31118 Federal Register / Vol. 75, No. 105 / Wednesday, June 2, 2010 / Notices 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

[CMS–1406–N] 

RIN 0938–AQ03 

Medicare Program; Hospital Inpatient 

Prospective Payment Systems for 

Acute Care Hospitals and Fiscal Year 

2010 Rates and to the Long-Term Care 

Hospital Prospective Payment System 

and Rate Year 2010 Rates: Final Fiscal 

Year 2010 Wage Indices and Payment 

Rates Implementing the Affordable 

Care Act 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Notice. 

SUMMARY: This notice contains the final 

wage indices, hospital reclassifications, 

payment rates, impacts, and other 

related tables effective for the fiscal year 

(FY) 2010 hospital inpatient prospective 

payment systems (IPPS) and rate year 

2010 long-term care hospital (LTCH) 

prospective payment system (PPS). The 

rates, tables, and impacts included in 

this notice reflect changes required by 

or resulting from the implementation of 

several provisions of the Patient 

Protection and Affordable Care Act and 

the Health Care and Education 

Reconciliation Act of 2010. These 

provisions require the extension of the 

expiration date for certain geographic 

reclassifications and special exception 

wage indices through September 30, 

2010; and certain market basket updates 

for the IPPS and LTCH PPS. 

DATES: Effective Date: The revised 

standard Federal rates described in this 

notice are effective for payment years 

beginning October 1, 2009. Hospitals are 

paid based on the rates published in this 

notice for discharges on or after April 1, 

2010. 

FOR FURTHER INFORMATION CONTACT: Tzvi 

Hefter, (410) 786–4487. 

SUPPLEMENTARY INFORMATION: 

I. Background 

The final rule setting forth the 

Medicare fiscal year (FY) 2010 hospital 

inpatient prospective payment systems 

(IPPS) for acute care hospitals and the 

rate year (RY) 2010 long-term care 

hospital (LTCH) prospective payment 

system (PPS) final rule (hereinafter 

referred to as the FY 2010 IPPS/RY 2010 

LTCH PPS final rule) was published in 

the August 27, 2009 Federal Register 

(74 FR 43754) and subsequently 

corrected in an October 7, 2009 notice 

(74 FR 51496). 

On March 23, 2010, the Patient 

Protection and Affordable Care Act 

(Pub. L. 111–148) was enacted. 

Following enactment of Public Law 

111–148, the Health Care and Education 

Reconciliation Act of 2010, Public Law 

111–152 (enacted on March 30, 2010), 

amended certain provisions of Public 

Law 111–148. (These public laws are 

collectively known as the Affordable 

Care Act.) Several of the provisions of 

the Affordable Care Act affect the FY 

2010 IPPS and the RY 2010 LTCH PPS. 

However, due to the timing of the 

passage of the legislation, we noted in 

the FY 2011 IPPS and LTCH PPS 

proposed rule published in the May 4, 

2010 Federal Register (75 FR 23852) 

that we would issue separate Federal 

Register documents addressing the 

provisions of the Affordable Care Act 

that affect our final policies and 

payment rates for FY 2010 IPPS and the 

RY 2010 LTCH PPS and proposed 

policies for FY 2011 under the IPPS and 

the LTCH PPS. 

This notice addresses the provisions 

of the Affordable Care Act that impact 

the FY 2010 IPPS/RY 2010 LTCH PPS 

final wage index tables, rates, and 

impacts. 

II. Final FY 2010 Wage Indices and 

Payment Rates 

A. Final FY 2010 Hospital Wage Index 

Reclassifications/Redesignations 

1. Section 508 Extension 

Section 3137(a) of Public Law 111– 

148, as amended by section 10317 of 

Public Law 111–148, extends through 

the end of FY 2010 wage index 

reclassifications under section 508 of 

the Medicare Prescription Drug 

Improvement and Modernization Act of 

2003 (MMA) (Pub. L. 108–173) and 

certain special exceptions (for example, 

those special exceptions contained in 

the final rule promulgated in the 

Federal Register on August 11, 2004 (69 

FR 49105 and 49107) extended under 

section 117 of the Medicare, Medicaid, 

and SCHIP Extension Act of 2007 

(MMSEA) (Pub. L. 110–173)) and further 

extended under section 124 of the 

Medicare Improvements for Patients and 

Providers Act of 2008 (MIPPA) (Pub. L. 

110–275). 

Under section 508 of Public Law 108– 

173, a qualifying hospital could appeal 

the wage index classification otherwise 

applicable to the hospital and apply for 

reclassification to another area of the 

State in which the hospital is located 

(or, at the discretion of the Secretary), to 

an area within a contiguous State. We 

implemented this process through 

notices published in the Federal 

Register on January 6, 2004 (69 FR 661), 

and February 13, 2004 (69 FR 7340). 

Such reclassifications were applicable 

to discharges occurring during the 3- 

year period beginning April 1, 2004, and 

ending March 31, 2007. Section 106(a) 

of the Medicare Improvements and 

Extension Act, Division B of the Tax 

Relief and Health Care Act of 2006 

(MIEA–TRHCA) extended any 

geographic reclassifications of hospitals 

that were made under section 508 and 

that would expire on March 31, 2007. In 

the March 23, 2007 Federal Register (72 

FR 3799), we published a notice that 

indicated how we were implementing 

section 106(a) of the MIEA–TRHCA 

through September 30, 2007. Section 

117 of the MMSEA further extended 

section 508 reclassifications and certain 

special exceptions through September 

30, 2008. On February 22, 2008 in the 

Federal Register (73 FR 9807), we 

published a notice regarding our 

implementation of section 117 of the 

MMSEA. Section 124 of MIPPA, Public 

Law 110–275, then further extended 

section 508 reclassifications and certain 

special exceptions through September 

30, 2009. Final rates incorporating these 

MIPPA extensions were published in a 

Federal Register notice on October 3, 

2008 (73 FR 57888). 

Section 3137(a) of Public Law 111– 

148, as amended by section 10317 of 

Public Law 111–148 has now extended 

the hospital reclassification provisions 

of section 508 and certain special 

exceptions through September 30, 2010 

(FY 2010). Furthermore, section 

3137(a)(2)(B) of Public Law 111–148 

contains a new provision not previously 

included in prior mid-year extensions to 

section 508 requiring that ‘‘beginning on 

April 1, 2010, in determining the wage 

index applicable to hospitals that 

qualify for wage index reclassification, 

the Secretary shall include the average 

hourly wage data of hospitals whose 

reclassification was extended pursuant 

to the amendment made by paragraph 

(1) only if including such data results in 

a higher applicable reclassified wage 

index.’’ Finally, section 3401 of Public 

Law 111–148, as amended by section 

10319 of Public Law 111–148 and 

section 1105 of Public Law 111–152, 

imposes a 0.25 percent decrease in the 

market basket calculated under section 

1886(b)(3)(B) of the Social Security Act. 

As a result of these changes, we have 

recalculated certain wage indexes, 

recalculated the standardized amounts, 

and revised budget neutrality factors 

(including rural floor budget neutrality) 

to account for the new legislation. 

For hospitals receiving an extension 

of their section 508 reclassifications or 

special exceptions, we have used the 

rates contained in the August 27, 2009 


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Federal Register, and as corrected in the 

October 7, 2009 Federal Register, unless 

the rates published in this notice result 

in a higher applicable wage index. 

Those section 508 and special exception 

providers that are receiving an 

extension through September 30, 2010 

are shown in Table 9B of the Addendum 

to this notice. Please note we are not 

making reclassification decisions on 

behalf of hospitals in this extension as 

we did with the MIPPA provision. 

(Because MIPPA was enacted prior to 

the finalization of the FY 2009 rates, we 

were able to modify reclassifications 

that had not yet taken effect. In contrast, 

the Affordable Care Act has been 

enacted in the middle of the fiscal year, 

and reclassifications are already in 

effect). As explained in this notice, the 

intervening Affordable Care Act 

legislation affects only those labor 

market areas including hospitals whose 

reclassifications/special exceptions are 

extended, or areas to which such 

hospitals were reclassified for FY 2010. 

When originally implementing 

section 508 of the MMA, we required 

each hospital to submit a request in 

writing by February 15, 2004, to the 

Medicare Geographic Classification 

Review Board (MGCRB), with a copy to 

CMS. We will neither require nor accept 

written requests for the extension 

required by the Affordable Care Act, 

since that legislation simply provides a 

1-year continuation through the end of 

FY 2010 for any section 508 

reclassifications and special exceptions 

wage indexes that expired September 

30, 2009. 

2. FY 2010 Final Wage Indices 

The final wage index values for FY 

2010 (except those for hospitals 

receiving wage index adjustments under 

section 505 of Pub. L. 108–173) are 

included in Tables 4A, 4B, and 4C of the 

Addendum to this notice and are posted 

on our Web site at http:// 

www.cms.hhs.gov/AcuteInpatientPPS/. 

For hospitals that are receiving a wage 

index adjustment under section 505 of 

Public Law 108–173, only one county’s 

adjustment factor changed due to the 

implementation of section 3137(a)(2)(B) 

of Public Law 111–148; therefore only 

that revised factor is shown in 

abbreviated Table 4J of the Addendum 

to this notice. In addition, Table 2 of the 

Addendum to this notice includes the 

final wage index values and 

occupational mix adjusted average 

hourly wage (from the FYs 2004, 2005, 

and 2006 cost reporting periods) for 

each hospital. Table 4D–1 of the 

Addendum of this notice lists the State 

rural floor budget neutrality factors for 

FY 2010. Table 4D–2 of this Addendum 

of this notice lists the urban areas with 

hospitals receiving the State rural floor 

or imputed rural floor wage index. Table 

9B of the Addendum of this notice lists 

hospitals that are section 508 and 

special exception providers which have 

their reclassifications extended until 

September 30, 2010. 

B. Inpatient Hospital Market Basket 

Update 

1. FY 2010 Inpatient Hospital Update 

In accordance with section 

1886(b)(3)(B)(i) of the Act, each year we 

update the national standardized 

amount for inpatient operating costs by 

a factor called the ‘‘applicable 

percentage increase.’’ Prior to enactment 

of the Affordable Care Act, section 

1886(b)(3)(B)(i)(XX) of the Act set the 

applicable percentage increase for FY 

2007 and each subsequent fiscal year as 

equal to the rate-of-increase in the 

hospital market basket for IPPS 

hospitals in all areas, subject to the 

hospital submitting quality information 

under rules established by the Secretary 

in accordance with section 

1886(b)(3)(B)(viii) of the Act. For 

hospitals that do not provide these data, 

the update is equal to the market basket 

percentage increase less an additional 

2.0 percentage points. In accordance 

with these statutory provisions, in the 

FY 2010 IPPS/RY 2010 LTCH PPS final 

rule (74 FR 43850), we finalized an 

applicable percentage increase equal to 

the full market basket update of 2.1 

percent based on IHS Global Insight, 

Inc.’s second quarter 2009 forecast of 

the FY 2010 market basket increase, 

provided the hospital submits quality 

data in accordance with our rules. For 

hospitals that do not submit quality 

data, the FY 2010 update to the 

operating standardized amount equals 

0.1 percent (that is, the FY 2010 

estimate of the market basket rate-ofincrease minus 2.0 percentage points). 

Sections 3401(a) and 10319(a) of 

Public Law 111–148 and section 1105 of 

Public Law 111–152, amend section 

1886(b)(3)(B) of the Act. Specifically, 

section 1886(b)(3)(B)(xii)(I) of the Act, 

as added and amended by these sections 

of the Affordable Care Act, requires the 

Secretary to reduce the applicable 

percentage increase for FY 2010 by 0.25 

percentage point, subject to the hospital 

submitting quality information under 

rules established by the Secretary in 

accordance with section 

1886(b)(3)(B)(viii) of the Act. For 

hospitals that do not provide these data, 

the update is equal to the market basket 

percentage increase minus 0.25 

percentage point less an additional 

2.0 percentage points. Section 

1886(b)(3)(B)(xii) of the Act, as added 

and amended by these sections of the 

Affordable Care Act, further states that 

the application of this adjustment ‘‘may 

result in the applicable percentage 

increase described in clause (i) being 

less than 0.0 for a fiscal year.’’ Although 

these amendments modify the 

applicable percentage increase 

applicable to the FY 2010 rates under 

the IPPS, section 3401(p) of Public Law 

111–148 states that the amendments 

made by section 3401(a) of Public Law 

111–148 shall not apply to discharges 

occurring prior to April 1, 2010. In other 

words, for discharges occurring on or 

after October 1, 2009 and prior to April 

1, 2010, payment for a hospital’s 

inpatient operating costs under the IPPS 

will be based on the applicable 

percentage increase set forth in the FY 

2010 IPPS/RY 2010 LTCH PPS final 

rule. 

Consistent with section 3401(p) of 

Public Law 111–148, for the first half of 

FY 2010 (that is, discharges on or after 

October 1, 2009 through March 30, 

2010), payment will be made based on 

the applicable percentage increase 

equaling the market basket index for 

IPPS hospitals (which is defined in 42 

CFR 413.40(a)(3)) in all areas for 

hospitals that submit quality data in 

accordance with our rules, and the 

market basket index for IPPS hospitals 

in all areas less 2.0 percentage for 

hospitals that fail to submit quality data 

in accordance with our rules. As noted 

previously, in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule, we 

calculated that the full market basket 

update equals 2.1 percent based on IHS 

Global Insight, Inc.’s second quarter 

2009 forecast of the FY 2010 market 

basket increase. Consistent with section 

1886(b)(3)(B)(xii) of the Act, as added 

and amended by sections 3401(a) and 

10319(a) of Public Law 111–148 and 

section 1105 of Public Law 111–152, 

and section 3401(p) of Public Law 111– 

148, payment for discharges during the 

second half of FY 2010 (discharges on 

or after April 1, 2010 through September 

30, 2010), will reflect the revised FY 

2010 rate, which includes the 0.25 

percentage point reduction for hospitals 

that submit quality data in accordance 

with our rules. For those hospitals that 

fail to submit quality data in accordance 

with our rules, we are reducing the 

market basket index for IPPS hospitals 

by an additional 2.0 percentage points 

(which is in addition to the 0.25 

percentage point reduction required by 

section 1886(b)(3)(B)(xii) of the Act, as 

added and amended by sections 3401(a) 

and 10319(a) of Pub. L. 111–148 and 

section 1105 of Pub. L. 111–152). 


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Therefore, based on IHS Global Insight, 

Inc.’s second quarter 2009 forecast of 

the FY 2010 market basket increase, the 

FY 2010 applicable percentage increase, 

on which payment for discharges 

occurring in the second half of FY 2010 

is based, is 1.85 percent (that is, the FY 

2010 estimate of the market basket rateof-increase of 2.1 percent minus 0.25 

percentage points) for hospitals in all 

areas, provided the hospital submits 

quality data in accordance with our 

rules. For hospitals that do not submit 

quality data, the payment update to the 

operating standardized amount is ¥0.15 

percent (that is, the adjusted FY 2010 

estimate of the market basket rate-ofincrease of 1.85 percent minus 2.0 

percentage points). As provided by 

these provisions, we are proposing to 

revise 42 CFR 412.64(d) in a 

supplemental proposed rule published 

elsewhere in this Federal Register. 

Section 1886(b)(3)(B)(iv)(IV) of the 

Act provides that the applicable 

percentage increase applicable to the 

hospital-specific rates for SCHs and 

MDHs equals the applicable percentage 

increase set forth in section 

1886(b)(3)(B)(i) of the Act (that is, the 

same update factor as for all other 

hospitals subject to the IPPS). Because 

the statute defines the applicable 

percentage increase for SCHs and MDHs 

as equal to the applicable percentage 

increase under section 1886(b)(3)(B)(i) 

of the Act for other IPPS hospitals, the 

update to the hospital specific rates for 

SCHs and MDHs is also subject to the 

amendments to section 1886(b)(3)(B)(i) 

of the Act made by sections 3401(a) and 

10319(a) of Public Law 111–148 and 

section 1105 of Public Law 111–152, as 

well as to section 3401(p) of Public Law 

111–148. Accordingly, for hospitals 

paid for their inpatient operating costs 

on the basis of a hospital-specific rate, 

the rates paid to such hospitals for 

discharges occurring during the first 

half of FY 2010 will be based on an 

annual update estimated to be 2.1 

percent for hospitals submitting quality 

data or 0.1 percent for hospitals that fail 

to submit quality data; and the rates 

paid to such hospitals for the second 

half of FY 2010 will be based on the 

revised FY 2010 applicable percentage 

increase that is estimated to be 1.85 

percent for hospitals submitting quality 

data or ¥0.15 percent for hospitals that 

fail to submit quality data. Similarly, we 

are proposing to revise 42 CFR 

412.73(c)(15), 42 CFR 412.75(d), 42 CFR 

412.77(e), 42 CFR 412.78(e), and 42 CFR 

412.79(d) to reflect the changes made to 

section 1886(b)(3)(B) by sections 3401(a) 

and 10319(a) of Public Law 111–148 

and section 1105 of Public Law 111– 

152, in a supplemental proposed rule 

published elsewhere in this Federal 

Register. 

