48354 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 412, 414, and 424 

[CMS–1540–F] 

RIN 0938–AO16 

Medicare Program; Inpatient 

Rehabilitation Facility Prospective 

Payment System for Federal Fiscal 

Year 2007; Certain Provisions 

Concerning Competitive Acquisition 

for Durable Medical Equipment, 

Prosthetics, Orthotics, and Supplies 

(DMEPOS); Accreditation of DMEPOS 

Suppliers 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: This final rule will update the 

prospective payment rates for inpatient 

rehabilitation facilities (IRFs) for 

Federal fiscal year (FY) 2007 (for 

discharges occurring on or after October 

1, 2006 and on or before September 30, 

2007) as required under section 

1886(j)(3)(C) of the Social Security Act 

(the Act). 

We are revising existing policies 

regarding the prospective payment 

system within the authority granted 

under section 1886(j) of the Act. In 

addition, we are revising the current 

regulation text to reflect the changes 

enacted under section 5005 of the 

Deficit Reduction Act of 2005. 

This final rule will also establish 

certain requirements related to 

competitive acquisition for durable 

medical equipment, prosthetics, 

orthotics, and supplies (DMEPOS) and 

establish accreditation of DMEPOS 

suppliers as required under section 302 

of the Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003. 

EFFECTIVE DATES: The regulatory changes 

to part 412 of 42 CFR are effective 

October 1, 2006. The regulatory changes 

to part 414 of 42 CFR, other than 

§ 414.406(e), are effective August 31, 

2006. The regulatory changes to part 424 

of 42 CFR are effective October 2, 2006. 

The updated IRF prospective payment 

rates are effective October 1, 2006, for 

discharges occurring on or after October 

1, 2006 and on or before September 30, 

2007 (that is, during FY 2007). 

FOR FURTHER INFORMATION CONTACT: 

Pete Diaz, (410) 786–1235, for information 

regarding the IRF PPS 75 percent rule. 

Susanne Seagrave, (410) 786–0044, for 

information regarding the new IRF PPS 

payment policies. 

Zinnia Ng, (410) 786–4587, for information 

regarding the wage index and the IRF 

prospective payment rate calculation. 

Sandra Bastinelli, (410) 786–3630, for 

information regarding accreditation of 

DMEPOS suppliers. 

LT Camille Soondar, (410) 786–9370, for 

information regarding accreditation of 

DMEPOS suppliers. 

CDR Marie Casey, (410) 786–7861, for 

information regarding accreditation of 

DMEPOS suppliers. 

Linda Smith, (410) 786–5650, for information 

regarding the DMEPOS quality standards. 

Michael Keane, (410) 786–4495, for 

information on DMEPOS competitive 

bidding implementation contractors. 

Alexis Meholic, (410) 786–2300, for issues 

related to education and outreach under 

the DMEPOS competitive bidding program. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

A. Inpatient Rehabilitation Facility 

Prospective Payment System (IRF PPS) 

1. Historical Overview of the Inpatient 

Rehabilitation Facility Prospective 

Payment System (IRF PPS) for Fiscal 

Years (FYs) 2002 Through 2006 

2. Requirements for Updating the IRF PPS 

Rates 

3. Operational Overview of the Current IRF 

PPS 

4. Summary of Revisions to the IRF PPS for 

FY 2007 

B. Durable Medical Equipment, 

Prosthetics, Orthotics, and Supplies 

(DMEPOS) 

1. The Medicare DMEPOS Competitive 

Bidding Program 

2. Implementation Contractors 

3. Quality Standards for Suppliers of 

DMEPOS 

4. Accreditation for Suppliers of DMEPOS 

and Other Items 

5. Summary of DMEPOS Provisions 

II. Provisions of the Proposed Rule 

A. IRF PPS 

1. Section 412.23 Excluded Hospitals: 

Classifications 

2. Section 412.624 Methodology for 

Calculating the Federal prospective 

Payment Rates 

3. Additional Proposed Changes 

B. DMEPOS 

III. Analysis of and Responses to Public 

Comments 

A. IRF PPS 

B. DMEPOS 

IV. Refinements to the IRF Patient 

Classification System 

A. Changes to the Existing List of Tier 

Comorbidities 

B. Changes to the Case-Mix Group (CMG) 

Relative Weights 

V. FY 2007 IRF Federal Prospective Payment 

Rates 

A. Reduction of the Standard Payment 

Amount To Account for Coding Changes 

B. FY 2007 IRF Market Basket Increase 

Factor and Labor-Related Share 

C. Area Wage Adjustment 

D. Description of the Standard Payment 

Conversion Factor and Payment Rates for 

FY 2007 

E. Example of the Methodology for 

Adjusting the Federal Prospective 

Payment Rates 

VI. Update to Payments for High-Cost 

Outliers Under the IRF PPS 

A. Update to the Outlier Threshold 

Amount for FY 2007 

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

Ceilings and Clarification to the 

Regulation Text for FY 2007 

VII. Revisions to the Classification Criteria 

Percentage for IRFs 

VIII. IRF PPS: Other Issues 

A. Integrated Post Acute Care Payment 

B. Transparency and Health Information 

Technology Initiatives 

IX. Miscellaneous IRF PPS Public Comments 

X. DMEPOS Competitive Bidding 

Implementation Provisions and 

Accreditation for DMEPOS Suppliers 

A. Implementation Contractor 

1. Legislative Provisions 

2. Provisions of the May 1, 2006 Proposed 

Rule 

3. Public Comments Received and Our 

Responses 

B. Education and Outreach 

1. Supplier Education 

2. Beneficiary Education 

C. Quality Standards for Suppliers of 

DMEPOS 

D. Accreditation for Suppliers of DMEPOS 

and Other Items 

E. Special Payment Rules for Items 

Furnished by DMEPOS Suppliers and 

Issuance of DMEPOS Supplier Billing 

Privileges (§ 424.57) 

F. Accreditation (§ 424.58) 

G. Ongoing Responsibilities of CMSApproved Accreditation Organizations 

H. Continuing Federal Oversight of 

Approved Accreditation Organizations 

1. Equivalency Review 

2. Validation Survey 

3. Notice of Intent To Withdraw Approval 

for Deeming Authority 

4. Withdrawal of Approval for Deeming 

Authority 

I. Reconsideration 

XI. Provisions of the Final Rule 

A. IRF PPS 

B. Quality Standards and Accreditation for 

DMEPOS Suppliers 

XII. Waiver of Delayed Effective Date 

XIII. Collection of Information Requirements 

XIV. Regulatory Impact Analysis for the IRF 

PPS 

A. Overall IRF PPS Impact 

B. Anticipated Effects of the IRF PPS Final 

Rule 

C. IRF PPS Accounting Statement 

D. IRF PPS Alternatives Considered 

E. IRF PPS Conclusion 

XV. Regulatory Impact Analysis for DMEPOS 

Suppliers 

A. Overall Impact 

B. Anticipated Effects for DMEPOS 

Suppliers 

C. Alternatives Considered for DMEPOS 

Suppliers 

D. Accounting Statement for DMEPOS 

Suppliers 

E. Conclusion for DMEPOS Suppliers 

Regulation Text 

Addendum 


jlentini on PROD1PC65 with RULES3
Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 48355 

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 of 2002, Pub. L. 107–105 

BBA Balanced Budget Act of 1997, Pub. L. 

105–33 

BBRA Medicare, Medicaid, and SCHIP 

[State Children’s Health Insurance 

Program] Balanced Budget Refinement 

Act of 1999, Pub. L. 106–113 

BIPA Medicare, Medicaid, and SCHIP [State 

Children’s Health Insurance Program] 

Benefits Improvement and Protection 

Act of 2000, Pub. L. 106–554 

CBA Competitive Bidding Area 

CBIC Competitive Bidding Implementation 

Contractor 

CBSA Core-Based Statistical Area 

CCMO CMS Consortium Contractor 

Management Officer 

CCR Cost-to-Charge Ratio 

CFR Code of Federal Regulations 

CMG Case-Mix Group 

CY Calendar Year 

DMERC Durable Medical Equipment 

Regional Carrier 

DMEPOS Durable Medical Equipment, 

Prosthetics, Orthotics, and Supplies 

DRA Deficit Reduction Act of 2005, Pub. L. 

109–171 

DRG Diagnosis-Related Group 

DSH Disproportionate Share Hospital 

ECI Employment Cost Indexes 

FI Fiscal Intermediary 

FR Federal Register 

FTE Full-Time Equivalent 

FY Federal Fiscal Year 

GDP Gross Domestic Product 

HCPCS Healthcare Common Procedure 

Coding System 

HHH Hubert H. Humphrey Building 

HIPAA Health Insurance Portability and 

Accountability Act, Pub. L. 104–191 

HIT Health Information Technology 

ICD–9–CM International Classification of 

Diseases, Ninth Revision, Clinical 

Modification 

IFMC Iowa Foundation for Medical Care 

IIC Inflation Indexed Charge 

IPPS Inpatient Prospective Payment System 

IRF Inpatient Rehabilitation Facility 

IRF–PAI Inpatient Rehabilitation FacilityPatient Assessment Instrument 

IRF PPS Inpatient Rehabilitation Facility 

Prospective Payment System 

IRVEN Inpatient Rehabilitation Validation 

and Entry 

LCD Local Coverage Determination 

LIP Low-Income Percentage 

MEDPAR Medicare Provider Analysis and 

Review 

MLN Medicare Learning Network 

MMA Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (Pub. L. 108–173) 

MSA Metropolitan Statistical Area 

NAICS North American Industrial 

Classification System 

NCMRR National Center for Medical 

Rehabilitation Research 

NIH National Institutes of Health 

NSC National Supplier Clearinghouse 

OCI Organizational and Consultant 

Conflicts of Interest 

OIG Office of Inspector General 

OMB Office of Management and Budget 

PAC Post Acute Care 

PAI Patient Assessment Instrument 

PAOC Program Advisory and Oversight 

Committee 

PPS Prospective Payment System 

RAND RAND Corporation 

RFB Request for Bids 

RFA Regulatory Flexibility Act, Pub. L. 96–

354 

RIA Regulation Impact Analysis 

RIC Rehabilitation Impairment Category 

RO Regional Office 

RPL Rehabilitation, Psychiatric, and LongTerm Care Hospital Market Basket 

SCHIP State Children’s Health Insurance 

Program 

SIC Standard Industrial Code 

TEFRA Tax Equity and Fiscal 

Responsibility Act of 1982, Pub. L. 97–

248 

I. Background 

A. Inpatient Rehabilitation Facility 

Prospective Payment System (IRF PPS) 

We received approximately 58 timely 

items of correspondence on the FY 2007 

Inpatient Rehabilitation Facility 

Prospective Payment System proposed 

rule (71 FR 28106, May 15, 2006). 

Summaries of the public comments and 

our responses to those comments are set 

forth below under the appropriate 

section heading of this final rule. 

1. Historical Overview of the Inpatient 

Rehabilitation Facility Prospective 

Payment System (IRF PPS) for Fiscal 

Years (FYs) 2002 Through 2006 

Section 4421 of the Balanced Budget 

Act of 1997 (BBA, Pub. L. 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, Pub. L. 106–113), and by 

section 305 of the Medicare, Medicaid, 

and SCHIP Benefits Improvement and 

Protection Act of 2000 (BIPA, Pub. L. 

106–554), provides for the 

implementation of a per discharge 

prospective payment system (PPS), 

through 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 

costs of approved educational 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 

August 7, 2001 final rule (66 FR 41316) 

as revised in 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 

2006. 

Under the IRF PPS from FY 2002 

through FY 2005, as described in the 

August 7, 2001 final rule, the Federal 

prospective payment rates were 

computed across 100 distinct case-mix 

groups (CMGs). We constructed 95 

CMGs using rehabilitation impairment 

categories (RICs), functional status (both 

motor and cognitive), and age (in some 

cases, cognitive status and age may not 

be a factor in defining a CMG). In 

addition, we constructed five special 

CMGs to account for very short stays 

and for patients who expire in the IRF. 

For each of the CMGs, we developed 

relative weighting factors to account for 

a patient’s clinical characteristics and 

expected resource needs. Thus, the 

weighting factors accounted for the 

relative difference in resource use across 

all CMGs. Within each CMG, we created 

tiers based on the estimated effects that 

certain comorbidities would have on 

resource use. 

We established the Federal PPS rates 

using a standardized payment 

conversion factor (formerly referred to 

as the budget neutral conversion factor). 

For a detailed discussion of the budget 

neutral conversion factor, please refer to 

our August 1, 2003 final rule (68 FR 

45674, 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, we then applied 

adjustments for geographic variations in 

wages (wage index), the percentage of 

low-income patients, and location in a 

rural area (if applicable) to the IRF’s 

unadjusted Federal prospective 

payment rates. In addition, we made 

adjustments to account for short-stay 

transfer cases, interrupted stays, and 

high cost outliers. 

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 


jlentini on PROD1PC65 with RULES3
48356 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 

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. 

In the FY 2006 IRF PPS final rule (70 

FR 47880), we implemented refinements 

that became effective for discharges 

beginning on or after October 1, 2005. 

We published correcting amendments to 

the FY 2006 IRF PPS final rule in the 

Federal Register on September 30, 2005 

(70 FR 57166). Any reference to the FY 

2006 IRF PPS final rule in this rule also 

includes the provisions effective in the 

correcting amendments. 

In the FY 2006 final rule (70 FR 47880 

and 70 FR 57166), 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 facilitylevel adjustments. These refinements 

were based on analyses by the RAND 

Corporation (RAND), a non-partisan 

economic and social policy research 

group, using calendar year 2002 and FY 

2003 data. These were the first 

significant refinements to the IRF PPS 

since its implementation. In conducting 

the analysis, RAND used claims and 

clinical data for services furnished after 

the implementation of the IRF PPS. 

These newer data sets were more 

complete, and reflected improved 

coding of comorbidities and patient 

severity by IRFs. The researchers were 

able to use new data sources for 

imputing missing values and more 

advanced statistical approaches to 

complete their analyses. The RAND 

reports supporting the refinements 

made to the IRF PPS are available on the 

CMS Web site at: http:// 

www.cms.hhs.gov/ 

InpatientRehabFacPPS/ 

09_Research.asp. 

The final key policy changes, effective 

for discharges occurring on or after 

October 1, 2005, are discussed in detail 

in the FY 2006 IRF PPS final rule (70 

FR 47880 and 70 FR 57166). The 

following is a brief summary of the key 

policy changes: 

• We adopted the Office of 

Management and Budget’s (OMB’s) 

Core-Based Statistical Area (CBSA) 

market area definitions in a budget 

neutral manner. We made this 

geographic adjustment using the most 

recent final wage data available (that is, 

pre-reclassification and pre-floor 

hospital wage index based on FY 2001 

hospital wage data). In addition, we 

implemented a budget-neutral 3-year 

hold harmless policy for IRFs that were 

considered rural in FY 2005, but became 

urban in FY 2006 under the CBSA 

definitions, as described in the FY 2006 

IRF PPS final rule (70 FR 47880, 47923 

through 47925). 

• We also implemented a payment 

adjustment to account for changes in 

coding that did not reflect real changes 

in case mix. Thus, we reduced the 

standard payment amount by 1.9 

percent to account for these changes in 

coding following implementation of the 

IRF PPS. Our contractors conducted a 

series of analyses to identify real case 

mix change over time and the effect of 

this change on aggregate IRF PPS 

payments. A detailed discussion of the 

analysis and research appears in the FY 

2006 IRF PPS final rule (70 FR 47880). 

• In addition, we made modifications 

to the CMGs, tier comorbidities, and 

relative weights in a budget-neutral 

manner. The final rule included a 

number of adjustments to the IRF 

classification system that are designed 

to improve the system’s ability to 

predict IRF costs. The data indicated 

that moving or eliminating some 

comorbidity codes from the tiers, 

redefining the CMGs, and other minor 

changes to the system would improve 

the ability of the classification system to 

ensure that Medicare payments to IRFs 

continue to be aligned with the costs of 

care. These refinements resulted in 87 

CMGs using Rehabilitation Impairment 

Categories (RICs), functional status 

(motor and cognitive scores), and age (in 

some cases, cognitive status and age 

may not be factors in defining CMGs). 

The five special CMGs remained the 

same as they had been before FY 2006 

and continue to account for very short 

stays and for patients who expired in 

the IRF. 

• In addition, we implemented a new 

teaching status adjustment for IRFs, 

similar to the one adopted for inpatient 

psychiatric facilities. We implemented 

the teaching status adjustment in a 

budget neutral manner. 

• We also revised and rebased the 

market basket. We finalized the use of 

a new market basket reflecting the 

operating and capital cost structures for 

rehabilitation, psychiatric, and long 

term care (RPL) hospitals to update IRF 

payment rates. The RPL market basket 

excludes data from cancer hospitals, 

children’s hospitals, and religious nonmedical institutions. In addition, we 

rebased the market basket to account for 

2002-based cost structures for RPL 

hospitals. Further, we calculated the 

labor-related share using the RPL market 

basket. 

• In addition, we updated the rural 

adjustment (from 19.14 percent to 21.3 

percent), the low-income percentage 

(LIP) adjustment (from an exponent of 

0.484 to an exponent of 0.6229), and the 

outlier threshold amount (from $11,211 

to $5,129, as further revised in the FY 

2006 IRF PPS correction notice (70 FR 

57166, 57168)). We implemented the 

changes to the rural and LIP 

adjustments in a budget neutral manner. 

Since the implementation of the IRF 

PPS, we have maintained a CMS Web 

site as a primary information resource 

for the IRF PPS. The Web siteURL 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. 

2. Requirements for Updating the IRF 

PPS Rates 

On August 7, 2001, we published a 

final rule titled ‘‘Medicare Program; 

Prospective Payment System for 

Inpatient Rehabilitation Facilities’’ in 

the Federal Register (66 FR 41316) that 

established a PPS for IRFs as authorized 

under section 1886(j) of the Act and 

codified at subpart P of part 412 of the 

Medicare regulations. In the August 7, 

2001 final rule, we set forth the per 

discharge Federal prospective payment 

rates for FY 2002, which provided 

payment for inpatient operating and 

capital costs of furnishing covered 

rehabilitation services (that is, routine, 

ancillary, and capital costs) but not 

costs of approved educational activities, 

bad debts, and other services or items 

that are outside the scope of the IRF 

PPS. The provisions of the August 7, 

2001 final rule were effective for cost 

reporting periods beginning on or after 

January 1, 2002. On July 1, 2002, we 

published a correcting amendment to 

the August 7, 2001 final rule in the 

Federal Register (67 FR 44073). Any 

references to the August 7, 2001 final 

rule in this final rule include the 

provisions effective in the correcting 

amendment. 

Section 1886(j)(5) of the Act and 42 

CFR 412.628 of the regulations require 

the Secretary to publish in the Federal 

Register, on or before the August 1 that 

precedes the start of each new FY, the 

classifications and weighting factors for 

the IRF CMGs and a description of the 

methodology and data used in 

computing the prospective payment 

rates for the upcoming FY. On August 

1, 2002, we published a notice in the 

Federal Register (67 FR 49928) to 

update the IRF Federal prospective 

payment rates from FY 2002 to FY 2003 


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Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 48357 

using the methodology as described in 

§ 412.624. As stated in the August 1, 

2002 notice, we used the same 

classifications and weighting factors for 

the IRF CMGs that were set forth in the 

August 7, 2001 final rule to update the 

IRF Federal prospective payment rates 

from FY 2002 to FY 2003. We continued 

to update the prospective payment rates 

in accordance with the methodology set 

forth in the August 7, 2001 final rule for 

each succeeding FY up to and including 

FY 2005. For FY 2006, however, we 

published a final rule that revised 

several IRF PPS policies (70 FR 47880), 

as summarized in section I.A.1 of this 

final rule. The provisions of the FY 2006 

IRF PPS final rule became effective for 

discharges occurring on or after October 

1, 2005. 

On May 15, 2006, we published a 

proposed rule in the Federal Register 

(71 FR 28106) to update the IRF Federal 

prospective payment rates from FY 2006 

to FY 2007. In this final rule for FY 

2007, we update the IRF Federal 

prospective payment rates. In addition, 

we update the outlier threshold amount 

and the cost-to-charge ratio ceilings 

from FY 2006 to FY 2007. We are also 

implementing a 2.6 percent reduction to 

the FY 2007 standard payment amount 

to account for changes in coding 

practices that do not reflect real changes 

in case mix. (See section V.A of this 

final rule for further discussion of the 

reduction of the standard payment 

amount to account for coding changes.) 

We are also implementing revisions to 

the tier comorbidities and the relative 

weights to ensure that IRF PPS 

payments reflect, as closely as possible, 

the costs of caring for patients in IRFs. 

(See section IV for a detailed discussion 

of these changes.) The FY 2007 Federal 

prospective payment rates are effective 

for discharges occurring on or after 

October 1, 2006 and on or before 

September 30, 2007. 

In addition, we are revising the 

regulation text in § 412.23(b)(2)(i) and 

§ 412.23(b)(2)(ii) pursuant to our 

authority in section 5005 of the Deficit 

Reduction Act of 2005 (DRA, Pub. L. 

109–171) and section 1886(d)(1)(B) of 

the Act. Section 5005 of the DRA 

required that we revise the applicable 

percentages stipulated in the May 7, 

2004 final rule (69 FR 25752). The effect 

of this change prolongs by an additional 

year the duration of the phased 

transition to the full 75 percent 

threshold established in current 

regulation text. In addition, under the 

authority in section 1886(d)(1)(B) of the 

Act, we are similarly extending by an 

additional year the use of comorbid 

conditions that meet the criteria 

outlined in the regulations to count for 

purposes of determining compliance 

with the classification criteria in 

§ 412.23(b)(2)(i). 

3. Operational Overview of the Current 

IRF PPS 

As described in the August 7, 2001 

final rule and subsequent rules, upon 

the admission and discharge of a 

Medicare Part A fee-for-service patient, 

the IRF is required to complete the 

appropriate sections of the Inpatient 

Rehabilitation Facility-Patient 

Assessment Instrument (IRF–PAI). 

Generally, the encoded IRF–PAI 

software product includes patient 

grouping programming called the 

GROUPER software. The GROUPER 

software uses specific Patient 

Assessment Instrument (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 

completes the Medicare claim (UB–92 

or its equivalent) using the five-digit 

CMG number and sends it to the 

appropriate Medicare fiscal 

intermediary (FI). Claims submitted to 

Medicare must comply with both the 

Administrative Simplification 

Compliance Act (ASCA, Pub. L. 107–

105), and the Health Insurance 

Portability and Accountability Act of 

1996 (HIPAA, Pub. L. 104–191). For a 

detailed discussion on this issue and 

additional legal citations, please visit 

the electronic billing & electronic data 

interchange (EDI) transactions Web site 

at: http://www.cms.hhs.gov/ 

ElectronicBillingEDITrans/. 

The Medicare FI 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). 

4. Summary of Revisions to the IRF PPS 

for FY 2007 

In this final rule, we make the 

following revisions and updates: 

• Update the relative weight and 

average length of stay tables based on reanalysis of the data by CMS and our 

contractor, the RAND Corporation, as 

discussed in section IV of this final rule. 

This update will be reflected in the IRF 

GROUPER software and other 

applicable CMS publications. 

• Reduce the standard payment 

amount by 2.6 percent to account for 

coding changes that do not reflect real 

changes in case mix, as discussed in 

section V.A of this final rule. 

• Update the FY 2007 IRF PPS 

payment rates by the market basket, as 

discussed in section V.B of this final 

rule. 

• Update the FY 2007 IRF PPS 

payment rates by the labor related share, 

the wage indexes, and the second year 

of the hold harmless policy in a budget 

neutral manner, as discussed in section 

V.C of this final rule. 

• Update the outlier threshold for FY 

2007 to $5,534, as discussed in section 

VI.A of this final rule. 

• Update the urban and rural national 

cost-to-charge ratio ceilings for purposes 

of determining outlier payments under 

the IRF PPS and clarify the methodology 

described in the regulation text, as 

discussed in section VI.B of this final 

rule. 

• Revise the regulation text at 

§ 412.23(b)(2)(i) and § 412.23(b)(2)(ii) in 

the following manner so that the 

compliance thresholds reflect section 

5005 of the DRA: (1) For cost reporting 

periods starting on or after July 1, 2006, 

and before July 1, 2007, the compliance 

threshold is 60 percent. (2) For cost 

reporting periods starting on or after 

July 1, 2007 and before July 1, 2008, the 

compliance threshold is 65 percent. (3) 

For cost reporting periods starting on or 

after July 1, 2008, the compliance 

threshold is 75 percent. In addition, 

comorbidities may not be used to 

determine if the 75 percent compliance 

threshold is met. However, 

comorbidities meeting the criteria 

outlined in the regulations may be used 

to determine if the applicable 

compliance threshold is met for cost 

reporting periods beginning on or after 

July 1, 2004 and before July 1, 2008. 


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48358 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 

B. Durable Medical Equipment, 

Prosthetics, Orthotics, and Supplies 

(DMEPOS) 

On May 1, 2006, we issued a 

proposed rule to implement the 

Medicare DMEPOS Competitive Bidding 

Program and other issues (71 FR 25654). 

To ensure timely implementation of the 

Medicare DMEPOS Competitive Bidding 

Program, we are choosing to respond in 

this final rule to comments submitted 

on certain provisions of the May 1, 2006 

proposed rule. These provisions include 

DMEPOS competitive bidding 

implementation contractors, DMEPOS 

competitive bidding education and 

outreach, quality standards for DMEPOS 

suppliers, and accreditation of DMEPOS 

suppliers. We received approximately 

600 timely comments on these 

provisions of the May 1, 2006 proposed 

rule. Summaries of the public comments 

and our responses to those comments 

are set forth below under the 

appropriate section headings of this 

final rule. 

1. The Medicare DMEPOS Competitive 

Bidding Program 

Section 302(b)(1) of the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA, Pub. 

L. 108–173) amended section 1847 of 

the Act to require the Secretary to 

establish and implement programs 

under which competitive bidding areas 

are established throughout the United 

States for contract award purposes for 

the furnishing of certain competitively 

priced items for which payment is made 

under Part B (the ‘‘Medicare DMEPOS 

Competitive Bidding Program’’). Section 

1847(a)(2) of the Act provides that the 

items and services that may be 

furnished under the competitive 

bidding programs include certain DME 

and associated supplies, enteral 

nutrition and associated supplies, and 

off-the-shelf orthotics. In addition, 

section 1847 of the Act specifies the 

requirements and conditions for 

implementation of the Medicare 

DMEPOS Competitive Bidding Program. 

Competitive bidding provides a way to 

harness marketplace dynamics to create 

incentives for suppliers to provide 

quality items in an efficient manner and 

at a reasonable cost. 

2. Implementation Contractors 

Section 1847(b)(9) of the Act provides 

that the Secretary may contract with 

appropriate entities to implement the 

Medicare DMEPOS Competitive Bidding 

Program. Section 1847(a)(1)(C) of the 

Act also authorizes the Secretary to 

waive provisions of the Federal 

Acquisition Regulation (FAR) as 

necessary for the efficient 

implementation of this section, other 

than provisions relating to 

confidentiality of information and other 

provisions as the Secretary determines 

appropriate. 

In the May 1, 2006 proposed rule (71 

FR 25661), we proposed to designate 

one or more competitive bidding 

implementation contractors (CBICs) for 

the purpose of implementing the 

Medicare DMEPOS Competitive Bidding 

Program (proposed § 414.406(a)). We 

also discussed the six primary functions 

of the program (see 71 FR 25661), which 

include overall oversight and decisionmaking, operation design functions 

(including the design of both bidding 

and outreach material templates, as well 

as program processes), bidding and 

evaluation, access and quality 

monitoring, outreach and education, 

and claims processing. We respond to 

comments on our proposal in section 

X.A of this preamble. 

3. Quality Standards for Suppliers of 

DMEPOS 

Section 302(a)(1) of the MMA added 

section 1834(a)(20) to the Act, which 

requires the Secretary to establish and 

implement quality standards for 

suppliers of certain items, including 

consumer service standards, to be 

applied by recognized independent 

accreditation organizations. Suppliers of 

DMEPOS must comply with the 

DMEPOS quality standards in order to 

furnish any item for which Part B makes 

payment, and also in order to receive or 

retain a supplier billing number used to 

submit claims for reimbursement for 

any such item for which payment can be 

made by Medicare. Section 

1834(a)(20)(D) of the Act requires us to 

apply these DMEPOS quality standards 

to suppliers of the following items for 

which we deem the standards to be 

appropriate: 

• Covered items, as defined in section 

1834(a)(13), for which payment may be 

made under section 1834(a); 

• Prosthetic devices and orthotics and 

prosthetics described in section 

1834(h)(4); and 

• Items described in section 

1842(s)(2) of the Act, which include 

medical supplies, home dialysis 

supplies and equipment, therapeutic 

shoes, parenteral and enteral nutrients, 

equipment, and supplies, 

electromyogram devices, salivation 

devices, blood products, and transfusion 

medicine. 

Section 1834(a)(20)(E) of the Act 

explicitly authorizes the Secretary to 

establish the DMEPOS quality standards 

by program instructions or otherwise 

after consultation with representatives 

of relevant parties. After consulting with 

such representatives, including the 

Program Advisory and Oversight 

Committee (PAOC) (please see 71 FR 

25658 for a discussion of this 

committee) and a wide range of other 

stakeholders, we published the draft 

quality standards on the CMS Web 

sitein September 2005 (see http:// 

www.cms.hhs.gov/ 

competitiveAcqforDMEPOS/) and 

provided for a 60-day public comment 

period. We received more than 5,600 

public comments on the draft DMEPOS 

quality standards. After careful 

consideration of all comments, these 

quality standards will be published 

shortly on the CMS Web site. They will 

appear on the CMS Web site at http:// 

www.cms.hhs.gov/ 

competitiveAcqforDMEPOS/. The 

quality standards will become effective 

for use as part of the accreditation 

selection process when posted on the 

Web site. All suppliers of DMEPOS and 

other items to which section 1834(a)(20) 

of the Act applies will be required to 

meet the DMEPOS quality standards 

established under that section. Finally, 

section 1847(b)(2)(A)(i) of the Act 

requires an entity (a DMEPOS supplier) 

to meet the DMEPOS quality standards 

specified by the Secretary under section 

1834(a)(20) of the Act before being 

awarded a contract under the Medicare 

DMEPOS Competitive Bidding Program. 

4. Accreditation for Suppliers of 

DMEPOS and Other Items 

Section 1834(a)(20)(B) of the Act 

requires the Secretary, notwithstanding 

section 1865(b) of the Act, to designate 

and approve one or more independent 

accreditation organizations to apply the 

DMEPOS quality standards established 

under section 1834(a)(20) of the Act to 

suppliers of DMEPOS and other items. 

The Medicare program currently 

contracts with State agencies to perform 

survey and review functions for 

providers and suppliers to approve their 

participation in or coverage under the 

Medicare program. Additionally, section 

1865(b) of the Act sets forth the general 

procedures for CMS to designate 

national accreditation organizations to 

deem providers or suppliers to meet 

Medicare conditions of participation or 

coverage if they are accredited by a 

national accreditation organization 

approved by CMS. Many types of 

providers and suppliers have a choice 

between having the State agency or the 

CMS-approved accreditation 

organization survey them. If the 

supplier selects the CMS-approved 

accreditation organization and is in 

compliance with the accreditation 

organization standards, it is generally 


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deemed to meet the Medicare 

conditions of participation or coverage. 

We are responsible for the oversight and 

monitoring of the State agencies and the 

approved accreditation organizations. 

The procedures, implemented by the 

Secretary, for designating private and 

national accreditation organizations and 

the Federal review process for 

accreditation organizations appear in 

regulations at 42 CFR parts 422 (for 

Medicare Advantage organizations) and 

488 (for most providers and suppliers). 

To accommodate suppliers that want to 

participate in the Medicare DMEPOS 

Competitive Bidding Program, we will 

phase-in the accreditation process and 

give preference to accreditation 

organizations that prioritize their 

surveys to accredit suppliers in the 

selected MSAs and competitive bidding 

areas. We will provide further guidance 

in a Federal Register notice on the 

submission procedures for 

accreditation. 

5. Summary of DMEPOS Provisions 

This final rule responds to public 

comments on the following provisions 

of the May 1, 2006 proposed rule (71 FR 

25654): 

• Requirements for competitive 

bidding implementation contractors, as 

discussed in section X.A of this final 

rule. 

• Our plans for DMEPOS competitive 

bidding education and outreach, as 

discussed in section X.B of this final 

rule. 

• Issues related to the DMEPOS 

quality standards for DMEPOS 

suppliers, as discussed in section X.C of 

this final rule. 

• Accreditation requirements for 

DMEPOS suppliers as discussed in 

section X.D of this final rule. 

II. Provisions of the Proposed Rule 

A. IRF PPS 

In the FY 2007 IRF PPS proposed rule 

(71 FR 28106), we proposed to make 

revisions to the regulation text in order 

to implement the proposed policy 

changes for IRFs for FY 2007 and 

subsequent fiscal years. Specifically, we 

proposed to make conforming changes 

in 42 CFR part 412. These proposed 

revisions and other proposed changes 

are discussed in detail below. 

1. Section 412.23 Excluded Hospitals: 

Classifications 

As discussed in section VI of the FY 

2007 IRF PPS proposed rule (71 FR 

28106), we proposed to revise the 

regulation text in paragraphs (b)(2)(i) 

and (b)(2)(ii) to reflect the applicable 

percentages specified in this section as 

amended by the DRA. To summarize, 

for cost reporting periods—

(a) Beginning on or after July 1, 2005 

and before July 1, 2007, the hospital has 

served an inpatient population of whom 

at least 60 percent; 

(b) Beginning on or after July 1, 2007 

and before July 1, 2008, the hospital has 

served an inpatient population of whom 

at least 65 percent; and 

(c) Beginning on or after July 1, 2008, 

the hospital has served an inpatient 

population of whom at least 75 percent 

require intensive rehabilitative services 

for treatment of one or more of the 

conditions specified at paragraph 

(b)(2)(iii) of this section. 

Under the proposal to revise the 

transition timeframes in order to 

implement the DRA provision, a facility 

would not have to meet the 75 percent 

compliance threshold until its first cost 

reporting period beginning on or after 

July 1, 2008. In addition to the above 

DRA requirements pertaining to the 

applicable compliance percentage 

requirements under § 412.23(b)(2), we 

proposed to permit a comorbidity that 

meets the criteria as specified in 

§ 412.23(b)(2)(i) to continue to be used 

to determine the compliance threshold 

for cost reporting periods that begin 

before July 1, 2008. However, for cost 

reporting periods beginning on or after 

July 1, 2008, a comorbidity specified in 

§ 412.23(b)(2)(i) cannot be used to 

determine compliance at the 75 percent 

threshold. 

2. Section 412.624 Methodology for 

Calculating the Federal Prospective 

Payment Rates 

In section IV of the FY 2007 IRF PPS 

proposed rule, we proposed to revise 

the current regulation text in paragraph 

(e)(5) to clarify that the cost-to-charge 

ratio for IRFs is a single overall 

(combined operating and capital) costto-charge ratio. We wish to emphasize 

that we follow the methodology 

described in § 412.84(i) and § 412.84(m) 

except that the IRF PPS uses a single 

overall (combined operating and capital) 

cost-to-charge ratio, and uses national 

averages instead of statewide averages. 

3. Additional Proposed Changes 

• Update the tier comorbidities, the 

relative weights, and the average length 

of stay tables based on a reconsideration 

of the data used in the FY 2006 IRF 

classification refinements, as discussed 

in section II of the FY 2007 IRF PPS 

proposed rule (71 FR 28106). This 

update will be reflected in the IRF 

GROUPER software and the FY 2007 

payment rates. 

• Reduce the FY 2007 standard 

payment amount by 2.9 percent to 

account for coding changes when the 

IRF PPS was implemented that do not 

reflect real changes in case mix, as 

discussed in detail in section III.A of the 

FY 2007 IRF PPS proposed rule (71 FR 

28106). 

• Update payment rates for 

rehabilitation facilities using the IRF 

market basket, IRF labor-related share, 

and CBSA urban and rural wage 

indexes, as discussed in sections III.B 

and C of the FY 2007 IRF PPS proposed 

rule (71 FR 28106). 

• Update the outlier threshold 

amount for FY 2007 to $5,609, as 

discussed in section IV.A of the FY 2007 

IRF PPS proposed rule (71 FR 28106). 

• Update the national average urban 

and rural cost-to-charge ratios (CCR) 

used for new IRFs, IRFs whose overall 

CCR is in excess of 3 standard 

deviations above the national geometric 

mean, and IRFs for whom accurate data 

are not available to calculate a CCR, as 

discussed in detail in section IV.B of the 

FY 2007 IRF PPS proposed rule (71 FR 

28106). 

B. DMEPOS 

On May 1, 2006, we published in the 

Federal Register (71 FR 23654) a 

proposed rule that would, in part, 

implement the Medicare DMEPOS 

Competitive Bidding Program for certain 

DMEPOS items, as required by sections 

1847(a) and (b) of the Social Security 

Act (the Act). As indicated in section I.B 

of this final rule, to ensure timely 

implementation of the Medicare 

DMEPOS Competitive Bidding Program, 

we are choosing to respond to 

comments on the following proposals in 

the May 1, 2006 proposed rule. In 

summary, we proposed to—

• Designate one or more competitive 

bidding implementation contractors 

(CBICs) for the purpose of implementing 

the Medicare DMEPOS Competitive 

Bidding Program (proposed 

§ 414.406(a)). 

• Implement an outreach and 

education plan to ensure the effective 

implementation of the Medicare 

DMEPOS Competitive Bidding Program. 

• Establish requirements for 

accreditation of DMEPOS suppliers. 

In addition, we are clarifying in this 

final rule certain issues related to the 

establishment of quality standards for 

suppliers of certain DMEPOS items, 

which will be applied by recognized 

independent accreditation organizations 

under section 1834(a)(20) of the Act. 

These provisions are described in 

detail in sections X.A. through I of this 

preamble. 


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III. Analysis of and Response to Public 

Comments 

A. IRF PPS 

In response to the publication of the 

FY 2007 IRF PPS proposed rule, we 

received approximately 58 timely items 

of correspondence from the public. We 

received numerous comments from 

various trade associations and major 

organizations. Comments also originated 

from inpatient rehabilitation facilities, 

members of Congress, health care 

industry organizations, State health 

departments, and health care consulting 

firms. The following discussion, 

arranged by subject area, includes a 

summary of the public comments that 

we received, and our responses to the 

comments appear under the appropriate 

heading. 

B. DMEPOS 

We received approximately 600 

pieces of correspondence on a timely 

basis that contained comments on the 

provisions of the May 1, 2006 proposed 

rule (71 FR 25654) that are included in 

this final rule. The remainder of this 

preamble sets forth a detailed 

discussion of the proposed provisions 

concerning implementation contractors, 

education and outreach, and 

accreditation; a summary of the public 

comments received on each subject area; 

our responses to those comments; and a 

presentation of the final policies. This 

preamble also contains a discussion of 

certain issues relating to the quality 

standards that will be applied by the 

independent accrediting organizations. 

IV. Refinements to the IRF Patient 

Classification System 

A. Changes to the Existing List of Tier 

Comorbidities 

The IRF PPS uses a patient’s principal 

diagnosis or impairment to classify the 

patient into a rehabilitation impairment 

category (RIC), and then uses the 

patient’s comorbidities (secondary 

diagnoses) to determine whether to 

classify the patient into a higher-paying 

tier. In the FY 2007 proposed rule (71 

FR 28106), we proposed revisions to the 

tier comorbidities in the IRF GROUPER 

for FY 2007 to ensure that IRF PPS 

payments continue to reflect as 

accurately as possible the costs of care. 

In addition, we proposed to indicate 

ongoing changes to the IRF GROUPER 

software to reflect the most current 

national coding guidelines, by posting a 

complete ICD–9 table (including new, 

discontinued, and modified codes) on 

the IRF PPS Web site, because we 

realized that we did not have a 

mechanism for ensuring that the IRF 

GROUPER would reflect the latest 

guidelines. We also proposed to 

continue to report the complete list of 

ICD–9 codes associated with the tiers in 

the IRF GROUPER documentation, 

which is also posted on the IRF PPS 

Web site. 

We received several comments on the 

proposed changes to the existing list of 

tier comorbidities, which are 

summarized below. 

