[Federal Register Volume 74, Number 151 (Friday, August 7, 2009)]
[Rules and Regulations]
[Pages 39762-39838]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-18616]



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Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Part 412



Medicare Program; Inpatient Rehabilitation Facility Prospective Payment 
System for Federal Fiscal Year 2010; Final Rule

Federal Register / Vol. 74, No. 151 / Friday, August 7, 2009 / Rules 
and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1538-F]
RIN 0938-AP56


Medicare Program; Inpatient Rehabilitation Facility Prospective 
Payment System for Federal Fiscal Year 2010

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

ACTION: Final rule.

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SUMMARY: This final rule updates the payment rates for inpatient 
rehabilitation facilities (IRFs) for Federal fiscal year (FY) 2010 (for 
discharges occurring on or after October 1, 2009 and on or before 
September 30, 2010) as required under section 1886(j)(3)(C) of the 
Social Security Act (the Act). Section 1886(j)(5) of the Act requires 
the Secretary to publish in the Federal Register on or before the 
August 1 that precedes the start of each fiscal year, the 
classification and weighting factors for the IRF prospective payment 
system's (PPS) case-mix groups and a description of the methodology and 
data used in computing the prospective payment rates for that fiscal 
year.
    We are revising existing policies regarding the IRF PPS within the 
authority granted under section 1886(j) of the Act.

DATES: Effective Date. The provisions of the final rule are effective 
October 1, 2009, except for the amendments to Sec.  412.23, Sec.  
412.29, and Sec.  412.622 which are effective January 1, 2010.
    Applicability Date. The amendments to Sec.  412.23, Sec.  412.29, 
and Sec.  412.622 are applicable to IRF discharges occurring on or 
after January 1, 2010. The updated IRF prospective payment rates are 
applicable for IRF discharges occurring on or after October 1, 2009 and 
on or before September 30, 2010 (FY 2010).

FOR FURTHER INFORMATION CONTACT: Susanne Seagrave, (410) 786-0044, for 
information regarding the payment policies.
    Julie Stankivic, (410) 786-5725, for general information regarding 
the proposed rule.
    Jeanette Kranacs, (410) 786-9385, for information regarding the 
wage index.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
    A. Historical Overview of the Inpatient Rehabilitation Facility 
Prospective Payment System (IRF PPS)
    B. Operational Overview of the Current IRF PPS
II. Summary of Provisions of the Proposed Rule
    A. Proposed Updates to the IRF PPS for Federal Fiscal Year (FY) 
2010
    B. Proposed Revisions to Existing Regulation Text
    C. Proposed New Regulation Text
    D. Proposed Rescission of Outdated HCFAR-85-2-1
III. Analysis of and Responses to Public Comments
IV. Update to the Case-Mix Group (CMG) Relative Weights and Average 
Length of Stay Values for FY 2010
V. Updates to the Facility-Level Adjustment Factors for FY 2010
    A. Updates to the Adjustment Factors for FY 2010
    B. Budget Neutrality Methodology for the Updates to the IRF 
Facility-Level Adjustment Factors
VI. FY 2010 IRF PPS Federal Prospective Payment Rates
    A. Market Basket Increase Factor and Labor-Related Share for FY 
2010
    B. Area Wage Adjustment
    C. Description of the Final IRF Standard Payment Conversion 
Factor and Payment Rates for FY 2010
    D. Example of the Methodology for Adjusting the Federal 
Prospective Payment Rates
VII. Update to Payments for High-Cost Outliers Under the IRF PPS
    A. Update to the Outlier Threshold Amount for FY 2010
    B. Update to the IRF Cost-to-Charge Ratio Ceilings
VIII. Inpatient Rehabilitation Facility (IRF) Coverage Requirements
    A. Requirements for the Preadmission Screening
    B. Requirement for a Post-Admission Physician Evaluation
    C. Requirement for an Individualized Overall Plan of Care
    D. Requirements for Evaluating the Appropriateness of an IRF 
Admission
    E. Requirements for the Interdisciplinary Team Meetings
    F. Requirement for Physician Supervision
    G. Requirement Regarding Initiation of Therapy Services
    H. Provision of Group Therapies in IRFs
    I. Clarifying and Conforming Amendments
    J. HCFAR 85-2 Ruling
IX. Revisions to the Regulation Text To Require IRFs To Submit 
Patient Assessments on Medicare Advantage Patients for Use in the 
``60 Percent Rule'' Calculations
    A. Background on the ``60 Percent Rule'' Calculations
    B. Requirement To Submit Assessment Data on Medicare Advantage 
Patients
X. Miscellaneous Comments
XI. Provisions of the Final Rule
    A. Payment Provision Changes
    B. Regulatory Text Changes
XII. Collection of Information Requirements
XIII. Regulatory Impact Analysis
    A. Overall Impact
    B. Anticipated Effects of the Final Rule
    C. Alternatives Considered
    D. Accounting Statement
    E. Conclusion
Regulation Text
Addendum
Acronyms

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

ADC Average Daily Census
ASCA Administrative Simplification Compliance Act, Public Law 107-
105
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999, Public 
Law 106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Benefits Improvement and Protection Act of 2000, 
Public Law 106-554
CBSA Core-Based Statistical Area
CCR Cost-to-Charge Ratio
CFR Code of Federal Regulations
CMG Case-Mix Group
DRG Diagnostic Related Group
DSH Disproportionate Share Hospital
FI Fiscal Intermediary
FR Federal Register
FTE Full-time Equivalent
FY Federal Fiscal Year
HCFA Health Care Financing Administration
HHH Hubert H. Humphrey Building
HIPAA Health Insurance Portability and Accountability Act, Public 
Law 104-191
IOM Internet Only Manual
IPF Inpatient Psychiatric Facility
IPPS Inpatient Prospective Payment System
IRF Inpatient Rehabilitation Facility
IRF-PAI Inpatient Rehabilitation Facility--Patient Assessment 
Instrument
IRF PPS Inpatient Rehabilitation Facility Prospective Payment System
IRVEN Inpatient Rehabilitation Validation and Entry
LTCH Long Term Care Hospital
LIP Low-Income Percentage
MA Medicare Advantage
MAC Medicare Administrative Contractor
MBPM Medicare Benefit Policy Manual
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public 
Law 110-173
OMB Office of Management and Budget
PAI Patient Assessment Instrument
PPS Prospective Payment System
QIC Qualified Independent Contractors
RAC Recovery Audit Contractors
RAND RAND Corporation
RFA Regulatory Flexibility Act, Public Law 96-354
RIA Regulatory Impact Analysis
RIC Rehabilitation Impairment Category
RPL Rehabilitation, Psychiatric, and Long-Term Care Hospital Market 
Basket
SCHIP State Children's Health Insurance Program

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I. Background

A. Historical Overview of the Inpatient Rehabilitation Facility 
Prospective Payment System (IRF PPS)

    Section 4421 of the Balanced Budget Act of 1997 (BBA), Public Law 
105-33, as amended by section 125 of the Medicare, Medicaid, and SCHIP 
(State Children's Health Insurance Program) Balanced Budget Refinement 
Act of 1999 (BBRA), Public Law 106-113, and by section 305 of the 
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act 
of 2000 (BIPA), Public Law 106-554, provides for the implementation of 
a per discharge prospective payment system (PPS) under section 1886(j) 
of the Social Security Act (the Act) for inpatient rehabilitation 
hospitals and inpatient rehabilitation units of a hospital (hereinafter 
referred to as IRFs).
    Payments under the IRF PPS encompass inpatient operating and 
capital costs of furnishing covered rehabilitation services (that is, 
routine, ancillary, and capital costs) but not direct graduate medical 
education costs, costs of approved nursing and allied health education 
activities, bad debts, and other services or items outside the scope of 
the IRF PPS. Although a complete discussion of the IRF PPS provisions 
appears in the original FY 2002 IRF PPS final rule (66 FR 41316) and 
the FY 2006 IRF PPS final rule (70 FR 47880), we are providing below a 
general description of the IRF PPS for fiscal years (FYs) 2002 through 
2009.
    Under the IRF PPS from FY 2002 through FY 2005, as described in the 
FY 2002 IRF PPS final rule (66 FR 41316), the Federal prospective 
payment rates were computed across 100 distinct case-mix groups (CMGs). 
We constructed 95 CMGs using rehabilitation impairment categories 
(RICs), functional status (both motor and cognitive), and age (in some 
cases, cognitive status and age may not be a factor in defining a CMG). 
In addition, we constructed five special CMGs to account for very short 
stays and for patients who expire in the IRF.
    For each of the CMGs, we developed relative weighting factors to 
account for a patient's clinical characteristics and expected resource 
needs. Thus, the weighting factors accounted for the relative 
difference in resource use across all CMGs. Within each CMG, we created 
tiers based on the estimated effects that certain comorbidities would 
have on resource use.
    We established the Federal PPS rates using a standardized payment 
conversion factor (formerly referred to as the budget neutral 
conversion factor). For a detailed discussion of the budget neutral 
conversion factor, please refer to our FY 2004 IRF PPS final rule (68 
FR 45684 through 45685). In the FY 2006 IRF PPS final rule (70 FR 
47880), we discussed in detail the methodology for determining the 
standard payment conversion factor.
    We applied the relative weighting factors to the standard payment 
conversion factor to compute the unadjusted Federal prospective payment 
rates under the IRF PPS from FYs 2002 through 2005. Within the 
structure of the payment system, we then made adjustments to account 
for interrupted stays, transfers, short stays, and deaths. Finally, we 
applied the applicable adjustments to account for geographic variations 
in wages (wage index), the percentage of low-income patients, location 
in a rural area (if applicable), and outlier payments (if applicable) 
to the IRF's unadjusted Federal prospective payment rates.
    For cost reporting periods that began on or after January 1, 2002 
and before October 1, 2002, we determined the final prospective payment 
amounts using the transition methodology prescribed in section 
1886(j)(1) of the Act. Under this provision, IRFs transitioning into 
the PPS were paid a blend of the Federal IRF PPS rate and the payment 
that the IRF would have received had the IRF PPS not been implemented. 
This provision also allowed IRFs to elect to bypass this blended 
payment and immediately be paid 100 percent of the Federal IRF PPS 
rate. The transition methodology expired as of cost reporting periods 
beginning on or after October 1, 2002 (FY 2003), and payments for all 
IRFs now consist of 100 percent of the Federal IRF PPS rate.
    We established a CMS Web site as a primary information resource for 
the IRF PPS. The Web site URL is http://www.cms.hhs.gov/InpatientRehabFacPPS/ and may be accessed to download or view 
publications, software, data specifications, educational materials, and 
other information pertinent to the IRF PPS.
    Section 1886(j) of the Act confers broad statutory authority upon 
the Secretary to propose refinements to the IRF PPS. In the FY 2006 IRF 
PPS final rule (70 FR 47880) and in correcting amendments to the FY 
2006 IRF PPS final rule (70 FR 57166) that we published on September 
30, 2005, we finalized a number of refinements to the IRF PPS case-mix 
classification system (the CMGs and the corresponding relative weights) 
and the case-level and facility-level adjustments. These refinements 
included the adoption of OMB's Core-Based Statistical Area (CBSA) 
market definitions, modifications to the CMGs, tier comorbidities, and 
CMG relative weights, implementation of a new teaching status 
adjustment for IRFs, revision and rebasing of the IRF market basket, 
and updates to the rural, low-income percentage (LIP), and high-cost 
outlier adjustments. Any reference to the FY 2006 IRF PPS final rule in 
this proposed rule also includes the provisions effective in the 
correcting amendments. For a detailed discussion of the final key 
policy changes for FY 2006, please refer to the FY 2006 IRF PPS final 
rule (70 FR 47880 and 70 FR 57166).
    In the FY 2007 IRF PPS final rule (71 FR 48354), we further refined 
the IRF PPS case-mix classification system (the CMG relative weights) 
and the case-level adjustments, to ensure that IRF PPS payments would 
continue to reflect as accurately as possible the costs of care. For a 
detailed discussion of the FY 2007 policy revisions, please refer to 
the FY 2007 IRF PPS final rule (71 FR 48354).
    In the FY 2008 IRF PPS final rule (72 FR 44284), we updated the 
Federal prospective payment rates and the outlier threshold, revised 
the IRF wage index policy, and clarified how we determine high-cost 
outlier payments for transfer cases. For more information on the policy 
changes implemented for FY 2008, please refer to the FY 2008 IRF PPS 
final rule (72 FR 44284), in which we published the final FY 2008 IRF 
Federal prospective payment rates.
    After publication of the FY 2008 IRF PPS final rule (72 FR 44284), 
section 115 of the Medicare, Medicaid, and SCHIP Extension Act of 2007, 
Public Law 110-173 (MMSEA), amended section 1886(j)(3)(C) of the Act to 
apply a zero percent increase factor for FYs 2008 and 2009, effective 
for IRF discharges occurring on or after April 1, 2008. Section 
1886(j)(3)(C) of the Act requires the Secretary to develop an increase 
factor to update the IRF Federal prospective payment rates for each FY. 
Based on the legislative change to the increase factor, we revised the 
FY 2008 Federal prospective payment rates for IRF discharges occurring 
on or after April 1, 2008. Thus, the final FY 2008 IRF Federal 
prospective payment rates that were published in the FY 2008 IRF PPS 
final rule (72 FR 44284) were effective for discharges occurring on or 
after October 1, 2007 and on or before March 31, 2008; and the revised 
FY 2008 IRF Federal prospective payment rates were effective for 
discharges occurring on or after April 1, 2008 and on or before 
September 30, 2008. The

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revised FY 2008 Federal prospective payment rates are available on the 
CMS Web site at http://www.cms.hhs.gov/InpatientRehabFacPPS/07_DataFiles.asp#TopOfPage.
    In the FY 2009 IRF PPS final rule (73 FR 46370), we updated the CMG 
relative weights, the average length of stay values, and the outlier 
threshold; clarified IRF wage index policies regarding the treatment of 
``New England deemed'' counties and multi-campus hospitals; and revised 
the regulation text in response to section 115 of the MMSEA to set the 
IRF compliance percentage at 60 percent (``the 60 percent rule'') and 
continue the practice of including comorbidities in the calculation of 
compliance percentages. We also applied a zero percent increase factor 
for FY 2009. For more information on the policy changes implemented for 
FY 2009, please refer to the FY 2009 IRF PPS final rule (73 FR 46370), 
in which we published the final FY 2009 IRF Federal prospective payment 
rates.

B. Operational Overview of the Current IRF PPS

    As described in the FY 2002 IRF PPS final rule, upon the admission 
and discharge of a Medicare Part A fee-for-service patient, the IRF is 
required to complete the appropriate sections of a patient assessment 
instrument (PAI), the Inpatient Rehabilitation Facility-Patient 
Assessment Instrument (IRF-PAI). All required data must be 
electronically encoded into the IRF-PAI software product. Generally, 
the software product includes patient classification programming called 
the GROUPER software. The GROUPER software uses specific IRF-PAI data 
elements to classify (or group) patients into distinct CMGs and account 
for the existence of any relevant comorbidities.
    The GROUPER software produces a five-digit CMG number. The first 
digit is an alpha-character that indicates the comorbidity tier. The 
last four digits represent the distinct CMG number. Free downloads of 
the Inpatient Rehabilitation Validation and Entry (IRVEN) software 
product, including the GROUPER software, are available on the CMS Web 
site at http://www.cms.hhs.gov/InpatientRehabFacPPS/06_Software.asp.
    Once a patient is discharged, the IRF submits a Medicare claim as a 
Health Insurance Portability and Accountability Act (HIPAA), Public Law 
104-191, compliant electronic claim or, if the Administrative 
Simplification Compliance Act (ASCA), Public Law 107-105, permits, a 
paper claim (a UB-04 or a CMS-1450 as appropriate) using the five-digit 
CMG number and sends it to the appropriate Medicare fiscal intermediary 
(FI) or Medicare Administrative Contractor (MAC). Claims submitted to 
Medicare must comply with both ASCA and HIPAA.
    Section 3 of the ASCA amends section 1862(a) of the Act by adding 
paragraph (22) which requires the Medicare program, subject to section 
1862(h) of the Act, to deny payment under Part A or Part B for any 
expenses for items or services ``for which a claim is submitted other 
than in an electronic form specified by the Secretary.'' Section 
1862(h) of the Act, in turn, provides that the Secretary shall waive 
such denial in situations in which there is no method available for the 
submission of claims in an electronic form or the entity submitting the 
claim is a small provider. In addition, the Secretary also has the 
authority to waive such denial ``in such unusual cases as the Secretary 
finds appropriate.'' For more information we refer the reader to the 
final rule, ``Medicare Program; Electronic Submission of Medicare 
Claims'' (70 FR 71008, November 25, 2005). CMS instructions for the 
limited number of Medicare claims submitted on paper are available at: 
http://www.cms.hhs.gov/manuals/downloads/clm104c25.pdf.
    Section 3 of the ASCA operates in the context of the administrative 
simplification provisions of HIPAA, which include, among others, the 
requirements for transaction standards and code sets codified in 45 CFR 
parts 160 and 162, subparts A and I through R (generally known as the 
Transactions Rule). The Transactions Rule requires covered entities, 
including covered healthcare providers, to conduct covered electronic 
transactions according to the applicable transaction standards. (See 
the program claim memoranda issued and published by CMS at: http://www.cms.hhs.gov/ElectronicBillingEDITrans/ and listed in the addenda to 
the Medicare Intermediary Manual, Part 3, section 3600).
    The Medicare FI or MAC processes the claim through its software 
system. This software system includes pricing programming called the 
``PRICER'' software. The PRICER software uses the CMG number, along 
with other specific claim data elements and provider-specific data, to 
adjust the IRF's prospective payment for interrupted stays, transfers, 
short stays, and deaths, and then applies the applicable adjustments to 
account for the IRF's wage index, percentage of low-income patients, 
rural location, and outlier payments. For discharges occurring on or 
after October 1, 2005, the IRF PPS payment also reflects the new 
teaching status adjustment that became effective as of FY 2006, as 
discussed in the FY 2006 IRF PPS final rule (70 FR 47880).

II. Summary of Provisions of the Proposed Rule

    As discussed in the FY 2010 IRF PPS proposed rule (74 FR 21052), we 
proposed updates to the IRF PPS, revisions to existing regulations text 
for the purpose of providing greater clarity, new regulations text to 
improve calculation of compliance with the ``60 percent'' rule, and 
rescission of an outdated Health Care Financing Administration (HFCA) 
Ruling (HCFAR 85-2-1). These proposals are as follows:

A. Proposed Updates to the IRF PPS for Federal Fiscal Year (FY) 2010

    <bullet> Update the FY 2010 IRF PPS relative weights and average 
length of stay values using the most current and complete Medicare 
claims and cost report data in a budget neutral manner, as discussed in 
section III of the FY 2010 IRF PPS proposed rule (74 FR 21052, 21055 
through 21059).
    <bullet> Update the FY 2010 IRF facility-level adjustments (rural, 
LIP, and teaching status adjustments) using the most current and 
complete Medicare claims and cost report data in a budget neutral 
manner, as discussed in section IV of the FY 2010 IRF PPS proposed rule 
(74 FR 21052, 21059 through 21062).
    <bullet> Update the FY 2010 IRF PPS payment rates by the proposed 
market basket, as discussed in section V.A of the FY 2010 IRF PPS 
proposed rule (74 FR 21052 at 21062).
    <bullet> Update the FY 2010 IRF PPS payment rates by the proposed 
wage index and the labor-related share in a budget neutral manner, as 
discussed in section V.A and V.B of the FY 2010 IRF PPS proposed rule 
(74 FR 21052, 21062 through 21063).
    <bullet> Update the outlier threshold amount for FY 2010, as 
discussed in section VI.A of the FY 2010 IRF PPS proposed rule (74 FR 
21052 at 21066).

B. Proposed Revisions to Existing Regulation Text

    <bullet> Relocate and revise the criteria for admission to an 
inpatient rehabilitation hospital found at existing Sec.  412.23(b)(3) 
through (b)(7) that describe requirements relating to preadmission 
screening, close medical supervision, a director of rehabilitation, the 
plan of care, and a coordinated multidisciplinary team approach. 
Redesignate paragraphs (b)(8) and (b)(9) of Sec.  412.23 as paragraphs 
(b)(3) and

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(b)(4) and revise newly redesignated paragraph (b)(4), as described in 
section VII of the FY 2010 IRF PPS proposed rule (74 FR 21052, 21067 
through 21071).
    <bullet> Revise the section heading at Sec.  412.29 to include 
inpatient rehabilitation hospitals, as described in section VII of the 
FY 2010 IRF PPS proposed rule (74 FR 21052, 21067 through 21071).
    <bullet> Relocate and revise the existing requirements at Sec.  
412.29(b) through (f) that describe the admission requirements relating 
to preadmission screening, close medical supervision, a director of 
rehabilitation, the plan of care, and a coordinated multidisciplinary 
team approach, as described in section VII of the FY 2010 IRF PPS 
proposed rule (74 FR 21052, 21067 through 21071).
    <bullet> Revise the section heading at Sec.  412.30, as described 
in section VII of the FY 2010 IRF PPS proposed rule (74 FR 21052, 21067 
through 21071).
    <bullet> Revise the regulation text in Sec.  412.604, Sec.  
412.606, Sec.  412.610. Sec.  412.614 and Sec.  412.618 to require the 
collection of inpatient rehabilitation facility patient assessment 
instrument data on Medicare Part C (Medicare Advantage) patients in 
IRFs for use in the 60 percent rule compliance percentage calculations, 
as described in section VIII of the FY 2010 IRF PPS proposed rule (74 
FR 21052, 21071 through 21073).
    <bullet> Remove Sec.  412.614(a)(3) that provides for an exception 
in the transmission of IRF-PAI data to CMS, as described in section 
VIII of the FY 2010 IRF PPS proposed rule (74 FR 21052, 21071 through 
21073).
    <bullet> Revise the heading at Sec.  412.614(d) to ``Consequences 
of failure to submit complete and timely IRF-PAI data, as required 
under paragraph (c) of this section,'' as described in section VIII of 
the FY 2010 IRF PPS proposed rule (74 FR 21052, 21071 through 21073).
    <bullet> Revise the heading at Sec.  412.614(d)(1) to ``Medicare 
Part A fee-for-service data,'' as described in section VIII of the FY 
2010 IRF PPS proposed rule (74 FR 21052, 21071 through 21073).
    <bullet> Make a technical correction to the paragraph formerly 
designated as Sec.  412.614(d)(1) and assign the revised language to a 
new paragraph Sec.  412.614(d)(1)(a), as described in section VIII of 
the FY 2010 IRF PPS proposed rule (74 FR 21052, 21071 through 21073).
    <bullet> Redesignate paragraph Sec.  412.614(d)(2) as Sec.  
412.614(d)(1)(b), as described in section VIII of the FY 2010 IRF PPS 
proposed rule (74 FR 21052, 21071 through 21073).

C. Proposed New Regulation Text

    <bullet> Revise Sec.  412.29, as described in section VII of the FY 
2010 IRF PPS proposed rule (74 FR 21052, 21067 through 21071), to 
include the requirements for admission to an IRF.
    <bullet> Add a new introductory paragraph at Sec.  412.30 that 
includes the requirements previously found in Sec.  412.29(a) 
(describing the admission requirements for new and converted 
rehabilitation units), as described in section VII of the FY 2010 IRF 
PPS proposed rule (74 FR 21052, 21067 through 21071).
    <bullet> Revise Sec.  412.610(f) to require that the IRF provide a 
copy of the electronic computer file format of the IRF-PAI to the 
contractor upon request, as described in section VII of the FY 2010 IRF 
PPS proposed rule (74 FR 21052, 21067 through 21071).
    <bullet> Add a new paragraph Sec.  412.614(d)(2) to indicate that 
failure of an IRF to submit IRF-PAI data on all of its Medicare Part C 
(Medicare Advantage) patients will result in forfeiture of the IRF's 
ability to have any of its Medicare Part C (Medicare Advantage) data 
used in the compliance calculations, as described in section VIII of 
the FY 2010 IRF PPS proposed rule (74 FR 21052, 21071 through 21073).

D. Proposed Rescission of Outdated HCFAR-85-2-1

    Rescind HCFA Ruling 85-2-1 entitled ``Medicare Criteria for 
Medicare Coverage of Inpatient Hospital Rehabilitation Services'' and 
set forth new coverage guidance to implement the new regulations 
adopted under this final rule, as described in section VII of the FY 
2010 IRF PPS proposed rule (74 FR 21052 at 21071).

III. Analysis of and Responses to Public Comments

    We received approximately 686 timely responses, many of which 
contained multiple comments on the FY 2010 IRF PPS proposed rule (74 FR 
21052) from the public. We received comments from various trade 
associations, inpatient rehabilitation facilities, individual 
physicians, therapists, clinicians, health care industry organizations, 
and health care consulting firms. The following section, arranged by 
subject area, includes a summary of the public comments that we 
received, and our responses.