2. FY 2010 Puerto Rico Hospital Update 

Puerto Rico hospitals are paid a 

blended rate for their inpatient 

operating costs based on 75 percent of 

the national standardized amount and 

25 percent of the Puerto Rico-specific 

standardized amount. Section 

1886(d)(9)(C)(i) of the Act is the basis 

for determining the annual adjustment 

to the Puerto Rico-specific standardized 

amount. Section 1886(d)(9)(C)(i) of the 

Act provides that the Puerto Rico 

standardized amount shall be adjusted 

in accordance with the final 

determination of the Secretary under 

section 1886(e)(4) of the Act. Section 

1886(e)(4)(A) of the Act in turn directs 

the Secretary to recommend an 

appropriate change factor for inpatient 

hospital services for discharges in that 

fiscal year, taking in to account amounts 

necessary for the efficient and effective 

delivery of medically appropriate and 

necessary care of high quality, as well 

as the recommendations of MedPAC. In 

order to maintain consistency between 

the portion of the rates paid to Puerto 

Rico hospitals based on the national 

standardized amount and the portion 

based on the Puerto Rico-specific 

standardized rate, beginning in FY 2004 

we have set the update to the Puerto 

Rico-specific operating standardized 

amount equal to the update to the 

national operating standardized amount 

for all IPPS hospitals. This policy is 

reflected in our regulations at 42 CFR 

412.211. 

The amendments to section 

1886(b)(3)(B) of the Act by sections 

3401(a) and 10319(a) of Public Law 

111–148 and section 1105 of Public Law 

111–152, affect only the update factor 

applicable to the national standardized 

rate for IPPS hospitals and the hospitalspecific rates; they do not mandate any 

revisions to the update factor applicable 

to the Puerto Rico-specific standardized 

amount. Rather, as noted above, sections 

1886(d)(9)(C)(i) and (e)(4) of the Act 

direct us to adopt an appropriate change 

factor for the FY 2010 Puerto Ricospecific standardized amount, which we 

did in the FY 2010 IPPS/LTCH PPS final 

rule after notice and comment 

rulemaking. Therefore, we do not 

believe we have the authority to revise 

the FY 2010 update factor for the Puerto 

Rico-specific operating standardized 

amount equal to the update factor 

applicable to the national standardized 

amount or the hospital-specific rates 

(that is the market basket minus 0.25 

percentage points). Accordingly, the FY 

2010 update to the Puerto Rico-specific 

operating standardized amount remains 

2.1 percent (that is, the FY 2010 

estimate of the market basket rate-ofincrease). 

C. Changes to Payment Rates for IPPS 

for Capital-Related Costs for FY 2010 

Although the Affordable Care Act 

does not directly the amend provisions 

regarding payment for the IPPS for 

capital-related costs, in section II.E.2. of 

this notice we are establishing revised 

capital IPPS standard Federal rates for 

FY 2010. The revised FY 2010 capital 

Federal rates are effective for discharges 

occurring on or after April 1, 2010, 

consistent with section 3401(p) of 

Public Law 111–148. This is necessary 

because the operating IPPS market 

basket and wage index changes required 

by the provisions of this legislation 

(discussed above in section II.A. of this 

notice) affect the budget neutrality 

adjustment factor for changes in DRG 

classifications and weights and the 

geographic adjustment factor (GAF) 

since the GAF values are derived from 

the wage index values (see § 412.316(a)). 

In addition, these changes necessitate a 

revision to the outlier payment 

adjustment factor since a single set of 

thresholds is used to identify outlier 

cases for both inpatient operating and 

inpatient capital-related payments (see 

§ 412.312(c)). The outlier thresholds are 

set so that operating outlier payments 

are projected to be 5.1 percent of total 

operating IPPS DRG payments. Section 

412.308(c)(2) provides that the standard 

Federal rate for inpatient capital-related 

costs be reduced by an adjustment factor 

equal to the estimated proportion of 

capital-related outlier payments to total 

inpatient capital-related PPS payments. 

The revised capital IPPS standard 

Federal rates for FY 2010 (effective for 

discharges occurring on or after April 1, 

2010) are discussed in section II.E.2. of 

this notice. 

D. Long-Term Care Hospital Market 

Basket Update and Other Changes 

1. Background 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule that appeared in the 

August 27, 2009 Federal Register (74 FR 

43754), we established policies, 

payment rates, and factors for 

determining payments under the LTCH 

PPS for RY 2010 (October 1, 2009 

through September 30, 2010). Below we 

discuss revised RY 2010 LTCH PPS 

rates and factors consistent with the 

provisions of section 1886(m)(3) as 

added by section 3401(c) of Public Law 

111–148, section 1886(m)(4) as added 

by section 3401(c) of Public Law 111– 

148 and amended by section 10319(b) of 


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Public Law 111–148, as further 

amended by section 1105(b) of Public 

Law 111–152, as well as section 3401(p) 

of Public Law 111–148. Section 

1886(m)(3)(A) of the Act provides that 

in implementing the system described 

in paragraph (1) [of 1886(m) of the Act] 

for rate year 2010 and each subsequent 

rate year, any annual update to the 

standard Federal rate for discharges for 

the hospital during the rate year, shall 

be reduced (i) for rate year 2012 and 

each subsequent rate year, by the 

productivity adjustment described in 

section 1886(b)(3)(B)(xi)(II) [of the Act]; 

and (ii) for each of the rate years 2010 

through 2019, by the other adjustment 

described in paragraph (4) [of 1886(m) 

of the Act]. Section 1886(m)(3)(A) of the 

Act on its face explicitly provides for a 

revised annual update to the standard 

Federal rate beginning RY 2010, thus 

resulting in a single revised RY 2010 

standard Federal rate. With respect to 

section 3401(p) of Public Law 111–148, 

this section provides that, 

notwithstanding the previous provisions 

of this section, the amendments made 

by subsections (a), (c), and (d) shall not 

apply to discharges occurring before 

April 1, 2010. When read in conjunction 

we believe section 1886(m)(3)(A) of the 

Act and section 3401(p) of Public Law 

111–148 provide for a single revised RY 

2010 standard Federal rate; however, for 

payment purposes, discharges occurring 

on or after October 1, 2009 and before 

April 1, 2010, simply will not be based 

on the revised RY 2010 standard Federal 

rate. In other words, for discharges 

occurring on or after October 1, 2009 

through March 31, 2010, LTCH PPS 

payments will be based on the payment 

rates and factors established in the FY 

2010 IPPS/RY 2010 LTCH PPS final rule 

(see (74 FR 43754)). 

2. Market Basket Update for LTCHs for 

RY 2010 

As discussed in section VII.C.2. of the 

preamble of the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 43967 

through 43968), we continued to use the 

FY 2002-based rehabilitation, 

psychiatric, long-term care (RPL) 

hospital market basket under the LTCH 

PPS for RY 2010. Also, in that final rule, 

we stated that at that time, the most 

recent estimate of the increase in the 

LTCH PPS market basket for RY 2010 

was 2.5 percent. This increase is based 

on IHS Global Insight, Inc.’s second 

quarter 2009 forecast of the FY 2002- 

based RPL market basket increase for RY 

2010. We note, as discussed in the FY 

2010 IPPS/RY 2010 final rule (74 FR 

44022), in determining the update to the 

standard Federal rate for RY 2010, in 

addition to the full market basket 

increase, we also applied a ¥0.5 

percent adjustment to account for the 

increase in case-mix due to changes in 

documentation and coding practices 

that do not reflect increased patient 

severity of illness from a prior period 

(that is, FY 2007). 

As indicated above, section 3401(c) of 

Public Law 111–148 adds section 

1886(m)(3)(A)(ii) of the Act which 

specifies that for RY 2010 and 

subsequent rate years, any update to the 

standard Federal rate shall be reduced, 

for each of RYs 2010 through 2019, by 

the other adjustment specified in new 

section 1886(m)(4) of the Act. 

Specifically, newly added section 

1886(m)(4)(A) of the Act requires a 0.25 

percentage point reduction to the 

annual update for RY 2010. 

Consequently, the market basket update 

under the LTCH PPS for RY 2010 is 2.25 

percent (that is, the second quarter 2009 

forecast estimate of the RY 2010 LTCH 

PPS market basket increase of 2.5 

percent minus the 0.25 percentage 

points required by sections 

1886(m)(3)(A)(ii) and (m)(4)(A) of the 

Act). (We note that to determine the 

revised standard Federal rate for RY 

2010 in this notice, we applied the 

reduced market basket update (2.25 

percent) as well as a ¥0.5 percent 

adjustment to account for the increase 

in case-mix due to changes in 

documentation and coding practices 

that do not reflect increased patient 

severity of illness from a prior period 

(FY 2007) that we established in the FY 

2010 IPPS/RY 2010 LTCH PPS final rule 

(74 FR 43972).) In addition, in section 

II.F. of the Addendum of this notice, 

this revision to the standard Federal rate 

for RY 2010 requires us to revise the 

high cost outlier fixed-loss amount for 

RY 2010, under which the discharges 

occurring on or after April 1, 2010 will 

be evaluated, in order to maintain the 

requirement that the fixed-loss amount 

will result in estimated total outlier 

payments being projected to be equal to 

8 percent of projected total LTCH PPS 

payments. (We also note that we 

determined that it is not necessary to 

revise the FY 2010 MS–LTC–DRG 

relative weights as a result of the change 

to the RY 2010 LTCH PPS standard 

Federal rate resulting from the revision 

to the RY 2010 annual update required 

by the Affordable Care Act. Although 

the standard Federal rate is used in our 

established methodology for updating 

the annual update to the MS–LTC–DRG 

classifications and relative weights in a 

manner such that estimated aggregate 

LTCH PPS payments would be 

unaffected, our payment simulations 

using the same budget neutrality 

methodology used in the FY 2010 IPPS/ 

RY 2010 LTCH PPS final rule (74 FR 

43966 through 43967) show that this 

revision to the RY 2010 LTCH PPS 

standard Federal rate resulting from the 

revision to the RY 2010 annual update 

required by the Affordable Care Act, 

would not change the RY 2010 budget 

neutrality factor originally established 

in the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule. Therefore, the FY 2010 MS– 

LTC–DRG relative weights remain 

unchanged from those established in 

Table 11 of the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 44183 

through 44192).) 

E. Final FY 2010 Prospective Payment 

Systems Payment Rates for Hospital 

Inpatient Operating and Capital Related 

Costs 

1. Final FY 2010 Prospective Payment 

Rates for Hospital Inpatient Operating 

Costs 

In the FY 2010 IPPS and RY 2010 

LTCH PPS final rule published in the 

Federal Register on August 27, 2009 (74 

FR 43754), we established our 

methodology to determine the policies, 

payment rates and factors for 

determining payments under the IPPS 

for the entire FY 2010 (74 FR 44002 

through 44014). Some of these rates also 

were corrected, as reflected in an 

October 7, 2009 correction notice (74 FR 

51496). Below we establish revised FY 

2010 IPPS rates and factors consistent 

with the provisions of section 3137(a) of 

Public Law 111–148, as amended by 

section 10319(a) of Public Law 111–148 

and section 1105 of Public Law 111– 

152, and section 1886(b)(3)(B), as 

amended by sections 3401(a) and 

10310(a) of Public Law 111–148 and 

section 1105 of Public Law 111–152. 

Although these changes modify the FY 

2010 rates under the IPPS, in 

accordance with section 3401(p) of 

Public Law 111–148, the revised IPPS 

payment rates and factors do not apply 

to discharges occurring prior to April 1, 

2010. In other words, for discharges 

occurring on or after October 1, 2009 

through discharges on or before March 

31, 2010, IPPS payments will be based 

on the payment rates and factors 

established in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule, and for 

discharges on or after April 1, 2010 

through discharges on or before 

September 30, 2010 payments will be 

based on the FY 2010 payment rates and 

factors outlined in this notice. 

The 0.25 percentage point reduction 

to the applicable percentage increase for 

FY 2010 (as required by section 

1886(b)(3)(B)(xii), as added and 

amended by sections 3401(a) and 


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section 10319(a) of Pub. L. 111–148 and 

section 1105 of Pub. L. 111–152) affects 

all the budget neutrality factors 

described below. In general, to compute 

the budget neutrality factors that are 

applied to the standardized amounts, in 

our simulations of FY 2010 payments 

we used the standardized amount 

updated by the market basket update 

percentage (for FY 2010). Because the 

statute now requires a reduction to the 

FY 2010 market basket update, it is 

necessary to recompute the FY 2010 

budget neutrality factors applied to the 

standardized amount by resimulating 

payments with the revised FY 2010 

market basket update. 

To calculate the FY 2010 revised 

payment rates and factors, we used the 

same methodology from the FY 2010 

IPPS/RY 2010 LTCH PPS final rule (74 

FR 44002 through 44014) incorporating 

the additional reduction required by 

section 1886(b)(3)(B)(xii) of the Act (as 

discussed below). We note that in 

calculating the budget neutrality factors 

discussed below, we included the wage 

data corrections discussed in the FY 

2010 IPPS/LTCH PPS final rule 

correction notice (74 FR 51497 through 

51498). 

a. Updating the Average Standardized 

Amounts 

As explained in section II.B. of this 

notice, in accordance with section 

3401(p) of Public Law 111–148, for the 

first half of FY 2010 (that is, discharges 

on or after October 1, 2009 through 

March 30, 2010), payments will be 

based on an applicable percentage 

increase that is equal to the market 

basket index for IPPS hospitals (which 

is defined in 42 CFR 413.40(a)(3)) in all 

areas for hospitals that submit quality 

data in accordance with our rules, and 

the market basket index for IPPS 

hospitals in all areas less 2.0 percentage 

for hospitals that fail to submit quality 

data in accordance with our rules. In the 

FY 2010 IPPS/RY 2010 LTCH PPS final 

rule (74 FR 44235), we calculated that 

the full market basket update equals 2.1 

percent based on IHS Global Insight, 

Inc.’s second quarter 2009 forecast of 

the FY 2010 market basket increase. For 

the second half of FY 2010 (discharges 

on or after April 1, 2010 through 

September 30, 2010), in accordance 

with section 1886(b)(3)(B)(xii) of the 

Act, as added and amended by sections 

3401(a) and 10319(a) of Public Law 

111–148 and section 1105 of Public Law 

111–152, as well as section 3401(p) of 

Public Law 111–148, hospitals are paid 

based on the revised FY 2010 applicable 

percentage increase. That amount is 

equal to the market basket index for 

IPPS hospitals in all areas reduced by 

0.25 percentage points for hospitals that 

submit quality data in accordance with 

our rules. For those hospitals that fail to 

submit quality data in accordance with 

our rules, the market basket index for 

IPPS hospitals will continue to be 

reduced by an additional 2.0 percentage 

points (which is in addition to the 0.25 

percentage point reduction required by 

new section 1886(b)(3)(B)(xii) of the 

Act). Therefore, based on IHS Global 

Insight, Inc.’s second quarter 2009 

forecast of the FY 2010 market basket 

increase, the revised FY 2010 applicable 

percentage increase is 1.85 percent (that 

is, the FY 2010 estimate of the market 

basket rate-of-increase of 2.1 percent 

minus 0.25 percentage points) for 

hospitals in all areas, provided the 

hospital submits quality data in 

accordance with our rules. For hospitals 

that do not submit quality data, the 

payment update to the operating 

standardized amount is ¥0.15 percent 

(that is, the adjusted FY 2010 estimate 

of the market basket rate-of-increase of 

1.85 percent minus 2.0 percentage 

points). Hospitals will be paid based on 

these revised payment update amounts 

for discharges occurring in the second 

half of FY 2010. We note that in order 

to implement the requirements of 

section 1886(b)(3)(B) of the Act, as 

amended by sections 3401(a) and 

10319(a) of Public Law 111–148 and 

section 1105 of Public Law 111–152, we 

are proposing to revise 42 CFR 412.64(d) 

in a supplemental proposed rule 

published elsewhere in this Federal 

Register. 