Comment: Comments were generally 

favorable regarding our proposed 

revisions to the existing list of tier 

comorbidities. In particular, several 

commenters expressed support for our 

proposed deletion of certain category 

codes, which they indicated would 

increase clarity and accuracy in coding. 

Further, several commenters supported 

our proposal to continue to update the 

IRF GROUPER to reflect ICD–9–CM 

national coding guidelines, and to make 

any substantive changes to the tier 

comorbidities (that is, changes other 

than those that merely ensure that the 

list of tier comorbidities continues to 

reflect the annual updates to the ICD–

9 national coding guidelines) through 

notice and comment procedures. These 

commenters also supported our 

proposal to update Appendix C to 

reflect current policies. 

Response: We agree that our proposal 

to delete certain category codes should 

help to eliminate any confusion that 

providers might have experienced 

regarding the appropriate codes to use 

in recording patient comorbidities. 

We also agree with the commenters 

that updating Appendix C each year, 

and making it a Web-based document 

rather than including it in the IRF 

regulations, will provide a more 

comprehensive solution that will allow 

providers to stay informed of any 

changes to the IRF GROUPER as soon as 

they occur. Any document, such as 

Appendix C, that contains such an 

extensive list of ICD–9 codes runs the 

risk of becoming out-of-date quickly 

when it is published in regulations. We 

believe that making the document 

available on the IRF PPS Web site 

(http://www.cms.hhs.gov/ 

InpatientRehabFacPPS/) will make it 

easier for CMS to give providers the 

most current information and, more 

importantly, will allow providers easier 

access to the latest information. 

Comment: Several commenters 

expressed reservations about particular 

revisions that we had proposed. In 

particular, several commenters asked 

that CMS retain ICD–9 codes 453.40, 

453.41, and 453.42 (various types of 

venous thrombosis) on the list of tier 

comorbidities for which providers 

receive additional payments because of 

the increased costs associated with 

these comorbidities, and one commenter 

asked that we retain ICD–9 codes 799.01 

and 799.02 for similar reasons. One 

commenter also noted recent increases 

in the rate at which providers are using 

ICD–9 code 453.41 and asked that CMS 

delay deleting this code from the IRF 

grouper until the underlying clinical 

reasons for its recent increased use 

could be determined. One commenter 

requested that the original ICD–9 code 

(453.8) associated with codes 453.40, 

453.41, and 453.42 be added to the list 

of tier comorbidities in the IRF 

GROUPER. 

Response: In Appendix C of the 

August 7, 2001 final rule (66 FR 41316, 

41414 through 41427), we provided the 

list of comorbidity codes to be used in 

the original IRF GROUPER, based on the 

statistical analysis conducted by RAND 

for CMS in developing the IRF PPS. On 

October 1, 2004, the ICD–9–CM 

Coordination and Maintenance 

Committee created ICD–9 codes 453.40, 

453.41, and 453.42 to represent more 

specific clinical conditions related to 

the clinical condition associated with 

ICD–9 code 453.8 (Venous Thrombosis). 

Effective October 2004, we 

inadvertently added codes 453.40 (Ven 

Embol Thrmbs unspec DP vsls lower 

extremity), 453.41 (Ven Embol Thrmbs 

DP vsls prox lower extremity), and 

453.42 (Ven Embol Thrmbs DP vsls 

distal lower extremity) to the IRF 

GROUPER, even though code 453.8 was 

never included in the IRF payment 

algorithm, and therefore was not listed 

in Appendix C of the August 7, 2001 

final rule. The addition of these codes 

to the IRF GROUPER was not based on 

any evidence that these codes should 

have been included on the list, but 

resulted instead from a simple 

miscommunication. 

Similarly, ICD–9 codes 799.01 

(Asphyxia) and 799.02 (Hypoxemia) 

were created in October 2005 in 

association with code 799.0. However, 

code 799.0 (Asphyxia) was never 

included in the IRF payment algorithm, 

and therefore was not listed in 

Appendix C of the August 7, 2001 final 

rule. Thus, codes 799.01 and 799.02 

were also inadvertently added through a 

simple miscommunication, and the 

addition of these codes to the IRF 

GROUPER was not based on any 

evidence that these codes should have 

been included on the list. 

RAND’s regression analysis of the tier 

comorbidities for both the FY 2002 and 

FY 2006 final rules focused on the 

additional costs that an IRF would be 

expected to incur in caring for a patient 

with a particular comorbidity (using FY 

2003 data). Neither RAND’s statistical 


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analysis for the FY 2002 final rule, nor 

the subsequent statistical analysis for 

the FY 2006 final rule, showed that the 

additional costs of the comorbidities 

associated with ICD–9 codes 453.8, 

453.40, 453.41, 453.42, 799.0, 799.01, or 

799.02 are sufficient to warrant 

inclusion in a tier. In addition, RAND 

sought advice from a technical expert 

panel that it convened. The technical 

expert panel reviewed all of RAND’s 

findings regarding the tier comorbidities 

and generally agreed with RAND’s 

findings and recommendations. RAND 

did not recommend that we add these 

codes to the IRF GROUPER. 

Further, since code 453.41 was first 

approved in October 2004, we do not 

believe it is surprising that use of this 

code increased in 2005, especially 

because providers were made more 

aware of the code due to its inadvertent 

inclusion in the IRF GROUPER. 

Thus, we are finalizing our decision 

to delete ICD–9 codes 453.40, 453.41, 

453.42, 799.01, and 799.02 from the IRF 

GROUPER, and we are not adding code 

453.8. However, we will continue 

monitoring the costs associated with 

various patient comorbidities. If future 

analyses indicate that any of these ICD–

9 codes should be included in one of the 

tiers in the IRF GROUPER, we will 

consider adding them through notice 

and comment procedures. 

Comment: One commenter suggested 

that we consider adding ICD–9 code 

282.69 (other sickle cell disease with 

crisis) to the IRF GROUPER because the 

commenter believes that this code 

should be treated as a pair with code 

282.68 (other sickle cell disease w/o 

crisis), which we proposed to add to the 

IRF GROUPER for FY 2007. 

Response: We agree with the 

commenter, and we note that code 

282.69 is already included as one of the 

comorbidities that generates an 

additional tier 3 payment in the IRF 

GROUPER. In fact, this code has always 

been included in the IRF payment 

algorithm, and is therefore listed in 

Appendix C of the August 7, 2001 final 

rule (66 FR 41423). We are not 

proposing any changes regarding code 

282.69. For FY 2007, we will add code 

282.68. 

Comment: Several commenters 

recommended that CMS publish the 

final changes to the tier comorbidities in 

the IRF–PAI training manual and in 

Appendix C. 

Response: We agree with the 

commenters’ recommendation and will 

update both the IRF–PAI training 

manual and Appendix C with the most 

current list of tier comorbidities for FY 

2007. 

In reviewing the refinements that we 

made to the tier comorbidities for FY 

2006, we realized that we did not have 

an explicit mechanism for updating the 

IRF GROUPER to account for annual 

changes to the ICD–9–CM national 

coding guidelines or to alert providers 

to these changes. Thus, we believe that 

the best way to accomplish both of these 

goals, and to ensure that providers have 

access to the most up-to-date IRF 

GROUPER information possible is to 

make the documents containing the 

final list of ICD–9 codes used in the IRF 

GROUPER Web-based, rather than 

publishing each technical update in 

regulation. The ICD–9 code updates 

might occur more frequently than CMS 

publishes an IRF rule in the Federal 

Register, so it would be impractical to 

keep Appendix C updated based on 

annual ICD–9 national coding guideline 

changes if we were to try to publish 

Appendix C in the Federal Register 

each time Appendix C is updated to 

reflect new codes. We believe a Webbased product will allow providers to 

have the most convenient and timely 

possible access to the latest available 

information. Therefore, both updated 

documents will be available on the IRF 

PPS Web site(located at http:// 

www.cms.hhs.gov/ 

InpatientRehabFacPPS/) before October 

1, 2006. 

To clarify, as discussed in the FY 

2007 IRF PPS proposed rule (71 FR 

28106, 28111), we will update these 

Web-based documents regularly to 

reflect changes in the ICD–9 national 

coding guidelines that are technical in 

nature. For example, the ICD–9 national 

coding guidelines added ICD–9 codes 

341.20 through 341.22 for October 2006 

to correspond to codes 323.8 and 323.9 

that are currently in the IRF Grouper. 

Thus, we will add codes 341.20 through 

341.22 to the IRF Grouper and to 

Appendix C on the IRF PPS Web site as 

soon as the changes become effective. 

However, any substantive changes to the 

comorbid conditions on the list of tier 

comorbidities in the IRF GROUPER will 

be proposed through notice and 

comment procedures. Thus, 

hypothetically speaking, if we were to 

discover later through our ongoing 

analysis of the IRF classification and 

payment systems that one (or possibly 

more than one) of these ICD–9 codes 

does not belong on the list of tier 

comorbidities—either because it does 

not substantially increase the IRFs’ costs 

of caring for patients with that 

comorbidity, or because it is not 

clinically relevant as discussed in the 

August 7, 2001 final rule—then we 

would later propose to delete this code 

(or codes) through notice and comment 

procedures. To reiterate, this is only a 

hypothetical example. We have no 

intent to delete codes 341.20 through 

341.22 at this time. 

The finalized list of tier comorbidities 

for FY 2007 that we are posting on the 

IRF PPS Web site and in the IRF 

GROUPER documentation as of October 

1, 2006 will generally reflect the August 

7, 2001 final rule (66 FR 41316, 41414 

through 41427) as modified by the tier 

comorbidity changes adopted in this 

final rule, as well as changes adopted 

due to ICD–9 national coding guideline 

updates. This version will constitute the 

baseline for any future updates to the 

tier comorbidities. 

Comment: One commenter expressed 

confusion over the listing of ICD–9 code 

250.01 in the FY 2006 IRF GROUPER, 

while the FY 2006 IRF PPS final rule 

indicated that CMS was adding code 

250.1, which was not listed in the FY 

2006 IRF GROUPER. 

Response: On September 30, 2005, we 

published a correction notice (70 FR 

57166) that implemented some 

technical corrections to the FY 2006 IRF 

PPS final rule. One of these technical 

corrections was to change code 250.1 to 

250.01. 

Comment: One commenter requested 

that CMS add an ICD–9 code that 

represents the condition 

HYPOALBUMINEMIA to the list of tier 

comorbidities to account for the added 

costs of patients with this condition. 

Response: We would need to conduct 

further statistical analysis to determine 

whether this condition should be 

included in the list of tier comorbidities. 

We will take the commenter’s 

recommendation into consideration for 

the future. 

Final Decision: After carefully 

considering all of the comments that we 

received on the proposed changes to the 

existing list of tier comorbidities, we are 

finalizing our decision to implement all 

of the changes as proposed, including 

the additions listed in Table 1, the 

deletions listed in Table 2, and the 

movement of the codes listed in Table 

3 from tier 2 to tier 3. 


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TABLE 1.—ICD–9 CODES THAT WE WILL ADD TO THE IRF PPS GROUPER 

ICD–9–CM ICD–9–CM Label Tier RIC 

Exclusion 

466.11 ...... ACU BRONCHOLITIS D/T RSV .................................................................................................................. 3 15 

466.19 ...... ACU BRNCHLTS D/T OTH ORG ................................................................................................................ 3 15 

282.68 ...... OTH SICKLE–CELL DISEASE W/O CRISIS .............................................................................................. 3 None. 

567.29 ...... OTH SUPPURATIVE PERITONITIS ........................................................................................................... 3 None. 

TABLE 2.—ICD–9 CODES THAT WE WILL DELETE FROM THE IRF PPS GROUPER 

ICD–9–CM ICD–9–CM Label Tier 

453.40 ...... VEN EMBOL THRMBS UNSPEC DP VSLS LWR EXTREM ........................................................................................... 3 

453.41 ...... VEN EMBOL THRMBS DP VSLS PROX LWR EXTREM ................................................................................................ 3 

453.42 ...... VEN EMBOL THRMBS DP VSLS DIST LWR EXTREM .................................................................................................. 3 

799.01 ...... ASPHYXIA ........................................................................................................................................................................ 3 

799.02 ...... HYPOXEMIA ..................................................................................................................................................................... 3 

TABLE 3.—ICD–9 CODES THAT WE WILL MOVE FROM TIER 2 TO TIER 3 IN THE IRF PPS GROUPER 

ICD–9–CM ICD–9–CM Label Tier RIC 

Exclusion 

112.4 ........ CANDIDIASIS OF LUNG ............................................................................................................................. 3 15 

112.5 ........ DISSEMINATED CANDIDIASIS .................................................................................................................. 3 None. 

112.81 ...... CANDIDAL ENDOCARDITIS ...................................................................................................................... 3 14 

112.83 ...... CANDIDAL MENINGITIS ............................................................................................................................. 3 03, 05 

112.84 ...... CANDIDAL ESOPHAGITIS ......................................................................................................................... 3 None. 

785.4 ........ GANGRENE ................................................................................................................................................ 3 10, 11 

995.90 ...... SIRS NOS ................................................................................................................................................... 3 None. 

995.91 ...... SIRS INF W/O ORG DYS ........................................................................................................................... 3 None. 

995.92 ...... SIRS INF W ORG DYS ............................................................................................................................... 3 None. 

995.93 ...... SIRS NON–INF W/O ORG DYS ................................................................................................................. 3 None. 

995.94 ...... SIRS NON–INF W ORG DYS ..................................................................................................................... 3 None. 

B. Changes to the Case-Mix Group 

(CMG) Relative Weights 

As specified in § 412.620(b)(1), we 

calculate a relative weight for each CMG 

that is proportional to the resources 

needed by an average inpatient 

rehabilitation case in that CMG. (For 

example, cases in a CMG with a relative 

weight of 2, on average, will cost twice 

as much as cases in a CMG with a 

relative weight of 1.) Relative weights 

account for the variance in cost per 

discharge and 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 2007 IRF PPS proposed rule (71 

FR 28106), we proposed to update the 

relative weights for FY 2007 based on a 

revised analysis of the data used to 

construct the relative weights for FY 

2006, which had revealed certain minor 

discrepancies. 

We received numerous comments on 

the proposed changes to the CMG 

relative weights, which are summarized 

below. 

Comment: Numerous commenters 

expressed concern that the proposed 

CMG relative weights for FY 2007 were 

based on the same FY 2003 data used to 

compute the FY 2006 CMG relative 

weights. These commenters asked that 

CMS recalculate the CMG relative 

weights for FY 2007 using the latest 

available data. 

Response: We asked RAND to 

recalculate the CMG relative weights for 

FY 2007 to correct some minor 

discrepancies found in the tier 

comorbidities used in the analysis of the 

FY 2006 relative weights. After we 

published the FY 2006 IRF PPS final 

rule (70 FR 47880), we conducted a 

post-implementation review to ensure 

that the FY 2006 revisions were 

implemented correctly. Because the 

revisions for FY 2007 are merely 

designed to resolve some of the minor 

discrepancies identified in this postimplementation review and not to 

implement additional refinements, we 

believe it is appropriate to continue to 

use the same data that we used for the 

FY 2006 IRF PPS final rule. We agree 

that, in the future, any rebasing or 

recalibration of the system should be 

done using the most current available 

data. 

Comment: Several commenters 

requested copies of the updated RAND 

analysis that produced the revised CMG 

relative weights for FY 2007. 

Response: The updated analysis that 

RAND performed in recalculating the 

CMG relative weights for this final rule 

was identical to its analysis for the FY 

2002 and FY 2006 IRF PPS final rules, 

with the exception of correcting some of 

the minor discrepancies in the data used 

in the FY 2006 analysis. For a detailed 

description of the methodology that 

RAND used to calculate the CMG 

relative weights for the FY 2002, FY 

2006, and current final rules, please 

refer to pages 41351 through 41353 of 

the August 7, 2001 final rule (66 FR 

41316). The data that RAND used for the 

FY 2006 and FY 2007 CMG relative 

weight calculations are the FY 2003 IRF 

MEDPAR data merged with the FY 2003 

IRF–PAI and cost report data. The 

analysis that RAND conducted for us for 

FY 2007 produced the updated CMG 

relative weight and average length of 

stay figures displayed in Table 4 of this 

final rule. 

Comment: We received some 

comments expressing concerns about 

the accuracy of the average length of 

stay values. One commenter suggested 

that the average length of stay values for 

the different tiers should be 


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proportional to payment and that, for 

example, the average length of stay 

values for tier 1 (the highest paying tier) 

should always be higher than the 

average lengths of stay for tiers 2 and 3 

and the ‘‘no comorbidity’’ tier. Another 

commenter asked that we re-examine 

the average length of stay value for the 

traumatic spinal cord injury patients in 

tier 1 to ensure that it is consistent with 

medical practice, stating that these 

patients require relatively long 

rehabilitation periods. 

Response: We have reviewed the 

average length of stay values, in general 

and for the traumatic spinal cord injury 

CMGs in particular, and we believe they 

are correct. The average length of stay 

values shown in Table 4 are entirely 

driven by the data. Whereas we impose 

a constraint on the CMG relative 

weights under which the relative weight 

for a higher-paying tier can never be 

lower than the relative weight for a 

lower-paying tier, we do not constrain 

the average length of stay values. They 

represent the average number of days 

that patients in a given CMG and tier 

were in an IRF. 

As we indicated in the FY 2006 IRF 

PPS final rule (70 FR 47901), the 

relative weights for each of the CMGs 

and tiers represent the relative 

costliness of patients in those CMGs and 

tiers compared with patients in other 

CMGs and tiers. The average length of 

stay for each CMG and tier, however, 

represents the average number of days 

that patients in that CMG and tier were 

treated in IRFs, based on the FY 2003 

data. We determine IRF PPS payments 

on a per-discharge basis, meaning that 

providers receive a pre-determined 

payment amount according to an 

individual patient’s CMG and tier 

classification, regardless of the number 

of days that patient is treated in the IRF. 

The only exceptions to this general 

policy are for very short-stay cases and 

for certain transfer cases. Because 

payments are made on a per-discharge 

basis, there is not necessarily a 

correlation between the number of days 

a patient is treated in an IRF and the 

payment amount for that patient. If, for 

example, the relative weight for a 

particular CMG in tier 1 is higher than 

the relative weight for that same CMG 

in the ‘‘no comorbidity’’ tier, this means 

that cases in that CMG in tier 1 are 

expected to be more costly for the IRF 

to treat than cases in that CMG in the 

‘‘no comorbidity’’ tier. However, the 

average length of stay of patients in that 

CMG in tier 1 might sometimes actually 

be lower than the average length of stay 

of patients in that CMG in the ‘‘no 

comorbidity’’ tier; for example, the ‘‘tier 

1’’ patients could require significantly 

more intensive treatment for a shorter 

period of time, while the ‘‘no 

comorbidity’’ patients could require less 

intensive treatment over a longer period 

of time. Thus, the relative weights may 

not bear a proportional relationship to 

the average length of stay values. 

We do not require IRFs to treat the 

average length of stay values as goals or 

targets for particular cases. IRFs are 

generally free to treat particular patients 

for as few or as many days as is 

medically appropriate. We encourage 

IRFs to admit patients for the length of 

time that results in the best quality of 

care for the patient. 

Final Decision: After carefully 

reviewing all of the comments that we 

received on the proposed changes to the 

CMG relative weights, we are finalizing 

our decision to update the CMG relative 

weights and the average length of stay 

values for FY 2007, as shown in Table 

4. 

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BILLING CODE 4120–01–C 

V. FY 2007 IRF Federal Prospective 

Payment Rates 

A. Reduction of the Standard Payment 

Amount to Account for Coding Changes 

According to research conducted by 

the RAND Corporation under contract 

with CMS, changes in provider coding 

practices increased Medicare payments 

to IRFs between 1999 and 2002 by at 

least 1.9 percent and as much as 5.8 

percent. (We note that RAND revised its 

report in late 2005 to reflect an upper 

bound (high-end estimate) of 5.9 

percent, instead of the 5.8 percent that 

we reported in the FY 2006 IRF PPS 

proposed and final rules. However, 

because our FY 2006 proposed rule 

refers to a 5.8 percent upper bound, we 

will continue to use the 5.8 percent 

figure for this final rule.) In the FY 2007 

proposed rule (71 FR 28106), we 

proposed to apply a 2.9 percent 

reduction to the standard payment 

amount for FY 2007 to adjust for 

changes in coding that, according to 

RAND’s research, did not reflect real 

changes in IRF case mix. This proposed 

reduction would be in addition to the 

1.9 percent adjustment implemented for 

FY 2006 and would result in a total 

adjustment of 4.8 percent (1.9 + 2.9 = 

4.8), which still falls well within the 

range that RAND estimated. 

However, we stated in the proposed 

rule that we were continuing to analyze 

the data and, therefore, the specific 

amount of the final payment adjustment 

was subject to change for this final rule 

based on the results of the ongoing 

analysis. As noted below, we also 

received a significant number of 

comments that uniformly recommended 

no reduction for FY 2007. Accordingly, 

we have revised the amount of the 

proposed reduction for this final rule, as 

discussed below, and will implement a 

reduction of 2.6 percent. 

Public comments and our responses 

on the proposed reduction of the 

standard payment amount to account for 

coding changes are summarized below. 

Comment: The majority of 

commenters expressed significant 

concerns about the proposed 2.9 percent 

reduction to the standard payment 

amount for FY 2007, and all who 

commented on this proposal indicated 

that CMS should not implement any 

reduction to the standard payment 

amount for FY 2007. Although they 

expressed a number of specific concerns 

(which we address separately below), 

the commenters generally indicated that 

IRFs are currently experiencing a 

significant amount of volatility and, for 

this reason, CMS should not implement 

an additional reduction to the standard 

payment amount for FY 2007. Further, 

many commenters asserted that RAND 

expressed more confidence in the 

findings at the low end of its estimated 

range (1.9 percent), and that CMS had 

already used RAND’s analysis to justify 

the 1.9 percent coding adjustment for 

FY 2006. Several commenters also 

questioned CMS’ conclusion that real 

case mix in IRFs had not increased 

substantially. 


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Response: In light of recent changes to 

the IRF PPS that affect utilization 

trends, including the phase-in of the IRF 

75 percent rule compliance percentage, 

we have chosen to take an incremental 

approach to adjusting for changes in 

coding that do not reflect real changes 

in case mix. In the FY 2006 final rule 

(70 FR 47880), we implemented a 1.9 

percent reduction to the standard 

payment amount, and noted that it was 

the ‘‘lowest possible amount of change 

attributable to coding changes,’’ as 

determined by RAND’s analysis. In that 

final rule, we decided to implement the 

lowest possible amount to account for 

the possibility that some of the observed 

changes may have been attributable to 

factors other than coding changes or 

could be temporary changes associated 

with the transition to a new payment 

system. However, we indicated that we 

would continue to review the need for 

any further reduction in the standard 

payment amount in subsequent years as 

part of our overall monitoring and 

evaluation of the IRF PPS. 

Based on our continued review, we 

believe a further reduction is warranted. 

Since publication of the FY 2006 final 

rule, we have continued our fiscal 

oversight of the IRF PPS and have 

conducted detailed analyses of IRF 

payment and utilization practices. We 

re-examined RAND’s analysis of the 

1999 and 2002 data (contained in 

RAND’s report entitled ‘‘Preliminary 

Analyses of Changes in Coding and Case 

Mix Under the Inpatient Rehabilitation 

Facility Prospective Payment System’’). 

We believe it is appropriate to base our 

decision to implement a further 

reduction on RAND’s analysis because 

the additional adjustment is intended to 

reflect more fully the impact of coding 

changes (that do not reflect real changes 

in case mix) from the same period for 

which we implemented the 1.9 percent 

reduction in FY 2006 (that is, 2002). 

We disagree with the commenters 

who believe that the lower end of 

RAND’s estimate is more valid than the 

higher end. We further believe that our 

decision for FY 2006 to make an 

adjustment of 1.9 percent is indicative 

only of our intent to adjust 

incrementally for coding changes, and is 

not an indication that the higher end of 

the estimate is less valid than the lower. 

Indeed, in contrast to some of the 

commenters, we find it compelling that 

RAND found that coding changes 

accounted for at least 1.9 percent of the 

increases in payment in 2002. In our 

view, this means that the actual amount 

was likely somewhat higher than 1.9 

percent. As we discussed in the FY 2006 

final rule, a separate analysis by RAND 

found that if all IRFs had been paid 

based on 100 percent of the IRF PPS 

payment rates throughout all of 2002, 

PPS payments during 2002 would have 

been 17 percent higher than IRFs’ costs. 

We stated that we believed this 

suggested that we could have proposed 

a reduction greater than 1.9 percent. We 

continue to believe this is the case. 

Further, if RAND’s analysis did not 

support a conclusion that coding change 

likely accounted for more than 1.9 

percent of the increase in payments, 

RAND would not have provided a range 

of estimates. However, RAND reported 

that IRF payments were at least 1.9 

percent and as much as 5.8 percent 

higher than expected as a result of 

changes in coding that did not reflect 

real changes in case mix. 

As the commenters noted, several 

portions of RAND’s report discuss the 

difficulty of estimating with precision 

the amount of change in case mix that 

is real and the amount that is a result 

of changes in coding that do not reflect 

real changes in case mix. However, we 

believe this discussion was merely an 

acknowledgement of the complexity of 

the analysis, and did not represent a 

lack of confidence in the upper end of 

RAND’s estimated range (1.9 to 5.8 

percent). 

Further, the technical expert panel 

(consisting of representatives from 

industry groups, other government 

entities, academia, and other 

researchers) that RAND assembled to 

advise it on its methodology and review 

its findings expressed general agreement 

with RAND’s analytical approaches. We 

have also carefully reviewed RAND’s 

report, and we continue to believe that 

the analyses that support both the 

upper- and lower-bounds of RAND’s 

range of estimates are analytically 

sound. In particular, we believe the 

approach that RAND used in examining 

IRF patients’ acute care hospital records 

before admission to the IRF provides a 

good indication of IRF patients’ acuity 

because the vast majority of IRF patients 

are referred to the IRF from the acute 

care hospital setting. As detailed in 

RAND’s report, most of the changes in 

case mix that RAND documented from 

the acute care hospital records indicated 

that IRF patients should have been less 

costly to treat in 2002 than in 1999. This 

analysis produced RAND’s upper-bound 

estimate that as much as 5.8 percent of 

the changes in aggregate payments were 

a result of changes in coding that did 

not reflect real changes in case mix. For 

the reasons discussed in its report, 

RAND acknowledged that the 5.8 

percent estimate was an upper-bound 

estimate and that, therefore, the actual 

change in aggregate payments as a result 

of coding change was likely lower than 

this. However, we believe it is an 

incorrect interpretation of RAND’s 

results to suggest that RAND only 

expressed confidence in its 1.9 percent 

estimate. If RAND had believed that 1.9 

percent was the final result of its 

analysis, RAND would have 

recommended that CMS implement a 

coding adjustment of exactly 1.9 

percent, not at least 1.9 percent, and 

would not have given a range of up to 

5.8 percent. We interpret the 1.9 percent 

figure to be a floor for our adjustment 

for coding changes that do not reflect 

real changes in case mix, rather than an 

upper limit for such an adjustment. 

As noted previously, we initially 

chose to adopt a conservative approach 

by implementing only a 1.9 percent 

adjustment for FY 2006, even though we 

believe that RAND’s analysis suggested 

that the actual effects of coding changes 

that do not reflect a real change in case 

mix were likely larger than 1.9 percent. 

We chose this more conservative 

approach for FY 2006 because we 

believed that an incremental approach 

to implementing the payment reduction 

was appropriate in view of all of the 

other recent Medicare policy changes, 

such as the phase in of the 75 percent 

rule compliance percentage. We 

continue to favor an incremental 

approach, for this same reason. 

However, as described in the FY 2007 

proposed rule and for the reasons 

described below, we are convinced that 

an additional coding adjustment is 

needed to adjust the impact of coding 

changes not related to real changes in 

case mix. As part of our ongoing 

assessment, we examined a recent 

MedPAC analysis of trends in IRF costs 

that we believe indicates that case mix 

changes had a lower impact on payment 

than we initially thought, and therefore 

that coding changes had a larger impact 

on payments than we initially thought. 

In its March 2006 report, MedPAC 

reported that IRFs’ cost increases in 

2003 and 2004 (2.4 percent and 3.6 

percent respectively) lagged far behind 

payment increases. During 2002 and 

2003, MedPAC reported that IRF PPS 

payments were increasing at a rate of 

‘‘more than 10 percent per year.’’ From 

this, MedPAC concluded that 

‘‘payments have far outpaced cost 

growth’’ during the first years of the IRF 

PPS. We believe that the relatively low 

cost increases that MedPAC found 

suggest that case mix was not increasing 

as rapidly as IRF PPS payments, because 

if case mix had been increasing 

substantially, this would have led to 

rapidly rising costs. 

As we discussed in the proposed rule, 

we also analyzed changes in the 

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IRF payment tiers from calendar year 

2002 through calendar year 2005. The 

purpose of this analysis was to evaluate 

whether an additional adjustment was 

needed to eliminate the effects of coding 

changes that do not represent real 

changes in case mix from payments in 

the initial implementation year of the 

IRF PPS, and we analyzed the calendar 

year 2002 through calendar year 2005 

data because it was the most complete 

post-PPS data available. For 

determining IRF PPS payments, we 

classify patients into one of four tiers 

within a CMG, based on the presence of 

any relevant comorbidities. One of the 

tiers contains patients with no relevant 

comorbidities. The other three tiers 

contain patients with increasingly costly 

comorbidities. For this reason, an IRF 

will receive higher payments for 

patients in one of the three more-costly 

tiers than for patients in the ‘‘no 

comorbidity’’ tier. 

As indicated in Table 6 of the 

proposed rule, we found that the 

proportion of IRF patients in the lowestpaying tier (the tier for patients with 

‘‘no comorbidities’’) decreased by 6 

percentage points between calendar 

years 2002 and 2005. Conversely, the 

proportion of patients in each of the 

three higher-paying tiers increased each 

year. As we indicated previously, we do 

not believe real case mix was increasing 

substantially, because MedPAC’s 

findings indicate that costs were not 

rising as rapidly as we would have 

expected if case mix had been 

increasing significantly during this 

period. Thus, we believe this potential 

disparity lends further support to the 

conclusion that a substantial portion of 

the unexpected increase in IRF 

payments when we first implemented 

the IRF PPS was a result of changes in 

provider coding practices that do not 

reflect real changes in case mix. We 

believe the MedPAC and CMS analyses, 

taken together, combined with our 

interpretation of the RAND report 

suggesting that the amount of coding 

change likely represented more than 1.9 

percent of the aggregate payment 

increases, suggest that our FY 2006 

decision to reduce the standard 

payment by only 1.9 percent, the lowest 

possible amount, was a very 

conservative approach. As we indicated 

previously, we intended to take a 

conservative approach for FY 2006 

because we believed, and continue to 

believe, that an incremental approach to 

the coding adjustment is best given the 

other recent Medicare policy changes 

that we have implemented for IRFs. As 

part of that incremental approach, we 

believe making the additional 

adjustment for FY 2007 is warranted 

based on the mandate of Section 

1886(j)(2)(C)(ii) of the Act. 

Comment: Many commenters 

expressed specific concerns about the 

effects of the recent phase-in of the 75 

percent rule compliance percentage, 

including concerns that the enforcement 

of the 75 percent rule was having a 

larger effect on the population of 

patients being admitted to IRFs than 

CMS’s 75 percent rule impact analysis 

would have predicted. These 

commenters indicated that it would be 

inappropriate to implement any 

reduction to the standard payment 

amount to account for coding changes, 

not only for FY 2007 but also until the 

75 percent rule is fully phased in and 

CMS has had an opportunity to analyze 

the data that reflect the full phase-in of 

the compliance percentage. 

Response: We do not agree with the 

commenters that CMS should delay the 

implementation of a reduction to the 

standard payment amount to account for 

coding changes that do not reflect real 

changes in case mix that occurred when 

we first began implementing the IRF 

PPS, as required by statute and for the 

reasons outlined immediately above. 

For FY 2006, we implemented a very 

conservative adjustment of 1.9 percent 

in recognition that IRFs’ current cost 

structures may be changing as they 

strive to comply with other recent 

Medicare policy changes, such as the 75 

percent rule. As described in further 

detail below, in further recognition of 

these changes and in response to 

comments, we are lowering our 

proposed reduction from 2.9 percent to 

2.6 percent. However, the 75 percent 

rule and the reduction to the standard 

payment amount to account for coding 

change involve separate statutory 

mandates. The purpose of the 75 

percent rule is to adhere to the statutory 

requirement to differentiate IRF 

facilities from IPPS hospitals and other 

types of inpatient hospital facilities. The 

purpose of the reduction to the standard 

payment amount is to adhere to the 

statutory requirement to adjust the 

standard payment amount to account for 

changes in coding that affect aggregate 

payments and do not reflect real 

changes in case mix. We believe that the 

statute requires us to establish policies 

for both purposes. 

The impact analysis contained in the 

May 7, 2004 IRF classification criteria 

final rule used the best available data to 

estimate the effects of the revised 

regulations. However, although we 

strive to be as accurate as possible in 

our estimation of the effects of the 

policies we implement, an impact 

analysis is always a projection of what 

we believe will happen in the future 

based on historical data, and therefore 

uncertain. Because we understand the 

commenters’ concerns regarding the 

effects of the 75 percent rule on 

beneficiaries and on providers, we are 

continuing our close monitoring of the 

impact of the multi-year phase in of the 

75 percent rule compliance percentage 

on beneficiaries’ access to IRF services 

and on IRFs’ costs of treating various 

types of patients. As detailed in CMS’

November 30, 2005 memorandum 

entitled ‘‘Inpatient Rehabilitation 

Facility PPS and the 75 Percent Rule,’’

(available on the IRF PPS Web site at 

http://www.cms.hhs.gov/ 

InpatientRehabFacPPS/), our analysis 

indicates that the effects of the 75 

percent rule have been focused on a few 

specific conditions, but have resulted in 

improved access to care for certain types 

of patients, such as those being treated 

for a stroke, for which IRF services can 

be particularly beneficial. 

As discussed in detail in the IRF 

classification criteria final rule (69 FR 

25752), published May 7, 2004, we 

implemented a phase-in schedule for 

the 75 percent compliance threshold to 

give providers ample time to adjust their 

admission practices to comply with the 

full threshold. Further, as discussed in 

section VII of this final rule, in 

accordance with section 5005 of the 

DRA, we are revising the compliance 

thresholds that must be met for certain 

cost reporting periods, which effectively 

allows providers an additional cost 

reporting period to meet the 60 percent 

compliance threshold and delays the 

full phase-in of the 75 percent 

compliance threshold. In addition, 

patient comorbidities will continue to 

be used to determine compliance for an 

additional cost reporting period, until 

the full 75 percent compliance 

threshold becomes effective. Thus, we 

believe that both of these measures, 

along with our decision to implement a 

2.6 percent reduction instead of a 2.9 

percent reduction, will ease the 

transition for providers by allowing 

them more time to adjust their practices 

to comply with the regulations. 

Comment: Some commenters 

expressed concerns about the local 

coverage determinations (LCDs) being 

used by some of the fiscal 

intermediaries in denying some IRF 

claims. They said that these policies 

were creating instability in the system 

that would be intensified by the 

imposition of the additional reduction 

to the standard payment amount for FY 

2007. 

Response: Because LCDs were not 

discussed in the proposed rule, a 

substantive discussion of LCD policies 


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is outside the scope of this final rule. 

However, to the extent that the 

commenters believe CMS should delay 

implementation of the reduction to the 

standard payment amount for FY 2007 

because of the LCD issues, we disagree 

with the commenters. We continue to 

believe that we have an obligation to 

implement a reduction to the standard 

payment amount to account for coding 

changes that do not reflect real changes 

in case mix that occurred when we first 

began implementing the IRF PPS, as 

required by statute and for the reasons 

outlined above. We will continue to 

monitor the effects of the LCDs closely 

and will take these effects into account 

in our ongoing analyses of IRF payment 

policies. We note that the FIs have 

discretion in formulating and 

implementing the most appropriate 

LCDs for their areas, as long as they are 

not inconsistent with the national 

policies defined by CMS, and we fully 

support their efforts in this regard. 

Comment: Numerous commenters 

questioned why CMS was using older 

data to support the proposed reduction 

to the standard payment amount for FY 

2007. They asked CMS to collect and 

analyze FY 2005 and FY 2006 data 

(which would be representative of the 

changes under the 75 percent rule) 

before implementing any reductions in 

payments. 

Response: We agree with the 

commenters that it will be important to 

continue to analyze the most current 

available data over the coming years, 

especially when complete data from the 

full phase-in of the 75 percent rule 

become available, to ensure that IRF 

payments continue to reflect as closely 

as possible the costs of care in IRFs. If 

our analysis of this data shows that 

additional refinements need to be made 

to the system, we will propose them in 

the future. However, we do not believe 

that this precludes us from making 

current refinements to the system that 

adjust payments for the effects of coding 

changes (that do not reflect real changes 

in case mix) that occurred when the IRF 

PPS was first implemented, for the 

reasons described in detail above. 

Comment: Several commenters 

incorrectly cited a 16 percent behavioral 

offset that was implemented at the start 

of the IRF PPS, which they believed had 

already accounted for the expected 

changes in IRF payments due to changes 

in coding. These commenters suggested 

that this behavioral offset eliminated the 

need for the FY 2006 and FY 2007 

coding adjustments. 

Response: As described in the August 

7, 2001 final rule (66 FR 41316, 41366 

through 41367), we applied a 1.16 

percent (not 16 percent) behavioral 

offset to IRF PPS payments to account 

for the inherent incentives of a 

discharge-based prospective payment 

system to discharge patients earlier than 

under the previous cost-based IRF 

payment system. In that final rule, we 

expressed our expectation that 

reductions in IRF lengths of stay under 

the IRF PPS would lead to lower costs 

for the facilities and that, in the absence 

of a behavioral offset, payments would 

be too high because they would 

continue to reflect IRFs’ higher costs 

with the longer lengths of stay under the 

previous payment system. We have, in 

fact, observed rapid decreases in lengths 

of stay for IRF patients since we 

implemented the IRF PPS. 

In addition, as explained in detail in 

RAND’s report titled ‘‘Preliminary 

Analyses of Changes in Coding and Case 

Mix Under the Inpatient Rehabilitation 

Facility Prospective Payment System’’

(available on RAND’s Web site at http:// 

www.rand.org/publications/TR/TR213/), 

RAND accounted for the 1.16 percent 

behavioral offset adjustment when 

estimating the amount of observed case 

mix change that was a result of real case 

mix change and the amount that was a 

result of coding changes that do not 

reflect real changes in case mix. The 

range of estimates for the amount of case 

mix and coding change that RAND 

developed (1.9 percent to 5.8 percent) 

contains an adjustment to account for 

this behavioral offset. 

Comment: Several commenters stated 

that one effect of the FY 2006 

refinements to the IRF classification 

system was to lower IRF payments by 

2.2 percent, and recommended that 

CMS restore 2.2 percent to the IRF PPS 

payments for FY 2007. 

Response: As described in detail in 

the FY 2006 IRF PPS final rule (70 FR 

47880, 47886 through 47904), we 

implemented several refinements to the 

IRF classification system for FY 2006, 

based on analysis conducted by RAND, 

to ensure that payments are aligned as 

closely as possible with the costs of care 

in IRFs. The FY 2006 refinements 

included a redefinition of the IRF case 

mix groups (CMGs), so that the new 

CMGs were based on the most current 

and complete post-PPS data available. 

We implemented these revisions in a 

budget-neutral manner, so that aggregate 

payments to providers were not 

estimated to increase or decrease as a 

result of these refinements. However, in 

the impact section of the FY 2006 IRF 

PPS final rule, we discussed the 

redistribution of payments that we 

estimated would occur in FY 2006 as a 

result of the implementation of these 

refinements. We estimated that some 

providers would experience increases in 

payments and that some providers 

would experience decreases in 

payments as a result of these 

refinements. 

