39762 Federal Register / Vol. 74, No. 151 / Friday, August 7, 2009 / Rules and Regulations 

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. 

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 

§ 412.23, § 412.29, and § 412.622 which 

are effective January 1, 2010. 

Applicability Date. The amendments 

to § 412.23, § 412.29, and § 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 LongTerm Care Hospital Market Basket 

SCHIP State Children’s Health Insurance 

Program 


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Federal Register / Vol. 74, No. 151 / Friday, August 7, 2009 / Rules and Regulations 39763 

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 casemix 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, lowincome 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 caselevel 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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39764 Federal Register / Vol. 74, No. 151 / Friday, August 7, 2009 / Rules and Regulations 

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 multicampus 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-forservice 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 providerspecific 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 

• 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). 

• Update the FY 2010 IRF facilitylevel 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). 

• 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). 

• 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). 

• 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 

• Relocate and revise the criteria for 

admission to an inpatient rehabilitation 

hospital found at existing § 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 § 412.23 as paragraphs (b)(3) and 


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Federal Register / Vol. 74, No. 151 / Friday, August 7, 2009 / Rules and Regulations 39765 

(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). 

• Revise the section heading at 

§ 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). 

• Relocate and revise the existing 

requirements at § 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). 

• Revise the section heading at 

§ 412.30, as described in section VII of 

the FY 2010 IRF PPS proposed rule (74 

FR 21052, 21067 through 21071). 

• Revise the regulation text in 

§ 412.604, § 412.606, § 412.610. 

§ 412.614 and § 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). 

• Remove § 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). 

• Revise the heading at § 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). 

• Revise the heading at 

§ 412.614(d)(1) to ‘‘Medicare Part A feefor-service data,’’ as described in section 

VIII of the FY 2010 IRF PPS proposed 

rule (74 FR 21052, 21071 through 

21073). 

• Make a technical correction to the 

paragraph formerly designated as 

§ 412.614(d)(1) and assign the revised 

language to a new paragraph 

§ 412.614(d)(1)(a), as described in 

section VIII of the FY 2010 IRF PPS 

proposed rule (74 FR 21052, 21071 

through 21073). 

• Redesignate paragraph 

§ 412.614(d)(2) as § 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 

• Revise § 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. 

• Add a new introductory paragraph 

at § 412.30 that includes the 

requirements previously found in 

§ 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). 

• Revise § 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). 

• Add a new paragraph 

§ 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 hospitalspecific 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 hospitalspecific 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 budgetneutrality 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 


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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 § 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 


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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 


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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 = 

Medicare SSI Days

Total Medicare Days

Medicaid, Non-Medicar +e Days

Total Days

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 facilitylevel 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 


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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 laborrelated 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 laborrelated 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 laborrelated share is 75.779 percent. 

TABLE 2—FY 2010 IRF RPL LABORRELATED SHARE RELATIVE IMPORTANCE

Cost category 

FY 2010 

IRF laborrelated 

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 hospitalbased IRFs cost structures is that most 

hospital-based units are smaller than 

freestanding IRFs. For example, one 

commenter indicated that hospitalbased IRFs have nearly two-thirds fewer 

discharges than freestanding IRFs. Thus, 

the commenters claimed that hospitalbased 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 hospitalbased 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 


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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 standalone 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 hospitalbased 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 hospitalbased 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 standalone 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: 

• To examine the cost differences 

between freestanding and hospitalbased IRFs, as well as the differences 

between IRFs and other hospitals such 

as Inpatient Psychiatric Hospitals (IPFs) 

and Long Term Care Facilities. 

• To determine to what extent fewer 

economies-of-scale and cost allocation 

differences account for cost differences 

between freestanding and hospitalbased IRFs. 

• To determine whether different 

classes of IRFs have different providerto-patient ratios. 

• 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, 


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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 § 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 


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(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: 

• Problems associated with the 

definition of labor markets for the wage 

index adjustments. 

• The modification or elimination of 

geographic reclassifications and other 

adjustments. 

• The use of Bureau of Labor 

Statistics data or other data or 

methodologies to calculate relative 

wages for each geographic area. 

• Minimizing variations in wage 

index adjustments between and within 

MSAs and statewide rural areas. 

• The feasibility of applying all 

components of CMS’s proposal to other 

settings. 

• Methods to minimize the volatility 

of wage index adjustments while 

maintaining the principle of budget 

neutrality. 

• The effect that the implementation 

of the proposal would have on health 

care providers in each region of the 

country. 

• Methods for implementing the 

proposal(s), including methods to phase 

in such implementations. 