The amendments to section 

1886(b)(3)(B) of the Act by sections 

3401(a) and 10319(a) of Public Law 

111–148 and section 1105 of Public Law 

111–152, affect only the update factor 

applicable to the national standardized 

rate for IPPS hospitals and the hospitalspecific rates; they do not mandate any 

revisions to the update factor applicable 

to the Puerto Rico-specific standardized 

amount. Rather, sections 1886(d)(9)(C)(i) 

and (e)(4) of the Act direct us to adopt 

an appropriate change factor for the FY 

2010 Puerto Rico-specific standardized 

amount, which we did in the FY 2010 

IPPS/RY 2010 LTCH PPS final rule after 

notice and consideration of public 

comments. Therefore, we do not believe 

that we have the authority to revise the 

FY 2010 update factor for the Puerto 

Rico-specific operating standardized 

amount equal to the update factor 

applicable to the national standardized 

amount or the hospital-specific rates 

(that is the market basket minus 0.25 

percentage points). Accordingly, the FY 

2010 update to the Puerto Rico-specific 

operating standardized amount remains 

2.1 percent (that is, the FY 2010 

estimate of the market basket rate-ofincrease). 

b. Final FY 2010 Budget Neutrality 

Adjustments Factors for Recalibration of 

DRG Weights and Updated Wage Index 

Using the methodology finalized in 

the FY 2010 IPPS/LTCH PPS final rule 

for calculating budget neutrality, for FY 

2010 (74 FR 44005), we are setting the 

following budget neutrality factors in 

order to account for the changes made 

by the Affordable Care Act: A DRG 

reclassification and recalibration factor 

of 0.997935 and a budget neutrality 

factor of 1.000418 for changes to the 

wage index. We multiplied the DRG 

reclassification and recalibration budget 

neutrality factor of 0.997935 by the 

budget neutrality factor of 1.000418 for 

changes to the wage index to determine 

the DRG reclassification and 

recalibration and updated wage index 

budget neutrality factor of 0.998352 (as 

required by sections 1886(d)(4)(C)(iii) 

and 1886(d)(3)(E)(i) of the Act). 

Consistent with section 3401(p) of 

Public Law 111–148, we applied these 

revised factors to the Federal rate on 

which payments are made for 

discharges occurring on or after April 1, 

2010. 

c. Final FY 2010 Reclassified HospitalsBudget Neutrality Adjustment 

Using the methodology finalized in 

the FY 2010 IPPS/LTCH PPS final rule 

for calculating reclassification budget 

neutrality (74 FR 44005 through 44006), 

we computed the following factor in 

order to account for the changes made 

by the Affordable Care Act: A 0.991985 

factor for reclassification budget 

neutrality, as required by section 

1886(d)(8)(D) of the Act. Consistent with 

sections 3137(a) and 3401(p) of the 

Public Law 111–148, we applied this 

factor to the Federal rate that is applied 

in determining payments for FY 2010 

discharges occurring on or after April 1, 

2010. 

We note, as discussed in section II.A. 

of this notice, section 3137(a) of Public 

Law 111–148, as amended by section 

10317 of Public Law 111–148 has now 

extended the hospital reclassification 

provisions of section 508 and certain 

special exceptions through September 

30, 2010 (FY 2010). Consistent with 

section 106(a) of Public Law 109–432, 

payments for providers reclassified 

under section 508 and under the special 

exception policy are not budget neutral. 

However, section 3137(a)(2)(B) of Public 

Law 111–148 requires us to also 

recalculate the reclassification wage 

indices of areas by excluding those 

hospitals whose section 508 


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reclassifications and special exceptions 

wage indices have been extended, if 

doing so would increase the 

reclassification wage index. These 

payments of providers located in section 

508 and special exception areas (that are 

not section 508 or special exception 

providers), as well as hospitals 

reclassified to those areas, are subject to 

budget neutrality. Therefore, we 

included the additional payments 

associated with the increased payments 

being made to such hospitals as a result 

of section 3137(a) of Public Law 111– 

148 in our calculation of the reclassified 

wage index budget neutrality factor, 

pursuant to section 1886(d)(8)(D) of the 

Act. This section requires that aggregate 

payments under section 1886 of the Act 

do not increase as a result of the costs 

associated with reclassifications. Our 

analysis relied on the most up-to-date 

wage data, that is, the corrected wage 

indexes from the FY 2010 IPPS/RY 2010 

LTCH PPS correction notice (74 FR 

51497 through 51498) in the calculation 

of the reclassified wage index budget 

neutrality factor. Guidance to FIs and 

A/B MACs will be issued separate from 

this notice for hospital wage indexes 

that are increasing as a result of the 

extension of section 508 

reclassifications and special exceptions. 

d. Final FY 2010 Rural and Imputed 

Floor Budget Neutrality 

We make an adjustment to the wage 

index to ensure that aggregate payments 

to hospitals are not affected by the rural 

floor under section 4410 of the Balanced 

Budget Act of 1997 (BBA) (Pub. L. 105– 

33) and the imputed floor under 

§ 412.64(h)(4) of the regulations. As 

discussed in section III.B. of the 

preamble to the FY 2009 IPPS final rule 

(73 FR 48570 through 48574), we 

adopted State-level budget neutrality for 

the rural and imputed floors, effective 

beginning with the FY 2009 wage index. 

In response to the public’s concerns and 

taking into account the potentially 

significant payment cuts that could 

occur to hospitals in some States if we 

implemented this change with no 

transition, we phased in, over a 3-year 

period, the transition from a national 

rural floor budget neutrality adjustment 

on the wage index to a State-level rural 

floor budget neutrality adjustment on 

the wage index. For FY 2010, the 

blended wage index was determined by 

adding 50 percent of the wage index 

adjusted by applying the State-level 

rural and imputed floor budget 

neutrality adjustment and 50 percent of 

the wage index adjusted by applying the 

national budget neutrality adjustment. 

Similar to the budget neutrality 

factors above, we included the corrected 

wage data from the FY 2010 IPPS/LTCH 

PPS final rule correction notice and the 

post reclassified wage index changes 

that resulted from the extension of the 

hospital reclassification provisions of 

section 508 and certain special 

exceptions in our calculation of the FY 

2010 rural and imputed floor budget 

neutrality factors. We note that section 

3137(a)(2)(B) of Public Law 111–148, as 

amended by section 10317 of Public 

Law 111–148, requires that beginning 

April 1, 2010, we include the average 

hourly wage data of hospitals whose 

section 508 reclassifications and special 

exception wage indices were extended, 

only if doing so results in a higher 

reclassification wage index. We 

interpret this language as referring to the 

reclassification wage index that is 

calculated pursuant to section 

1886(d)(8)(C) of the Act, as that is the 

reclassification wage index calculation 

that employs average hourly wage data. 

We do not interpret the language as 

referring to the reclassification wage 

index after it is subsequently adjusted 

for rural/imputed floor budget 

neutrality, as that budget neutrality 

adjustment is not based upon average 

hourly wage data, and is not made to 

adjust for the effects of reclassifications. 

Using the methodology finalized in 

the FY 2010 IPPS/LTCH PPS final rule 

(74 FR 44006), we calculated a national 

rural and imputed floor budget 

neutrality adjustment factor of 0.996686. 

Each State’s rural or imputed floor 

budget neutrality adjustment can be 

found in table 4D–1 of the Addendum 

of this notice. Additionally, in order to 

ensure that national payments overall 

remain budget neutral after application 

of the blended national and state rural 

and imputed floors, an additional 

adjustment factor of 1.000010 must be 

applied to the blended post reclassified, 

post-floor (including budget neutrality) 

wage indices. Consistent with section 

3401(p) of Public Law 111–148, we 

applied these factors to the wage 

indexes that are applied in determining 

payments for FY 2010 discharges 

occurring on or after April 1, 2010. 

e. Final FY 2010 Rural Community 

Hospital Demonstration Program 

Adjustment 

Using the methodology finalized in 

the FY 2010 IPPS/LTCH PPS final rule 

and accounting for the projected total 

annual impact of $27,141,815 for FY 

2010 (74 FR 44012; and reflecting the 

provisions of the Affordable Care Act) 

we computed a budget neutrality 

adjustment of 0.999739 for the rural 

community hospital demonstration, in 

order to satisfy section 410A(c)(2) of 

Public Law 108–173. We note, after resimulating payments reflecting the 

provisions of the Affordable Care Act, 

the adjustment factor in this notice is 

the same as the adjustment factor 

computed in the FY 2010 IPPS/LTCH 

PPS final rule. Consistent with section 

3401(p) of Public Law 111–148, we 

applied this factor to the Federal rate 

that is applied in determining payments 

for FY 2010 discharges occurring on or 

after April 1, 2010. 

f. Final FY 2010 Outlier Fixed-Loss Cost 

Threshold 

We are revising the FY 2010 outlier 

fixed-loss cost threshold due to the 

change in the market basket and other 

budget neutrality factors described 

above. Using the methodology we 

finalized in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 44007 

through 44011) and taking into account 

the provisions of the Affordable Care 

Act as discussed above, we are 

finalizing an outlier fixed-loss cost 

threshold for FY 2010 equal to the 

prospective payment rate for the DRG, 

plus any IME and DSH payments, and 

any add-on payments for new 

technology, plus $23,135. Consistent 

with section 3401(p) of the Public Law 

111–148, we are applying this threshold 

for FY 2010 discharges occurring on or 

after April 1, 2010. 

g. Final FY 2010 Outlier Adjustment 

Factors 

The FY 2010 outlier adjustment 

factors that are applied to the FY 2010 

standardized amount for the FY 2010 

outlier threshold are as follows: 

Operating 

standardized 

amounts 

Capital federal 

rate 

National ............................................................................................................................................................ 0.948998 0.947766 

Puerto Rico ...................................................................................................................................................... 0.957417 0.935787 


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Consistent with section 3401(p) of 

Public Law 111–148, we applied these 

revised factors to the Federal rate on 

which payments are made for 

discharges occurring on or after April 1, 

2010. 

h. FY 2010 Standardized Amount 

We recalculated the FY 2010 final 

standardized amounts using the 

methodology finalized in the FY 2010 

IPPS/RY 2010 LTCH PPS final rule (74 

FR 44002 through 44014) and taking 

into account the changes required by the 

provisions of the Affordable Care Act as 

discussed above. Tables 1A and 1B of 

the Addendum to this notice contain the 

final national standardized amount that 

we are applying to all hospitals, except 

hospitals in Puerto Rico. The final 

Puerto Rico-specific amounts are shown 

in Table 1C. The amounts shown in 

Tables 1A and 1B differ only in that the 

labor-related share applied to the final 

standardized amounts in Table 1A is 

68.8 percent, and the labor-related share 

applied to the final standardized 

amounts in Table 1B is 62 percent. 

In addition, Tables 1A and 1B include 

the final standardized amounts 

reflecting the FY 2010 adjusted market 

basket update of 1.85 percent update 

and final standardized amounts 

reflecting the additional 2.0 percentage 

point reduction to the update applicable 

for hospitals that fail to submit quality 

data consistent with section 

1886(b)(3)(B)(viii) of the Act (resulting 

in a ¥0.15 percent update). Below is a 

revised table reflecting the changes 

required by the provisions of the 

Affordable Care Act that details the 

calculation of the final FY 2010 

standardized amounts. Consistent with 

section 3401(p) of Public Law 111–148, 

hospitals are paid based on these rates 

for discharges occurring on or after 

April 1, 2010. 

COMPARISON OF FY 2009 STANDARDIZED AMOUNTS TO THE FY 2010 STANDARDIZED AMOUNT WITH FULL AND REDUCED

UPDATE

Full update 

(1.85 percent); wage 

index is greater than 

1.0000 

Full update 

(1.85 percent); wage 

index is less than or 

equal to 1.0000 

Reduced update 

(¥0.15 percent); wage 

index is greater than 

1.0000 

Reduced update 

(¥0.15 percent); wage 

index is less than or 

equal to 1.0000 

FY 2009 Base Rate, after removing geographic reclassification 

budget neutrality, demonstration budget neutrality and 

outlier offset (based on the 

labor-related share percentage 

for FY 2010).

Labor: $3,748.52 ............

Nonlabor: $1,699.91 .......

Labor: $3,378.03 ............

Nonlabor: $2,070.40 .......

Labor: $3,748.52 ............

Nonlabor: $1,699.91 .......

Labor: $3,378.03. 

Nonlabor: $2,070.40. 

FY 2010 Update Factor ............... 1.0185 ............................. 1.0185 ............................. 0.9985 ............................. 0.9985. 

FY 2010 DRG Recalibration and 

Wage Index Budget Neutrality 

Factor.

0.998352 ......................... 0.998352 ......................... 0.998352 ......................... 0.998352. 

FY 2010 Reclassification Budget 

Neutrality Factor.

0.991985 ......................... 0.991985 ......................... 0.991985 ......................... 0.991985. 

FY 2010 Outlier Factor ................ 0.948998 ......................... 0.948998 ......................... 0.948998 ......................... 0.948998. 

Rural Demonstration Budget 

Neutrality Factor.

0.999739 ......................... 0.999739 ......................... 0.999739 ......................... 0.999739. 

Rate for FY 2010 ......................... Labor: $3,587.24 ............

Nonlabor: $1,626.78 .......

Labor: $3,232.69 ............

Nonlabor: $1,981.33 .......

Labor: $3,516.80 ............

Nonlabor: $1,594.84 .......

Labor: $3,169.22. 

Nonlabor: $1,942.42. 

The labor-related and nonlaborrelated portions of the national average 

standardized amounts for Puerto Rico 

hospitals for FY 2010 are set forth in 

Table 1C in this notice. (The laborrelated share applied to the Puerto Ricospecific standardized amount is either 

62.1 percent or 62 percent, depending 

on which is more advantageous to the 

hospital.) 

i. Final FY 2010 Adjustments for Area 

Wage Levels 

The following wage index tables were 

revised in this notice as a result of the 

provisions of the Affordable Care Act: 

Tables 2, 4A, 4B, 4C, 4D–1, 4D–2, 4J, 

and 9B. (These tables can be found in 

the Addendum to this notice and are 

also available on the CMS Web site at 

http://www.cms.gov/

AcuteInpatientPPS/WIFN/ 

itemdetail.asp?filter

Type=none&filterByDID=

0&sortByDID=3&sortOrder= 

descending&itemID=CMS1234175&int 

NumPerPage=10.) 

2. FY 2010 Prospective Payment Rates 

for Acute Care Hospital Inpatient 

Capital-Related Costs 

Although the provisions of the 

Affordable Care Act do not directly 

affect the payment rates and policies for 

the IPPS for capital-related costs, as 

discussed in section II.C. of this notice, 

we are revising the capital IPPS 

standard Federal rates for FY 2010. The 

revised FY 2010 capital Federal rates are 

effective for discharges occurring on or 

after April 1, 2010, consistent with 

section 3401(p) of Public Law 111–148. 

The revision to the FY 2010 capital 

Federal rates is necessary because the 

operating IPPS market basket and wage 

index changes required by the 

provisions of the Affordable Care Act 

(discussed in section II.A. of this notice) 

affect the budget neutrality adjustment 

factor for changes in DRG classifications 

and weights and the geographic 

adjustment factor (GAF) since the GAF 

values are derived from the wage index 

values (see § 412.316(a)). In addition, 

the provisions of the Affordable Care 

Act also necessitate a revision to the 

outlier payment adjustment factor for 

FY 2010 since a single set of thresholds 

is used to identify outlier cases for both 

inpatient operating and inpatient 

capital-related payments (see 

§ 412.312(c)). 