IV. Update to the Case-Mix Group (CMG) Relative Weights and Average 
Length of Stay Values for FY 2010

    As specified in 42 CFR 412.620(b)(1), we calculate a relative 
weight for each CMG that is proportional to the resources needed by an 
average inpatient rehabilitation case in that CMG. For example, cases 
in a CMG with a relative weight of 2, on average, will cost twice as 
much as cases in a CMG with a relative weight of 1. Relative weights 
account for the variance in cost per discharge due to the variance in 
resource utilization among the payment groups, and their use helps to 
ensure that IRF PPS payments support beneficiary access to care as well 
as provider efficiency.
    In the FY 2010 IRF PPS proposed rule (74 FR 21052, 21055 through 
21059), we proposed to update the CMG relative weights and average 
length of stay values for FY 2010 using the most recent available data 
(at that time, FY 2007 IRF claims and cost report data) to ensure that 
IRF PPS payments fully reflect recent changes in IRF utilization due to 
the 60 percent rule and medical review activities. To ensure that IRF 
PPS payments continue to reflect as accurately as possible the current 
costs of care in IRFs, we are updating the CMG relative weights and 
average length of stay values for FY 2010 in this final rule using FY 
2008 IRF claims and FY 2007 IRF cost report data. These data are the 
most current and complete data available at this time. At this time, 
only about 20 percent of the FY 2008 IRF cost report data are available 
for analysis, but the majority of the FY 2008 IRF claims data are 
available for analysis.
    We have used the same methodology that we used to update the CMG 
relative weights and average length of stay values in the FY 2009 IRF 
PPS final rule (73 FR 46370). In calculating the CMG relative weights, 
we use a hospital-specific relative value method to estimate operating 
(routine and ancillary services) and capital costs of IRFs. The process 
used to calculate the CMG relative weights for this final rule follows 
below:
    Step 1. We calculate the CMG relative weights by estimating the 
effects that comorbidities have on costs.
    Step 2. We adjust the cost of each Medicare discharge (case) to 
reflect the effects found in the first step.
    Step 3. We use the adjusted costs from the second step to calculate 
CMG relative weights, using the hospital-specific relative value 
method.
    Step 4. We normalize the FY 2010 CMG relative weights to the same 
average CMG relative weight from the

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CMG relative weights implemented in the FY 2009 IRF PPS final rule (73 
FR 46370).
    Consistent with the way we implemented changes to the IRF 
classification system in the FY 2006 IRF PPS final rule (70 FR 47880 
and 70 FR 57166), the FY 2007 IRF PPS final rule (71 FR 48354), and the 
FY 2009 IRF PPS final rule (73 FR 46370), we are revising the CMG 
relative weights for FY 2010 in such a way that total estimated 
aggregate payments to IRFs for FY 2010 are estimated to be the same 
with or without the changes (that is, in a budget neutral manner) by 
applying a budget neutrality factor to the standard payment amount. To 
calculate the appropriate budget neutrality factor for use in updating 
the FY 2010 CMG relative weights, we use the following steps:
    Step 1. Calculate the estimated total amount of IRF PPS payments 
for FY 2010 (with no changes to the CMG relative weights).
    Step 2. Apply the changes to the CMG relative weights (as discussed 
above) to calculate the estimated total amount of IRF PPS payments for 
FY 2010.
    Step 3. Divide the amount calculated in step 1 by the amount 
calculated in step 2 to determine the budget neutrality factor (1.0020) 
that maintains the same total estimated aggregate payments in FY 2010 
with and without the changes to the CMG relative weights.
    Step 4. Apply the budget neutrality factor (1.0020) to the FY 2009 
IRF PPS standard payment amount after the application of the budget-
neutral wage adjustment factor.
    In section VI.C of this final rule, we discuss the methodology for 
calculating the standard payment conversion factor for FY 2010.
    Note that the budget neutrality factor that we use to update the 
CMG relative weights for FY 2010 changed from 1.0004 in the proposed 
rule to 1.0020 in this final rule due to the use of updated FY 2008 IRF 
claims data in this final rule.
    We received 7 comments on the proposed updates to the CMG relative 
weights and average length of stay values, which are summarized below.
    Comment: The vast majority of commenters supported the proposed 
update to the CMG relative weights and average length of stay values. 
However, most suggested that CMS use FY 2008 IRF claims and cost report 
data in updating the CMG relative weights and average length of stay 
values for the final rule, saying that the effects of recent changes in 
the 60 percent rule and the IRF medical necessity review activities are 
continuing to be realized through FY 2008 and early FY 2009. Several 
commenters said that we should continue to update the CMG relative 
weights and average length of stay values annually to reflect changes 
in IRF costs and utilization that occur over time.
    Response: We appreciate the commenters' suggestions for updating 
the data used in the analysis of the CMG relative weights for FY 2010, 
and we agree that we should continue to use the most recent available 
data for our analyses of the CMG relative weights. However, only about 
20 percent of the FY 2008 IRF cost reports are available for analysis 
at this time, and we do not believe that 20 percent is a large enough 
or representative enough sample of all IRFs on which to base our 
updates. Thus, for this final rule, we have continued to use the most 
recent available data, which are the FY 2008 IRF claims and FY 2007 IRF 
cost report data. We will continue to update the CMG relative weights 
and average length of stay values in the future, as appropriate, using 
the most recent available data.
    Comment: One commenter requested that CMS seek additional sources 
of cost information, such as the Cost Resource Utilization (CRU) Tool 
data from the Post Acute Care Payment Reform Demonstration (PAC PRD), 
to address issues of relative weight compression in future updates to 
the CMG relative weights.
    Response: We appreciate the commenter's suggestion, and will 
consider this suggestion for future analyses once the CRU data are 
complete and available for analysis.
    Comment: One commenter stated a concern that the proposed update to 
the CMG relative weights for FY 2010 would result in a slight decrease 
in the average payment per case for IRFs and would increase payments 
for certain diagnoses while decreasing payments for other diagnoses.
    Response: Consistent with the way that we applied updates to the 
CMG relative weights and average length of stay values in the FY 2006 
IRF PPS final rule (70 FR 47880 and 70 FR 57166), the FY 2007 IRF PPS 
final rule (71 FR 48354), and the FY 2009 IRF PPS final rule (73 FR 
46370), we are updating the CMG relative weights and average length of 
stay values in this final rule in a budget-neutral manner, so that 
estimated aggregate payments to IRFs do not increase or decrease as a 
result of these updates. Thus, we apply a budget-neutrality factor of 
1.0020 to increase the standard payment conversion factor (as described 
in section VI.C of this final rule) to counteract any estimated 
decrease in aggregate IRF payments as a result of the updates to the 
CMG relative weights and average length of stay values.
    Further, as we stated in the FY 2010 IRF PPS proposed rule (74 FR 
21052 at 21059), the updates are generally expected to result in some 
increases and some decreases to the CMG relative weight values. Changes 
in the relative weights are, by definition, distributional and, 
therefore, the fact that the updates shown in Table 1 increase IRF 
payments to some diagnoses and decrease IRF payments to other diagnoses 
is to be expected. The intent of these changes is to ensure that the 
relative payments assigned to the CMGs and tiers continue to reflect 
the relative costs of caring for different types of patients in IRFs.
    Comment: Several commenters requested that we reiterate that the 
average length of stay values are not intended to be used as clinical 
guidelines for patient care, but are only used to determine when an IRF 
discharge meets the definition of a short-stay transfer, which results 
in a per diem case level adjustment.
    Response: We agree with this comment, and we already stated that 
the purpose of the average length of stay values is to determine when 
an IRF discharge meets the definition of a short-stay transfer in the 
FY 2010 IRF PPS proposed rule (74 FR 21052 at 21056). As the commenter 
notes, the average length of stay values are not intended to be used as 
clinical guidelines for patient care.
    Comment: One commenter suggested that we consider alternative 
methodologies for updating the CMG relative weights in the future to 
improve their ability to predict IRFs' cost per case, and expressed a 
concern about the need to update the weighted motor score methodology 
used to classify IRF patients into CMGs that was finalized in the FY 
2006 IRF PPS final rule (70 FR 47880 at 47900).
    Response: We appreciate the commenter's suggestions regarding 
alternative methodologies for analyzing future updates to the CMG 
relative weights, and will review them carefully. We will also take 
into account the commenter's suggestion that we update the weights used 
in the motor score calculation in the future.
    Final Decision: After carefully considering all of the comments 
that we received on the proposed updates to the CMG relative weights 
and average length of stay values, we are implementing the FY 2010 
updates to the CMG relative weights and average length of stay values 
presented in Table

[[Page 39767]]

1 below (which are different from the relative weights and average 
length of stay values that we had proposed because these final values 
are based on analysis of updated FY 2008 data).
BILLING CODE 4120-01-P
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BILLING CODE 4120-01-C

V. Updates to the Facility-Level Adjustment Factors for FY 2010

A. Updates to the Adjustment Factors for FY 2010

    Section 1886(j)(3)(A)(v) of the Act confers broad authority upon 
the Secretary to adjust the per unit payment rate ``by such * * * 
factors as the Secretary determines are necessary to properly reflect 
variations in necessary costs of treatment among rehabilitation 
facilities.'' For example, we adjust the Federal prospective payment 
amount associated with a CMG to account for facility-level 
characteristics such as an IRF's LIP percentage, teaching status, and 
location in a rural area, if applicable, as described in Sec.  
412.624(e).
    In the FY 2010 IRF PPS proposed rule (74 FR 21052, 21059 through 
21062), we proposed to update the adjustment factors for calculating 
the rural, LIP, and teaching status adjustments based on the most 
recent three years worth of IRF claims data (at that time, FY 2005, FY 
2006, and FY 2007) and the most recent available corresponding IRF cost 
report data. Note that, for each IRF claim, we used the corresponding 
year's cost report data, when available. In the rare instances in which 
the corresponding year's cost report data were not available, we used 
the most recent available cost report data. For example, since cost 
report years are determined by the start date of the cost report, a 
hypothetical IRF's cost reporting period from July 1, 2007 through June 
30, 2008 would be referred to as an ``FY 2007'' cost report. However, 
the data from this FY 2007 cost report would appropriately be matched 
to IRF discharges occurring from October 1, 2007 through June 30, 2008 
(i.e., during FY 2008) because these claims would fall during the 
period of time covered by the IRF's ``FY 2007'' cost report year. In 
the case of FY 2008 claims that would appropriately match to an IRF's 
FY 2008 cost report year, we used the FY 2008 cost report data when 
available. In instances in which the matching FY 2008 cost report data 
were not available, we used the most recent available data, which in 
these cases was the FY 2007 cost report data.
    For this final rule, as many commenters suggested, we are updating 
the rural, LIP, and teaching status adjustment factors using more 
recent data (FY 2006, FY 2007, and FY 2008 claims data and the 
corresponding year's cost report data or, if unavailable, the most 
recent available cost report data). We note, however, that we only have 
about 20 percent of the IRF cost reports from FY 2008 available for 
analysis at this time, so although we did use the FY 2008 cost report 
data that we had available, in some cases we had to use a prior year's 
cost report data to match to some of the FY 2008 IRF claims, as 
discussed above. Although the adjustment factors for the rural and LIP 
adjustments that we estimate in this final rule using updated data 
(18.4 percent and 0.4613, respectively) do not differ substantially 
from the adjustment factors that we calculated using the methods set 
forth in the proposed rule (18.27 percent and 0.4372, respectively), 
the teaching status adjustment factor that we calculate in this final 
rule using updated data (0.6876) is significantly lower than the 
teaching status adjustment factor that we calculated in the proposed 
rule (1.0494). This is due to the relatively large year-to-year 
fluctuations in the teaching status adjustment factor noted in the 
proposed rule (74 FR 21052 at 21061).
    We believe that it is necessary to update these adjustment factors 
at this time because the adjustment factors that are being used 
currently to calculate the rural, LIP, and teaching status adjustments 
are based on FY 2003 data (as finalized in the FY 2006 IRF PPS final 
rule (70 FR 47880, 47928 through 47934)), and the FY 2003 data do not 
reflect recent changes in IRF patient populations resulting from the 60 
percent rule and medical review activities.
    The current adjustment factors for the rural, LIP, and teaching 
status adjustments in the FY 2006 IRF PPS final rule (70 FR 47928 
through 47934) are based on regression analysis by the RAND Corporation 
(RAND) using FY 2003 IRF claims and cost report data. In the FY 2010 
IRF PPS proposed rule (74 FR 21052, 21059 through 21062), we proposed 
to use the same methodology RAND used in computing these

[[Page 39774]]

adjustment factors. However, we proposed to compute the adjustment 
factors using three consecutive years of claims data and the 
corresponding year's cost report data or, when not available, the most 
recent available cost report data and to average the calculated 
adjustment factors for all three years to develop the proposed rural, 
LIP, and teaching status adjustment factors for FY 2010. As discussed 
in the FY 2010 IRF PPS proposed rule (74 FR 21052, 21059 through 
21061), we received a comment on the FY 2009 IRF PPS proposed rule (73 
FR 22674) suggesting that we consider a three-year moving average 
approach because it would provide a more stable adjustment factor, 
enabling IRFs to project their future Medicare payments more 
accurately. We analyzed the suggestion and agree that a three year 
average of the adjustment factors would promote more stability in the 
adjustment factors over time, which we believe will benefit IRFs by 
ensuring reduced variation from year to year and facilitating IRFs' 
long-term budgetary planning processes.
    We received 12 comments on the proposed updates to the rural, LIP, 
and teaching status adjustment factors for FY 2010, which are 
summarized below.
    Comment: The commenters overwhelmingly supported the proposed 
three-year moving average approach to updating the rural, LIP, and 
teaching status adjustment factors, saying that this approach makes 
payments to IRFs more stable and predictable over time. The commenters 
further requested that CMS continue to use this methodology to update 
these facility-level adjustment factors annually in the future to 
ensure that they continue to reflect the costs of care in IRFs.
    Response: We agree that using the three-year moving average 
approach will provide greater stability and predictability of Medicare 
payments for IRFs, and will finalize this methodology to update the 
facility-level adjustment factors for FY 2010 and future years.
    Comment: One commenter expressed concerns about the proposed 
decrease in the rural adjustment factor for FY 2010 and asked us to 
explain what cost factors we believe may have caused the estimated 
decrease in the rural adjustment factor.
    Response: We believe that it is important to adjust payments for 
rural IRFs to reflect the higher costs that IRFs in rural areas incur 
for providing services in these areas. However, the results of our 
analysis using the most recent available data and the three-year moving 
average approach indicate that a rural adjustment factor of 18.4 
percent more accurately reflects the current costs of providing IRF 
services in rural areas.
    Further, we believe that the estimated decrease in the rural 
adjustment factor for FY 2010 (from 21.3 percent to 18.4 percent) is, 
in part, the result of improvements we made to the IRF classification 
system in the FY 2006 and FY 2007 IRF PPS final rules (70 FR 47880, 
47886 through 47904 and 71 FR 48354, 48373 through 48374). Those 
improvements were designed to account more appropriately for the 
variation in costs among different types of IRF patients. To the extent 
that some of the differences in costs that we previously observed 
between rural and urban IRFs were the result of differences in patient 
populations, better accounting for the variations in costs among 
patients may have reduced the need to account for differences in costs 
between rural and urban IRFs.
    Comment: The Medicare Payment Advisory Commission (MedPAC) 
suggested that CMS conduct research on the IRF teaching status 
adjustment to determine why the teaching status adjustment factor 
appears to vary so much from year to year, and to evaluate the accuracy 
and reliability of the adjustment. In the meantime, MedPAC suggested 
that CMS consider alternatives to the 3-year moving average approach, 
such as maintaining the IRF teaching adjustment at its FY 2009 level, 
capping the adjustment at the level currently in place for IPPS 
hospitals or inpatient psychiatric facilities (IPFs), or capping the 
adjustment at a level equal to MedPAC's estimate of the empirically 
justified IME adjustment for IPPS hospitals. MedPAC notes that the 
purpose of these alternatives would be to either maintain the teaching 
status adjustment at its current level or reduce the adjustment.
    Response: As we reported in the FY 2010 IRF PPS proposed rule (74 
FR 21052 at 21061), we estimate that the teaching status adjustment 
factors would be 1.5155, 0.6732, and 1.0451 using FY 2005, FY 2006, and 
FY 2007 data, respectively. In addition, for this final rule, we 
estimate that the teaching status adjustment factor would be 0.4045 
using FY 2008 data. We are still analyzing the reasons for such large 
fluctuations in the teaching status adjustment factors from year to 
year. However, we believe that it may be due, in part, to relatively 
large fluctuations in the teaching variable (number of interns and 
residents divided by the average daily census) that we observe in the 
data between FY 2005 and FY 2008. On average, the teaching variable for 
all teaching IRFs was 0.1164, 0.1207, 0.1160, and 0.1295 in FYs 2005, 
2006, 2007, and 2008, respectively. We believe that this variation may 
reflect provider responses to the implementation of the IRF teaching 
status adjustment in FY 2006, and that we may see less variation over 
time as IRFs adjust to this new payment adjustment.
    However, to mitigate the impact on payments of annual fluctuations 
in the facility-level adjustment factors, we have proposed to use and, 
by this rule, adopt a three-year moving average approach instead of 
using only one year's worth of data to calculate the rural, LIP, and 
teaching status adjustment factors for FY 2010. Using the 3-year moving 
average approach and updated IRF claims data from FYs 2006 through 
2008, we calculate a teaching status adjustment factor for this final 
rule of 0.6876, which is less than the factor 0.9012 that was applied 
to IRF PPS payments from FY 2006 through FY 2009. Since the teaching 
status adjustment factor for this final rule is lower than the current 
factor, we do not believe that it is necessary to consider the 
alternative ``capping'' methodologies suggested by MedPAC at this time. 
However, we will continue to monitor the data and work with MedPAC to 
analyze the reasons for the year-to-year fluctuations.
    Comment: Several commenters requested that we use FY 2008 IRF 
claims and cost report data to update the facility-level adjustment 
factors for FY 2010.
    Response: We appreciate the commenters' suggestions for updating 
the data used in the analysis of the IRF facility-level adjustment 
factors for FY 2010, and we agree that we should continue to use the 
most recent available data for these analyses. However, only about 20 
percent of the FY 2008 IRF cost reports are available for analysis at 
this time. Thus, for this final rule, we have continued to use the most 
recent available data, which are the FY 2006, FY 2007, and FY 2008 IRF 
claims data and the corresponding year's cost report data or, if 
unavailable, the most recent available cost report data.
    Final Decision: After carefully considering all of the comments 
that we received on the proposed updates to the rural, LIP, and 
teaching status adjustment factors for FY 2010, including the 
overwhelming support for the proposed use of a three-year moving 
average approach to calculating these adjustment factors, we are 
finalizing the following updates to the rural, LIP, and teaching status 
adjustment factors for FY 2010. Note that these updated

[[Page 39775]]

adjustment factors were calculated using the same methodology RAND used 
in calculating the current adjustment factors but using updated FY 
2006, FY 2007, and 2008 IRF claims data and the corresponding year's 
cost report data or, if unavailable, the most recent available cost 
report data. IRF PPS payments to IRFs in rural areas will be increased 
by 18.4 percent for FY 2010. IRF PPS payments will be adjusted for FY 
2010 to account for the percentage of low-income patients that an IRF 
treats using the updated LIP adjustment formula of (1 + 
disproportionate share hospital (DSH) patient percentage) raised to the 
power of (0.4613), where the DSH patient percentage for each IRF =
[GRAPHIC] [TIFF OMITTED] TR07AU09.000

Finally, IRF PPS payments to eligible IRFs that qualify for the 
teaching status adjustment will be adjusted by the following updated 
formula for FY 2010: (1 + full-time equivalent (FTE) residents/average 
daily census) raised to the power of (0.6876). Note that the rural, 
LIP, and teaching status adjustment factors for FY 2010 differ from 
those proposed in the FY 2010 IRF PPS proposed rule (74 FR 21052, 21060 
through 21061) due to the use of updated data in this final rule.
To calculate the updates to the rural, LIP, and teaching status 
adjustment factors for FY 2010, we used the following steps:
    [Steps 1 and 2 are performed independently for each of three years 
of IRF claims data: FY 2006, FY 2007, and FY 2008]
    Step 1. Calculate the average cost per case for each IRF in the IRF 
claims data using the corresponding year's cost report data or, if 
unavailable, the most recent available cost report data, as described 
above.
    Step 2. Use logarithmic regression analysis on average cost per 
case to compute the coefficients for the rural, LIP, and teaching 
status adjustments.
    Step 3. Calculate a simple mean for each of the coefficients across 
the three years of data using logarithms for the LIP and teaching 
status adjustment coefficients (because they are continuous variables) 
but not using logarithms for the rural adjustment coefficient (because 
the rural variable is 1 if the facility is rural and zero otherwise). 
To compute the LIP and teaching status adjustment factors, we convert 
these factors back out of the logarithmic form.

B. Budget Neutrality Methodology for the Updates to the IRF Facility-
Level Adjustment Factors

    Consistent with the way that we implemented changes to the IRF 
facility-level adjustment factors (the rural, LIP, and teaching status 
adjustment factors) in the FY 2006 IRF PPS final rule (70 FR 47880 and 
70 FR 57166), which was the only year in which we updated these 
adjustment factors, we are updating the rural, LIP, and teaching status 
adjustment factors for FY 2010 in such a way that total estimated 
aggregate payments to IRFs for FY 2010 will be the same with or without 
the updates (that is, in a budget neutral manner) by applying budget 
neutrality factors for each of these three changes to the standard 
payment amount. To calculate the budget neutrality factors used to 
update the rural, LIP, and teaching status adjustment factors, we used 
the following steps:
    Step 1. Using the most recent available data (currently FY 2008), 
calculate the estimated total amount of IRF PPS payments that would be 
made in FY 2010 (without applying the update to the rural, LIP, or 
teaching status adjustment factors).
    Step 2. Calculate the estimated total amount of IRF PPS payments 
that would be made in FY 2010 if the update to the rural adjustment 
factor were applied.
    Step 3. Divide the amount calculated in step 1 by the amount 
calculated in step 2 to determine the budget neutrality factor (1.0023) 
that would maintain the same total estimated aggregate payments in FY 
2010 with and without the update to the rural adjustment factor.
    Step 4. Calculate the estimated total amount of IRF PPS payments 
that would be made in FY 2010 if the update to the LIP adjustment 
factor were applied.
    Step 5. Divide the amount calculated in step 1 by the amount 
calculated in step 4 to determine the budget neutrality factor (1.0192) 
that would maintain the same total estimated aggregate payments in FY 
2010 with and without the update to the LIP adjustment factor.
    Step 6. Calculate the estimated total amount of IRF PPS payments 
that would be made in FY 2010 if the update to the teaching status 
adjustment factor were applied.
    Step 7. Divide the amount calculated in step 1 by the amount 
calculated in step 6 to determine the budget neutrality factor (1.0037) 
that would maintain the same total estimated aggregate payments in FY 
2010 with and without the update to the teaching status adjustment 
factor.
    Step 8. Apply the budget neutrality factors for the updates to the 
rural, LIP, and teaching status adjustment factors to the FY 2009 IRF 
PPS standard payment amount after the application of the budget 
neutrality factors for the wage adjustment and the CMG relative 
weights.
    The budget neutrality factors for the updates to the rural, LIP, 
and teaching status adjustment factors in this final rule differ from 
those described in the proposed rule (74 FR 21052, 21061 through 21062) 
due to the use of updated data for the analysis in this final rule.
    In section VI.C of this final rule, we discuss the methodology for 
calculating the final standard payment conversion factor for FY 2010.

VI. FY 2010 IRF PPS Federal Prospective Payment Rates

A. Market Basket Increase Factor and Labor-Related Share for FY 2010

    Section 1886(j)(3)(C) of the Act requires the Secretary to 
establish an increase factor that reflects changes over time in the 
prices of an appropriate mix of goods and services included in the 
covered IRF services, which is referred to as a market basket index. 
According to section 1886(j)(3)(A)(i) of the Act, the increase factor 
shall be used to update the IRF Federal prospective payment rates for 
each FY. Section 115 of the MMSEA amended section 1886(j)(3)(C) of the 
Act to apply a zero percent increase factor for FYs 2008 and 2009, 
effective for IRF discharges occurring on or after April 1, 2008. In 
the absence of any such amendment for FY 2010, we are updating IRF PPS 
payments by a market basket increase factor based upon the most current 
data available in accordance with section 1886(j)(3)(A)(i) of the Act.
    Beginning with the FY 2006 IRF PPS final rule (70 FR 47908 through 
47917), the market basket index used to update IRF payments is a 2002-
based market basket reflecting the operating and

[[Page 39776]]

capital cost structures for freestanding IRFs, freestanding inpatient 
psychiatric facilities (IPFs), and long-term care hospitals (LTCHs) 
(hereafter referred to as the rehabilitation, psychiatric, and long-
term care (RPL) market basket).
    For this final rule, we have used the same methodology described in 
the FY 2006 IRF PPS Final Rule (70 FR 47908 through 47917) to compute 
the FY 2010 market basket increase factor and labor-related share. 
Using this method and the IHS Global Insight, Inc. forecast for the 
second quarter of 2009 of the 2002-based RPL market basket, the FY 2010 
IRF market basket increase factor is 2.5 percent. IHS Global Insight is 
an economic and financial forecasting firm that contracts with CMS to 
forecast the components of providers' market baskets.
    Also, using the methodology described in the FY 2006 IRF PPS final 
rule (70 FR 47880, 47908 through 47917), we are updating the IRF labor-
related share for FY 2010. Using this method and the IHS Global 
Insight, Inc. forecast for the second quarter of 2009 of the 2002-based 
RPL market basket, the IRF labor-related share for FY 2010 is the sum 
of the FY 2010 relative importance of each labor-related cost category. 
This figure reflects the different rates of price change for these cost 
categories between the base year (FY 2002) and FY 2010. Consistent with 
our proposal to update the labor-related share with the most recent 
available data, the labor-related share for this final rule reflects 
IHS Global Insight's second quarter 2009 forecast of the 2002-based RPL 
market basket. As shown in Table 2, the FY 2010 labor-related share is 
75.779 percent.

    Table 2--FY 2010 IRF RPL Labor-Related Share Relative Importance
------------------------------------------------------------------------
                                                             FY 2010 IRF
                                                                labor-
                                                               related
                       Cost category                            share
                                                               relative
                                                              importance
------------------------------------------------------------------------
Wages and salaries.........................................       52.892
Employee benefits..........................................       13.949
Professional fees..........................................        2.873
All other labor intensive services.........................        2.127
                                                            ------------
    Subtotal...............................................       71.841
Labor-related share of capital costs (.46).................        3.938
                                                            ------------
    Total..................................................       75.779
------------------------------------------------------------------------
Source: IHS GLOBAL INSIGHT, INC, 2nd QTR, 2009; @USMACRO/CONTROL0609
  @CISSIM/TL0509.SIM Historical Data through 1st QTR, 2009.

    We received 10 comments on the proposed updates to the IRF market 
basket increase factor and labor-related share for FY 2010, which are 
summarized below.
    Comment: One commenter supported the creation of a stand-alone IRF 
market basket based on both freestanding and hospital-based cost report 
data. The commenter offered the following suggestions that CMS could 
pursue in order to account for the differences in costs between the two 
facility types.
    Those suggestions included:
    1. To survey a random sample of facilities to assess the presence 
of the array of rehabilitation services that may be available through 
the freestanding IRF as compared to a hospital-based IRF.
    2. To conduct detailed interviews of the Chief Financial Officers 
(CFOs) of freestanding versus hospital based units to understand the 
differences in the ways IRF costs are accounted for in cost reports.
    Response: We appreciate the commenter's response concerning the 
stand-alone IRF market basket and the suggestions that were provided. 
CMS will take the suggestions into consideration as we continue to 
research the differences between hospital-based and freestanding 
facilities.
    Comment: Several commenters noted that the use of 2002 data is 
inappropriate because of major changes to IRF case mix and patient 
severity and requested CMS update the cost weights of the existing RPL 
market basket to a more recent base year.
    Response: We recognize the commenters' concerns regarding the 
continued use of 2002 data in the RPL market basket. We have focused 
our recent efforts on comparing and contrasting the costs and cost 
structures of freestanding and hospital-based IRFs, including the 
effects of changes to case mix and patient severity over the last 
several years. We will consider the suggestions that we received during 
the comment period to better understand those differences (and further 
investigate the appropriateness of creating a stand-alone IRF market 
basket), as well as examine the appropriateness of rebasing and 
revising the RPL market basket.
    Comment: One commenter noted that the data used to calculate the 
RPL market basket are obtained from freestanding IRFs, freestanding 
IPFs, and LTCHs. The commenter expressed the concern that each facility 
type requires different resources and thus combining the three types of 
facilities distorts the cost structures of IRFs. This commenter also 
suggested incorporating the most recent available data into the market 
basket.
    Response: CMS recognizes the existence of differences in cost 
structures across freestanding IPFs, freestanding IRFs, and LTCHs. 
However, pending further research into the viability of creating a 
stand-alone IRF market basket, we feel that it is appropriate to 
continue to use the current 2002-based RPL market basket to update IRF 
payments. We will examine the appropriateness of rebasing and revising 
the RPL market basket for the future.
    Comment: Several commenters offered that one reason for the 
difference between freestanding and hospital-based IRFs cost structures 
is that most hospital-based units are smaller than freestanding IRFs. 
For example, one commenter indicated that hospital-based IRFs have 
nearly two-thirds fewer discharges than freestanding IRFs. Thus, the 
commenters claimed that hospital-based IRFs may be unable to achieve 
the same level of economies of scale as freestanding IRFs can.
    Response: We have noted that cost differences between hospital-
based and freestanding IRFs may be due to the volume of care that 
hospital-based facilities provide relative to freestanding facilities. 
In an attempt to control for differences in the volume of services, we 
have compared costs per discharge and costs per day between the two 
facility types and continue to find differences in their overall cost 
levels. Notably, CMS feels that, all other things held constant, 
differing volumes may not necessarily explain differing cost structures 
as the cost weights reflect the relative expense of one category to 
another within a facility. We will continue to evaluate our findings 
related to these metrics with new data as it becomes available.
    Comment: One commenter mentioned that one contributing cause of the 
difference in cost structures between freestanding and hospital-based 
IRFs is the issue of costs being allocated down from the IPPS hospital 
to the hospital-based IRF unit.
    Response: We share the commenter's concern that overhead costs from 
the host hospital may be skewing the hospital-based unit's costs and 
cost structure. One of the main reasons why CMS has historically relied 
on Medicare cost report data from freestanding facilities to construct 
the market baskets is our concern over the distribution of the host 
hospital's overhead costs to the sub-provider units. We will continue 
to investigate the allocation of overhead

