure of the 

universe of IRF providers is a technical improvement over the use of the RPL market basket. 

The RPL market basket reflects the input costs of two additional provider types: Inpatient 

Psychiatric Facilities and Long-term Care Hospitals; and also only included data from 

freestanding providers. On the other hand, the IRF market basket reflects the input costs of only 

IRF providers and includes the costs from both freestanding and hospital-based IRF 

providers. We also had indicated our intention of proposing an IRF market basket in the FY 

2015 IRF proposed and final rules and received support for moving from an RPL to an IRF 

market basket. Based on these reasons, we propose to update payments using the IRF market 

basket increase factor for FY 2016. In addition, as noted previously in this proposed rule, 

section 1886(j)(3)(C)(ii)(I) of the Act requires the Secretary to apply a productivity adjustment to 

the market basket increase factor for FY 2016, and sections 1886(j)(3)(C)(ii)(II) and 

1886(j)(3)(D)(iv) of the Act require the Secretary to apply a 0.2 percentage point reduction to the 

market basket increase factor for FY 2016. Thus, in accordance with section 1886(j)(3)(C) of 

the Act, we proposed to update the IRF federal prospective payments in this proposed rule by 1.9 

percent (which equals the 2.7 percent estimated IRF market basket increase factor for FY 2016 

reduced by a 0.6 percentage point productivity adjustment as required by section 

1886(j)(3)(C)(ii)(I) of the Act and further reduced by 0.2 percentage point). If we instead 
proposed to use the RPL market basket, we would have proposed to update the IRF federal 

prospective payments by 2.0 percent (which equals the 2.8 percent estimated RPL market basket 

increase factor for FY 2016 reduced by a 0.6 percentage point productivity adjustment and 

further reduced by 0.2 percentage point).

We considered maintaining the existing CMG relative weights and average length of stay 

values for FY 2016. However, in light of recently available data and our desire to ensure that the 

CMG relative weights and average length of stay values are as reflective as possible of recent 

changes in IRF utilization and case mix, we believe that it is appropriate to propose to update the 

CMG relative weights and average length of stay values at this time to ensure that IRF PPS 

payments continue to reflect as accurately as possible the current costs of care in IRFs. 

We considered updating facility-level adjustment factors for FY 2016. However, as 

discussed in more detail in the FY 2015 final rule (79 FR 45872), we believe that freezing the 

facility-level adjustments at FY 2014 levels for FY 2015 and all subsequent years (unless and 

until the data indicate that they need to be further updated) will allow us an opportunity to 

monitor the effects of the substantial changes to the adjustment factors for FY 2014, and will 

allow IRFs time to adjust to the previous changes. 

We considered maintaining the existing outlier threshold amount for FY 2016. However, 

analysis of updated FY 2014 data indicates that estimated outlier payments would be higher than 

3 percent of total estimated payments for FY 2016, by approximately 0.2 percent, unless we 

updated the outlier threshold amount. Consequently, we propose adjusting the outlier threshold 

amount in this proposed rule to reflect a 0.2 percent decrease thereby setting the total outlier 

payments equal to 3 percent, instead of 3.2 percent, of aggregate estimated payments in 

FY 2016.
We considered a number of options for implementing the new CBSA designations. 

Overall, we believe implementing the new OMB delineations would result in wage index values 

being more representative of the actual costs of labor in a given area. Further, we recognize that 

some providers (10 percent) would have a higher wage index due to our proposed 

implementation of the new labor market area delineations. However, we also recognize that more 

providers (16 percent) would experience decreases in wage index values as a result of our 

proposed implementation of the new labor market area delineations. In prior years, we have 

provided for transition periods when adopting changes that have significant payment 

implications, particularly large negative impacts. As discussed in the FY 2006 IRF PPS final rule 

(70 FR 47921 through 47926), we evaluated several options to ease the transition to the new 

CBSA system. 

In implementing the new CBSA delineations for FY 2016, we continue to have similar 

concerns as those expressed in the FY 2006 IRF PPS final rule. While we believe that 

implementing the latest OMB labor market area delineations would create a more accurate wage 

index system, we recognize that IRFs may experience decreases in their wage index as a result of 

the labor market area changes. Our analysis for the FY 2016 IRF PPS proposed rule indicates 

that a majority of IRFs either expect no change in the wage index or an increase in the wage 

index based on the new CBSA delineations. However, we found that 188 facilities will 

experience a decline in their wage index with 29 facilities experiencing a decline of 5 percent or 

more based on the CBSA changes. Therefore, we believe it would be appropriate to consider, as 

we did in FY 2006, whether or not a transition period should be used to implement these 

proposed changes to the wage index. 
We considered having no transition period and fully implementing the proposed new 

OMB delineations beginning in FY 2016. This would mean that we would adopt the revised 

OMB delineations for all IRF providers on October 1, 2015. However, this would not provide 

any time for IRF providers to adapt to the new OMB delineations. As previously discussed, 

more IRFs would experience a decrease in wage index due to implementation of the proposed 

new OMB delineations than would experience an increase. Thus, we believe that it would be 

appropriate to provide for a transition period to mitigate the resulting short-term instability and 

negative impacts on these IRF providers, and to provide time for these IRFs to adjust to their 

new labor market area delineations.