In this notice, we have calculated the 

final FY 2010 capital Federal rates, 

offsets, and budget neutrality factors 

using the same methodology we 

adopted in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 44014 

through 44021), as revised by the FY 

2010 IPPS/RY 2010 LTCH PPS 

correction notice (October 7, 2009; (74 

FR 51496 through 51499)), that was 

used to calculate the final rates and 

factors included in that rule which did 

not reflect the provisions of the 

Affordable Care Act. For a complete 

description of this methodology, please 


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see the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule (74 FR 44014 through 

44021), as revised by the FY 2010 IPPS/ 

RY 2010 LTCH PPS correction notice 

(74 FR 51496 through 51499). 

a. Capital Standard Federal Rate Update 

for FY 2010 

The final factors used in the FY 2010 

update framework are not affected by 

the provisions of the Affordable Care 

Act. Therefore, the final update factor 

for FY 2010 is not being revised from 

the final capital IPPS standard Federal 

rate update factor discussed in section 

III.A.1. of the FY 2010 IPPS/RY 2010 

LTCH PPS final rule, as revised by the 

FY 2010 IPPS/RY 2010 LTCH PPS 

correction notice and remains at 1.2 

percent for FY 2010. A full discussion 

of the update framework is provided in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 44015 through 44017) 

in conjunction with the FY 2010 IPPS/ 

RY 2010 LTCH PPS correction notice 

(74 FR 51498 through 51499). 

b. Outlier Payment Adjustment Factor 

Based on the thresholds as set forth in 

section II.E.2. of this notice, we estimate 

that outlier payments for capital-related 

costs will equal 5.22 percent for 

inpatient capital-related payments based 

on the final capital Federal rate in FY 

2010. Therefore, we are applying an 

outlier adjustment factor of 0.9478 in 

determining the FY 2010 capital Federal 

rate. For FY 2009, we estimated that 

outlier payments for capital will equal 

5.35 percent of inpatient capital-related 

payments, and we established an outlier 

adjustment factor of 0.9465 for FY 2009 

based on the capital Federal rate in FY 

2009 (73 FR 57891). Thus, we estimate 

that the percentage of capital outlier 

payments to total capital standard 

payments for FY 2010 will be lower 

than the percentage for FY 2009. This 

decrease in capital outlier payments is 

primarily due to the estimated increase 

in capital IPPS payments per discharge. 

That is, because capital payments per 

discharge are projected to increase in FY 

2010 compared to FY 2009, as shown in 

Table III. in section IV.C. of this notice, 

fewer cases will qualify for outlier 

payments. 

The outlier reduction factors are not 

built permanently into the capital rates; 

that is, they are not applied 

cumulatively in determining the capital 

Federal rate. The FY 2010 outlier 

adjustment of 0.9478 is a 0.14 percent 

change from the FY 2009 outlier 

adjustment of 0.9465. Therefore, the net 

change in the outlier adjustment to the 

capital Federal rate for FY 2010 is 

1.0014 (0.9478/0.9465). Thus, the 

outlier adjustment increases the FY 

2010 capital Federal rate by 0.14 percent 

compared to the FY 2009 outlier 

adjustment. 

A single set of thresholds is used to 

identify outlier cases for both inpatient 

operating and inpatient capital-related 

payments (see § 412.312(c)). The outlier 

thresholds are set so that operating 

outlier payments are projected to be 5.1 

percent of total operating IPPS DRG 

payments. The outlier thresholds for FY 

2010 are in section II.E.1. of this notice. 

For FY 2010, for discharges occurring 

on or after April 1, 2010, a case qualifies 

as a cost outlier if the cost for the case 

plus the IME and DSH payments is 

greater than the prospective payment 

rate for the MS–DRG plus the fixed-loss 

amount of $23,135. 

c. Budget Neutrality Adjustment Factor 

for Changes in DRG Classifications and 

Weights and the GAF 

Using the methodology discussed in 

section III.A.3. of the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (74 FR 44018 

through 44019), for FY 2010, we are 

establishing a GAF/DRG budget 

neutrality factor of 0.9994, which is the 

product of the incremental GAF budget 

neutrality factor of 0.9999 and the DRG 

budget neutrality factor of 0.9995 (the 

DRG budget neutrality factor remains 

unchanged from the FY 2010 IPPS/RY 

2010 LTCH PPS final rule). The GAF/ 

DRG budget neutrality factors are built 

permanently into the capital rates; that 

is, they are applied cumulatively in 

determining the capital Federal rate. 

This follows the requirement that 

estimated aggregate payments each year 

be no more or less than they would have 

been in the absence of the annual DRG 

reclassification and recalibration and 

changes in the GAFs. The incremental 

change in the adjustment from FY 2009 

to FY 2010 is 0.9994. The cumulative 

change in the FY 2010 capital Federal 

rate due to this adjustment is 0.9911 

(the product of the incremental factors 

for FYs 1995 though 2009 and the 

incremental factor of 0.9994 for FY 

2010). (We note that averages of the 

incremental factors that were in effect 

during FYs 2005 and 2006, respectively, 

and the revised FY 2010 factor of 0.9994 

that reflect the effect of the provisions 

of the Affordable Care Act (as discussed 

in section II.C. of this notice) were used 

in the calculation of the cumulative 

adjustment of 0.9911 for FY 2010.) The 

cumulative adjustments for MS–DRG 

classifications and changes in relative 

weights and for changes in the national 

GAFs through FY 2010 is 0.9911. The 

following table summarizes the 

adjustment factors for each fiscal year: 

BILLING CODE 4120–01–P 


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BILLING CODE 4120–01–C 

The factor accounts for the MS–DRG 

reclassifications and recalibration and 

for changes in the GAFs, which include 

the changes to the operating IPPS 

market basket update and wage index as 

required by the provisions of the 

Affordable Care Act (as discussed in 

section II.A. of this notice). It also 

incorporates the effects on the GAFs of 

FY 2010 geographic reclassification 

decisions made by the MGCRB 

compared to FY 2009 decisions. 

However, it does not account for 

changes in payments due to changes in 

the DSH and IME adjustment factors. 

d. Exceptions Payment Adjustment 

Factor 

The provisions of the Affordable Care 

Act have no effect on capital exceptions 


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payments. Therefore, the special 

exceptions adjustment factor remains at 

0.9998 as discussed in section III.A.4. of 

the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 44019). 

e. Capital Standard Federal Rate for FY 

2010 

As a result of the 1.2 percent update 

and other budget neutrality factors 

discussed above, we are establishing a 

national capital Federal rate of $429.56 

for FY 2010. As stated above, this rate 

will apply to discharges occurring on or 

after April 1, 2010, consistent with 

section 3401(p) of Public Law 111–148. 

We are providing the following chart 

that shows how each of the factors and 

adjustments for FY 2010 affects the 

computation of the FY 2010 national 

capital Federal rate in comparison to the 

FY 2009 national capital Federal rate. 

The FY 2010 update factor has the effect 

of increasing the capital Federal rate by 

1.2 percent compared to the FY 2009 

capital Federal rate. The GAF/DRG 

budget neutrality factor of 0.9994 has 

the effect of decreasing the capital 

Federal rate by 0.06 percent compared 

to the FY 2009 capital Federal rate. The 

FY 2010 outlier adjustment factor has 

the effect of increasing the capital 

Federal rate by 0.14 percent compared 

to the FY 2009 capital Federal rate. The 

FY 2010 exceptions payment 

adjustment factor has the effect of 

decreasing the capital Federal rate by 

0.01 percent compared to the FY 2009 

capital Federal rate. As discussed in 

section VI.E.1. of the preamble of the FY 

2010 IPPS/RY 2010 LTCH PPS final rule 

(74 FR 43926 through 43928), we did 

not apply an additional adjustment to 

the FY 2010 capital Federal rate for 

changes in documentation and coding 

that do not reflect real changes in 

patients’ severity of illness. A 

permanent cumulative adjustment of 

¥1.5 percent (that is, a factor of 0.985) 

was applied in determining the FY 2009 

capital Federal rate for changes in 

documentation and coding that do not 

reflect real changes in patients’ severity 

of illness. The combined effect of all the 

changes increase the national capital 

Federal rate by approximately 1.27 

percent compared to the FY 2009 

national capital Federal rate. 

COMPARISON OF FACTORS AND ADJUSTMENTS: FY 2009 CAPITAL FEDERAL RATE AND FY 2010 CAPITAL FEDERAL RATE

FY 2009 FY 2010 Change Percent 

change 

Update Factor 1 ................................................................................................................ 1.0090 1.0120 1.0120 1.20 

GAF/DRG Adjustment Factor 1 ........................................................................................ 1.0004 0.9994 0.9994 ¥0.06 

Outlier Adjustment Factor 2 .............................................................................................. 0.9465 0.9478 1.0014 0.14 

Exceptions Adjustment Factor 2 ....................................................................................... 0.9999 0.9998 0.9999 ¥0.01 

MS–DRG Documentation and Coding Adjustment Factor .............................................. 3 0.9850 3 0.9850 1.0000 0.00 

Capital Federal Rate ........................................................................................................ $424.17 $429.56 1.0127 1.27 

1The update factor and the GAF/DRG budget neutrality factors are built permanently into the capital rates. Thus, for example, the incremental 

change from FY 2009 to FY 2010 resulting from the application of the 0.9994 GAF/DRG budget neutrality factor for FY 2010 is a net change of 

0.9994. 2The outlier reduction factor and the exceptions adjustment factor are not built permanently into the capital rates; that is, these factors are not 

applied cumulatively in determining the capital rates. Thus, for example, the net change resulting from the application of the FY 2010 outlier adjustment factor is 0.9478//0.9465, or 1.0014. 3The documentation and coding adjustment factor includes the ¥0.6 percent in FY 2008, ¥0.9 percent in FY 2009, and no additional reduction in FY 2010. 

We are also providing a chart that 

shows how the revised FY 2010 capital 

Federal rate, which reflects the effect of 

the provisions of the Affordable Care 

Act differs from the FY 2010 capital 

Federal rate as presented in the FY 2010 

IPPS final rule (74 FR 44020), as revised 

by the FY 2010 IPPS/RY 2010 LTCH 

PPS correction notice (74 FR 52499). 

COMPARISON OF FACTORS AND ADJUSTMENTS: FY 2010 CAPITAL FEDERAL RATE PRIOR TO THE ENACTMENT OF THE AFFORDABLE CARE ACT AND REVISED FY 2010 CAPITAL FEDERAL RATE REFLECTING THE EFFECT OF THE PROVISIONS

OF THE AFFORDABLE CARE ACT

FY 2010 * Revised FY 

2010 ** Change Percent 

change 

Update Factor .................................................................................................................. 1.0120 1.0120 1.0000 0.00 

GAF/DRG Adjustment Factor .......................................................................................... 0.9990 0.9994 1.0004 0.04 

Outlier Adjustment Factor ................................................................................................ 0.9475 0.9478 1.0003 0.03 

Exceptions Adjustment Factor ......................................................................................... 0.9998 0.9998 1.0000 0.00 

MS–DRG Documentation and Coding Adjustment Factor .............................................. 1.0000 1.0000 1.0000 0.00 

Capital Federal Rate ........................................................................................................ $429.26 $429.56 1.0007 0.07 

* FY 2010 capital IPPS rates and factors established in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44020), as revised by the FY 

2010 IPPS/RY 2010 LTCH PPS correction notice (74 FR 52499), developed prior to the enactment of the Affordable Care Act. 

** Final FY 2010 capital IPPS rates and factors reflecting the effect of the provisions of the Affordable Care Act. 


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f. Special Capital Rate for Puerto Rico 

Hospitals 

Using the methodology discussed in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 44020), with the 

changes we are making to the factors 

used to determine the capital rate, the 

FY 2010 special capital rate for 

hospitals in Puerto Rico is $203.57. (See 

the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 44015 through 44020) 

and FY 2010 IPPS/RY 2010 LTCH PPS 

correction notice (74 FR 51499) for 

additional information on the 

calculation of the FY 2010 capital 

Puerto Rico specific rate.) 

F. Changes to the Payment Rates for the 

LTCH PPS for RY 2010 

1. LTCH PPS Standard Federal Rate for 

RY 2010 

a. Revision of Certain Market Basket 

Updates as Required by the Affordable 

Care Act 

In section V. of the Addendum of the 

FY 2010 IPPS/RY 2010 final rule (74 FR 

44021 through 44022), we discuss the 

changes to the payment rates and factors 

under the LTCH PPS for RY 2010. 

Below we establish revised RY 2010 

LTCH PPS rates and factors consistent 

with the provisions of section 

1886(m)(3) of the Act as added by 

section 3401(c) of Public Law 111–148, 

and section 1886(m)(4) as added by 

section 3401(c) of Public Law 111–148 

and amended by section 10319(b) of 

Public Law 111–148, as further 

amended by section 1105(b) of Public 

Law 111–152, as well as section 3401(p) 

of Public Law 111–148. Section 

1886(m)(3)(A) of the Act provides that 

in implementing the system described 

in paragraph (1) [of 1886(m) of the Act] 

for rate year 2010 and each subsequent 

rate year, any annual update to the 

standard Federal rate for discharges for 

the hospital during the rate year, shall 

be reduced (i) for rate year 2012 and 

each subsequent rate year, by the 

productivity adjustment described in 

section 1886(b)(3)(B)(xi)(II) [of the Act]; 

and (ii) for each of the rate years 2010 

through 2019, by the other adjustment 

described in paragraph (4) [of 1886(m) 

of the Act]. As explained above in 

section II.D. of this notice, section 

1886(m)(3)(A) of the Act on its face 

explicitly provides for a revised annual 

update to the standard Federal rate 

beginning RY 2010, thus resulting in a 

single revised RY 2010 standard Federal 

rate. Under section 1886(m)(3)(A)(ii), 

the annual update to the standard 

Federal rate shall be reduced for each of 

the rate years 2010 through 2019, by the 

other adjustment described in paragraph 

(4) [of 1886(m) of the Act]. Section 

1886(m)(4)(A) of the Act provides for a 

0.25 percentage point reduction to the 

annual update for RY 2010. Therefore, 

we are reducing the applicable market 

basket update for RY 2010 by 0.25 

percentage points, as described in 

greater detail below. With respect to 

section 3401(p) of Public Law 111–148, 

this section provides that, 

notwithstanding the previous provisions 

of this section, the amendments made 

by subsections (a), (c) and (d) shall not 

apply to discharges occurring before 

April 1, 2010. When read in 

conjunction, we believe section 

1886(m)(3)(A)(ii) of the Act and section 

3401(p) of Public Law 111–148 provide 

for a single revised RY 2010 standard 

Federal rate; however, for payment 

purposes, discharges occurring on or 

after October 1, 2009 and before April 

1, 2010, simply will not be based on the 

revised RY 2010 standard Federal rate. 

(In other words, for discharges occurring 

on or after October 1, 2009 and on or 

before March 31, 2010, the update to the 

LTCH PPS Federal rate will be based on 

the applicable update factor set forth in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 44022).) For discharges 

occurring on or after April 1, 2010 

through September 30, 2010, payment is 

based on the revised RY 2010 standard 

Federal rate established below in this 

notice. 

b. Development of the RY 2010 LTCH 

PPS Standard Federal Rate 

As discussed in section V.A. of the 

Addendum of the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (74 FR 

44022), while we continue to believe 

that an update to the LTCH PPS 

standard Federal rate should be based 

on the most recent estimate of the 

increase in the LTCH PPS market 

basket, we also believe it is appropriate 

that the standard Federal rate be offset 

by an adjustment to account for any 

changes in documentation and coding 

practices that do not reflect increased 

patient severity of illness. Such an 

adjustment protects the integrity of the 

Medicare Trust Funds by ensuring that 

the LTCH PPS payment rates better 

reflect the true costs of treating LTCH 

patients. 

As discussed in section II.D. of this 

notice, consistent with sections 

1886(m)(3)(A)(ii) and (4)(A) of the Act, 

the market basket update under the 

LTCH PPS for RY 2010 is 2.25 percent 

(that is, the second quarter 2009 forecast 

estimate of the RY 2010 LTCH PPS 

market basket increase of 2.5 percent 

minus the 0.25 percentage points 

required by sections 1886(m)(3)(A)(ii) 

and (4)(A) of the Act. Furthermore, as 

discussed in greater detail in the FY 

2010 IPPS/RY 2010 final rule (74 FR 

44022), while we continued to believe 

that an update to the LTCH PPS 

standard Federal rate should be based 

on the most recent estimate of the 

increase in the LTCH PPS market 

basket, we also believed it is appropriate 

that the standard Federal rate be offset 

by an adjustment to account for any 

changes in documentation and coding 

practices that do not reflect increased 

patient severity of illness. Therefore, in 

determining the update to the standard 

Federal rate for RY 2010 in that same 

final rule, based on an analysis of FY 

2007 claims data, we established a ¥0.5 

adjustment to account for the increase 

in case-mix due to changes in 

documentation and coding practices 

that do not reflect increased patient 

severity of illness from a prior period 

(FY 2007). 