[[Page 39777]]

costs from the host hospital to the hospital-based IRF unit.
    Comment: One commenter acknowledged that seeking outside input 
regarding differences in cost structures between hospital-based and 
freestanding IRFs is appropriate. However, the commenter urged CMS to 
proceed with caution as it may be difficult for CMS to confirm that the 
methods used to collect outside data are sound and that the data are 
representative of the industry as a whole. The commenter also stated 
that CMS should ultimately determine whether the market basket should 
in fact be based on the cost structure of hospital-based and 
freestanding IRFs instead of just one type of facility if the higher 
costs cannot be explained by differences in case mix and other patient 
characteristics.
    Response: As stated in the proposed rule, we do not feel it is 
appropriate to move forward on the creation of a stand-alone IRF market 
basket until such time that we can adequately explain the differences 
in costs and cost structures between hospital-based IRFs and 
freestanding IRFs. We agree with the commenter that any information 
from the public should be carefully examined. We reached out to the 
public for information to help us better understand these differences, 
but we agree with the commenter that regardless of the information we 
receive, we will have to evaluate thoroughly the appropriateness and 
independent nature of any data provided.
    Comment: A couple of commenters stated that hospital-based IRFs 
experience different levels of costs due to the types of patients 
admitted and services that occur during the IRF hospitalization. They 
commented that hospital-based IRFs receive more medically fragile 
patients due to the unit's immediate access to a variety of physician 
specialties and specialized treatments. The commenter suggested 
investigating the ICD-9 code differences between hospital-based and 
freestanding IRFs.
    Response: We have looked into case mix differences between free-
standing and hospital-based facilities. The average case mix is lower 
in hospital-based units than in freestanding units for the years we 
examined (2005-2007). We will continue to monitor differences in case 
mix (as we believe case-mix indexes for freestanding and hospital-based 
facilities account for the differences in patient severity). We will 
also explore the viability of an ICD-9 code analysis.
    Comment: One commenter supports CMS in the endeavor of creating a 
stand-alone IRF market basket to replace the RPL market basket. The 
commenter expressed willingness to assist the agency in its analysis. 
The commenter provided the following recommendations for future 
research:
    <bullet> To examine the cost differences between freestanding and 
hospital-based IRFs, as well as the differences between IRFs and other 
hospitals such as Inpatient Psychiatric Hospitals (IPFs) and Long Term 
Care Facilities.
    <bullet> To determine to what extent fewer economies-of-scale and 
cost allocation differences account for cost differences between 
freestanding and hospital-based IRFs.
    <bullet> To determine whether different classes of IRFs have 
different provider-to-patient ratios.
    <bullet> To investigate if differences in patient severity exist 
between the two classes of facilities and if so, to what extent does 
higher severity correlate with higher nursing and rehabilitation costs.
    Response: We appreciate the response concerning the stand-alone IRF 
market basket and the suggestions the commenter provided. We will be 
continuing our efforts to study cost differences between hospital-based 
and freestanding IRFs, as well as differences between IRFs, IPFs, and 
Long-Term Care Hospitals. We have attempted to control for differences 
in volume between the freestanding and hospital-based IRFs by analyzing 
costs per discharge and costs per day. As yet, controlling for patient 
volume using these metrics has not yielded very much insight into the 
differences. We will continue to examine other ways to determine if 
economies of scale are able to provide explanatory information on the 
differences we observe. Finally, we will look more in-depth at the 
commenter's additional suggestions.
    Comment: One commenter had concerns regarding the lower than usual 
increase in the 2010 market basket update. The commenter asserts that 
health care organizations are still required to provide the same care 
to patients as in more economically stable periods and feels that it is 
unsafe to assume that hospitals can operate at a lower level of costs 
while providing the same high level of care simply because the 
inflation indicators predict a slowing economy.
    The commenter supports the American Hospital Association's (AHA's) 
suggestion that CMS should make the required market basket adjustments 
without revising the price proxies used in the calculation which 
indicate potentially lower costs to the hospitals.
    Response: The 2.5 percent update found in this final rule does not 
assume a lower cost level from the prior year for the IRF industry. The 
intent of the RPL market basket is to estimate the input price 
pressures that providers will face in their respective payment years. 
The projected RPL market basket of 2.5 percent, then, reflects our most 
recent price projections for the various goods and services that IRF 
providers require in order to provide inpatient rehabilitation services 
in FY 2010.
    Additionally, the commenter noted that IRFs have more patients 
without insurance and are likely to incur a higher level of bad debt. 
This comment is outside the scope of the market basket update, since 
bad debt is reimbursed outside of the market basket update factor.
    Lastly, we think the commenter may have confused the AHA comments 
with regard to the IPPS market basket and the revision of various price 
proxies. IRF facilities will continue to receive a market basket update 
based on the RPL market basket. We have not made any technical changes 
to the composition of the RPL market basket. As such, the commenter's 
request that CMS should not revise the price proxies for this market 
basket is not applicable.
    Comment: One commenter noted concern with the way CMS estimates the 
labor-related share for IRF facilities. The commenter specifically 
expressed concern that the price proxies are based on FY 2002 data and 
prior to that were last updated in FY 1992. This commenter feels that 
the 2002 data do not reflect the effects of the 60-percent rule, 
implemented in CY 2004, and recommends that CMS update the price 
proxies more frequently to ensure the labor share is accurately 
calculated.
    Response: We believe the commenter may be confusing the term price 
proxy with the term cost weight. We will assume for purposes of this 
response that the commenter intended to use the word cost weight rather 
than price proxy. We assume this confusion because the price proxies 
are not based on FY 2002 data, and, while the LRS is based on the 
relative importance (a combination of the cost weight and price 
proxies), it is not based solely on price proxies. Our price proxy 
projections are updated on a quarterly basis. Price proxies are subject 
to revision under limited circumstances. A revision to a price proxy in 
a market basket could occur if the price index is discontinued or if 
the agency producing the price proxy (usually the Bureau of Labor 
Statistics) pulls an index from publication for statistical viability 
reasons. If an index is discontinued,

[[Page 39778]]

then CMS would have to find a replacement price proxy. Normally, 
revisions to the price indexes included in a market basket are only 
made when the market basket is rebased.
    Regarding the 60-percent rule, we are sensitive to the potential 
impact that the implementation of this rule may have on the cost 
structures of certain providers. As noted in a previous comment, we 
have focused our recent efforts on comparing and contrasting the costs 
and cost structures of freestanding and hospital-based IRFs. We will be 
continuing that analysis, as well as exploring the appropriateness of 
rebasing and revising the market basket used to update IRF payments 
whether that is in the form of the RPL market basket or a stand-alone 
IRF market basket.
    Final Decision: We will update IRF PPS payments by a market basket 
increase factor (of 2.5 percent for FY 2010) based upon the most 
current data available, in accordance with section 1886(j)(3)(A)(i) of 
the Act. Further, we will update the IRF labor-related share using our 
current methodology and the most recent available data. Thus, for this 
final rule, the labor-related share is 75.779 percent. This is based on 
the IHS Global Insight Inc. forecast for the second quarter of 2009 
(2009Q2) with historical data through the first quarter of 2009 
(2009Q1).
    As we noted in the proposed rule (74 FR 21052 at 21062), we are 
interested in exploring the possibility of creating a stand-alone IRF 
market basket that reflects the cost structures of only IRF providers. 
As part of our consideration of a stand-alone IRF market basket, we 
solicited information from the public in the proposed rule that might 
help us to better understand the underlying reasons for the variations 
in cost structure between freestanding and hospital-based IRFs. Due to 
the need for further research regarding the differences in costs and 
cost structures between hospital-based IRFs and freestanding IRFs, we 
are not pursuing a stand-alone IRF market basket at this time.

B. Area Wage Adjustment

    Section 1886(j)(6) of the Act requires the Secretary to adjust the 
proportion (as estimated by the Secretary from time to time) of 
rehabilitation facilities' costs attributable to wages and wage-related 
costs by a factor (established by the Secretary) reflecting the 
relative hospital wage level in the geographic area of the 
rehabilitation facility compared to the national average wage level for 
those facilities. The Secretary is required to update the IRF PPS wage 
index on the basis of information available to the Secretary on the 
wages and wage-related costs to furnish rehabilitation services. Any 
adjustments or updates made under section 1886(j)(6) of the Act for a 
FY are made in a budget neutral manner.
    In the FY 2009 IRF PPS final rule (73 FR 46370 at 46378), we 
maintained the methodology described in the FY 2006 IRF PPS final rule 
to determine the wage index, labor market area definitions, and hold 
harmless policy consistent with the rationale outlined in the FY 2006 
IRF PPS final rule (70 FR 47880, 47917 through 47933).
    In the FY 2010 IRF PPS proposed rule (74 FR 21052, 21062 through 
21063), we proposed to maintain the policies and methodologies 
described in the FY 2009 IRF PPS final rule relating to the labor 
market area definitions and the wage index methodology for areas with 
wage data. Thus, we proposed to use the CBSA labor market area 
definitions and the pre-reclassification and pre-floor hospital wage 
index data based on 2005 cost report data.
    The labor market designations made by the Office of Management and 
Budget (OMB) include some geographic areas where there are no hospitals 
and, thus, no hospital wage index data on which to base the calculation 
of the IRF PPS wage index. We proposed to continue to use the same 
methodology discussed in the FY 2008 IRF PPS final rule (72 FR 44284 at 
44299) to address those geographic areas where there are no hospitals 
and, thus, no hospital wage index data on which to base the calculation 
of the FY 2010 IRF PPS wage index.
    Additionally, we proposed to incorporate the CBSA changes published 
in the most recent OMB bulletin that applies to the hospital wage data 
used to determine the current IRF PPS wage index. The changes were 
nominal and did not represent substantive changes to the CBSA-based 
designations. Specifically, OMB added or deleted certain CBSA numbers 
and revised certain titles. The OMB bulletins are available online at 
http://www.whitehouse.gov/omb/bulletins/index.html.
    To calculate the wage-adjusted facility payment for the payment 
rates set forth in this final rule, we multiply the unadjusted Federal 
payment rate for IRFs by the FY 2010 RPL labor-related share (75.779 
percent) to determine the labor-related portion of the standard payment 
amount. We then multiply the labor-related portion by the applicable 
IRF wage index from the tables in the addendum to this final rule. 
Table 1 is for urban areas, and Table 2 is for rural areas.
    Adjustments or updates to the IRF wage index made under section 
1886(j)(6) of the Act must be made in a budget neutral manner. We 
calculate a budget neutral wage adjustment factor as established in the 
FY 2004 IRF PPS final rule (68 FR 45674 at 45689), codified at Sec.  
412.624(e)(1), as described in the steps below. We use the listed steps 
to ensure that the FY 2010 IRF standard payment conversion factor 
reflects the update to the wage indexes (based on the FY 2005 hospital 
cost report data) and the labor-related share in a budget neutral 
manner:
    Step 1. Determine the total amount of the estimated FY 2009 IRF PPS 
rates, using the FY 2009 standard payment conversion factor and the 
labor-related share and the wage indexes from FY 2009 (as published in 
the FY 2009 IRF PPS final rule (73 FR 46370 at 44301, 44298, and 44312 
through 44335, respectively)).
    Step 2. Calculate the total amount of estimated IRF PPS payments 
using the FY 2009 standard payment conversion factor and the FY 2010 
labor-related share and CBSA urban and rural wage indexes.
    Step 3. Divide the amount calculated in step 1 by the amount 
calculated in step 2. The resulting quotient is the FY 2010 budget 
neutral wage adjustment factor of 1.0011.
    Step 4. Apply the FY 2010 budget neutral wage adjustment factor 
from step 3 to the FY 2009 IRF PPS standard payment conversion factor 
after the application of the estimated market basket update to 
determine the FY 2010 standard payment conversion factor.
    We received 3 comments on the proposed FY 2010 IRF PPS wage index, 
which are summarized below.
    Comment: Several commenters recommended that we consider wage index 
policies under the current IPPS because IRFs compete in a similar labor 
pool as acute care hospitals. The IPPS wage index policies would allow 
IRFs to benefit from the IPPS reclassification and/or floor policies. 
Several commenters also recommended that CMS conduct further analysis 
of the wage index methodology to ensure that fluctuations in the annual 
wage index for hospitals are minimized, that all future updates match 
the costs of labor in the market, that IRF's occupational mix is 
appropriately recognized, and that payments are ``smoothed'' across 
geography and across time.
    Response: We note that the IRF PPS does not account for geographic 
reclassification under sections 1886(d)(8) and (d)(10) of the Act and 
does not apply the ``rural floor'' under section 4410 of Public Law 
105-33

[[Page 39779]]

(BBA). Because we do not have an IRF specific wage index, we are unable 
to determine at this time the degree, if any, to which a geographic 
reclassification adjustment under the IRF PPS is appropriate. 
Furthermore, we believe the ``rural floor'' is applicable only to the 
acute care hospital payment system. The rationale for our current wage 
index policies is fully described in the FY 2006 final rule (70 FR 
47880, 47926 through 47928).
    In addition, we reviewed the Medicare Payment Advisory Commission's 
(MedPAC) wage index recommendations as discussed in MedPAC's June 2007 
report titled, ``Report to Congress: Promoting Greater Efficiency in 
Medicare.'' Although some commenters recommended that we adopt the IPPS 
wage index policies such as reclassification and floor policies, we 
note that MedPAC's June 2007 report to Congress recommends that 
Congress ``repeal the existing hospital wage index statute, including 
reclassification and exceptions, and give the Secretary authority to 
establish new wage index systems.'' We believe that adopting the IPPS 
wage index policies, such as reclassification or floor, would not be 
prudent at this time because MedPAC suggests that the reclassification 
and exception policies in the IPPS wage index alters the wage index 
values for one-third of IPPS hospitals. In addition, MedPAC found that 
the exceptions may lead to anomalies in the wage index. By adopting the 
IPPS reclassifications and exceptions at this time, the IRF PPS wage 
index could be vulnerable to similar issues that MedPAC identified in 
the June 2007 Report to Congress. However, we will continue to review 
and consider MedPAC's recommendations on a refined or an alternative 
wage index methodology for the IRF PPS in future years.
    In addition, we have research currently under way to examine 
alternatives to the wage index methodology, including the issues the 
commenters mentioned about ensuring that the wage index minimizes 
fluctuations, matches the costs of labor in the market, and provides 
for a single wage index policy. Section 106(b)(2) of the MIEA-TRHCA 
instructed the Secretary of Health and Human Services to take into 
account MedPAC's recommendations on the Medicare wage index 
classification system and to include in the FY 2009 IPPS proposed rule 
one or more proposals to revise the wage index adjustment applied under 
section 1886(d)(3)(E) of the Act for purposes of the IPPS. The proposal 
(or proposals) were to consider each of the following:
    <bullet> Problems associated with the definition of labor markets 
for the wage index adjustments.
    <bullet> The modification or elimination of geographic 
reclassifications and other adjustments.
    <bullet> The use of Bureau of Labor Statistics data or other data 
or methodologies to calculate relative wages for each geographic area.
    <bullet> Minimizing variations in wage index adjustments between 
and within MSAs and statewide rural areas.
    <bullet> The feasibility of applying all components of CMS's 
proposal to other settings.
    <bullet> Methods to minimize the volatility of wage index 
adjustments while maintaining the principle of budget neutrality.
    <bullet> The effect that the implementation of the proposal would 
have on health care providers in each region of the country.
    <bullet> Methods for implementing the proposal(s), including 
methods to phase in such implementations.
    <bullet> Issues relating to occupational mix, such as staffing 
practices and any evidence on quality of care and patient safety, 
including any recommendations for alternative calculations to the 
occupational mix.
    To assist us in meeting the requirements of section 106(b)(2) of 
Public Law 109-432, in February 2008 we awarded a contract to Acumen, 
LLC. The contractor conducted a study of both the current methodology 
used to construct the Medicare wage index and the recommendations 
reported to Congress by MedPAC. Part 1 of Acumen's final report, which 
analyses the strengths and weaknesses of the data sources used to 
construct the CMS and MedPAC indexes, is available online at http://www.acumenllc.com/reports/cms. MedPAC's recommendations were presented 
in the FY 2009 IPPS final rule (http://edocket.access.gpo.gov/2008/pdf/E8-17914.pdf). We plan to monitor these efforts and the impact or 
influence they may have to the IRF PPS wage index.
    Final Decision: We will continue to use the policies and 
methodologies described in the FY 2009 IRF PPS final rule relating to 
the labor market area definitions and the wage index methodology for 
areas with wage data. Therefore, this final rule continues to use the 
Core-Based Statistical Area (CBSA) labor market area definitions and 
the pre-reclassification and pre-floor hospital wage index data based 
on 2005 cost report data. We discuss the final standard payment 
conversion factor for FY 2010 in the next section.

C. Description of the Final IRF Standard Payment Conversion Factor and 
Payment Rates for FY 2010

    To calculate the final standard payment conversion factor for FY 
2010, as illustrated in Table 4 below, we begin by applying the 
estimated market basket increase factor for FY 2010 (2.5 percent) to 
the standard payment conversion factor for FY 2009 ($12,958), which 
would equal $13,282. Then, we apply the budget neutrality factor for 
the FY 2010 wage index and labor related share of 1.0011, which would 
result in a standard payment amount of $13,297. Then, we apply the 
budget neutrality factor for the revised CMG relative weights of 
1.0020, which would result in a standard payment amount of $13,324. 
Finally, we apply the budget neutrality factors for the updates to the 
rural, LIP, and IRF teaching status adjustments of 1.0023, 1.0192, and 
1.0037, respectively, which would result in the final FY 2010 standard 
payment conversion factor of $13,661.
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[[Page 39780]]

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    After the application of the CMG relative weights described in 
section IV of this final rule, the resulting unadjusted IRF prospective 
payment rates for FY 2010 are shown below in Table 4, ``FY 2010 Payment 
Rates.''

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[[Page 39785]]

    We received 4 comments on the proposed standard payment conversion 
factor and payment rates for FY 2010, which are summarized below.
    Comment: Several commenters suggested that we add the estimated 
market basket increases for FYs 2008 and 2009 back into the standard 
payment conversion factor before we update it for FY 2010.
    Response: We do not believe that this is the intent of the statute. 
As discussed above, section 115 of the MMSEA amended section 
1886(j)(3)(C) of the Act to apply a zero percent increase factor for 
FYs 2008 and 2009, effective for IRF discharges occurring on or after 
April 1, 2008. For subsequent fiscal years, section 1886(j)(3)(C) of 
the Act requires the Secretary to establish an increase factor that 
reflects changes over time in the prices of an appropriate mix of goods 
and services included in the covered IRF services, which is referred to 
as a market basket index. According to section 1886(j)(3)(A)(i) of the 
Act, this increase factor shall be used to update the IRF Federal 
prospective payment rates for each FY. In accordance with these 
provisions of the statute, we will update IRF PPS payments by a market 
basket increase factor for FY 2010 based upon the most current 
available data.

D. Example of the Methodology for Adjusting the Federal Prospective 
Payment Rates

    Table 5 illustrates the methodology for adjusting the Federal 
prospective payments (as described in sections VI.A through VI.C of 
this final rule). The examples below are based on two hypothetical 
Medicare beneficiaries, both classified into CMG 0110 (without 
comorbidities). The unadjusted Federal prospective payment rate for CMG 
0110 (without comorbidities) appears in Table 4 above.
    One beneficiary is in Facility A, an IRF located in rural Spencer 
County, Indiana, and another beneficiary is in Facility B, an IRF 
located in urban Harrison County, Indiana. Facility A, a rural non-
teaching hospital has a DSH percentage of 5 percent (which would result 
in a LIP adjustment of 1.0228), a wage index of 0.8473, and a rural 
adjustment of 18.4 percent. Facility B, an urban teaching hospital, has 
a DSH percentage of 15 percent (which would result in a LIP adjustment 
of 1.0666), a wage index of 0.9249, and a teaching status adjustment of 
0.0610.
    To calculate each IRF's labor and non-labor portion of the Federal 
prospective payment, we begin by taking the unadjusted Federal 
prospective payment rate for CMG 0110 (without comorbidities) from 
Table 4 above. Then, we multiply the estimated labor-related share 
(75.779) described in section VI.A of this final rule by the unadjusted 
Federal prospective payment rate. To determine the non-labor portion of 
the Federal prospective payment rate, we subtract the labor portion of 
the Federal payment from the unadjusted Federal prospective payment.
    To compute the wage-adjusted Federal prospective payment, we 
multiply the labor portion of the Federal payment by the appropriate 
wage index found in the addendum in Tables 1 and 2. The resulting 
figure is the wage-adjusted labor amount. Next, we compute the wage-
adjusted Federal payment by adding the wage-adjusted labor amount to 
the non-labor portion.
    Adjusting the wage-adjusted Federal payment by the facility-level 
adjustments involves several steps. First, we take the wage-adjusted 
Federal prospective payment and multiply it by the appropriate rural 
and LIP adjustments (if applicable). Second, to determine the 
appropriate amount of additional payment for the teaching status 
adjustment (if applicable), we multiply the teaching status adjustment 
(1.0706, in this example) by the wage-adjusted and rural-adjusted 
amount (if applicable). Finally, we add the additional teaching status 
payments (if applicable) to the wage, rural, and LIP-adjusted Federal 
prospective payment rates. Table 5 illustrates the components of the 
adjusted payment calculation.
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[[Page 39786]]

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BILLING CODE 4120-01-C
    Thus, the adjusted payment for Facility A would be $31,057.56 and 
the adjusted payment for Facility B would be $30,841.87.

VII. Update to Payments for High-Cost Outliers Under the IRF PPS

A. Update to the Outlier Threshold Amount for FY 2010

    Section 1886(j)(4) of the Act provides the Secretary with the 
authority to make payments in addition to the basic IRF prospective 
payments for cases incurring extraordinarily high costs. A case 
qualifies for an outlier payment if the estimated cost of the case 
exceeds the adjusted outlier threshold. We calculate the adjusted 
outlier threshold by adding the IRF PPS payment for the case (that is, 
the CMG payment adjusted by all of the relevant facility-level 
adjustments) and the adjusted threshold amount (also adjusted by all of 
the relevant facility-level adjustments). Then, we calculate the 
estimated cost of a case by multiplying the IRF's overall cost-to-
charge ratio (CCR) by the Medicare allowable covered charge. If the 
estimated cost of the case is higher than the adjusted outlier 
threshold, we make an outlier payment for the case equal to 80 percent 
of the difference between the estimated cost of the case and the 
outlier threshold.
    In the FY 2002 IRF PPS final rule (66 FR 41316, 41362 through 
41363), we discussed our rationale for setting the outlier threshold 
amount for the IRF PPS so that estimated outlier payments would equal 3 
percent of total estimated payments. For the 2002 IRF PPS final rule, 
we analyzed various outlier policies using 3, 4, and 5 percent of the 
total estimated payments, and we concluded that an outlier policy set 
at 3 percent of total estimated payments would optimize the extent to 
which we could reduce the financial risk to IRFs of caring for high-
cost patients, while still providing for adequate payments for all 
other (non-high cost outlier) cases.
    Subsequently, we updated the IRF outlier threshold amount in the 
FYs 2006, 2007, 2008, and 2009 IRF PPS final rules (70 FR 47880, 70 FR 
57166,

[[Page 39787]]

71 FR 48354, 72 FR 44284, and 73 FR 46370, respectively) to maintain 
estimated outlier payments at 3 percent of total estimated payments. We 
also stated in the FY 2009 final rule (FR 73 46287) that we would 
continue to analyze the estimated outlier payments for subsequent years 
and adjust the outlier threshold amount as appropriate to maintain the 
3 percent target.
    In the FY 2010 IRF PPS proposed rule (74 FR 21052 at 21066), we 
proposed to use updated data for calculating the high-cost outlier 
threshold amount. Specifically, we proposed to use FY 2007 claims data 
using the same methodology that we used to set the initial outlier 
threshold amount in the FY 2002 IRF PPS final rule (66 FR 41316, 41362 
through 41363), which is also the same methodology that we used to 
update the outlier threshold amounts for FYs 2006 through 2009.
    Updated analysis of FY 2008 claims data using the same methodology 
that we used to set the initial outlier threshold amount in FY 2002 
shows that IRF outlier payments as a percentage of total estimated 
payments are 3 percent in FY 2009. Therefore, since we estimate that we 
have achieved the target percentage in FY 2009, we are adjusting the 
outlier threshold amount in this final rule solely to account for the 
2.5 percent market basket adjustment for FY 2010 (as discussed in 
section VI.A of this rule) and the FY 2010 updates to the facility-
level adjustments (as discussed in section V of this rule) so that we 
will continue to maintain estimated outlier payments at 3 percent of 
total estimated aggregate IRF payments for FY 2010.

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

    In accordance with the methodology stated in the FY 2004 IRF PPS 
final rule (68 FR 45674, 45692 through 45694), we apply a ceiling to 
IRFs' cost-to-charge ratios (CCRs). Using the methodology described in 
that final rule, we proposed in the FY 2010 IRF PPS proposed rule (74 
FR 21052, 21066 through 21067) to update the national urban and rural 
CCRs for IRFs, as well as the national CCR ceiling for FY 2010, based 
on analysis of the most recent data that is available. We apply the 
national urban and rural CCRs in the following situations:
    <bullet> New IRFs that have not yet submitted their first Medicare 
cost report.
    <bullet> IRFs whose overall CCR is in excess of the national CCR 
ceiling for FY 2010, as discussed below.
    <bullet> Other IRFs for which accurate data to calculate an overall 
CCR are not available.
    Specifically, for FY 2010, we estimated a national average CCR of 
0.622 for rural IRFs, which we calculate by taking an average of the 
CCRs for all rural IRFs using their most recently submitted cost report 
data. Similarly, we estimate a national CCR of 0.494 for urban IRFs, 
which we calculate by taking an average of the CCRs for all urban IRFs 
using their most recently submitted cost report data. We apply weights 
to both of these averages using the IRFs' estimated costs, meaning that 
the CCRs of IRFs with higher costs factor more heavily into the 
averages than the CCRs of IRFs with lower costs. For this final rule, 
we have used the most recent available cost report data (FY 2007). This 
includes all IRFs whose cost reporting periods begin on or after 
October 1, 2006, and before October 1, 2007. If, for any IRF, the FY 
2007 cost report was missing or had an ``as submitted'' status, we used 
data from a previous fiscal year's settled cost report for that IRF. 
However, we do not use cost report data from before FY 2004 for any IRF 
because changes in IRF utilization since FY 2004 resulting from the 60 
percent rule and IRF medical review activities suggest that these older 
data do not adequately reflect the current cost of care.
    In addition, in light of the analysis described below, we are 
setting the national CCR ceiling at 3 standard deviations above the 
mean CCR. The national CCR ceiling is set at 1.61 for FY 2010. This 
means that, if an individual IRF's CCR exceeds this ceiling of 1.61 for 
FY 2010, we would replace the IRF's CCR with the appropriate national 
average CCR (either rural or urban, depending on the geographic 
location of the IRF). We calculated the national CCR ceiling by:
    Step 1. Taking the national average CCR (weighted by each IRF's 
total costs, as discussed above) of all IRFs for which we have 
sufficient cost report data (both rural and urban IRFs combined);
    Step 2. Estimating the standard deviation of the national average 
CCR computed in step 1;
    Step 3. Multiplying the standard deviation of the national average 
CCR computed in step 2 by a factor of 3 to compute a statistically 
significant reliable ceiling; and
    Step 4. Adding the result from step 3 to the national average CCR 
of all IRFs for which we have sufficient cost report data, from step 1.
    We received 4 comments on the proposed update to payments for high-
cost outliers under the IRF PPS, which are summarized below.
    Comment: The majority of commenters said that they support 
maintaining estimated outlier payments at 3 percent of total estimated 
payments for FY 2010. However, one commenter suggested that we reduce 
the estimated percentage of outlier payments to 1.5 percent or that we 
``hold back'' a proportion of outlier payments from certain IRFs, 
particularly those IRFs that might have higher costs because of 
decreases in patient volumes. This commenter expressed concerns that 
the IRF outlier policy may be inadvertently rewarding IRFs for 
inefficiencies and suggested that we conduct an analysis of the 
distribution of outlier payments among IRFs.
    Response: We will continue to monitor our IRF outlier policies to 
ensure that they continue to compensate IRFs for treating unusually 
high-cost patients and, thereby, promote access to care for patients 
who are likely to require unusually high-cost care. At this time, 
however, we do not have any indications to suggest that the outlier 
pool would be better set at 1.5 percent than at 3 percent, or that it 
would be appropriate to ``hold back'' outlier payments from individual 
IRFs. To the extent that patient volumes in some IRFs have been 
declining due to recent changes in the 60 percent rule and increased 
medical review activities, and that such declines in patient volumes 
may have led to temporary cost increases (due to the allocation of 
fixed costs across a smaller number of patients), we believe that the 
patient volumes will soon stabilize and that fixed costs will decline 
once IRFs have had time to adapt to the changes. However, we will 
carefully consider this commenter's suggestions, and will consider 
proposing additional refinements to the IRF outlier policies in the 
future if we find that such refinements are necessary.
    Comment: Several commenters suggested that we use the FY 2008 IRF 
claims data to estimate the IRF outlier threshold amount for FY 2010.
    Response: We agree that we should use the most recent available 
data to estimate the IRF outlier threshold amount for FY 2010, and have 
therefore used the FY 2008 IRF claims data in the analysis for this 
final rule.
    Comment: One commenter requested that CMS provide additional 
information to the public in the future to allow the IRF industry and 
external researchers to conduct a more thorough review of CMS's 
proposed updates to the outlier threshold amount and to verify our 
estimates of outlier payments

[[Page 39788]]

as a percentage of total payments for FY 2010. This commenter also 
requested that we report the actual outlier payments and outlier 
payments as a percentage of total payments for each FY in this final 
rule.
    Response: We will continue to provide as much information as 
possible to allow the public to analyze and evaluate our proposed 
updates to the IRF outlier threshold amount. In Table 6 below, we 
provide the requested information, by FY.