• 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 prefloor 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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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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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 nonlabor 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 laborrelated share (75.779) described in 

section VI.A of this final rule by the 

unadjusted Federal prospective 

payment rate. To determine the nonlabor 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 wageadjusted 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 wageadjusted and rural-adjusted amount (if 

applicable). Finally, we add the 

additional teaching status payments (if 

applicable) to the wage, rural, and LIPadjusted Federal prospective payment 

rates. Table 5 illustrates the components 

of the adjusted payment calculation. 

BILLING CODE 4120–01–P 


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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, 


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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: 

• New IRFs that have not yet 

submitted their first Medicare cost 

report. 

• IRFs whose overall CCR is in excess 

of the national CCR ceiling for FY 2010, 

as discussed below. 

• 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 highcost 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 


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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

Fiscal year Outlier 

payments 

Outlier payments as a 

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-tocharge 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 § 412.23 and § 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 

§ 412.23 and § 412.29 and the placement 

of the proposed IRF coverage 

requirements in § 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 

§ 412.622(a)(3), § 412.622(a)(4), and 

§ 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 § 412.622(a)(3), § 412.622(a)(4), 

and § 412.622(a)(5) mirror the concepts 


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in the long-standing facility 

classification requirements in the 

existing § 412.23 and § 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 § 412.23 and § 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 § 412.23 

and § 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 

§ 412.622(a)(3), § 412.622(a)(4), and 

§ 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 


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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 postadmission 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, postadmission 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. 


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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. 


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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 postadmission 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 postadmission 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 postadmission 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 postadmission 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 costeffective. 

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 postadmission 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 

§ 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 

§ 412.610(a)(1)), extending the period of 


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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 


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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 

11⁄2 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 

§ 412.23(b)(4) and § 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 § 411.15(m)(3)(i) 

and § 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 § 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 Medicarecovered 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 longstanding policies and standard 

practices, these therapy activities are 

not used to demonstrate that a patient 

has received intensive therapy services. 


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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): 

• A rehabilitation physician with 

specialized training and experience in 

rehabilitation services; 

• A registered nurse with specialized 

training or experience in rehabilitation; 

• A social worker or a case manager 

(or both); and 

• 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 


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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 oneon-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 oneon-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 


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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 § 412.23 and 

§ 412.29 to combine the facility 

classification requirements for 

rehabilitation hospitals and 

rehabilitation units of acute care 

hospitals into one section at § 412.29, 

and to add the new coverage 

requirements to § 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 § 412.23 and § 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 § 412.622(a)(3), § 412.622(a)(4), 

and § 412.622(a)(5). However, the 

facility criteria requirements, as 

modified, will be retained in § 412.23 

and § 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 

§ 412.23 and § 412.29 are: 

• To remove the words ‘‘or 

assessment’’ from § 412.23(b)(3) and 

§ 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. 

• To amend paragraphs § 412.23(b)(4) 

and § 412.29(c) to require that IRFs 

‘‘furnish, through the use of qualified 

personnel, rehabilitation nursing, 

physical therapy, and occupational 

therapy, plus, as needed, speechlanguage 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 § 412.23(b)(7) and 

§ 412.29(e) to make the terminology 

consistent with the new IRF coverage 

criteria in the newly created 

§ 412.622(a)(3), § 412.622(a)(4), and 

§ 412.622(a)(5). To require, in both 

§ 412.23(b)(7) and § 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 § 412.622(a)(3), 

§ 412.622(a)(4), and § 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 § 412.23 and 

§ 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 

§ 412.622(a)(3), § 412.622(a)(4), and 

§ 412.622(a)(5). Finally, we will rescind 


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HCFAR 85–2 in a future notice to be 

issued in the Federal Register. 

We are adding requirements to 

§ 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 

§ 412.1(a)(1) and instead be paid under 

the IRF PPS, rehabilitation hospitals and 

units must meet, among other things, 

the requirements in § 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 

§ 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 § 412.604 and 

§ 412.618. It is ‘‘presumptive’’ in that, 

while § 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 § 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 

§ 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 

§ 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 feefor-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 § 412.604 and 

§ 412.618. To use the presumptive 

methodology, the Medicare Part A feefor-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-forservice 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 § 412.604, 

§ 412.606, § 412.610, § 412.614, and 

§ 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 

§ 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-forservice 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-forservice patients, as currently required in 

§ 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 § 422.504(d). 