Consistent with our historical practice 

and the methodology used in the FY 

2010 IPPS/RY 2010 final rule, in this 

notice, we are establishing an update to 

the LTCH PPS standard Federal rate for 

RY 2010 based on the full forecasted 

estimated increase in the LTCH PPS 

market basket of 2.5 percent, adjusted 

by the 0.25 percentage point reduction 

required by sections 1886(m)(3)(A)(ii) 

and (4)(A) of the Act and an adjustment 

to account for the increase in case-mix 

in a prior period (FY 2007) resulting 

from changes in documentation and 

coding practices of ¥0.5 percent. 

Consequently, the update factor to the 

standard Federal rate for RY 2010 is 

1.74 percent (that is, we are applying a 

factor of 1.0174 in determining the 

LTCH PPS standard Federal rate for RY 

2010, calculated as 1.0225 × 1 divided 

by 1.005 = 1.0174 or 1.74 percent).) 

Furthermore, consistent with our 

historical practice of updating the 

standard Federal rate for the previous 

rate year, in determining the standard 

Federal rate for RY 2010 in this notice, 

we are applying the update factor of 

1.0174 to the RY 2009 standard Federal 

rate of $39,114.36 (established in the RY 

2009 LTCH PPS final rule (73 FR 

26788)). Furthermore, consistent with 

section 3401(p) of Public Law 111–148, 

this update factor to the standard 

Federal rate for RY 2010 will not be 

applied in determining LTCH PPS 

payments for discharges occurring prior 

to April 1, 2010. In other words, for 

discharges occurring on or after October 

1, 2009 through March 31, 2010, LTCH 

PPS payments will be based on the 

standard Federal rate established in the 

FY 2010 IPPS/RY 2010 LTCH PPS final 

rule (that is, 2.0 percent). 

Therefore, in this notice, under the 

authority of sections 1886(m)(3)(A)(ii) 


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and (4)(A) of the Act, we are specifying 

that the standard Federal rate for the 

LTCH PPS rate year beginning October 

1, 2009 and ending September 30, 2010, 

is the standard Federal rate for the 

previous rate year updated by 1.74 

percent. In a supplemental proposed 

rule published elsewhere in this Federal 

Register, we are proposing to revise the 

regulations text at § 412.523(c)(3)(vi) 

consistent with the 1.74 percent update 

for RY 2010 that we are establishing in 

this notice. In determining the standard 

Federal rate for RY 2010, we are 

applying the 1.0174 update factor to the 

RY 2009 Federal rate of $39,114.36 (73 

FR 26812). Consequently, the standard 

Federal rate for RY 2010, developed 

consistent with sections 

1886(m)(3)(A)(ii) and (4)(A) of the Act is 

$39,794.95. Furthermore, consistent 

with section 3401(p) of Public Law 111– 

148, we are proposing to revise 

§ 412.523(c)(3)(vi)(B) in a supplemental 

proposed rule published elsewhere in 

this Federal Register. Section 

412.523(c)(3(vi)(B) would specify that 

with respect to discharges occurring on 

or after October 1, 2009 and before April 

1, 2010, payments are based on the 

standard Federal rate in § 412.523(c)(v) 

updated by 2.0 percent (that is, a 

standard Federal rate of $39,896.65 (see 

74 FR 44022). 

2. Adjustment for LTCH PPS High-Cost 

Outlier (HCO) Cases 

a. Background 

When we implemented the LTCH PPS 

in the FY 2003 LTCH PPS final rule, in 

the regulations at § 412.525(a), we 

established an adjustment for additional 

payments for outlier cases that have 

extraordinarily high costs relative to the 

costs of most discharges (see (67 FR 

56022 through 56027)). We refer to these 

cases as high cost outliers (HCOs). 

Providing additional payments for 

outliers strongly improves the accuracy 

of the LTCH PPS in determining 

resource costs at the patient and 

hospital level. These additional 

payments reduce the financial losses 

that would otherwise be incurred when 

treating patients who require more 

costly care and, therefore, reduce the 

incentives to underserve these patients. 

We set the outlier threshold before the 

beginning of the applicable rate year so 

that total estimated outlier payments are 

projected to equal 8 percent of total 

estimated payments under the LTCH 

PPS. 

Under § 412.525(a) in the regulations 

(in conjunction with § 412.503), we 

make outlier payments for any 

discharges if the estimated cost of a case 

exceeds the adjusted LTCH PPS 

payment for the MS–LTC–DRG plus a 

fixed-loss amount. Specifically, in 

accordance with § 412.525(a)(3) (in 

conjunction with § 412.503), we pay 

outlier cases 80 percent of the difference 

between the estimated cost of the 

patient case and the outlier threshold, 

which is the sum of the adjusted Federal 

prospective payment for the MS–LTC– 

DRG and the fixed-loss amount. The 

fixed-loss amount is the amount used to 

limit the loss that a hospital will incur 

under the outlier policy for a case with 

unusually high costs. This results in 

Medicare and the LTCH sharing 

financial risk in the treatment of 

extraordinarily costly cases. Under the 

LTCH PPS HCO policy, the LTCH’s loss 

is limited to the fixed-loss amount and 

a fixed percentage of costs above the 

outlier threshold (MS–LTC–DRG 

payment plus the fixed-loss amount). 

The fixed percentage of costs is called 

the marginal cost factor. We calculate 

the estimated cost of a case by 

multiplying the Medicare allowable 

covered charge by the hospital’s overall 

hospital cost-to-charge ratio (CCR). 

Under the LTCH PPS, we determine a 

fixed-loss amount, that is, the maximum 

loss that a LTCH can incur under the 

LTCH PPS for a case with unusually 

high costs before the LTCH will receive 

any additional payments. We calculate 

the fixed-loss amount by estimating 

aggregate payments with and without an 

outlier policy. The fixed-loss amount 

results in estimated total outlier 

payments being projected to be equal to 

8 percent of projected total LTCH PPS 

payments. Currently, MedPAR claims 

data and CCRs based on data from the 

most recent provider specific file (PSF) 

(or from the applicable statewide 

average CCR if a LTCH’s CCR data are 

faulty or unavailable) are used to 

establish a fixed-loss threshold amount 

under the LTCH PPS. 

As discussed in section II.F.1.c. of this 

notice, various sections of Public Law 

111–148 and Public Law 111–152 

amended section 1886(m) of the Act by 

adding new paragraphs (3) and (4). 

Consistent with the provisions of 

sections 1886(m)(3)(A)(ii) and (4)(A) of 

the Act, we are establishing a revised 

standard Federal rate for RY 2010 by 

applying the required 0.25 percentage 

point reduction to the annual update for 

RY 2010. Notwithstanding these 

provisions, section 3401(p) of Public 

Law 111–148 provides that the 

amendments made by subsections (a), 

(c) and (d) of section 3401 of of Public 

Law 111–148 shall not apply to 

discharges occurring before April 1, 

2010. When read in conjunction we 

believe section 1886(m)(3)(A) of the Act 

and section 3401(p) of Public Law 111– 

148 provide for a single revised RY 2010 

standard Federal rate; however, for 

payment purposes, discharges occurring 

on or after October 1, 2009 and before 

April 1, 2010, simply will not be based 

on the revised RY 2010 standard Federal 

rate. 

This legislative change to the standard 

Federal rate for RY 2010 requires us to 

revise the HCO fixed-loss amount for RY 

2010 discharges occurring on or after 

April 1, 2010. This is necessary in order 

to maintain the requirement that the 

fixed-loss amount results in estimated 

total outlier payments being projected to 

be equal to 8 percent of projected total 

LTCH PPS payments since projected 

total payments LTCH PPS for RY 2010 

have changed relative to the projected 

total LTCH PPS payments for RY 2010 

when we established the original RY 

2010 fixed-loss amount in the FY 2010 

IPPS/RY 2010 LTCH PPS final rule (74 

FR 44029) due to the legislative change 

to the standard Federal rate for RY 2010. 

Specifically, the original RY 2010 HCO 

fixed-loss amount of $18,425 was 

determined based on the RY 2010 

update of 2.0 percent and the standard 

Federal rate of $39,896.65 (as 

established in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (74 FR 

44022)). However, for RY 2010 LTCH 

discharges occurring on or after April 1, 

2010, LTCH PPS payments are based on 

the revised update of 1.74 percent and 

the revised standard Federal rate of 

$39,794.95 (as established in this 

notice). In order to maintain that 

estimated total outlier payments are 

projected to be equal to 8 percent of 

projected total LTCH PPS payments in 

RY 2010, as adopted in the FY 2010 

IPPS/RY 2010 LTCH PPS final rule (74 

FR 44028 though 44030), we are 

revising the HCO fixed-loss amount for 

RY 2010 discharges occurring on or after 

April 1, 2010 (as discussed below in the 

next section). (For an explanation of our 

rationale for establishing an HCO 

payment ‘‘target’’ of 8 percent of total 

estimated LTCH payments, we refer 

readers to the August 30, 2002 LTCH 

PPS final rule (67 FR 56022 through 

56024).) Consistent with section 3401(p) 

of Public Law 111–148, the revised HCO 

fixed-loss amount established in this 

notice will not apply to discharges 

occurring prior to April 1, 2010. In other 

words, for discharges occurring on or 

after October 1, 2009 through March 31, 

2010, LTCH PPS payments will be based 

on the HCO fixed-loss amount 

established in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (that is, 

$18,425 (see 74 FR 44029)). 


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b. The LTCH PPS Fixed-Loss Amount 

for RY 2010 Discharges Occurring On or 

After April 1, 2010 

For this notice, to calculate a fixedloss amount that will maintain 

estimated HCO payments at the 

projected 8 percent of total estimated 

LTCH PPS payments for RY 2010 

discharges occurring on or after April 1, 

2010, we used the same methodology 

and data that we used to establish the 

original RY 2010 HCO fixed-loss 

amount in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 44028). 

Specifically, we used LTCH claims data 

from the March 2009 update of the FY 

2008 MedPAR files and CCRs from the 

March 2009 update of the PSF to 

determine a fixed-loss amount that 

would result in estimated outlier 

payments projected to be equal to 8 

percent of total estimated payments in 

RY 2010. In addition, we continued to 

use the MS–LTC–DRG classifications 

and relative weights from the version of 

the GROUPER that is in effect as of the 

beginning of RY 2010, that is, Version 

27.0 of the GROUPER and the FY 2010 

MS–LTC–DRG relative weights 

(discussed in section VIII.B. of the 

preamble of the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 43951 

through 43967) to determine the revised 

fixed-loss amount for RY 2010 

discharges occurring on or after April 1, 

2010. 

In order to maintain estimated HCO 

payments at the projected 8 percent of 

total estimated LTCH PPS payments for 

RY 2010, in this notice, under the broad 

authority of section 123(a)(1) of the 

BBRA and section 307(b)(1) of BIPA, we 

are revising the HCO fixed-loss amount 

for RY 2010 from $18,425 (as 

established in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (74 FR 

44028)) to $18,615 for RY 2010 

discharges occurring on or after April 1, 

2010 (consistent with section 3401(p) of 

Pub. L. 111–148). Thus, for RY 2010 

discharges occurring on or after April 1, 

2010, we will pay an outlier case 80 

percent of the difference between the 

estimated cost of the case and the 

outlier threshold (the sum of the 

adjusted Federal LTCH payment for the 

MS–LTC–DRG and the fixed-loss 

amount of $18,615). The revised HCO 

fixed-loss amount of $18,615 results in 

estimated total HCO payments being 

projected to be equal to 8 percent of 

projected total LTCH PPS payments for 

RY 2010 discharges occurring on or after 

April 1, 2010. 

The revised fixed-loss amount of 

$18,615 for RY 2010 discharges 

occurring on or after April 1, 2010 is 

slightly higher than the original RY 

2010 fixed-loss amount of $18,425 

(established in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (74 FR 

44029)). Because of the 0.25 percentage 

point reduction to the annual update to 

the standard Federal rate for RY 2010 

required by sections 1886(m)(3)(A)(i) 

and (4)(A) of the Act, the slight increase 

in the fixed-loss amount for RY 2010 is 

necessary to maintain the existing 

requirement that estimated outlier 

payments would equal 8 percent of 

estimated total LTCH PPS payments. 

(For further information on the existing 

8 percent HCO ‘‘target’’ requirement, we 

refer readers to the August 30, 2002 

LTCH PPS final rule (67 FR 56022 

through 56024.) Maintaining the fixedloss amount at the level established in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule would result in HCO 

payments that are greater than the 

current 8 percent regulatory 

requirement because a lower fixed-loss 

amount would result in more cases 

qualifying as outlier cases as well as 

increases the amount of the additional 

payment for a HCO case because the 

maximum loss that a LTCH must incur 

before receiving an HCO payment (that 

is, the fixed-loss amount) would be 

smaller. For these reasons, we believe 

that raising the fixed-loss amount is 

appropriate and necessary to maintain 

that estimated outlier payments would 

equal 8 percent of estimated total LTCH 

PPS payments as required under 

§ 412.525(a). 

As we noted in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (74 FR 

44030), under some rare circumstances, 

a LTCH discharge could qualify as a 

SSO case (as defined in the regulations 

at § 412.529 in conjunction with 

§ 412.503) and also as a HCO case. In 

this scenario, a patient could be 

hospitalized for less than five-sixths of 

the geometric average length of stay for 

the specific MS–LTC–DRG, and yet 

incur extraordinarily high treatment 

costs. If the costs exceeded the HCO 

threshold (that is, the SSO payment plus 

the fixed-loss amount), the discharge is 

eligible for payment as a HCO. Thus, 

effective for discharges occurring on or 

after April 1, 2010 in RY 2010 for a SSO 

case, the HCO payment would be 80 

percent of the difference between the 

estimated cost of the case and the 

outlier threshold (the sum of the fixedloss amount of $18,615 and the amount 

paid under the SSO policy as specified 

in § 412.529). 

3. Computing the Adjusted LTCH PPS 

Federal Prospective Payments for RY 

2010 

In accordance with § 412.525, the 

standard Federal rate is adjusted to 

account for differences in area wages by 

multiplying the labor-related share of 

the standard Federal rate by the 

appropriate LTCH PPS wage index (as 

shown in Tables 12A and 12B of the 

Addendum of the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (74 FR 44192 

through 44213)). The standard Federal 

rate is also adjusted to account for the 

higher costs of hospitals in Alaska and 

Hawaii by multiplying the nonlaborrelated share of the standard Federal 

rate by the appropriate cost-of-living 

factor (shown in the chart in section 

V.C.5. of the Addendum of the FY 2010 

IPPS/RY 2010 LTCH PPS final rule (74 

FR 44026). In this notice, we are 

establishing a standard Federal rate for 

RY 2010 of $39,794.95, as discussed 

above in section II.F.1.c. of this notice. 

(As discussed above in that section, 

discharges occurring on or after April 1, 

2010 will be paid under the revised RY 

2010 standard Federal rate established 

in this notice, consistent with section 

3401(p) of Pub. L. 111–148.) We 

illustrate the methodology to adjust the 

LTCH PPS Federal rate for RY 2010 in 

the following example: 

Example: 

During RY 2010, a Medicare patient is 

in a LTCH located in Chicago, Illinois 

(CBSA 16974). The RY 2010 LTCH PPS 

wage index value for CBSA 16974 is 

1.0573 (Table 12A of the Addendum of 

the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule(74 FR 44196)). The Medicare 

patient is classified into MS–LTC–DRG 

28 (Spinal Procedures with MCC), 

which has a relative weight for FY 2010 

of 1.0834 (Table 11 of the Addendum of 

the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 44183)). 

To calculate the LTCH’s total adjusted 

Federal prospective payment for this 

Medicare patient, we compute the wageadjusted Federal prospective payment 

amount by multiplying the unadjusted 

standard Federal rate ($39,794.95) by 

the labor-related share (75.779 percent) 

and the wage index value (1.0471). This 

wage-adjusted amount is then added to 

the nonlabor-related portion of the 

unadjusted standard Federal rate 

(24.221 percent; adjusted for cost of 

living, if applicable) to determine the 

adjusted Federal rate, which is then 

multiplied by the MS–LTC–DRG 

relative weight (1.0933) to calculate the 

total adjusted Federal LTCH PPS 

prospective payment for RY 2010 

($45,060.59). The table below illustrates 

the components of the calculations in 

this example. 