  Table 6--IRF Outlier Payments and Outlier Payments as a Percentage of
                             Total Payments
------------------------------------------------------------------------
                                                              Outlier
                                              Outlier      payments as a
               Fiscal year                   payments      percentage of
                                                          total payments
------------------------------------------------------------------------
2003....................................     204,193,300             3.3
2004....................................     127,308,080             1.9
2005....................................     116,534,084             1.8
2006....................................     247,632,386             4.0
2007....................................     267,474,895             4.5
2008....................................     248,047,991             4.2
------------------------------------------------------------------------

    Comment: One commenter suggested that we adopt the same methodology 
for modeling charge increases and cost-to-charge ratio (CCR) changes in 
the IRF PPS that we are currently using for IPPS hospitals.
    Response: As we noted in the FY 2008 IRF PPS final rule (72 FR 
44284 at 44304), we considered adopting the same methodology described 
in the FY 2007 IPPS final rule (71 FR 47870, 48150 though 48151) for 
projecting cost and charge growth for IRFs. However, we discovered that 
the accuracy of the projections depends on the case mix of patients in 
the facilities remaining similar from year to year, as it does in IPPS 
hospitals. As many of the commenters on the FY 2009 IRF PPS proposed 
rule noted, the case mix of patients in IRFs was continuing to change 
through at least the middle of FY 2008 in response to the 60 percent 
rule and recent medical review activities. In analyzing the data, we 
discovered that we could get inaccurate results if we based future 
projections of cost and charge growth on data from years in which IRFs 
were experiencing fluctuations in case mix. Thus, since the most recent 
available IRF claims data for analysis in this final rule are the FY 
2008 IRF claims data, and since we are still seeing evidence of case 
mix changes in these data, we do not believe that adopting the 
suggested methodology would be prudent at this time. We believe that a 
better approach would be to wait until the IRF case mix has stabilized 
before we attempt to project cost and charge growth using the suggested 
methodology. Otherwise, the changes occurring in IRFs all at once, 
including changes in IRFs' charges, costs, and case mix, could 
compromise the accuracy of our results. For the reasons described 
above, our analysis shows that using the same methodology we used 
previously for updating the outlier threshold amount for FY 2010 is the 
best approach at this time. However, we will carefully consider the 
commenter's suggestions as we investigate alternative approaches for 
projecting IRF cost and charge growth in estimating future updates to 
the IRF outlier threshold amount.
    Final Decision: Based on careful consideration of the comments that 
we received on the proposed update to the outlier threshold amount for 
FY 2010 and based on updated analysis of the FY 2008 data, we are 
finalizing our decision to update the outlier threshold amount for FY 
2010 to $10,652. In addition, we did not receive any comments on the 
IRF cost-to-charge ratio ceiling. Based on our proposed policy and the 
reasons set forth in the proposed rule (74 FR 21052, 21066 through 
21067), we are finalizing the national average urban CCR at 0.494 and 
the national average rural CCR at 0.622. We are also finalizing our 
estimate of the IRF national CCR ceiling at 1.61 for FY 2010.

VIII. Inpatient Rehabilitation Facility (IRF) Coverage Requirements

    In the FY 2010 proposed rule (74 FR 21052, 21067 through 21071), we 
proposed IRF coverage requirements and technical revisions to certain 
other IRF requirements to reflect changes that have occurred in medical 
practice during the past 25 years and the implementation of the IRF 
PPS. In light of those proposals, we also proposed to rescind the 
outdated HCFA Ruling 85-2. We also noted that we anticipated issuing 
new manual provisions to provide further guidance on the proposed rules 
if the changes were ultimately finalized, and expressly welcomed 
comments on the draft of those manual provisions on our Web site.
    As we discussed in the proposed rule, the policies that currently 
govern IRFs were developed more than 25 years ago, and were designed to 
provide coverage criteria for a small subset of providers furnishing 
intensive and complex therapy services in a fee-for-service environment 
to a small segment of patients whose rehabilitation needs could only be 
safely furnished at a hospital level of care. In recognition of the 
need to provide new coverage criteria, CMS assembled an internal 
workgroup in June 2007 to determine how best to clarify the criteria. 
The workgroup enlisted the advice of medical directors from within CMS, 
from several of the fiscal intermediaries, from one of the qualified 
independent contractors (QICs), and from the National Institutes of 
Health. These individuals, including general physicians, physiatrists, 
and therapists, considered how best to identify those patients for whom 
IRF coverage was intended (that is, patients who both require complex 
rehabilitation in a hospital environment and could most reasonably be 
expected to benefit from IRF services). We also considered comments 
that we received from industry groups in response to the FY 2009 IRF 
PPS proposed rule (73 FR 22674) and in response to industry input 
solicited by CMS contractors who are preparing the IRF Report to 
Congress mandated by section 115(c)(1) of the Medicare, Medicaid, and 
SCHIP Extension Act of 2007 (MMSEA), Public Law 110-173.
    After carefully considering all of the input that we received from 
the workgroup and from stakeholders, we proposed a number of changes to 
the regulation text in Sec.  412.23 and Sec.  412.29, which were 
designed to clarify our expectations regarding IRF coverage criteria. 
We discussed our proposals and suggested regulatory text to implement 
those proposals.
    Unfortunately, though we never intended for these criteria to be 
used in determining whether facilities could be classified as IRFs, the 
combining of Sec.  412.23 and Sec.  412.29 and the placement of the 
proposed IRF coverage requirements in Sec.  412.29, which discusses the 
requirements for rehabilitation units to be excluded from the IPPS and 
instead be paid under the IRF PPS, led several commenters to 
incorrectly conclude that the proposed coverage requirements would 
affect classification of an IRF. This was not our intent. To respond to 
these comments and to eliminate confusion on this point, we are 
creating a new regulatory section at newly created Sec.  412.622(a)(3), 
Sec.  412.622(a)(4), and Sec.  412.622(a)(5), in which we will place 
the new IRF coverage requirements that will be used to determine 
whether individual IRF claims are for reasonable and necessary services 
under section 1862(a)(1) of the Act. These new coverage requirements 
will not be used to determine whether a facility can be paid under the 
IRF PPS. However, certain of the requirements in the newly created 
Sec.  412.622(a)(3), Sec.  412.622(a)(4), and Sec.  412.622(a)(5) 
mirror the concepts

[[Page 39789]]

in the long-standing facility classification requirements in the 
existing Sec.  412.23 and Sec.  412.29, such as the need to have a 
preadmission screening process in place for all IRF patients, the need 
to provide close medical supervision by qualified personnel, the need 
to have a plan of treatment for all IRF patients, and the need to use a 
``multidisciplinary'' approach to care. In this final rule, we will 
only make technical corrections to those provisions governing facility 
classification at Sec.  412.23 and Sec.  412.29 to resolve any 
inconsistencies between the new IRF coverage criteria applicable to 
individual claims and the existing IRF classification requirements. The 
facility classification requirements at Sec.  412.23 and Sec.  412.29 
will not be used to review individual IRF claims. The details of the 
regulatory changes that we are making in this final rule are in the 
section labeled ``Final Decision'' below.
    We received 58 comments on our overall approach to updating the IRF 
coverage requirements, which are summarized below.
    Comment: Several commenters supported our efforts to clarify the 
IRF coverage criteria, with the Medicare Payment Advisory Commission 
(MedPAC) indicating that the new criteria are a ``positive step 
forward'' in providing a clearer set of expectations and placing the 
focus more on patients' functional needs. However, several commenters 
expressed concerns about the regulatory text that had been proposed to 
implement these proposals, and the authorities that we had cited in the 
proposed rule. They especially noted that, despite having proposed 
coverage criteria, we had failed to include section 1862 of the Act in 
our list of authorities. Other commenters suggested, due to a 
misunderstanding of our statements about our intent to issue manual 
guidance to implement the proposed regulations once they were 
finalized, that we had not met the requirements of the Administrative 
Procedure Act in our proposal to rescind HCFAR 85-2.
    Response: We believe the commenters have misunderstood the approach 
that we are using to make these updates to the IRF coverage criteria. 
We are not rescinding HCFAR 85-2 and replacing it with revised manual 
provisions (in Chapter 1, Section 110 of the MBPM). Rather, we are 
using standard rulemaking procedures to replace HCFAR 85-2 with updated 
regulatory provisions that contain the substantive changes to the 
coverage criteria. Consistent with the APA requirements, we will 
rescind the prior standard (HCFAR 85-2) in a future notice to be issued 
prior to implementation of the new legal standards that are established 
under this final rule. Once the updated regulatory provisions are in 
effect, we will issue revised manual provisions that interpret the new 
regulatory provisions. The revised manual provisions will not contain 
substantive requirements beyond those that are in the regulations. We 
do, however, agree that we should have included section 1862 of the Act 
in our list of authorities in the proposed rule. We appreciate the 
commenters bringing this inadvertent omission to our attention. We have 
corrected this omission in the authorities list in this final rule.
    Comment: Several commenters expressed concerns that an IRF's 
failure to meet the proposed coverage criteria would not only result in 
denial of an individual claim, but would also possibly result in a 
facility not being eligible for classification as an IRF. Some 
commenters questioned whether we were, in effect, changing the ``60 
percent rule.'' If so, they suggested that CMS consider alternative 
ways of amending the ``60 percent rule'' and distinguishing IRFs from 
IPPS hospitals. These commenters also suggested that we clarify that 
the IRF classification requirements are based on different statutory 
authority than the IRF coverage criteria and that the IRF coverage 
criteria are not used to determine IRF classifications.
    Response: As noted above, we did not intend for any of the proposed 
coverage criteria to have any bearing on the exclusion of facilities 
from the IPPS, the requirements for the classification of facilities as 
IRFs, or the 60 percent rule. The proposed regulatory coverage criteria 
were intended to update IRF coverage criteria, not IRF classification 
criteria. Unfortunately, the placement of these draft coverage criteria 
in the proposed regulatory text, especially in concert with some words 
that were inadvertently used in the preamble discussion (we did, 
unfortunately, make a reference to ``exclusion'' and ``classification 
requirements'' in our discussion of the proposed coverage criteria; 
however, we believe the majority of the discussion conveys that we were 
discussing coverage, not classification) led many commenters to 
incorrectly conclude that we were proposing to make compliance with 
coverage criteria a component of the IRF classification requirements.
    To eliminate any further confusion regarding this point, we are 
creating Sec.  412.622(a)(3), Sec.  412.622(a)(4), and Sec.  
412.622(a)(5), which contain the new coverage criteria regulations that 
are adopted under this rule.
    Further, we agree with the commenters that the IRF coverage 
criteria and the IRF classification requirements are different and are 
based on different statutory authority. We also agree that the IRF 
coverage criteria are not used to determine IRF classification. To be 
clear, in this final rule we are adopting new regulatory IRF coverage 
criteria. We do not intend for any IRF to lose its classification 
status because an individual patient does not meet the IRF coverage 
criteria. Failure to meet the coverage criteria in a particular case 
will only result in the denial of the IRF's claim for the services 
provided to that patient, not in a change in the classification of the 
facility.
    Comment: Several commenters suggested that we delay implementation 
of the new regulations and manual instructions regarding the IRF 
medical necessity criteria to give IRFs adequate time to adapt their 
internal processes to the changes. These commenters also suggested that 
the additional time would allow CMS to conduct training on the changes, 
to hold provider education conference calls similar to the conference 
calls that we conducted in 2002 when the IRF PPS went into effect, and 
to hold additional meetings with stakeholders to further refine the 
regulations.
    Response: We believe that it is critical to adopt regulatory IRF 
coverage criteria as quickly as possible to provide clear and updated 
rules that all stakeholders can easily understand and follow. However, 
we agree that a delay in the implementation of the new regulations, and 
the manual instructions that will be issued to provide further guidance 
on the substantive requirements contained therein, until January 1, 
2010 is reasonable. This would allow IRFs more time to adjust their 
internal processes and procedures to accommodate the new rules. The 
delayed implementation would also allow time for CMS to conduct 
thorough training and education outreach on the new regulations, which 
will benefit all stakeholders by promoting a shared understanding of 
the new regulations.
    Although we understand the commenters' concerns about the need for 
stakeholder input into these policies, we have already incorporated 
substantial input from the public in the development of these policies. 
As we noted in the FY 2010 proposed rule (74 FR 21052 at 21067), we 
received substantial input from the public on the medical necessity 
criteria from a town hall meeting and Technical Expert Panel that we 
conducted in February 2009 in response to the mandated analysis of IRF 
access and utilization issues

[[Page 39790]]

contained in the Medicare, Medicaid, and SCHIP Extension Act of 2007 
(MMSEA), Public Law 110-173, section 155(c)(1). Even though the town 
hall meeting and the Technical Expert Panel were supposed to be focused 
on developing alternatives to the criteria for classifying an IRF, 
particularly refinements to the 60 percent rule, in many cases 
participants instead provided CMS with information and suggestions 
concerning the criteria for establishing the medical necessity of IRF 
admissions, which we considered in the development of the proposed 
updates to the regulation. In addition, we received additional input 
from the public in the comments that we received on the FY 2010 IRF PPS 
proposed rule. Thus, we do not believe that it is necessary to conduct 
further meetings prior to finalizing the proposed regulations. However, 
we will continue to conduct additional meetings with stakeholders and 
provide training and education to promote a shared understanding of the 
new regulations. We appreciate the suggestions regarding the provider 
education conference calls and plan to include these calls as part of 
our training and public outreach on these new regulations.
    Comment: Several commenters expressed concern that rescinding HCFAR 
85-2 prior to issuing manual revisions would negatively affect IRF 
claims denials that are currently being reviewed by Administrative Law 
Judges (ALJs).
    Response: To alleviate the commenters' concerns, we will rescind 
HCFAR 85-2 in a future notice that will be issued prior to 
implementation of the new regulatory provisions. We plan to issue new 
manual guidance that will interpret the new regulations at that time as 
well. The new regulatory provisions will become effective for IRF 
discharges occurring on or after January 1, 2010. Thus, HCFAR 85-2 will 
continue to apply for all IRF discharges that occur prior to January 1, 
2010. Once the updated regulations become effective, ALJs will be able 
to use the new, clarified regulations. We believe that simplifying and 
clarifying the rules will make the rules easier for all stakeholders, 
including ALJs, IRFs, and Medicare contractors, to understand and to 
follow. In so doing, we believe that the updated regulations will 
reduce the number of disputed IRF claims denials that will be appealed 
to the ALJ level.
    Comment: Several commenters suggested that we provide the 
scientific bases for the new regulations and a list of the people with 
whom we consulted in developing the new regulations.
    Response: As the new regulations are intended merely to update and 
clarify the prior IRF medical review policies, we focused on updating 
the regulations to reflect current industry practices that we believe 
enhance the quality of care for patients, not on establishing the 
scientific basis for medical treatment.
    We do not publish comprehensive lists of the numerous employees who 
participate in the collaborative policy development process. We do, 
however, indicate the names of the lead analysts. Please see the 
section labeled ``For Further Information Contact'' at the beginning of 
this final rule for the names and contact information of the lead 
analysts on this rule. Please contact the lead analysts for further 
information.
    Comment: One commenter suggested that we include all IRF medical 
necessity requirements in both the regulation text and the manual 
instructions, so that the regulation text and the manual instructions 
would both be revised together through rulemaking.
    Response: As we indicated above, we are using standard rulemaking 
procedures to implement regulatory provisions governing the coverage 
criteria for IRF services. Once the regulatory provisions are 
finalized, we will issue revised manual provisions that provide 
detailed guidance on the new regulatory provisions. As these manual 
provisions will not contain substantive requirements, there is no need 
to promulgate the manual provisions through the rulemaking process. As 
noted in the proposed rule, however, we solicited and carefully 
considered comments on the draft manual provisions submitted outside of 
this APA rulemaking process.
    Comment: One commenter suggested that, given the complexity of the 
proposed changes to the regulation, we should provide for an additional 
60-day comment period to allow the public an additional opportunity to 
comment on the changes.
    Response: We do not believe that the proposed changes to the 
regulation were extraordinarily complex, relative to the regulations 
that we typically issue for IRFs and other Medicare payment systems. 
Thus, we believe that one 60-day comment period was adequate to provide 
for public comment on these issues.
    Comment: One commenter suggested that we provide ``justifiable 
exceptions'' to all of the required timelines for the preadmission 
screening, the post-admission physician evaluation, and the overall 
individualized plan of care.
    Response: We agree that there should be exceptions to these 
timelines in the case of extraordinary events, such as natural 
disasters or other states of emergency, that are beyond the control of 
the IRF. In such instances, we would consider the appropriateness of 
using established mechanisms for waiving or modifying certain Medicare 
requirements such as section 1135 of the Act (under which the Secretary 
might permit a temporary modification of the timeline during the 
``emergency period'' under section 1135 (g)(1) of the Act). The 
preadmission screenings, post-admission physician evaluations, and 
individualized overall plans of care are part of an IRF's standard 
operating procedures. Thus, in non-emergency situations, we expect that 
each IRF will develop its own protocols to ensure timely completion of 
these documents.

A. Requirements for the Preadmission Screening

    As discussed in the FY 2010 proposed rule, we believe that a 
comprehensive preadmission screening process is the key factor in 
initially identifying appropriate candidates for IRF care. For this 
reason, we proposed to clarify our expectations regarding the scope of 
the preadmission assessment and to require documentation of the 
clinical evaluation process that forms the basis of the admission 
decision.
    In addition, to ensure that IRF patients receive close medical 
supervision, we proposed to require an evaluation of each patient's 
risk for clinical and rehabilitation complications as part of the 
preadmission screening.
    To capture the preadmission screening information as close as 
possible to the actual time of the IRF admission, we proposed to 
require that the preadmission screening be conducted by qualified 
clinicians designated by a rehabilitation physician within the 48 hours 
immediately preceding the IRF admission, and we proposed to require 
that the preadmission screening documentation be retained in the 
patient's medical record.
    We also proposed to require that a rehabilitation physician review 
and document his or her concurrence with the findings and results of 
the preadmission screening.
    Finally, we proposed to eliminate the 3 to 10 day post-admission 
assessment, which was used under the guidance documents that predated 
the regulations adopted under this rule for after-the-fact proof of 
medical necessity.
    We received 27 comments on the proposed requirement for the 
preadmission screening, which are summarized below.

[[Page 39791]]

    Comment: While several commenters expressed support for the 
proposed preadmission screening requirement, a few commenters said that 
the level of detail that we are proposing for this requirement exceeds 
what is typically included in a preadmission screening. One commenter 
indicated that acute care hospital staff generally are not trained to 
assess all of the components of the patient's condition that we 
proposed to require be included in the preadmission screening, and that 
the level of evaluation that we are suggesting is best performed by the 
rehabilitation physician in the IRF.
    Response: As noted in the FY 2010 proposed rule (74 FR 21052 at 
21068), we believe that a comprehensive preadmission screening process 
is the key factor in initially identifying appropriate candidates for 
IRF care. As we are placing more weight on the rehabilitation 
physician's decision to admit the patient to the IRF, we believe that 
it is important to require that the rehabilitation physician document 
the reasoning behind this decision, to enable medical reviewers to 
understand the rationale for the decision. We realize that this level 
of detail may exceed what some IRFs may have included in the patient's 
medical record in the past, but we believe that it will benefit both 
the IRFs and the Medicare contractors who are reviewing IRF claims to 
have the rationale for the reasoning behind the admission decision 
recorded in each patient's medical record.
    We agree that the assessment would best be performed by the 
rehabilitation physician or IRF clinical staff designated by the 
rehabilitation physician. We believe that the commenter may have 
misunderstood our proposal in that we do not expect the acute care 
hospital staff to be performing the preadmission screenings for the 
IRF.
    Comment: Several commenters suggested that the clinical staff 
performing the preadmission screenings should be ``qualified and 
competent,'' but not ``licensed,'' because State licensure laws differ 
and preadmission screenings are generally not included in clinicians' 
scopes of practice. Several commenters also suggested that we allow 
non-clinical personnel to conduct the preadmission screening, as is the 
current practice in some IRFs. Further, several commenters suggested 
that we allow any licensed physician to review and document his or her 
concurrence with the results of the preadmission screening.
    Response: We disagree. Given the complexity and the comprehensive 
nature of the preadmission screenings that are required to determine 
the appropriateness of an IRF admission, we believe that a 
comprehensive preadmission screening process is the key factor in 
initially identifying appropriate candidates for IRF care. As such, we 
believe that the IRF personnel involved in collecting the information 
for the preadmission screening must be appropriately trained and 
qualified to assess the patient's medical and functional status, assess 
the risk for clinical and rehabilitation complications, and assess 
other aspects of the patient's condition both medically and 
functionally. We do not agree that non-clinical personnel can 
adequately perform these assessments. Further, we believe that only a 
licensed rehabilitation physician with training and experience in 
medical rehabilitation should be making the IRF admission decision.
    Comment: Several commenters expressed concerns that the requirement 
for the preadmission screening to be conducted within the 48 hours 
immediately preceding the IRF admission would preclude IRFs from 
performing the preadmission screening on the patients earlier in their 
acute care hospital stay, as is the practice in some IRFs. They 
suggested that we allow for the possibility that IRFs could update 
their preadmission screenings within the 48 hours immediately preceding 
the IRF admission and have this count toward meeting the preadmission 
screening requirement. One commenter suggested that we require that the 
preadmission screening be conducted within the 96 hours immediately 
preceding the IRF admission, rather than 48 hours.
    Response: We agree with the commenters that the requirement as 
proposed could preclude IRFs from performing preadmission screenings on 
patients earlier in their acute care hospital stays, and we agree that 
performing these preadmission screenings earlier in the acute care 
hospital stays could, in some cases, be beneficial to the patients. For 
this reason, we are changing the requirement to allow for a 
comprehensive preadmission screening that includes all of the required 
elements to be performed more than 48 hours immediately preceding the 
IRF admission, as long as an update is conducted in person or by 
telephone within 48 hours prior to the admission and documented in the 
patient's medical record to update the patient's medical and functional 
status. To be clear, a comprehensive preadmission screening conducted 
entirely by telephone without transmission of the patient's acute care 
hospital records (if the patient is being transferred from the acute 
care hospital) and a review of those records by licensed clinical staff 
in the IRF is not acceptable. However, if the comprehensive 
preadmission screening is completed more than 48 hours prior to the IRF 
admission, the required update within 48 hours of the admission may be 
completed by telephone.
    We do not believe that permitting the entire preadmission screening 
to be conducted within the 96 hours immediately preceding the IRF 
admission, without the benefit of a more recent update, would provide 
sufficiently current information on the patient's medical and 
functional status to allow the rehabilitation physician to make an 
appropriate admission decision.
    Comment: Several commenters expressed concerns about eliminating 
the 3-day to 10-day inpatient assessment period for determining whether 
an IRF admission is appropriate, indicating that IRFs often require 
several days after an IRF admission to assess whether the patient can 
participate in and benefit from the intensive rehabilitation therapy 
provided in IRFs.
    Response: We disagree. The current average length of stay for IRF 
patients is only about 13 days, and the average length of stay for many 
orthopedic patients treated in IRFs is only about 8 days. Given this, 
we believe that it is no longer appropriate to allow up to 10 days in 
an IRF merely to assess the patient. At that point, the average IRF 
patient would already be preparing to be discharged.
    In addition, we believe that, in today's clinical environment, 
licensed physicians with training and experience in rehabilitation are 
able to assess a patient prior to admission to an IRF and determine 
whether there is a reasonable expectation that the patient can 
participate in and benefit from treatment in an IRF. In the unusual 
instance that the rehabilitation physician's reasonable expectation 
prior to admission is not realized once the patient is admitted to the 
IRF, we are allowing the IRF to begin making arrangements to transfer 
the patient to another setting of care and to receive the short stay 
outlier payment for IRF stays of 3 days or less (instead of having the 
entire claim denied), as long as the reasons for the change in the 
patient's status before and after admission are well-documented in the 
patient's medical record.

[[Page 39792]]

B. Requirement for a Post-Admission Physician Evaluation

    We proposed to add a requirement for a post-admission evaluation by 
a rehabilitation physician within 24 hours of admission. The purpose of 
the proposed post-admission evaluation would be to document the 
patient's status on admission to the IRF, compare it to that noted in 
the preadmission screening documentation, and begin development of the 
patient's expected course of treatment that would be completed with 
input from all of the interdisciplinary team members in the overall 
plan of care. We also proposed to require that this document be 
retained in the patient's medical record.
    We received 21 comments on the proposed requirement for a post-
admission physician evaluation, which are summarized below.
    Comment: Several commenters suggested that we allow the physician's 
history and physical (H&P) to satisfy the requirement for the post-
admission physician evaluation.
    Response: While the H&P is a significant component of the admission 
process, the post-admission evaluation performed by the rehabilitation 
physician is meant to include additional information that goes beyond 
that typically found in an H&P. Not only is the post-admission 
evaluation intended to provide a review of the medical history of the 
patient and validate the patient's condition on admission, it also 
provides guidance as to whether or not it is safe to initiate the 
patient's therapy program and it supports the medical necessity of the 
IRF admission. For example, it would be useful for the post-admission 
physician evaluation to (1) describe the clinical rehabilitation 
complications for which the patient is at risk, and the specific plan 
to avoid them, (2) describe the adverse medical conditions that might 
be created due to the patient's comorbidities and the rigours of the 
intensive rehabilitation program, and the methods that might be used to 
avoid them, and (3) predict the functional goals to be achieved within 
the medical limitations of the patient. As such, it is a combination 
medical/functional resource for all team members in the care of the 
patient as they prepare to contribute to the individualized overall 
plan of care.
    Comment: Several commenters suggested that other licensed 
independent practitioners (LIPs), other than the rehabilitation 
physician, be allowed to complete the post-admission evaluation.
    Response: Although LIPs, in many instances, complete H&Ps on IRF 
patients upon admission to the IRF in order to write the medical 
orders, the post-admission physician evaluation requirements go beyond 
an H&P (as discussed above). Thus, we believe that the post-admission 
physician evaluation requires the unique training and experience of the 
rehabilitation physician, as he or she performs a hands-on evaluation 
of the patient.
    Comment: Several commenters expressed concerns that the post-
admission physician evaluation would be difficult to complete with 
input from the interdisciplinary team within 24 hours of the patient's 
admission to the IRF, and that we should therefore extend the 
requirement for completion to either 36 hours or 3 days after the 
patient's admission to the IRF. Additionally, one commenter suggested 
that there is no need for a post-admission physician evaluation simply 
to document that there have been no changes in the patient since the 
preadmission screening, and that the post-admission evaluation would 
therefore not be beneficial or cost-effective.
    Response: We agree with the commenters that it may be difficult for 
the rehabilitation physician to obtain input from all of the 
interdisciplinary team members in time to incorporate this information 
into the post-admission physician evaluation. For this reason, we are 
removing the requirement that the rehabilitation physician obtain input 
from the interdisciplinary team in completing the post-admission 
physician evaluation. However, we continue to believe that it would be 
in the best interest of the patient for the rehabilitation physician to 
consider any input that is available from the interdisciplinary team 
members in completing the post-admission physician evaluation.
    As we indicated in the FY 2010 proposed rule (74 FR 21052 at 
21070), we believe that rehabilitation therapy services should begin as 
soon as possible after a patient is admitted to an IRF, thereby 
increasing the patient's potential for achieving functional goals. For 
this reason, we believe that it is necessary for a patient to be seen 
by a rehabilitation physician within 24 hours of the patient's 
admission. Therefore, we disagree that the post-admission physician 
evaluation should be allowed to occur 36 hours or 3 days later. If 
there are no changes in the patient since the preadmission screening, 
then the patient's condition should be relatively easy for the 
rehabilitation physician to document. However, if there have been 
changes in the patient's medical or functional status, or any other 
changes in the patient's condition or status, from that noted in the 
preadmission screening, documentation of these changes and the reasons 
for these changes is important in determining the continued 
appropriateness of the IRF admission.
    Comment: One commenter asked for clarification regarding whether 
the post-admission physician evaluation requirement affects the IRF-PAI 
assessment reference date or the requirements for completing the IRF-
PAI. Specifically, the commenter asked whether the IRF-PAI must now be 
completed prior to the patient's admission to the IRF.
    Response: The post-admission physician evaluation requirement does 
not affect the IRF-PAI assessment reference date or the requirements 
for completing the IRF-PAI (as described in Sec.  412.610(a)(1)). The 
IRF-PAI cannot be completed prior to the patient's admission to the 
IRF. The IRF-PAI must be completed by the end of the fourth day after 
the patient's admission to the IRF, and should be based on information 
obtained during the first 3 days following the IRF admission.