Furthermore, in light of the comments received during the FY 2006 rulemaking cycle on 

our proposal in the FY 2006 IRF PPS proposed rule (70 FR 30238 through 30240) to adopt the 

new CBSA definitions without a transition period, we continue to believe that a transition period 

is appropriate. Therefore, we propose a similar transition methodology to that used in FY 2006. 

Specifically, for the FY 2016 IRF PPS, we are proposing to implement a budget-neutral one-year 

transition policy. We are proposing that all IRF providers would receive a one-year blended 

wage index using 50 percent of their FY 2016 wage index based on the proposed new OMB 

delineations and 50 percent of their FY 2016 wage index based on the OMB delineations used in 

FY 2015. We are proposing to apply this one-year blended wage index in FY 2016 for all 

geographic areas to assist providers in adapting to these proposed changes. We believe a 1-year, 

50/50 blend would mitigate the short-term instability and negative payment impacts due to the 

proposed implementation of the new OMB delineations. This transition policy would be for a 

one-year period, going into effect October 1, 2016, and continuing through September 30, 2017.
For the reasons previously discussed and based on similar concerns to those we expressed 

during the FY 2006 rulemaking cycle to the proposed adoption of the new CBSA definitions, we 

are proposing to implement a three-year budget-neutral phase-out of the rural adjustment for the 

group of IRFs that during FY 2015 were designated as rural and for FY 2016 are designated as 

urban under the new CBSA system. This is in addition to implementing a one-year blended 

wage index for all IRFs. We considered having no transition, but found that a multi-year 

transition policy would best provide a sufficient buffer for rural IRFs that may experience a 

reduction in payments due to being designated as urban. We believe that the incremental 

reduction of the FY 2015 rural adjustment is appropriate to mitigate a significant reduction in per 

case payment. Alternative timeframes we considered for phasing out the rural adjustment for 

IRFs which would transition from rural to urban status in FY 2016, but believe that a three-year 

budget-neutral phase-out of the rural adjustment would appropriately mitigate the adverse 

payment impacts for these IRFs while also ensuring that payment rates for these providers are set 

accurately and appropriately.

E. Accounting Statement

As required by OMB Circular A-4 (available at 

http://www.whitehouse.gov/sites/default/files/omb/assets/omb/circulars/a004/a-4.pdf), in 

Table 25, we have prepared an accounting statement showing the classification of the 

expenditures associated with the provisions of this final rule. Table 25 provides our best 

estimate of the increase in Medicare payments under the IRF PPS as a result of the proposed 

updates presented in this proposed rule based on the data for 1,132 IRFs in our database. In 

addition, Table 25 presents the costs associated with the proposed new IRF quality reporting 

program for FY 2016. 
TABLE 25: Accounting Statement: Classification of Estimated Expenditures

Change in Estimated Transfers from FY 2015 IRF PPS to FY 2016 IRF PPS:

Category Transfers

Annualized Monetized Transfers $130 million

From Whom to Whom? Federal Government to IRF Medicare 

Providers

FY 2016 Cost to Updating the Quality Reporting Program:

Category Costs

Cost for IRFs to Submit Data for the Quality 

Reporting Program

$24,042,291.01

F. Conclusion

Overall, the estimated payments per discharge for IRFs in FY 2016 are projected to 

increase by 1.7 percent, compared with the estimated payments in FY 2015, as reflected in 

column 10 of Table 24. IRF payments per discharge are estimated to increase by 1.7 percent in 

urban areas and by 1.9 percent in rural areas, compared with estimated FY 2015 payments. 

Payments per discharge to rehabilitation units are estimated to increase 1.6 percent in urban areas 

and 2.0 in rural areas. Payments per discharge to freestanding rehabilitation hospitals are 

estimated to increase 1.8 percent in urban areas and 1.3 percent in rural areas.

Overall, IRFs are estimated to experience a net increase in payments as a result of the proposed 

policies in proposed rule. The largest payment increase is estimated to be a 2.7 percent increase 

for rural IRFs located in the East North Central region. 

In accordance with the provisions of Executive Order 12866, this proposed rule was 

reviewed by the Office of Management and Budget.
List of Subjects in 42 CFR Part 412

Administrative practice and procedure, Health facilities, Medicare, Puerto Rico, 

Reporting and recordkeeping requirements.
 For the reasons set forth in the preamble, the Centers for Medicare & Medicaid Services 

proposes to amend 42 CFR chapter IV as set forth below:

PART 412—PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 

SERVICES

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

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

1395hh), sec. 124 of Pub. L. 106-113 (113 Stat. 1501A-332), sec. 1206 of Pub. L. 113-67, and 

sec. 112 of Pub. L. 113-93.