Many of the commenters cited a 

report titled ‘‘Evaluation of the 

Proposed Coding Adjustment to the 

Standardized Payment Amount for FY 

2007,’’ prepared by the Lewin Group for 

the HealthSouth Corporation in July 

2006, as the source of the 2.2 percent 

estimate of the decrease in payments 

resulting from the FY 2006 IRF 

classification refinements. The report 

contained two separate analyses of 

changes in IRFs’ case mix indexes 

(CMIs) between 2002 and 2006 that the 

authors of the report believe are due to 

the changes to the classification system 

that we implemented for FY 2006. The 

first analysis did not use the same 

methodology for computing the CMI 

that RAND and CMS use, and the 

authors of the report indicated that they 

had less confidence in this analysis for 

that reason. The second analysis, from 

which Lewin’s 2.2 percent estimate is 

derived, used the same methodology 

that RAND and CMS use to calculate the 

CMI, but the analysis used IRF–PAI data 

from only 592 facilities (out of a total of 

about 1,240 IRFs nationwide). Lewin 

obtained data on these 592 facilities 

from the database maintained by the 

Uniform Data System for Medical 

Rehabilitation (UDSmr). 

In contrast, our estimates of the effects 

of the FY 2006 refinements to the 

classification system are based on 

analysis of 1,188 IRFs nationwide, for 

which we had complete data at the time 

that we were conducting the impact 

analysis for the FY 2006 IRF PPS final 

rule. We believe that our estimates of 

the effects of the FY 2006 refinements 

are more representative of the effects on 

the industry than Lewin’s analysis 

because our database includes all IRFs 

for which we were able to match claims 

and IRF–PAI data. As illustrated in the 

first row of column 7 in Table 13 of the 

IRF PPS final rule, we estimated that 

aggregate payments to all IRFs would 

neither increase nor decrease as a result 

of the FY 2006 refinements to the IRF 

classification system, because we 

implemented these changes in a budget 

neutral manner, as described in detail in 

that final rule. However, in that final 

rule, we also indicated that we 

estimated that the refinements to the 

classification system would result in 

some redistribution of payments among 

different types of providers, with some 

groups estimated to experience payment 

increases and some groups estimated to 

experience payment decreases. For 

example, we estimated that these 

refinements could result in an estimated 


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2.7 percent decrease in payments to 

rural providers in the Pacific region and 

an estimated 2.6 percent increase in 

payments to rural providers in the 

Mountain region. In Table 13 of the FY 

2006 IRF PPS final rule, we provide 

additional information on the estimated 

effects on IRF PPS payments of the 

policy changes implemented in that 

final rule. 

In contrast to our analysis, the report 

by the Lewin Group suggested that the 

refinements to the classification system 

resulted in an across-the-board decrease 

to aggregate IRF payments of about 2.2 

percent because, they contend, the 

refinements caused a decrease in IRFs’

CMIs. To assist CMS in analyzing the 

differences between CMS’s impact 

analysis and the findings contained in 

Lewin’s report, UDSmr gave CMS the 

provider numbers for 589 of the 

facilities that Lewin used in the analysis 

on which Lewin’s 2.2 percent estimate 

is based. Out of these 589 facilities, we 

were able to match 551 to our IRF 

database. Some of the 38 provider 

numbers that did not match appeared to 

be Medicare provider numbers for 

skilled nursing facilities, acute care 

hospital facilities, or other types of 

providers. We repeated the same 

analysis that we had conducted for the 

FY 2006 IRF PPS final rule, as detailed 

on pages 47944 through 47952 of that 

final rule, with the 551 provider 

numbers that we could match. From this 

analysis, we determined that these 551 

IRFs were more likely to experience 

expected decreases in payment as a 

result of the FY 2006 refinements to the 

classification system than the other IRFs 

in our database. However, we found that 

other IRFs experienced corresponding 

increases in payments as a result of the 

FY 2006 classification refinements. 

Thus, we disagree with the Lewin 

report’s finding that the FY 2006 

classification refinements reduced IRF 

payments across the board by 2.2 

percent and believe that the impact 

analysis we published in the FY 2006 

IRF PPS final rule continues to 

represent our best estimate of the effects 

of these changes. However, when we 

have complete data from FY 2006 to 

analyze, we will revisit our analysis and 

determine whether additional 

refinements to the system are necessary 

in the future. 

Comment: Several commenters 

expressed concerns that the revised 

average length of stay values in the FY 

2006 IRF PPS final rule may have 

affected payments for short-stay transfer 

cases and thereby contributed to a 

reduction in IRF payments. These 

commenters urged CMS to take this into 

account when considering whether an 

additional reduction to the standard 

payment amount is necessary for FY 

2007. 

Response: The average length of stay 

values published in the FY 2006 IRF 

PPS final rule (70 FR 47880, 47902 

through 47904) and in section IV.B of 

this final rule are not used to determine 

payments to IRFs other than to 

determine payments for short-stay 

transfer cases. These values are entirely 

driven by the data that providers submit 

and have been falling consistently in 

recent years as the average number of 

days that patients spend in IRFs 

continues to decline. The overall 

decline in the average length of stay 

values likely has resulted in fewer cases 

qualifying for the per diem short-stay 

transfer payments, meaning that more 

cases have likely received the full CMG 

payments rather than the per diem 

payments. 

Because the average length of stay 

values that we estimate are entirely 

data-driven, then, we believe that any 

changes in payments that result from 

updated average length of stay values 

are appropriately reflecting changes in 

the costs of care in IRFs. 

Comment: Several commenters 

suggested that the FY 2006 refinements 

should serve as a new baseline for 

evaluating payments in the system, and 

that CMS should wait until the data are 

available to assess how providers 

respond to the FY 2006 changes before 

implementing an additional coding 

adjustment. 

Response: As the commenters 

suggested, the FY 2006 refinements 

were intended to establish a new 

baseline for payments in the system, 

and we will be analyzing this new data 

for FY 2006 and beyond as part of our 

ongoing monitoring of the system to 

ensure that payments reflect as closely 

as possible the costs of caring for 

patients in IRFs. However, because, as 

noted above, the statute requires us to 

adjust payment rates for IRF services if 

we determine that changes in coding 

(that do not reflect real changes in case 

mix) have resulted in or will result in 

changes in aggregate payments under 

the IRF classification system, we do not 

believe that we should defer 

implementing the additional adjustment 

for FY 2007. 

Comment: Several commenters 

expressed concerns that the calendar 

year 2002 data that RAND used to 

analyze changes in coding and case mix 

may have been based on HealthSouth 

cost report data that, for reasons 

detailed in the FY 2006 IRF PPS final 

rule, were not complete. 

Response: As we discussed in detail 

in the FY 2006 IRF PPS final rule (70 

FR 47880, 47884), RAND’s analysis 

included 98 IRF providers affiliated 

with HealthSouth that omitted home 

office cost data from the 2002 and 2003 

cost reports filed with CMS. However, 

we detailed in the FY 2006 final rule 

how RAND and CMS accounted for this 

data in the analyses for that final rule. 

In that final rule, we also stated that the 

omission of the home office cost data 

would have no effect on the 1.9 percent 

coding adjustment for FY 2006, because 

the only data affected by the omission 

of the home office costs were the cost 

report data and these data were not used 

in the analysis that supported the 1.9 

percent coding adjustment. The same 

RAND analysis is used to support the 

additional coding adjustment for FY 

2007, so the home office cost omission 

similarly has no effect on the FY 2007 

coding adjustment. 

Comment: Several commenters 

questioned CMS’s legal authority to 

make the FY 2007 coding adjustment, 

claiming that the statute does not 

include review of Medicare margins as 

a reason for a coding adjustment. 

Response: We disagree with the 

commenters’ interpretation of our 

authority under the statute. We interpret 

section 1886(j)(2)(C)(ii) of the Act as 

requiring the Secretary to apply a 

coding adjustment to the payment rate 

when the evidence shows that such an 

adjustment is necessary to ensure that 

changes in aggregate payments are the 

result of real changes in case mix and 

do not reflect changes in coding that are 

unrelated to real changes in case mix. 

As noted previously, we have based our 

assessment of the amount that changes 

in aggregate payments in the first year 

of the implementation of the IRF PPS 

were a result of real case mix changes 

and the amount that they were a result 

of coding changes that do not reflect real 

changes in case mix on RAND’s 

analysis, not on an analysis of IRF 

margins. However, we have used 

MedPAC’s analysis of IRF margins to 

inform our understanding of growth in 

IRF costs over time, which we believe 

has direct bearing on our understanding 

of trends in IRFs’ real case mix. We 

believe that actual increases in IRF case 

mix in the early years of the IRF PPS 

would have been accompanied by larger 

increases in the costs associated with 

treating higher acuity patients. 

Comment: Some commenters 

questioned the CMS analyses of changes 

in coding practices, believing that 

providers were being penalized for 

reacting to changes in the IRF PPS 

coding structure. 

Response: The coding adjustments for 

FY 2006 and FY 2007 are not intended 

to penalize providers for reacting to 


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changes in the IRF PPS coding structure. 

We encourage providers to improve the 

accuracy with which they are recording 

patient’s clinical information. However, 

we are required by statute to adjust 

payments if we determine that changes 

in payments are a result of changes in 

coding that do not reflect real changes 

in case mix. Further, we believe it is 

appropriate to consider provider 

responses to changes in IRF coding as 

part of our efforts to evaluate the need 

for payment adjustments because a 

rapid change in provider coding 

practices could reflect changes in IRF 

payment policies rather than a change 

in patient severity. 

Comment: One commenter asked 

whether the data presented in Table 6 

on page 28124 of the proposed rule was 

based on calendar year or fiscal year 

data. 

Response: We used calendar year 

IRF–PAI data in the analysis for Table 

6 on page 28124 of the proposed rule. 

Comment: One commenter noted that 

the ICD–9 code 278.02 (overweight) was 

not recommended by the ICD–9–CM 

Committee and approved by the 

National Center for Health Care 

Statistics for use until October 2005, 

and therefore it was not surprising that 

this code was used fewer than 10 times 

before that date. 

Response: We do not find the fact that 

the code was new as of October 2005 to 

have any bearing on our conclusion that 

the dramatic increase in its use likely 

reflected changes in the IRF payment 

structure rather than in patient severity 

levels. Indeed, the fact that the code was 

new in October 2005 and its level of use 

rose immediately upon its introduction, 

indicates to us that providers are able to 

adapt their coding practices quickly to 

reflect coding changes. Thus, the 

increase in the code’s use, in our view, 

continues to suggest that providers 

respond more rapidly to coding changes 

than we initially believed. 

Final Decision: After carefully 

considering all of the comments that we 

received on the proposed reduction to 

the standard payment amount to 

account for coding changes that do not 

reflect real changes in case mix, we have 

decided to decrease the amount of the 

reduction to 2.6 percent, rather than the 

2.9 percent that we had proposed. As 

we indicated in the proposed rule, we 

considered both 2.9 percent and 2.3 

percent as possible reductions to the 

standard payment amount for FY 2007. 

However, in view of the industry’s rapid 

adaptation to coding changes, we chose 

to propose a 2.9 percent reduction to the 

standard payment amount instead of the 

2.3 percent reduction we had 

considered. The additional analyses the 

commenters offered in response to the 

proposed rule did not express a 

preference for either 2.9 percent or 2.3 

percent, but were designed to show that 

we should not implement any 

additional reduction to the standard 

payment amount for FY 2007. In fact, 

some commenters presented analyses to 

show that CMS should provide a net 

increase to the standard payment 

amount for FY 2007 to compensate for 

the 2.2 percent reduction they contend 

occurred because of the FY 2006 

refinements to the classification system 

(as discussed above). Further, 

commenters said that they did not 

believe that either the lower 2.3 percent 

reduction or the proposed 2.9 percent 

reduction were appropriate. Instead, 

commenters generally rejected any 

reduction to the standard payment 

amount. As explained previously, no 

reduction to the standard payment 

amount was not a reasonable option in 

light of RAND’s analysis and the 

additional data we evaluated (as 

described above). Consequently, 

because we continue to believe a 2.3 

percent reduction is too low, and in 

view of the significant concerns raised 

by commenters about the proposed 2.9 

percent reduction, we have decided to 

implement a 2.6 percent reduction. The 

2.6 percent reduction represents the 

midpoint between the 2.9 percent we 

had proposed and the 2.3 percent 

reduction we also had considered 

proposing, which would have fallen at 

approximately the middle of RAND’s 

range of estimates. 

In view of the significant concerns 

that commenters raised, and in 

continuing recognition of the significant 

changes in IRFs’ patient populations 

that may be occurring as a result of the 

current phase in of the 75 percent rule 

compliance percentage, we have 

decided that the best approach at this 

time is to continue to exercise caution 

by adopting a slightly more conservative 

approach to further reducing the 

standard payment amount. In this way, 

we provide IRFs more flexibility in 

adapting their admission practices and 

cost structures to the recent regulatory 

changes. 

However, as the commenters 

suggested, we intend to continue 

analyzing changes in coding and case 

mix closely using the most current 

available data, as part of our ongoing 

monitoring of the IRF PPS. If, based on 

updated analysis, we determine that 

additional adjustments are needed to 

ensure that changes in aggregate 

payments are the result of real changes 

in case mix and not merely the result of 

changes in coding that do not reflect 

real changes in case mix, we intend to 

propose additional payment 

refinements. 

For FY 2007, therefore, we are 

continuing our incremental approach to 

adjusting payments for coding changes 

that occurred when we first began 

implementing the IRF PPS in 2002. 

Together with the 1.9 percent reduction 

that we implemented for FY 2006, the 

2.6 percent reduction for FY 2007 will 

result in a total adjustment of 4.5 

percent (1.9 + 2.6 = 4.5). Because 4.5 

percent is still well within the range of 

RAND’s estimates of the effects of 

coding changes that do not reflect real 

changes in case mix on IRF PPS 

payments that occurred between 1999 

and 2002, we continue to believe that 

we are still providing flexibility to 

account for the possibility that some of 

the observed changes may be 

attributable to factors other than coding 

changes. 

We will use the same methodology 

that we used in the FY 2006 IRF PPS 

final rule (70 FR 47880, 47908) to 

reduce the standard payment amount to 

adjust for coding changes that affect 

payment. To reduce the standard 

payment amount by 2.6 percent for FY 

2007, we will multiply the standard 

payment amount by 0.974 (obtained by 

subtracting 0.026 from 1.000). 

In section V.D of this final rule, we 

further describe how we will adjust the 

standard payment amount by the budget 

neutrality factors for the wage index, the 

second year of the hold harmless policy, 

and the revisions to the CMG relative 

weights and tier comorbidities to 

produce the final FY 2007 standard 

payment conversion factor. In Table 6 of 

this final rule, we provide a step-by-step 

calculation that results in the FY 2007 

standard payment conversion factor. 

B. FY 2007 IRF Market Basket Increase 

Factor and Labor-Related Share 

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. 

Accordingly, in updating the FY 2007 

payment rates set forth in this final rule, 

we apply an appropriate increase factor 

to the FY 2006 IRF PPS payment rates 

that is based on the rehabilitation, 

psychiatric, and long-term care hospital 

(RPL) market basket. In constructing the 

RPL market basket, we used the 

methodology set forth in the FY 2006 

IRF PPS final rule (70 FR 47880, 47908 

through 47915) and described in the FY 

2007 proposed rule. 

Most of the comments that we 

received on the market basket and laborVerDate Aug<31>2005 17:54 Aug 17, 2006 Jkt 208001 PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 E:\FR\FM\18AUR3.SGM 18AUR3

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related share support the update to the 

market basket increase and labor-related 

share based on more recent data as 

discussed in the FY 2007 proposed rule. 

We did not receive any comments on 

the continued use of the Bureau of 

Labor Statistics (BLS) Employment Cost 

Indexes (ECI) data in light of the BLS 

change in system usage to the North 

American Industrial Classification 

Systems based ECI. 

Final Decision: For this final rule, the 

FY 2007 IRF market basket increase 

factor is 3.3 percent. This is based on 

the Global Insight, Inc. (GII) forecast for 

the second quarter of 2006 (2006q2) 

with historical data through the first 

quarter of 2006 (2006q1). The 3.3 

percent market basket increase factor is 

0.1 percentage point lower than the 

increase that we published in the 

proposed rule, which was based on GII’s 

forecast for the first quarter of 2006 

(2006q1). 

In addition, we used the methodology 

described in the FY 2006 IRF PPS final 

rule to update the labor-related share for 

FY 2007. As shown in Table 5, the final 

FY 2007 IRF labor-related share (which 

is based on GII’s forecast for the second 

quarter of 2006) is 75.612 percent in this 

final rule. This is approximately 0.1 

percentage point lower than the laborrelated share that we published in the 

proposed rule, which reflected GII’s 

forecast for the first quarter of 2006 

(2006q1). 

Comment: One commenter believes 

that Global Insight, Inc.’s (GII’s) market 

basket projection for FY 2007 

underestimates the inflation pressure 

that hospitals face in serving Medicare 

beneficiaries. The commenter indicates 

that GII’s latest forecast of the RPL 

market basket for FY 2006 is 3.8 percent 

compared to the final IRF PPS FY 2006 

update of 3.6 percent. 

Response: The FY 2007 IRF update of 

3.3 percent is based on GII’s most recent 

forecast, which includes the latest 

available historical data through 

2006q1. This forecast reflects the 

expected inflation pressures that 

hospitals will face in FY 2007. The GII 

figure will not be final until the release 

of GII’s 2006q4 forecast, which will 

include historical data through 2006q3. 

We continue to work closely with GII to 

ensure the most accurate projections 

possible. 

TABLE 5.—FY 2007 IRF LABOR-RELATED SHARE RELATIVE IMPORTANCE

Cost category 

FY 2007 IRF 

Labor-related 

relative 

importance 

Wages and salaries .............. 52.406 

Employee benefits ................ 14.084 

Professional fees .................. 2.898 

All other labor intensive services .................................... 2.142 

Subtotal ......................... 71.530 

Labor-related share of capital 

costs .................................. 4.082 

Total ............................... 75.612 

Source: Global Insight, Inc. 2nd Qtr 2006, 

@USMACRO/CONTROL0606 @CISSIM/ 

TL0506.SIM. 

C. 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 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 2007 proposed rule, we 

proposed to maintain the methodology 

and policies described in the FY 2006 

IRF PPS final rule to determine the wage 

index, labor market area definitions, 

areas with missing hospital data, and 

hold harmless policy consistent with 

the rationales outlined in that final rule 

(70 FR 47880, 47917 through 47933). 

In our review of Table 1 in the 

Addendum of the proposed rule, we 

found that the wage index published for 

Hinesville, Georgia (CBSA 25980) is 

incorrect. The corrected wage index for 

this area can be found in Table 1 of the 

Addendum in this final rule. 

We received only a few comments on 

maintaining the methodology described 

in the FY 2006 final rule (70 FR 47880) 

for FY 2007. The comments and our 

responses are summarized below. 

Comment: We received comments 

supporting our transition to the full 

CBSA-based labor market area 

definitions. However, we received 

several comments that recommended 

extending the blended wage index for 

another year to protect certain IRFs that 

would otherwise experience wage index 

reductions of 8 percent or more. 

Response: In the FY 2006 proposed 

rule, we had not proposed a transition 

to the CBSA-based labor market area 

designations. However, after a review of 

the comments, we provided a budget 

neutral transition to the CBSAs, which 

will expire for discharges occurring on 

or after October 1, 2006. We agreed with 

commenters that it is appropriate to 

assist providers in adapting to the 

changes from MSA to CBSA in a manner 

that provides the most benefit to the 

largest number of providers. Therefore, 

our FY 2006 final rule adopted a 

transition policy that provided 

measurable relief to the greatest number 

of adversely affected IRFs with the least 

impact to the rest of the facilities. In the 

FY 2006 final rule, we discuss other 

transition policies recommended by the 

public in order to transition from the 

MSA to CBSA-based designations. A 

full discussion of the alternative 

transition policies that we considered 

and our decision to adopt the 1-year 

blended wage index appears in the FY 

2006 final rule (70 FR 47880, 47922 

through 47923). 

We also adopted a hold harmless 

policy specifically for rural IRFs whose 

labor market designations changed from 

rural to urban under the CBSA-based 

labor market area designations. This 

policy specifically applied to IRFs that 

had previously been designated rural 

and which, effective October 1, 2005, 

would otherwise have become ineligible 

for the 19.14 percent rural adjustment. 

For FY 2007, the second year of the 3- 

year phase out of the budget-neutral 

hold harmless policy, the adjustment 

will be up to 6.38 percent for IRFs that 

meet the criteria described in the FY 

2006 final rule (70 FR 47880, 47923 

through 47926). 

As stated in our FY 2006 final rule, 

we did not extend the hold harmless 

policy to encompass facilities that 

remain in an urban area, because we 

believe that the transition wage index 

mitigated the impact of the change from 

MSAs to CBSAs. We note that periodic 

updating of the wage data routinely 

produces a certain degree of fluctuation 

in wage index values, which would 

occur even in the absence of a 

conversion to the CBSA-based structure. 

In reviewing the data, we found that 

updating the wage data by itself 

produced similar levels of fluctuation in 

wage index values under either the 

MSA or CBSA designations. In general, 

we found that approximately 1 percent 

of IRFs would experience a decrease of 

8 percent or more in the wage index 

under either the MSA or CBSA 


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designations. However, under the CBSA 

designations, 57 percent either 

remained the same or had an increase in 

the wage index. We also examined the 

impact of the wage index if we had 

remained under the MSA-based 

designations. Under this scenario, we 

find that only 48 percent of IRFs would 

have remained the same or would have 

had an increase in the wage index. 

Thus, we find that more providers 

would expect to have no change or an 

increase in the wage index under the 

CBSA designations. We also note that 

the decrease or increase in the wage 

index fluctuates from year to year based 

on the updated wage data. Therefore, we 

are not revising our current wage index 

policy at this time. 

Comment: A few commenters 

requested that we adopt wage index 

policies like those under the acute 

inpatient prospective payment systems 

(IPPS). The IPPS wage index policies 

would allow IRFs to benefit from the 

IPPS reclassification and/or rural floor 

policies. (A discussion of the IPPS 

reclassification and rural floor policies 

may be found on our Web site at 

http://www.cms.hhs.gov/ 

AcuteInpatientPPS/01_overview.asp.) 

In addition, we were also urged to use 

the most recent hospital cost report 

wage data available for FY 2007 instead 

of the most recent final hospital cost 

report wage data available. Several 

commenters recommended that we 

engage in wage index discussions with 

the industry, but recognized that 

legislative action may be necessary to 

accomplish some or all of the changes 

that they recommended. 

Response: For FY 2007, we did not 

propose changes in the IRF PPS 

methodology relating to the wage index, 

either to use more recent hospital wage 

data or to adopt the reclassification or 

rural floor provisions used in IPPS. 

Therefore, we are not revising the IRF 

methodology described in the FY 2006 

IRF PPS final rule. The rationale for our 

current wage index policies may be 

found in the FY 2006 final rule (70 FR 

47880, 47927 through 47928). However, 

we agree that we should engage in 

further discussions with the industry to 

evaluate possible wage index 

alternatives. 

Final Decision: The FY 2007 wage 

index will be based solely on the CBSAbased labor market area definitions and 

the corresponding wage index (rather 

than on a blended wage index). We will 

use the most recent final pre-reclassified 

and pre-floor hospital wage data 

available (FY 2002 hospital wage data) 

based on the CBSA labor market area 

definitions consistent with the rationale 

outlined in the FY 2006 IRF PPS final 

rule. 

D. Description of the Standard Payment 

Conversion Factor and the Payment 

Rates for FY 2007 

In the FY 2006 final rule (70 FR 

47880, 47937 through 47398), we 

revised the IRF regulations text by 

adding § 412.624(d)(4) to indicate that 

we apply a factor when revisions are 

made to the tier comorbidities and the 

IRF classification system, the rural 

adjustment, the LIP adjustment, the 

teaching status adjustment, the hold 

harmless adjustment, or other budgetneutral policies. To clarify, we did not 

propose changes to the rural adjustment 

of 21.3 percent, the LIP exponential 

factor of 0.6229, or the teaching status 

adjustment exponential factor of 0.9012. 

They remain as described in the FY 

2006 IRF PPS final rule. As discussed in 

greater detail in the FY 2007 proposed 

rule, because we are not changing these 

policies, we do not need to calculate 

budget neutrality factors for these 

policies because they are assumed in the 

FY 2006 standard payment conversion 

factor. 

As described in the FY 2007 proposed 

rule, we will apply factors to the 

standard payment amount for the 

changes that we proposed for FY 2007, 

to ensure that estimated aggregate 

payments in FY 2007 are not greater or 

less than those that would have been 

made in the year without the updates to 

the wage index and labor-related share, 

the second year of the hold harmless 

policy, and the revisions to the tier 

comorbidities and relative weights. A 

description of the methodology used to 

derive the budget neutrality factors for 

these changes is included in our FY 

2007 proposed rule. These same steps 

are used to determine the budget 

neutrality factors that reflect the final 

policies for FY 2007, as discussed in 

this section below. 

Final Decision: We did not receive 

any comments regarding the 

methodology used to derive the budget 

neutrality factors. Therefore, we will 

apply the wage index and labor-related 

share budget neutrality factor of 1.0016 

and the budget neutrality factor for the 

combined hold harmless, tier 

comorbidity, and relative weight 

changes of 1.0093. Please see Table 9 in 

this final rule to see how these changes 

are estimated to affect payments among 

different types of facilities. These 

budget neutrality factors are slightly 

different from the FY 2007 proposed 

rule because the market basket and 

labor-related share are based on updated 

data as described in section V.B of this 

final rule. 

The standard payment conversion 

factor of $12,981 and the payment rates 

in Table 6 and Table 7 (respectively) 

will be used for FY 2007. The standard 

payment conversion factor in this final 

rule is greater than the standard 

payment conversion factor in the 

proposed rule because we used updated 

data for the market basket and laborrelated share and will implement a 2.6 

percent reduction instead of a 2.9 

percent reduction to the standard 

payment amount (as discussed in 

sections V.A and B of this final rule). 

Thus, consistent with § 412.624(d)(4), 

we apply these factors to the standard 

payment amount in order to make the 

changes described in this final rule in a 

budget neutral manner for FY 2007. We 

used the methodology described in 

sections V.A and B of this final rule. We 

use the FY 2006 standard payment 

conversion factor ($12,762) and apply 

the market basket (3.3 percent), which 

equals $13,183. Then, we apply a 

reduction to the standard payment 

amount of 2.6 percent as discussed in 

section V.A of this final rule, which 

equals $12,840. We then apply the 

budget-neutral wage adjustment of 

1.0016 to $12,840, which results in a 

standard payment amount of $12,861. 

Next, we combine the factors for the 

tier comorbidity and CMG relative 

weight changes (1.0080) and for the 

second year of the hold harmless policy 

(1.0013) by multiplying the two factors 

to establish a single budget neutrality 

factor for the two changes (1.0013 * 

1.0080 = 1.0093). We apply this overall 

budget neutrality factor to the standard 

payment amount of $12,861, resulting in 

the standard payment conversion factor 

of $12,981 for FY 2007 (Table 6). 

TABLE 6.—CALCULATIONS TO DETERMINE THE FY 2007 STANDARD PAYMENT CONVERSION FACTOR

Explanation for adjustment Calculations 

FY 2006 Standard Payment Conversion Factor ................................................................................................................................. $12,762 

FY 2007 Market Basket Increase Factor ............................................................................................................................................ × 1.033 


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TABLE 6.—CALCULATIONS TO DETERMINE THE FY 2007 STANDARD PAYMENT CONVERSION FACTOR—Continued 

Explanation for adjustment Calculations 

Subtotal ......................................................................................................................................................................................... = $13,183 

One-Time 2.6% Reduction for Coding Changes ................................................................................................................................. × 0.974 

Subtotal ......................................................................................................................................................................................... = $12,840 

Budget Neutrality Factor for the Wage Index and Labor-Related Share ............................................................................................ × 1.0016 

Subtotal ......................................................................................................................................................................................... = $12,861 

Budget Neutrality Factor for the Hold Harmless Provision and Revisions to the Tier Comorbidities and the CMG Relative 

Weights ............................................................................................................................................................................................ × 1.0093 

FY 2007 Standard Payment Conversion Factor ................................................................................................................................. = $12,981 

The FY 2007 standard payment 

conversion factor is applied to each of 

the CMG relative weights shown in 

Table 4, ‘‘FY 2007 IRF PPS Relative 

Weights and Average Lengths of Stay for 

Case-Mix Groups,’’ to compute the 

unadjusted IRF prospective payment 

rates for FY 2007 shown in Table 7. To 

clarify further, the budget neutrality 

factors described above would be 

applied only for FY 2007. However, if 

necessary, we will apply budget 

neutrality factors in applicable years 

hereafter to the extent that further 

adjustments are made to the IRF PPS 

consistent with § 412.624(d)(4). 

Otherwise, the general methodology to 

determine the Federal prospective 

payment rate is described in 

§ 412.624(c)(3)(ii). 

The resulting unadjusted IRF 

prospective payment rates for FY 2007 

are shown below in Table 7, ‘‘FY 2007 

Payment Rates.’’

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BILLING CODE 4120–01–C 

E. Example of the Methodology for 

Adjusting the Federal Prospective 

Payment Rates 

As described in the FY 2007 proposed 

rule and in this final rule, Table 8 

illustrates the methodology for adjusting 

the Federal prospective payments. 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) can be found in 

Table 7 above. 

One beneficiary is in Facility A, a 

hypothetical IRF located in rural 

Spencer County, Indiana, and another 

beneficiary is in Facility B, a 

hypothetical IRF located in urban 

Harrison County, Indiana. Facility A, a 

non-teaching hospital, has a 

disproportionate share hospital (DSH) 

percentage of 5 percent (which results 

in a LIP adjustment of 1.0309), a wage 

index of 0.8624, and an applicable rural 

adjustment of 21.3 percent. Facility B, a 

teaching hospital, has a DSH percentage 

of 15 percent (which results in a LIP 

adjustment of 1.0910), a wage index of 

0.9251, and an applicable teaching 

status adjustment of 0.109. 

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 7 above. 

Then, we multiply the estimated laborrelated share (75.612) described in 

section V.B by the unadjusted Federal 

prospective payment rate. To determine 

the non-labor portion of the Federal 

prospective payment rate, we subtract 

the labor portion of the Federal payment 

from the unadjusted Federal prospective 

payment. 

To compute the wage-adjusted 

Federal prospective payment, we 

multiply the result of the labor portion 

of the Federal payment by the 

appropriate wage index found in the 

Addendum in Tables 1 and 2, which 

will result in the wage-adjusted amount. 

Next, we compute the wage-adjusted 

Federal payment by adding the wageadjusted amount to the non-labor 

portion. 

To adjust the Federal prospective 

payment by the facility-level 

adjustments, there are several steps. 

First, we take the wage-adjusted Federal 

prospective payment and multiply it by 

the appropriate rural and LIP 

adjustments (if applicable). Then, to 

determine the appropriate amount of 

additional payment for the teaching 

status adjustment (if applicable), we 

multiply the teaching status adjustment 

(0.109, 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 

rate. Table 8 illustrates the components 

of the adjusted payment calculation. 

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BILLING CODE 4120–01–C 

Thus, the adjusted payment for 

Facility A would be $31,485.53, and the 

adjusted payment for Facility B would 

be $31,813.23. 

VI. Update to Payments for High-Cost 

Outliers Under the IRF PPS 

A. Update to the Outlier Threshold 

Amount for FY 2007 

A case qualifies for an outlier 

payment if the estimated cost of the case 

exceeds the adjusted outlier threshold, 

in which case we make an outlier 

payment equal to 80 percent of the 

difference between the estimated cost of 

the case and the outlier threshold. In the 

August 7, 2001 final rule, we discussed 

our decision to set the outlier threshold 

amount so that estimated outlier 

payments would equal 3 percent of total 

estimated payments. In the FY 2007 

proposed rule (71 FR 28106), we 

proposed to update the outlier threshold 

amount to $5,609 in accordance with 

this policy. However, the appropriate 

outlier threshold amount for FY 2007 

depends on the other policies, 

especially the coding adjustment, 

contained in this final rule. 

We received several comments on the 

proposed update to the outlier threshold 

amount for FY 2007, which are 

summarized below. 

Comment: Two commenters 

expressed concerns about the accuracy 

of the FY 2007 estimated outlier 

payments that we reported in the IRF 

rate setting file posted in conjunction 

with the FY 2007 proposed rule. They 

stated that in some cases, the 

information was not consistent with the 

actual outlier payments that they 

received in FYs 2004 and 2005. The 

commenters asked CMS to re-examine 

and verify our outlier payment 

calculations and to delay implementing 

an adjustment to the outlier threshold 

amount for FY 2007 until we can be 

sure the information is correct. 


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Response: We have re-examined our 

estimated outlier payment calculations, 

and we cannot find any inconsistencies 

in these calculations or with the IRF rate 

setting data file that we posted on the 

IRF PPS Web site. We did obtain some 

specific examples from the industry, but 

we did not find that the differences 

between their calculations and ours 

indicated any inaccuracies in our 

database. We believe two factors might 

contribute to a particular facility’s 

receiving different outlier payments for 

FYs 2004 and 2005 than the outlier 

payments that we estimate for FY 2007. 

First, the actual outlier payments that 

providers received in FYs 2004 and 

2005 were calculated based on the 

outlier threshold amount at that time, 

which was $11,211. The estimated 

outlier payments for FY 2007 in the 

proposed rule rate setting file are based 

on the proposed FY 2007 outlier 

threshold amount of $5,609. Second, we 

used the most current available data on 

IRFs’ cost-to-charge ratios (CCRs) to 

calculate the estimated FY 2007 outlier 

payments. The CCRs for a particular 

provider can vary widely over time, in 

part because of the ceiling that we 

impose on them. Thus, a provider’s 

current CCR used in the analysis for the 

FY 2007 proposed and final rules could 

have changed substantially from the 

CCR used to compute the actual outlier 

payments for FYs 2004 and 2005. 

We note that the information in the 

IRF rate setting file posted on the IRF 

PPS Web siteis not used to determine 

payments to providers. The fiscal 

intermediaries determine IRF payments 

using their own data files, including the 

appropriate CCRs. 

We welcome any specific provider 

concerns regarding the information 

contained in the IRF rate setting files, 

and we will work with providers to 

investigate any potential discrepancies 

in the information that we use in our 

analysis. However, we have not been 

able to find any discrepancies, and we 

believe that our analysis continues to 

demonstrate the need to update the 

outlier threshold amount for FY 2007 to 

ensure that estimated outlier payments 

continue to equal 3 percent of total 

estimated payments. 

Comment: A few commenters 

expressed concerns about the 

methodology that CMS uses to estimate 

cost and charge growth for the purposes 

of calculating the outlier threshold 

amount. Two commenters referred to 

alternative methodologies developed by 

MedPAC and others that had been 

recommended for the IPPS to estimate 

declining CCRs. The commenters 

encouraged CMS to review our 

calculations of the outlier threshold 

amount carefully, use more recent data, 

and consider applying the suggested 

methodological changes to the IRF PPS 

to ensure that the full 3 percent of 

outlier funds is used. 

Response: We have reviewed the 

comments submitted for consideration 

in the IPPS, and we appreciate the 

alternative methodologies suggested and 

have considered them carefully. The 

CCR applied to charges provides 

Medicare with the most accurate 

measure of a provider’s per-case cost for 

the purpose of paying for high-cost 

outlier cases at the point that we process 

the initial claim. The CCR is based on 

the providers’ own cost and charge 

information as reported by the 

providers. For the purposes of this final 

rule, we have used the same 

methodology for projecting cost and 

charge growth that is used in the IPPS 

and in other Medicare payment systems, 

and we believe that this methodology is 

appropriate for IRFs for the same 

reasons that it is appropriate for IPPS 

hospitals. This methodology ensures 

that we pay the appropriate amounts 

over and above the standard PPS 

payment amount for unusually highcost cases. We intend to consult with 

IPPS and MedPAC staff on a regular 

basis regarding outlier issues, and will 

investigate options for using more 

current data to update the outlier 

threshold amount in future years. 

Final Decision: Based on a careful 

review of the comments that we 

received on the proposed update to the 

outlier threshold amount for FY 2007, 

we are finalizing our decision to update 

the outlier threshold amount for FY 

2007 to $5,534. This outlier threshold 

amount is slightly lower than the $5,609 

that we proposed, due to the reduction 

of the coding adjustment from the 2.9 

percent adjustment that we had 

proposed to the 2.6 percent coding 

adjustment that we are finalizing in this 

final rule. Because the coding 

adjustment affects the estimated amount 

of aggregate payments for FY 2007, it 

also affects our estimate of the outlier 

threshold amount that we estimate will 

maintain estimated outlier payments at 

3 percent of total estimated payments. 

B. Update to the IRF Cost-to-Charge 

Ratio Ceilings and Clarification to the 

Regulation Text for FY 2007 

As specified in § 412.624(e)(5), we 

apply a ceiling to IRFs’ cost-to-charge 

ratios (CCRs). In the FY 2007 IRF PPS 

proposed rule, we proposed to update 

the national average urban and rural 

CCRs and to revise § 412.624(e)(5) to 

emphasize that we calculate a single 

overall cost-to-charge ratio (combined 

operating and capital) for IRFs because 

IRF PPS payments are based on a 

prospective payment per discharge for 

both inpatient operating and capitalrelated costs. We proposed to update the 

national urban and rural CCRs for IRFs 

to 0.488 and 0.613, respectively. 

However, we noted that these estimates 

were subject to change in this final rule 

based on updated analysis and data. 

We did not receive any comments on 

the proposed update to the IRF cost-tocharge ratio ceilings or clarification to 

the regulation text for FY 2007. 

However, we updated our analysis using 

the most recent available data. For the 

proposed rule, we used the FY 2004 cost 

report data compiled by CMS as of 

December 2005, at which point the FY 

2004 cost reports were about 85 percent 

complete. For this final rule, we have 

used the FY 2004 cost report data 

compiled as of March 2006, at which 

point we had about 97 percent of the FY 

2004 cost report information. Thus, 

based on the more recent cost report 

data, we are finalizing the national 

average urban CCR at 0.484 and the 

national average rural CCR at 0.600, as 

well as our estimate of 3 standard 

deviations above the corresponding 

national geometric mean, which we are 

finalizing at 1.56 for FY 2007. 

VII. Revisions to the Classification 

Criteria Percentage for IRFs 

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, a hospital or rehabilitation 

unit of an acute care hospital must meet 

the requirements for classification as an 

IRF contained in subpart B of part 412. 

Section 412.23(b)(2) specifies that an 

IRF’s cost reporting period will 

determine the percentage of the IRF’s 

total inpatient population that required 

intensive rehabilitation services for 

treatment of at least one of the 13 

medical conditions listed in the 

regulation. The compliance percentage 

requirement is commonly known as the 

‘‘75 percent rule,’’ and is one of the 

criteria that Medicare uses for 

classifying a hospital or a rehabilitation 

unit of an acute care hospital as an IRF. 

On May 7, 2004, we published a final 

rule (69 FR 25752) that specified the 

compliance percentage requirements 

that a hospital or rehabilitation unit of 

an acute care hospital must meet during 

a particular cost reporting period in 

order to be classified as an IRF. 

However, section 5005 of the DRA of 

2005 revised the compliance percentage 

requirements in § 412.23(b)(2) that must 

be met for certain cost reporting periods 

in order for a hospital or rehabilitation 

unit of an acute care hospital to be 

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to conform the regulations to the DRA, 

we proposed modifying the compliance 

percentages in § 412.23(b)(2)(i) and (ii) 

as follows: 

• Reducing the compliance threshold 

that must be met from 65 to 60 percent 

for cost reporting periods beginning on 

or after July 1, 2006, and before July 1, 

2007. 

• Reducing the compliance threshold 

that must be met from 75 to 65 percent 

for cost reporting periods beginning on 

or after July 1, 2007, and before July 1, 

2008. 

• Stipulating that an IRF with a cost 

reporting period beginning on or after 

July 1, 2008, must meet a compliance 

threshold of 75 percent. 

In addition to specifying a compliance 

threshold, § 412.23(b)(2)(i) currently 

permits a patient’s comorbidity that 

meets certain qualifying criteria as 

outlined in the regulations to count 

toward satisfying the classification 

criteria percentage. However, 

§ 412.23(b)(2)(ii) currently provides that 

a patient’s comorbidities will not be 

used to determine compliance once the 

transition to the 75 percent compliance 

level has been completed. Since the 

transition to the 75 percent compliance 

threshold has been extended one year, 

we also proposed a 1-year extension of 

the current policy of using a patient’s 

comorbidities to the extent they met the 

conditions outlined in our regulations to 

determine compliance with the 

classification criteria in § 412.23(b)(2)(i). 