C. Requirement for an Individualized Overall Plan of Care

    The overall plan of care is essential to providing high-quality 
care in IRFs. Comprehensive planning of the patient's course of 
treatment in the early stages of the IRF stay leads to a more 
coordinated delivery of services to the patient, and such coordinated 
care is a critical aspect of the care provided in IRFs. Thus, we 
proposed to require that an individualized overall plan of care be 
developed for each IRF admission by a rehabilitation physician with 
input from the interdisciplinary team within 72 hours of the patient's 
admission to the IRF, and be retained in the patient's medical record.
    We received 17 comments on the proposed requirement for an 
individualized overall plan of care, which are summarized below.
    Comment: Several commenters suggested that requiring the 
individualized overall plan of care to be completed within 72 hours of 
the patient's admission to the IRF was unrealistic, especially given 
that IRFs are required to complete the IRF patient assessment 
instruments (IRF-PAIs) for each patient by the end of the patient's 
fourth day in the IRF. Several commenters suggested alternative 
requirements, such as adopting the same timing for the individualized 
overall plan of care that we require for completing the IRF-PAI (as 
described in Sec.  412.610(a)(1)), extending the period of

[[Page 39793]]

time for completing the overall plan of care to 96 hours and requiring 
it to be finalized at the first interdisciplinary team meeting, and 
requiring the overall plan of care to be finalized within the first 5 
days of admission.
    Response: We agree that requiring the individualized overall plan 
of care to be completed by the end of the fourth day following the 
patient's admission to the IRF would allow all of the information from 
the IRF-PAI to be incorporated into the patient's overall plan of care, 
thereby enriching the patient's overall plan of care. Thus, we are 
adopting the timeline suggested by several of the commenters and are 
requiring that the overall plan of care be completed by the end of the 
fourth day following the patient's admission to the IRF. We believe 
that the commenters' suggestions for longer timeframes would 
unnecessarily delay the initiation of treatment in the IRF and would, 
thereby, limit patients' potential for achieving functional outcomes.
    Comment: Several commenters suggested that we require the first 
interdisciplinary team meeting to be conducted within the first 4 days 
following the patient's admission to the IRF to develop the 
individualized overall plan of care and to adequately reflect the 
importance of the contributions of the interdisciplinary team to the 
care planning process.
    Response: Although we believe that conducting the first 
interdisciplinary team meeting for each IRF patient within the first 4 
days of admission to develop the overall plan of care would be a good 
practice in IRFs, we do not believe that a team meeting is the only way 
to develop an overall plan of care. As long as all of the required 
elements for the overall plan of care are present in the patient's 
medical record, we believe that it should be left up to each individual 
IRF to determine the best method for developing the patient's overall 
plan of care.
    Comment: One commenter suggested that we provide examples of 
overall individualized plans of care for patients with specific 
conditions.
    Response: We believe that it is important to note that the overall 
plan of care for each IRF patient should be individualized to that 
patient's unique care needs. Thus, we do not believe that it is 
appropriate to provide such examples.

D. Requirements for Evaluating the Appropriateness of an IRF Admission

    In the FY 2010 proposed rule (74 FR 21052 at 21069), we also 
proposed to require that the comprehensive preadmission screening 
include an evaluation of the following proposed requirements that a 
patient must meet to be admitted to an IRF:
    1. Whether the patient's condition is sufficiently stable to allow 
the patient to actively participate in an intensive rehabilitation 
program.
    2. Whether the patient has the appropriate therapy needs for 
placement in an IRF, meaning that the patient requires the active and 
ongoing therapeutic intervention of at least two therapy disciplines 
(physical therapy, occupational therapy, speech-language pathology, or 
prosthetics/orthotics therapy), one of which must be physical or 
occupational therapy.
    3. Whether the patient requires the intensive services of an 
inpatient rehabilitation setting, which is typically measured by 
whether the patient generally requires and can reasonably be expected 
to actively participate in at least 3 hours of therapy per day at least 
5 days per week, and be expected to make measurable improvement that 
will be of practical value to improve the patient's functional capacity 
or adaptation to impairments.
    We received 58 comments on the proposed requirements for evaluating 
the appropriateness of an IRF admission, which are summarized below.
    Comment: Several commenters suggested that we further define what 
we mean by a patient's condition being ``sufficiently stable'' to 
actively participate in an intensive rehabilitation program. Many of 
these commenters expressed concerns that we may not be adequately 
recognizing that IRFs provide an inpatient level of care, similar to 
that provided in acute care hospitals. In addition, one commenter 
expressed the concern that the new regulations would mean that patients 
would have to remain in the acute care hospital longer until their 
conditions stabilized, which would delay the initiation of therapy 
services. Another commenter expressed the concern that the new 
regulations would inappropriately penalize IRFs for fluctuations in a 
patient's condition. One commenter suggested that we revise the 
regulation to require that a patient's condition be sufficiently stable 
``at the time that rehabilitation services are provided,'' while 
another commenter suggested that we require that all services that are 
considered part of the acute care hospital's Medical Severity-
Diagnostic Related Group (MS-DRG) payment bundle be completed prior to 
transfer to the IRF. A third commenter suggested that the determining 
factor of medical stability should be whether the patient can 
participate in the intensive rehabilitation therapy program provided in 
an IRF, at the same time that the IRF manages the patient's medical 
issues.
    Response: We agree with the commenters that IRFs provide a 
hospital-level of care, with a focus on providing post-acute 
rehabilitation therapy services. However, we do not believe that 
patients should be transferred to IRFs before their medical conditions 
are sufficiently stable to enable them to participate in the intensive 
rehabilitation therapy program provided in IRFs. Specifically, we mean 
that, at the time of admission to the IRF, there must be a reasonable 
expectation that the patient is able to tolerate and benefit from the 
intensive rehabilitation services as generally prescribed in this rule 
so that he or she can progressively make the improvements needed to 
achieve results of practical value towards his or her functional 
capacity or adaptation to impairment. However, we note that this does 
not mean that patients' medical conditions will be fully resolved when 
they are admitted to IRFs. As one of the commenters summarized, we are 
requiring that a patient's medical condition be such that it can be 
successfully managed in the IRF setting at the same time that the 
patient is participating in the intensive rehabilitation therapy 
program provided in an IRF.
    Comment: Several commenters expressed concerns that we would be 
imposing too high a standard in requiring the IRF to demonstrate that 
each patient it admits meets the IRF coverage criteria ``at the time of 
admission.'' The commenters suggested, instead, that we require the IRF 
to demonstrate a reasonable expectation at the time of admission that 
the patients would meet the IRF coverage criteria. Alternatively, 
several commenters suggested that we instead require that the patient 
meet the IRF coverage criteria by the assessment reference date for the 
IRF-PAI (that is, by the fourth day following admission to the IRF) or 
by the time that therapy is initiated.
    Response: We agree with several of the commenters that a reasonable 
expectation that the patient meets the IRF coverage criteria at the 
time of admission is sufficient, and are therefore clarifying the 
language to read, ``The facility must ensure that there is a reasonable 
expectation that each patient it admits meets the following 
requirements at the time of admission--.'' This language better 
reflects our intention in proposing this policy. We note that the 
detailed reasoning behind this reasonable expectation must be 
documented in the

[[Page 39794]]

preadmission screening, and that it must be supported by the 
information in the post-admission physician evaluation and the overall 
individualized plan of care. We do not believe that it is appropriate 
to provide 4 days (at which point the IRF would generally receive a 
full CMG payment for the patient) or an undefined amount of time for 
the IRF to determine whether the patient meets the IRF medical 
necessity criteria. This determination should be made at the time of 
admission to the IRF.
    Comment: Several commenters expressed concerns that the ``3-hour 
rule'' could preclude access to IRF care for certain patients who, for 
one reason or another, cannot participate in at least 3 hours of 
intensive therapy at least 5 days per week, but who nonetheless could 
benefit from treatment in an IRF. Several of these commenters suggested 
that this rule would violate Hooper v. Sullivan, No H-80-99 (PCD) (D 
Conn. July 20, 1989). For this reason, some commenters suggested that 
we allow exceptions to this rule for patients who need other 
rehabilitation services, but cannot tolerate 3 hours per day of 
physical therapy, occupational therapy, speech-language pathology, or 
prosthetics/orthotics therapy. Some commenters also suggested that we 
allow for exceptions to this rule for patients who require a lower 
intensity of therapy services but for whom an IRF admission is the only 
way that they can participate in a lower intensity of therapy services. 
In addition, one of the commenters suggested that, in some cases, we 
should provide more flexibility for meeting the needs of the individual 
patient by requiring instead that the IRF provide intensive therapy at 
least 15 hours per week, to be averaged over the week as necessary.
    Response: We believe that patients admitted to IRFs should 
generally require and be reasonably expected to benefit from the 
intensive rehabilitation therapy services that are uniquely provided in 
IRFs. If patients do not need the intensity of services uniquely 
provided in IRFs, or benefit from them, then it is not clear to us why 
they would be admitted to an IRF.
    By order of the Court in Hooper v. Sullivan, rules of thumb cannot 
serve as the basis of a coverage denial. In keeping with this ruling, 
the reasonable and necessary test for coverage of an IRF stay is 
whether the patient received, and could be expected to benefit from, 
``intensive rehabilitation services.'' Please refer to section 110 of 
the Medicare Benefit Policy Manual, once the revisions that we 
anticipate issuing on January 1, 2010 have been published, for more 
specific guidance on what type of information to include when 
documenting an individualized overall plan of care. Although the 
intensity of rehabilitation services can be reflected in various ways, 
the generally-accepted standard by which the intensity of these 
services is typically demonstrated in IRFs is by the provision of 
intensive therapies at least 3 hours per day at least 5 days per week. 
However, we do not intend for this to be the only way such intensity 
can be demonstrated (that is, we do not intend for this measure to be 
used as a ``rule of thumb'' for denying an IRF claim). Rather, we 
suggest that this is one generally accepted way of demonstrating the 
intensity of services provided in an IRF.
    We agree with several of the commenters that the intensity of 
therapy provided in IRFs could also be demonstrated by the provision of 
15 hours of therapy per week (that is, in a 7-consecutive day period 
starting from the date of admission). For example, if a hypothetical 
IRF patient was admitted to an IRF for a hip fracture, but was also 
undergoing chemotherapy for an unrelated issue, the patient might not 
be able to tolerate therapy on a predictable basis due to the 
chemotherapy. Thus, this hypothetical patient might be more effectively 
served by the provision of 4 hours of therapy 3 days per week and 1\1/
2\ hours of therapy on 2 (or more) other days per week in order to 
accommodate his or her chemotherapy schedule. Thus, IRFs may also 
demonstrate a patient's need for intensive rehabilitation therapy 
services by showing that the patient required and could reasonably be 
expected to benefit from at least 15 hours of therapy per week (defined 
as a 7 consecutive day period starting from the date of admission), as 
long as the reasons for the patient's periodic need for this program of 
intensive rehabilitation is well-documented in the patient's medical 
record and the overall amount of therapy is ``intensive'' and can 
reasonably be expected to benefit the patient. We will monitor the 
appropriateness of instances where IRFs demonstrate the required level 
of intensity in this way.
    In addition, we note that we will provide guidance in our manuals 
on additional instances in which we might find that the patient is 
receiving intensive rehabilitation therapy services despite not 
receiving the generally expected intensity of therapy services for a 
brief period of time.
    Comment: Several commenters suggested that we include other 
services, such as recreational therapy, music therapy, respiratory 
therapy, psychology, and neuropsychology, on the list of therapy 
services that IRFs must provide, as needed, under Sec.  412.23(b)(4) 
and Sec.  412.29(c). These commenters also suggested that we specify in 
the new requirements whether ``other rehabilitative services,'' such as 
recreational therapy, music therapy, or respiratory therapy, can be 
used to meet the intensity of therapy requirements, if they are medical 
necessary and ordered by a physician.
    Response: While we believe that IRFs should provide, as needed, 
psychological and neuropsychological services to IRF patients, these 
services are separately billable under Medicare Part B, as described in 
Sec.  411.15(m)(3)(i) and Sec.  411.15(m)(3)(v), and are not included 
in the IRF PPS payment. Thus, while we would expect the IRF to provide 
appropriate medical oversight of any medical or psychiatric problem 
that is present on admission or develops during the stay (in accordance 
with the overall hospital Conditions of Participation at Sec.  
482.12(c)(1)(i), (c)(1)(vi), and (c)(4)), psychological and 
neuropsychological services furnished pursuant to this responsibility 
would not be considered part of the required intensity of therapy 
services that Medicare pays for under the Part A benefit that includes 
payment for IRF PPS services.
    Further, we do not believe that it is appropriate to mandate that 
all IRFs provide recreational therapy, music therapy, or respiratory 
therapy services to all IRF patients, as such services may be 
beneficial to some, but not all, patients as an adjunct to other, 
primary types of therapy services provided in an IRF (physical therapy, 
occupational therapy, speech-language pathology, and prosthetics/
orthotics therapy). However, we do not believe that they should replace 
the provision of these four core skilled therapy services. Thus, we 
believe that it should be left to each individual IRF to determine 
whether offering recreational therapy, music therapy, or respiratory 
therapy is the best way to achieve the desired patient care outcomes. 
While we are not adding these therapies to the list of required therapy 
services in IRFs, we do recognize that they are Medicare-covered 
services in IRFs if the medical necessity is well documented by the 
rehabilitation physician in the medical record and is ordered by the 
rehabilitation physician as part of the overall plan of care for the 
patient. However, consistent with our long-standing policies and 
standard practices, these therapy activities are not used to 
demonstrate that a patient has received intensive therapy services.

[[Page 39795]]

    Comment: Several commenters indicated that the term ``of practical 
value to the patient'' when referring to the level of functional 
improvement that a patient may be expected to attain in an IRF is 
subjective, and suggested that we address improvement in the patient's 
``quality of life'' instead.
    Response: We believe that it will generally be apparent from the 
documentation by the rehabilitation physician whether there is a 
reasonable expectation that a particular functional improvement or 
adaptation to impairment will be of practical value to the patient, 
within the context of his or her individual situation. Quality of life, 
a more global term, is influenced by many factors that are unique to 
the patient, but which may or may not be able to be fully addressed 
during an IRF stay.

E. Requirements for the Interdisciplinary Team Meetings

    Since an interdisciplinary approach to care is such a hallmark of 
the care provided in the IRF setting, we proposed to modify the 
terminology that we use throughout the IRF requirements to specify an 
``interdisciplinary'' approach to care rather than a 
``multidisciplinary'' approach. Further, since the length of many IRF 
stays has decreased significantly in recent years, we proposed to 
require that the interdisciplinary team meetings occur at least once 
per week throughout each IRF stay (instead of at least once every two 
weeks, as the previous regulations stated).
    Also, to improve the effectiveness and coordination of the care 
provided to IRF patients and to better reflect best practices in IRFs, 
we proposed to broaden the requirements regarding the professional 
personnel that are expected to participate in the interdisciplinary 
team meetings. We proposed that, at a minimum, the interdisciplinary 
team must consist of professionals from the following disciplines (each 
of whom must have current knowledge of the beneficiary as documented in 
the medical record):
    <bullet> A rehabilitation physician with specialized training and 
experience in rehabilitation services;
    <bullet> A registered nurse with specialized training or experience 
in rehabilitation;
    <bullet> A social worker or a case manager (or both); and
    <bullet> A licensed or certified therapist from each therapy 
discipline involved in treating the patient.
    Although the purpose of the proposed requirement for 
interdisciplinary team meetings is to allow the exchange of information 
from all of the different disciplines involved in the patient's care, 
we indicated in the proposed rule that we believe that it is important 
to designate one person, specifically the rehabilitation physician, to 
be responsible for making the final decisions regarding the patient's 
IRF care. Thus, we proposed to require that the rehabilitation 
physician document concurrence with all decisions made by the 
interdisciplinary team at each meeting.
    As discussed above, we also proposed to require that the 
interdisciplinary team include registered nurses with specialized 
training or experience in rehabilitation. However, we proposed to 
eliminate the requirement that IRFs demonstrate that the patients need 
24-hour rehabilitation nursing care because we believe that the 
patient's need for this care would already be identified by the 
clinical risk factors documented in the patient's medical record. 
However, as discussed below, several of the commenters misinterpreted 
our proposed elimination of this admission criterion as an indication 
that CMS was no longer valuing rehabilitation nursing in IRFs. We 
emphasize that it was not our intention to diminish the value of 
rehabilitation nursing in IRFs; we merely believe that this requirement 
should be a facility requirement rather than an IRF admission 
criterion.
    We received 10 comments on the proposed requirements for the 
interdisciplinary team meetings, which are summarized below.
    Comment: The majority of commenters agreed that weekly 
interdisciplinary team meetings were the standard of care in IRFs 
today, and therefore supported this policy. However, one commenter 
suggested that this requirement would remove the flexibility and 
individualization in IRFs. This commenter indicated that communication 
among disciplines in an IRF is ongoing and often informal, and that the 
requirement for a representative of every treating discipline to be 
present at every team meeting is excessive. The commenter suggested 
that the presence of one appointed therapist with knowledge of the 
patient's progress would be sufficient for the team meeting.
    Response: As discussed in the FY 2010 proposed rule (74 FR 21052 at 
21070), the purpose of the interdisciplinary team meeting is to foster 
communication among disciplines to establish, prioritize, and achieve 
treatment goals. Though we agree that informal communications among the 
disciplines on a daily basis are beneficial for the patient, we believe 
that it is important to require that all treating disciplines meet 
formally at least once per week to maximize the patient's potential for 
meeting the treatment goals.
    Comment: Several commenters expressed concerns about the removal of 
the 24-hour rehabilitation nursing requirement from the IRF coverage 
criteria, indicating that we were not sufficiently recognizing the 
value of rehabilitation nursing in IRFs.
    Response: As discussed above, we proposed to require that the 
interdisciplinary team include registered nurses with specialized 
training or experience in rehabilitation. However, we proposed to 
eliminate this as a coverage criterion because we believe that this 
criterion should be a facility-level requirement rather than a patient 
admission criterion. As a coverage criterion, the patient's need for 
this care would already be identified by the clinical risk factors 
documented in the patient's medical record.
    Comment: One commenter asked for clarification regarding whether 
the first team conference would be required to be conducted within the 
first 72 hours of the patient's admission to the IRF in order to 
develop the overall individualized plan of care, or whether it would be 
required to be conducted within the first four days of admission to 
correspond with the completion of the IRF-PAI.
    Response: We are merely requiring the first team conference to 
occur within the first week of the patient's admission to the IRF. 
While we believe that it may be good practice to conduct the first team 
meeting within the first 4 days to develop the overall individualized 
plan of care, we believe that there may be other ways of developing the 
overall individualized plan of care, and we believe that IRFs should 
have the flexibility to develop this documentation using whatever 
internal processes they believe are most appropriate.

F. Requirement for Physician Supervision

    One of the primary reasons for a patient to receive rehabilitation 
therapy services in an inpatient hospital (that is, IRF) setting is 
that the patient's medical conditions require close medical 
supervision. In the past, the definition of close medical supervision 
has been vague. During the past 25 years, it was often assumed that 
``close medical supervision'' was demonstrated by frequent changes in 
orders due to a patient's fluctuating medical status. Currently, 
however, patients' medical conditions can be more effectively managed 
so that they are less likely to

[[Page 39796]]

fluctuate and interfere with the rigorous program of therapies provided 
in an IRF.
    In addition, the medical complexity of rehabilitation patients has 
increased over time and they often require the services of multiple 
physicians to manage their medical conditions and ensure that they are 
able to maximize their rehabilitation potential in the IRF. Therefore, 
while multiple specialists may visit the patient at the IRF, we believe 
that it is the unique responsibility of the rehabilitation physician to 
coordinate the patient's medical needs with his or her functional 
rehabilitation needs while in the facility. Thus, we proposed to 
require that a rehabilitation physician conduct face-to-face visits 
with the patient at least 3 days per week throughout the patient's IRF 
stay to assess the patient both medically and functionally, as well as 
to modify the course of treatment as needed to maximize the patient's 
capacity to benefit from the intensive rehabilitation program provided 
in the IRF.
    We received 7 comments on the proposed requirement for physician 
supervision, which are summarized below.
    Comment: Several commenters stated that the requirement for a 
minimum of 3 face-to-face visits with the rehabilitation physician per 
week was reasonable. However, several commenters noted further that a 
reasonable standard of care would require physicians to see an IRF 
patient on a more frequent basis.
    Response: We believe that each patient in an IRF requires an 
individualized standard of care. We also acknowledge that each IRF can 
develop its own standards as to what specialists are available to 
provide medical services to its patients and the frequency of their 
visitation that supports patient safety. However, our proposal refers 
only to our belief that a rehabilitation physician is that professional 
who is uniquely qualified to assess all aspects of the patient's 
medical condition (with input from others as needed) and apply this 
knowledge to modify or advance the program of therapies that the 
patient is receiving in the IRF to provide for a desirable functional 
outcome. We believe that consideration or reassessment of the patient's 
functional goals at least 3 times per week by the rehabilitation 
physician and his or her documentation of these visits in the medical 
record is the minimum standard that should be applied in an IRF. All 
IRFs may increase the frequency of the physician visits as they believe 
best serves their patient populations.

G. Requirement Regarding Initiation of Therapy Services

    In addition to the proposed regulatory changes discussed above, we 
proposed to require that the required therapy treatments begin within 
36 hours after the patient's admission to the IRF.
    We received 9 comments on the proposed requirement regarding the 
initiation of therapy services, which are summarized below.
    Comment: Several commenters expressed concerns about the 
requirement that therapies be initiated within 36 hours of admission to 
the IRF. They indicated that this would require therapies to be 
initiated by 4 a.m. on Sunday for patients admitted to the IRF at 4 
p.m. on Friday, and that this would be unrealistic. They also indicated 
that therapy staff generally do not treat patients on weekends, and 
that this provision would create staffing problems for IRFs. For this 
reason, the commenters suggested that we either leave it to the 
physician's judgment to determine when therapy treatments should begin, 
require therapy to be initiated within a ``reasonable period of time'' 
from admission to the IRF, or require that therapy be initiated within 
36 or 48 hours from midnight of the day of admission.
    Response: IRFs are a specialized type of hospital and, like acute 
care hospitals, are supposed to provide services 7 days a week. 
Therefore, just as we do not believe that patients who are admitted to 
acute care hospitals on Friday should have to wait until Monday to have 
their acute care needs met, we also do not believe that IRF patients 
who are admitted to IRFs on Friday should have to wait until Monday to 
have their rehabilitation therapy needs met. Given that the average 
length of stay in IRFs is only about 13 days, and that the average 
length of stay for certain orthopedic patients is only about 8 days, we 
believe that it would be unreasonable for an IRF not to provide 
rehabilitation therapies to patients on the weekend, as this would mean 
that patients would not be participating in therapies for a significant 
portion of their stay in the IRF. Further, since patients' potential 
for functional recovery often depends on initiating rehabilitation 
therapies as early as possible, we believe that it is essential that 
IRFs provide rehabilitation therapy on weekends to ensure that patients 
are able to maximize their functional goals.
    Thus, our intent is to require IRFs to initiate rehabilitation 
therapies as soon as possible after admission to the IRF. We had 
proposed to require that IRFs initiate therapy no later than 36 hours 
after a patient's admission to the IRF. However, some commenters 
suggested that this would mean that patients admitted to IRFs at 4 p.m. 
on Friday would need to being therapy by 4 a.m. on Sunday, and that 
this would effectively require IRFs to begin therapies on Saturday. As 
it was not our intention to be this restrictive, we are instead 
requiring that IRFs initiate therapies for all patients within 36 hours 
from midnight of the day of admission. So, for example, a hypothetical 
patient admitted to the IRF at 4 p.m. on Friday would need to begin 
therapies by noon on Sunday.
    Comment: Several commenters suggested that we specify whether 
therapy evaluations would satisfy the requirement for the initiation of 
therapy.
    Response: Therapy evaluations would satisfy the requirement for 
therapy to be initiated within 36 hours from midnight of the day of 
admission.

H. Provision of Group Therapies in IRFs

    As we discussed in the FY 2010 proposed rule (74 FR 21052, 21070 
through 21071), another critical aspect of IRF care is that 
rehabilitation therapy services are generally provided to each patient 
by a licensed or certified therapist working directly with the patient, 
more commonly known as one-on-one therapy. It has come to our attention 
that some IRFs are providing essentially all ``group therapy'' to their 
patients. We believe that group therapies may have a role in patient 
care in an IRF, but that they should be used in IRFs primarily as an 
adjunct to one-on-one therapy services which should be the standard of 
care in therapy service provided to IRF patients. We believe that group 
therapy should be considered as a supplement to the intensive 
individual therapy services generally provided in an IRF. To improve 
our understanding of when group therapy may be appropriate in IRFs, we 
specifically solicited comments on the types of patients for which 
group therapy may be appropriate, and the specific amounts of group 
therapies instead of one-on-one therapies that may be beneficial for 
these types of patients. We stated that we anticipated using this 
information to assess the appropriate use of group therapies in IRFs 
and that we might create standards for group therapies in IRFs.
    We received 32 comments regarding our request for comments on the 
types of patients for which group therapy may be appropriate, and the 
specific

[[Page 39797]]

amounts of group instead of one-on-one therapies that may be beneficial 
for these types of patients.
    Comment: A majority of the commenters stated that group therapies 
do have an important role in the provision of therapies in IRFs, but 
they also suggested that the amount of group therapies provided in IRFs 
should be limited in some way. Many commenters agreed that group 
therapies are a good adjunct to one-on-one therapies, but should not be 
the primary source of therapy services provided in IRFs. Several 
commenters suggested that the size of the groups should not exceed 2 to 
4 patients for every one licensed therapist, and that the groups should 
be comprised of patients with similar diagnoses. Commenters generally 
suggested that we conduct further research and consult with experts 
before proposing standards for the provision of group therapies in 
IRFs.
    Response: As we have stated, the standard of care for IRF patients 
is individualized therapy. Group therapies serve as an adjunct to 
individual therapies. In those instances in which group therapy better 
meets the patient's needs on a limited basis, the situation/rationale 
that justifies group therapy should be specified in the patient's 
medical record. We plan to consider the adoption of specific standards 
on the use of group therapies at a future date. We appreciate the 
information that the commenters provided.