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Unadjusted Standard Federal Prospective Payment Rate .......................................................................................................... $39,794.95 

Labor-Related Share ..................................................................................................................................................................... × 0.75779 

Labor-Related Portion of the Federal Rate .................................................................................................................................. = $30,156.22 

Wage Index (CBSA 16974) ........................................................................................................................................................... × 1.0471 

Wage-Adjusted Labor Share of Federal Rate .............................................................................................................................. = $31,576.57 

Nonlabor-Related Portion of the Federal Rate ($39,794.95 × 0.24221) ..................................................................................... + $9,638.73 

Adjusted Federal Rate Amount ................................................................................................................................................... = $41,215.30 

MS–LTC–DRG 28 Relative Weight .............................................................................................................................................. × 1.0933 

Total Adjusted Federal Prospective Payment ............................................................................................................................. = $45,060.59 

III. Other Required Information 

A. Collection of Information 

Requirements 

This document does not impose 

information collection and 

recordkeeping requirements. 

Consequently, it need not be reviewed 

by the Office of Management and 

Budget under the authority of the 

Paperwork Reduction Act of 1995 (44 

U.S.C. Chapter 35). 

B. Waiver of Proposed Rulemaking and 

Delay of Effective Date 

We ordinarily publish a notice of 

proposed rulemaking in the Federal 

Register and invite public comment 

prior to a rule taking effect in 

accordance with section 553(b) of the 

Administrative Procedure Act (APA) 

and section 1871 of the Act. In addition, 

in accordance with section 553(d) of the 

APA and section 1871(e)(1)(B)(i) of the 

Act, we ordinarily provide a 30-day 

delay to a substantive rule’s effective 

date. For substantive rules that 

constitute major rules, in accordance 

with 5 U.S.C. 801, we ordinarily provide 

a 60-day delay in the effective date. 

None of the above processes or 

effective date requirements apply, 

however, when the rule in question is 

interpretive, a general statement of 

policy, or a rule of agency organization, 

procedure or practice. They also do not 

apply, when Congress, itself, has created 

the rules that are to be applied, leaving 

no discretion or gaps for an agency to 

fill in through rulemaking. 

In addition, an agency may waive 

notice and comment rulemaking, as well 

as any delay in effective date, when the 

agency for good cause finds that notice 

and public comment on the rule as well 

the effective date delay are 

impracticable, unnecessary, or contrary 

to the public interest. In cases where an 

agency finds good cause, the agency 

must incorporate a statement of this 

finding and its reasons in the rule 

issued. 

The policies being publicized in this 

notice do not constitute agency 

rulemaking. Rather, Congress, in the 

Affordable Care Act, has already 

required that the agency make these 

changes, and we are simply notifying 

the public of certain required revisions 

to standard Federal rates that are 

effective for payment years beginning 

October 1, 2009 and their implication 

on payments made for discharges on or 

after April 1, 2010. We also are notifying 

the public of the extension of section 

508 reclassifications and special 

exception wage indexes for FY 2010, as 

well as the wage indexes resulting from 

Congress’ requirement that certain 

reclassification wage indexes be 

recalculated (effective April 1, 2010) to 

account for such extensions. As this 

notice merely informs the public of 

these required modifications to the 

payment rates under the IPPS and LTCH 

PPS, it is not a rule and does not require 

any notice and comment rulemaking. To 

the extent any of the policies articulated 

in this notice constitute interpretations 

of Congress’s requirements or 

procedures that will be used to 

implement Congress’s directive, they are 

interpretive rules, general statements of 

policy, and/or rules of agency procedure 

or practice, which are not subject to 

notice-and-comment rulemaking or a 

delayed effective date. 

However, to the extent that notice and 

comment rulemaking or a delay in 

effective date or both would otherwise 

apply, we find good cause to waive such 

requirements. Specifically, we find it 

unnecessary to undertake notice and 

comment rulemaking in this instance as 

this notice does not propose to make 

any substantive changes to IPPS or 

LTCH PPS policies or methodologies 

already in effect as a matter of law, but 

simply applies rate adjustments 

required by Public Law 111–148 and 

Public Law 111–152 to these existing 

policies and methodologies. Therefore, 

we would be unable to change any of 

the policies governing the IPPS for FY 

2010 or the LTCH PPS for RY 2010 in 

response to public comment on this 

notice. As the changes outlined in this 

notice have already taken effect, it 

would also be impracticable to 

undertake notice and comment 

rulemaking. For these reasons, we also 

find that a waiver of any delay in 

effective date, if it were otherwise 

applicable, is necessary to comply with 

the requirements of sections 

1886(b)(3)(B)(xii) and 1886(m)(3)(A)(ii) 

and (4), as added and amended by 

Public Law 111–148 and Public Law 

111–152, and sections 3137(a) and 

3401(p) of Public Law 111–148, which 

require that hospitals be paid on the 

basis of revised rates for discharges on 

or after April 1, 2010. Therefore, we find 

good cause to waive notice and 

comment procedures as well as any 

delay in effective date, if such 

procedures or delays are required at all. 

IV. Regulatory Impact Analysis 

A. Overall Impact 

Although this notice merely reflects 

the implementation of provisions of the 

Affordable Care Act and does not 

constitute a substantive rule, we are 

nevertheless preparing this impact 

analysis in the interest of ensuring that 

the impacts of these changes are fully 

understood. The changes in this notice 

are already in effect with changes made 

to PRICER and announced through a 

Joint-Signature Memorandum. We have 

examined the impacts of this notice as 

required by Executive Order 12866 on 

Regulatory Planning and Review 

(September 30, 1993), the Regulatory 

Flexibility Act (RFA) (September 19, 

1980, Pub. L. 96–354), section 1102(b) of 

the Social Security Act, section 202 of 

the Unfunded Mandates Reform Act of 

1995 (Pub. L. 104–4), Executive Order 

13132 on Federalism (August 4, 1999), 

and the Congressional Review Act (5 

U.S.C. 804(2)). 

Executive Order 12866 directs 

agencies to assess all costs and benefits 

of available regulatory alternatives and, 

if regulation is necessary, to select 

regulatory approaches that maximize 

net benefits (including potential 

economic, environmental, public health 

and safety effects, distributive impacts, 

and equity). A regulatory impact 

analysis (RIA) must be prepared for 

major rules with economically 

significant effects ($100 million or more 

in any 1 year). We have determined that 

the rates announced in this notice are 

‘‘economically significant’’ as measured 

by the $100 million threshold. 

Therefore, although we do not consider 

this notice to constitute a substantive 

rule, we have prepared a Regulatory 

Impact Analysis, that to the best of our 

ability, presents the costs and benefits of 

this notice. 


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The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses, 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 

government jurisdictions. We estimate 

that most hospitals and most other 

providers and supplies are small entities 

as that term is used in the RFA. The 

great majority of hospitals and most 

other health care providers and 

suppliers are small entities, either by 

being nonprofit organizations or by 

meeting the SBA definition of a small 

business (having revenues of less than 

$34.5 million in any 1 year). (For details 

on the latest standard for health care 

providers, we refer readers to page 33 of 

the Table of Small Business Size 

Standards at the Small Business 

Administration’s Web site at http:// 

www.sba.gov/services/ 

contractingopportunities/ 

sizestandardstopics/tableofsize/ 

index.html.) For purposes of the RFA, 

all hospitals and other providers and 

suppliers are considered to be small 

entities. Individuals and States are not 

included in the definition of a small 

entity. We believe that this notice will 

have a significant impact on small 

entities. Because we acknowledge that 

many of the affected entities are small 

entities, the analysis discussed in this 

section would fulfill any requirement 

for a final regulatory flexibility analysis. 

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 604 of the 

RFA. With the exception of hospitals 

located in certain New England 

counties, for purposes of section 1102(b) 

of the Act, we now define a small rural 

hospital as a hospital that is located 

outside of an urban area and has fewer 

than 100 beds. Section 601(g) of the 

Social Security Amendments of 1983 

(Pub. L. 98–21) designated hospitals in 

certain New England counties as 

belonging to the adjacent urban area. 

Thus, for purposes of the IPPS, we 

continue to classify these hospitals as 

urban hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4) 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 2010, that 

threshold is approximately $135 

million. This notice will not mandate 

any requirements for State, local, or 

tribal governments, nor will it affect 

private sector costs. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

This notice will not have a substantial 

effect on State and local governments. 

The following analysis, in 

conjunction with the remainder of this 

document, demonstrates that this notice 

is consistent with the regulatory 

philosophy and principles identified in 

Executive Order 12866, the RFA, and 

section 1102(b) of the Act. The notice 

will affect payments to a substantial 

number of small rural hospitals, as well 

as other classes of hospitals, and the 

effects on some hospitals may be 

significant. 

The FY 2010 IPPS/RY 2010 LTCH 

PPS final rule included an impact 

analysis for the changes to the IPPS 

included in that rule. This notice 

updates those impacts to the IPPS 

operating payment system as to reflect 

certain changes required by the 

Affordable Care Act. Because provisions 

in the Affordable Care Act were nonbudget neutral, the overall estimates for 

hospitals have changed from our 

estimate that was published in the FY 

2010 IPPS/RY 2010 LTCH PPS final rule 

(74 FR 44215). We estimate that the 

changes in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule, in conjunction 

with the final IPPS rates and wage index 

included in this notice, will result in an 

approximate $1.8 billion increase in 

operating payments relative to FY 2009 

or an additional 0.1 billion relative to 

what was projected in the FY 2010 

IPPS/RY 2010 LTCH PPS final rule (74 

FR 44215). Capital payments are 

estimated to increase by $173 million 

relative to FY 2009 due to the changes 

under the Affordable Care Act or an 

additional 19 million relative to what 

was published in the FY 2010 IPPS/RY 

2010 LTCH PPS correction notice (74 FR 

51507). 

B. Revised FY 2010 Impacts on IPPS 

Operating Costs 

1. Analysis of Table I 

Table I displays the results of our 

analysis of the payment changes for FY 

2010 after implementing provisions of 

the Affordable Care Act, which 

extended section 508 reclassifications 

and special exception wage indices 

through FY 2010 and which reduced the 

market basket update to the 

standardized amount by 0.25 percent for 

discharges occurring on or after April 1, 

2010. In this notice, we describe these 

revisions to the wage index, 

standardized amounts, outlier 

thresholds and budget neutrality factors 

resulting from implementation of the 

Affordable Care Act. Because of these 

revisions, we are displaying all of the 

impact columns that were affected by 

the market basket reduction and the 

section 508/special exception extension. 

In addition, we are adding a column to 

display the impact of the section 508/ 

special exception extension. These 

columns show the impact of the FY 

2010 changes in this notice compared to 

the FY 2010 impacts as published in the 

FY 2010 IPPS/RY 2010 LTCH PPS final 

rule (74 FR 44216). 

Table I displays the results of our 

analysis of the changes for FY 2010 

resulting from the Affordable Care Act 

provisions. The table categorizes 

hospitals by various geographic and 

special payment consideration groups to 

illustrate the varying impacts on 

different types of hospitals. The top row 

of the table shows the overall impact on 

the 3,517 acute care hospitals included 

in the analysis. 

The next four rows of Table I contain 

hospitals categorized according to their 

geographic location: All urban, which is 

further divided into large urban and 

other urban; and rural. There are 2,525 

hospitals located in urban areas 

included in our analysis. Among these, 

there are 1,377 hospitals located in large 

urban areas (populations over 1 

million), and 1,148 hospitals in other 

urban areas (populations of 1 million or 

fewer). In addition, there are 992 

hospitals in rural areas. The next two 

groupings are by bed-size categories, 

shown separately for urban and rural 

hospitals. The final groupings by 

geographic location are by census 

divisions, also shown separately for 

urban and rural hospitals. 

The second part of Table I shows 

hospital groups based on hospitals’ FY 

2010 payment classifications, including 

any reclassifications under section 

1886(d)(10) of the Act. For example, the 

rows labeled urban, large urban, other 

urban, and rural show that the numbers 

of hospitals paid based on these 

categorizations after consideration of 

geographic reclassifications (including 

reclassifications under sections 

1886(d)(8)(B) and (d)(8)(E) of the Act) 

are 2,593; 1,422; 1,171; and 924, 

respectively. 

The next three groupings examine the 

impacts of the changes on hospitals 

grouped by whether or not they have 

GME residency programs (teaching 

hospitals that receive an IME 


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adjustment) or receive DSH payments, 

or some combination of these two 

adjustments. There are 2,475 

nonteaching hospitals in our analysis, 

804 teaching hospitals with fewer than 

100 residents, and 238 teaching 

hospitals with 100 or more residents. 

In the DSH categories, hospitals are 

grouped according to their DSH 

payment status, and whether they are 

considered urban or rural for DSH 

purposes. The next category groups 

together hospitals considered urban or 

rural, in terms of whether they receive 

the IME adjustment, the DSH 

adjustment, both, or neither. 

The next five rows examine the 

impacts of the changes on rural 

hospitals by special payment groups 

(SCHs, RRCs, and MDHs). There were 

187 RRCs, 337 SCHs, 186 MDHs, and 

106 hospitals that are both SCHs and 

RRCs, and 15 hospitals that are both an 

MDH and an RRC. 

The next series of groupings are based 

on the type of ownership and the 

hospital’s Medicare utilization 

expressed as a percent of total patient 

days. These data were taken from the FY 

2007 or FY 2006 Medicare cost reports. 

The next two groupings concern the 

geographic reclassification status of 

hospitals. The first grouping displays all 

urban hospitals that were reclassified by 

the MGCRB for FY 2010. The second 

grouping shows the MGCRB rural 

reclassifications. The last row of this 

section identifies the 104 section 508 

and special exception hospitals. 

The final category shows the impact 

of the policy changes on the 20 cardiac 

hospitals in our analysis. 

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1. Effects of the Changes to the MS–DRG 

Reclassifications and Relative CostBased Weights With the Application of 

Recalibration Budget Neutrality 

(Column 1) 

Column 1 shows the effects of the 

changes to the MS–DRGs and relative 

weights with the application of the 

recalibration budget neutrality factor to 

the standardized amounts as compared 

to the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule. The recalibration budget 

neutrality factor was revised due to the 

0.25 percentage point reduction to the 

applicable percentage increase applied 

to the Federal standardized amount, as 

required by section 1886(b)(3)(B) of the 

Act, as amended by the Affordable Care 

Act. The recalibration budget neutrality 

factor published in the FY 2010 IPPS/ 

RY 2010 LTCH PPS final rule was 

0.997941, which is applied to the 

standardized amount as determined in 

the final rule. The revised recalibration 

budget neutrality is now 0.997935, 

applied to the revised FY 2010 

standardized amount. Consistent with 

section 1886(d)(4)(C)(iii) of the Act, we 

have calculated a recalibration budget 

neutrality factor to account for the 

changes in MS–DRGs and relative 

weights to ensure that the overall 

payment impact is budget neutral. The 

change in the budget neutrality factor 

did not change the impact to most 

hospital categories as compared to the 

FY 2010 IPPS/RY 2010 LTCH PPS final 

rule. 

2. Effect of the Wage Index Changes 

With the Application of the Wage 

Budget Neutrality Factor (Column 2) 

Column 2 shows the impact of the FY 

2010 wage data, FY 2010 labor share 

with the application of the wage budget 

neutrality factor. For FY 2010, we 

calculate the wage budget neutrality 

factor without regard to the lower labor 

share of 62 percent for hospitals with a 

wage index less than or equal to 1, in 

accordance with section 1886(d)(3)(E)(i) 

of the Act. We refer readers to our FY 

2010 final rule (74 FR 44005) for a 

discussion of this policy. Because the 

market basket update to the 

standardized amount was reduced by 

0.25 percent as required under the 

Affordable Care Act, the wage budget 

neutrality factor was revised. The wage 

budget neutrality factor published in the 

FY 2010 IPPS/RY 2010 LTCH PPS final 

rule was 1.000407. For this notice, the 

wage budget neutrality factor is revised 

to 1.000418. This column shows the 

impact of the revised wage budget 

neutrality factor relative to the impact in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule. The change in the budget 

neutrality factor did not change the 

impact to most hospital categories as 

compared to the FY 2010 IPPS/RY 2010 

LTCH PPS final rule. 