Thus, under our proposal, an IRF with 

a cost reporting period beginning before 

July 1, 2008 would be able to use 

comorbidities to count toward the 

required applicable percentage 

requirements outlined in the 

regulations. This proposed approach 

maintains consistency with our current 

approach with respect to the counting of 

comorbidities before the 75 percent 

threshold applies. We received many 

comments as summarized below on the 

proposed revisions to the classification 

criteria. 

Comment: Commenters supported the 

proposed revisions to the compliance 

thresholds that IRFs must meet for 

certain cost reporting periods. However, 

most of the commenters requested that 

we not terminate the use of 

comorbidities to determine the 

compliance percentage once the 

extended transition period has expired. 

Response: In the May 7, 2004 final 

rule (69 FR 25752, 25762), we stated 

that we planned to use the phase-in 

period to the 75 percent compliance 

threshold to evaluate the use of 

comorbidities for determining 

compliance with the classification 

percentage criteria. We believed that 

many IRFs probably would have to 

make adjustments not only to their casemix but to their operating procedures in 

order to respond to changes in the 

regulations, the methodology for 

determining compliance, and the local 

coverage policies FIs had or were 

planning to implement. We believed 

that such adjustments might take some 

IRFs a considerable amount of time. 

Therefore, we wanted to use the phasein period to the 75 percent compliance 

threshold to provide administrative 

flexibility so that a case with a 

comorbidity that met the qualifying 

conditions specified above would be 

included as part of the IRF population 

used to calculate the compliance 

percentage. 

As we stated in the May 7, 2004 final 

rule (69 FR 25752, 25762), we will use 

the phase-in period to the 75 percent 

compliance threshold to evaluate 

whether the regulations should be 

revised. As part of that evaluation 

process, we will consider if we should 

propose to extend the time period that 

comorbidities meeting the qualifying 

conditions outlined in the regulations 

are included as part of the process that 

determines the compliance percentage. 

We have not completed our analysis on 

this issue and, thus, because our review 

is incomplete we believe that it is 

premature to extend beyond the 

transition period the use of a patient’s 

comorbidities in determining if an IRF 

met the compliance threshold. 

Final Decision: Consistent with the 

proposed rule and the rationale 

discussed above, we are finalizing our 

proposed policy as set forth in this 

paragraph. In accordance with section 

5005 of the DRA, we are extending the 

transition period to the 75 percent 

compliance threshold, as follows: For 

cost reporting periods starting on or 

after July 1, 2006, and before July 1, 

2007, the compliance threshold is 60 

percent. For cost reporting periods 

starting on or after July 1, 2007, and 

before July 1, 2008, the compliance 

threshold is 65 percent. For cost 

reporting periods starting on or after 

July 1, 2008, the compliance threshold 

is 75 percent. Under the authority of 

section 1886(d)(1)(B) of the Act, we are 

continuing until the end of the extended 

transition period to permit the use of 

comorbidities that meet the qualifying 

criteria in § 412.23(b)(2)(i)(A) through 

§ 412.23(b)(2)(i)(C) to count toward 

satisfying the required applicable 

percentages in § 412.23(b)(2)(i). 

However, for cost reporting periods 

starting on or after July 1, 2008, 

comorbidities may not be used when 

calculating the compliance percentage 

attained by an IRF. 

VIII. IRF PPS: Other Issues 

A. Integrated Post Acute Care Payment 

In the FY 2007 IRF proposed rule, we 

described our plans to explore 

refinements to the existing provideroriented ‘‘silos’’ to create a more 

seamless system for payment and 

delivery of post-acute care (PAC) under 

Medicare. This new model will be 

characterized by more consistent 

payments for the same type of care 

across different sites of service, quality 

driven pay-for-performance incentives, 

and collection of uniform clinical 

assessment information to support 

quality and discharge planning 

functions. We also noted that section 

5008 of the DRA provides for a 

demonstration on uniform assessment 

and data collection across different sites 

of service. We are in the early stages of 

developing a standard, comprehensive 

assessment instrument to be completed 

at hospital discharge and ultimately 

integrated with PAC assessments, and 

the demonstration will enable us to test 

the usefulness of this instrument, and to 

analyze cost and outcomes across 

different PAC sites. 

Comment: We received several 

comments from providers and their 

representatives or associations on the 

post-acute care reform demonstration 

discussion of the May 15, 2006 

proposed rule. Most of the commenters 

expressed support for the objective of 

aligning Medicare payment more closely 

with the clinical characteristics of postacute patients. A number of commenters 

recommended that developing a 

common patient assessment instrument 

should be developed collaboratively 

with post acute care providers. Many 

offered to provide insight on the 

demonstration design and the 

development of the instrument. The 

commenters noted that the instrument 

must be capable of taking into account 

the medical and resource needs of 

individual patients, such as functional 

ability and medical status. One 

commenter recommended use of the 

IRF–PAI. 

Response: Currently, we are in the 

early stages of designing the instrument 

and the demonstration. Although it is 

too early in the process to communicate 

specific details about either the 

instrument or the demonstration design, 

CMS is committed to including industry 

representatives in various stages of both 

efforts. We intend to convene technical 

advisory panels with industry 

representatives at several points in the 

project, including a panel to review the 

proposed assessment instrument once 

developed, and a panel to assist in 

recruiting providers for the 


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demonstration. We will provide status 

information on the progress of the 

instrument design as well as 

demonstration progress via CMS public 

Web sites, open door forums, and 

stakeholder meetings. Further, in 

accordance with section 5008(c) of the 

DRA, We plan to publish a Report to the 

Congress upon completion of the 

demonstration and the associated 

analysis. 

Comment: One commenter requested 

that CMS provide the rehabilitation 

industry with access to the University of 

Colorado study on uniform patient 

assessment. 

Response: We have made this report 

publicly available via our quality 

initiatives general information Web site, 

at http://www.cms.hhs.gov/ 

QualityInitiativesGenInfo/. 

B. Transparency and Health 

Information Technology Initiatives 

The FY 2007 Inpatient Prospective 

Payment Systems (IPPS) proposed rule 

(71 FR 23996, April 25, 2006) discussed 

in detail the Health Care Information 

Transparency Initiative and our efforts 

to promote effective use of health 

information technology (HIT) as a 

means of promoting health care quality 

and greater efficiency. The IPPS 

proposed rule also discussed several 

potential options for making pricing and 

quality information more readily 

available to the public (71 FR 24120 

through 24121). It solicited comments 

on ways to encourage transparency in 

health care quality and pricing, whether 

through voluntary incentives or through 

regulatory requirements, and sought 

comments on the Department’s statutory 

authority to impose these requirements. 

In addition, it discussed the potential 

for HIT to facilitate improvements in the 

quality and efficiency of health care 

services (71 FR 24100 through 24101), 

and the appropriate role of HIT in 

potential value-based purchasing 

programs. The IPPS proposed rule also 

invited comments on the promotion of 

the use of HIT through Medicare 

conditions of participation. 

Subsequently, in the FY 2007 IRF PPS 

proposed rule (71 FR 28134 through 

28135, May 15, 2006), we invited 

comments on the specific implications 

of these initiatives for the IRF PPS. We 

received a small number of comments in 

response to the FY 2007 IRF PPS 

proposed rule’s transparency and HIT 

discussions. However, as they are all 

generalized comments that are not 

specific to the IRF setting, we are 

inviting the commenters to refer to the 

FY 2007 IPPS final rule for full 

responses to comments received on the 

FY 2007 IPPS proposed rule’s 

comprehensive discussions of 

transparency and HIT. 

IX. Miscellaneous IRF PPS Public 

Comments 

Comment: We received numerous 

comments requesting that CMS make 

additional IRF data files and software 

available to the public. The commenters 

specifically requested wage index data, 

cost report data, IRF–PAI data, MEDPAR 

data, data on facility adjustments, data 

files such as those produced for IPPS 

hospitals, other data files that CMS uses 

in the analyses that support the 

proposed and final rules, and the 

software program or software algorithm 

used by the fiscal intermediaries to 

determine the 75 percent rule 

presumptive compliance percentage. 

Response: The data files mentioned 

by the commenters are generally 

available (and were generally available 

during the comment period for this final 

rule) to the public through CMS’

standard data distribution systems. 

More information on CMS’s data 

distribution policies is available on 

CMS’s Web site at http:// 

www.cms.hhs.gov/researchers/ 

statsdata.asp. 

Regarding the specific files that the 

commenters mentioned, we post the 

wage index files for the proposed and 

final rules each year on the IRF PPS 

Web site, along with the rate setting file. 

The cost report data are publicly 

available on the CMS Web site. The 

IRF–PAI and the MEDPAR data are 

generally available through CMS’

standard data distribution systems for 

patient-level data. We include the data 

that we use in our analysis regarding 

other facility-level adjustments in the 

IRF rate setting file that is posted on the 

IRF PPS Web sitein conjunction with 

each proposed and final rule. Data on 

IRF facility-level adjustments are also 

available for download from the CMS 

Web sitein a file called the providerspecific file. We also encourage IRFs to 

contact their fiscal intermediaries 

regarding the data used to compute 

payments for their particular facilities. 

We are in the process of developing 

user-friendly specifications for the 

software program used to determine 

presumptive compliance with the 75 

percent rule. In the near future, we will 

post the data specifications for the 

software program on the IRF PPS Web 

site. 

In addition, we will consult with the 

IPPS staff and examine the data files 

that are publicly distributed in 

conjunction with the IPPS proposed and 

final rules. Where feasible, we will 

make every effort to provide additional 

IRF data files that would be helpful to 

industry representatives and 

researchers. 

Comment: A few commenters 

requested that we provide clarification 

on the teaching status and full-time 

equivalent (FTE) resident cap of a 

facility that converts from a long-term 

care hospital (LTCH), or another type of 

inpatient facility, to an IRF. 

Response: We did not propose any 

changes to the IRF teaching status 

adjustment in the FY 2007 proposed 

rule. Thus, this comment is outside the 

scope of this final rule. However, we 

intend to issue future guidance on the 

teaching status of facilities that convert 

to IRFs in our standard contractor 

communication documents. We also 

intend to publish a provider education 

article on the CMS Medicare Learning 

Network (MLN), and post a clarification 

of this issue on the IRF PPS Web site. 

Comment: We also received other 

comments that are outside the scope of 

this final rule, such as support for the 

revisions to the rural and LIP 

adjustments that we implemented in the 

FY 2006 IRF PPS final rule. We also 

received a comment reiterating a 

number of concerns with the IRF 

classification revisions that were 

implemented in the FY 2006 IRF PPS 

final rule, particularly the weighted 

motor score methodology and the 

revised CMG definitions. 

Response: Although we did not 

propose any changes to the rural and 

LIP adjustments for FY 2007, we 

appreciate the commenters’ support for 

the changes that we implemented for FY 

2006. Regarding the commenter’s 

concerns about the weighted motor 

score methodology and the revisions to 

the CMG definitions implemented for 

FY 2006, we will carefully consider the 

issues raised by the commenter in our 

future analyses of the IRF classification 

system. 

Comment: We received a number of 

general comments on the 75 percent 

rule that are outside the scope of this 

final rule. For example, commenters 

urged CMS to conduct research to revise 

the conditions contained in the 75 

percent rule that are currently 

considered appropriate for treatment in 

an IRF, saying that these conditions are 

out of date and do not reflect current 

treatment practices. Commenters also 

urged CMS to conduct research to 

develop a new method for classifying a 

facility as an IRF. Until such research is 

completed and the 75 percent rule is 

updated, they requested that CMS stop 

enforcement of the current compliance 

criteria. The commenters generally 

stated that patients are denied access to 

care because of the 75 percent rule, and 

that patients receive better rehabilitation 


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care in an IRF due to better medical 

management. The commenters urged 

CMS to develop or fund research studies 

in conjunction with NIH, independent 

researcher, or industry consortiums. In 

addition to direct funding assistance, 

they recommended ways in which we 

could support these research efforts by 

either waiving enforcement of the 75 

percent rule or of local coverage 

determinations (LCDs) for facilities 

participating in research projects. 

Response: Because the 75 percent rule 

provisions in the proposed rule were 

limited to the compliance thresholds 

that IRFs must meet for certain cost 

reporting periods and the extension of 

the use of comorbidities in determining 

compliance for an additional cost 

reporting period (until the full 75 

percent compliance percentage becomes 

effective), these general comments on 

the 75 percent rule are outside of the 

scope of this final rule. We note that we 

responded to these and other similar 

comments in the May 7, 2004 (69 FR 

25752) final rule. However, we continue 

to be concerned with ensuring that 

patients have access to treatment in the 

most appropriate settings. Therefore, we 

will continue to monitor patients’ access 

to care carefully and will, as warranted, 

propose additional refinements to our 

policies in the future to ensure that 

patients continue to have appropriate 

access to care. 

In addition, we are committed to 

supporting the research effort through 

the development of a series of 

collaborative relationships. For 

example, we have collaborated with the 

National Center for Medical 

Rehabilitation Research (NCMRR) of the 

National Institute of Child Health and 

Human Development at the National 

Institutes of Health (NIH) in convening 

a panel of rehabilitation experts that 

reviewed the medical literature in order 

to provide guidance regarding the 

optimal approaches to research. This 

review found a paucity of relevant 

studies and confirmed the need for 

additional work to identify the benefits 

of IRF care for different types of patients 

and to collect comparative outcome data 

across care settings. Since that time, 

both CMS and NIH staff have worked 

with researchers in an informal advisory 

capacity to support industry efforts to 

design and run clinical studies. In fact, 

we recently met with the director of the 

NCMRR to discuss how NCMRR and 

CMS could collaborate in encouraging 

and sponsoring research, and are in the 

process of developing a set of 

appropriate research questions that can 

be used to establish a common focus for 

discussion and design of new studies. 

We were also pleased to learn that 

industry representatives are themselves 

providing financial support to new 

research efforts. We believe that by 

working together, we can foster clinical 

studies that meet NIH criteria, and that 

the results of these studies can be used 

to support a comprehensive review of 

CMS’s methods for classifying facilities 

as IRFs. 

Further, as discussed in section VIII of 

this final rule, CMS is exploring 

refinements to the existing provideroriented ‘‘silos’’ to create a more 

seamless delivery system for payment 

and delivery of post-acute care (PAC) 

under Medicare. The new model will be 

characterized by more consistent 

payments for the same type of care 

across different sites of service. We 

expect that the knowledge gained 

through this initiative will also help us 

to understand the similarities and 

differences among post-acute care 

settings. 

X. DMEPOS Competitive Bidding 

Implementation Provisions and 

Accreditation for DMEPOS Suppliers 

A. Implementation Contractor 

1. Legislative Provisions 

Section 1847(b)(9) of the Act provides 

that the Secretary may contract with 

appropriate entities to implement the 

Medicare DMEPOS Competitive Bidding 

Program. Section 1847(a)(1)(C) of the 

Act also authorizes the Secretary to 

waive such provisions of the Federal 

Acquisition Regulation (FAR) as are 

necessary for the efficient 

implementation of this section, other 

than provisions relating to 

confidentiality of information and such 

other provisions as the Secretary 

determines appropriate. 

2. Provisions of the May 1, 2006 

Proposed Rule 

In the May 1, 2006 proposed rule (71 

FR 25661), we proposed to designate 

one or more competitive bidding 

implementation contractors (CBICs) for 

the purpose of implementing the 

Medicare DMEPOS Competitive Bidding 

Program (proposed § 414.406(a)). In 

addition, we specified that the Secretary 

is exercising his authority under section 

1847(a)(1)(C) of the Act to waive all 

requirements of the FAR, other than 

provisions dealing with confidentiality, 

because of the need for expeditious 

implementation of a program of this 

significance and magnitude. However, 

we stated that the Secretary’s exercise of 

discretion on this issue would not 

preclude us from voluntarily using or 

adapting certain provisions of the FAR 

for purposes of the Medicare DMEPOS 

Competitive Bidding Program. 

We stated in the proposed rule that 

we envision that the Medicare DMEPOS 

Competitive Bidding Program will have 

six primary functions, including overall 

oversight, operation design functions 

(including the design of both bidding 

and outreach material templates, as well 

as program processes), bidding and 

evaluation, access and quality 

monitoring, outreach and education, 

and claims processing. We also stated 

that we considered the organizational 

structure and requirements necessary to 

conduct these functions, and chose to 

exercise our contracting authority under 

section 1847(b)(9) of the Act and 

contract with one or more CBICs to 

assist us with many of these functions. 

In the proposed rule, we described 

several options that we considered in 

designing the most appropriate 

framework for implementing the 

Medicare DMEPOS Competitive Bidding 

Program. As the implementation of 

competitive bidding involves many 

functions that are time limited and 

require specialized skills (for example, 

setting up bidding areas, reviewing bids, 

and setting single payment amounts), 

we believe that it would be prudent 

initially to implement most aspects of 

the Medicare DMEPOS Competitive 

Bidding Program through one or more 

CBICs. Processing of Medicare claims 

for most DMEPOS is currently done by 

two DME regional carriers (DMERCS) 

and two DME Medicare Administrative 

Contractors (DME MACs). We note that 

we are currently in the process of 

transitioning from DMERCs to DME 

MACs. For purposes of consistency, 

from this point forward, we will be 

referencing the DME regional carriers as 

DME MACs. Under our proposal, the 

DME MACs would process claims for 

DMEPOS items subject to competitive 

bidding. We also stated that we had 

evaluated the anticipated feasibility and 

cost of using one or more 

implementation contractors to assist us 

with implementing the Medicare 

DMEPOS Competitive Bidding Program, 

concentrating on the potential for 

capturing economies of scale and scope, 

program consistency, existing resources 

and infrastructure, and the viability of 

implementation under the timeframe 

mandated by section 1847(a)(1)(B) of the 

Act. 

We proposed to contract with one or 

more CBICs to conduct some program 

functions at a national level and interact 

with the DME MAC contractors. 

Specifically, we envisioned that the 

CBIC(s) would conduct certain 

functions related to competitive 

bidding, such as preparing the request 

for bids (RFB), performing bid 

evaluations, selecting qualified 


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suppliers, and setting single payment 

amounts for all competitive bidding 

areas. In addition, the CBIC(s) would be 

charged with educating the DME MACs 

on the bidding process and procedures. 

The CBIC(s) would also assist CMS and 

the DME MACs in monitoring program 

effectiveness, access, and quality. The 

DME MACs would continue to provide 

outreach and education to beneficiaries 

and suppliers in their regions, process 

claims, apply the single payment 

amounts set by the CBIC(s) for each 

competitive bidding area, and continue 

to be responsible for complaints related 

to claims processing. We would 

continue to be responsible for overall 

oversight as well as policy-related 

outreach and education to the CBIC(s), 

DME MACs, suppliers, and 

beneficiaries. 

We stated that in our view, this 

approach would achieve economies of 

scale, since the responsibility for 

producing program materials and 

evaluating bids would rest with the 

CBIC(s). As a result, we believed that 

this approach would both lower costs 

and ensure regional consistency in that 

the responsibility would not be divided 

between various entities. 

We also discussed two other 

alternatives that we had considered for 

implementation of the Medicare 

DMEPOS Competitive Bidding Program. 

The first was to have each DME MAC 

conduct competitive bidding in its 

respective area and be responsible for 

all activities related to competitive 

bidding. The second alternative was to 

have the CMS Consortium Contractor 

Management Officer (CCMO)/Regional 

Offices (RO) and DME MACs implement 

the program. However, we stated that 

we believed that by using one or more 

specialized CBICs, we could 

successfully implement and effectively 

manage this program. 

3. Public Comments Received and Our 

Responses 

Comment: Two commenters support 

our decision to use competitive bidding 

implementation contractor(s) to 

implement the program. Another 

commenter stated that selecting and 

announcing implementation contractors 

are essential tasks for starting the 

Medicare DMEPOS Competitive Bidding 

Program. 

Response: We agree. We expect to 

award one or more contracts to 

appropriate entities in order to assist us 

in implementing this program. 

Comment: Several commenters 

expressed concern that we proposed to 

use our authority under section 

1847(a)(1)(C) of the Act to waive all of 

the provisions of the Federal 

Acquisition Act (FAR), except those 

dealing with confidentiality of 

information. The commenters suggested 

that this waiver would lead to bidders 

using dishonest tactics and would result 

in inferior DMEPOS items and services 

being furnished to beneficiaries. 

Response: After considering these 

comments and the best interest of the 

program, we have decided to apply the 

FAR to the CBIC for this instance. In 

this final rule, we are only responding 

to comments as they relate to the 

procurement of CBIC services. Section 

1847(a)(1)(C) of the Act allows the 

Secretary to waive such provisions of 

the FAR as are necessary for the 

efficient implementation of the 

Medicare DMEPOS Competitive Bidding 

Program. We have determined that it is 

currently unnecessary for the efficient 

implementation of this program to 

waive the FAR to procure the CBIC(s) 

services. 

Comment: One commenter asserted 

that we should strictly limit the use of 

CBICs to ensure responsiveness to small 

businesses. The commenter expressed 

concern that there could be situations in 

which neither we nor the CBICs would 

be clearly responsible for making 

important decisions. Such situations 

could be particularly problematic for 

small businesses with limited resources. 

This commenter further stated that there 

must be appropriate oversight and 

accountability if we choose to proceed 

with the use of one or more CBICs. 

Response: We continue to believe that 

it is necessary and appropriate for us to 

use one or more CBIC(s) to assist in 

implementing the Medicare DMEPOS 

Competitive Bidding Program. We agree 

that it is important to establish clear 

lines of responsibility and 

accountability for the CBIC(s). As we 

indicated in the proposed rule, we will 

be responsible for overall oversight of 

the CBIC(s). We expect that the CBIC(s) 

will conduct certain functions, such as 

developing and implementing an 

ombudsman program to provide 

education and assistance to stakeholders 

involved in the program, and 

developing and implementing a 

monitoring process to ensure that 

complaints will be addressed and 

resolved in a timely manner. The CBIC 

duties will be fully detailed in the final 

CBIC contract(s). 

Comment: One commenter was 

unclear as to how the CBIC(s) and 

DMERCs will interact in terms of 

development of policy. The commenter 

noted that the contractors must work 

together, and with us, to ensure that 

beneficiaries have access to all of the 

recertification/retesting requirements 

that may be implemented as a result of 

competitive bidding. 

Response: We will require the CBIC(s) 

to develop and maintain strong 

relationships with all appropriate 

Medicare contractors to ensure that all 

interested parties have the necessary 

education and access to the 

requirements and guidelines set forth 

for the Medicare DMEPOS Competitive 

Bidding Program. We also intend to 

work closely with the CBIC(s) and to 

engage in our own efforts to educate 

suppliers on the specifics of this 

program. In terms of the interaction 

between the CBIC(s) and the DME 

MACS, we have previously stated that 

the CBIC(s) will be responsible for 

certain functions related to competitive 

bidding, such as preparing the request 

for bids, performing bid evaluations, 

and setting single payment amounts for 

items furnished under the program, and 

the DME MACs will be responsible for 

claims processing. Although the CBIC(s) 

and the DME MACs will be interacting 

on a number of functions, such as 

educating the public about the program 

and conducting monitoring activities, 

we would be responsible for overall 

oversight and policy development under 

the program. To the extent that the 

commenter referenced recertification/ 

retesting requirements, we believe that 

the commenter is referring to the need 

for physicians and treating practitioners 

to, on some occasions, provide new 

documentation and certification to a 

supplier that a DMEPOS item furnished 

to a beneficiary remains medically 

necessary. We would like to clarify that 

we are not developing recertification or 

retesting requirements for the Medicare 

DMEPOS Competitive Bidding Program, 

and that the implementation of the 

program would not change or alter any 

existing certification requirements. 

Comment: One commenter noted that 

the CBIC is a vital part of the entire 

process and that suppliers need to know 

more about the credentialing process for 

the CBIC and what type of authoritative 

power it will possess. 

Response: As noted above, we will 

follow FAR requirements and engage in 

a full and open competition to procure 

the CBIC services in this instance. We 

will also provide the CBIC(s) with 

guidelines and roles for implementing 

the competitive bidding program. Also, 

as we noted above, we will monitor and 

review all CBIC functions on a 

consistent basis to ensure that the 

CBIC(s) is performing its intended 

functions. In addition, we will be 

providing an intensive education 

program for suppliers to inform them 

about the Medicare DMEPOS 

Competitive Bidding Program. This 


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educational program will inform 

suppliers in the competitive bidding 

areas about the Medicare DMEPOS 

Competitive Bidding Program as well as 

functions of the CBIC(s). 

Comment: One commenter noted that 

we should utilize multiple CBICs to 

ensure that correct and effective 

implementation of the competitive 

bidding program is guaranteed and that 

cost savings to the Medicare program is 

a priority. 

Response: We appreciate the 

comment and will take it into 

consideration as we evaluate the most 

cost-efficient and productive way to 

procure CBIC services. 

Comment: One commenter requested 

that we define the quantitative, 

objective measures and evaluation tools 

that the CBIC(s) will use in evaluating 

the bids submitted by suppliers. 

Response: Bid evaluation 

methodology will be addressed in a 

future rulemaking. We will ensure that 

the CBIC uses appropriate 

methodologies and tools to evaluate 

bids. 

Comment: One commenter 

recommended that we eliminate 

regional inconsistencies and that the 

CBIC should be established, structured, 

and managed to ensure national 

consistency. 

Response: We agree. When we 

implement the competitive bidding 

program, it is our goal to implement it 

consistently in each competitive 

bidding area. We will accomplish this 

by requiring the CBIC(s) to apply the 

same methodologies and policies that 

are adopted for the Medicare DMEPOS 

Competitive Bidding Program in each 

competitive bidding area. 

Comment: Several commenters 

recommended that we ensure that any 

CBIC entity avoids any potential conflict 

of interest. Several commenters gave the 

same example of a conflict of interest as 

the CBIC also being a private payor that 

negotiates directly with DME suppliers 

in a managed care context. 

Response: We agree that we should 

take steps in procuring CBIC services to 

ensure that the CBIC(s) do not have any 

potential conflicts of interest that could 

interfere with their ability to fulfill their 

contract obligations. For example, we 

plan to specify in the CBIC contract that 

the CBIC contractor shall not, 

throughout the duration of the contract, 

use information received as a result of 

the Medicare DMEPOS Competitive 

Bidding Program for any purpose other 

than for purposes of fulfilling its 

contract obligations, unless that 

information is otherwise publicly 

available. We believe it is in the best 

interest of the public as well as the 

Federal government that there are no 

conflicts of interest between the CBIC(s) 

and other entities. 

Additionally, we note that the FAR, in 

Subpart 9.5, Organizational and 

Consultant Conflicts of Interest (OCI) 

requires the contracting officer to 

identify, evaluate, neutralize, or mitigate 

any potential OCIs prior to award. The 

FAR Subpart seeks to avoid any conflict 

of interest that, among other 

considerations, will bias a contractor’s 

judgment. 

Comment: Several commenters asked 

a variety of questions related to the 

CBIC selection process and performance 

evaluation. Specifically, one commenter 

asked what criteria will be used to select 

the CBIC. Another commenter asked 

how CMS would audit the CBIC’s 

performance. Another commenter asked 

what the service expectations were of 

the CBIC relative to educating the 

DMERCs and suppliers. 

Response: As noted in our response to 

a previous comment, we are currently 

following the requirements of the FAR 

in procuring and monitoring the 

CBIC(s). Some examples of the CBIC 

functions and service expectations were 

discussed above and will be addressed 

in the final CBIC contract(s). We will 

evaluate the CBIC performance in 

accordance with the FAR and agency 

procedures annually and at the time the 

work under the contract(s) is completed. 

Final Decision: After consideration of 

the public comments received, we are 

finalizing at this time two paragraphs of 

proposed § 414.406. First, we are 

finalizing proposed § 414.406(a), which 

allows us to designate one or more 

CBICs for the purpose of implementing 

the Medicare DMEPOS Competitive 

Bidding Program. Second, we are 

finalizing proposed § 414.406(e), which 

codifies our proposal to have the 

regional carrier (now referred to as a 

DME MAC) that would otherwise be 

processing claims for a particular 

geographic region also process claims 

for items furnished under a competitive 

bidding program in the same geographic 

region. We will respond to any 

comments that we receive on our 

proposals related to proposed 

§§ 414.406(b)–(d), as well as comments 

that relate to other issues related to 

implementing the Medicare DMEPOS 

Competitive Bidding Program in a 

future rulemaking. 

B. Education and Outreach 

1. Supplier Education 

In the May 1, 2006 proposed rule (71 

FR 25683 through 25684), we provided 

a discussion of our plans to undertake 

a proactive education campaign to 

provide all suppliers with information 

about the Medicare DMEPOS 

Competitive Bidding Program, bidding 

timelines, and bidding and program 

requirements. We stated that the goal of 

this campaign is to make it as easy as 

possible for suppliers to submit bids. 

To ensure that suppliers have timely 

access to accurate information on 

competitive bidding, we stated that we 

planned to instruct the CBIC and the 

DME MACs to provide early education 

and resources to suppliers, referral 

agents, beneficiaries, and other 

providers who service a competitive 

bidding area. Customer service support, 

ombudsman networks, and the claims 

processing system would all be used to 

notify and educate all parties regarding 

competitive bidding. The CBIC(s) would 

be instructed to utilize data analysis in 

tailoring outreach to those that will be 

directly affected by competitive bidding. 

We also indicated that, after the 

release of bidding instructions, we 

would hold bidders conferences that 

would provide an open forum to 

educate suppliers and allow us to 

disseminate additional information. We 

stated that more information on the 

bidders conferences and other 

competitive bidding activities would be 

available on our Web site at http:// 

www.cms.hhs.gov/center/dme.asp. We 

note that this is an updated Web site 

address that is different from the one 

that was listed in the proposed rule. 

We additionally indicated that each 

DME MAC would include discussions 

and updates on competitive bidding as 

part of its existing outreach 

mechanisms. We stated that the 

fundamental goal of our supplier 

educational outreach is to ensure that 

those who supply DMEPOS products to 

Medicare beneficiaries receive the 

information they need in a timely 

manner so that they have an 

understanding of the program and our 

expectations. 

Comment: One commenter agreed 

with our overall plan to use the CBIC, 

regional carriers, customer service 

support, and the claims processing 

system to notify and educate all parties 

regarding competitive bidding. 

Response: We appreciate this 

comment. We continue to expect to use 

these resources as part of our education 

and outreach efforts. 

Comment: One commenter suggested 

that we conduct extensive outreach to 

the supplier community so that 

suppliers can understand what is 

required of them in submitting bids. 

Other commenters expressed concern 

about our ability to communicate with 

suppliers within the initial ten MSAs 

and with suppliers that may have small 


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operations within an MSA but may be 

part of a larger organization located 

outside of that MSA. 

Response: We plan to conduct an 

extensive education and outreach 

campaign to educate suppliers about the 

Medicare DMEPOS Competitive Bidding 

Program and to facilitate understanding 

of competitive bidding implementation 

efforts. We are committed to educating 

suppliers about this program as part of 

our ongoing educational efforts. Bidders 

conferences will be part of the 

educational process for those suppliers 

that are interested in bidding. At these 

conferences, we expect to provide 

information about the Medicare 

DMEPOS Competitive Bidding Program, 

such as technical details about the 

bidding forms and the process for 

submitting bids. These conferences will 

be open to all suppliers interested in 

learning the bid submission process, 

regardless of whether they are located in 

one of the ten initial areas that we 

designate as competitive bidding areas. 

In addition, we plan to utilize other 

educational tools, which may include a 

Medicare Learning Network Webpage 

dedicated to DMEPOS competitive 

bidding, contractor bulletins, etc., to 

disseminate information about the 

program as widely as possible. Further, 

we plan to work closely with the 

CIBC(s) that we designate, as well as the 

DME MACs, so that they are properly 

equipped to both educate suppliers 

about the program and to respond to 

questions. 

Comment: One commenter urged us 

to include specific educational 

requirements that address each of the 

components that will be included in the 

composite bid that will create the single 

payment amount for each item. The 

commenter noted that such components 

would include, for example, the cost of 

equipment, training, supplies, 

transportation of the device, and 

beneficiary education on safe use of the 

equipment, etc. The commenter was 

concerned that if suppliers are not 

educated regarding what to include in 

their bids, then they might not submit 

bids that actually reflect all of the 

components that make up the safe 

operation of a piece of durable medical 

equipment in a beneficiary’s home. 

Response: We agree that all suppliers 

must be educated on what is to be 

included in their bid prices for 

competitively bid products. As part of 

our education and outreach campaign, 

we will inform suppliers of the items 

and services that they should include in 

their bids, such as training, supplies, 

transportation of the device, beneficiary 

education on safe use of the equipment, 

etc. 

Comment: One commenter agreed that 

bidders conferences should be held to 

provide an open forum for suppliers to 

exchange information with us. One 

commenter requested information on 

the logistics for the bidders conferences. 

A commenter suggested that it might be 

helpful to allow suppliers who will be 

introduced to competitive bidding in 

2009 to speak with those suppliers who 

were introduced in 2007. 

Response: We will provide logistical 

information about bidders conferences 

as soon as it becomes available. We 

expect to make this information 

available on the CMS Web site and 

elsewhere, as appropriate. The purpose 

of the bidders conferences is to provide 

information about the Medicare 

DMEPOS Competitive Bidding Program, 

such as technical details about the 

bidding forms and the process for 

submitting bids. However, we encourage 

suppliers that participate in competitive 

bidding in 2007 to share their 

experiences with suppliers that plan to 

participate in future competitive 

bidding rounds. 

Comment: One commenter suggested 

that the CMS Web sitebe revamped to 

make it more user-friendly, in order for 

beneficiaries to easily access 

publications. 

Response: We recognize the 

importance of having a high-quality, 

helpful Web site. We plan to make our 

Web site as user-friendly as possible. 

Comment: A commenter 

recommended that the PAOC review 

any educational materials that relate to 

the DMEPOS Competitive Bidding 

Program to ensure that appropriate 

communications are sent to suppliers. 

Response: The Program Advisory and 

Oversight Committee (PAOC) meets 

periodically to review policy 

considerations and issues that we are 

considering with respect to the 

Medicare DMEPOS Competitive Bidding 

Program. The PAOC will continue to be 

available to provide us with advice until 

the end of 2009. We are using the PAOC 

for advice on implementation of the 

program and intend to take PAOC 

advice we have received into 

consideration when developing 

educational materials. Additional 

information about the PAOC can be 

found at 71 FR 25658. 

Comment: Several commenters 

suggested that competitive bidding 

education must be provided to 

suppliers’ referral sources, such as home 

health agencies, health insurance 

companies, HMOs, hospitals, physical 

and occupational therapists, and others. 

The commenters also believed that we 

should hold educational sessions for 

suppliers to ensure consistency in the 

way beneficiaries are educated and in 

the information they are provided. They 

suggested that we provide materials that 

can be used by suppliers to educate 

beneficiaries effectively about the 

Medicare DMEPOS Competitive Bidding 

Program. Additionally, they indicated 

that we should not depend solely on 

either suppliers or our Web siteto 

educate beneficiaries and that we 

should hold town hall meetings in each 

competitive bidding area (CBA) to 

ensure that beneficiaries and referral 

sources are knowledgeable about the 

competitive bidding program. One 

commenter requested that we 

collaborate with industry groups to 

develop appropriate communications to 

be sent to suppliers to minimize 

confusion in the supplier community. 

One commenter suggested that we make 

a concerted effort to educate noncontract suppliers in an MSA and 

suppliers in non-competitively bid 

areas. 

Response: We plan to conduct an 

extensive education and outreach 

campaign to educate beneficiaries, 

suppliers, and referral agents about the 

Medicare DMEPOS Competitive Bidding 

Program. Our outreach strategy will be 

designed to ensure that information is 

consistent, readily available, and 

disseminated through a variety of 

information sources. We discuss our 

plans for beneficiary education in 

section X.B.2 of this final rule. 

2. Beneficiary Education 

As we stated in the May 1, 2006 

proposed rule (71 FR 25684), the 

Medicare DMEPOS Competitive Bidding 

Program will have an impact on the 

beneficiaries who receive DMEPOS 

items in a competitive bidding area 

(CBA). Competitive bidding represents a 

new way for Medicare beneficiaries to 

receive their DMEPOS products and for 

setting payment for DMEPOS items; 

therefore, we believe that education is 

important to the success of the program. 

We outlined our plans to educate 

beneficiaries utilizing numerous 

approaches. For example, we stated that 

our press office might consider creating 

press releases and fact sheets for each 

CBA. In addition, notices could provide 

summaries of competitive bidding, 

background information, and objectives 

of the competitive bidding program. 

Publications might also be available on 

the CMS Web sites, and from local 

contractors and the DME MACs. 

We stated that we believe it is 

important for beneficiaries to learn 

about the benefits of the Medicare 

DMEPOS Competitive Bidding Program, 

such as lower out-of-pocket expenses 

and increased quality of products, from 


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suppliers that have completed the 

detailed selection process that CMS will 

require under the program. We also 

expect that the implementation of 

quality standards and accreditation 

requirements for DMEPOS suppliers 

will result in higher quality items and 

services being furnished to 

beneficiaries. 

Comment: A few commenters stated 

that they appreciate our commitment in 

providing a proactive education 

approach. One commenter indicated 

that beneficiary education will be 

critical to the success of the program. 

Response: We agree with the 

commenters and recognize the 

importance of an extensive education 

and outreach campaign to educate 

beneficiaries, suppliers, and referral 

agents about the DMEPOS Medicare 

Competitive Bidding Program. 

Comment: One commenter 

encouraged us to provide beneficiary 

education and outreach for beneficiaries 

with diabetes. The commenter noted 

that ensuring that beneficiaries have 

access to their diabetic supplies and 

remain compliant with their diabetes 

self-management programs, as well as 

ensuring that beneficiaries understand 

the proper procedures for obtaining 

supplies while away from home, are two 

areas where aggressive education and 

outreach efforts are needed. 

Response: We agree that a 

comprehensive education program is 

necessary to ensure the success of the 

Medicare DMEPOS Competitive Bidding 

Program. We plan to conduct an 

aggressive education and outreach 

campaign for all beneficiaries, including 

those who have diabetes, to ensure that 

they understand competitive bidding 

and have sufficient access to contract 

suppliers that can furnish the items they 

need. 

Comment: A commenter indicated 

that many Medicare beneficiaries 

temporarily change their residences 

during the course of a year, and thus 

may find themselves outside of a 

specified competitive bidding area for 

several months at a time. The 

commenter urged us to establish a 

system to ensure that all beneficiaries 

will continue to have access to their 

suppliers even while residing outside of 

their permanent domiciles. 

The commenter suggested that this 

plan should require that suppliers 

aggressively educate beneficiaries on the 

proper procedures for obtaining their 

supplies while away from home, and 

should allow beneficiaries to purchase 

extra supplies for extended vacations or 

temporary changes of residence. 

Further, the commenter noted that this 

plan should allow beneficiaries to 

purchase their supplies from noncontract suppliers in the event of an 

emergency. 

Response: We expect that our 

educational program will address the 

issue of beneficiaries who temporarily 

change their residence during the course 

of the year. We will address in a future 

final rule the portions of this comment 

pertaining to emergency situations and 

the proposed policy for ensuring that 

beneficiaries who maintain a permanent 

residence in a competitive bidding area 

but travel outside the area have 

sufficient access to items while 

traveling. 

Comment: One commenter stated that 

CMS should clearly specify in the final 

rule, or require CBICs to identify, the 

necessary telephone and internet 

resources that beneficiaries may use to 

raise questions and concerns related to 

the competitive bidding program. 

Response: We agree that beneficiaries 

need to have access to appropriate 

resources on the Medicare DMEPOS 

Competitive Bidding Program. We note 

that we are in the process of developing 

our education and outreach campaign. 

We expect to identify appropriate 

telephone and internet resources for 

beneficiaries to use, which may include 

1–800–MEDICARE and 

www.medicare.gov. Future guidance on 

this will be forthcoming as we move 

into the education and outreach phase 

of competitive bidding. 

Comment: Some commenters 

recommended that a comprehensive 

education process be organized and put 

in place before implementation of the 

Medicare DMEPOS Competitive Bidding 

Program. A commenter stated that 

competitive bidding will drastically 

alter the way beneficiaries receive 

needed medical products and supplies. 