I. Clarifying and Conforming Amendments

    In the FY 2010 proposed rule (74 FR 21052, 21080 through 21081), we 
proposed revisions to Sec.  412.23 and Sec.  412.29 to combine the 
facility classification requirements for rehabilitation hospitals and 
rehabilitation units of acute care hospitals into one section at Sec.  
412.29, and to add the new coverage requirements to Sec.  412.29. 
However, upon reviewing the comments that we received on the proposed 
rule, we realized that combining the requirements for hospital-based 
and freestanding IRFs into one section, and including coverage 
requirements in that same section, resulted in some confusion about 
whether and to what extent the facility requirements were being 
altered, and whether we were making coverage criteria a classification 
requirement. To eliminate this confusion, we are retaining the separate 
sections at Sec.  412.23 and Sec.  412.29 (governing facility 
requirements for rehabilitation hospitals and rehabilitation units, 
respectively) and making conforming changes to these two sections to 
mirror the new coverage criteria, which appear in the new sections 
Sec.  412.622(a)(3), Sec.  412.622(a)(4), and Sec.  412.622(a)(5). 
However, the facility criteria requirements, as modified, will be 
retained in Sec.  412.23 and Sec.  412.29. These facility criteria will 
not be used to determine whether individual IRF claims are for services 
that are reasonable and necessary under section 1862(a)(1) of the Act. 
The conforming changes, which we are making to the identical text in 
both Sec.  412.23 and Sec.  412.29 are:
    <bullet> To remove the words ``or assessment'' from Sec.  
412.23(b)(3) and Sec.  412.29(b) to indicate that we are no longer 
providing for a 3 to 10 day inpatient assessment period after admission 
to assess the appropriateness of the IRF admission, as discussed above.
    <bullet> To amend paragraphs Sec.  412.23(b)(4) and Sec.  412.29(c) 
to require that IRFs ``furnish, through the use of qualified personnel, 
rehabilitation nursing, physical therapy, and occupational therapy, 
plus, as needed, speech-language pathology, social services, 
psychological services (including neuropsychological services), and 
orthotic and prosthetic services.'' This amendment is in response to 
comments, as discussed above. To replace the word ``multidisciplinary'' 
with the word ``interdisciplinary'' in Sec.  412.23(b)(7) and Sec.  
412.29(e) to make the terminology consistent with the new IRF coverage 
criteria in the newly created Sec.  412.622(a)(3), Sec.  412.622(a)(4), 
and Sec.  412.622(a)(5). To require, in both Sec.  412.23(b)(7) and 
Sec.  412.29(e), that the interdisciplinary team meetings occur at 
least once per week to be consistent with the new IRF coverage criteria 
in the newly created Sec.  412.622(a)(3), Sec.  412.622(a)(4), and 
Sec.  412.622(a)(5).
    To eliminate any further confusion about whether we are 
promulgating new IRF coverage requirements or new facility 
classification requirements in this final rule, we are withdrawing all 
other proposed changes to Sec.  412.23 and Sec.  412.29 at this time.

J. HCFAR 85-2 Ruling

    As noted previously, the HCFAR is outdated and inconsistent with 
the IRF PPS. The adoption of the proposed coverage criteria would 
establish a new legal framework. These new regulatory requirements 
would not mirror the provisions in HCFAR 85-2. Therefore, to prevent 
further confusion over which document provides instructions on the IRF 
PPS regulations, we proposed that HCFAR 85-2 would be rescinded and new 
manual provisions offering guidance on the new regulatory coverage 
criteria would be issued. In light of the adoption of a new regulatory 
framework under this final rule, it is appropriate to rescind HCFAR 85-
2. We now realize, however, that the rescission needs to be done 
through issuance of a notice in the Federal Register. Thus, we will 
issue a notice in the Federal Register at a future date to notify the 
public of the rescission of HCFAR 85-2, effective for IRF discharges 
occurring on or after January 1, 2010. We anticipate that the new 
regulatory requirements that are adopted by this rule, once 
implemented, will be further interpreted by new manual provisions that 
will be placed in Chapter 1, Section 110 of the MBPM.
    We received 14 comments on the proposed rescission of HCFAR 85-2, 
which are summarized below.
    Comment: Several commenters expressed concern that rescinding HCFAR 
85-2 prior to issuing manual revisions would negatively affect IRF 
claims denials that are currently being reviewed by ALJs.
    Response: We will rescind HCFAR 85-2 in a future notice issued in 
the Federal Register prior to the implementation of the new regulatory 
provisions. We anticipate issuing manual guidance that will interpret 
the new regulations. The new regulatory provisions will become 
effective for IRF discharges occurring on or after January 1, 2010. 
Thus, as we will discuss in a future notice to be issued in the Federal 
Register, HCFAR 85-2 will continue to apply for all IRF discharges that 
occur prior to January 1, 2010. Once the updated regulations become 
effective, ALJs will be able to use the new, clarified regulations. We 
believe that simplifying and clarifying the rules will make the rules 
easier for all stakeholders, including ALJs, IRFs, and Medicare 
contractors, to understand and to follow. In so doing, we believe that 
the updated regulations will reduce the number of disputed IRF claims 
denials that will be appealed to the ALJ level.
    Final Decision: After carefully considering all of the comments we 
received on the proposed updates to the IRF coverage requirements, we 
are finalizing the regulation text changes as proposed, except for the 
revisions in response to comment indicated below. In addition, to 
eliminate any confusion that these coverage requirements are 
requirements for determining whether an IRF claim meets the reasonable 
and necessary provision of the statute rather than facility 
classification requirements, we are moving these coverage requirements 
to a newly created Sec.  412.622(a)(3), Sec.  412.622(a)(4), and Sec.  
412.622(a)(5). Finally, we will rescind

[[Page 39798]]

HCFAR 85-2 in a future notice to be issued in the Federal Register.
    We are adding requirements to Sec.  412.622(a) as shown in the 
regulatory text of this final rule.

IX. Revisions to the Regulation Text To Require IRFs To Submit Patient 
Assessments on Medicare Advantage Patients for Use in the ``60 Percent 
Rule'' Calculations

A. Background on the ``60 Percent Rule'' Calculations

    In order to be excluded from the acute care inpatient hospital PPS 
specified in Sec.  412.1(a)(1) and instead be paid under the IRF PPS, 
rehabilitation hospitals and units must meet, among other things, the 
requirements in Sec.  412.23(b)(2). According to this section, at least 
60 percent of an IRF's total inpatient population must require 
intensive rehabilitative services for treatment of one or more of 13 
specified conditions.
    The instructions that we provide to Medicare contractors in Chapter 
3, section 140 of the Medicare Claims Processing Manual, Internet-Only 
Manual (IOM) Pub. 100-04, provide for two methodologies that Medicare 
contractors may use to determine whether an IRF's patient population 
meets the requirements in Sec.  412.23(b)(2). We refer to the first of 
these two methodologies as the ``presumptive methodology.'' This 
methodology uses the IRF-PAI information that is submitted for Medicare 
Part A fee-for-service inpatients under Sec.  412.604 and Sec.  
412.618. It is ``presumptive'' in that, while Sec.  412.23(b)(2) 
specifies that an IRF's total inpatient population must meet the 60 
percent rule requirements, this method examines only the Medicare 
patient data and extrapolates from this the compliance percentage for 
the IRF's entire inpatient population. The presumptive methodology uses 
computer software to examine each IRF-PAI for the presence of 
particular diagnostic codes that indicate whether a patient has one of 
the 13 medical conditions listed in Sec.  412.23(b)(2)(ii). If the 
computer software determines that the patient has one or more of the 
diagnostic codes that represent one of the 13 medical conditions listed 
in Sec.  412.23(b)(2)(ii), then that patient is counted in the 
presumptive methodology calculation of that IRF's compliance 
percentage; otherwise, the patient is not counted. Once the computer 
software has examined all of the IRF-PAIs submitted by a particular 
IRF, the computer software computes the presumptive compliance 
percentage for that IRF. The percentage that the software computes is 
equal to the total number of IRF-PAIs with one or more diagnostic codes 
representing the 13 medical conditions listed in Sec.  412.23(b)(2)(ii) 
divided by the total number of IRF-PAIs submitted by the IRF. This 
becomes the IRF's presumptive compliance percentage, which is then 
compared with the required minimum compliance percentage to determine 
whether the IRF has met the required minimum compliance percentage for 
the designated compliance review period.
    In accordance with IOM instructions in Chapter 3, section 140 of 
the Medicare Claims Processing Manual, the presumptive methodology 
described above is used when the Medicare contractor has verified that 
the IRF's Medicare Part A fee-for-service inpatient population is 
representative of the facility's total inpatient population. For this 
to be the case, the IOM instructions specify that the IRF's Medicare 
Part A fee-for-service inpatient population must be at least 50 percent 
or more of the IRF's total inpatient population. If the IRF's Medicare 
Part A fee-for-service inpatient population is less than 50 percent of 
the IRF's total inpatient population, then we cannot verify that the 
IRF-PAI data are representative of the IRF's total inpatient 
population. Therefore, in these situations, we require the Medicare 
contractors to use the second of the 2 methodologies to determine the 
IRF's compliance percentage.
    The second methodology is commonly known as the ``medical review'' 
methodology. This methodology requires the Medicare contractor to 
review a sample of medical records from the IRF's total inpatient 
population (which may consist of all of the IRF's medical records if 
the IRF has 100 or fewer inpatients during the review period) to 
determine the IRF's compliance percentage. The medical review 
methodology may be used at any time at the discretion of the Medicare 
contractor, but we specifically require its use if the IRF's Medicare 
Part A fee-for-service inpatient population is less than 50 percent of 
the IRF's total inpatient population (as described above) or if the IRF 
fails to meet the minimum compliance percentage using the presumptive 
methodology.

B. Requirement To Submit Assessment Data on Medicare Advantage Patients

    As described above, the presumptive methodology relies on the IRF-
PAI data that is submitted under Sec.  412.604 and Sec.  412.618. To 
use the presumptive methodology, the Medicare Part A fee-for-service 
inpatient population must make up at least 50 percent or more of the 
IRF's total inpatient population.
    Since 2004, however, increasing numbers of Medicare beneficiaries 
in many areas of the country have been enrolling in Medicare Advantage 
(MA) plans rather than remaining in the traditional Medicare Part A 
fee-for-service program. This, in turn, has led to decreases in the 
number of Medicare Part A fee-for-service inpatients in certain IRFs 
across the country and has resulted in a reduction in the number of 
IRFs for whom the presumptive methodology can be used.
    Thus, although we have not required IRFs to submit IRF-PAI data on 
MA patients until now, we proposed in the FY 2010 IRF PPS proposed rule 
(74 FR 21052, 21071 through 21073) to revise the regulation text in 
Sec.  412.604, Sec.  412.606, Sec.  412.610, Sec.  412.614, and Sec.  
412.618 to require that IRFs submit IRF-PAI data on all of their MA 
patients to facilitate better calculations under the 60 percent rule. 
Where an IRF fails to submit all MA IRF PAIs, we proposed that CMS 
would not count the MA patients in the compliance percentage for that 
IRF. In addition, to ensure that we receive all IRF-PAI data for all 
Medicare patients, whether Part A or Part C, we proposed to remove 
Sec.  412.614(a)(3) of the regulations that formerly allowed IRFs not 
to submit IRF-PAI's for Medicare patients for whom they were not 
seeking payment from Medicare. However, we specifically solicited 
comments on whether requiring IRFs to submit IRF-PAI data on all of 
their MA patients would be the best way to ensure the integrity of the 
compliance review process.
    Requiring IRFs to submit IRF-PAIs for all of their MA inpatients, 
in addition to all of their Medicare Part A fee-for-service inpatients, 
will allow Medicare contractors to begin using the presumptive 
methodology to determine IRFs' compliance percentages when the Part A 
fee-for-service and MA inpatient populations combined are more than 50 
percent of their total inpatient populations. We proposed to preserve 
the long-standing 5-year record retention requirement for the IRF-PAIs 
completed on Medicare Part A fee-for-service patients, as currently 
required in Sec.  412.610(f), but we proposed a 10-year record 
retention requirement for IRF-PAIs completed on Medicare Part C 
(Medicare Advantage) patients to maintain consistency with the record 
retention requirements for Medicare Part C data specified in Sec.  
422.504(d).
    We received 21 comments on the proposed revisions to the regulation 
text to require IRFs to submit patient

[[Page 39799]]

assessments on MA patients for use in the 60 percent rule calculations, 
which are summarized below.
    Comment: The majority of commenters supported the proposed change 
to the regulation text to allow Medicare Advantage patients to be 
counted in the 60 percent rule calculations. However, individual 
commenters offered differing suggestions regarding the effective date 
of the proposed change. One commenter suggested that CMS delay 
implementing the new reporting requirements until at least FY 2011; 
another commenter suggested rapid implementation of this requirement so 
that the MA IRF-PAIs could be used in the 60 percent compliance 
calculations for current compliance review periods that are already 
underway as of October 1, 2009; and a third commenter suggested that 
the change should be made effective for compliance review periods 
beginning on or after October 1, 2009.
    Response: We agree with the commenters that it is important to 
recognize the increasing population of MA patients in many areas. We 
also agree that this change will make the compliance reviews easier for 
certain IRFs with high percentages of MA patients and for the fiscal 
intermediaries or Medicare Administrative Contractors that review these 
IRFs' compliance with the 60 percent rule. Further, we agree with one 
of the commenter's suggestions that the change should be made effective 
for compliance review periods beginning on or after October 1, 2009 and 
we are adopting this effective date.
    Comment: Several commenters suggested that the proposed policy to 
not use any of an IRF's MA IRF-PAIs in the compliance calculations if 
the IRF does not submit all of them is overly strict, and that we 
should allow for some reasonable exceptions. Many of these commenters 
also objected to the proposed removal of the exception for submission 
of IRF-PAIs on Part A fee-for-service patients. However, one commenter 
supported the proposed requirements for submitting all of the MA IRF-
PAIs, indicating that it was a ``fair and equitable'' policy that would 
avoid ``cherry-picking'' and reduce the creation of unfair advantages 
among IRFs.
    Response: As we did not receive any specific suggestions regarding 
a better way of ensuring the integrity of the compliance review 
process, we believe that requiring IRFs to submit IRF-PAIs on all of 
their MA patients and not including MA patients in the compliance 
calculations for those IRFs that do not submit all of their MA IRF-PAIs 
is the only way to ensure the integrity of the compliance review 
process.
    Comment: One commenter said that IRFs might not always know the 
Medicare identification numbers for their MA patients, and suggested 
that we provide a way for IRFs to send the IRF-PAI data on MA patients 
without the Medicare identification number.
    Response: To preserve the integrity of the compliance percentage 
review process, we believe that it is important to require that the 
patient's Medicare identification number be recorded on the IRF-PAI for 
MA patients. Having the Medicare identification numbers on the IRF-PAIs 
will allow us to verify the information that we obtain from the MA IRF-
PAIs with the MA claims that hospitals are required to submit to CMS 
for informational purposes. Currently, all IPPS hospitals, IRFs, and 
long-term care hospitals (LTCHs) are required to submit abbreviated 
Medicare claims on their MA patients for use in the DSH and LIP 
adjustment calculations. To enable IRFs to submit the required MA 
claims, the Medicare managed care organizations are already providing 
IRFs with the Medicare beneficiary identification numbers anytime an MA 
patient is admitted to the IRF. Since IRFs are already obtaining this 
information for the MA claims, we do not believe that it will be a 
problem for IRFs to record this same information on the IRF-PAIs.
    Comment: One commenter suggested that we change the wording in 
Sec.  412.606(c)(1) to recognize that multiple clinicians may provide 
information for completing an IRF-PAI, rather than specifying that only 
a single clinician may complete it.
    Response: We agree with the commenter and are making the suggested 
change.
    Comment: One commenter suggested that we revise the presumptive 
methodology calculation to include non-Medicare patients, including 
patients that pay for their own IRF care.
    Response: We will consider the commenter's suggestion. However, we 
do not believe that we have the authority to require IRFs to submit 
IRF-PAIs on non-Medicare patients.
    Comment: Several commenters objected to the different record 
retention requirements for the IRF-PAIs on Part A fee-for-service 
patients and those on MA patients.
    Response: As noted previously, we proposed to preserve the long-
standing 5-year record retention requirement for the IRF-PAIs completed 
on Medicare Part A fee-for-service patients, as currently required in 
Sec.  412.610(f), but we proposed a 10-year record retention 
requirement for IRF-PAIs completed on Medicare Part C (Medicare 
Advantage) patients to maintain consistency with the record retention 
requirements for Medicare Part C data specified in Sec.  422.504(d). We 
believe that the proposed IRF-PAI record retention requirements are the 
only way to maintain consistency with the different record retention 
requirements in each of these two sections of the regulation.
    Comment: Several commenters suggested that we consider exceptions 
to the proposed penalty for late submission of the Medicare Advantage 
IRF-PAIs and that the exceptions should apply to both Medicare and 
Medicare Advantage patients. One commenter indicated that it would be 
completely unreasonable for CMS to impose the penalty of total 
exclusion of the Medicare Advantage IRF-PAI data based on one late 
submission.
    Response: We understand the concerns expressed by the commenters 
and agree that a limited exception to this policy is warranted. We 
currently provide for a limited exception to the application of the 
IRF-PAI penalty for late submission under Sec.  412.614(e). In this 
final rule, we will amend section 412.614(e) to include late 
transmission of MA IRF-PAIs, thereby providing for a limited exception 
to the penalty for late transmission of the MA IRF-PAIs due to 
extraoridinary situations that are beyond the control of the IRF.
    Final Decision: After carefully considering the comments that we 
received on the proposed revisions to the regulation text to require 
IRFs to submit patient assessments on Medicare Advantage patients for 
use in the 60 percent rule calculations, we are finalizing the 
following revisions to the regulation text in Sec.  412.604, Sec.  
412.606, Sec.  412.610, Sec.  412.614, and Sec.  412.618. Specifically, 
we are adding Medicare Part C (Medicare Advantage) patients to the 
patients for whom IRFs must complete and submit an IRF-PAI, removing 
the paragraph that allows IRFs not to submit IRF PAI data in instances 
in which the IRF does not submit a claim to Medicare, and rejecting MA 
IRF-PAI data that is not complete. Thus, we are finalizing the changes 
to the regulation text as follows:
    <bullet> In Sec.  412.604(c), we are adding the following sentence 
to the end of the paragraph: ``IRFs must also complete a patient 
assessment instrument in accordance with Sec.  412.606 for each 
Medicare Part C (Medicare Advantage) patient admitted to or discharged 
from an IRF on or after October 1, 2009.'' Thus, the paragraph would 
read as follows: ``For each Medicare Part A fee-for-service patient 
admitted to or

[[Page 39800]]

discharged from an IRF on or after January 1, 2002, the inpatient 
rehabilitation facility must complete a patient assessment instrument 
in accordance with Sec.  412.606. IRFs must also complete a patient 
assessment instrument in accordance with Sec.  412.606 for each 
Medicare Part C (Medicare Advantage) patient admitted to or discharged 
from an IRF on or after October 1, 2009.''
    <bullet> In Sec.  412.606(b), we are adding the phrase ``and 
Medicare Part C (Medicare Advantage)'' after ``fee-for-service'' and 
before ``inpatients.'' The paragraph reads as follows: ``An inpatient 
rehabilitation facility must use the CMS inpatient rehabilitation 
facility patient assessment instrument to assess Medicare Part A fee-
for-service and Medicare Part C (Medicare Advantage) inpatients who--''
    <bullet> In Sec.  412.606(c)(1), we are adding a sentence at the 
end of the existing paragraph that reads as follows: ``IRFs must also 
complete a patient assessment instrument in accordance with Sec.  
412.606 for each Medicare Part C (Medicare Advantage) patient admitted 
to or discharged from an IRF on or after October 1, 2009.''
    <bullet> In Sec.  412.610(a), we are adding the phrase ``and 
Medicare Part C (Medicare Advantage)'' after ``fee-for-service'' and 
before ``inpatient.'' The paragraph reads as follows: ``For each 
Medicare Part A fee-for-service or Medicare Part C (Medicare Advantage) 
inpatient, an inpatient rehabilitation facility must complete a patient 
assessment instrument as specified in Sec.  412.606 that covers a time 
period that is in accordance with the assessment schedule specified in 
paragraph (c) of this section.''
    <bullet> In Sec.  412.610(b), we are adding the phrase ``or 
Medicare Part C (Medicare Advantage)'' after ``fee-for-service'' and 
before ``inpatient.'' The paragraph reads as follows: ``The first day 
that the Medicare Part A fee-for-service or Medicare Part C (Medicare 
Advantage) inpatient is furnished Medicare-covered services during his 
or her current inpatient rehabilitation facility hospital stay is 
counted as day one of the patient assessment schedule.''
    <bullet> In Sec.  412.610(c), we are adding the phrase ``or 
Medicare Part C (Medicare Advantage)'' after ``fee-for-service'' and 
before ``patient's.'' The paragraph reads as follows: ``The inpatient 
rehabilitation facility must complete a patient assessment instrument 
upon the Medicare Part A fee-for-service or Medicare Part C (Medicare 
Advantage) patient's admission and discharge as specified in paragraphs 
(c)(1) and (c)(2) of this section.''
    <bullet> In Sec.  412.610(c)(1)(i)(A), we are adding the phrase 
``or Medicare Part C (Medicare Advantage)'' after ``fee-for-service'' 
and before ``hospitalization.'' The paragraph reads as follows: ``Time 
period is a span of time that covers calendar days 1 through 3 of the 
patient's current Medicare Part A fee-for-service or Medicare Part C 
(Medicare Advantage) hospitalization; * * *''
    <bullet> In Sec.  412.610(c)(2)(ii)(B), we are adding the phrase 
``or Medicare Part C (Medicare Advantage)'' after ``fee-for-service'' 
and before ``inpatient,'' so that the resulting paragraph reads as 
follows: ``The patient stops being furnished Medicare Part A fee-for-
service or Medicare Part C (Medicare Advantage) inpatient 
rehabilitation services.''
    <bullet> In Sec.  412.610(f), we are adding the phrase ``and 
Medicare Part C (Medicare Advantage) patients within the previous 10 
years'' after ``5 years'' and before ``either,'' and also adding the 
phrase ``and produce upon request to CMS or its contractors'' after 
``obtain.'' The paragraph reads as follows: ``An inpatient 
rehabilitation facility must maintain all patient assessment data sets 
completed on Medicare Part A fee-for-service patients within the 
previous 5 years and Medicare Part C (Medicare Advantage) patients 
within the previous 10 years either in a paper format in the patient's 
clinical record or in an electronic computer file format that the 
inpatient rehabilitation facility can easily obtain and produce upon 
request to CMS or its contractors.'' This maintains consistency with 
the 5-year record retention requirements for IRF-PAIs completed on 
Medicare Part A fee-for-service patients specified in Sec.  412.610(f) 
and the 10-year record retention requirements for Medicare Part C 
(Medicare Advantage) records specified in Sec.  422.504(d)(1)(ii).
    <bullet> In Sec.  412.614(a), we are adding the phrase ``and 
Medicare Part C (Medicare Advantage)'' after ``fee-for-service'' and 
before ``inpatient,'' the paragraph reads as follows: ``The inpatient 
rehabilitation facility must encode and transmit data for each Medicare 
Part A fee-for-service and Medicare Part C (Medicare Advantage) 
inpatient--''
    <bullet> We are removing Sec.  412.614(a)(3).
    <bullet> In Sec.  412.614(b)(1), we are adding the phrase ``and 
Medicare Part C (Medicare Advantage)'' after ``fee-for-service'' and 
before ``inpatient,'' the paragraph reads as follows: ``Electronically 
transmit complete, accurate, and encoded data from the patient 
assessment instrument for each Medicare Part A fee-for-service and 
Medicare Part C (Medicare Advantage) inpatient to our patient data 
system in accordance with the data format specified in paragraph (a) of 
this section; and * * *''
    <bullet> We are revising Sec.  412.614(d) to read, ``Consequences 
of failure to submit complete and timely IRF-PAI data, as required 
under paragraph (c) of this section.''
    <bullet> We are revising Sec.  412.614(d)(1) to read, ``Medicare 
Part A fee-for-service data.''
    <bullet> We are making a technical correction to the paragraph 
formerly designated as Sec.  412.614(d)(1) and assigning the revised 
language to a new paragraph Sec.  412.614(d)(1)(a), which reads as 
follows: ``We assess a penalty when an inpatient rehabilitation 
facility does not transmit all of the required data from the patient 
assessment instrument for its Medicare Part A fee-for-service patients 
to our patient data system in accordance with the transmission timeline 
in paragraph (c) of this section.''
    <bullet> We are redesignating paragraph Sec.  412.614(d)(2) as 
Sec.  412.614(d)(1)(b).
    <bullet> We are adding a new paragraph Sec.  412.614(d)(2), which 
reads as follows: ``Medicare Part C (Medicare Advantage) data. Failure 
of the inpatient rehabilitation facility to transmit all of the 
required patient assessment instrument data for its Medicare Part C 
(Medicare Advantage) patients to our patient data system in accordance 
with the transmission timeline in paragraph (c) of this section will 
result in a forfeiture of the facility's ability to have any of its 
Medicare Part C (Medicare Advantage) data used in the calculations for 
determining the facility's compliance with the regulations at Sec.  
412.23(b)(2).''
    <bullet> We are revising the second sentence in paragraph Sec.  
412.614(e). The sentence reads as follows ``Only CMS can determine if a 
situation encountered by an inpatient rehabilitation facility is 
extraordinary and qualifies as a situation for waiver of the penalty 
specified in paragraph (d)(1)(ii) of this section or for waiver of the 
forfeiture specified in paragraph (d)(2) of this section.''
    <bullet> In the introductory paragraph of Sec.  412.618, we are 
adding the phrase ``or Medicare Part C (Medicare Advantage)'' after 
``fee-for-service'' and before ``patient.'' The paragraph reads as 
follows: ``For purposes of the patient assessment process, if a 
Medicare Part A fee-for-service or Medicare Part C (Medicare Advantage) 
patient has an interrupted stay, as defined under Sec.  412.602, the 
following applies: * * *''