We received 21 comments on the 

proposed revisions to the regulation text 

to require IRFs to submit patient 


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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 feefor-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 

§ 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 § 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 

§ 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 § 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 § 412.604, § 412.606, 

§ 412.610, § 412.614, and § 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: 

• In § 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 § 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 feefor-service patient admitted to or 


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discharged from an IRF on or after 

January 1, 2002, the inpatient 

rehabilitation facility must complete a 

patient assessment instrument in 

accordance with § 412.606. IRFs must 

also complete a patient assessment 

instrument in accordance with 

§ 412.606 for each Medicare Part C 

(Medicare Advantage) patient admitted 

to or discharged from an IRF on or after 

October 1, 2009.’’ 

• In § 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—’’ 

• In § 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 

§ 412.606 for each Medicare Part C 

(Medicare Advantage) patient admitted 

to or discharged from an IRF on or after 

October 1, 2009.’’ 

• In § 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 § 412.606 that 

covers a time period that is in 

accordance with the assessment 

schedule specified in paragraph (c) of 

this section.’’ 

• In § 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.’’ 

• In § 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.’’ 

• In § 412.610(c)(1)(i)(A), we are 

adding the phrase ‘‘or Medicare Part C 

(Medicare Advantage)’’ after ‘‘fee-forservice’’ 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 feefor-service or Medicare Part C (Medicare 

Advantage) hospitalization; * * *’’ 

• In § 412.610(c)(2)(ii)(B), we are 

adding the phrase ‘‘or Medicare Part C 

(Medicare Advantage)’’ after ‘‘fee-forservice’’ 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.’’ 

• In § 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-forservice 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 feefor-service patients specified in 

§ 412.610(f) and the 10-year record 

retention requirements for Medicare 

Part C (Medicare Advantage) records 

specified in § 422.504(d)(1)(ii). 

• In § 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—’’ 

• We are removing § 412.614(a)(3). 

• In § 412.614(b)(1), we are adding 

the phrase ‘‘and Medicare Part C 

(Medicare Advantage)’’ after ‘‘fee-forservice’’ 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 * * *’’ 

• We are revising § 412.614(d) to 

read, ‘‘Consequences of failure to submit 

complete and timely IRF–PAI data, as 

required under paragraph (c) of this 

section.’’ 

• We are revising § 412.614(d)(1) to 

read, ‘‘Medicare Part A fee-for-service 

data.’’ 

• We are making a technical 

correction to the paragraph formerly 

designated as § 412.614(d)(1) and 

assigning the revised language to a new 

paragraph § 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 feefor-service patients to our patient data 

system in accordance with the 

transmission timeline in paragraph (c) 

of this section.’’ 

• We are redesignating paragraph 

§ 412.614(d)(2) as § 412.614(d)(1)(b). 

• We are adding a new paragraph 

§ 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 

§ 412.23(b)(2).’’ 

• We are revising the second sentence 

in paragraph § 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.’’ 

• In the introductory paragraph of 

§ 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 

§ 412.602, the following applies: * * *’’ 

X. Miscellaneous Comments 

Comment: A commenter indicated 

that posting extensive changes to the 


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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 

§ 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 


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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 nonphysician 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 

• 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. 

• 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. 

• 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. 

• 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. 

• We will update the outlier 

threshold amount for FY 2010, as 

discussed in section VII.A of this final 

rule. 

• 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 

• We will remove the words ‘‘or 

assessment’’ from § 412.23(b)(3) and 

§ 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. 

• We will amend paragraphs 

§ 412.23(b)(4) and § 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. 

• We will replace the word 

‘‘multidisciplinary’’ with the word 

‘‘interdisciplinary’’ in § 412.23(b)(7) and 

§ 412.29(e) to make the terminology 

consistent with the new IRF coverage 

criteria in § 412.622(a), as discussed in 

section VIII.E of this final rule. 

• We will require, in both 

§ 412.23(b)(7) and § 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 

§ 412.622(a), as discussed in section 

VIII.E of this final rule. 

• We will add new paragraphs (3), 

(4), and (5) to § 412.622(a) to implement 

new IRF coverage requirements, as 

discussed in section VIII of this final 

rule. 

• With respect to § 412.604, 

§ 412.606, § 412.610, § 412.614 and 

§ 412.618, we will revise the regulation 

text as described in section IX.B of this 

final rule. 

• With respect to § 412.614(a), we 

will remove subparagraph (3) as 

described in section IX.B of this final 

rule. 

• With respect to § 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: 


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• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

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 

§ 412.606. IRFs must also complete a 

patient assessment instrument in 

accordance with § 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® 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 × 0.75). 

The total annual hour burden for all 

1,205 IRFs is 34,342.5 hours (28.5 hours 

× 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# 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 × 0.10). The total annual 

hour burden for all 1,205 IRFs is 4,579 

hours (3.8 hours × 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# 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 § 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, 

§ 482.24(c)(2) requires that the postadmission 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# 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 


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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 § 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 § 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# 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# 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: OIRA_submission@omb.eop.gov. 