Response: We plan to conduct an 

educational campaign for suppliers, 

beneficiaries, and referral agents before 

we begin the Medicare DMEPOS 

Competitive Bidding Program. We agree 

that this program may change the way 

beneficiaries receive needed DMEPOS 

items and the payment amount for these 

items, but note that beneficiaries will 

continue to have sufficient access to 

needed DMEPOS items and services 

under the program. 

Comment: A few commenters stated 

concerns about the enormity of 

communicating to all referral sources 

and our ability to communicate 

effectively with beneficiaries, 

particularly when they are traveling. A 

commenter believed that beneficiaries 

will not understand the DMEPOS 

Competitive Bidding Program. The 

commenter requested that we define 

and publish plans for communicating 

information about implementing the 

program. 

Response: Our outreach strategy will 

have a consistent message that is readily 

available and disseminated using a 

variety of tools, techniques, and 

informational sources. We also expect to 

use appropriate educational resources to 

educate beneficiaries on the specifics of 

the program. These resources might 

include 1–800–MEDICARE and 

www.medicare.gov. In addition, we are 

exploring the possibility of working 

with beneficiary organizations and local 

groups to conduct beneficiary outreach 

and develop beneficiary-focused 

communications. We also plan on 

coordinating a proactive outreach 

campaign at the national, regional and 

state levels in which we expect to 

provide accurate, reliable, relevant, and 

understandable information about the 

Medicare DMEPOS Competitive Bidding 

Program. Through these activities, we 

anticipate being able to sufficiently 

educate beneficiaries on what they need 

to know in order to obtain DMEPOS 

items and services under the program. 

Comment: One commenter indicated 

that special attention should be given to 

inner city, minority, and low income 

populations who may be more difficult 

to contact than the population at large. 

Response: We understand that 

Medicare beneficiaries are an extremely 

diverse population with different 

educational needs. We will consider 

this diversity in developing and 

implementing our education and 

outreach program. 

Comment: One commenter 

recommended that we publish supplier 

customer satisfaction survey results 

and/or statistics on quality measures to 

assist beneficiaries in making informed 

decisions regarding contract supplier 

selection. The commenter also stated 

that we should not mislead beneficiaries 

by stating that one focus of our 

education efforts toward beneficiaries 

will be the increased quality of products 

that beneficiaries will be receiving as a 

result of competitive bidding. 

Response: We will be monitoring 

beneficiary satisfaction under the 

Medicare DMEPOS Competitive Bidding 

Program and are in the process of 

determining how best to measure it. We 

expect that implementing DMEPOS 

quality standards and accreditation will 

lead to increased quality of items and 

services throughout the DMEPOS 

industry. Therefore, we believe it is 

accurate to indicate in our education 

campaign that beneficiaries will receive 

improved quality DMEPOS items and 

services under the Medicare DMEPOS 

Competitive Bidding Program. We also 

note that we expect to see this improved 


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quality not just in the DMEPOS items 

and services that are furnished by 

contract suppliers under the Medicare 

DMEPOS Competitive Bidding Program, 

but in the items and services furnished 

by all accredited DMEPOS suppliers. 

Comment: A commenter suggested 

that we should target direct mail or 

disseminate information through highMedicare-volume physician offices 

rather than through expensive direct-toconsumer television or media 

advertising. A commenter suggested that 

we rely on the homecare supplier 

community to educate beneficiaries. 

Response: We are in the process of 

finalizing our education and outreach 

plan. We will consider the suggestion to 

engage physicians and the homecare 

supplier community in our efforts to 

disseminate information through 

physicians as we move forward with 

this plan. However, we note that the 

education and outreach strategy will 

have a consistent message that is readily 

available and disseminated through a 

variety of tools, techniques, and 

information sources. 

Comment: One commenter suggested 

that we use webinars (interactive Webbased seminars) and teleconferences to 

provide education on the competitive 

bidding program. The commenter 

suggested that the education and 

outreach program start sooner rather 

than later. 

Response: We are in the process of 

finalizing our education and outreach 

campaign and will consider using 

webinars and teleconferences as part of 

our overall approach to disseminate 

information as widely as possible. We 

expect to disseminate our message 

timely through a variety of tools, 

techniques, and informational sources. 

Comment: A commenter expressed 

concern that beneficiaries would not 

know about the implications of the 

DMEPOS Competitive Bidding Program 

until such time as they attempt to obtain 

a particular item. Since many 

beneficiaries are not able to go to a 

pharmacy, the commenter observed that 

we have a significant challenge in 

educating beneficiaries and their 

caregivers about the program. The 

commenter also asserted that 

beneficiaries should know that the type 

and quality of DMEPOS items and 

services they receive under the program 

might be different from the ones they 

are currently using. The commenter 

added that beneficiary education 

materials should provide information on 

these important facts, and not just on 

the benefits of competitive bidding. 

Response: Our objective will be to 

inform beneficiaries timely about all of 

the changes that will affect them as a 

result of the Medicare DMEPOS 

Competitive Bidding Program. We are 

aware of the challenges we face in 

ensuring that beneficiaries understand 

the program prior to attempting to 

obtain items. As we have noted above, 

our outreach strategy is to create a 

consistent message that is disseminated 

through a variety of tools, techniques 

and information sources. We also expect 

that as a result of implementing quality 

standards and accreditation 

requirements for all DMEPOS suppliers, 

including suppliers that participate in 

competitive bidding, beneficiaries will 

be able to obtain high quality DMEPOS 

items and services under the program. 

C. Quality Standards for Suppliers of 

DMEPOS 

Section 302(a)(1) of the MMA added 

section 1834(a)(20) to the Act, which 

requires the Secretary to establish and 

implement DMEPOS quality standards 

for suppliers of certain items, including 

consumer service standards, to be 

applied by recognized independent 

accreditation organizations. Suppliers of 

DMEPOS must comply with the quality 

standards in order to furnish any item, 

for which payment is made under Part 

B, and to receive and retain a supplier 

billing number used to submit claims 

for reimbursement for any such item for 

which payment may be made under 

Medicare. Section 1834(a)(20)(D) of the 

Act requires us to apply these DMEPOS 

quality standards to suppliers of the 

following items for which we deem the 

DMEPOS quality standards to be 

appropriate: 

• Covered items, as defined in section 

1834(a)(13) of the Act, for which 

payment may be made under section 

1834(a); 

• Prosthetic devices and orthotics and 

prosthetics described in section 

1834(h)(4)of the Act; and 

• Items described in section 

1842(s)(2) of the Act, which include 

medical supplies; home dialysis 

supplies and equipment; therapeutic 

shoes; parenteral and enteral nutrients, 

equipment, and supplies; 

electromyogram devices; salivation 

devices; blood products; and transfusion 

medicine. 

Section 1834(a)(20)(E) of the Act 

explicitly authorizes the Secretary to 

establish the DMEPOS quality standards 

by program instruction or otherwise 

after consultation with representatives 

of relevant parties. After consulting with 

a wide range of stakeholders, we 

determined that it was in the best 

interest of the industry and beneficiaries 

to publish the DMEPOS quality 

standards through program instructions 

and select the accreditation 

organizations in order to ensure that 

suppliers that want to participate in 

competitive bidding will know what 

DMEPOS quality standards they must 

meet in order to be awarded a contract. 

After consultation with a wide range 

of stakeholders, we published the draft 

DMEPOS quality standards on the CMS 

Web site at http://www.cms.hhs.gov/ 

CompetitiveAcqforDMEPOS/ and 

provided for a 60-day public comment 

period. We received more than 5,600 

public comments on the draft quality 

standards. After careful consideration of 

all comments, these quality standards 

will be published shortly on the CMS 

Web site. They will be available at 

http://www.cms.hhs.gov/ 

competitiveAcqforDMEPOS/. The 

DMEPOS quality standards will become 

effective for use as part of the 

accreditation selection process when 

posted on the Web site. The quality 

standards will be applied by the 

accreditation organizations, and all 

suppliers of DMEPOS and other items to 

which section 1834(a)(20) of the Act 

applies will be required to meet them as 

part of the accreditation process. 

As is authorized under section 

1834(a)(20)(E)of the Act, we will be 

establishing the DMEPOS quality 

standards through program instruction 

and will publish them on our Web site. 

Although we previously stated that we 

would propose to address DMEPOS 

supplier requirements for enrollment 

and enforcement procedures in a future 

rule, we do not plan on issuing another 

rule concerning these issues at this time. 

Comment: Several commenters 

expressed concern that the quality 

standards had not yet been issued in 

final form. One commenter stated that 

issuing final quality standards and 

selecting accreditation organizations are 

essential tasks for starting the 

competitive bidding program. A 

commenter requested that we extend the 

comment period on the May 1, 2006 

proposed rule for 120 days so that the 

commenter could develop detailed 

responses to a number of issues raised 

in the proposed rule, including the 

finalization of quality standards and the 

impact of the proposed rule on 

coordination of care. Other commenters 

suggested that we should provide 

additional time for suppliers to analyze 

the quality standards in conjunction 

with our proposed rule on competitive 

bidding and to identify criteria we will 

use to identify accrediting bodies. 

Response: We agree that the quality 

standards are a key factor in ensuring 

the success of the Medicare DMEPOS 

Competitive Bidding Program. We have 

provided for extensive opportunity for 

public input on the quality standards. In 


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addition to seeking the advice of the 

Program Advisory and Oversight 

Committee (PAOC), discussed in more 

detail in the May 1, 2006 proposed rule 

at 71 FR 25658, we posted the draft 

quality standards on our Web site on 

September 26, 2005 for a public 

comment period that ended November 

28, 2005. After careful consideration of 

all comments, these quality standards 

will be published on the CMS Web site 

at http://www.cms.hhs.gov/ 

competitiveAcqforDMEPOS/. The 

DMEPOS quality standards will become 

effective for use as part of the 

accreditation selection process when 

posted on the Web site. We believe that 

this public process provided sufficient 

opportunity for stakeholders to 

comment on the draft quality standards 

and do not believe that granting an 

extension of the comment period on the 

May 1, 2006 proposed rule or additional 

time to comment on the draft quality 

standards themselves is necessary. 

Comment: Several commenters 

suggested that we not implement 

competitive bidding until we issue 

quality standards and select 

accreditation organizations. 

Commenters also specifically suggested 

that we should not select the 10 MSAs 

for the first phase of competitive 

bidding until we issue quality standards 

and select accreditation organizations. 

Response: As noted earlier, we expect 

to issue the quality standards in the near 

future. We expect to identify the 10 

competitive bidding areas in which 

competitive bidding will take place after 

we publish a future final rule on the 

Medicare DMEPOS Competitive Bidding 

Program. Our proposals for selecting 

accreditation organizations are 

discussed in section X.D of this final 

rule. 

Comment: A commenter 

recommended that we base our quality 

standards on the existing standards used 

by the Accreditation Commission for 

Health Care (ACHC), Community Health 

Accreditation Program (CHAPS), and 

Joint Commission on Accreditation of 

Healthcare Organizations (JCAHO). One 

commenter encouraged us to include 

diabetes management experts in the 

development of the DMEPOS quality 

standards. 

Response: These comments appear to 

concern the substantive nature of the 

draft quality standards that were 

developed and published on our Web 

site on September 26, 2005. We expect 

to respond to all the comments that we 

received on the draft DMEPOS quality 

standards in an accompanying 

document that will be published shortly 

on the CMS Web site at http:// 

www.cms.hhs.gov/ 

competitiveAcqforDMEPOS/. The 

DMEPOS quality standards will become 

effective for use as part of the 

accreditation selection process when 

posted on the Web site. 

Comment: Seven commenters 

supported the implementation of quality 

standards, while others opposed the 

implementation of additional quality 

standards and accreditation 

requirements. Another commenter 

suggested that quality standards should 

be appropriate, realistic, and clearly 

defined. 

Response: We appreciate the 

comments that expressed support for 

the establishment and implementation 

of DMEPOS quality standards, which is 

mandated by section 1834(a)(20) of the 

Act. We have worked collaboratively 

with a wide range of stakeholders to 

ensure that the quality standards are 

reflective of best industry practices for 

business and beneficiary services. 

Comment: One commenter 

recommended that CMS provide its 

proposed revisions to the draft quality 

standards to the Program Advisory and 

Oversight Committee (PAOC) for review 

and comment before adopting these 

standards in final form. The commenter 

also recommended that CMS use these 

final standards to identify appropriate 

accreditation organizations for DMEPOS 

suppliers. 

Response: These comments appear to 

concern the substantive nature of the 

draft quality standards that were 

developed and published on our Web 

site on September 26, 2005. We expect 

to respond to all the comments that we 

received on the draft DMEPOS quality 

standards in an accompanying 

document that will be published shortly 

on the CMS Web site at http:// 

www.cms.hhs.gov/ 

competitiveAcqforDMEPOS/. 

D. Accreditation for Suppliers of 

DMEPOS and Other Items 

Section 1834(a)(20)(B) of the Act 

requires the Secretary, notwithstanding 

section 1865(b) of the Act, to designate 

and approve one or more independent 

accreditation organizations to apply the 

DMEPOS quality standards to suppliers 

of DMEPOS and other items. Section 

1865(b) of the Act sets forth the general 

procedures for CMS to designate 

national accreditation organizations that 

can deem suppliers to meet Medicare 

conditions of participation or coverage 

if they are accredited by a national 

accreditation organization approved by 

CMS. Certain limited types of suppliers 

have a choice between having the State 

agency or the CMS-approved 

accreditation organization survey them 

pursuant to our regulation at § 488.6. If 

such suppliers select the CMS-approved 

accreditation organization and meet the 

accreditation organization’s standards, 

we deem them to have met the Medicare 

conditions of participation or coverage. 

We are responsible for the oversight and 

monitoring of the State agencies and the 

approved accreditation organizations. 

The procedures, implemented by the 

Secretary, for designating non-DMEPOS 

accreditation organizations and the 

Federal review process for accreditation 

organizations are located at parts 422 

(for Medicare Advantage organizations) 

and 488 (for most providers and certain 

suppliers). 

To accommodate DMEPOS suppliers 

that wish to participate in the Medicare 

DMEPOS Competitive Bidding Program, 

we will phase-in the accreditation 

process and give preference to 

accreditation organizations to prioritize 

their surveys to accredit suppliers in the 

selected competitive bidding areas. We 

will specify the approval submission 

procedures for accreditation 

organizations to accredit DMEPOS 

suppliers after this rule is finalized. 

Section 1847(b)(2)(A)(i) of the Act 

specifies that a contract may not be 

awarded to any entity unless the entity 

meets applicable DMEPOS quality 

standards specified by the Secretary 

under section 1834(a)(20) of the Act. 

Any DMEPOS supplier seeking to 

participate in the Medicare DMEPOS 

Competitive Bidding Program will need 

to satisfy the DMEPOS quality standards 

issued under section 1834(a)(20) of the 

Act. In addition, section 1834(a)(20) of 

the Act gives us the authority to 

establish through program instructions 

or otherwise DMEPOS quality standards 

for all suppliers of DMEPOS and other 

items, including those who do not 

participate in competitive bidding, and 

to designate one or more independent 

accreditation organizations to 

implement the DMEPOS quality 

standards. 

In the May 1, 2006 proposed rule (71 

FR 25684), to ensure the integrity of 

suppliers’ businesses and products, we 

proposed to revise § 424.57 of our 

existing regulations and add a new 

§ 424.58. 

E. Special Payment Rules for Items 

Furnished by DMEPOS Suppliers and 

Issuance of DMEPOS Supplier Billing 

Privileges (§ 424.57) 

In accordance with sections 

1834(a)(20) and 1834(j)(1)(B)(ii)(IV) of 

the Act, in the May 1, 2006 proposed 

rule (71 FR 25685), we proposed to 

revise § 424.57 to specify in a proposed 

new paragraph (c)(22) that all suppliers 

of DMEPOS and other items be 

accredited by a CMS-approved 


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accreditation organization to receive 

and retain a supplier billing number. 

We proposed the following definitions 

under § 424.57(a): ‘‘CMS-approved 

accreditation organization’’ would mean 

a recognized independent accreditation 

organization approved by CMS under 

§ 424.58; an ‘‘Accredited DMEPOS 

supplier’’ would mean a supplier that 

has been accredited by a recognized 

independent accreditation organization 

meeting the requirements of and 

approved by CMS in accordance with 

§ 424.58; and an ‘‘Independent 

accreditation organization’’ would mean 

an accreditation organization that 

accredits a supplier of DMEPOS and 

other items and services for a specific 

DMEPOS product category or a full line 

of DMEPOS product categories. 

Comment: Four commenters 

supported our proposed requirement at 

§ 424.57(c)(22) that all DMEPOS 

suppliers be accredited by a CMSapproved accreditation organization in 

order to receive a supplier number. One 

commenter expressed concern that some 

accreditation organizations might be 

unsuitable to accredit DMEPOS 

suppliers because these organizations 

have a hospital and home health 

nursing orientation and lack an 

understanding of how suppliers 

function, while another commenter 

noted that currently, the standards of 

accreditation organizations vary greatly. 

Another commenter stated that they 

were uncertain as to how CMS planned 

to proceed with its accreditation process 

for the retail pharmacy industry and to 

conform to standards not yet developed 

for a retail pharmacy or mail order 

pharmacy. Another commenter asked 

whether we had selected accreditation 

organizations. 

Response: We will take into 

consideration the uniqueness of the 

DMEPOS environment by considering 

proposals from those accreditation 

organizations that can demonstrate their 

skills, knowledge, and ability, to survey 

the DMEPOS supplier industry. We 

hope to receive proposals from those 

accreditation organizations that have 

experience with specialized supplies 

(such as orthotics and prosthetics) or 

supplier types (such as pharmacies and 

physicians’ offices). 

Comment: Several commenters noted 

that the costs of meeting quality 

standards and accreditation 

requirements will cause suppliers to 

furnish inexpensive equipment and that 

some suppliers of purchased equipment 

will not provide service that 

beneficiaries are not trained to perform. 

Response: We believe that the 

DMEPOS quality standards represent 

basic good business practices and that 

meeting the DMEPOS quality standards 

will result in improved quality of items 

and services furnished to Medicare 

beneficiaries. Approving accreditation 

organizations that only accredit one 

supplier type gives a small business 

owner the opportunity to reduce its 

accreditation cost. In the impact 

analysis, we have assumed costs to be 

on the average of $3,000 over a 3-year 

period. 

Comment: One commenter 

recommended that we require all 

suppliers to receive accreditation. 

Another commenter stated that 

currently an accrediting body would 

consider a new location of an accredited 

supplier to be accredited without 

conducting an on-site visit. The 

commenter recommended that CMS 

make an allowance for this situation and 

consider any new location associated 

with an already-accredited supplier to 

qualify for the immediate issuance of a 

Medicare supplier number, followed up 

by a subsequent accreditation survey. 

Response: We agree and will require 

enrolled, accredited DMEPOS suppliers 

to notify their accreditation 

organizations when a new location is 

opened. The accrediting organization of 

the enrolled DMEPOS supplier may 

accredit the new supplier location for 

three months after it is operational 

without a site visit. 

Comment: Commenters suggested that 

a supplier should not be required to be 

reaccredited each time that it elects to 

add a new product line. 

Response: We disagree and are 

requiring that a DMEPOS supplier 

disclose upon enrollment all products 

and services for which they are seeking 

accreditation. Thus, if a new product 

line is added after enrollment, the 

supplier must notify the accrediting 

body of the new product or service so 

that the supplier can be re-surveyed and 

accredited for these new products or 

services. 

After consideration of the public 

comments received, we are finalizing 

our proposal with modifications. We 

have modified § 424.57(c)(22), to clarify 

that all suppliers of DMEPOS and other 

items and services must be accredited 

by a CMS-approved accreditation 

organization in order to receive and 

retain a supplier billing number. The 

accreditation must indicate the specific 

products and services for which the 

supplier is accredited in order for the 

supplier to receive payment for those 

specific products and services. 

We added a new provision at 

§ 424.57(c)(23), requiring that DMEPOS 

suppliers must notify their accreditation 

organizations when a new DMEPOS 

location is opened. The accreditation 

organization may accredit the new 

supplier location for three months after 

it is operational without visiting the 

new site visit. 

We added a new provision at 

§ 424.57(c)(24), which requires that all 

DMEPOS supplier locations, whether 

owned or subcontracted, must meet the 

DMEPOS quality standards and be 

separately accredited in order to bill 

Medicare. An accredited supplier can be 

denied enrollment or their enrollment 

could be revoked, if we determined that 

they were not in compliance with the 

DMEPOS quality standards. 

We have added a new provision at 

§ 424.57(c)(25), requiring that all 

DMEPOS suppliers must disclose upon 

enrollment all products and services, for 

which they are seeking accreditation. If 

a new product line or service is added 

after enrollment, the supplier will be 

responsible for notifying the accrediting 

body of the new product so that the 

supplier can be re-surveyed and 

accredited for these new products. 

F. Accreditation (§ 424.58) 

In accordance with section 

1834(a)(20) of the Act, in the May 1, 

2006 proposed rule (71 FR 25685 and 

25702), we proposed to add a new 

§ 424.58(a) and (b) to set requirements 

for CMS-approved accreditation 

organizations in the application of the 

quality standards to suppliers of 

DMEPOS and other items. 

To promote consistency in accrediting 

suppliers throughout the Medicare 

program, we proposed to use existing 

criteria (with modifications) for the 

application, reapplication, selection, 

and oversight of accreditation 

organizations detailed at 42 CFR Part 

488 and apply them to organizations 

accrediting suppliers of DMEPOS and 

other items. We proposed to require an 

independent accreditation organization 

applying for approval or reapproval of 

deeming authority to—

• Identify the types of DMEPOS 

supplies and services for which the 

organization is requesting approval. 

• Provide CMS with a detailed 

comparison of the organization’s 

accreditation requirements and 

standards with the applicable Medicare 

DMEPOS quality standards (for 

example, a crosswalk); 

• Provide a detailed description of 

the organization’s survey processes, 

including procedures for performing 

unannounced surveys, frequency of the 

surveys performed, copies of the 

organization’s survey forms, guidelines 

and instructions to surveyors, and 

quality review processes for deficiencies 

identified with accreditation 

requirements; 


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48394 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 

• Describe the decision-making 

processes and describe procedures used 

to notify suppliers of compliance or 

noncompliance with the accreditation 

requirements; 

• Describe procedures used to 

monitor the correction of deficiencies 

found during the survey; and 

• Describe procedures for 

coordinating surveys with another 

accrediting organization if the 

organization does not accredit all 

products that the supplier provides. 

In the proposed rule, we indicated 

that we would request detailed 

information about the professional 

background of the individuals who 

perform surveys for the accreditation 

organization, including: The size and 

composition of accreditation survey 

teams for each type of supplier 

accredited; the education and 

experience requirements that surveyors 

must meet; the content and frequency of 

the continuing education training 

provided to survey personnel; the 

evaluation systems used to monitor the 

performance of individual surveyors 

and survey teams; and policies and 

procedures for a surveyor or 

institutional affiliate of an accrediting 

organization that participates in a 

survey or accreditation decision 

regarding a DMEPOS supplier with 

which this individual or institution is 

professionally or financially affiliated. 

We also indicated that we would 

request a description of the 

organization’s data management, 

analysis, and reporting system for its 

surveys and accreditation decisions, 

including the kinds of reports, tables, 

and other displays generated by that 

system. We would require a description 

of the organization’s procedures for 

responding to and investigating 

complaints against accredited facilities 

including policies and procedures 

regarding coordination of these 

activities with appropriate licensing 

bodies, ombudsman programs, National 

Supplier Clearinghouse, and with CMS; 

a description of the organization’s 

policies and procedures for notifying 

CMS of facilities that fail to meet the 

requirements of the accrediting 

organization; a description of all types, 

categories, and duration of accreditation 

decisions offered by the organization; a 

list of all currently accredited suppliers; 

a list of the types and categories of 

accreditation currently held by each 

supplier; a list of the expiration date of 

each supplier’s current accreditation; 

and a list of the next survey cycles for 

all DMEPOS suppliers’ accreditation 

surveys scheduled to be performed by 

the organization. 

We proposed that we would require 

the accreditation organization to submit 

the following supporting 

documentation: 

• A written presentation that would 

demonstrate the organization’s ability to 

furnish CMS with electronic data in 

ASCII-comparable code. 

• A resource analysis that would 

demonstrate that the organization’s 

staffing, funding, and other resources 

are sufficient to perform the required 

surveys and related activities. 

• An acknowledgement that the 

organization would permit its surveyors 

to serve as witnesses if CMS took an 

adverse action against the DMEPOS 

supplier based on the accreditation 

organization’s findings. 

We proposed to survey accredited 

suppliers from time to time to validate 

the survey process of a DMEPOS 

accreditation organization (validation 

survey). These surveys would be 

conducted on a representative sample 

basis or in response to allegations of 

supplier noncompliance with DMEPOS 

quality standards. When conducted on a 

representative sample basis, we 

proposed that the survey would be 

comprehensive and address all 

Medicare DMEPOS quality standards or 

would focus on a specific standard. 

When conducted in response to an 

allegation, we proposed that the CMS 

survey team would survey for any 

standard that we determined was 

related to the allegations. If the CMS 

survey team substantiated a deficiency 

and determined that the supplier was 

out of compliance with the DMEPOS 

quality standards, we proposed to 

revoke the supplier billing number and 

reevaluate the accreditation 

organization’s approved status. We 

proposed to require a supplier selected 

for a validation survey to authorize the 

validation survey to occur and to 

authorize the CMS survey team to 

monitor the correction of any 

deficiencies found through the 

validation survey. We proposed that if 

a supplier selected for a validation 

survey failed to comply with the 

requirements at § 424.58(b)(4), it would 

no longer be deemed to meet the 

DMEPOS quality standards and its 

supplier billing number would be 

revoked. 

Comment: Commenters stated that it 

would be difficult for accreditation 

organizations to survey timely the large 

number of suppliers, with commenters 

noting that the accreditation process can 

take six to 12 months. A commenter 

noted that it was unclear whether any 

of the accrediting bodies would be 

willing or able to meet our requirements 

to be a CMS-approved accreditation 

organization. A commenter stated that it 

would be difficult for suppliers to 

become accredited before the bidding 

process began. Commenters requested 

that CMS provide sufficient time after it 

identifies accreditation organizations for 

suppliers to become accredited. 

Response: Our DMEPOS quality 

standards for use by accreditation 

organizations are streamlined and 

require less resources to implement than 

are currently used by some accreditation 

organizations. We believe that the 

quality standards that have been 

developed are appropriate, realistic, and 

clearly defined. 

Comment: Several commenters 

suggested that we ‘‘grandfather’’

suppliers already accredited by 

organizations that we select as 

accreditation organizations, while 

another commenter opposed such 

‘‘grandfathering,’’ stating that only 

suppliers that receive accreditations 

which address our revised quality 

standards should be allowed to contract 

under the bidding program. Some 

commenters suggested that CMS should 

grandfather any organization that meets 

minimal accreditation standards, even if 

that organization is not ultimately 

selected as an accrediting organization 

or if the standards used are not totally 

consistent with the standards required 

by CMS. 

Response: We recognize the need to 

provide an alternative mechanism to 

accommodate currently accredited 

suppliers. As stated in the proposed rule 

we will provide further guidance on a 

process to accredit DMEPOS suppliers 

that currently maintain an accreditation 

with an accreditation organization. 

Comment: One commenter argued 

that the role of the Medicare National 

Supplier Clearinghouse (NSC) should be 

limited to reviewing complaints 

regarding non-compliance, conducting 

spot checks for compliance with the 

accreditation standards, and issuing 

supplier numbers based on 

accreditation verification. 

Response: We appreciate this 

comment; however, this rule does not 

address the role of the NSC. 

Comment: One commenter observed 

that most enteral patients are in longterm care facilities. Most of these 

patients receive enteral nutrition from 

suppliers that focus only on the longterm care market. The commenter 

believed that the proposed rule would 

require enteral nutrition suppliers to be 

accredited for compliance with the Part 

B standards, even though those 

standards do not apply to the patients 

they serve. The commenter stated that 

the provision of enteral nutrition to 

patients who qualify for the home 


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health benefit would not be subject to 

the new Part B standards. Another 

commenter stated that manufacturers of 

customized ocular prosthetics are 

excluded from the accreditation 

requirements that we proposed at 

§ 424.58 because these items are not 

included in proposed § 414.402. Several 

commenters stated that CMS should 

deem pharmacies, occupational 

therapists, physical therapists and 

ophthalmologists as accredited because 

of the licensure and education 

requirements that they already fulfill 

and because their role as a supplier is 

inextricably linked to their professional 

service. Another commenter stated that 

skilled nursing homes should be 

excluded from the implementation of 

this rule. 

Response: The Secretary may 

implement standards for such items and 

services listed at 1834(a)(20)(D) as he 

deems appropriate. The Secretary has 

decided to implement quality standards 

for all such items and services. 

Comment: Several commenters noted 

that the accreditation process is costly, 

with estimates ranging from two 

thousand to 20 thousand dollars. They 

noted that accreditation was expensive 

and burdensome to many DMEPOS 

suppliers, including small suppliers, 

rural suppliers, pharmacies, non-mail 

order suppliers with small numbers of 

employees, suppliers that furnish 

supplies to a high percentage of 

beneficiaries that live nearby, suppliers 

with a small volume of Medicare 

business, or a limited line of supplies 

(such as diabetic supplies). Several of 

these commenters suggested exempting 

suppliers with these characteristics from 

the accreditation requirement or 

creating a two-tier system with less 

expensive and burdensome alternatives 

to current accreditation fees. One 

commenter suggested that hospitals and 

other health care suppliers with 

certified DME programs should not be 

required to acquire new certification 

until the current certification expires. 

One commenter suggested making 

accreditation mandatory to keep the 

quality standards consistent. 

Response: We do not have the 

statutory authority to exempt any 

categories of suppliers under section 

1834(a)(20) of the Act except insofar as 

the Secretary exempts specific DMEPOS 

items and services under (20)(D). 

Suppliers must meet our DMEPOS 

quality standards as applied by 

approved accreditation organizations 

pursuant to section 1834(a)(20)(B) of the 

Act. We hope that approving many 

DMEPOS accreditation organizations 

will induce competition and decrease 

cost. 

Comment: One commenter questioned 

why CMS could not deem between one 

and three already-existing accrediting 

organizations to meet its expectations 

and then require any supplier that 

wishes to participate in competitive 

acquisition to become accredited by one 

of those three organizations. One 

commenter suggested modifying 

§ 424.58(b) by adding special categories 

for orthotics and prosthetics and 

pedorthics accrediting organizations. 

Response: We do want to receive 

applications from existing 

organizations. However, in order to 

accommodate the large number of 

DMEPOS suppliers that need to be 

accredited in order to bid, we must 

allow a variety of organizations to 

become accreditation organizations. We 

believe § 424.58(b) does include 

categories such as orthotics and 

prosthetics and pedorthics. Therefore in 

order to accommodate small and 

specialty suppliers, we hope to receive 

applications from small or specialty 

accrediting firms that will be able to 

accredit these specialty suppliers at a 

reduced cost. 

Comment: One commenter indicated 

that CMS should require accrediting 

bodies to submit their conflict of 

interest disclosure policies, since some 

surveyors also have consulting 

businesses that may conflict with 

certain clients. 

Response: We agree and have added 

this requirement. 

Comment: Two commenters stated 

that the process for the validation 

survey of suppliers should be outlined 

in greater detail in the regulation’s 

preamble to include the survey 

frequency, who will perform the 

surveys, and the methodology used to 

determine the validation sample. 

Response: We plan to issue further 

guidance regarding the validation 

survey process through program 

instructions. 

Comment: One commenter stated that 

proposed 42 CFR 424.58(b)(3) is 

redundant and confusing to specify ‘‘If 

CMS discovers a deficiency and 

determines that the DMEPOS supplier is 

out of compliance with Medicare 

quality standards, * * *.’’. 

Response: We agree and we have 

revised the language appropriately. 

Comment: One commenter stated that 

it is unclear what is meant by the use 

of the term ‘‘subsequent full 

accreditation survey’’ and that there is 

no statutory authority that would permit 

CMS to specify that the accreditation 

organization perform a survey at its own 

expense. 

Response: ‘‘Subsequent full 

accreditation survey’’ is a type of survey 

that may be performed by the 

accreditation organization if CMS 

determines that the DMEPOS supplier is 

out of compliance with the Medicare 

DMEPOS quality standards. The 

statutory authority for this requirement 

is found in Section 1834(a)(20)(B), 

which permits the Secretary to utilize 

his discretion in deciding the terms 

under which accreditation organizations 

will be approved to accredit DMEPOS 

suppliers. 

Comment: One commenter suggested 

that the CMS oversight provision should 

be clarified to describe: Who is eligible 

to be ‘‘a designated survey team;’’ the 

methodology for selecting suppliers for 

the CMS survey; and detailed 

information on how the disparity rate 

will be calculated. The commenter also 

suggested that we clarify what is meant 

by ‘‘disparity between findings that 

constitute immediate jeopardy to patient 

health and safety’’ and ‘‘widespread or 

systemic problems in an organization’s 

process.’’

Response: In order to accommodate 

the dynamics of the survey process and 

the ever-changing needs of the DMEPOS 

suppliers, we plan to issue the specifics 

of our oversight strategies in program 

instructions. 

Comment: Two commenters stated 

that accrediting bodies do not currently 

notify ombudsman programs or NSC of 

unfavorable accreditation decisions. The 

commenter stated that any such notice 

process should be preceded by or 

include an appropriate appeal and cure 

process for suppliers to access prior to 

any punitive action being taken 

(Although the commenter didn’t specify 

the exact organization that he believed 

would take such punitive action). A 

mediation process must be included in 

the overall plan so that an accreditation 

organization would have a channel for 

appealing CMS’s validation survey 

findings. 

Response: We agree and we have 

added the requirement that the 

accreditation organizations provide a 

copy of their dispute resolution policies 

and or appeals policies/procedures to 

CMS. Additionally, we plan to provide 

a venue for accreditation organizations 

and suppliers to resolve conflicts about 

deficiency findings. We will issue 

further guidance on this process through 

program instructions. 

Comment: One commenter submitted 

detailed information on the nature of 

the commenter’s organization and the 

specific accreditation costs that it 

incurs, and argued that unless a 

supplier has already undergone an 

accreditation process, it cannot properly 

estimate its costs associated with 

seeking and maintaining accreditation 


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and, therefore, it cannot submit an 

accurate bid to CMS. 

Response: We appreciate this 

information. We have utilized this 

information in our analysis of the rule’s 

financial impact on DMEPOS suppliers. 

Comment: One commenter suggested 

that CMS should have a supplier’s 

accrediting organizations conduct 

follow-up visits with the supplier on 

any allegation of supplier 

noncompliance with quality standards. 

The commenter asserted that the 

Program Integrity Unit’s (PIU’s) current 

plan of auditing only high-volume, 

claims-generating DMEPOS suppliers 

creates a situation where those suppliers 

are audited over and over again, with 

largely successful outcomes, while 

smaller suppliers that may not be 

following Medicare guidelines go 

unaudited for many years. They noted 

that audits represent a large 

administrative burden for suppliers, and 

those that pass successfully should be 

moved on to some kind of 

representative sampling methodology to 

ensure ongoing compliance. The 

commenter suggested that if the PIU 

continues its current sampling 

methodology, it will continue to 

overlook those suppliers that are more 

likely to be violating rules and 

regulations than the ones that have high 

volume and pass audits successfully 

time after time. 

Response: We appreciate the 

comment regarding activities of the 

Program Integrity Units (PIUs). 

(Although the commenter didn’t specify 

the exact organization to which he was 

referring, we assume the commenter 

means CMS’s Program Integrity Unit, 

which is a branch of CMS’s Office of 

Financial Management). However, the 

PIU’s role is to ensure that claims 

submitted for Medicare reimbursement 

are covered, correctly coded and are 

reasonable and necessary based on the 

clinical condition of the patient. PIUs 

are not responsible for ensuring 

compliance with DMEPOS quality 

standards. 

Comment: One commenter asked 

whether CMS would set ethical conduct 

standards for an accreditation 

organization’s dispute-resolution 

process when suppliers challenged such 

organization’s adverse findings. This 

commenter suggested that the hearing 

process for the accreditation 

organizations needs to be formal and 

involve a more independent, objective 

mediator than one that is appointed by 

the CMS Administrator. The commenter 

indicated that the hearing process 

should allow for testimony and other 

evidence to be accepted and admissible 

under the usual rules of court 

procedures. 

Response: We understand the 

commenter’s concerns about the fair and 

objective process when there is a 

dispute over the accreditation findings. 

We will be asking accreditation 

organizations to address their practices 

for dispute resolution in their CMS 

approval application. 

Comment: A commenter indicated 

that the accreditation process should 

include reasonable mechanisms that the 

accrediting organization must use to 

identify those suppliers which are not 

in compliance with minimum 

competency requirements. The 

commenter recommended adding a 

description of the organization’s method 

for determining the process that 

surveyors would utilize to assess 

compliance with each accreditation 

standard, including a description of 

how the organization would translate 

surveyor observations into a score for 

each accreditation standard; how that 

score would aggregate into an overall 

score; and how that score would 

identify competent suppliers. 

Response: We agree with the 

commenter’s suggestion but believe it is 

best implemented through guidance. We 

plan to utilize many of these processes 

as well as those that are consistent with 

existing accreditation procedures 

identified in Part 488. 

Comment: Commenters recommended 

that each accrediting organization 

should be compelled to demonstrate 

that it has the knowledge and 

experience necessary to properly 

classify suppliers and measure their 

organizational performance in the 

specific product and service types. 

Response: We agree and we will 

address eligibility criteria through 

future program instructions. 

Comment: Commenters argued that 

the two-calendar day requirement for 

reporting non-compliance to CMS under 

§ 424.58(c)(4) is an unreasonable 

standard because it failed to recognize 

holidays and weekends as periods when 

complying with this requirement would 

be problematic. They suggested that it is 

more reasonable for CMS to require this 

critical notification via any format 

within five business days. They further 

requested CMS to identify those specific 

standards with which noncompliance 

would rise to the level of posing 

immediate jeopardy to a beneficiary or 

to the general public. 

Response: We disagree with the first 

part of the comment as we believe that 

two calendar days is a reasonable 

standard and is consistent with our 

current survey requirements. 

‘‘Immediate jeopardy to a beneficiary or 

to the public’’ is determined by criteria 

set by the accreditation organization. 

We will review these criteria at the time 

of the application process. 

Comment: Some commenters noted 

that it takes 6 months to prepare for an 

initial survey and 4 months for an 

ongoing survey. They added that a 

supplier going through accreditation for 

the first time will need 10 to 12 months 

to complete that process. The 

commenters observed that CMS should 

expect it to take a minimum of one year 

for some suppliers to complete the 

accreditation process and become 

officially accredited. 

Response: Our DMEPOS quality 

standards for use by accreditation 

organizations are streamlined and 

require less resources to implement than 

are currently used by some accreditation 

organizations. We believe that the 

quality standards that have been 

developed are appropriate, realistic, and 

clearly defined. We are requiring that 

accreditation organizations perform 

unannounced surveys. This will assist 

in reducing the survey process 

timeframe and cost. 

Comment: Commenters requested us 

to clarify the relationship between 

accreditation organizations and CMS 

complaint investigation more broadly. 

In particular, when a supplier 

organization is deemed to be in full 

compliance with the quality standards 

and the 21 supplier standards by an 

approved accreditation organization, the 

commenters asked whether CMS will be 

permitted to separately revoke or 

suspend a supplier’s participation status 

if CMS determines that the supplier was 

not in compliance with these 

requirements. 

Response: We will be providing 

further guidance on the relationship 

between accreditation organizations and 

CMS complaint investigations in 

program instructions. However, if a 

complaint or validation survey 

discovered serious deficiencies CMS 

could revoke the supplier’s billing 

number in accordance with 

§ 424.58(b)(3). 

Comment: Commenters observed that 

the regulation requiring applicants to 

submit a lengthy history of companies 

that it has accredited would not allow 

new companies to enter the market in a 

timely manner. 

Response: We understand the 

commenter’s concern. This history will 

not give an existing organization an 

advantage over a new organization. We 

will be considering all new and 

established accrediting organizations 

equally during the review process. 

Comment: Some commenters asserted 

that requiring full disclosure of an 


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accreditation report for each accredited 

supplier constitutes an invasion of 

privacy regarding the supplier and 

would be a breach of proprietary 

information. They asked under what 

authority CMS could require full 

disclosure about customers of a private 

business. 