X. Miscellaneous Comments

    Comment: A commenter indicated that posting extensive changes to 
the

[[Page 39801]]

long-standing policies in the Medicare Benefit Policy Manual on our Web 
site for comment may violate the APA, and they specifically cited 
Alaska Professional Hunters Association, Inc. v. Federal Aviation 
Administration, 177 F.3d 1030 (June 4, 1999).
    Response: We disagree with the commenter that the procedures used 
to seek the public's input on the new draft manual provisions that 
will, when finalized, be placed in Section 110 of MBPM, and the 
proposal to rescind HCFAR 85-2, violate the APA. We proposed regulatory 
changes related to IRF coverage policy through the FY 2010 IRF proposed 
rule. These regulatory changes are being finalized through this final 
rule with an implementation date of January 1, 2010. These regulatory 
provisions replace the policies outlined in HCFAR 85-2. We will 
therefore issue a notice in the Federal Register at a future date to 
rescind HCFAR 85-2, effective on the date on which the replacement 
regulations will take effect. While we anticipate release of new manual 
provisions that will interpret the new regulations on that same date, 
the substantive provisions in the regulations, not the interpretive 
guidance in the manuals, will replace HCFAR 85-2. Full notice and 
comment rulemaking was used to adopt these regulations, in accordance 
with the APA.
    Thus, we believe that, in rescinding the prior standard (HCFAR 85-
2) in a future notice to be issued in the Federal Register and 
replacing it with new legal standards in regulations, and promulgating 
updated manual provisions after consideration of public comments to the 
proposed rule, we are in compliance with all applicable and necessary 
notice and comment processes. Furthermore, by accepting comments on the 
draft manual through our Web site, and publicizing our interest in 
receiving comments through that mechanism in the proposed rule, we 
exceeded the legal requirements for seeking public comment on our draft 
policies.
    Comment: Several commenters expressed concerns that the proposed 
rule did not include a requirement for rehabilitation nursing. They 
stated that the importance of the rehabilitation nursing staff to carry 
out medical management interventions, repetition of functional mobility 
techniques as taught by the licensed therapists throughout the 
patient's stay, education in disease management and illness prevention 
related to a patient's unique presentation of diagnosis, family 
training, and education cannot be underestimated in the IRF patient's 
potential for functional improvement. One commenter suggested that CMS 
revise the existing requirement to require the use of certified 
registered rehabilitation nurses.
    Response: While we agree with the commenters on the importance of 
rehabilitation nursing, as well as the need to ensure that patients are 
attended to by licensed staff with experience in rehabilitation 
nursing, we do not agree that the requirements for rehabilitation 
nursing should be included as an IRF admission criterion. Instead, we 
believe that the use of rehabilitation nurses is a staffing requirement 
that would be included in Conditions of Participation for IRFs. We are 
actively working on such Conditions and expect to release a proposed 
rule in the near future.
    Comment: One commenter requested clarification on whether payments 
to an IRF are reduced when patients are transferred to a SNF. The 
commenter stated that, occasionally, a patient will be making steady 
progress toward goals even up to four weeks after admission, when 
family members suddenly change their minds about their ability to care 
for their loved one at home. The commenter suggested that, if the IRF 
keeps the patient beyond the average length of stay for that CMG with 
the intention of discharging the patient to a home or community-based 
setting, the IRF payment for the patient should not be reduced.
    Response: In the scenario that the commenter described, the IRF 
payment for the patient would not be reduced, as long as the patient 
meets the IRF coverage criteria. According to the regulations, if the 
patient meets the IRF coverage criteria and the patient's length of 
stay in the IRF is longer than the average length of stay for the 
patient's CMG and tier, the IRF will receive the full CMG payment for 
the patient regardless of whether the patient is discharged to a SNF.
    Comment: One commenter suggested that we clarify the composition of 
prosthetic and orthotic services as well as the specific qualifications 
of those individuals that provide these services.
    Response: An IRF is required to meet the Hospital Conditions of 
Participation. This means that, among other things, a governing body is 
required to be responsible for the services furnished in an IRF, 
including prosthetic and orthotic services, whether or not they are 
furnished under contract. These services must meet the general Medicare 
requirements, which include requirements for the professional standards 
for those providing the service.
    Comment: One commenter suggested that CMS clarify the appeals 
process for challenging removal of a facility from the IRF PPS. The 
commenter proposed removing IRFs only for the cost reporting period 
following an unfavorable decision by the Provider Reimbursement Review 
Board (PRRB) or the CMS Administrator.
    Response: It is the responsibility of the CMS Regional Office to 
notify the IRF prior to the beginning of its next cost reporting period 
if the facility has failed to meet the IRF classification requirements. 
This determination may be appealed to the PRRB. However, an IRF does 
not retain its IRF classification status during the appeal process. The 
process for appealing an IRF declassification is described in 42 CFR 
section 405, in Subpart R of the regulations.
    Comment: The Commission on Accreditation of Rehabilitation 
Facilities (CARF) indicated that, due to the thoroughness of the CARF 
survey procedure involving peer review and the presumption that a 
facility with such accreditation meets the majority of the 
classification criteria (with the ability to adjust the required 
criteria), it would be appropriate for CMS to give accreditation a more 
robust role in determining IRF classification. Therefore, they 
suggested that CMS should give the CARF (and other accrediting bodies 
as appropriate) the responsibility for evaluating a facility's full 
compliance with the exclusion criteria through its ongoing on-site 
survey and peer review processes. In the CARF's view, any facility that 
is able to obtain and maintain CARF accreditation should be deemed to 
qualify as an IRF for purposes of reimbursement under the IRF PPS. 
Otherwise, the CARF suggested that the current guidance in the State 
Operations Manual, which creates a presumption of satisfaction of the 
exclusion criteria for accredited facilities and programs, should be 
maintained.
    Response: The regulations at Sec.  412.23(b) set forth the criteria 
used by Medicare's contractors to determine if a hospital is excluded 
from the IPPS for purposes of payment under the Medicare program. One 
of these criteria, commonly known as the ``60 percent rule,'' focuses 
on the medical conditions of patients admitted to an IRF. The CARF 
accreditation criteria serve a different function in that they define 
the facility's capacity to deliver services rather than describing the 
patients being served. As we have stated above, we are actively working 
on Conditions of Participation for IRFs and expect to release a 
proposed rule in the near

[[Page 39802]]

future. Thus, we believe that any role that the CARF might assume in 
determining IRF classifications in the future would be related to 
deeming authority under these ``Conditions.''
    Comment: One commenter suggested that we clarify whether the 
services of aides may, in some instances, be used to satisfy the ``3 
hour rule'' in IRFs. The commenter stated that, in other Medicare 
programs such as therapy reimbursed under Part B or through the SNF 
PPS, aides cannot provide skilled therapy, and the role of aides is 
limited to the provision of support services.
    Response: Therapy aides are authorized to perform support services 
for licensed and/or certified skilled therapy practitioners. Services 
performed by aides may be a useful adjunct to the overall 
rehabilitation program. However, therapy aide services are not 
considered skilled, and would not meet the IRF intensity of therapy 
criterion used to evaluate the appropriateness of IRF care.
    Comment: One commenter suggested that we clarify, with examples, 
when Medicare coverage for an IRF stay is no longer considered 
reasonable and necessary.
    Response: Under the IRF PPS, we generally make one CMG payment to 
an IRF for each Medicare discharge that is considered reasonable and 
necessary under section 1862(a)(1) of the Act. This per discharge 
payment covers the inpatient operating and capital costs of furnishing 
covered rehabilitation services to a Medicare patient throughout the 
patient's entire IRF stay. Thus, defining the formal end of an IRF stay 
is less important than it would be if we were making payments by the 
day. However, we believe that an IRF stay should generally end when the 
patient no longer requires or can reasonably be expected to benefit 
significantly from the services provided in an IRF. This typically, 
though not in all cases, occurs when the patient is ready to return 
home or to a community-based environment. We recognize that, in certain 
limited instances, the patient may need to be discharged to another 
institutional setting of care, but we believe that this would be a rare 
occurrence.
    Comment: One commenter suggested that we clarify whether IRF claim 
denials can be made exclusively by non-physician reviewers, without a 
final determination being made by a physician reviewer.
    Response: Medicare's contractors (including, but not limited to, 
fiscal intermediaries, Medicare Administrative Contractors (MACs), and 
Recovery Audit Contractors (RACs)) are responsible for reviewing IRF 
claims to ensure that they meet the reasonable and necessary 
requirements for payment of Medicare services under section 1862(a)(1) 
of the Act. Medicare's contractors typically use non-physician 
reviewers, such as nurses or therapists, to review Medicare claims, 
under the supervision of physician medical directors. Though we do not 
have a formal process for the physician medical directors to make the 
``final determinations'' on all IRF claims denials, they are actively 
involved in overseeing the reviews and ensuring the integrity of the 
medical review process.

XI. Provisions in the Final Rule

    In this final rule, we are adopting the provisions as set forth in 
the FY 2010 IRF proposed rule (74 FR 21052), except as noted elsewhere 
in the preamble. Specifically:

A. Payment Provision Changes

    <bullet> We will update the FY 2010 IRF PPS relative weights and 
average length of stay values using the most current and complete 
Medicare claims and cost report data in a budget neutral manner, as 
discussed in section IV of this final rule.
    <bullet> We will update the FY 2010 IRF facility level adjustments 
(rural, LIP, and teaching status adjustments) using the most current 
and complete Medicare claims and cost report data in a budget neutral 
manner, as discussed in section V of this final rule.
    <bullet> We will update the FY 2010 IRF PPS payment rates by the 
proposed market basket, as discussed in section VI.A of this final 
rule.
    <bullet> We will update the FY 2010 IRF PPS payment rates by the 
wage index and labor-related share in a budget neutral manner, as 
discussed in sections VI.A and B of this final rule.
    <bullet> We will update the outlier threshold amount for FY 2010, 
as discussed in section VII.A of this final rule.
    <bullet> We will update the cost-to-charge ratio ceiling and the 
national average urban and rural cost-to-charge ratios for purposes of 
determining the outlier payments under the IRF PPS for FY 2010, as 
discussed in section VII.B of this final rule.

B. Regulatory Text Changes

    <bullet> We will remove the words ``or assessment'' from Sec.  
412.23(b)(3) and Sec.  412.29(b) to indicate that we are no longer 
providing for a 3 to 10 day inpatient assessment period after admission 
to an IRF to assess the appropriateness of the IRF admission, as 
discussed in section VIII.A of this final rule.
    <bullet> We will amend paragraphs Sec.  412.23(b)(4) and Sec.  
412.29(c) to require that IRFs ``furnish, through the use of qualified 
personnel, rehabilitation nursing, physical therapy, and occupational 
therapy, plus, as needed, speech-language pathology, social services, 
psychological services (including neuropsychological services), and 
orthotic and prosthetic services,'' as discussed in section VIII.I of 
this final rule.
    <bullet> We will replace the word ``multidisciplinary'' with the 
word ``interdisciplinary'' in Sec.  412.23(b)(7) and Sec.  412.29(e) to 
make the terminology consistent with the new IRF coverage criteria in 
Sec.  412.622(a), as discussed in section VIII.E of this final rule.
    <bullet> We will require, in both Sec.  412.23(b)(7) and Sec.  
412.29(e), that the interdisciplinary team meetings occur at least once 
per week (rather than once every two weeks) to be consistent with the 
new IRF coverage criteria in Sec.  412.622(a), as discussed in section 
VIII.E of this final rule.
    <bullet> We will add new paragraphs (3), (4), and (5) to Sec.  
412.622(a) to implement new IRF coverage requirements, as discussed in 
section VIII of this final rule.
    <bullet> With respect to Sec.  412.604, Sec.  412.606, Sec.  
412.610, Sec.  412.614 and Sec.  412.618, we will revise the regulation 
text as described in section IX.B of this final rule.
    <bullet> With respect to Sec.  412.614(a), we will remove 
subparagraph (3) as described in section IX.B of this final rule.
    <bullet> With respect to Sec.  412.614(d), we are making a 
technical correction to the paragraph formerly designated as paragraph 
(1) and assigning the revised language to a new paragraph (1)(a), 
redesignating paragraph (2) as (1)(b), and adding a new paragraph (2), 
as described in section IX.B of this final rule.

XII. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 30-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:

[[Page 39803]]

    <bullet> The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    <bullet> The accuracy of our estimate of the information collection 
burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    Therefore, we are soliciting public comment on each of these issues 
for the following sections of this document that contain information 
collection requirements:
Section 412.604 Conditions for Payment Under the Prospective Payment 
System for Inpatient Rehabilitation Facilities
    Section 412.604(c) states that for each Medicare Part A fee-for-
service patient admitted to or discharged from an IRF on or after 
January 1, 2002, the IRF must complete a patient assessment instrument 
in accordance with Sec.  412.606. IRFs must also complete a patient 
assessment instrument in accordance with Sec.  412.606 for each 
Medicare Part C (Medicare Advantage) patient admitted to or discharged 
from an IRF on or after October 1, 2009.
    The burden associated with this requirement is the time and effort 
put forth by each IRF to complete an average of approximately 38 
additional patient assessment instruments each year associated with its 
Medicare Part C patients. We obtained the estimated average number of 
Medicare Part C patients in each IRF from the American Medical 
Rehabilitation Providers Association (AMRPA), based on AMRPA's own 
analysis of the eRehabData[reg] policy database. CMS currently 
estimates that it takes the IRF 0.75 of an hour to complete a single 
patient assessment instrument. Therefore, the annual hour burden for 
each IRF to complete approximately 38 additional patient assessment 
instruments is 28.5 hours (38 x 0.75). The total annual hour burden for 
all 1,205 IRFs is 34,342.5 hours (28.5 hours x 1,205 IRFs). The burden 
estimate for using the patient assessment instrument for Medicare Part 
A is currently approved under 0938-0842. CMS will revise this currently 
approved package as necessary to include any additional burden placed 
on the IRF for submitting the patient assessment instrument for 
Medicare Advantage patients.
Section 412.606 Patient Assessments
    Section 412.606 states that an IRF must use the CMS inpatient 
rehabilitation facility patient assessment instrument to assess 
Medicare Part A fee-for-service and Medicare Part C (Medicare 
Advantage) inpatients.
    The burden for completing the patient assessment instrument for 
Medicare Part A is currently approved under 0938-0842. CMS will revise 
this currently approved package as necessary to include any additional 
burden placed on IRFs for submitting the patient assessment instrument 
for Medicare Advantage patients.
Section 412.610 Assessment Schedule
    Section 412.610(f) states that an IRF must maintain all patient 
assessment data sets completed on Medicare Part A fee-for-service 
patients within the previous 5 years and Medicare Part C (Medicare 
Advantage) patients within the previous 10 years either in a paper 
format in the patient's clinical record or in an electronic computer 
file format that the inpatient rehabilitation facility can easily 
obtain and produce upon request to CMS or its contractors.
    The burden for maintaining the patient assessment instrument for 
Medicare Part A is currently approved under OMB<greek-i> 0938-0842. CMS 
will revise this currently approved package as necessary to include any 
additional burden placed on IRFs for maintaining the patient assessment 
instrument for Medicare Advantage patients.
Section 412.614 Transmission of Patient Assessment Data
    Section 412.614(a) requires that the IRF must encode and transmit 
patient assessment data to CMS.
    The burden associated with this requirement is the time staff must 
take to transmit the data. CMS currently estimates that it takes the 
IRF 0.10 of an hour to transmit a single patient assessment instrument. 
Therefore, the annual hour burden to transmit an average of 
approximately 38 additional patient assessment instruments per IRF is 
3.8 hours (38 x 0.10). The total annual hour burden for all 1,205 IRFs 
is 4,579 hours (3.8 hours x 1,205 IRFs). The burden estimate for 
transmitting the patient assessment instrument for Medicare Part A is 
currently approved under 0938-0842. CMS will revise this currently 
approved package as necessary to include any additional burden placed 
on the IRF for transmitting the patient assessment instrument for 
Medicare Advantage patients.
Section 412.622 IRF Coverage Criteria
    Section 412.622(a)(4)(i) requires that a comprehensive screening 
meet all of the requirements in paragraphs (A) through (E). Section 
412(a)(4)(i)(D) requires the physician to document his or her 
concurrence with the findings and results of the preadmission 
screening. Section 412(a)(4)(i)(E) requires that the preadmission 
screening be retained in the patient's medical record.
    The burden associated with these requirements is the time and 
effort put forth by the rehabilitation physician to document his or her 
concurrence with the preadmission findings and the results of the 
preadmission screening and retain the information in the patient's 
medical record. The burden associated with these requirements is in 
keeping with the ``Condition of Participation: Medical record 
services,'' that are already applicable to Medicare participating 
hospitals. The burden associated with these requirements is currently 
approved under OMB<greek-i> 0938-0328. As stated in the approved 
Hospital CoPs Supporting Statement, we believe that these requirements 
reflect customary and usual business and medical practice. Thus, in 
accordance with section 1320.3(b)(2) of the Act, the burden is not 
subject to the PRA.
    Section 412.622(a)(4)(ii) is consistent with the existing Hospital 
CoP requirement at Sec.  482.24(c)(2) which requires the facility to 
have and utilize a post-admission evaluation process. The post-
admission evaluation process requires that a rehabilitation physician 
complete a post-admission evaluation for each patient within 24 hours 
of that patient's admission to the IRF, compare it to that noted in the 
preadmission screening documentation, and begin development of the 
overall individualized plan of care. Similarly, Sec.  482.24(c)(2) 
requires that the post-admission physician evaluation be retained in 
the patient's medical record in keeping with the Hospital CoPs.
    The burden associated with these requirements is the time and 
effort put forth by the rehabilitation physician to document the 
patient's status on admission to the IRF, compare it to that noted in 
the preadmission screening document, begin development of the care 
plan, and retain the information in the patient's medical record. The 
burden associated with these requirements is consistent with the 
``Condition of Participation: Medical record services,'' that is 
already applicable to Medicare participating hospitals. The burden 
associated with this requirement is currently approved under 
OMB<greek-i> 0938-0328. As stated in the approved Hospital CoPs 
Supporting Statement, we believe that these requirements reflect 
customary and usual business and medical practice. Thus, in accordance 
with section

[[Page 39804]]

1320.3(b)(2) of the Act, the burden is not subject to the PRA.
    The requirements in section 412.622 (a)(4)(iii) regarding an 
individualized plan of care are consistent with the existing Hospital 
CoPs at Sec.  482.56(b) to develop an overall plan of care for each IRF 
admission. Similarly, the individualized plan of care required by 
412.622(a)(4)(iii)(A) would be required to be retained in the patient's 
medical record, as currently required by the Hospital CoPs at Sec.  
482.24(c)(2).
    The burden associated with these requirements is the time and 
effort put forth by the rehabilitation physician to develop the 
individualized overall plan of care and retain the individualized 
overall plan of care in the patient's medical record. The burden 
associated with these requirements is in keeping with the ``Condition 
of Participation: Medical record services,'' and ``Condition of 
Participation: Rehabilitation services. Standard: Delivery of 
Services'' that are already applicable to Medicare participating 
hospitals. The burden associated with these requirements is currently 
approved under OMB<greek-i> 0938-0328. As stated in the approved 
Hospital CoPs Supporting Statement, we believe that these requirements 
reflect customary and usual business and medical practice. Thus, in 
accordance with section 1320.3(b)(2) of the Act, the burden is not 
subject to the PRA.
    Section 412.622(a)(5) requires the interdisciplinary team to meet 
at least once per week throughout the duration of the patient's stay to 
implement appropriate treatment services; review the patient's progress 
toward stated rehabilitation goals; identify any problems that could 
impede progress towards those goals; and, where necessary, reassess 
previously established goals in light of impediments, revise the 
treatment plan in light of new goals, and monitor continued progress 
toward those goals. It also requires that the rehabilitation physician 
document his or her concurrence with the results and findings of the 
team meeting and that documentation of the weekly meetings be retained 
in the patient's medical record.
    The burden associated with these requirements is the time spent 
documenting the weekly meetings and the concurrence of the 
rehabilitation physician with the results and findings of the team 
meeting and retaining the information in the patient's medical record. 
The burden associated with these proposed requirements is consistent 
with the ``Condition of Participation: Medical record services,'' that 
are already applicable to Medicare participating hospitals. The burden 
associated with these requirements is currently approved under 
OMB<greek-i> 0938-0328. As stated in the approved ``Hospital CoPs 
Supporting Statement,'' we believe that the proposed requirements 
reflect customary and usual business and medical practice. Thus, in 
accordance with section 1320.3(b)(2) of the Act, the burden is not 
subject to the PRA.
    You may submit comments on these information collection and 
recordkeeping requirements in one of the following ways (please choose 
only one of the ways listed):
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this proposed rule; or
    2. Submit your written comments to the Office of Information and 
Regulatory Affairs, Office of Management and Budget, Attention: CMS 
Desk Officer, [CMS-1538-F], Fax: (202) 395-7245; or E-mail: <a href="/cdn-cgi/l/email-protection#0b4442594a54787e69666278786264654b646669256e647b256c647d"><span class="__cf_email__" data-cfemail="6e21273c2f311d1b0c03071d1d0701002e01030c400b011e40090118">[email protected]</span></a>.

XIII. Regulatory Impact Analysis

A. Overall Impact

    We have examined the impacts of this final rule as required by 
Executive Order 12866 (September 30, 1993, Regulatory Planning and 
Review), 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 one year). This final 
rule is a major rule, as defined in Title 5, United States Code, 
section 804(2), because we estimate the impact to the Medicare program, 
and the annual effects to the overall economy, will be more than $100 
million. We estimate that the total impact of these changes for 
estimated FY 2010 payments compared to estimated FY 2009 payments will 
be an increase of approximately $145 million due to the update to the 
payment rates.
    The Regulatory Flexibility Act (RFA) requires agencies to analyze 
options for regulatory relief of small entities, if a rule has a 
significant impact on a substantial number of small entities. For 
purposes of the RFA, small entities include small businesses, nonprofit 
organizations, and small governmental jurisdictions. Most IRFs and most 
other providers and suppliers are small entities, either by nonprofit 
status or by having revenues of $7 million to $34.5 million in any one 
year. (For details, see the Small Business Administration's final rule 
that set forth size standards for health care industries, at 65 FR 
69432 at http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf, November 17, 2000.) Because we lack data on 
individual hospital receipts, we cannot determine the number of small 
proprietary IRFs or the proportion of IRFs' revenue that is derived 
from Medicare payments. Therefore, we assume that all IRFs (an 
approximate total of 1,200 IRFs, of which approximately 60 percent are 
nonprofit facilities) are considered small entities and that Medicare 
payment constitutes the majority of their revenues. The Department of 
Health and Human Services generally uses a revenue impact of 3 to 5 
percent as a significance threshold under the RFA. As shown in Table 7, 
we estimate that the net revenue impact of this final rule on all IRFs 
is to increase estimated payments by about 2.5 percent, with an 
estimated positive increase in payments of 3 percent or higher for some 
categories of IRFs (such as urban IRFs in the East South Central, West 
North Central, West South Central, Mountain and Pacific regions) and an 
estimated decrease in payments of 3.8 percent for the 17 IRFs that have 
a resident to ADC ratio greater than 19 percent. Thus, we anticipate 
that this final rule would have a significant impact on a substantial 
number of small entities. Medicare fiscal intermediaries and carriers 
are not considered to be small entities. Individuals and States are not 
included in the definition of a small entity.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. As discussed in detail 
below, the rates and policies set

[[Page 39805]]

forth in this final rule will not have an adverse impact on rural 
hospitals based on the data of the 184 rural units and 21 rural 
hospitals in our database of 1,181 IRFs for which data were available.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any one year of 
$100 million in 1995 dollars, updated annually for inflation. In 2009, 
that threshold level is approximately $133 million. This final rule 
will not impose spending costs on State, local, or tribal governments, 
in the aggregate, or by the private sector, of $133 million.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a final rule that imposes 
substantial direct requirement costs on State and local governments, 
preempts State law, or otherwise has Federalism implications. As stated 
above, this final rule will not have a substantial effect on State and 
local governments, preempt State law, or otherwise have a Federalism 
implication.

B. Anticipated Effects of the Final Rule

1. Basis and Methodology of Estimates
    This final rule sets forth updates of the IRF PPS rates contained 
in the FY 2009 final rule and updates to the CMG relative weights and 
length of stay values, the facility-level adjustments, the wage index, 
and the outlier threshold for high-cost cases.
    We estimate that the FY 2010 impact will be a net increase of $145 
million in payments to IRF providers. The impact analysis in Table 7 of 
this final rule represents the projected effects of the final policy 
changes in the IRF PPS for FY 2010 compared with estimated IRF PPS 
payments in FY 2009 without the policy changes. We determine the 
effects by estimating payments while holding all other payment 
variables constant. We use the best data available, but we do not 
attempt to predict behavioral responses to these changes, and we do not 
make adjustments for future changes in such variables as number of 
discharges or case-mix.
    We note that certain events may combine to limit the scope or 
accuracy of our impact analysis, because such an analysis is future-
oriented and, thus, susceptible to forecasting errors because of other 
changes in the forecasted impact time period. Some examples could be 
legislative changes made by the Congress to the Medicare program that 
would impact program funding, or changes specifically related to IRFs. 
Although some of these changes may not necessarily be specific to the 
IRF PPS, the nature of the Medicare program is such that the changes 
may interact, and the complexity of the interaction of these changes 
could make it difficult to predict accurately the full scope of the 
impact upon IRFs.
    In updating the rates for FY 2010, we are implementing a number of 
standard annual revisions and clarifications mentioned elsewhere in 
this final rule (for example, the update to the wage and market basket 
indexes used to adjust the Federal rates). We estimate that these 
revisions would increase payments to IRFs by approximately $145 million 
(all due to the update to the market basket index, since the update to 
the wage index is done in a budget neutral manner--as required by 
statute--and therefore neither increases nor decreases aggregate 
payments to IRFs).
    The effects of the changes that impact IRF PPS payment rates are 
shown in Table 7. The following changes that affect the IRF PPS payment 
rates are discussed separately below:
    <bullet> The effects of the update to the outlier threshold amount, 
consistent with section 1886(j)(4) of the Act.
    <bullet> The effects of the annual market basket update (using the 
RPL market basket) to IRF PPS payment rates, as required by section 
1886(j)(3)(A)(i) and section 1886(j)(3)(C) of the Act.
    <bullet> The effects of applying the budget-neutral labor-related 
share and wage index adjustment, as required under section 1886(j)(6) 
of the Act.
    <bullet> The effects of the budget-neutral changes to the CMG 
relative weights and length of stay values, under the authority of 
section 1886(j)(2)(C)(i) of the Act.
    <bullet> The effects of the budget-neutral changes to the facility-
level adjustment factors, as permitted under section 1886(j)(3)(A)(v) 
of the Act.
    <bullet> The total change in estimated payments based on the FY 
2010 policy changes relative to estimated FY 2009 payments without the 
policy changes.
2. Description of Table 7
    The table below categorizes IRFs by geographic location, including 
urban or rural location, and location with respect to CMS's nine census 
divisions (as defined on the cost report) of the country. In addition, 
the table divides IRFs into those that are separate rehabilitation 
hospitals (otherwise called freestanding hospitals in this section), 
those that are rehabilitation units of a hospital (otherwise called 
hospital units in this section), rural or urban facilities, ownership 
(otherwise called for-profit, non-profit, and government), and by 
teaching status. The top row of the table shows the overall impact on 
the 1,181 IRFs included in the analysis.
    The next 12 rows of Table 7 contain IRFs categorized according to 
their geographic location, designation as either a freestanding 
hospital or a unit of a hospital, and by type of ownership; all urban, 
which is further divided into urban units of a hospital, urban 
freestanding hospitals, and by type of ownership; and all rural, which 
is further divided into rural units of a hospital, rural freestanding 
hospitals, and by type of ownership. There are 976 IRFs located in 
urban areas included in our analysis. Among these, there are 776 IRF 
units of hospitals located in urban areas and 200 freestanding IRF 
hospitals located in urban areas. There are 205 IRFs located in rural 
areas included in our analysis. Among these, there are 184 IRF units of 
hospitals located in rural areas and 21 freestanding IRF hospitals 
located in rural areas. There are 390 for-profit IRFs. Among these, 
there are 321 IRFs in urban areas and 69 IRFs in rural areas. There are 
724 non-profit IRFs. Among these, there are 603 urban IRFs and 121 
rural IRFs. There are 67 government-owned IRFs. Among these, there are 
52 urban IRFs and 15 rural IRFs.
    The remaining three parts of Table 7 show IRFs grouped by their 
geographic location within a region and by teaching status. First, IRFs 
located in urban areas are categorized with respect to their location 
within a particular one of the nine CMS geographic regions. Second, 
IRFs located in rural areas are categorized with respect to their 
location within a particular one of the nine CMS geographic regions. In 
some cases, especially for rural IRFs located in the New England, 
Mountain, and Pacific regions, the number of IRFs represented is small. 
Finally, IRFs are grouped by teaching status, including non-teaching 
IRFs, IRFs with an intern and resident to average daily census (ADC) 
ratio less than 10 percent, IRFs with an intern and resident to ADC 
ratio greater than or equal to 10 percent and less than or equal to 19 
percent, and IRFs with an intern and resident to ADC ratio greater than 
19 percent.
    The estimated impacts of each change to the facility categories 
listed above are shown in the columns of Table 7. The description of 
each column is as follows:
    Column (1) shows the facility classification categories described 
above.