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 


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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: 

• The effects of the update to the 

outlier threshold amount, consistent 

with section 1886(j)(4) of the Act. 

• 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. 

• The effects of applying the budgetneutral labor-related share and wage 

index adjustment, as required under 

section 1886(j)(6) of the Act. 

• 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. 

• 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. 

• 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 forprofit 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. 


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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 


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BILLING CODE 4120–01–C 


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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 laborrelated 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 


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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 facilitylevel 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-forservice 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. 

■ 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 

■ 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 CapitalRelated Costs 

■ 2. Section 412.23 is amended by— 

■ A. Revising paragraph (b)(3). 

■ B. Revising paragraph (b)(4). 

■ C. Revising paragraph (b)(7). 

The revisions read as follows: 


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§ 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. 

* * * * * 

■ 3. Section 412.29 is amended by— 

■ A. Revising paragraph (b). 

■ B. Revising paragraph (c). 

■ C. Revising paragraph (e). 

The revisions read as follows: 

§ 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 

■ 4. Section 412.604 is amended by 

revising paragraph (c) to read as follows: 

§ 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 § 412.606. IRFs must 

also complete a patient assessment 

instrument in accordance with 

§ 412.606 for each Medicare Part C 

(Medicare Advantage) patient admitted 

to or discharged from an IRF on or after 

October 1, 2009. 

* * * * * 

■ 5. Section 412.606 is amended by— 

■ A. Revising paragraph (b) introductory 

text. 

■ B. Revising paragraph (c)(1). 

The revisions read as follows: 

§ 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 § 412.610. IRFs must also complete a 

patient assessment instrument in 

accordance with § 412.606 for each 

Medicare Part C (Medicare Advantage) 

patient admitted to or discharged from 

an IRF on or after October 1, 2009. 

* * * * * 

■ 6. Section 412.610 is amended by— 

■ A. Revising paragraph (a). 

■ B. Revising paragraph (b). 

■ C. Revising paragraph (c) introductory 

text. 

■ D. Revising paragraph (c)(1)(i)(A). 

■ E. Revising paragraph (c)(2)(ii)(B). 

■ F. Revising paragraph (f). 

The revisions read as follows: 

§ 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 § 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 feefor-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. 

■ 7. Section 412.614 is amended by— 

■ A. Revising paragraph (a) introductory 

text. 


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■ B. Removing paragraph (a)(3). 

■ C. Revising paragraph (b)(1). 

■ D. Revising paragraph (d). 

■ E. Revising paragraph (e). 

The revisions read as follows: 

§ 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 § 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. 

■ 8. Section 412.618 is amended by 

revising the introductory text to read as 

follows. 

§ 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 

§ 412.602, the following applies: 

* * * * * 

■ 9. Section 412.622 is amended by 

adding paragraphs (a)(3) through (a)(5) 

to read as follows: 

§ 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, speechlanguage 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 

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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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39832 Federal Register / Vol. 74, No. 151 / Friday, August 7, 2009 / Rules and Regulations 


pwalker on DSK8KYBLC1PROD with RULES2ER07AU09.034</GPH>
Federal Register / Vol. 74, No. 151 / Friday, August 7, 2009 / Rules and Regulations 39833 


pwalker on DSK8KYBLC1PROD with RULES2ER07AU09.035</GPH>
39834 Federal Register / Vol. 74, No. 151 / Friday, August 7, 2009 / Rules and Regulations 


pwalker on DSK8KYBLC1PROD with RULES2ER07AU09.036</GPH>
Federal Register / Vol. 74, No. 151 / Friday, August 7, 2009 / Rules and Regulations 39835 


pwalker on DSK8KYBLC1PROD with RULES2ER07AU09.037</GPH>
39836 Federal Register / Vol. 74, No. 151 / Friday, August 7, 2009 / Rules and Regulations 


pwalker on DSK8KYBLC1PROD with RULES2ER07AU09.038</GPH>
Federal Register / Vol. 74, No. 151 / Friday, August 7, 2009 / Rules and Regulations 39837 


pwalker on DSK8KYBLC1PROD with RULES2ER07AU09.039</GPH>
39838 Federal Register / Vol. 74, No. 151 / Friday, August 7, 2009 / Rules and Regulations 

[FR Doc. E9–18616 Filed 7–31–09; 4:15 pm] 

BILLING CODE 4120–01–C 


pwalker on DSK8KYBLC1PROD with RULES2ER07AU09.040</GPH>