Response: We disagree with this 

comment. We are not requiring 

accreditation organizations to provide 

information about suppliers not 

participating in Medicare, and 

enrollment for a supplier number is 

strictly voluntary. However, in order to 

ensure that accreditation organizations 

are correctly implementing CMS quality 

standards, we believe that having access 

to supplier-specific information will be 

necessary. 

After consideration of the public 

comments received, we are adopting as 

final with modifications the provisions 

under the proposed new § 424.58(a) and 

(b), containing the application and 

reapplication procedures for CMSapproved accreditation organizations in 

the application of the DMEPOS quality 

standards to suppliers of DMEPOS and 

other items. 

As part of their application process, 

accreditation organizations must 

provide CMS with a detailed 

description of their dispute resolution 

process to allow DMEPOS suppliers the 

opportunity to appeal negative survey 

findings or decisions. We have added a 

new provision at § 424.58(b)(1)(iii) to 

require accreditation organizations to 

have a policy and procedure in place to 

allow DMEPOS suppliers to dispute a 

negative accreditation survey or survey 

findings. This process is consistent with 

existing processes under part 422. 

In response to public comments, we 

have revised the provision at 

§ 424.58(b)(3) to state that if CMS 

discovers a supplier was not in 

compliance with the DMEPOS supplier 

quality standards, CMS may revoke the 

supplier’s billing number or require the 

accreditation organization to perform a 

subsequent full accreditation survey at 

the accreditation organization’s 

expense. 

We have also revised § 424.58(b)(6) to 

indicate that if a validation survey 

results in a finding that the supplier was 

not in compliance with one or more 

DMEPOS quality standards, the supplier 

no longer meets the DMEPOS quality 

standards and may have its supplier 

billing number revoked. 

G. Ongoing Responsibilities of CMSApproved Accreditation Organizations 

In this final rule, we require that 

DMEPOS independent accreditation 

organizations approved by CMS 

undertake the following activities on an 

ongoing basis: 

• Provide to CMS in written form and 

on a monthly basis all of the following: 

++ Copies of all accreditation surveys 

along with any survey-related 

information that CMS may require 

(including corrective action plans and 

summaries of CMS requirements that 

are not met). 

++ Notice of all accreditation 

decisions. 

++ Notice of all complaints related to 

suppliers of DMEPOS and other items. 

++ Information about any supplier of 

DMEPOS and other items for which the 

accreditation organization has denied 

the supplier’s accreditation request. 

++ Notice of any proposed changes in 

its accreditation standard, requirements, 

or survey processes. If the accreditation 

organization implemented the changes 

before or without CMS approval, CMS 

has the authority to withdraw its 

approval of the accreditation 

organization. 

• Submit to CMS (within 30 days of 

a change in CMS quality standard 

requirements): 

++ An acknowledgment of CMS’s 

notification of the change; 

++ A revised crosswalk reflecting the 

new DMEPOS quality standard 

requirements; and 

++ An explanation of how the 

accreditation organization would alter 

its standards to conform to CMS’s new 

requirements, within the timeframes 

specified by CMS in the notification. 

• Permit its surveyors to serve as 

witnesses if CMS takes an adverse 

action against a supplier based on 

accreditation findings. 

• Provide CMS with written notice of 

any deficiencies and adverse actions 

implemented by the independent 

accreditation organization against an 

accredited DMEPOS supplier within 2 

calendar days of identifying these 

deficiencies, if these deficiencies pose 

immediate jeopardy to a beneficiary 

and/or the general public. 

• Provide CMS with written policies 

and procedures to ensure that DMEPOS 

suppliers are accredited every 3 years. 

• Provide written notice of CMS’s 

withdrawal of the accreditation 

organization’s approval to all accredited 

suppliers within 10 calendar days of 

receipt of CMS’s withdrawal notice. 

• Provide, on an annual basis, 

summary data specified by CMS that 

related to the past year’s accreditation 

activities and trends. 

Comment: One commenter suggested 

that the guidelines proposed in 

§ 424.58(c) were unreasonable. 

Response: We disagree. Section 

424.58(c) addresses the ongoing 

responsibilities of a CMS-approved 

accreditation organization. This section 

provides requirements with which the 

accreditation organization must comply 

on an ongoing basis in the application 

of the DMEPOS quality standards to 

suppliers of DMEPOS and other items. 

Comment: Three commenters 

indicated that requiring notice of all 

complaints related to suppliers of 

DMEPOS and other items and services 

is overly broad and burdensome, and 

that section 424.58(c)(1)(iii) is 

redundant with § 424.58(c)(1)(iv) and 

should be eliminated. 

Response: These provisions are not 

redundant. Section 424.58(c)(1)(iii) 

requires that accreditation organizations 

provide a notice or listing of all 

complaints received. Section 

424.58(c)(1)(iv) requires that an 

accreditation organization provides 

information on the outcomes of the 

remedial and adverse actions that it 

takes against the suppliers that it 

accredits. 

Comment: One commenter indicated 

that requiring approved accreditation 

organizations to provide copies of all 

written surveys, corrective action plans, 

and summaries represent a significant 

paperwork burden to the accrediting 

organization and CMS. 

Response: We disagree, and note that 

in order for us to ensure the integrity of 

the DMEPOS accreditation program 

these requirements are necessary and 

are consistent with existing 

accreditation requirements for providers 

and suppliers under part 488. 

Comment: One commenter indicated 

that scoring methodologies differ 

amongst the three accrediting 

organizations and slightly different 

standards and requirements may be 

assessed. Without an executive 

summary written by either the 

accrediting organization or the supplier 

itself, CMS might find itself unable to 

interpret the results of the survey 

accurately. 

Response: We agree and we are 

requiring the accreditation organizations 

to describe their decisionmaking 

process to reduce misinterpretation of 

survey findings. We also note that the 

accreditation organizations must submit 

a crosswalk to their own standards as 

part of the application process. 

Comment: One commenter requested 

that CMS provide a reasonable 

timeframe for itself in which to review 

an accreditation organization’s request 

for change under § 424.58(c)(1)(v). The 

commenter recommended that CMS 

commit to respond to any proposed 

change within 60 days of submission by 

the approved accrediting organization. 


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Response: We plan to provide a 

reasonable timeframe in which we will 

review an accrediting organization’s 

request for change and will outline this 

timeframe through program 

instructions. 

Comment: Two commenters indicated 

that though they thought it was 

reasonable for CMS to expect the 

accrediting organizations to inform the 

agency of changes in standards, it was 

unreasonable to penalize the 

organization by withdrawing its 

approval if it implemented the changes 

before or without CMS’ approval. 

Response: We disagree and believe 

that this requirement is essential to 

ensure that appropriate DMEPOS 

standards are being utilized by 

accreditation organizations. 

Comment: A commenter requested 

clarification on what constitutes 

‘‘written format’’ in § 424.58(c)(1). 

Response: We will clarify in the 

regulation text that written format 

means either hard copy or electronic 

format. 

Comment: One commenter suggested 

amending § 424.58(c)(5) by inserting the 

word ‘‘business’’ between ‘‘10’’ and 

‘‘days’’ and that notice should be 

required only after CMS has issued a 

final determination that approval is to 

be withdrawn. 

Response: We agree that this 

requirement should be clarified but that 

notice should be more prompt than 10 

business days. Therefore, we will revise 

the regulation to add the word 

‘‘calendar’’ between the words ‘‘10’’ and 

‘‘days’’. 

After consideration of the public 

comments received, we are adopting as 

final with modifications the following: 

We have modified § 424.58(c)(1) to 

clarify that written format means either 

hard copy or electronic format. 

We have revised § 424.58(c)(2) and (5) 

to add the word ‘‘calendar’’ before the 

word ‘‘days’’. 

H. Continuing Federal Oversight of 

Approved Accreditation Organizations 

Section 424.58(d) establishes specific 

criteria and procedures for continuing 

oversight and for withdrawing approval 

of an accreditation organization. 

1. Equivalency Review 

We will compare the accreditation 

organization’s standards and its 

application and enforcement of those 

standards to the comparable CMS 

quality standard requirements and 

processes when: CMS imposes new 

requirements or changes its survey 

process; an accreditation organization 

proposes to adopt new quality standards 

or changes in its survey process; or the 

term of an accreditation organization’s 

approval expires. 

2. Validation Survey 

A CMS survey team will conduct a 

survey of the accreditation organization, 

examine the results of the accreditation 

organization’s own survey procedure 

onsite, or observe the accreditation 

organization’s survey, in order to 

validate the organization’s accreditation 

process. At the conclusion of the 

review, we will identify any 

accreditation programs for which 

validation survey results indicate: 

• A 10 percent rate of disparity 

between findings by the accreditation 

organization and findings by CMS on 

standards that do not constitute 

immediate jeopardy to patient health 

and safety if not met; 

• Any disparity between findings by 

the accreditation organization and 

findings by CMS on standards that 

constitute immediate jeopardy to patient 

health and safety if not met; or 

• Widespread or systemic problems 

in the organization’s accreditation 

processes such that the accreditation of 

the DMEPOS supplier no longer 

provides assurance that the supplier 

meets or exceeds the Medicare 

requirements, irrespective of the rate of 

disparity. 

3. Notice of Intent To Withdraw 

Approval for Deeming Authority 

If an equivalency review, validation 

review, onsite observation, or our 

concerns with the ethical conduct of the 

accreditation organization suggest that 

the accreditation organization is not 

meeting the requirements of § 424.58, 

we will provide the accreditation 

organization with written notice of our 

intent to withdraw approval of the 

accreditation organization’s deeming 

authority. We will collaborate with the 

DMEPOS accreditation organization in 

order to transition those DMEPOS 

suppliers to a new accreditation 

organization. 

4. Withdrawal of Approval for Deeming 

Authority 

We will withdraw approval of an 

accreditation organization at any time if 

we determine that: accreditation by the 

organization no longer guarantees that 

the suppliers of DMEPOS and other 

items met the DMEPOS quality 

standards and that the failure to meet 

those standards poses or may 

potentially pose an immediate jeopardy 

to the health or safety of Medicare 

beneficiaries or constitutes a significant 

hazard to public health; or the 

accreditation organization fails to meet 

its obligations for application and 

reapplication procedures. 

Comment: One commenter suggested 

that the term ‘‘guarantees’’ should be 

replaced by ‘‘adequate assurance’’ since 

the latter term more appropriately 

represents the process of accreditation 

in that accreditation can provide such 

assurance that the quality standards are 

met but cannot ‘‘guarantee’’ such an 

assertion. 

Response: We will clarify this in the 

regulation text. After consideration of 

public comments received, we are 

adopting as final with modifications the 

following: 

We have modified § 424.58(d)(4)(i) to 

utilize the term ‘‘adequately assures’’

that, rather than ‘‘guarantees’’. The 

modified provision now states 

‘‘Accreditation by the organization no 

longer adequately assures that the 

suppliers of DMEPOS and other items 

and services are meeting the DMEPOS 

quality standards, and that failure to 

meet those standards could jeopardize 

the health or safety of Medicare 

beneficiaries and could constitute a 

significant hazard to the public health.’’

I. Reconsideration 

If an accreditation organization is 

dissatisfied with a CMS determination 

that its accreditation requirements do 

not provide or no longer provide 

reasonable assurance that the entities 

accredited by such organization meet 

the applicable DMEPOS supplier quality 

standards, such organization would be 

entitled to reconsideration of that 

determination. We will reconsider any 

determination to deny, remove, or not 

renew the approval of deeming 

authority to accreditation organizations 

if the accreditation organization files a 

written request for reconsideration 

through its authorized officials or 

through its legal representative. 

The request must be filed within 30 

days of the receipt of CMS notice of an 

adverse determination or non-renewal. 

The request for reconsideration must 

specify the findings or issues with 

which the accreditation organization 

disagrees and the reasons for the 

disagreement. A requestor may 

withdraw its request for reconsideration 

at any time before the issuance of a 

reconsideration determination. In 

response to a request for 

reconsideration, we will provide the 

accreditation organization the 

opportunity for an informal hearing that 

will be conducted by a hearing officer 

appointed by the Administrator of CMS. 

The hearing will provide the 

accreditation organization the 

opportunity to present, in writing and in 

person, evidence or documentation to 


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refute the determination to deny 

approval, or to withdraw (or not renew) 

deeming authority. 

We will provide written notice of the 

time and place of the informal hearing 

at least 10 calendar days before the 

scheduled date. The informal 

reconsideration hearing will be open to 

CMS and the organization requesting 

the reconsideration, including 

authorized representatives, technical 

advisors (individuals with knowledge of 

the facts of the case or presenting 

interpretation of the facts), and legal 

counsel. The hearing will be conducted 

by the hearing officer, who will receive 

testimony and documents related to the 

proposed action. The hearing officer 

may accept testimony and other 

evidence that would be inadmissible 

under the usual rules of court 

procedures. The hearing officer will not 

have the authority to compel by 

subpoena the production of witnesses, 

papers, or other evidence. Within 45 

calendar days of the close of the 

hearing, the hearing officer will present 

the findings and recommendations to 

the accrediting organization that 

requested the reconsideration. The 

written report of the hearing officer will 

include separate numbered findings of 

fact and the legal conclusions of the 

hearing officer. The hearing officer’s 

decision will be final. 

After consideration of the public 

comments received, we are adopting as 

final without substantive modification 

the provisions of the new proposed 

§ 424.58(d) governing continuing 

Federal oversight of approved 

accreditation organizations relating to 

equivalency reviews, validation 

reviews, notice of intent to withdraw 

approval for deeming authority, 

withdrawal of approval for deeming 

authority, and reconsiderations. We 

have revised § 424.58(e)(6) and (8) to 

add the word ‘‘calendar’’ before the 

word ‘‘days’’. 

XI. Provisions of the Final Regulations 

A. IRF PPS 

The provisions of this final rule 

restate the provisions of the FY 2007 

IRF PPS proposed rule (71 FR 28106) 

except as noted elsewhere in the 

preamble. Following is a highlight of the 

policies that we are finalizing in this 

final rule: 

• We are revising the relative weight 

and average length of stay tables based 

on re-analysis of the data by CMS and 

our contractor, the RAND Corporation, 

as discussed in section IV of this final 

rule. 

• We are reducing the standard 

payment amount by 2.6 percent to 

account for coding changes that do not 

reflect real changes in case mix, as 

discussed in section V.A of this final 

rule. 

• We are updating the FY 2007 IRF 

PPS payment rates by the market basket 

(3.3 percent), as discussed in section 

V.B of this final rule. 

• We are updating the FY 2007 IRF 

PPS payment rates by the labor related 

share (75.612 percent), the wage 

indexes, and the second year of the hold 

harmless policy in a budget neutral 

manner, as discussed in sections V.C 

and D of this final rule. 

• We are updating the outlier 

threshold amount for FY 2007 to $5,534, 

as discussed in section VI.A of this final 

rule. 

• We are updating the urban and 

rural national cost-to-charge ratio 

ceilings for purposes of determining 

outlier payments under the IRF PPS and 

are clarifying the methodology 

described in the regulation text, as 

discussed in section VI.B of this final 

rule. 

• We are revising the regulation text 

at § 412.23(b)(2)(i) and § 412.23(b)(2)(ii) 

to reflect the compliance percentages 

specified in section 5005 of the DRA, as 

discussed in section VII of this final 

rule. In addition, we are revising 

§ 412.23(b)(2)(i) to permit comorbidities 

meeting the qualifying criteria outlined 

in § 412.23(b)(2)(i)(A) and (B) and (C) to 

count toward satisfying the compliance 

percentages specified in 

§ 412.23(b)(2)(i). 

• We are making a technical 

correction to amend the cross-reference 

to several portions of § 412.624(e) that 

currently appear in the regulation text 

in § 412.624(f)(2)(v), by re-inserting a 

cross-reference to paragraph (e)(1). We 

inadvertently deleted this reference in 

the FY 2006 final rule. 

B. Quality Standards and Accreditation 

for DMEPOS Suppliers 

The provisions of this final rule 

restate the provisions of the May 1, 2006 

proposed rule, except as follows: 

• We have modified § 404.406(e) to 

make a technical change to clarify that 

the Durable Medical Equipment 

Medicare Administrative Contractors 

will be taking over for the DMERCs/ 

regional carriers for processing 

DMEPOS claims. 

• We have modified § 424.57(c)(22), 

to clarify that all suppliers of DMEPOS 

and other items and services must be 

accredited by a CMS-approved 

accreditation organization in order to 

receive and retain a supplier billing 

number. The accreditation must 

indicate the specific products and 

services for which the supplier is 

accredited in order for the supplier to 

receive payment for those specific 

products and services. 

• We have added a new provision at 

§ 424.57(c)(23), requiring that all 

DMEPOS suppliers must notify their 

accreditation organizations when a new 

location is opened. The accrediting 

organization of the enrolled DMEPOS 

supplier may accredit the new supplier 

location for three months after it is 

operational without a new site visit. 

• We have added a new provision at 

§ 424.57(c)(24), which requires that each 

supplier location, whether owned or 

subcontracted, must meet the DMEPOS 

quality standards and be separately 

accredited in order to bill Medicare. An 

accredited supplier may be denied 

enrollment or its enrollment may be 

revoked, if CMS determines that it was 

not in compliance with the DMEPOS 

quality standards. 

• We have added a new provision at 

§ 424.57(c)(25), which requires that all 

DMEPOS suppliers must disclose upon 

enrollment all products and services for 

which they are seeking accreditation. If 

a new product line is added after 

enrollment, the supplier will be 

responsible for notifying the accrediting 

body of the new product or service so 

that the supplier can be re-surveyed and 

accredited for these new products or 

services. 

• We are adding a provision at 

§ 424.58(b)(l)(iii) that accreditation 

organizations must provide CMS with a 

detailed description of their dispute 

resolution process and policies which 

would allow DMEPOS suppliers the 

opportunity to appeal negative survey 

findings or decisions. 

• We are revising the provision at 

§ 424.58(b)(3) to state that if CMS 

discovers a supplier was not in 

compliance with the DMEPOS supplier 

quality standards, CMS may revoke the 

supplier’s billing number or require the 

accreditation organization to perform a 

subsequent full accreditation survey at 

the accreditation organization’s 

expense. 

• We are revising the provision at 

§ 424.58(b)(6) to indicate that if a 

validation survey results in a finding 

that the supplier was not in compliance 

with one or more DMEPOS supplier 

quality standards, the supplier no longer 

meets the DMEPOS quality standards 

and may have its supplier billing 

number revoked. 

• We have modified § 424.58(c)(1) to 

clarify that written format means either 

hard copy or electronic format. 

• We have revised § 424.58(c)(2) and 

(5) and § 424.58(e)(6) and (8) to add the 

word ‘‘calendar’’ before the word 

‘‘days.’’


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• We have modified § 424.58(d)(4)(i) 

to utilize the term ‘‘adequately assures’’

that rather than ‘‘guarantees.’’ The 

modified provision now states 

‘‘Accreditation by the organization no 

longer adequately assures that the 

suppliers of DMEPOS and other items 

and services are meeting the supplier 

quality standards, and that failure to 

meet those requirements could 

jeopardize the health or safety of 

Medicare beneficiaries and could 

constitute a significant hazard to the 

public health.’’

XII. Waiver of Delayed Effective Date 

We ordinarily provide a 60-day delay 

in the effective date of the provisions of 

a rule in accordance with the 

Administrative Procedure Act (APA) (5 

U.S.C. 553(d), which requires a 30-day 

delayed effective date, and the 

Congressional Review Act (5 U.S.C. 

801(a)(3)), which requires a 60-day 

delayed effective date for major rules. 

However, we can waive the delay in 

effective date if the Secretary finds, for 

good cause, that such delay is 

impracticable, unnecessary, or contrary 

to the public interest, and incorporates 

a statement of the finding and the 

reasons in the rule issued. 5 U.S.C. 

553(d)(3); 5 U.S.C. 808(2). 

The Secretary finds that good cause 

exists to implement the regulatory 

changes to part 414 of 42 CFR, other 

than § 414.406(e), related to Competitive 

Bidding Implementation Contractors 

(CBICs) for the Medicare DMEPOS 

Competitive Bidding Program on August 

31, 2006. We note that we are not 

waiving the APA requirements since we 

are giving 30 days notice. We are, 

however, waiving the 60-day delayed 

effective date for major rules. Section 

1847(b)(9) of the Act explicitly allows 

the Secretary to contract with 

appropriate entities to implement the 

Medicare DMEPOS Competitive Bidding 

Program. The Secretary has determined 

that it is administratively necessary to 

use one or more CBICs to assist in 

implementing the Medicare DMEPOS 

Competitive Bidding Program. This final 

rule codifies this statutory provision in 

regulations. 

Under section 1847(a)(1)(B) of the 

Act, the Medicare DMEPOS Competitive 

Bidding Program must be phased in so 

that the competition under the programs 

occurs in 10 of the largest metropolitan 

statistical areas (MSAs) in 2007. To 

comply with that statutory mandate, it 

will be necessary for us to designate one 

or more CBICs, as well as finalize 

contracts with those entities, prior to 

October 1, 2006 (the beginning of 

Federal Fiscal Year (FY) 2007)) so that 

the CBIC(s) have sufficient time to 

prepare for the bidding process and to 

educate thousands of DMEPOS 

suppliers and referral agents, as well as 

millions of Medicare beneficiaries prior 

to the beginning of the bidding process. 

If one or more CBIC(s) are not 

designated before October 1, 2006, there 

will be insufficient time for those 

entities to conduct the large-scale 

preparations necessary to ensure the 

success of the program consistent with 

our statutory mandate. Additionally, if 

we are unable to designate one or more 

CBIC(s) prior to the end of FY 2006 then 

our ability to meet the implementation 

timetable set forth in section 

1847(a)(1)(B) of the Act would be 

further jeopardized. Therefore, the 

Secretary has determined that it would 

be impracticable and contrary to the 

public interest to delay the effective 

date of the regulatory changes to part 

414 of 42 CFR, other than § 414.406(e). 

An effective date of August 31, 2006, for 

the regulatory changes to part 414 of 42 

CFR, other than § 414.406(e), will 

ensure that the procurement of CBIC 

services can proceed and will afford the 

selected CBIC(s) needed time to prepare 

for the bidding process and education of 

beneficiaries, suppliers, and referral 

agents on the Medicare DMEPOS 

Competitive Bidding Program. 

For all these reasons, we believe that 

a 60-day delay in the effective date of 

the provisions that apply to the CBIC(s) 

would be impracticable and contrary to 

the public interest. We therefore find 

good cause for waiving the 60-day delay 

in the effective date for the regulatory 

changes to part 414 of 42 CFR, other 

than § 414.406(e). 

XIII. Collection of Information 

Requirements 

The sections of this document 

pertaining to the IRF PPS and to the 

DMEPOS do not impose information 

collection and recordkeeping 

requirements. Consequently, it need not 

be reviewed by the Office of 

Management and Budget under the 

authority of the Paperwork Reduction 

Act of 1995. 

XIV. Regulatory Impact Analysis for 

the IRF PPS 

A. Overall IRF PPS Impact 

We have examined the impacts of this 

final rule as required by Executive 

Order 12866 (September 1993, 

Regulatory Planning and Review), the 

Regulatory Flexibility Act (RFA, 

September 16, 1980, Pub. L. 96–354), 

section 1102(b) of the Social Security 

Act, the Unfunded Mandates Reform 

Act of 1995 (Pub. L. 104–4), and 

Executive Order 13132. 

Executive Order 12866 (as amended 

by Executive Order 13258, which 

merely reassigns responsibility of 

duties) directs agencies to assess all 

costs and benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

($100 million or more in any 1 year). 

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 2007 

payments compared to estimated FY 

2006 payments will be an increase of 

approximately $50 million (this reflects 

a $220 million increase from the update 

to the payment rates and a $10 million 

increase due to updating the outlier 

threshold amount to increase estimated 

outlier payments from 2.9 percent in FY 

2006 to 3.0 percent in FY 2007, offset 

by a $180 million estimated decrease 

from the reduction to the standard 

payment amount to account for changes 

in coding that do not reflect real 

changes in case mix). 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses. For purposes of the RFA, 

small entities include small businesses, 

nonprofit organizations, and 

government agencies. Most IRFs and 

most other providers and suppliers are 

considered small entities, either by 

nonprofit status or by having revenues 

of $6 million to $29 million in any 1 

year. (For details, see the Small 

Business Administration’s final rule that 

set forth size standards for health care 

industries, at 65 FR 69432, November 

17, 2000.) Because we lack data on 

individual hospital receipts, we cannot 

determine the number of small 

proprietary IRFs. 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. The 

Department of Health and Human 

Services generally uses a revenue 

impact of 3 to 5 percent as a significance 

threshold under the RFA. Because the 

net effect of this final rule on almost all 

facilities will only be about 1 percent or 

less of revenues, and will be positive, 

we have concluded that this final rule 

will not have a significant effect on a 


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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 

forth in this final rule will not have an 

adverse impact on rural hospitals based 

on the data of the 181 rural units and 

20 rural hospitals in our database of 

1,202 IRFs for which data were 

available. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4) also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any 1 year of $100 

million in 1995 dollars, updated 

annually for inflation. That threshold 

level is currently approximately $120 

million. The IRF PPS portions of this 

final rule will not mandate any 

requirements for State, local, or tribal 

governments, nor will they affect private 

sector costs. 

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. 

B. Anticipated Effects of the IRF PPS 

Final Rule 

We discuss below the impacts of this 

final rule on the budget and on IRFs. 

1. Basis and Methodology of Estimates 

This final rule sets forth updates of 

the IRF PPS rates contained in the FY 

2006 final rule and establishes a 2.6 

percent decrease to the standard 

payment amount to account for the 

increase in estimated aggregate 

payments as a result of changes in 

coding that do not reflect real changes 

in case mix. In addition, we are 

updating the comorbidity tiers and the 

CMG relative weights, and the outlier 

threshold amount. 

Based on the above, we estimate that 

the FY 2007 impact will be a net 

increase of $50 million in payments to 

IRF providers (this reflects a $220 

million estimated increase from the 

update to the payment rates and a $10 

million estimated increase due to 

updating the outlier threshold amount 

to increase estimated outlier payments 

from 2.9 percent in FY 2006 to 3.0 

percent in FY 2007, offset by a $180 

million estimated decrease from the 

reduction to the standard payment 

amount to account for the increase in 

estimated aggregate payments as a result 

of changes in coding that do not reflect 

real changes in case mix). The impact 

analysis in Table 9 of this final rule 

represents the projected effects of the 

policy changes in the IRF PPS for FY 

2007 compared with estimated IRF PPS 

payments in FY 2006 without the policy 

changes. We estimate 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. In 

addition, changes to the Medicare 

program may continue to be made as a 

result of the BBA, the BBRA, the BIPA, 

the MMA, the DRA, or new statutory 

provisions. Although these changes may 

not 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 2007, we 

made 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). These revisions will 

increase payments to IRFs by 

approximately $220 million. 

The aggregate change in payments 

associated with this final rule is 

estimated to be an increase in payments 

to IRFs of $50 million for FY 2007. The 

market basket increase of $220 million 

and the $10 million increase due to 

updating the outlier threshold amount 

to increase estimated outlier payments 

from 2.9 percent in FY 2006 to 3.0 

percent in FY 2007, combined with the 

estimated decrease of $180 million due 

to the reduction to the standard 

payment amount to account for coding 

changes (not related to real changes in 

case mix), results in a net change in 

estimated payments from FY 2006 to FY 

2007 of $50 million. 

The impacts are shown in Table 9. 

The following changes are discussed 

separately below: 

• 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 expiration of the 

one-year budget-neutral transition 

policy for adopting the new CBSA-based 

geographic area definitions announced 

by OMB in June 2003. 

• The effects of the update to the 

outlier threshold amount to increase 

total estimated outlier payments from 

2.9 to 3 percent of total estimated 

payments for FY 2007, 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 sections 1886(j)(3)(A)(i) and 

1886(j)(3)(C) of the Act. 

• The effects of the decrease to the 

standard payment amount to account for 

the increase in estimated aggregate 

payments as a result of changes in 

coding that do not reflect real changes 

in case mix, as required under section 

1886(j)(2)(C)(ii) of the Act. 

• The effects of the second year of the 

3-year budget-neutral hold-harmless 

policy for IRFs that were rural under 

§ 412.602 during FY 2005, but are urban 

under § 412.602 during FY 2006 and FY 

2007 and lose the rural adjustment, 

resulting in a loss of estimated IRF PPS 

payments if not for the hold harmless 

policy. 

• The effect of the budget-neutral 

revisions to the comorbidity tiers and 

the CMG relative weights, under the 

authority of section 1886(j)(2)(C)(i) of 

the Act. 

• The total change in estimated 

payments based on the FY 2007 policies 

relative to estimated FY 2006 payments 

without the policies. 

2. Description of Table 9 

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 


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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 by 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 1,202 IRFs 

included in the analysis. 

The next 12 rows of Table 9 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 rural, which is further 

divided into rural units of a hospital, 

rural freestanding hospitals, and by type 

of ownership. There are 1,001 IRFs 

located in urban areas included in our 

analysis. Among these, there are 807 IRF 

units of hospitals located in urban areas 

and 194 freestanding IRF hospitals 

located in urban areas. There are 201 

IRFs located in rural areas included in 

our analysis. Among these, there are 181 

IRF units of hospitals located in rural 

areas and 20 freestanding IRF hospitals 

located in rural areas. There are 398 forprofit IRFs. Among these, there are 326 

IRFs in urban areas and 72 IRFs in rural 

areas. There are 743 non-profit IRFs. 

Among these, there are 630 urban IRFs 

and 113 rural IRFs. There are 61 

government-owned IRFs. Among these, 

there are 45 urban IRFs and 16 rural 

IRFs. 

The remaining three parts of Table 9 

show IRFs grouped by their geographic 

location within a region, and the last 

part groups IRFs 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 impact of each change 

to the facility categories listed above is 

shown in the columns of Table 9. The 

description of each column is as 

follows: 

Column (1) shows the facility 

classification categories described 

above. 

Column (2) shows the number of IRFs 

in each category. 

Column (3) shows the number of 

cases in each category. 

Column (4) shows the estimated effect 

of adjusting the outlier threshold 

amount so that estimated outlier 

payments increase from 2.9 percent in 

FY 2006 to 3 percent of total estimated 

payments for FY 2007. 

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, wage index, and hold harmless 

policy. 

Column (7) shows the estimated 

effects of the budget-neutral revisions to 

the comorbidity tiers and the CMG 

relative weights. 

Column (8) shows the estimated 

effects of the decrease in the standard 

payment amount to account for the 

increase in aggregate payments as a 

result of changes in coding that do not 

reflect real changes in case mix, as 

discussed in section V.A of this final 

rule. Section 1886(j)(2)(C)(ii) of the Act 

requires us to adjust the per discharge 

PPS payment rate to eliminate the effect 

of coding or classification changes that 

do not reflect real changes in case mix 

if we determine that these changes 

result in a change in aggregate payments 

under the classification system. 

Column (9) compares our estimates of 

the payments per discharge, 

incorporating all changes reflected in 

this final rule for FY 2007, to our 

estimates of payments per discharge in 

FY 2006 (without these changes). The 

average estimated increase for all IRFs is 

approximately 0.8 percent. This 

estimated increase includes the effects 

of the 3.3 percent market basket update. 

It also includes the 0.1 percent overall 

estimated increase to IRF payments 

from the update to the outlier threshold 

amount, and the estimated impact of the 

2.6 percent reduction to the standard 

payment amount to account for changes 

in coding that increased payments to 

IRFs. Because we will make the 

remainder of the changes outlined in 

this final rule in a budget-neutral 

manner, they 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 

3. Impact of the Update to the Outlier 

Threshold Amount (Column 4, Table 9) 

In the FY 2006 IRF PPS final rule (70 

FR 30188), we used FY 2003 patientlevel claims data (the best, most 

complete data available at that time) to 

set the outlier threshold amount for FY 

2006 so that estimated outlier payments 

will equal 3 percent of total estimated 

payments for FY 2006. For this final 

rule, we have updated our analysis 

using FY 2004 data. Between FYs 2003 

and 2004, we observed that IRFs’ costto-charge ratios continued to fall, a 

trend that has occurred each year since 

we first implemented the IRF PPS. We 

are still investigating the reasons for 

this. However, this decrease in cost-tocharge ratios affected our estimate of 

outlier payments as a percentage of total 

estimated payments for FY 2006, which 

declined from 3 percent using the FY 

2003 data to 2.9 percent using the 

updated FY 2004 data. Thus, we will 

adjust the outlier threshold amount for 

FY 2007 to $5,534 in order to set total 

estimated outlier payments equal to 3 

percent of total estimated payments in 


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FY 2007 (see section VI.A of this final 

rule for a detailed discussion of the 

factors that influence how we arrive at 

the outlier threshold amount). The 

estimated change in total payments 

between FY 2006 and FY 2007, 

therefore, includes a 0.1 percent overall 

estimated increase in payments because 

the outlier portion of total payments is 

estimated to increase from 2.9 percent to 

3 percent. 

The impact of this update (as shown 

in column 4 of Table 9) is to increase 

estimated overall payments to IRFs by 

0.1 percent. We estimate the largest 

increase in payments to be a 0.3 percent 

increase in payments to rural IRFs in the 

Mountain region. We do not estimate 

that any group of IRFs will experience 

a decrease in payments from this 

update. 

4. Impact of the Market Basket Update 

to the IRF PPS Payment Rates (Column 

5, Table 9) 

In column 5 of Table 9, we present the 

estimated effects of the market basket 

update to the IRF PPS payment rates. In 

the aggregate, and across all hospital 

groups, the update will result in a 3.3 

percent increase in overall payments to 

IRFs. 

5. Impact of the Full CBSA Wage Index, 

Labor-Related Share, and the Hold 

Harmless Policy for FY 2007 (Column 6, 

Table 9) 

In column 6 of Table 9, we present the 

effects of the budget neutral wage index, 

labor-related share, and the hold 

harmless policy. In FY 2006, we 

provided a 1-year blended wage index 

and a 3–year phase out of the rural 

adjustment for IRFs that changed 

designation because of the change from 

MSAs to CBSAs (referenced as the hold 

harmless policy). We applied the 

blended wage index to all IRFs and the 

hold harmless policy to those IRFs that 

qualify, as described in § 412.624(e)(7), 

in order to mitigate the impact of the 

change from the MSA-based labor area 

definitions to the CBSA-based labor area 

definitions for IRFs. 

As discussed in this final rule, the 

blended wage index expires in FY 2007 

and will not be applied for discharges 

occurring on or after October 1, 2006. 

Because we are in the second year of the 

hold harmless policy, we are not 

changing this policy and will continue 

to apply it as described in the FY 2006 

final rule in a budget neutral manner. 

As discussed in this final rule, we are 

updating the wage index based on the 

CBSA-based labor market area 

definitions in a budget neutral manner. 

We will also apply the second year of 

the hold harmless policy in a budget 

neutral manner. Thus, in the aggregate, 

the estimated impact of the wage index 

and the labor-related share is zero 

percent. 

In the aggregate for all urban and all 

rural IRFs, we do not estimate that these 

changes will affect overall estimated 

payments to IRFs. However, we estimate 

these changes to have small 

distributional effects. We estimate the 

largest increase in payments to be a 2.8 

percent increase for rural IRFs in the 

Pacific region and the largest decrease 

in payments to be a 1.9 percent decrease 

among rural IRFs in the Mountain 

region. 

6. Impact of the Changes to the 

Comorbidity Tiers and the CMG 

Relative Weights (Column 7, Table 9) 

In column 7 of Table 9, we present the 

effects of the changes to the comorbidity 

tiers and the CMG relative weights. 

Since we are implementing these 

changes in a budget neutral manner, we 

estimate that they will have no overall 

effect on payments to IRFs. Similarly, 

we estimate no overall effect of these 

changes on payments to urban IRFs. 

However, we estimate a 0.1 percent 

increase in payments to rural IRFs. We 

estimate the largest increase in 

payments to be a 0.3 percent increase 

among rural IRFs located in the Middle 

Atlantic region. We estimate the largest 

decrease to be a 0.4 percent decrease 

among teaching IRFs with intern and 

resident to average daily census ratios in 

the 10 percent to 19 percent category. 

7. Impact of the 2.6 Percent Decrease to 

the Standard Payment Amount to 

Account for Coding Changes (Column 8, 

Table 9) 

In column 8 of Table 9, we present the 

effects of the decrease in the standard 

payment amount to account for the 

increase in estimated aggregate 

payments as a result of changes in 

coding that do not reflect real changes 

in case mix. 

In the aggregate, and across all 

hospital groups, we estimate that the 

policy will result in a 2.6 percent 

decrease in overall payments to IRFs. 

Thus, we estimate that the 2.6 percent 

reduction in the standard payment 

amount will result in a cost savings to 

the Medicare program of approximately 

$180 million. 

C. IRF PPS Accounting Statement 

As required by OMB Circular A–4 

(available at ) http:// 

www.whitehouse.gov/omb/circulars/ 

a004/a–4.pdf, in Table 10 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 1,202 IRFs in our database. All 

estimated expenditures are classified as 

transfers to Medicare providers (that is, 

IRFs). 

TABLE 10.— ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM THE 2006 IRF PPS RATE

YEAR TO THE 2007 IRF PPS RATE YEAR (IN MILLIONS) 

Category Transfers 

Annualized Monetized Transfers .............................................................. $50 million. 

From Whom To Whom? Federal Government to IRF Medicare Providers. 

D. IRF PPS Alternatives Considered 

Because we have determined that this 

final rule will have a significant 

economic impact on IRFs, we will 

discuss the alternative changes to the 

IRF PPS that we considered. 

We considered a reduction to the 

standard payment amount by an amount 

of up to 3.9 percent (5.8 percent minus 

the 1.9 percent adjustment to the 

standard payment amount for FY 2006), 

because one of RAND’s methodologies 

for determining the amount of real 

change in case mix and the amount of 

coding change that occurred between 

1999 and 2002 suggested that coding 

change could have been responsible for 

up to 5.8 percent of the observed 

increase in IRFs’ case mix. This suggests 

that we could have implemented a 

reduction greater than 2.6 percent and 

as high as 3.9 percent. We also 

considered the possibility of making a 

somewhat lower adjustment of 2.3 

percent, which would fall at 

approximately the middle of RAND’s 

range of estimates. However, for the 


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reasons discussed in section V.A of this 

final rule, we have instead decided to 

implement a 2.6 percent reduction to 

the standard payment amount. Further, 

in light of recent changes to the IRF PPS 

that affect IRF utilization trends, 

including the revised phase-in schedule 

of the IRF 75 percent rule compliance 

percentage, we believe it is appropriate 

to take an incremental approach in 

adjusting for coding changes. In this 

way, we maintain the flexibility to 

assess the impact of these changes and 

propose additional changes, if 

appropriate, in the future. 

We considered not updating the 

comorbidity tiers and the CMG relative 

weights for FY 2007. However, as 

described in section IV of this final rule, 

re-analysis of the data indicates that 

some minor technical revisions are 

appropriate to align the distribution of 

payments as closely as possible with the 

costs of IRF care. 

We also considered not updating the 

outlier threshold amount for FY 2007. 

However, analysis of updated FY 2004 

data indicates that estimated outlier 

payments would not equal 3 percent of 

estimated total payment for FY 2007 

unless we update the outlier threshold 

amount. 

E. IRF PPS Conclusion (Column 9, Table 

9) 

Overall, estimated payments per 

discharge for IRFs in FY 2007 are 

projected to increase by 0.8 percent, 

compared with those in FY 2006, as 

reflected in column 9 of Table 9. We 

estimate that IRFs in rural areas will 

experience a 0.9 percent increase in 

estimated payments per discharge 

compared with FY 2006. We estimate 

that IRFs in urban areas will experience 

a 0.8 percent increase in estimated 

payments per discharge compared with 

FY 2006. We estimate that rehabilitation 

units in urban areas will experience a 

0.7 percent increase in estimated 

payments per discharge, while 

freestanding rehabilitation hospitals in 

urban areas will experience a 0.9 

percent increase in estimated payments 

per discharge. We estimate that 

rehabilitation units in rural areas will 

experience a 0.8 percent increase in 

estimated payments per discharge, 

while freestanding rehabilitation 

hospitals in rural areas will experience 

a 1.0 percent increase in estimated 

payments per discharge. 

Overall, we estimate that the largest 

payment increase will be 3.7 percent 

among rural IRFs in the Pacific region. 