[[Page 39806]]

    Column (2) shows the number of IRFs in each category in our FY 2008 
analysis file.
    Column (3) shows the number of cases in each category in our FY 
2008 analysis file.
    Column (4) shows the estimated effect of the adjustment to the 
outlier threshold amount.
    Column (5) shows the estimated effect of the market basket update 
to the IRF PPS payment rates.
    Column (6) shows the estimated effect of the update to the IRF 
labor-related share and wage index, in a budget neutral manner.
    Column (7) shows the estimated effect of the update to the CMG 
relative weights and average length of stay values, in a budget neutral 
manner.
    Column (8) shows the estimated effect of the update to the 
facility-level adjustment factors (rural, LIP, and teaching status), in 
a budget neutral manner.
    Column (9) compares our estimates of the payments per discharge, 
incorporating all of the changes reflected in this final rule for FY 
2010, to our estimates of payments per discharge in FY 2009(without 
these changes).
    The average estimated increase for all IRFs is approximately 2.5 
percent, which is entirely due to the market basket update. Since the 
update to the outlier threshold amount does not impact aggregate 
payments this year, and since we are making the remainder of the 
changes outlined in this final rule in a budget-neutral manner, the 
other changes being made in this final rule will not affect total 
estimated IRF payments in the aggregate. However, as described in more 
detail in each section, they will affect the estimated distribution of 
payments among providers.
BILLING CODE 4120-01-P

[[Page 39807]]

[GRAPHIC] [TIFF OMITTED] TR07AU09.014

BILLING CODE 4120-01-C

[[Page 39808]]

3. Impact of the Update to the Outlier Threshold Amount
    The outlier threshold adjustment is presented in column 4 of Table 
7. We estimate that IRF outlier payments as a percentage of total 
estimated IRF payments are 3 percent in FY 2009. Therefore, since we 
estimate that we have achieved the target percentage in FY 2009, we are 
adjusting the outlier threshold amount in this final rule solely to 
account for the 2.5 percent market basket adjustment for FY 2010 (as 
discussed in section VI.A of this final rule) and the FY 2010 updates 
to the facility-level adjustments (as discussed in section V of this 
final rule) so that we will continue to maintain estimated outlier 
payments at 3 percent of total estimated aggregate IRF payments for FY 
2010.
    Since we estimate that we achieved the 3 percent target in FY 2009, 
and that estimated outlier payments will continue to equal 3 percent of 
total estimated payments in FY 2010, there is no overall impact on FY 
2010 aggregate payments from this update. However, we estimate slight 
impacts on individual groups of IRFs, which are so small that they 
round to 0.0 percent. However, Medicare pays an unusually high 
percentage of outlier payments (8.3 percent) to rural IRFs in the 
Pacific region. Thus, the estimated impact of the update to the outlier 
threshold amount for FY 2010 just rounds to 0.1 percent for these 5 
IRFs.
4. Impact of the Market Basket Update to the IRF PPS Payment Rates
    The market basket update to the IRF PPS payment rates is presented 
in column 5 of Table 7. In the aggregate the update would result in a 
2.5 percent increase in overall estimated payments to IRFs.
5. Impact of the CBSA Wage Index and Labor-Related Share
    In column 6 of Table 7, we present the effects of the budget 
neutral update of the wage index and labor-related share. The changes 
to the wage index and the labor-related share are discussed together 
because the wage index is applied to the labor-related share portion of 
payments, so the changes in the two have a combined effect on payments 
to providers. As discussed in section VI.A of this final rule, the 
labor-related share increased from 75.464 percent in FY 2009 to 75.779 
percent in FY 2010.
    In the aggregate and for all urban IRFs, we do not estimate that 
these changes will affect overall estimated payments to IRFs. However, 
we estimate that these changes will have small distributional effects. 
We estimate a 0.1 percent increase in payments to rural IRFs, with the 
largest increase in payments of 1.4 percent for urban IRFs in the 
Pacific region. We estimate the largest decrease in payments from the 
update to the CBSA wage index and labor-related share to be a 0.8 
percent decrease for IRFs with an intern and resident to ADC ratio 
greater than or equal to 10 percent and less than or equal to 19 
percent.
6. Impact of the Update to the CMG Relative Weights and Average Length 
of Stay Values
    In column 7 of Table 7, we present the effects of the budget 
neutral update of the CMG relative weights and average length of stay 
values. In the aggregate we do not estimate that these changes will 
affect overall estimated payments to IRFs. However, these changes have 
small distributional effects, with the largest effect being a decrease 
in payments of 0.3 percent to IRFs in the Rural Pacific region.
7. Impact of the Update to the Rural, LIP, and Teaching Status 
Adjustment Factors
    In column 8 of Table 7, we present the effects of the budget 
neutral update to the rural, LIP, and teaching status adjustment 
factors. In the aggregate, we do not estimate that these changes will 
affect overall estimated payments to IRFs. However, we estimate that 
these changes will have small distributional effects. We estimate the 
largest increase in payments to be a 0.7 percent increase for urban 
IRFs in the East South Central region. We estimate the largest decrease 
in payments to be a 6.3 percent decrease for teaching IRFs with a 
resident to ADC ratio greater than 19 percent. The estimated decrease 
in payments for teaching IRFs, of between 0.9 percent and 6.3 percent 
depending on the IRF's intern and resident to average daily census 
ratio, is caused by the decrease in the teaching status adjustment 
factor from 0.9012 to 0.6876, as discussed in section V of this final 
rule. We also estimate decreases in payments to rural IRFs due to the 
decrease in the rural adjustment from 21.3 percent in FY 2009 to 18.4 
percent in FY 2010, and slight distributional effects among facilities 
due to the decrease in the LIP adjustment factor from 0.6229 in FY 2009 
to 0.4613 in FY 2010. Both the rural and the LIP adjustment factors are 
discussed in section V.A of this final rule.

C. Alternatives Considered

    Because we have determined that this final rule would have a 
significant economic impact on IRFs and on a substantial number of 
small entities, we will discuss the alternative changes to the IRF PPS 
that we considered.
    Section 1886(j)(3)(C) of the Act requires the Secretary to update 
the IRF PPS payment rates by an increase factor that reflects changes 
over time in the prices of an appropriate mix of goods and services 
included in the covered IRF services. As noted in section V of this 
final rule, in the absence of statutory direction on the FY 2010 market 
basket increase factor, it is our understanding that the Congress 
requires a full market basket increase factor based upon current data. 
Thus, we did not consider alternatives to updating payments using the 
estimated RPL market basket increase factor (currently 2.5 percent) for 
FY 2010.
    We considered maintaining the existing CMG relative weights and 
average length of stay values for FY 2010. However, several commenters 
on the FY 2009 IRF PPS proposed rule (73 FR 46373) suggested that the 
data that we used for FY 2009 to update the CMG relative weights and 
average length of stay values did not fully reflect recent changes in 
IRF utilization that have occurred because of changes in the IRF 
compliance percentage and the consequences of recent IRF medical 
necessity reviews. In light of recently available data and our desire 
to ensure that the CMG relative weights and average length of stay 
values are as reflective as possible of these recent changes and that 
IRF PPS payments continue to reflect as accurately as possible the 
current costs of care in IRFs, we believe that it is appropriate to 
update the CMG relative weights and average length of stay values at 
this time.
    We also considered maintaining the existing rural, LIP, and 
teaching status adjustment factors for FY 2010. However, the current 
rural, LIP, and teaching status adjustment factors are based on RAND's 
analysis of FY 2003 data, which are not reflective of recent changes in 
IRF utilization that have occurred because of changes in the IRF 
compliance percentage and the consequences of recent IRF medical 
necessity reviews. Thus, we believe that it is important to update 
these adjustment factors at this time to ensure that payments to IRFs 
reflect as accurately as possible the current costs of care in IRFs.
    In estimating the updates to the rural, LIP, and teaching status 
adjustment

[[Page 39809]]

factors, we considered either basing them on an analysis of FY 2008 
data alone, or averaging the adjustment factors based on the most 
recent three years of data (FYs 2006, 2007, and 2008). We decided to 
propose the new approach of averaging the adjustment factors based on 
the most recent three years of data to avoid unnecessarily large 
fluctuations in the adjustment factors from year to year, and thereby 
promote the consistency and predictability of IRF PPS payments over 
time. We believe that this will benefit all IRFs by enabling them to 
plan their future Medicare payments more accurately.
    We considered maintaining the existing outlier threshold amount for 
FY 2010. However, we needed to update the outlier threshold amount to 
account for the 2.5 percent market basket increase to IRF PPS payments 
and the effects of the changes to the facility-level adjustment factors 
to maintain estimated outlier payments at 3 percent of estimated total 
payments for FY 2010. Thus, we believe that this update is appropriate 
for FY 2010.
    In addition, we considered maintaining the existing coverage 
requirements for IRFs, without clarification. However, these coverage 
requirements have not been updated in over 20 years and no longer 
reflect current medical practice or changes that have occurred in IRF 
utilization and payments as a result of the implementation of the IRF 
PPS in 2002. We believe that the clarifications would benefit IRFs and 
Medicare's contractors (including fiscal intermediaries, Medicare 
Administrative Contractors, and Recovery Audit Contractors) by 
promoting a more consistent understanding of CMS's IRF coverage 
policies among stakeholders, thereby leading to fewer disputed IRF 
claims denials.
    Finally, we considered maintaining our current policy of requiring 
that an IRF's Medicare Part A inpatient population consist of at least 
50 percent or more of the facility's total inpatient population before 
the presumptive methodology can be used to calculate the IRF's 
compliance percentage under the 60 percent rule. However, increasing 
numbers of Medicare beneficiaries in many areas of the country have 
been enrolling in Medicare Advantage (MA) plans rather than remaining 
in the traditional Medicare Part A fee-for-service program. This, in 
turn, has led to decreases in the number of Medicare Part A fee-for-
service inpatients in certain IRFs across the country and has resulted 
in a reduction in the number of IRFs that can benefit from the 
presumptive methodology. We did not anticipate this result when the 
policy was implemented. In light of these recent trends, we believe 
that it is appropriate at this time to include the Medicare Advantage 
patients in the calculations for the purposes of using the presumptive 
methodology to determine IRFs' compliance with the 60 percent rule 
requirements.

D. Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 8 below, we 
have prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of this final rule. This 
table provides our best estimate of the increase in Medicare payments 
under the IRF PPS as a result of the changes presented in this final 
rule based on the data for 1,181 IRFs in our database. All estimated 
expenditures are classified as transfers to Medicare providers (that 
is, IRFs).

Table 8--Accounting Statement: Classification of Estimated Expenditures,
    From the 2009 IRF PPS Fiscal Year to the 2010 IRF PPS Fiscal Year
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............  $145 million.
From Whom to Whom?                          Federal Government to IRF
                                             Medicare Providers.
------------------------------------------------------------------------

E. Conclusion

    Overall, the estimated payments per discharge for IRFs in FY 2010 
are projected to increase by 2.5 percent, compared with those in FY 
2009, as reflected in column 9 of Table 7. IRF payments are estimated 
to increase 2.7 percent in urban areas and 1.1 percent in rural areas, 
per discharge compared with FY 2009. Payments to rehabilitation units 
in urban areas are estimated to increase 2.5 percent per discharge. 
Payments to rehabilitation freestanding hospitals in urban areas are 
estimated to increase 2.9 percent per discharge. Payments to 
rehabilitation units in rural areas are estimated to increase 1.2 
percent per discharge, while payments to freestanding rehabilitation 
hospitals in rural areas are estimated to increase 1.0 percent per 
discharge.
    Overall, the largest payment increase is estimated at 3.6 percent 
for urban IRFs in the Mountain region. Teaching IRFs with a resident to 
ADC ratio greater than 19 percent are estimated to have the largest 
decrease of 3.8 percent in payments.
    We received 1 comment on the regulatory impact analysis, which is 
summarized below.
    Comment: One commenter indicated that the information provided in 
the regulatory impact analysis for the proposed rule was not sufficient 
to allow the public to calculate the impacts for individual IRFs. This 
commenter suggested that we add additional columns, including 
information about the FY 2009 estimated average weight per discharge, 
the FY 2009 estimated outlier payments, and the FY 2009 total estimated 
payments to the IRF rate setting file that we post on the IRF PPS Web 
site in conjunction with each proposed and final rule.
    Response: To provide as much information as possible to enable the 
public to analyze the impacts of our policies, we will add the 
suggested information to the IRF rate setting file that we will post on 
the IRF PPS Web site at http://www.cms.hhs.gov/InpatientRehabFacPPS/07_DataFiles.asp#TopOfPage in conjunction with this final rule.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 412

    Administrative practice and procedure, Health facilities, Medicare, 
Puerto Rico, Reporting and recordkeeping requirements.

0
For the reasons set forth in the preamble, the Centers for Medicare & 
Medicaid Services amends 42 CFR chapter IV as follows:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

0
1. The authority citation for part 412 is amended to read as follows:

    Authority:  Sections 1102, 1862, and 1871 of the Social Security 
Act (42 U.S.C. 1302, 1395y, and 1395hh).

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

0
2. Section 412.23 is amended by--
0
A. Revising paragraph (b)(3).
0
B. Revising paragraph (b)(4).
0
C. Revising paragraph (b)(7).
    The revisions read as follows:

[[Page 39810]]

Sec.  412.23  Excluded hospitals: Classifications.

* * * * *
    (b) * * *
    (3) Have in effect a preadmission screening procedure under which 
each prospective patient's condition and medical history are reviewed 
to determine whether the patient is likely to benefit significantly 
from an intensive inpatient hospital program.
    (4) Ensure that the patients receive close medical supervision and 
furnish, through the use of qualified personnel, rehabilitation 
nursing, physical therapy, and occupational therapy, plus, as needed, 
speech-language pathology, social services, psychological services 
(including neuropsychological services), and orthotic and prosthetic 
services.
* * * * *
    (7) Use a coordinated interdisciplinary team approach in the 
rehabilitation of each inpatient, as documented by the periodic 
clinical entries made in the patient's medical record to note the 
patient's status in relationship to goal attainment, and that team 
conferences are held at least once per week to determine the 
appropriateness of treatment.

* * * * *

0
3. Section 412.29 is amended by--
0
A. Revising paragraph (b).
0
B. Revising paragraph (c).
0
C. Revising paragraph (e).
    The revisions read as follows:


Sec.  412.29  Excluded rehabilitation units: Additional requirements.

* * * * *
    (b) Have in effect a preadmission screening procedure under which 
each prospective patient's condition and medical history are reviewed 
to determine whether the patient is likely to benefit significantly 
from an intensive inpatient hospital program.
    (c) Ensure that the patients receive close medical supervision and 
furnish, through the use of qualified personnel, rehabilitation 
nursing, physical therapy, and occupational therapy, plus, as needed, 
speech-language pathology, social services, psychological services 
(including neuropsychological services), and orthotic and prosthetic 
services.
* * * * *
    (e) Use a coordinated interdisciplinary team approach in the 
rehabilitation of each inpatient, as documented by the periodic 
clinical entries made in the patient's medical record to note the 
patient's status in relationship to goal attainment, and that team 
conferences are held at least once per week to determine the 
appropriateness of treatment.
* * * * *

Subpart P--Prospective Payment for Inpatient Rehabilitation 
Hospitals and Rehabilitation Units


0
4. Section 412.604 is amended by revising paragraph (c) to read as 
follows:


Sec.  412.604  Conditions for payment under the prospective payment 
system for inpatient rehabilitation facilities.

* * * * *
    (c) Completion of patient assessment instrument. For each Medicare 
Part A fee-for-service patient admitted to or discharged from an IRF on 
or after January 1, 2002, the inpatient rehabilitation facility must 
complete a patient assessment instrument in accordance with Sec.  
412.606. IRFs must also complete a patient assessment instrument in 
accordance with Sec.  412.606 for each Medicare Part C (Medicare 
Advantage) patient admitted to or discharged from an IRF on or after 
October 1, 2009.

* * * * *

0
5. Section 412.606 is amended by--
0
A. Revising paragraph (b) introductory text.
0
B. Revising paragraph (c)(1).
    The revisions read as follows:


Sec.  412.606  Patient assessments.

* * * * *
    (b) Patient assessment instrument. An inpatient rehabilitation 
facility must use the CMS inpatient rehabilitation facility patient 
assessment instrument to assess Medicare Part A fee-for-service and 
Medicare Part C (Medicare Advantage) inpatients who--
* * * * *
    (c) * * *
    (1) A clinician of the inpatient rehabilitation facility must 
perform a comprehensive, accurate, standardized, and reproducible 
assessment of each Medicare Part A fee-for-service inpatient using the 
inpatient rehabilitation facility patient assessment instrument 
specified in paragraph (b) of this section as part of his or her 
patient assessment in accordance with the schedule described in Sec.  
412.610. IRFs must also complete a patient assessment instrument in 
accordance with Sec.  412.606 for each Medicare Part C (Medicare 
Advantage) patient admitted to or discharged from an IRF on or after 
October 1, 2009.

* * * * *

0
6. Section 412.610 is amended by--
0
A. Revising paragraph (a).
0
B. Revising paragraph (b).
0
C. Revising paragraph (c) introductory text.
0
D. Revising paragraph (c)(1)(i)(A).
0
E. Revising paragraph (c)(2)(ii)(B).
0
F. Revising paragraph (f).
    The revisions read as follows:


Sec.  412.610  Assessment schedule.

    (a) General. For each Medicare Part A fee-for-service or Medicare 
Part C (Medicare Advantage) inpatient, an inpatient rehabilitation 
facility must complete a patient assessment instrument as specified in 
Sec.  412.606 that covers a time period that is in accordance with the 
assessment schedule specified in paragraph (c) of this section.
    (b) Starting the assessment schedule day count. The first day that 
the Medicare Part A fee-for-service or Medicare Part C (Medicare 
Advantage) inpatient is furnished Medicare-covered services during his 
or her current inpatient rehabilitation facility hospital stay is 
counted as day one of the patient assessment schedule.
    (c) Assessment schedules and references dates. The inpatient 
rehabilitation facility must complete a patient assessment instrument 
upon the Medicare Part A fee-for-service or Medicare Part C (Medicare 
Advantage) patient's admission and discharge as specified in paragraphs 
(c)(1) and (c)(2) of this section.
    (1) * * *
    (i) * * *
    (A) Time period is a span of time that covers calendar days 1 
through 3 of the patient's current Medicare Part A fee-for-service or 
Medicare Part C (Medicare Advantage) hospitalization;
* * * * *
    (2) * * *
    (ii) * * *
    (B) The patient stops being furnished Medicare Part A fee-for-
service or Medicare Part C (Medicare Advantage) inpatient 
rehabilitation services.
* * * * *
    (f) Patient assessment instrument record retention. An inpatient 
rehabilitation facility must maintain all patient assessment data sets 
completed on Medicare Part A fee-for-service patients within the 
previous 5 years and Medicare Part C (Medicare Advantage) patients 
within the previous 10 years either in a paper format in the patient's 
clinical record or in an electronic computer file format that the 
inpatient rehabilitation facility can easily obtain and produce upon 
request to CMS or its contractors.


0
7. Section 412.614 is amended by--
0
A. Revising paragraph (a) introductory text.

[[Page 39811]]

0
B. Removing paragraph (a)(3).
0
C. Revising paragraph (b)(1).
0
D. Revising paragraph (d).
0
E. Revising paragraph (e).
    The revisions read as follows:


Sec.  412.614  Transmission of patient assessment data.

    (a) Data format. General rule. The inpatient rehabilitation 
facility must encode and transmit data for each Medicare Part A fee-
for-service and Medicare Part C (Medicare Advantage) inpatient--
* * * * *
    (b) * * *
    (1) Electronically transmit complete, accurate, and encoded data 
from the patient assessment instrument for each Medicare Part A fee-
for-service and Medicare Part C (Medicare Advantage) inpatient to our 
patient data system in accordance with the data format specified in 
paragraph (a) of this section; and
* * * * *
    (d) Consequences of failure to submit complete and timely IRF-PAI 
data, as required under paragraph (c) of this section.
    (1) Medicare Part-A fee-for-service data--
    (i) We assess a penalty when an inpatient rehabilitation facility 
does not transmit all of the required data from the patient assessment 
instrument for its Medicare Part A fee-for-service patients to our 
patient data system in accordance with the transmission timeline in 
paragraph (c) of this section.
    (ii) If the actual patient assessment data transmission date for a 
Medicare Part A fee-for-service patient is later than 10 calendar days 
from the transmission date specified in paragraph (c) of this section, 
the patient assessment data is considered late and the inpatient 
rehabilitation facility receives a payment rate than is 25 percent less 
than the payment rate associated with a case-mix group.
    (2) Medicare Part C (Medicare Advantage) data. Failure of the 
inpatient rehabilitation facility to transmit all of the required 
patient assessment instrument data for its Medicare Part C (Medicare 
Advantage) patients to our patient data system in accordance with the 
transmission timeline in paragraph (c) of this section will result in a 
forfeiture of the facility's ability to have any of its Medicare Part C 
(Medicare Advantage) data used in the calculations for determining the 
facility's compliance with the regulations in Sec.  412.23(b)(2).
    (e) Exemption to the consequences for transmitting the IRF-PAI data 
late. CMS may waive the consequences of failure to submit complete and 
timely IRF-PAI data specified in paragraph (d) of this section when, 
due to an extraordinary situation that is beyond the control of an 
inpatient rehabilitation facility, the inpatient rehabilitation 
facility is unable to transmit the patient assessment data in 
accordance with paragraph (c) of this section. Only CMS can determine 
if a situation encountered by an inpatient rehabilitation facility is 
extraordinary and qualifies as a situation for waiver of the penalty 
specified in paragraph (d)(1)(ii) of this section or for waiver of the 
forfeiture specified in paragraph (d)(2) of this section. An 
extraordinary situation may be due to, but is not limited to, fires, 
floods, earthquakes, or similar unusual events that inflect extensive 
damage to an inpatient facility. An extraordinary situation may be one 
that produces a data transmission problem that is beyond the control of 
the inpatient rehabilitation facility, as well as other situations 
determined by CMS to be beyond the control of the inpatient 
rehabilitation facility. An extraordinary situation must be fully 
documented by the inpatient rehabilitation facility.


0
8. Section 412.618 is amended by revising the introductory text to read 
as follows.


Sec.  412.618  Assessment process for interrupted stays.

    For purposes of the patient assessment process, if a Medicare Part 
A fee-for-service or Medicare Part C (Medicare Advantage) patient has 
an interrupted stay, as defined under Sec.  412.602, the following 
applies:
* * * * *
0
9. Section 412.622 is amended by adding paragraphs (a)(3) through 
(a)(5) to read as follows:


Sec.  412.622  Basis of payment.

    (a) * * *
    (3) IRF coverage criteria. In order for an IRF claim to be 
considered reasonable and necessary under section 1862(a)(1) of the 
Act, there must be a reasonable expectation that the patient meets all 
of the following requirements at the time of the patient's admission to 
the IRF--
    (i) Requires the active and ongoing therapeutic intervention of 
multiple therapy disciplines (physical therapy, occupational therapy, 
speech-language pathology, or prosthetics/orthotics therapy), one of 
which must be physical or occupational therapy.
    (ii) Generally requires and can reasonably be expected to actively 
participate in, and benefit from, an intensive rehabilitation therapy 
program. Under current industry standards, this intensive 
rehabilitation therapy program generally consists of at least 3 hours 
of therapy (physical therapy, occupational therapy, speech-language 
pathology, or prosthetics/orthotics therapy) per day at least 5 days 
per week. In certain well-documented cases, this intensive 
rehabilitation therapy program might instead consist of at least 15 
hours of intensive rehabilitation therapy within a 7 consecutive day 
period, beginning with the date of admission to the IRF. Benefit from 
this intensive rehabilitation therapy program is demonstrated by 
measurable improvement that will be of practical value to the patient 
in improving the patient's functional capacity or adaptation to 
impairments. The required therapy treatments must begin within 36 hours 
from midnight of the day of admission to the IRF.
    (iii) Is sufficiently stable at the time of admission to the IRF to 
be able to actively participate in the intensive rehabilitation therapy 
program that is described in paragraph (a)(3)(ii) of this section.
    (iv) Requires physician supervision by a rehabilitation physician, 
defined as a licensed physician with specialized training and 
experience in inpatient rehabilitation. The requirement for medical 
supervision means that the rehabilitation physician must conduct face-
to-face visits with the patient at least 3 days per week throughout the 
patient's stay in the IRF to assess the patient both medically and 
functionally, as well as to modify the course of treatment as needed to 
maximize the patient's capacity to benefit from the rehabilitation 
process.
    (4) Documentation. To document that each patient for whom the IRF 
seeks payment is reasonably expected to meet all of the requirements in 
paragraph (a)(3) of this section at the time of admission, the 
patient's medical record at the IRF must contain the following 
documentation--
    (i) A comprehensive preadmission screening that meets all of the 
following requirements--
    (A) It is conducted by a licensed or certified clinician(s) 
designated by a rehabilitation physician described in paragraph 
(a)(3)(iv) of this section within the 48 hours immediately preceding 
the IRF admission. A preadmission screening that includes all of the 
required elements, but that is conducted more than 48 hours immediately 
preceding the IRF admission, will be accepted as long as an update is 
conducted in person or by telephone to update the patient's medical and 
functional status within the

[[Page 39812]]

48 hours immediately preceding the IRF admission and is documented in 
the patient's medical record.
    (B) It includes a detailed and comprehensive review of each 
patient's condition and medical history.
    (C) It serves as the basis for the initial determination of whether 
or not the patient meets the requirements for an IRF admission to be 
considered reasonable and necessary in paragraph (a)(3) of this 
section.
    (D) It is used to inform a rehabilitation physician who reviews and 
documents his or her concurrence with the findings and results of the 
preadmission screening.
    (E) It is retained in the patient's medical record at the IRF.
    (ii) A post-admission physician evaluation that meets all of the 
following requirements--
    (A) It is completed by a rehabilitation physician within 24 hours 
of the patient's admission to the IRF.
    (B) It documents the patient's status on admission to the IRF, 
includes a comparison with the information noted in the preadmission 
screening documentation, and serves as the basis for the development of 
the overall individualized plan of care.
    (C) It is retained in the patient's medical record at the IRF.
    (iii) An individualized overall plan of care for the patient that 
meets all of the following requirements--
    (A) It is developed by a rehabilitation physician, as defined in 
paragraph (a)(3)(iv) of this section, with input from the 
interdisciplinary team within 4 days of the patient's admission to the 
IRF.
    (B) It is retained in the patient's medical record at the IRF.
    (5) Interdisciplinary team approach to care. In order for an IRF 
claim to be considered reasonable and necessary under section 
1862(a)(1) of the Act, the patient must require an interdisciplinary 
team approach to care, as evidenced by documentation in the patient's 
medical record of weekly interdisciplinary team meetings that meet all 
of the following requirements--
    (A) The team meetings are led by a rehabilitation physician as 
defined in paragraph (a)(3)(iv) of this section, and further consist of 
a registered nurse with specialized training or experience in 
rehabilitation; a social worker or case manager (or both); and a 
licensed or certified therapist from each therapy discipline involved 
in treating the patient. All team members must have current knowledge 
of the patient's medical and functional status.
    (B) The team meetings occur at least once per week throughout the 
duration of the patient's stay to implement appropriate treatment 
services; review the patient's progress toward stated rehabilitation 
goals; identify any problems that could impede progress towards those 
goals; and, where necessary, reassess previously established goals in 
light of impediments, revise the treatment plan in light of new goals, 
and monitor continued progress toward those goals.
    (C) The results and findings of the team meetings, and the 
concurrence by the rehabilitation physician with those results and 
findings, are retained in the patient's medical record.

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

    Dated: July 20, 2009.
Charlene Frizzera,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: July 30, 2009.
Kathleen Sebelius,
Secretary.

    The following addendum will not appear in the Code of Federal 
Regulations.

Addendum

    In this addendum, we provide the wage index tables referred to 
throughout the preamble to this proposed rule. The tables presented 
below are as follows:
    Table 1.--Inpatient Rehabilitation Facility Wage Index for Urban 
Areas for Discharges Occurring from October 1, 2009 through September 
30, 2010
    Table 2.--Inpatient Rehabilitation Facility Wage Index for Rural 
Areas for Discharges Occurring from October 1, 2009 through September 
30, 2010
BILLING CODE 4120-01-P

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[FR Doc. E9-18616 Filed 7-31-09; 4:15 pm]
BILLING CODE 4120-01-C


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