3. Combined Effects of MS–DRG and 

Wage Index Changes (Column 3) 

Section 1886(d)(4)(C)(iii) of the Act 

requires that changes to MS–DRG 

reclassifications and the relative weights 

cannot increase or decrease aggregate 

payments. In addition, section 

1886(d)(3)(E) of the Act specifies that 

any updates or adjustments to the wage 

index are to be budget neutral. The FY 

2010 MS–DRG reclassification, relative 

weights and wage index have not 

changed in this notice. As required by 

section 1886(b)(3)(B)(xii), as added by 

the Affordable Care Act, the market 

basket update was reduced by ¥0.25 

percent and applied to the Federal 

standardized amount and the hospitalspecific rates for SCHs and MDHs. 

Consequentially, the wage and 

recalibration budget neutrality factors 

were revised. In the FY 2010 IPPS/RY 

2010 LTCH PPS final rule, we computed 

a wage budget neutrality factor of 

1.000411, and a recalibration budget 

neutrality factor of 0.997926 (which is 

applied to the Puerto Rico specific 

standardized amount and the hospitalspecific rates). The product of the two 

budget neutrality factors is the 

cumulative wage and recalibration 

budget neutrality factor. The cumulative 

wage and recalibration budget neutrality 

adjustment is 0.998347 or 

approximately ¥0.2 percent which is 

applied to the national standardized 

amounts. In this notice, the recalibration 

budget neutrality factor is revised to 

0.997935 and the wage budget neutrality 

factor has been revised to 1.000418, so 

the cumulative wage and recalibration 

budget neutrality factor has been revised 

to 0.998352. This impact column shows 

the impact of these changes for FY 2010 

relative to the impact of these changes 

as published in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule. 

4. Effects of MGCRB Reclassifications 

(Column 4) 

Because section 3137(a) of Public Law 

111–148 extended certain special 

exceptions and section 508 

reclassifications through FY 2010, we 

analyzed the data of hospitals in labor 

market areas affected by legislation, 

including hospitals with Lugar 

redesignations, and made our best effort 

to give those extended hospitals a wage 

index value that we believe results in 

the highest FY 2010 wage index for 

which they are eligible. 

The impacts shown in Column 4 of 

Table 1 reflect the effects of MGCRB 

reclassifications (and excludes the 

effects of extending the section 508 

reclassifications and special exception 

wage indices). The overall effect of 

geographic reclassification is required 

by section 1886(d) (8) (D) of the Act to 

be budget neutral. For the purposes of 

this impact analysis, we apply an 

adjustment of 0.991985, which ensures 

that the effects of the section 1886(d) 

(10) reclassifications are budget neutral. 

The number of providers receiving a 

geographic reclassification has been 

reduced from 807 providers in the FY 

2010 IPPS/RY 2010 LTCH PPS final rule 

to 766 hospitals because many of the 

providers that received geographic 

reclassification will now be reclassified 

as a section 508 or receive a special 

exception wage index. Urban New 

England hospitals and rural Pacific 

hospitals will experience a ¥0.3 and 

¥0.2 percent change in payments, 

respectively due to reclassification 

changes compared to the FY 2010 IPPS 

Final rule because many of the New 

England and Pacific hospitals that had 

been reclassified in the FY 2010 IPPS/ 

RY 2010 LTCH PPS final rule are no 

longer reclassified, and are instead 

section 508 hospitals. 

5. Effects of the Rural Floor and 

Imputed Floor (Column 5) 

As discussed in the FY 2009 IPPS/RY 

2010 LTCH PPS final rule (73 FR 

49070), for FY 2010, hospitals receive a 

blended wage index that is 50 percent 

of a wage index with the State level 

rural and imputed floor budget 

neutrality adjustment and 50 percent of 

a wage index with the national budget 

neutrality adjustment. 

The column compares the revised 

post-reclassification FY 2010 wage 

index of providers with the rural floor 

and imputed floor adjustment with the 

transitional rural floor budget neutrality 

factors applied to the postreclassification FY 2010 wage index of 

providers with the rural floor and 

imputed floor adjustment with the 

transitional rural floor budget neutrality 

factors applied as published in the FY 

2010 IPPS final rule. Many of the 

section 508 and special exception 

providers had been eligible for the rural 

floor, but they are no longer eligible for 

the rural floor because of the higher 

section 508/special exception wage 

index they now receive. As a result, the 

rural floor budget neutrality figures have 

been revised. (The revised figures are 

calculated using the corrected wage data 

published October 7, 2009). The revised 

national rural floor budget neutrality 

factor is 0.996686. The revised State 


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rural floor budget neutrality factors are 

listed in Table 4D–1in this notice. The 

budget neutrality factors are blended 

where the transitional rural floor budget 

neutrality factor is based on 50 percent 

of the State rural floor budget neutrality 

factor and 50 percent of the national 

rural floor budget neutrality factor. A 

smoothing factor of 1.000010 is applied 

to the blended rural floor budget 

neutrality factor to ensure that the 

blended budget neutrality factors 

achieve overall budget neutrality. 

Generally, the decreases in this 

column can be attributed to section 508 

hospitals that had been receiving the 

rural floor in the FY 2010 IPPS/RY 2010 

LTCH PPS final no longer needing a 

rural floor due to their section 508 

reclassification. Urban New England 

and Pacific hospitals will experience a 

¥0.1 percent decrease in payments 

compared to the payment estimates 

published in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule due to the floor 

because many of the hospitals in these 

regions had been receiving the rural 

floor but are now receiving a section 508 

reclassification. 

6. Effects of the Application of Section 

508 Reclassification (Column 6) 

This column displays the impact of 

the section 508/special exception 

extensions through FY 2010. Because 

this provision is not budget neutral, 

hospitals, overall, will experience a 0.2 

percent increase in payments. All the 

hospital categories, depending on 

whether section 508 and special 

exception providers are represented in 

those categories, will either experience 

an increase or no change in payments. 

Providers in urban New England and 

Middle Atlantic can expect increases in 

payments by 0.8 and 0.6 percent 

respectively because those regions have 

section 508 and special exception 

providers. Similarly, rural Pacific will 

experience a 0.6 percent increase in 

payments due to the extensions. 

7. Effects of the Wage Index Adjustment 

for Out-Migration (Column 7) 

Section 1886(d) (13) of the Act, as 

added by section 505 of Public Law 

108–173, provides for an increase in the 

wage index for hospitals located in 

certain counties that have a relatively 

high percentage of hospital employees 

who reside in the county, but work in 

a different area with a higher wage 

index. Hospitals located in counties that 

qualify for the payment adjustment 

receive an increase in the wage index 

that is equal to a weighted average of the 

difference between the wage index of 

the resident county, postreclassification, post-floor (including 

budget neutrality), and the higher wage 

index work area(s), weighted by the 

overall percentage of workers who are 

employed in an area with a higher wage 

index. Section 508 providers and 

special exception providers that may 

have qualified for the out-migration 

adjustment in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule will now 

receive their section 508 reclassification 

or special exception wage index instead. 

This column shows the impact of the 

out-migration adjustment in this notice 

compared to the out-migration 

adjustment in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule. The 

provisions in the Affordable Care Act 

did not have a significant impact on the 

section 505 outmigration adjustment 

which is reflected in the 0.0 percent 

change in payments compared to the FY 

2010 IPPS/RY 2010 LTCH PPS final 

rule. 

8. Effects of All Changes for FY 2010 

(Column 8) 

Column 8 compares our estimate of 

the percent change in payments per case 

for FY 2010 including the provisions in 

this notice compared to our percent 

change in payments per case for FY 

2010 as published in the FY 2010 IPPS/ 

RY 2010 LTCH PPS final rule. The 

average increase for all hospitals is 

approximately 0.1 percent compared to 

the original estimated increase of 

payments per case for FY 2010 

published in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule. This increase 

includes the effects of the 0.25 percent 

reduction to the market basket update 

for FY 2010, which is used for 

determining payment for discharges on 

or after April 1, 2010, reducing FY 2010 

payments by 0.1 percent. This analysis 

accounts for the impact of the extension 

of certain special exceptions and section 

508 reclassifications for FY 2010. This 

non-budget neutral provision, which 

increases the wage index for 104 

providers, results in an estimated 

increase in payments by 0.2 percent. 

There might also be interactive effects 

among the various factors comprising 

the payment system that we are not able 

to isolate. 

The overall change in payments per 

case for hospitals in FY 2010 as 

specified in this notice is estimated to 

increase by 0.1 percent compared to the 

payment estimates published in the FY 

2010 IPPS/RY 2010 LTCH PPS final 

rule. Hospitals in urban areas will 

experience an estimated 0.1 percent 

increase in payments per case compared 

to the estimate published FY 2010 IPPS/ 

RY 2010 LTCH PPS final rule. Hospital 

payments per case in rural areas are 

estimated to decrease 0.1 percent. Urban 

hospitals experience increases under the 

Affordable Care Act due to the 

extension of section 508 

reclassifications, which offset the 0.25 

market basket reduction; while rural 

hospitals experience decreases under 

the Affordable Care Act due to the -0.25 

market basket reduction. 

Among urban census divisions, the 

largest estimated payment increases 

compared to the FY 2010 IPPS/RY 2010 

LTCH PPS final rule will be 0.2 in New 

England and 0.3 percent in the Middle 

Atlantic region, generally attributed to 

section 508 reclassifications and special 

exception wage indexes. Urban 

hospitals located in the West South 

Central, West North Central, and 

Mountain region will experience a 0.1 

percent decrease in payments compared 

to the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule because of the 0.25 market 

basket reduction applied to the second 

half of FY 2010. 

Among the rural regions in Column 8, 

rural mountain hospitals can expect a 

-0.5 percent decrease in payments due 

to the market basket reduction and 

changes in the outlier estimates under 

the Affordable Care Act. Rural Pacific 

hospitals can expect a 0.2 percent 

increase in payments compared to the 

FY 2010 IPPS/RY 2010 LTCH PPS final 

rule because of higher wage indexes as 

a result of section 508 reclassification. 

Among special categories of rural 

hospitals in Column 8, the MDHs will 

receive an estimated decrease in 

payments of 0.2 percent, and the SCHs 

will experience an estimated decrease in 

payments by 0.3 percent due to the 

market basket reduction. 

Urban hospitals reclassified for FY 

2010 are anticipated to receive an 

increase of 0.2 percent, while urban 

hospitals that are not reclassified for FY 

2010 will not experience a change in 

payments. Rural hospitals reclassifying 

for FY 2010 are anticipated to receive a 

0.1 percent payment decrease and rural 

hospitals that are not reclassifying are 

estimated to receive a payment decrease 

of 0.2 percent compared to the FY 2010 

IPPS/RY 2010 LTCH PPS final rule. 

9. Analysis of Table II 

Table II presents the projected impact 

of the changes for FY 2010 for urban 

and rural hospitals and for the different 

categories shown in Table I. It compares 

the estimated payments per case for FY 

2010 including the provisions in this 

notice with the average estimated 

payments per case for FY 2010 as 

published in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule. Thus, the table 

presents, in terms of average dollar 

amounts paid per discharge, the 

combined effects of the changes 


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presented in Table I. The percentage 

changes shown in the last column of 

Table II equal the percentage changes in 

average payments from Column 8 of 

Table I. 

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BILLING CODE 4120–01–C 

D. Effects of Payment Rate Changes and 

Policy Changes Under the LTCH PPS 

1. Introduction and General 

Considerations 

In section II.F. of this notice, we are 

setting forth the revised payment rates 

for the RY 2010 LTCH PPS in 

accordance with the Affordable Care 

Act. In this section of the notice, we 

discuss the impact of the changes to the 

payment rates, factors, and other 

payment rate policies related to the 

LTCH PPS that are presented in the 

notice in terms of their estimated fiscal 

impact on the Medicare budget and on 

LTCHs. 

Currently, our database of 399 LTCHs 

includes the data for 81 nonprofit 

(voluntary ownership control) LTCHs 

and 267 proprietary LTCHs. Of the 

remaining 51 LTCHs, 12 LTCHs are 

government-owned and operated and 

the ownership type of the other 39 

LTCHs is unknown. In the impact 

analysis, we are using the rates, factors, 

and policies presented in this notice, 

including the revised RY 2010 rate that 

accounts for the 0.25 reduction to the 

market basket update under which 

discharges on or after April 1, 2010 are 

paid. As discussed in the FY 2010 IPPS/ 

RY 2010 LTCH PPS final rule (74 FR 

44022), we updated the RY 2009 

standard Federal rate by 2.0 percent to 

establish the RY 2010 standard Federal 

rate at $39,896.65. As required under 

Public Law 111–148 and Public Law 

111–152, we have reduced the annual 

update to the standard Federal rate by 

0.25 percentage points such that that RY 

2010 standard Federal rate is 

$39,794.95. Discharges occurring on or 

after April 1, 2010 are paid under the 

revised standard Federal rate consistent 

with section 3401(p) of Public Law 111– 

148. In the FY 2010 IPPS/RY 2010 

LTCH final rule (74 FR 44233), we had 

estimated that LTCH payments would 

increase by 3.3 percent relative to RY 

2009. Because only discharges for half 

of RY 2010 (that is, discharges occurring 

on or after April 1, 2010) are paid under 

the revised RY 2010 standard Federal 

rate which incorporates the 0.25 

percentage point reduction, we estimate 

that LTCH payments will increase by 

3.2 percent relative to RY 2009. In other 

words, we estimate that LTCH payments 

will be reduced by 0.1 percent relative 

to our estimates published in the FY 

2010 IPPS/RY 2010 LTCH final rule. 

In the FY 2010 IPPS/RY 2010 LTCH 

final rule (74 FR 44230), we had 

estimated RY 2009 LTCH PPS payments 

to be approximately $4.609 billion and 

RY 2010 LTCH PPS payments to be 

approximately $4.762 billion which 

resulted in a $153 million projected 

increase in estimated aggregate LTCH 

PPS payments from RY 2009 to RY 

2010. Based on the changes in this 

notice, we now estimate RY 2010 LTCH 

PPS payments to be approximately 

$4.752 billion, which results in a 

projected increase in aggregate LTCH 

PPS payments of $142 million in RY 

2010 relative to RY 2009. Our RY 2010 

estimate is approximately $11 million 

less than our estimate in the FY 2010 

IPPS/RY 2010 LTCH final rule. 

Table IV shows the payment impact of 

the changes described in this notice 

required under the Affordable Care Act 

effective for RY 2010. Table IV shows 

the impact of the payments as projected 

in the FY 2010 IPPS/RY 2010 LTCH 

final rule and the change in payments 

effective in this notice for RY 2010. We 

estimate a 0.1 percent decrease in 

payments per discharge in this notice 

compared to the RY 2010 estimated 

payments per discharge published in 

the FY 2010 IPPS/RY 2010 LTCH final 

rule. This decrease is attributable to the 

0.25 percentage point reduction to the 

annual update applied to the standard 

Federal rate as required by sections 

1886(m)(3)(ii) and (4) of the Act. As 

Table IV shows, the change attributable 

solely to the standard Federal rate is 

projected to result in a decrease of 0.2 

percent in estimated RY 2010 payments 

per discharge from the FY 2010 IPPS/RY 

2010 LTCH final rule to the revised RY 

2010 payments per discharge in this 

notice. 

The projected change in payments per 

discharge from the RY 2010 published 

in the FY 2010 IPPS/RY 2010 LTCH 

final rule to estimated RY 2010 

payments per discharge in this notice is 

¥0.1 percent (shown in Column 7). 

This projected decrease in payments is 

attributable to the impacts of the change 

to the standard Federal rate required 

under the Affordable Care Act under 

which discharges occurring on or after 

April 1, 2010 (¥0.2 percent in Column 

6) are paid. 

2. Impact on Rural Hospitals 

For purposes of section 1102(b) of the 

Act, we define a small rural hospital as 

a hospital that is located outside of a 

Metropolitan Statistical Area and has 

fewer than 100 beds. As shown in Table 

IV, we are projecting a 0.1 decrease in 

estimated payments per discharge for 

the RY 2010 LTCH as compared to the 

RY 2010 estimated payments per 

discharge published in the FY 2010 

IPPS/RY 2010 LTCH final rule for rural 

LTCHs that will result from the changes 

presented in this notice (that is, the 

revised update to the standard Federal 

rate discussed in section II.F.1. of this 

notice). This estimated impact is based 

on the data for the 26 rural LTCHs in 

our database of 399 LTCHs, for which 

complete data were available. 