We estimate that the only overall 

decrease in estimated payments will be 

a 1.0 percent decrease for rural IRFs in 

the Mountain region. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

XV. Regulatory Impact Analysis for 

DMEPOS Suppliers 

A. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 (September 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, the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4), and Executive Order 13132. 

Executive Order 12866 (as amended 

by Executive Order 13258, which 

merely reassigns responsibility of 

duties) directs agencies to assess all 

costs and benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

($100 million or more in any 1 year). We 

estimate that accreditation expenses for 

DMEPOS suppliers may exceed this 

threshold. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses. For purposes of the RFA, 

section 604, small entities include small 

businesses, nonprofit organizations, and 

small governmental jurisdictions. 

Approximately 90 percent of DMEPOS 

suppliers are considered small 

businesses according to the Small 

Business Administration’s size 

standards, with total revenues of $6 

million or less in any 1 year. Individuals 

and States are not included in the 

definition of a small entity. This final 

rule will have a significant impact on 

small businesses. 

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. 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. We have determined that this rule 

will not have a significant effect on 

small rural hospitals. We expect that 

small rural hospitals primarily furnish 

inpatient and outpatient hospital 

services, rather than services that would 

require compliance with the DMEPOS 

quality standards and accreditation. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 also 

requires that agencies assess anticipated 

costs and benefits before issuing any 

rule whose mandates require spending 

in any 1 year of $100 million in 1995 

dollars, updated annually for inflation. 

That threshold level is currently 

approximately $120 million. We 

estimate the total undiscounted 

annualized accreditation costs for 

DMEPOS suppliers between CY 2007 

and CY 2011 to be approximately $93.1 

million. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

We have determined that this final rule 

will not have substantial direct effects 

on the rights, roles, and responsibilities 

of States. 

B. Anticipated Effects for DMEPOS 

Suppliers 

Under the proposed rule, DMEPOS 

suppliers will have to be accredited by 

an approved accreditation organization 

in order to obtain a supplier number 

and to receive Medicare reimbursement 

for DMEPOS items and services 

furnished to beneficiaries. This section 

of the rule will have an impact on 

DMEPOS suppliers and organizations 

that accredit DMEPOS suppliers. 

DMEPOS suppliers will incur costs for 

becoming accredited. Accreditation 

organizations will incur costs to accredit 

suppliers; we assume that these costs 

are approximately equal to the 

accreditation fees paid by suppliers. 

To estimate the impact on suppliers, 

we calculate the total cost of 

accreditation as the sum of accreditation 

fees and other accreditation costs, and 

we multiply this cost by the number of 

suppliers requiring accreditation. Our 

calculation incorporates other relevant 

factors, including the number of 

suppliers that are already accredited, 

the number of suppliers that probably 

will not seek accreditation because they 

currently are not receiving Medicare 

reimbursement, and the possible phasein timing for accreditation. These factors 

are described in more detail below. 

Costs are calculated over a period of 5 

years, beginning in 2007. 

Factors Affecting the Cost Impact 

The National Supplier Clearinghouse 

(NSC) issues 10-digit NSC supplier 

numbers to suppliers that bill Medicare 


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for DMEPOS items and services. Some 

DMEPOS suppliers operate multiple 

locations while others operate at a 

single location. Suppliers that are part 

of a single firm share the first 6 digits 

of the 10-digit NSC supplier number, 

with the last 4 digits set equal to 0001, 

0002, and so on to denote individual 

locations. In the following discussion, 

we will refer to the first 6 digits as the 

‘‘6-digit NSC supplier number’’ to 

represent individual suppliers, while 

the 10-digit number represents 

individual supplier locations. 

The distinction is important for the 

impact analysis because accreditation 

organizations generally charge one fee 

for a supplier’s first location, and a 

lower fee for subsequent locations. 

Some of the accreditation organizations 

also offer lower accreditation fees to 

small suppliers, which typically have 

few locations. 

There are currently 118,406 unique 

10-digit NSC numbers and 65,549 

unique 6-digit NSC numbers. This total 

includes suppliers as well as providers 

and physicians that furnish items under 

Medicare Part B as suppliers. The 

distribution of locations by supplier is 

very uneven across the industry. Over 

90 percent of suppliers operate a single 

location, while some drug chains, 

grocery stores, optometry companies, 

and a few medical equipment 

companies have over a hundred 

locations. 

Suppliers with NSC numbers are 

diverse. Physicians and other 

professionals who bill Medicare Part B 

carriers account for 14 percent of 10- 

digit NSC numbers; durable medical 

equipment companies account for 17 

percent; drug stores, grocery stores, and 

optician/optometry companies account 

for 53 percent; and orthotic/prosthetic 

makers account for 11 percent. 

Number of Suppliers Currently 

Accredited 

Currently, there is no single registry 

that tracks the number of DMEPOS 

suppliers and locations that are 

accredited. Media reports and data from 

DMEPOS accreditation organizations 

suggest that about 2,500 suppliers and 

7,500 locations are currently accredited. 

Suppliers That Probably Will Not Seek 

Accreditation 

Many suppliers that currently have 

NSC supplier numbers are small, 

receive relatively little in Medicare 

payments, and/or do not specialize in 

DMEPOS. In 2004, about 7,154 

suppliers received $0 in allowed 

charges, and 29,155 received between 

$1 and $10,000; the corresponding 

numbers in 2005 were 6,679 and 30,121 

suppliers. These suppliers will have to 

make a business decision on whether to 

seek accreditation. In our base impact 

analysis, we assume that the 

approximately 6,900 suppliers that 

currently receive $0 in allowed charges 

will not seek accreditation. This 

accounts for about 11.7 percent of 

single-location suppliers that are not 

currently accredited. 

Accreditation Fees 

Fees vary between accreditation 

organizations and, in general, currently 

cover all or some of the following items: 

application fee, manuals, initial 

accreditation fee (which can cover 1 to 

3 years), annual renewal fees (when the 

accreditation fee only covers the first 

year), onsite surveys (generally once 

every 3 years), and travel for survey 

personnel. At least one accreditation 

organization includes consultations 

within its base fee. Accreditation costs 

also vary by the size of the supplier 

seeking accreditation, its number of 

locations, and the number of services 

that it provides. Because of these 

factors, it is sometimes difficult to 

compare fees across accreditation 

organizations. We obtained information 

on total accreditation fees from four 

accreditation organizations that 

currently accredit DME suppliers and a 

fifth organization that recently formed 

to perform accreditations. In addition, 

we obtained information on total 

accreditation fees for two organizations 

that accredit orthotic and prosthetic 

suppliers; these costs were generally 

lower than accreditation fees for other 

DME suppliers. Although the 

information obtained from the 

accrediting organizations is helpful in 

determining the overall impact, we 

believe that the fees under the DMEPOS 

accreditation process will be close to or 

below the lower fee estimates because 

we will be requiring a more streamlined 

accreditation process. Because the 

details of the accreditation process are 

not currently known to potential 

DMEPOS accrediting organizations, it is 

difficult to make definitive projections 

for fees under the DMEPOS 

accreditation program with certainty. 

In addition to information that we 

received from accrediting organizations 

on fees under the current process, we 

received public comments on 

accreditation fees. We also have data, 

which were presented to the PAOC, 

which estimate lower fees. Based on all 

information that we obtained, we 

estimate accreditation fees will be 

approximately $3,000 for a DME 

supplier. Because accreditation is for a 

3-year period, the estimated average cost 

per year would be approximately 

$1,000. We expect that accreditation 

fees for an orthotics and prosthetics 

supplier would be approximately 

$2,000; the average cost per year would 

then be approximately $670. 

We recognize that becoming 

accredited imposes a burden on 

DMEPOS suppliers, especially small 

suppliers. We have attempted to 

minimize that burden. In compliance 

with section 604 of the RFA, we have 

responded to public comments in 

section X.D of this final rule, and we 

have implemented the following options 

to minimize the burden of accreditation 

on suppliers, including small 

businesses: 

• Multiple accreditation 

organizations: We expect that many 

accrediting organizations will apply to 

become and be selected as DMEPOS 

accrediting organizations. We believe 

that selection of more than one 

accreditation organization and specialty 

organizations will introduce 

competition resulting in reductions in 

accreditation costs. 

• Required plan for small businesses. 

During the application process, we will 

ask accreditation organizations to 

include a plan that details their 

methodology to reduce accreditation 

fees and burden for small or specialty 

DMEPOS suppliers and DMEPOS 

suppliers that have multiple locations. 

• Strict application of quality 

standards: Currently, accreditation 

organizations use a survey process in 

which they expand on published 

conditions of participation or other 

standards, which often requires a 

lengthy onsite evaluation. This results 

in greater travel expenditures incurred 

by the accreditation organization and 

results in higher accreditation survey 

fees. We believe that the DMEPOS 

quality standards (developed in 

collaboration with accreditation, DME, 

and small business industry experts) 

will be sufficiently streamlined in order 

to ensure an effective and efficient 

survey process. We strongly believe that 

accreditation organizations will not 

need to expand on these standards in 

order to deter fraudulent practices and 

ensure quality DMEPOS services. 

• Streamlined process: Currently, 

accreditation organizations require 

activities such as consultation services 

and purchasing manuals. We have 

clarified in this final rule that the role 

of the accreditation organization is to 

ensure compliance with the quality 

standards and that accreditation should 

not be contingent on using consultation 

services or purchasing manuals. 

Therefore, we believe that the cost of 

performing DMEPOS surveys that do 

not include these additional 


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accreditation organization activities will 

be significantly less. Some accrediting 

organizations may require a 6-month 

survey preparation process that includes 

self-assessment. Under accreditation for 

DMEPOS suppliers, all surveys will be 

unscheduled; therefore, there may not 

be a 6-month survey preparation time 

and additional costs associated with 

preparation time. 

• Reasonable quality standards: We 

plan to issue quality standards that 

represent basic good business practices. 

Many DMEPOS suppliers should 

already be complying with the 

standards and have incorporated these 

practices into their daily operations. 

Therefore, there would be no ‘‘ramp up 

costs’’ and DMEPOS suppliers would 

not need to devote significant time to be 

compliant with many of these 

standards. Additionally, it is our belief 

that compliance with the quality 

standards will result in more efficient 

and effective business practices and will 

assist DMEPOS suppliers in reducing 

overall costs. 

• All Part B suppliers will need to 

meet these accreditation requirements. 

We hope to minimize burden and 

duplication of effort for suppliers that 

have already been accredited, Medicarecertified, and/or licensed under state 

law, by taking into consideration any 

previous accreditation, certification, 

and/or licensure findings that indicate 

that DMEPOS quality standards are 

being met at the time the accreditation 

organization surveys the supplier. 

Other Accreditation Costs 

It is difficult to estimate precisely the 

costs of preparing for accreditation. 

However, we note that we will be 

instituting a streamlined process under 

which the accrediting organization will 

be using unannounced surveys. 

Nevertheless, we recognize that there is 

a cost to the supplier to come into 

compliance initially, and thus prepare 

for the accreditation survey, this process 

should result in minimal preparation 

and cost. 

TABLE 11. TOTAL ACCREDITATION COSTS ($ MILLIONS) 

2007 2008 2009 2010 2011 

5-year Total 

Costs 

(Undiscounted) 

5-year Total 

Costs (Discounted @ 

3%) 

5-year Total 

Costs (Discounted 

@7%) 

Total Accreditation 

Fees ......................... $37.99 $58.58 $79.17 $67.37 $67.37 $310.48 $290.99 $268.28 

Total Other Accreditation Costs ................. 18.99 29.29 39.59 33.68 33.68 155.24 145.50 134.14 

Total Costs ........... 56.98 87.87 118.76 101.05 101.05 465.72 436.50 402.41 

Uncertainty 

There are at least three important 

sources of uncertainty in estimating the 

impact of accreditation on DMEPOS 

suppliers. First, our estimates assume 

that all current DMEPOS suppliers with 

positive Medicare payments will seek 

accreditation. As noted previously, 

many suppliers that currently have NSC 

supplier numbers are small, receive 

relatively little in Medicare payments, 

and/or do not specialize in DMEPOS. 

We assume that suppliers that currently 

receive no Medicare allowed charges 

will choose not to seek accreditation, 

and that many of the suppliers with 

allowed charges between $1 and 

$10,000 may decide not to incur the 

costs of accreditation. It is also possible 

that these suppliers may choose to 

expand their businesses in anticipation 

of the DMEPOS Competitive Bidding 

Program being implemented. 

Second, it is unclear how high or low 

accreditation fees will be in the future. 

With required accreditation causing 

more suppliers to seek accreditation, 

fees may fall if the accreditation 

organizations can enjoy economies of 

scale as they expand. This would lessen 

the impact on DMEPOS suppliers. 

Third, the timing of accreditation 

could differ from our assumption that 

one-third of suppliers will be accredited 

during each of the next 3 years. We 

cannot precisely predict the timing of 

accreditation surveys and how this 

might affect costs. 

C. Alternatives Considered for DMEPOS 

Suppliers 

Section 302 (a)(1) of the Medicare 

Prescription Drug, Improvement and 

Modernization Act of 2003 (MMA) 

added section 1834(a)(20) of the Social 

Security Act (the Act) and requires the 

Secretary to establish and implement 

quality standards for suppliers of certain 

items, including consumer service 

standards, to be applied by recognized 

independent accreditation 

organizations. 

In compliance with section 604 of the 

RFA, we have implemented options to 

minimize the burden of accreditation on 

suppliers, which include approving 

multiple accreditation organizations 

that serve smaller suppliers, and 

accreditation organizations that will be 

responsible for only surveying the 

streamlined quality standards for 

compliance and not providing any 

consultative services that may increase 

the time and cost of the survey process. 

Also, we believe that unannounced 

surveys will reduce the time and cost 

involved in suppliers’ receiving and 

reviewing documents prior to the 

survey. 

D. Accounting Statement for DMEPOS 

Suppliers 

As required by OMB Circular A–4 

(available at http:// 

www.whitehouse.gov/omb/circulars/ 

a004/a-4.pdf), in the table 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 costs 

under section 1834(a)(20) of the Act. All 

expenditures are classified as costs to 

the suppliers from the DMEPOS 

accreditation organizations. 


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48408 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 

ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM CY 2007 TO CY 2011 

(in millions/year) 

Category Costs Discount 

rate From whom to whom 

Costs-Annualized Monetized ................................................................................................... $80.48 7% DMEPOS to Accreditation Organizations 

Costs-Annualized Monetized ................................................................................................... $87.30 3% DMEPOS to Accreditation Organizations 

E. Conclusion for DMEPOS Suppliers 

We estimate that DMEPOS suppliers 

will incur total accreditation costs from 

this regulation of $465.7 million over 5 

years. Discounted at 7 percent and at 3 

percent, the 5-year accreditation costs to 

DMEPOS suppliers are approximately 

$402.4 million and $436.5 million, 

respectively. In CY 2007, we estimate 

the total accreditation costs to be 

approximately $56.98 million. In CY 

2008 and CY 2009, we estimate the total 

accreditation costs to be approximately 

$87.87 million and $118.76 million, 

respectively. In CY 2010 and CY 2011, 

we estimate the total accreditation costs 

to be approximately $101.1 million 

annually. The DME supplier 

accreditation requirement has no 

anticipated fiscal impact on the benefit 

payments from the Medicare trust 

funds. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

List of Subjects 

42 CFR Part 412 

Administrative practice and 

procedure, Health facilities, Medicare, 

Puerto Rico, Reporting and 

recordkeeping requirements. 

42 CFR Part 414 

Administrative practice and 

procedure, Health facilities, Health 

professions, Kidney diseases, Medicare, 

Reporting and recordkeeping 

requirements. 

42 CFR Part 424 

Emergency medical services, Health 

facilities, Health professions, Medicare, 

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 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh). 

Subpart P—Prospective Payment for 

Inpatient Rehabilitation Hospitals and 

Rehabilitation Units 

■ 2. Section 412.23 is amended by—

■ A. Revising paragraph (b)(2)(i) 

introductory text. 

■ B. Revising paragraph (b)(2)(ii). 

The revisions read as follows: 

§ 412.23 Excluded hospitals: 

Classifications. 

* * * * * 

(b) * * * 

(2) * * * 

(i) For cost reporting periods 

beginning on or after July 1, 2004 and 

before July 1, 2005, the hospital has 

served an inpatient population of whom 

at least 50 percent, and for cost 

reporting periods beginning on or after 

July 1, 2005 and before July 1, 2007, the 

hospital has served an inpatient 

population of whom at least 60 percent, 

and for cost reporting periods beginning 

on or after July 1, 2007 and before July 

1, 2008, the hospital has served an 

inpatient population of whom at least 

65 percent required intensive 

rehabilitative services for treatment of 

one or more of the conditions specified 

at paragraph (b)(2)(iii) of this section. A 

patient with a comorbidity, as defined at 

§ 412.602, may be included in the 

inpatient population that counts toward 

the required applicable percentage if—

* * * * * 

(ii) For cost reporting periods 

beginning on or after July 1, 2008, the 

hospital has served an inpatient 

population of whom at least 75 percent 

required intensive rehabilitative 

services for treatment of one or more of 

the conditions specified in paragraph 

(b)(2)(iii) of this section. A patient with 

a comorbidity as described in paragraph 

(b)(2)(i) of this section is not included 

in the inpatient population that counts 

toward the required 75 percent. 

* * * * * 

■ 3. In § 412.624, paragraphs (e)(5) and 

(f)(2)(v) are revised to read as follows: 

§ 412.624 Methodology for calculating the 

Federal prospective payment rates. 

* * * * * 

(e) * * * 

(5) Adjustment for high-cost outliers. 

CMS provides for an additional 

payment to an inpatient rehabilitation 

facility if its estimated costs for a patient 

exceed a fixed dollar amount (adjusted 

for area wage levels and factors to 

account for treating low-income 

patients, for rural location, and for 

teaching programs) as specified by CMS. 

The additional payment equals 80 

percent of the difference between the 

estimated cost of the patient and the 

sum of the adjusted Federal prospective 

payment computed under this section 

and the adjusted fixed dollar amount. 

Effective for discharges occurring on or 

after October 1, 2003, additional 

payments made under this section will 

be subject to the adjustments at 

§ 412.84(i), except that CMS calculates a 

single overall (combined operating and 

capital) cost-to-charge ratio and national 

averages that will be used instead of 

statewide averages. Effective for 

discharges occurring on or after October 

1, 2003, additional payments made 

under this section will also be subject to 

adjustments at § 412.84(m), except that 

CMS calculates a single overall 

(combined operating and capital) costto-charge ratio. 

* * * * * 

(f) * * * 

(2) * * * 

(v) By applying the adjustments 

described in paragraphs (e)(1), (e)(2), 

(e)(3), (e)(4), and (e)(7) of this section to 

the unadjusted payment amount 

determined in paragraph (f)(2)(iv) of this 

section to equal the adjusted transfer 

payment amount. 

* * * * * 

PART 414—PAYMENT FOR PART B 

MEDICAL AND OTHER HEALTH 

SERVICES 

■ 4. The authority citation for part 414 

continues to read as follows: 

Authority: Secs. 1102, 1871, and 1881(b)(1) 

of the Social Security Act (42 U.S.C. 1302, 

1395hh, and 1395rr(b)(1)). 


jlentini on PROD1PC65 with RULES3
Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 48409 

Subpart A—General Provisions 

■ 5. Section 414.1 is amended by adding 

in numerical order the statutory sections 

to read as follows: 

§ 414.1 Basis and scope. 

* * * * * 

1847(a) and (b)—Competitive bidding 

for certain durable medical equipment, 

prosthetics, orthotics, and supplies 

(DMEPOS). 

* * * * * 

■ 6. A new subpart F is added to read 

as follows: 

Subpart F—Competitive Bidding for Certain 

Durable Medical Equipment, Prosthetics, 

Orthotics, and Supplies (DMEPOS) 

Secs. 

414.400–414.404 [Reserved] 

414.406 Implementation of programs. 

414.408–414.426 [Reserved] 

Subpart F—Competitive Bidding for 

Certain Durable Medical Equipment, 

Prosthetics, Orthotics, and Supplies 

(DMEPOS) 

§ 414.400–§ 414.404 [Reserved] 

§ 414.406 Implementation of programs. 

(a) Implementation contractor. CMS 

designates one or more implementation 

contractors for the purpose of 

implementing this subpart. 

(b)–(d) [Reserved] 

(e) Claims processing. The Durable 

Medical Equipment Medicare 

Administrative Contractor designated to 

process DMEPOS claims for a particular 

geographic region also processes claims 

for items furnished under a competitive 

bidding program in the same geographic 

region. 

§ 414.408–§ 414.426 [Reserved] 

PART 424—CONDITIONS FOR 

MEDICARE PAYMENT 

■ 7. The authority citation for part 424 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh). 

Subpart A—General Provisions 

■ 8. Section 424.1 is amended by adding 

in numerical order the statutory sections 

to read as follows: 

§ 424.1 Basis and scope. 

* * * * * 

1834(a)—Payment for durable medical 

equipment. 

1834(j)—Requirements for suppliers 

of medical equipment and supplies. 

* * * * * 

Subpart D—To Whom Payment is 

Ordinarily Made 

■ 9. Section 424.57 is amended by—

■ A. Adding the definitions ‘‘Accredited 

DMEPOS suppliers,’’ ‘‘CMS approved 

accreditation organization’’ and 

‘‘Independent accreditation 

organization’’ in alphabetical order in 

paragraph (a). 

■ B. Adding new paragraphs (c)(22)–

(c)(25). The additions and revision read 

as follows: 

§ 424.57 Special payment rules for items 

furnished by DMEPOS Suppliers and 

issuance of DMEPOS Supplier billing 

privileges. 

(a) Definitions. * * * 

Accredited DMEPOS suppliers means 

suppliers that have been accredited by 

a recognized independent accreditation 

organization approved by CMS in 

accordance with the requirements at 

§ 424.58. 

CMS approved accreditation 

organization means a recognized 

independent accreditation organization 

approved by CMS under § 424.58. 

* * * * * 

Independent accreditation 

organization means an accreditation 

organization that accredits a supplier of 

DMEPOS and other items and services 

for a specific DMEPOS product category 

or a full line of DMEPOS product 

categories. 

* * * * * 

(c) Application certification 

standards. * * * 

(22) All suppliers of DMEPOS and 

other items and services must be 

accredited by a CMS-approved 

accreditation organization in order to 

receive and retain a supplier billing 

number. The accreditation must 

indicate the specific products and 

services, for which the supplier is 

accredited in order for the supplier to 

receive payment for those specific 

products and services. 

(23) All DMEPOS suppliers must 

notify their accreditation organization 

when a new DMEPOS location is 

opened. The accreditation organization 

may accredit the new supplier location 

for three months after it is operational 

without requiring a new site visit. 

(24) All DMEPOS supplier locations, 

whether owned or subcontracted, must 

meet the DMEPOS quality standards 

and be separately accredited in order to 

bill Medicare. An accredited supplier 

may be denied enrollment or their 

enrollment may be revoked, if CMS 

determines that they are not in 

compliance with the DMEPOS quality 

standards. 

(25) All DMEPOS suppliers must 

disclose upon enrollment all products 

and services, including the addition of 

new product lines for which they are 

seeking accreditation. If a new product 

line is added after enrollment, the 

DMEPOS supplier will be responsible 

for notifying the accrediting body of the 

new product so that the DMEPOS 

supplier can be re-surveyed and 

accredited for these new products. 

* * * * * 

■ 10. A new § 424.58 is added to read 

as follows: 

§ 424.58 Accreditation. 

(a) Scope and purpose. This part 

implements section 1834(a)(20)(B) of the 

Act, which requires the Secretary to 

designate and approve one or more 

independent accreditation organizations 

for purposes of enforcing the DMEPOS 

quality standards for suppliers of 

DMEPOS and other items or services. 

Section 1847(b)(2)(A)(i) of the Act 

requires a DMEPOS supplier to meet the 

DMEPOS quality standards under 

section 1834(a)(20) of the Act before 

being awarded a contract. 

(b) Application and reapplication 

procedures for accreditation 

organizations. (1) An independent 

accreditation organization applying for 

approval or re-approval of authority to 

survey suppliers for compliance with 

the DMEPOS quality standards is 

required to furnish the following to 

CMS: 

(i) A list of the types of DMEPOS 

supplies, and a list of products and 

services for which the organization is 

requesting approval. 

(ii) A detailed comparison of the 

organization’s accreditation 

requirements and standards with the 

applicable DMEPOS quality standards, 

such as a crosswalk. 

(iii) A detailed description of the 

organization’s operational processes, 

including procedures for performing 

unannounced surveys, frequency of the 

surveys performed, copies of the 

organization’s survey forms, guidelines 

and instructions to surveyors, quality 

review processes for deficiencies 

identified with accreditation 

requirements, and dispute resolution 

processes and policies when there is a 

negative survey finding or decision. 

(iv) Procedures used to notify 

DMEPOS suppliers of compliance or 

noncompliance with the accreditation 

requirements. 

(v) Procedures used to monitor the 

correction of deficiencies found during 

an accreditation survey. 

(vi) Procedures for coordinating 

surveys with another accrediting 

organization if the organization does not 

accredit all products the supplier 

provides. 


jlentini on PROD1PC65 with RULES3
48410 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 

(vii) Detailed professional information 

about the individuals who perform 

surveys for the accreditation 

organization, including the size and 

composition of accreditation survey 

teams for each type of DMEPOS 

supplier accredited, and the education 

and experience requirements surveyors 

must meet. The information must 

include the following: 

(A) The content and frequency of the 

continuing education training provided 

to survey personnel. 

(B) The evaluation systems used to 

monitor the performance of individual 

surveyors and survey teams. 

(C) Policies and procedures for a 

surveyor or institutional affiliate of the 

independent accrediting organization 

that participates in a survey or 

accreditation decision regarding a 

DMEPOS supplier with which that 

individual or institution is 

professionally or financially affiliated. 

(viii) A description of the 

organization’s data management, 

analysis and reporting system for its 

surveys and accreditation decisions, 

including the kinds of reports, tables, 

and other displays generated by that 

system. 

(ix) Procedures for responding to, and 

investigating complaints against, 

accredited facilities, including policies 

and procedures regarding coordination 

of these activities with appropriate 

licensing bodies, ombudsman programs, 

the National Supplier Clearinghouse, 

and CMS. 

(x) The organization’s policies and 

procedures for notifying CMS of 

facilities that fail to meet the 

accreditation organization’s 

requirements. 

(xi) A description of all types, 

categories, and durations of 

accreditations offered by the 

organization. 

(xii) A list of the following: 

(A) All currently accredited DMEPOS 

suppliers. 

(B) The types and categories of 

accreditation currently held by each 

supplier. 

(C) The expiration date of each 

supplier’s current accreditation. 

(D) The upcoming survey cycles for 

all DMEPOS suppliers’ accreditation 

surveys scheduled to be performed by 

the organization. 

(xiii) A written presentation that 

demonstrates the organization’s ability 

to furnish CMS with electronic data in 

ASCII comparable code. 

(xiv) A resource analysis that 

demonstrates that the organization’s 

staffing, funding, and other resources 

are adequate to perform fully the 

required surveys and related activities. 

(xv) An agreement that the 

accreditation organization will permit 

its surveyors to serve as witnesses if 

CMS takes an adverse action based on 

accreditation findings. 

(2) Validation survey. CMS surveys 

suppliers of DMEPOS and other items 

and services accredited under this 

section on a representative sample basis, 

or in response to substantial allegations 

of noncompliance, in order to validate 

the accreditation organization’s survey 

process. When conducted—

(i) On a representative sample basis, 

the CMS survey may be comprehensive 

or focus on a specific standard; 

(ii) In response to a substantial 

allegation, CMS surveys for any 

standard that CMS determines is related 

to the allegations. 

(3) Discovery of a deficiency. If CMS 

discovers that a DMEPOS supplier was 

not in compliance with the DMEPOS 

supplier quality standards, CMS may 

revoke the supplier’s billing number or 

require the accreditation organization to 

perform a subsequent full accreditation 

survey at the accreditation 

organization’s expense. 

(4) Authorization. A supplier selected 

for a validation survey must authorize 

the—

(i) Validation survey to take place; 

and 

(ii) CMS survey team to monitor the 

correction of any deficiencies found 

through the validation survey. 

(5) Refusal to cooperate with survey. 

If a supplier selected for a validation 

survey fails to comply with the 

requirements specified at paragraph 

(b)(4) of this section, it is deemed to no 

longer meet the DMEPOS supplier 

quality standards and may have its 

supplier billing number revoked. 

(6) Validation survey findings. If a 

validation survey results in a finding 

that the supplier was not in compliance 

with one or more DMEPOS supplier 

quality standards, the supplier no longer 

meets the DMEPOS quality standards 

and may have its supplier billing 

number revoked. 

(c) Ongoing responsibilities of a CMSapproved accreditation organization. 

An accreditation organization approved 

by CMS must undertake the following 

activities on an ongoing basis: 

(1) Provide to CMS all of the 

following in written format (either 

electronic or hard copy) and on a 

monthly basis all of the following: 

(i) Copies of all accreditation surveys, 

together with any survey-related 

information that CMS may require 

(including corrective action plans and 

summaries of findings with respect to 

unmet CMS requirements). 

(ii) Notice of all accreditation 

decisions. 

(iii) Notice of all complaints related to 

suppliers of DMEPOS and other items 

and services. 

(iv) Information about any supplier of 

DMEPOS and other items and services 

against which the CMS-approved 

accreditation organization has taken 

remedial or adverse action, including 

revocation, withdrawal, or revision of 

the supplier’s accreditation. 

(v) Notice of any proposed changes in 

its accreditation standards or 

requirements or survey process. If the 

organization implements the changes 

before or without CMS’ approval, CMS 

may withdraw its approval of the 

accreditation organization. 

(2) Within 30 calendar days of a 

change in CMS requirements, submit to 

CMS: 

(i) An acknowledgment of CMS’s 

notification of the change. 

(ii) A revised cross walk reflecting the 

new requirements. 

(iii) An explanation of how the 

accreditation organization plans to alter 

its standards to conform to CMS’s new 

requirements, within the timeframes 

specified in the notification of change it 

receives from CMS. 

(3) Permit its surveyors to serve as 

witnesses if CMS takes an adverse 

action based on accreditation findings. 

(4) Within 2 calendar days of 

identifying a deficiency of an accredited 

DMEPOS supplier that poses immediate 

jeopardy to a beneficiary or to the 

general public, provide CMS with 

written notice of the deficiency and any 

adverse action implemented by the 

accreditation organization. 

(5) Within 10 calendar days after 

CMS’s notice to a CMS-approved 

accreditation organization that CMS 

intends to withdraw approval of the 

accreditation organization, provide 

written notice of the withdrawal to all 

of the CMS-approved accreditation 

organization’s accredited suppliers. 

(6) Provide, on an annual basis, 

summary data specified by CMS that 

relate to the past year’s accreditation 

activities and trends. 

(d) Continuing Federal oversight of 

approved accreditation organizations. 

This paragraph establishes specific 

criteria and procedures for continuing 

oversight and for withdrawing approval 

of a CMS-approved accreditation 

organization. 

(1) Equivalency review. CMS 

compares the accreditation 

organization’s standards and its 

application and enforcement of those 

standards to the comparable CMS 

requirements and processes when—


jlentini on PROD1PC65 with RULES3
Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 48411 

(i) CMS imposes new requirements or 

changes its survey process; 

(ii) An accreditation organization 

proposes to adopt new standards or 

changes in its survey process; or 

(iii) The term of an accreditation 

organization’s approval expires. 

(2) Validation survey. CMS or its 

designated survey team may conduct a 

survey of an accredited DMEPOS 

supplier, examine the results of a CMSapproved accreditation organization’s 

survey of a supplier, or observe a CMSapproved accreditation organization’s 

onsite survey of a DMEPOS supplier, in 

order to validate the CMS-approved 

accreditation organization’s 

accreditation process. At the conclusion 

of the review, CMS identifies any 

accreditation programs for which 

validation survey results indicate—

(i) A 10 percent rate of disparity 

between findings by the accreditation 

organization and findings by CMS or its 

designated survey team on standards 

that do not constitute immediate 

jeopardy to patient health and safety if 

unmet; 

(ii) Any disparity between findings by 

the accreditation organization and 

findings by CMS on standards that 

constitute immediate jeopardy to patient 

health and safety if unmet; or 

(iii) That, irrespective of the rate of 

disparity, there are widespread or 

systemic problems in an organization’s 

accreditation process such that 

accreditation by that accreditation 

organization no longer provides CMS 

with adequate assurance that suppliers 

meet or exceed the Medicare 

requirements. 

(3) Notice of intent to withdraw 

approval. CMS provides the 

organization written notice of its intent 

to withdraw approval if an equivalency 

review, validation review, onsite 

observation, or CMS’s daily experience 

with the accreditation organization 

suggests that the accreditation 

organization is not meeting the 

requirements of this section. 

(4) Withdrawal of approval. CMS may 

withdraw its approval of an 

accreditation organization at any time if 

CMS determines that—

(i) Accreditation by the organization 

no longer adequately assures that the 

suppliers of DMEPOS and other items 

and services are meeting the DMEPOS 

quality standards, and that failure to 

meet those requirements could 

jeopardize the health or safety of 

Medicare beneficiaries and could 

constitute a significant hazard to the 

public health; or 

(ii) The accreditation organization has 

failed to meet its obligations with 

respect to application or reapplication 

procedures. 

(e) Reconsideration. (1) An 

accreditation organization dissatisfied 

with a determination that its 

accreditation requirements do not 

provide or do not continue to provide 

reasonable assurance that the entities 

accredited by the accreditation 

organization meet the applicable 

supplier quality standards is entitled to 

a reconsideration. CMS reconsiders any 

determination to deny, remove, or not 

renew the approval of deeming 

authority to accreditation organizations 

if the accreditation organization files a 

written request for reconsideration by 

its authorized officials or through its 

legal representative. 

(2) The request must be filed within 

30 calendar days of the receipt of CMS 

notice of an adverse determination or 

non-renewal. 

(3) The request for reconsideration 

must specify the findings or issues with 

which the accreditation organization 

disagrees and the reasons for the 

disagreement. 

(4) A requestor may withdraw its 

request for reconsideration at any time 

before the issuance of a reconsideration 

determination. 

(5) In response to a request for 

reconsideration, CMS provides the 

accreditation organization the 

opportunity for an informal hearing to 

be conducted by a hearing officer 

appointed by the Administrator of CMS 

and provide the accreditation 

organization the opportunity to present, 

in writing and in person, evidence or 

documentation to refute the 

determination to deny approval, or to 

withdraw or not renew deeming 

authority. 

(6) CMS provides written notice of the 

time and place of the informal hearing 

at least 10 calendar days before the 

scheduled date. 

(7) The informal reconsideration 

hearing is open to CMS and the 

organization requesting the 

reconsideration, including authorized 

representatives; technical advisors 

(individuals with knowledge of the facts 

of the case or presenting interpretation 

of the facts); and legal counsel. 

(i) The hearing is conducted by the 

hearing officer who receives testimony 

and documents related to the proposed 

action. 

(ii) Testimony and other evidence 

may be accepted by the hearing officer 

even though it is inadmissible under the 

rules of court procedures. 

(iii) The hearing officer does not have 

the authority to compel by subpoena the 

production of witnesses, papers, or 

other evidence. 

(8) Within 45 calendar days of the 

close of the hearing, the hearing officer 

presents the findings and 

recommendations to the accreditation 

organization that requested the 

reconsideration. 

(9) The written report of the hearing 

officer includes separate numbered 

findings of fact and the legal 

conclusions of the hearing officer. The 

hearing officer’s decision is final. 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplemental Medical Insurance 

Program). 

Dated: July 20, 2006. 

Mark B. McClellan, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: July 28, 2006. 

Michael O. Leavitt, 

Secretary. 


jlentini on PROD1PC65 with RULES3
48412 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 

The following addendum will not 

appear in the Code of Federal 

Regulations. 

Addendum 

This addendum contains the tables 

referred to throughout the preamble of 

this final rule. The tables presented 

below are as follows: 

Table 1.—Core-Based Statistical Area 

Urban Wage Index effective for 

discharges occurring on or after October 

1, 2006 and on or before September 30, 

2007 

Table 2.—Core-Based Statistical Area 

Rural Wage Index effective for 

discharges occurring on or after October 

1, 2006 and on or before September 30, 

2007 

The following addendum will not 

appear in the Code of Federal 

Regulations. 

Addendum 

This addendum contains the tables 

referred to throughout the preamble of 

this final rule. The tables presented 

below are as follows: 

Table 1.—Inpatient Rehabilitation 

Facility Wage Index for Urban Areas for 

Discharges Occurring from October 1, 

2006 through September 30, 2007 

Table 2.—Inpatient Rehabilitation 

Facility Wage Index for Rural Areas for 

Discharges Occurring from October 1, 

2006 through September 30, 2007 

TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007 

CBSA code Urban area (constituent counties) Wage 

index 

10180 ........................ Abilene, TX .......................................................................................................................................................... 0.7896 

Callahan County, TX.

Jones County, TX.

Taylor County, TX.

10380 ........................ Aguadilla-Isabela-San Sebastia ́n, PR ................................................................................................................. 0.4738 

Aguada Municipio, PR.

Aguadilla Municipio, PR.

An ̃asco Municipio, PR.

Isabela Municipio, PR.

Lares Municipio, PR.

Moca Municipio, PR.

Rinco ́n Municipio, PR.

San Sebastia ́n Municipio, PR.

10420 ........................ Akron, OH ............................................................................................................................................................ 0.8982 

Portage County, OH.

Summit County, OH.

10500 ........................ Albany, GA ........................................................................................................................................................... 0.8628 

Baker County, GA.

Dougherty County, GA.

Lee County, GA.

Terrell County, GA.

Worth County, GA.

10580 ........................ Albany-Schenectady-Troy, NY ............................................................................................................................ 0.8589 

Albany County, NY.

Rensselaer County, NY.

Saratoga County, NY.

Schenectady County, NY.

Schoharie County, NY.

10740 ........................ Albuquerque, NM ................................................................................................................................................. 0.9684 

Bernalillo County, NM.

Sandoval County, NM.

Torrance County, NM.

Valencia County, NM.

10780 ........................ Alexandria, LA ..................................................................................................................................................... 0.8033 

Grant Parish, LA.

Rapides Parish, LA.

10900 ........................ Allentown-Bethlehem-Easton, PA–NJ ................................................................................................................. 0.9818 

Warren County, NJ.

Carbon County, PA.

Lehigh County, PA.

Northampton County, PA.

11020 ........................ Altoona, PA .......................................................................................................................................................... 0.8944 

Blair County, PA.

11100 ........................ Amarillo, TX ......................................................................................................................................................... 0.9156 

Armstrong County, TX.

Carson County, TX.

Potter County, TX.

Randall County, TX.

11180 ........................ Ames, IA .............................................................................................................................................................. 0.9536 

Story County, IA.

11260 ........................ Anchorage, AK ..................................................................................................................................................... 1.1895 

Anchorage Municipality, AK.

Matanuska-Susitna Borough, AK.

11300 ........................ Anderson, IN ........................................................................................................................................................ 0.8586 


jlentini on PROD1PC65 with RULES3
Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 48413 

TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007—Continued 

CBSA code Urban area (constituent counties) Wage 

index 

Madison County, IN.

11340 ........................ Anderson, SC ...................................................................................................................................................... 0.8997 

Anderson County, SC.

11460 ........................ Ann Arbor, MI ...................................................................................................................................................... 1.0859 

Washtenaw County, MI.

11500 ........................ Anniston-Oxford, AL ............................................................................................................................................ 0.7682 

Calhoun County, AL.

11540 ........................ Appleton, WI ........................................................................................................................................................ 0.9288 

Calumet County, WI.

Outagamie County, WI.

11700 ........................ Asheville, NC ....................................................................................................................................................... 0.9285 

Buncombe County, NC.

Haywood County, NC.

Henderson County, NC.

Madison County, NC.

12020 ........................ Athens-Clarke County, GA .................................................................................................................................. 0.9855 

Clarke County, GA.

Madison County, GA.

Oconee County, GA.

Oglethorpe County, GA.

12060 ........................ Atlanta-Sandy Springs-Marietta, GA ................................................................................................................... 0.9793 

Barrow County, GA.

Bartow County, GA.

Butts County, GA.

Carroll County, GA.

Cherokee County, GA.