2. Section 412.634 is added to read as follows:

§412.634 Requirements under the Inpatient Rehabilitation Facility (IRF) Quality 

Reporting Program (QRP)

(a) Participation. (1) An IRF must begin reporting data under the IRF QRP requirements 

no later than the first day of the calendar quarter subsequent to 30 days after the date on its CMS 

Certification Number (CCN) notification letter, which designates the IRF as operating in the 

Certification and Survey Provider Enhanced Reports (CASPER) system.

(2) [Reserved]

(b) Submission requirements and payment impact. (1) IRFs must submit to CMS data on 

measures specified under sections 1886(j)(7)(D), 1899B(c)(1), and 1899B(d)(1) of the Act, as 

applicable. Sections 1886(j)(7)(C) and (j)(7)(F)(iii) of the Act require each IRF to submit data 

on the specified measures in the form and manner, and at a time, specified by the Secretary.

(2) As required by section 1886(j)(7)(A)(i) of the Act, any IRF that does not submit data 

in accordance with section 1886(j)(7)(C) and (F) of the Act for a given fiscal year will have its 
annual update to the standard Federal rate for discharges for the IRF during the fiscal year 

reduced by two percentage points.

(c) Exception and extension requirements. (1) An IRF may request and CMS may grant 

exceptions or extensions to the quality data reporting requirements, for one or more quarters, 

when there are certain extraordinary circumstances beyond the control of the IRF.

(2) An IRF must request an exception or extension within 30 days of the date that the 

extraordinary circumstances occurred.

(3) Exception and extension requests must be submitted to CMS from the IRF by sending 

an email to IRFQRPReconsiderations@cms.hhs.gov containing all of the following information:

(i) IRF CMS Certification Number (CCN).

(ii) IRF Business Name.

(iii) IRF Business Address.

(iv) CEO or CEO-designated personnel contact information including name, telephone 

number, title, email address, and mailing address. (The address must be a physical address, not a 

post office box.)

(v) IRF’s reason for requesting the exception or extension.

(vi) Evidence of the impact of extraordinary circumstances, including, but not limited to,

photographs, newspaper, and other media articles.

(vii) Date when the IRF believes it will be able to again submit IRF QRP data and a 

justification for the proposed date.

(4) CMS may grant exceptions or extensions to IRFs without a request if it is determined 

that one or more of the following has occurred:

(i) An extraordinary circumstance affects an entire region or locale.
(ii) A systemic problem with one of CMS’s data collection systems directly affected the 

ability of an IRF to submit data.

(5) Email is the only form of submission that will be accepted. Any reconsideration 

requests received through another channel will not be considered as a valid exception or 

extension request.

(d) Reconsideration. (1) IRFs found to be non-compliant with the quality reporting 

requirements for a particular fiscal year will receive a letter of non-compliance through the 

Quality Improvement and Evaluation System Assessment Submission and Processing (QIESASAP) system, as well as through the United States Postal Service. IRFs must submit 

reconsideration requests no later than 30 calendar days after the date identified on the letter of 

non-compliance.

(2) Reconsideration requests must be submitted to CMS by sending an email to 

IRFQRPReconsiderations@cms.hhs.gov containing all of the following information: 

(i) IRF CCN.

(ii) IRF Business Name.

(iii) IRF Business Address.

(iv) CEO or CEO-designated personnel contact information including name, telephone 

number, title, email address, and mailing address. (The address must be a physical address, not a 

post office box.)

(v) CMS identified reason(s) for non-compliance from the non-compliance letter.

(vi) Reason(s) for requesting reconsideration.

(3) The request for reconsideration must be accompanied by supporting documentation 

demonstrating compliance. This documentation must be submitted electronically as an 
attachment to the reconsideration request email. Any request for reconsideration that does not 

contain sufficient evidence of compliance with the IRF QRP requirements will be denied.

(4) Email is the only form of submission that will be accepted. Any reconsideration 

requests received through another channel will not be considered as a valid exception or 

extension request.

(5) The QIES-ASAP system and the United States Postal Service will be the two 

mechanisms used to distribute each IRF’s compliance letter, as well as our final decision 

regarding any reconsideration request received from the IRF. 

(e) Appeals. (1) An IRF may appeal the decision made by CMS on its reconsideration 

request by filing with the Provider Reimbursement Review Board (PRRB) under 42 CFR Part 

405, Subpart R. 

. 

Dated: April 13, 2015

 _______________________________

Andrew M. Slavitt,

Acting Administrator,

Centers for Medicare & Medicaid Services.

Dated: April 21, 2015

 __________________________________

Sylvia M. Burwell,
Secretary,

Department of Health and Human Services. 

BILLING CODE 4120-01-P

[FR Doc. 2015-09617 Filed: 4/23/2015 04:15 pm; Publication Date: 4/27/2015]