3. Anticipated Effects of LTCH PPS 

Payment Rate Change and Policy 

Changes 

We discuss the impact of the changes 

to the payment rates, factors, and other 

payment rate policies under the LTCH 

PPS for RY 2010 (in terms of their 

estimated fiscal impact on the Medicare 

budget and on LTCHs) in section II.F. of 

this notice. 


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a. Budgetary Impact 

Section 123(a)(1) of the BBRA 

requires that the PPS developed for 

LTCHs ‘‘maintain budget neutrality.’’ We 

believe that the statute’s mandate for 

budget neutrality applies only to the 

first year of the implementation of the 

LTCH PPS (that is, FY 2003). Therefore, 

in calculating the FY 2003 standard 

Federal rate under § 412.523(d)(2), we 

set total estimated payments for FY 

2003 under the LTCH PPS so that 

estimated aggregate payments under the 

LTCH PPS were estimated to equal the 

amount that would have been paid if the 

LTCH PPS had not been implemented. 

As discussed in section IV.D.1. of this 

notice, we project an increase in 

aggregate LTCH PPS payments in RY 

2010 of approximately $142 million 

based on the 399 LTCHs in our 

database. 

b. Impact on Providers 

The basic methodology for 

determining a per discharge LTCH PPS 

payment is set forth in § 412.515 

through § 412.536. In addition to the 

basic MS–LTC–DRG payment (standard 

Federal rate multiplied by the MS–LTC– 

DRG relative weight), we make 

adjustments for differences in area wage 

levels, COLA for Alaska and Hawaii, 

and short-stay outliers (SSOs). 

Furthermore, LTCHs may also receive 

high cost outlier (HCO) payments for 

those cases that qualify based on the 

threshold established each rate year. 

Hospital groups were based on 

characteristics provided in the OSCAR 

data, FY 2004 through FY 2006 cost 

report data in HCRIS, and PSF data. 

Hospitals with incomplete 

characteristics were grouped into the 

‘‘unknown’’ category. Hospital groups 

include the following: 

• Location: Large urban/other urban/ 

rural. 

• Participation date. 

• Ownership control. 

• Census region. 

• Bed size. 

To estimate the impacts of the 

payment rates and policy changes 

among the various categories of existing 

providers, we used LTCH cases from the 

FY 2008 MedPAR file to estimate 

payments for RY 2010 published in the 

FY 2010 IPPS/RY 2010 LTCH final rule 

and to estimate revised payments for RY 

2010 in accordance with the changes in 

this notice for 399 LTCHs. 

c. Calculation of Prospective Payments 

For purposes of this impact analysis, 

to estimate per discharge payments 

under the LTCH PPS, we simulated 

payments on a case-by-case basis using 

LTCH claims from the FY 2008 MedPAR 

files. For modeling estimated LTCH PPS 

payments for RY 2010 in this notice, we 

applied the revised RY 2010 standard 

Federal rate (that is, $39,794.95, under 

which LTCH discharges occurring on or 

after April 1, 2010, and through 

September 30, 2010 are paid). For 

modeling estimated LTCH PPS 

payments for RY 2010 as published in 

the FY 2010 IPPS/RY 2010 LTCH final 

rule, we applied the published RY 2010 

standard Federal rate of $39,896.65, 

under which LTCH discharges occurring 

on or after October 1, 2009 through 

March 31, 2010 are paid). 

These impacts reflect the estimated 

‘‘losses’’ or ‘‘gains’’ among the various 

classifications of LTCHs from the 

previously published 2010 LTCH PPS 

rate year to the revised 2010 LTCH PPS 

rate year based on the payment rates 

and policy changes presented in this 

notice. Table IV illustrates the estimated 

aggregate impact of the LTCH PPS 

among various classifications of LTCHs. 

• The first column, LTCH 

Classification, identifies the type of 

LTCH. 

• The second column lists the 

number of LTCHs of each classification 

type. 

• The third column identifies the 

number of LTCH cases. 

• The fourth column shows the 

estimated original RY 2010 payment per 

discharge (that is, prior to the enactment 

of the Affordable Care Act, as described 

above). 

• The fifth column shows the 

estimated revised RY 2010 payment per 

discharge (that is, reflecting the 

provisions of the Affordable Care Act, as 

described above). 

• The sixth column shows the 

percentage change in estimated 

payments per discharge due to changes 

to the standard Federal rate (as 

discussed in section II.F. of this notice). 

It compares the percent change in 

estimated payments per discharge in the 

originally published FY 2010 IPPS/RY 

2010 LTCH PPS final rule (prior to the 

enactment of the Affordable Care Act) to 

the revised estimated payments per 

discharge in this RY 2010 LTCH PPS 

notice (reflecting the provisions of the 

Affordable Care Act). 

• The seventh column shows the 

percentage change in estimated 

payments per discharge from the 

originally published RY 2010 LTCH PPS 

(prior to the enactment of the Affordable 

Care Act, as shown in Column 4) to the 

revised RY 2010 LTCH PPS (reflecting 

the provisions of the Affordable Care 

Act, as shown in Column 5) for all 

changes. 

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BILLING CODE 4120–01–C 

d. Results 

Based on the most recent available 

data (as described previously for 399 

LTCHs), we have prepared the following 

summary of the impact (as shown in 

Table IV) of the LTCH PPS payment rate 

and policy changes presented in this 

notice. The impact analysis in Table IV 

shows that estimated payments per 

discharge are expected to decrease 

approximately 0.1 percent, on average, 

for all LTCHs comparing the RY 2010 

estimated LTCH PPS payments 

published in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule to the RY 2010 

estimated LTCH PPS payments as a 

result of the payment rate and policy 

changes presented in this notice. The 

0.1 percent decrease is due to the 0.25 

percentage point reduction to the 

annual update to the standard Federal 

rate required under the Affordable Care 

Act. Because only discharges on or after 

April 1, 2010 will be paid under the 

revised standard Federal rate, which 

incorporates the 0.25 percentage point 

reduction to the annual update for RY 

2010, the required 0.25 percentage point 

reduction will only reduce aggregate RY 

2010 payments by 0.1 percent. All 

hospital categories are equally affected 

by the provision and will all experience 

an approximate 0.1 percent decrease in 

payments relative to the payment 

estimates in the FY 2010 IPPS/RY 2010 

LTCH final rule. 

4. Effect on the Medicare Program 

As noted previously, we project that 

the provisions of this notice will result 

in an increase in estimated aggregate 

LTCH PPS payments in RY 2010 of 

approximately $142 million (or about 

0.1 percent less than previously 

estimated in the FY 2010 IPPS/RY 2010 

LTCH final rule) for the 399 LTCHs in 

our database. 

5. Effect on Medicare Beneficiaries 

Under the LTCH PPS, hospitals 

receive payment based on the average 

resources consumed by patients for each 

diagnosis. We do not expect any 

changes in the quality of care or access 

to services for Medicare beneficiaries 

under the LTCH PPS, but we expect that 

paying prospectively for LTCH services 

would enhance the efficiency of the 

Medicare program. 

E. Alternatives Considered 

This notice provides descriptions of 

the statutory provisions that are 

addressed, identifies policies, and 

presents rationales for our decisions 

and, where relevant, alternatives that 

were considered. 

F. Overall Conclusion 

1. Acute Care Hospitals 

Table I of section IV.B. of this notice 

demonstrates the estimated 

distributional impact of the IPPS budget 

neutrality requirements for the MS–DRG 

and wage index changes, and for the 

wage index reclassifications under the 

MGCRB. Table I also shows an overall 

increase of 0.1 percent in operating 

payments in this notice relative to the 

operating payments published in the FY 

2010 IPPS/RY 2010 LTCH PPS final 

rule. We estimate that operating 

payments will increase by 

approximately $75.7 million in FY 2010 


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relative to our published FY 2010 

estimate in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule. This accounts for 

the projected savings associated with 

the 0.25 percentage point reduction to 

the market basket required by section 

1886(b)(3)(B) of the Act, as amended by 

the Affordable Care Act, and the 

extension of section 508 reclassification 

(a non-budget neutral provision) 

required under the Affordable Care Act. 

We estimate that capital payments will 

increase by 1.9 percent per case relative 

to FY 2009, as shown in Table III of 

section IV.C. of this notice. Therefore, 

we project that the increase in capital 

payments in FY 2010 compared to FY 

2009 will be approximately $173 

million, which is $19 million higher 

than what was published in the FY 2010 

IPPS/RY 2010 LTCH PPS correction 

notice (74 FR 51507). The cumulative 

operating and capital payments should 

result in a net increase of $94.7 million 

to IPPS providers under the changes in 

this notice relative to our previously 

published estimates in the FY 2010 

IPPS/RY 2010 LTCH PPS final rule and 

correction notice. The discussions 

presented in the previous pages, in 

combination with the rest of this notice, 

constitute a regulatory impact analysis. 

2. LTCHs 

Overall, LTCHs are projected to 

experience an increase in estimated 

payments per discharge in RY 2010 

relative to RY 2009. However, our 

projected increase in estimated 

payments per discharge in RY 2010 has 

decreased due to the applicable changes 

specified under the Affordable Care Act. 

Specifically, the decrease in our RY 

2010 payment estimates is primarily 

due to the ¥0.25 percentage point 

reduction to annual update applied to 

the standard Federal rate under which 

discharges occurring on or after April 1, 

2010 are paid. In the impact analysis, 

we are using the rates, factors, and 

policies presented in this notice to 

estimate the change in payments for the 

2010 LTCH PPS rate year. Accordingly, 

based on the best available data for the 

399 LTCHs in our database, we estimate 

that RY 2010 LTCH PPS payments will 

increase $142 million relative to RY 

2009, which is a decrease of 

approximately $11 million (or about 0.1 

percent) relative to the estimates of RY 

2010 LTCH PPS payments previously 

published in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule. 

G. Accounting Statements 

1. Acute Care Hospitals 

As required by OMB Circular A–4 

(available at http://www.whitehousegov/ 

omb/circulars/a004/a-4.pdf), in Table V. 

below, we have prepared an accounting 

statement showing the classification of 

the expenditures associated with the 

provisions of this notice as they relate 

to acute care hospitals. This table 

provides our best estimate of the change 

in Medicare payments to providers as a 

result of the changes to the IPPS 

presented in this notice. All 

expenditures are classified as transfers 

to Medicare providers. 

TABLE V—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES UNDER THE IPPS FROM PUBLISHED

FY 2010 TO REVISED FY 2010 

Category Transfers 

Annualized Monetized Transfers .............................................................. $94.7 million. 

From Whom to Whom .............................................................................. Federal Government to IPPS Medicare Providers. 

Total ................................................................................................... $94.7 million. 

2. LTCHs 

As discussed in section IV.D. of this 

notice, the impact analysis for the 

changes under the LTCH PPS for this 

notice projects an increase in estimated 

aggregate payments of approximately 

$142 million compared to RY 2009, a 

decrease of $11 million compared our 

previously published estimates for the 

399 LTCHs in our database that are 

subject to payment under the LTCH 

PPS. Therefore, as required by OMB 

Circular A–4 (available at http:// 

www.whitehouse.gov/omb/circulars/ 

a004/a-4.pdf), in Table VI below, we 

have prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

provisions of this notice as they relate 

to changes to the LTCH PPS. Table VI 

provides our best estimate of the 

increase in Medicare payments under 

the LTCH PPS as a result of the 

provisions presented in this notice 

based on the data for the 399 LTCHs in 

our database. All expenditures are 

classified as transfers to Medicare 

providers (that is, LTCHs). 

TABLE VI—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES FROM THE PUBLISHED 2010 LTCH 

PPS RATE YEAR TO THE REVISED 2010 LTCH PPS RATE YEAR

Category Transfers 

Annualized Monetized Transfers .............................................................. Positive transfer—Estimated increase in expenditures: $11 million. 

From Whom to Whom .............................................................................. LTCH PPS Medicare Providers to Federal Government. 

Total ................................................................................................... $11 million. 


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H. Executive Order 12866 

In accordance with the provisions of 

Executive Order 12866, the Executive 

Office of Management and Budget 

reviewed this notice. 

Authority: (Catalog of Federal Domestic 

Assistance Program No. 93.773, Medicare— 

Hospital Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Dated: May 13, 2010. 

Marilyn Tavenner, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: May 18, 2010. 

Kathleen Sebelius, 

Secretary. 

Addendum 

This addendum includes tables referred to 

throughout the notice which contain data 

relating to the final FY 2010 wage indices 

and the hospital reclassifications and 

payment amounts for operating and capitalrelated costs discussed in section II. of this 

notice. 

Table 1A—National Adjusted Operating 

Standardized Amounts, Labor/Nonlabor (69.7 

Percent Labor Share/30.3 Percent Nonlabor 

Share If Wage Index Is Greater Than 1); 

Applicable to payments made for discharges 

on or after October 1, 2009 through 

discharges on or before September 30, 2010 

Table 1B—National Adjusted Operating 

Standardized Amounts, Labor/Nonlabor (62 

Percent Labor Share/38 Percent Nonlabor 

Share If Wage Index Is Less Than or Equal 

To 1); Applicable to payments made for 

discharges on or after October 1, 2009 

through discharges on or before September 

30, 2010 

Table 1C—Adjusted Operating 

Standardized Amounts for Puerto Rico, 

Labor/Nonlabor; Applicable to payments 

made for discharges on or after October 1, 

2009 through discharges on or before 

September 30, 2010 

Table 1D—Capital Standard Federal 

Payment Rate: Applicable to payments made 

for discharges on or after October 1, 2009 

through discharges on or before September 

30, 2010 

Table 1E.—LTCH Standard Federal 

Prospective Payment Rate; Applicable to 

payments made for discharges on or after 

October 1, 2009 through discharges on or 

before September 30, 2010 

Table 2.—Hospital Case-Mix Indexes For 

Discharges Occurring In Federal Fiscal Year 

2008; Hospital Wage Indexes For Federal 

Fiscal Year 2010 (April 1, 2010 through 

September 30, 2010); Hospital Average 

Hourly Wages For Federal Fiscal Years 2008 

(2004 Wage Data), 2009 (2005 Wage Data), 

And 2010 (2006 Wage Data); and 3–Year 

Average of Hospital Average Hourly Wages 

Table 4A.—Wage Index and Capital 

Geographic Adjustment Factor (GAF) for 

Urban Areas by CBSA—FY 2010 (April 1, 

2010 through September 30, 2010) 

Table 4B.—Wage Index and Capital 

Geographic Adjustment Factor (GAF) for 

Rural Areas by CBSA—FY 2010 (April 1, 

2010 through September 30, 2010) 

Table 4C.—Wage Index and Capital 

Geographic Adjustment Factor (GAF) for 

Hospitals That Are Reclassified by CBSA— 

FY 2010 (April 1, 2010 through September 

30, 2010) 

Table 4D–1.—State Specific Rural Floor 

Budget Neutrality Factors—FY 2010 (April 1, 

2010 through September 30, 2010) 

Table 4D–2.—Urban Areas with Hospitals 

Receiving the Statewide Rural Floor or 

Imputed Wage Index— FY 2010 (April 1, 

2010 through September 30, 2010) 

Table 4J.—Out-Migration Adjustment—FY 

2010 (April 1, 2010 through September 30, 

2010) 

Table 9B.—Hospital Reclassifications and 

Redesignations by Individual Hospital Under 

Section 508 of Pub. L. 108–173 for FY 2010 

(Revised as of April 1, 2010 and Effective 

October 1, 2009 through September 30, 2010) 

Table 10.—Geometric Mean Plus the Lesser 

of 0.75 of the National Adjusted Operating 

Standardized Payment Amount (Increased to 

Reflect the Difference Between Costs and 

Charges) or 0.75 of One Standard Deviation 

of Mean Charges by Diagnosis-Related Group 

(DRG)—April 2010 (Applicable to 

Applications for FY 2011 New Technology 

Add-On Payments) 


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31178 Federal Register / Vol. 75, No. 105 / Wednesday, June 2, 2010 / Notices 


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[FR Doc. 2010–12563 Filed 5–21–10; 4:15 pm] 

BILLING CODE 4120–01–P 


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