Clayton County, GA.

Cobb County, GA.

Coweta County, GA.

Dawson County, GA.

DeKalb County, GA.

Douglas County, GA.

Fayette County, GA.

Forsyth County, GA.

Fulton County, GA.

Gwinnett County, GA.

Haralson County, GA.

Heard County, GA.

Henry County, GA.

Jasper County, GA.

Lamar County, GA.

Meriwether County, GA.

Newton County, GA.

Paulding County, GA.

Pickens County, GA.

Pike County, GA.

Rockdale County, GA.

Spalding County, GA.

Walton County, GA.

12100 ........................ Atlantic City, NJ ................................................................................................................................................... 1.1615 

Atlantic County, NJ.

12220 ........................ Auburn-Opelika, AL ............................................................................................................................................. 0.8100 

Lee County, AL.

12260 ........................ Augusta-Richmond County, GA–SC ................................................................................................................... 0.9748 

Burke County, GA.

Columbia County, GA.

McDuffie County, GA.

Richmond County, GA.

Aiken County, SC.

Edgefield County, SC.

12420 ........................ RAustin-Round Rock, TX .................................................................................................................................... 0.9437 

Bastrop County, TX.

Caldwell County, TX.

Hays County, TX.

Travis County, TX.

Williamson County, TX.

12540 ........................ Bakersfield, CA .................................................................................................................................................... 1.0470 

Kern County, CA.

12580 ........................ Baltimore-Towson, MD ........................................................................................................................................ 0.9897 

Anne Arundel County, MD.


jlentini on PROD1PC65 with RULES3
48414 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 

TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007—Continued 

CBSA code Urban area (constituent counties) Wage 

index 

Baltimore County, MD.

Carroll County, MD.

Harford County, MD.

Howard County, MD.

Queen Anne’s County, MD.

Baltimore City, MD.

12620 ........................ Bangor, ME .......................................................................................................................................................... 0.9993 

Penobscot County, ME.

12700 ........................ Barnstable Town, MA .......................................................................................................................................... 1.2600 

Barnstable County, MA.

12940 ........................ Baton Rouge, LA ................................................................................................................................................. 0.8593 

Ascension Parish, LA.

East Baton Rouge Parish, LA.

East Feliciana Parish, LA.

Iberville Parish, LA.

Livingston Parish, LA.

Pointe Coupee Parish, LA.

St. Helena Parish, LA.

West Baton Rouge Parish, LA.

West Feliciana Parish, LA.

12980 ........................ Battle Creek, MI ................................................................................................................................................... 0.9508 

Calhoun County, MI.

13020 ........................ Bay City, MI ......................................................................................................................................................... 0.9343 

Bay County, MI.

13140 ........................ Beaumont-Port Arthur, TX ................................................................................................................................... 0.8412 

Hardin County, TX.

Jefferson County, TX.

Orange County, TX.

13380 ........................ Bellingham, WA ................................................................................................................................................... 1.1731 

Whatcom County, WA.

13460 ........................ Bend, OR ............................................................................................................................................................. 1.0786 

Deschutes County, OR.

13644 ........................ Bethesda-Gaithersburg-Frederick, MD ................................................................................................................ 1.1483 

Frederick County, MD.

Montgomery County, MD.

13740 ........................ Billings, MT .......................................................................................................................................................... 0.8834 

Carbon County, MT.

Yellowstone County, M.

13780 ........................ Binghamton, NY ................................................................................................................................................... 0.8562 

Broome County, NY.

Tioga County, NYT.

13820 ........................ Birmingham-Hoover, AL ...................................................................................................................................... 0.8959 

Bibb County, AL.

Blount County, AL.

Chilton County, AL.

Jefferson County, AL.

St. Clair County, AL.

Shelby County, AL.

Walker County, AL.

13900 ........................ Bismarck, ND ....................................................................................................................................................... 0.7574 

Burleigh County, ND.

Morton County, ND.

13980 ........................ Blacksburg-Christiansburg-Radford, VA .............................................................................................................. 0.7954 

Giles County, VA.

Montgomery County, VA.

Pulaski County, VA.

Radford City, VA.

14020 ........................ Bloomington, IN ................................................................................................................................................... 0.8447 

Greene County, IN.

Monroe County, IN.

Owen County, IN.

14060 ........................ Bloomington-Normal, IL ....................................................................................................................................... 0.9075 

McLean County, IL.

14260 ........................ Boise City-Nampa, ID .......................................................................................................................................... 0.9052 

Ada County, ID.

Boise County, ID.

Canyon County, ID.

Gem County, ID.

Owyhee County, ID.

14484 ........................ Boston-Quincy, MA .............................................................................................................................................. 1.1558 


jlentini on PROD1PC65 with RULES3
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TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007—Continued 

CBSA code Urban area (constituent counties) Wage 

index 

Norfolk County, MA.

Plymouth County, MA.

Suffolk County, MA.

14500 ........................ Boulder, CO ......................................................................................................................................................... 0.9734 

Boulder County, CO.

14540 ........................ Bowling Green, KY .............................................................................................................................................. 0.8211 

Edmonson County, KY.

Warren County, KY.

14740 ........................ Bremerton-Silverdale, WA ................................................................................................................................... 1.0675 

Kitsap County, WA.

14860 ........................ Bridgeport-Stamford-Norwalk, CT ....................................................................................................................... 1.2592 

Fairfield County, CT.

15180 ........................ Brownsville-Harlingen, TX ................................................................................................................................... 0.9804 

Cameron County, TX.

15260 ........................ Brunswick, GA ..................................................................................................................................................... 0.9311 

Brantley County, GA.

Glynn County, GA.

McIntosh County, GA.

15380 ........................ Buffalo-Niagara Falls, NY .................................................................................................................................... 0.9511 

Erie County, NY.

Niagara County, NY.

15500 ........................ Burlington, NC ..................................................................................................................................................... 0.8905 

Alamance County, NC.

15540 ........................ Burlington-South Burlington, VT .......................................................................................................................... 0.9410 

Chittenden County, VT.

Franklin County, VT.

Grand Isle County, VT.

15764 ........................ Cambridge-Newton-Framingham, MA ................................................................................................................. 1.1172 

Middlesex County, MA.

15804 ........................ Camden, NJ ......................................................................................................................................................... 1.0517 

Burlington County, NJ.

Camden County, NJ.

Gloucester County, NJ.

15940 ........................ Canton-Massillon, OH .......................................................................................................................................... 0.8735 

Carroll County, OH.

Stark County, OH.

15980 ........................ Cape Coral-Fort Myers, FL .................................................................................................................................. 0.9356 

Lee County, FL.

16180 ........................ Carson City, NV ................................................................................................................................................... 1.0234 

Carson City, NV.

16220 ........................ Casper, WY ......................................................................................................................................................... 0.9026 

Natrona County, WY.

16300 ........................ Cedar Rapids, IA ................................................................................................................................................. 0.8825 

Benton County, IA.

Jones County, IA.

Linn County, IA.

16580 ........................ Champaign-Urbana, IL ........................................................................................................................................ 0.9594 

Champaign County, IL.

Ford County, IL.

Piatt County, IL.

16620 ........................ Charleston, WV .................................................................................................................................................... 0.8445 

Boone County, WV.

Clay County, WV.

Kanawha County, WV.

Lincoln County, WV.

Putnam County, WV.

16700 ........................ Charleston-North Charleston, SC ........................................................................................................................ 0.9245 

Berkeley County, SC.

Charleston County, SC.

Dorchester County, SC.

16740 ........................ Charlotte-Gastonia-Concord, NC–SC .................................................................................................................. 0.9750 

Anson County, NC.

Cabarrus County, NC.

Gaston County, NC.

Mecklenburg County, NC.

Union County, NC.

York County, SC.

16820 ........................ Charlottesville, VA ............................................................................................................................................... 1.0187 

Albemarle County, VA.

Fluvanna County, VA.


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48416 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 

TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007—Continued 

CBSA code Urban area (constituent counties) Wage 

index 

Greene County, VA.

Nelson County, VA.

Charlottesville City, VA.

16860 ........................ Chattanooga, TN–GA .......................................................................................................................................... 0.9088 

Catoosa County, GA.

Dade County, GA.

Walker County, GA.

Hamilton County, TN.

Marion County, TN.

Sequatchie County, TN.

16940 ........................ Cheyenne, WY ..................................................................................................................................................... 0.8775 

Laramie County, WY.

16974 ........................ Chicago-Naperville-Joliet, IL ................................................................................................................................ 1.0790 

Cook County, IL.

DeKalb County, IL.

DuPage County, IL.

Grundy County, IL.

Kane County, IL.

Kendall County, IL.

McHenry County, IL.

Will County, IL.

17020 ........................ Chico, CA ............................................................................................................................................................. 1.0511 

Butte County, CA.

17140 ........................ Cincinnati-Middletown, OH–KY–IN ...................................................................................................................... 0.9615 

Dearborn County, IN.

Franklin County, IN.

Ohio County, IN.

Boone County, KY.

Bracken County, KY.

Campbell County, KY.

Gallatin County, KY.

Grant County, KY.

Kenton County, KY.

Pendleton County, KY.

Brown County, OH.

Butler County, OH.

Clermont County, OH.

Hamilton County, OH.

Warren County, OH.

17300 ........................ Clarksville, TN-KY ................................................................................................................................................ 0.8284 

Christian County, KY.

Trigg County, KY.

Montgomery County, TN.

Stewart County, TN.

17420 ........................ Cleveland, TN ...................................................................................................................................................... 0.8139 

Bradley County, TN.

Polk County, TN.

17460 ........................ Cleveland-Elyria-Mentor, OH ............................................................................................................................... 0.9213 

Cuyahoga County, OH.

Geauga County, OH.

Lake County, OH.

Lorain County, OH.

Medina County, OH.

17660 ........................ Coeur d’Alene, ID ................................................................................................................................................ 0.9647 

Kootenai County, ID.

17780 ........................ College Station-Bryan, TX ................................................................................................................................... 0.8900 

Brazos County, TX.

Burleson County, TX.

Robertson County, TX.

17820 ........................ Colorado Springs, CO ......................................................................................................................................... 0.9468 

El Paso County, CO.

Teller County, CO.

17860 ........................ Columbia, MO ...................................................................................................................................................... 0.8345 

Boone County, MO.

Howard County, MO.

17900 ........................ Columbia, SC ....................................................................................................................................................... 0.9057 

Calhoun County, SC.

Fairfield County, SC.

Kershaw County, SC.

Lexington County, SC.


jlentini on PROD1PC65 with RULES3
Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 48417 

TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007—Continued 

CBSA code Urban area (constituent counties) Wage 

index 

Richland County, SC.

Saluda County, SC.

17980 ........................ Columbus, GA–AL ............................................................................................................................................... 0.8560 

Russell County, AL.

Chattahoochee County, GA.

Harris County, GA.

Marion County, GA.

Muscogee County, GA.

18020 ........................ Columbus, IN ....................................................................................................................................................... 0.9588 

Bartholomew County, IN.

18140 ........................ Columbus, OH ..................................................................................................................................................... 0.9860 

Delaware County, OH.

Fairfield County, OH.

Franklin County, OH.

Licking County, OH.

Madison County, OH.

Morrow County, OH.

Pickaway County, OH.

Union County, OH.

18580 ........................ Corpus Christi, TX ............................................................................................................................................... 0.8550 

Aransas County, TX.

Nueces County, TX.

San Patricio County, TX.

18700 ........................ Corvallis, OR ........................................................................................................................................................ 1.0729 

Benton County, OR.

19060 ........................ Cumberland, MD–WV .......................................................................................................................................... 0.9317 

Allegany County, MD.

Mineral County, WV.

19124 ........................ Dallas-Plano-Irving, TX ........................................................................................................................................ 1.0228 

Collin County, TX.

Dallas County, TX.

Delta County, TX.

Denton County, TX.

Ellis County, TX.

Hunt County, TX.

Kaufman County, TX.

Rockwall County, TX.

19140 ........................ Dalton, GA ........................................................................................................................................................... 0.9079 

Murray County, GA.

Whitfield County, GA.

19180 ........................ Danville, IL ........................................................................................................................................................... 0.9028 

Vermilion County, IL.

19260 ........................ Danville, VA ......................................................................................................................................................... 0.8489 

Pittsylvania County, VA.

Danville City, VA.

19340 ........................ Davenport-Moline-Rock Island, IA–IL .................................................................................................................. 0.8724 

Henry County, IL.

Mercer County, IL.

Rock Island County, IL.

Scott County, IA.

19380 ........................ Dayton, OH .......................................................................................................................................................... 0.9064 

Greene County, OH.

Miami County, OH.

Montgomery County, OH.

Preble County, OH.

19460 ........................ Decatur, AL .......................................................................................................................................................... 0.8469 

Lawrence County, ALVMorgan County, AL.

19500 ........................ Decatur, IL ........................................................................................................................................................... 0.8067 

Macon County, IL.

19660 ........................ Deltona-Daytona Beach-Ormond Beach, FL ....................................................................................................... 0.9299 

Volusia County, FL.

19740 ........................ Denver-Aurora, CO .............................................................................................................................................. 1.0723 

Adams County, CO.

Arapahoe County, CO.

Broomfield County, CO.

Clear Creek County, CO.

Denver County, CO.

Douglas County, CO.

Elbert County, CO.

Gilpin County, CO.


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TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007—Continued 

CBSA code Urban area (constituent counties) Wage 

index 

Jefferson County, CO.

Park County, CO.

19780 ........................ Des Moines, IA .................................................................................................................................................... 0.9669 

Dallas County, IA.

Guthrie County, IA.

Madison County, IA.

Polk County, IA.

Warren County, IA.

19804 ........................ Detroit-Livonia-Dearborn, MI ............................................................................................................................... 1.0424 

Wayne County, MI.

20020 ........................ Dothan, AL ........................................................................................................................................................... 0.7721 

Geneva County, AL.

Henry County, AL.

Houston County, AL.

20100 ........................ Dover, DE ............................................................................................................................................................ 0.9776 

Kent County, DE.

20220 ........................ Dubuque, IA ......................................................................................................................................................... 0.9024 

Dubuque County, IA.

20260 ........................ Duluth, MN–WI .................................................................................................................................................... 1.0213 

Carlton County, MN.

St. Louis County, MN.

Douglas County, WI.

20500 ........................ Durham, NC ......................................................................................................................................................... 1.0244 

Chatham County, NC.

Durham County, NC.

Orange County, NC.

Person County, NC.

20740 ........................ Eau Claire, WI ..................................................................................................................................................... 0.9201 

Chippewa County, WI.

Eau Claire County, WI.

20764 ........................ Edison, NJ ........................................................................................................................................................... 1.1249 

Middlesex County, NJ.

Monmouth County, NJ.

Ocean County, NJ.

Somerset County, NJ.

20940 ........................ El Centro, CA ....................................................................................................................................................... 0.8906 

Imperial County, CA.

21060 ........................ Elizabethtown, KY ................................................................................................................................................ 0.8802 

Hardin County, KY.

Larue County, KY.

21140 ........................ Elkhart-Goshen, IN .............................................................................................................................................. 0.9627 

Elkhart County, IN.

21300 ........................ Elmira, NY ............................................................................................................................................................ 0.8250 

Chemung County, NY.

21340 ........................ El Paso, TX .......................................................................................................................................................... 0.8977 

El Paso County, TX.

21500 ........................ Erie, PA ................................................................................................................................................................ 0.8737 

Erie County, PA.

21604 ........................ Essex County, MA ............................................................................................................................................... 1.0538 

Essex County, MA.

21660 ........................ Eugene-Springfield, OR ....................................................................................................................................... 1.0818 

Lane County, OR.

21780 ........................ Evansville, IN–KY ................................................................................................................................................ 0.8713 

Gibson County, IN.

Posey County, IN.

Vanderburgh County, IN.

Warrick County, IN.

Henderson County, KY.

Webster County, KY.

21820 ........................ Fairbanks, AK ...................................................................................................................................................... 1.1408 

Fairbanks North Star Borough, AK.

21940 ........................ Fajardo, PR .......................................................................................................................................................... 0.4153 

Ceiba Municipio, PR.

Fajardo Municipio, PR.

Luquillo Municipio, PR.

22020 ........................ Fargo, ND–MN ..................................................................................................................................................... 0.8486 

Cass County, ND.

Clay County, MN.

22140 ........................ Farmington, NM ................................................................................................................................................... 0.8509 

San Juan County, NM.


jlentini on PROD1PC65 with RULES3
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TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007—Continued 

CBSA code Urban area (constituent counties) Wage 

index 

22180 ........................ Fayetteville, NC ................................................................................................................................................... 0.9416 

Cumberland County, NC.

Hoke County, NC.

22220 ........................ Fayetteville-Springdale-Rogers, AR–MO ............................................................................................................. 0.8661 

Benton County, AR.

Madison County, AR.

Washington County, AR.

McDonald County, MO.

22380 ........................ Flagstaff, AZ ........................................................................................................................................................ 1.2092 

Coconino County, AZ.

22420 ........................ Flint, MI ................................................................................................................................................................ 1.0655 

Genesee County, MI.

22500 ........................ Florence, SC ........................................................................................................................................................ 0.8947 

Darlington County, SC.

Florence County, SC.

22520 ........................ Florence-Muscle Shoals, AL ................................................................................................................................ 0.8272 

Colbert County, AL.

Lauderdale County, AL.

22540 ........................ Fond du Lac, WI .................................................................................................................................................. 0.9640 

Fond du Lac County, WI.

22660 ........................ Fort Collins-Loveland, CO ................................................................................................................................... 1.0122 

Larimer County, CO.

22744 ........................ Fort Lauderdale-Pompano Beach-Deerfield Beach, FL ...................................................................................... 1.0432 

Broward County, FL.

22900 ........................ Fort Smith, AR-OK ............................................................................................................................................... 0.8230 

Crawford County, AR.

Franklin County, AR.

Sebastian County, AR.

Le Flore County, OK.

Sequoyah County, OK.

23020 ........................ Fort Walton Beach-Crestview-Destin, FL ............................................................................................................ 0.8872 

Okaloosa County, FL.

23060 ........................ Fort Wayne, IN .................................................................................................................................................... 0.9793 

Allen County, IN.

Wells County, IN.

Whitley County, IN.

23104 ........................ Fort Worth-Arlington, TX ...................................................................................................................................... 0.9486 

Johnson County, TX.

Parker County, TX.

Tarrant County, TX.

Wise County, TX.

23420 ........................ Fresno, CA ........................................................................................................................................................... 1.0538 

Fresno County, CA.

23460 ........................ Gadsden, AL ........................................................................................................................................................ 0.7938 

Etowah County, AL.

23540 ........................ Gainesville, FL ..................................................................................................................................................... 0.9388 

Alachua County, FL.

Gilchrist County, FL.

23580 ........................ Gainesville, GA .................................................................................................................................................... 0.8874 

Hall County, GA.

23844 ........................ Gary, IN ............................................................................................................................................................... 0.9395 

Jasper County, IN.

Lake County, IN.

Newton County, IN.

Porter County, IN.

24020 ........................ Glens Falls, NY .................................................................................................................................................... 0.8559 

Warren County, NY.

Washington County, NY.

24140 ........................ Goldsboro, NC ..................................................................................................................................................... 0.8775 

Wayne County, NC.

24220 ........................ Grand Forks, ND-MN ........................................................................................................................................... 0.7901 

Polk County, MN.

Grand Forks County, ND.

24300 ........................ Grand Junction, CO ............................................................................................................................................. 0.9550 

Mesa County, CO.

24340 ........................ Grand Rapids-Wyoming, MI ................................................................................................................................ 0.9390 

Barry County, MI.

Ionia County, MI.

Kent County, MI.

Newaygo County, MI.


jlentini on PROD1PC65 with RULES3
48420 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 

TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007—Continued 

CBSA code Urban area (constituent counties) Wage 

index 

24500 ........................ Great Falls, MT .................................................................................................................................................... 0.9052 

Cascade County, MT.

24540 ........................ Greeley, CO ......................................................................................................................................................... 0.9570 

Weld County, CO.

24580 ........................ Green Bay, WI ..................................................................................................................................................... 0.9483 

Brown County, WI.

Kewaunee County, WI.

Oconto County, WI.

24660 ........................ Greensboro-High Point, NC ................................................................................................................................. 0.9104 

Guilford County, NC.

Randolph County, NC.

Rockingham County, NC.

24780 ........................ Greenville, NC ..................................................................................................................................................... 0.9425 

Greene County, NC.

Pitt County, NC.

24860 ........................ Greenville, SC ...................................................................................................................................................... 1.0027 

Greenville County, SC.

Laurens County, SC.

Pickens County, SC.

25020 ........................ Guayama, PR ...................................................................................................................................................... 0.3181 

Arroyo Municipio, PR.

Guayama Municipio, PR.

Patillas Municipio, PR.

25060 ........................ Gulfport-Biloxi, MS ............................................................................................................................................... 0.8929 

Hancock County, MS.

Harrison County, MS.

Stone County, MS.

25180 ........................ Hagerstown-Martinsburg, MD–WV ...................................................................................................................... 0.9489 

Washington County, MD.

Berkeley County, WV.

Morgan County, WV.

25260 ........................ Hanford-Corcoran, CA ......................................................................................................................................... 1.0036 

Kings County, CA.

25420 ........................ Harrisburg-Carlisle, PA ........................................................................................................................................ 0.9313 

Cumberland County, PA.

Dauphin County, PA.

Perry County, PA.

25500 ........................ Harrisonburg, VA ................................................................................................................................................. 0.9088 

Rockingham County, VA.

Harrisonburg City, VA.

25540 ........................ Hartford-West Hartford-East Hartford, CT ........................................................................................................... 1.1073 

Hartford County, CT.

Litchfield County, CT.

Middlesex County, CT.

Tolland County, CT.

25620 ........................ Hattiesburg, MS ................................................................................................................................................... 0.7601 

Forrest County, MS.

Lamar County, MS.

Perry County, MS.

25860 ........................ Hickory-Lenoir-Morganton, NC ............................................................................................................................ 0.8921 

Alexander County, NC.

Burke County, NC.

Caldwell County, NC.

Catawba County, NC.

25980 ........................ Hinesville-Fort Stewart, GA ................................................................................................................................. 1 0.9198 

Liberty County, GA.

Long County, GA.

26100 ........................ Holland-Grand Haven, MI .................................................................................................................................... 0.9055 

Ottawa County, MI.

26180 ........................ Honolulu, HI ......................................................................................................................................................... 1.1214 

Honolulu County, HI.

26300 ........................ Hot Springs, AR ................................................................................................................................................... 0.9005 

Garland County, AR.

26380 ........................ Houma-Bayou Cane-Thibodaux, LA .................................................................................................................... 0.7894 

Lafourche Parish, LA.

Terrebonne Parish, LA.

26420 ........................ Houston-Sugar Land-Baytown, TX ...................................................................................................................... 0.9996 

Austin County, TX.

Brazoria County, TX.

Chambers County, TX.


jlentini on PROD1PC65 with RULES3
Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 48421 

TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007—Continued 

CBSA code Urban area (constituent counties) Wage 

index 

Fort Bend County, TX.

Galveston County, TX.

Harris County, TX.

Liberty County, TX.

Montgomery County, TX.

San Jacinto County, TX.

Waller County, TX.

26580 ........................ Huntington-Ashland, WV–KY–OH ....................................................................................................................... 0.9477

Boyd County, KY.

Greenup County, KY.

Lawrence County, OH.

Cabell County, WV.

Wayne County, WV.

26620 ........................ Huntsville, AL ....................................................................................................................................................... 0.9146 

Limestone County, AL.

Madison County, AL.

26820 ........................ Idaho Falls, ID ..................................................................................................................................................... 0.9420 

Bonneville County, ID.

Jefferson County, ID.

26900 ........................ Indianapolis, IN .................................................................................................................................................... 0.9920 

Boone County, IN.

Brown County, IN.

Hamilton County, IN.

Hancock County, IN.

Hendricks County, IN.

Johnson County, IN.

Marion County, IN.

Morgan County, IN.

Putnam County, IN.

Shelby County, IN.

26980 ........................ Iowa City, IA ........................................................................................................................................................ 0.9747 

Johnson County, IA.

Washington County, IA.

27060 ........................ Ithaca, NY ............................................................................................................................................................ 0.9793 

Tompkins County, NY.

27100 ........................ Jackson, MI .......................................................................................................................................................... 0.9304 

Jackson County, MI.

27140 ........................ Jackson, MS ........................................................................................................................................................ 0.8311 

Copiah County, MS.

Hinds County, MS.

Madison County, MS.

Rankin County, MS.

Simpson County, MS.

27180 ........................ Jackson, TN ......................................................................................................................................................... 0.8964 

Chester County, TN.

Madison County, TN.

27260 ........................ Jacksonville, FL ................................................................................................................................................... 0.9290 

Baker County, FL.

Clay County, FL.

Duval County, FL.

Nassau County, FL.

St. Johns County, FL.

27340 ........................ Jacksonville, NC .................................................................................................................................................. 0.8236 

Onslow County, NC.

27500 ........................ Janesville, WI ....................................................................................................................................................... 0.9538 

Rock County, WI.

27620 ........................ Jefferson City, MO ............................................................................................................................................... 0.8387 

Callaway County, MO.

Cole County, MO.

Moniteau County, MO.

Osage County, MO.

27740 ........................ Johnson City, TN ................................................................................................................................................. 0.7937 

Carter County, TN.

Unicoi County, TN.

Washington County, TN.

27780 ........................ Johnstown, PA ..................................................................................................................................................... 0.8354 

Cambria County, PA.

27860 ........................ Jonesboro, AR ..................................................................................................................................................... 0.7911 

Craighead County, AR.

Poinsett County, AR.


jlentini on PROD1PC65 with RULES3
48422 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 

TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007—Continued 

CBSA code Urban area (constituent counties) Wage 

index 

27900 ........................ Joplin, MO ............................................................................................................................................................ 0.8582 

Jasper County, MO.

Newton County, MO.

28020 ........................ Kalamazoo-Portage, MI ....................................................................................................................................... 1.0381 

Kalamazoo County, MI.

Van Buren County, MI.

28100 ........................ Kankakee-Bradley, IL .......................................................................................................................................... 1.0721 

Kankakee County, IL.

28140 ........................ Kansas City, MO–KS ........................................................................................................................................... 0.9476 

Franklin County, KS.

Johnson County, KS.

Leavenworth County, KS.

Linn County, KS.

Miami County, KS.

Wyandotte County, KS.

Bates County, MO.

Caldwell County, MO.

Cass County, MO.

Clay County, MO.

Clinton County, MO.

Jackson County, MO.

Lafayette County, MO.

Platte County, MO.

Ray County, MO.

28420 ........................ Kennewick-Richland-Pasco, WA ......................................................................................................................... 1.0619 

Benton County, WA.

Franklin County, WA.

28660 ........................ Killeen-Temple-Fort Hood, TX ............................................................................................................................. 0.8526 

Bell County, TX.

Coryell County, TX.

Lampasas County, TX.

28700 ........................ Kingsport-Bristol-Bristol, TN–VA .......................................................................................................................... 0.8054 

Hawkins County, TN.

Sullivan County, TN.

Bristol City, VA.

Scott County, VA.

Washington County, VA.

28740 ........................ Kingston, NY ........................................................................................................................................................ 0.9255 

Ulster County, NY.

28940 ........................ Knoxville, TN ........................................................................................................................................................ 0.8441 

Anderson County, TN.

Blount County, TN.

Knox County, TN.

Loudon County, TN.

Union County, TN.

29020 ........................ Kokomo, IN .......................................................................................................................................................... 0.9508 

Howard County, IN.

Tipton County, IN.

29100 ........................ La Crosse, WI-MN ............................................................................................................................................... 0.9564 

Houston County, MN.

La Crosse County, WI.

29140 ........................ Lafayette, IN ........................................................................................................................................................ 0.8736 

Benton County, IN.

Carroll County, IN.

Tippecanoe County, IN.

29180 ........................ Lafayette, LA ........................................................................................................................................................ 0.8428 

Lafayette Parish, LA.

St. Martin Parish, LA.

29340 ........................ Lake Charles, LA ................................................................................................................................................. 0.7833 

Calcasieu Parish, LA.

Cameron Parish, LA.

29404 ........................ Lake County-Kenosha County, IL–WI ................................................................................................................. 1.0429 

Lake County, IL.

Kenosha County, WI.

29460 ........................ Lakeland, FL ........................................................................................................................................................ 0.8912 

Polk County, FL.

29540 ........................ Lancaster, PA ...................................................................................................................................................... 0.9694 

Lancaster County, PA.

29620 ........................ Lansing-East Lansing, MI .................................................................................................................................... 0.9794 

Clinton County, MI.


jlentini on PROD1PC65 with RULES3
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TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007—Continued 

CBSA code Urban area (constituent counties) Wage 

index 

Eaton County, MI.

Ingham County, MI.

29700 ........................ Laredo, TX ........................................................................................................................................................... 0.8068 

Webb County, TX.

29740 ........................ Las Cruces, NM.

Dona Ana County, NM ..................................................................................................................................... 0.8467 

29820 ........................ Las Vegas-Paradise, NV ..................................................................................................................................... 1.1437 

Clark County, NV.

29940 ........................ Lawrence, KS ...................................................................................................................................................... 0.8537 

Douglas County, KS.

30020 ........................ Lawton, OK .......................................................................................................................................................... 0.7872 

Comanche County, OK.

30140 ........................ Lebanon, PA ........................................................................................................................................................ 0.8459 

Lebanon County, PA.

30300 ........................ Lewiston, ID–WA ................................................................................................................................................. 0.9886 

Nez Perce County, ID.

Asotin County, WA.

30340 ........................ Lewiston-Auburn, ME .......................................................................................................................................... 0.9331 

Androscoggin County, ME.

30460 ........................ Lexington-Fayette, KY ......................................................................................................................................... 0.9075 

VBourbon County, KY.

Clark County, KY.

Fayette County, KY.

Jessamine County, KY.

Scott County, KY.

Woodford County, KY.

30620 ........................ Lima, OH .............................................................................................................................................................. 0.9225 

Allen County, OH.

30700 ........................ Lincoln, NE .......................................................................................................................................................... 1.0214 

Lancaster County, NE.

Seward County, NE.

30780 ........................ Little Rock-North Little Rock, AR ......................................................................................................................... 0.8747 

Faulkner County, AR.

Grant County, AR.

Lonoke County, AR.

Perry County, AR.

Pulaski County, AR.

Saline County, AR.

30860 ........................ Logan, UT–ID ...................................................................................................................................................... 0.9164 

Franklin County, ID.

Cache County, UT.

30980 ........................ Longview, TX ....................................................................................................................................................... 0.8730 

Gregg County, TX.

Rusk County, TX.

Upshur County, TX.

31020 ........................ Longview, WA ...................................................................................................................................................... 0.9579 

Cowlitz County, WA.

31084 ........................ Los Angeles-Long Beach-Glendale, CA .............................................................................................................. 1.1783 

Los Angeles County, CA.

31140 ........................ Louisville, KY–IN .................................................................................................................................................. 0.9251 

Clark County, IN.

Floyd County, IN.

Harrison County, IN.

Washington County, IN.

Bullitt County, KY.

Henry County, KY.

Jefferson County, KY.

Meade County, KY.

Nelson County, KY.

Oldham County, KY.

Shelby County, KY.

Spencer County, KY.

Trimble County, KY.

31180 ........................ Lubbock, TX ......................................................................................................................................................... 0.8783 

Crosby County, TX.

Lubbock County, TX.

31340 ........................ Lynchburg, VA ..................................................................................................................................................... 0.8691 

Amherst County, VA.

Appomattox County, VA.

Bedford County, VA.


jlentini on PROD1PC65 with RULES3
48424 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 

TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007—Continued 

CBSA code Urban area (constituent counties) Wage 

index 

Campbell County, VA.

Bedford City, VA.

Lynchburg City, VA.

31420 ........................ Macon, GA ........................................................................................................................................................... 0.9443 

Bibb County, GA.

Crawford County, GA.

Jones County, GA.

Monroe County, GA.

Twiggs County, GA.

31460 ........................ Madera, CA .......................................................................................................................................................... 0.8713 

Madera County, CA.

31540 ........................ Madison, WI ......................................................................................................................................................... 1.0659 

Columbia County, WI.

Dane County, WI.

Iowa County, WI.

31700 ........................ Manchester-Nashua, NH ..................................................................................................................................... 1.0354 

Hillsborough County, NH.

Merrimack County, NH.

31900 ........................ Mansfield, OH ...................................................................................................................................................... 0.9891 

Richland County, OH.

32420 ........................ Mayagu ̈ez, PR ..................................................................................................................................................... 0.4020 

Hormigueros Municipio, PR.

Mayagu ̈ez Municipio, PR.

32580 ........................ McAllen-Edinburg-Mission, TX ............................................................................................................................ 0.8934 

Hidalgo County, TX.

32780 ........................ Medford, OR ........................................................................................................................................................ 1.0225 

Jackson County, OR.

32820 ........................ Memphis, TN–MS–AR ......................................................................................................................................... 0.9397 

Crittenden County, AR.

DeSoto County, MS.

Marshall County, MS.

Tate County, MS.

Tunica County, MS.

Fayette County, TN.

Shelby County, TN.

Tipton County, TN.

32900 ........................ Merced, CA .......................................................................................................................................................... 1.1109 

Merced County, CA.

33124 ........................ Miami-Miami Beach-Kendall, FL .......................................................................................................................... 0.9750 

Miami-Dade County, FL.

33140 ........................ Michigan City-La Porte, IN .................................................................................................................................. 0.9399 

LaPorte County, IN.

33260 ........................ Midland, TX .......................................................................................................................................................... 0.9514 

Midland County, TX.

33340 ........................ Milwaukee-Waukesha-West Allis, WI .................................................................................................................. 1.0146 

Milwaukee County, WI.

Ozaukee County, WI.

Washington County, WI.

Waukesha County, WI.

33460 ........................ Minneapolis-St. Paul-Bloomington, MN–WI ........................................................................................................ 1.1075 

Anoka County, MN.

Carver County, MN.

Chisago County, MN.

Dakota County, MN.

Hennepin County, MN.

Isanti County, MN.

Ramsey County, MN.

Scott County, MN.

Sherburne County, MN.

Washington County, MN.

Wright County, MN.

Pierce County, WI.

St. Croix County, WI.

33540 ........................ Missoula, MT ....................................................................................................................................................... 0.9473 

Missoula County, MT.

33660 ........................ Mobile, AL ............................................................................................................................................................ 0.7891 

Mobile County, AL.

33700 ........................ Modesto, CA ........................................................................................................................................................ 1.1885 

Stanislaus County, CA.

33740 ........................ Monroe, LA .......................................................................................................................................................... 0.8031 


jlentini on PROD1PC65 with RULES3
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TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007—Continued 

CBSA code Urban area (constituent counties) Wage 

index 

Ouachita Parish, LA.

Union Parish, LA.

33780 ........................ Monroe, MI ........................................................................................................................................................... 0.9468 

Monroe County, MI.

33860 ........................ Montgomery, AL .................................................................................................................................................. 0.8618 

Autauga County, AL.

Elmore County, AL.

Lowndes County, AL.

Montgomery County, AL.

34060 ........................ Morgantown, WV ................................................................................................................................................. 0.8420 

Monongalia County, WV.

Preston County, WV.

34100 ........................ Morristown, TN .................................................................................................................................................... 0.7961 

Grainger County, TN.

Hamblen County, TN.

Jefferson County, TN.

34580 ........................ Mount Vernon-Anacortes, WA ............................................................................................................................. 1.0454 

Skagit County, WA.

34620 ........................ Muncie, IN ............................................................................................................................................................ 0.8930 

Delaware County, IN.

34740 ........................ Muskegon-Norton Shores, MI .............................................................................................................................. 0.9664 

Muskegon County, MI.

34820 ........................ Myrtle Beach-Conway-North Myrtle Beach, SC .................................................................................................. 0.8934 

Horry County, SC.

34900 ........................ Napa, CA ............................................................................................................................................................. 1.2643 

Napa County, CA.

34940 ........................ Naples-Marco Island, FL ..................................................................................................................................... 1.0139 

Collier County, FL.

34980 ........................ Nashville-Davidson—-Murfreesboro, TN ............................................................................................................. 0.9790 

Cannon County, TN.

Cheatham County, TN.

Davidson County, TN.

Dickson County, TN.

Hickman County, TN.

Macon County, TN.

Robertson County, TN.

Rutherford County, TN.

Smith County, TN.

Sumner County, TN.

Trousdale County, TN.

Williamson County, TN.

Wilson County, TN.

35004 ........................ Nassau-Suffolk, NY ............................................................................................................................................. 1.2719 

Nassau County, NY.

Suffolk County, NY.

35084 ........................ Newark-Union, NJ–PA ......................................................................................................................................... 1.1883 

Essex County, NJ.

Hunterdon County, NJ.

Morris County, NJ.

Sussex County, NJ.

Union County, NJ.

Pike County, PA.

35300 ........................ New Haven-Milford, CT ....................................................................................................................................... 1.1887 

New Haven County, CT.

35380 ........................ New Orleans-Metairie-Kenner, LA ....................................................................................................................... 0.8995 

Jefferson Parish, LA.

Orleans Parish, LA.

Plaquemines Parish, LA.

St. Bernard Parish, LA.

St. Charles Parish, LA.

St. John the Baptist Parish, LA.

St. Tammany Parish, LA.

35644 ........................ New York-White Plains-Wayne, NY–NJ .............................................................................................................. 1.3188 

Bergen County, NJ.

Hudson County, NJ.

Passaic County, NJ.

Bronx County, NY.

Kings County, NY.

New York County, NY.

Putnam County, NY.


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48426 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 

TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007—Continued 

CBSA code Urban area (constituent counties) Wage 

index 

Queens County, NY.

Richmond County, NY.

Rockland County, NY.

Westchester County, NY.

35660 ........................ Niles-Benton Harbor, MI ...................................................................................................................................... 0.8879 

Berrien County, MI.

35980 ........................ Norwich-New London, CT ................................................................................................................................... 1.1345 

New London County, CT.

36084 ........................ Oakland-Fremont-Hayward, CA .......................................................................................................................... 1.5346 

Alameda County, CA.

Contra Costa County, CA.

36100 ........................ Ocala, FL ............................................................................................................................................................. 0.8925 

Marion County, FL.

36140 ........................ Ocean City, NJ .................................................................................................................................................... 1.1011 

Cape May County, NJ.

36220 ........................ Odessa, TX .......................................................................................................................................................... 0.9884 

Ector County, TX.

36260 ........................ Ogden-Clearfield, UT ........................................................................................................................................... 0.9029 

Davis County, UT.

Morgan County, UT.

Weber County, UT.

36420 ........................ Oklahoma City, OK .............................................................................................................................................. 0.9031 

Canadian County, OK.

Cleveland County, OK.

Grady County, OK.

Lincoln County, OK.

Logan County, OK.

McClain County, OK.

Oklahoma County, OK.

36500 ........................ Olympia, WA ........................................................................................................................................................ 1.0927 

Thurston County, WA.

36540 ........................ Omaha-Council Bluffs, NE–IA ............................................................................................................................. 0.9560 

Harrison County, IA.

Mills County, IA.

Pottawattamie County, IA.

Cass County, NE.

Douglas County, NE.

Sarpy County, NE.

Saunders County, NE.

Washington County, NE.

36740 ........................ Orlando-Kissimmee, FL ....................................................................................................................................... 0.9464 

Lake County, FL.

Orange County, FL.

Osceola County, FL.

Seminole County, FL.

36780 ........................ Oshkosh-Neenah, WI .......................................................................................................................................... 0.9183 

Winnebago County, WI.

36980 ........................ Owensboro, KY .................................................................................................................................................... 0.8780 

Daviess County, KY.

Hancock County, KY.

McLean County, KY.

37100 ........................ Oxnard-Thousand Oaks-Ventura, CA ................................................................................................................. 1.1622 

Ventura County, CA.

37340 ........................ Palm Bay-Melbourne-Titusville, FL ...................................................................................................................... 0.9839 

Brevard County, FL.

37460 ........................ Panama City-Lynn Haven, FL ............................................................................................................................. 0.8005 

Bay County, FL.

37620 ........................ Parkersburg-Marietta-Vienna, WV-OH ................................................................................................................ 0.8270 

Washington County, OH.

Pleasants County, WV.

Wirt County, WV.

Wood County, WV.

37700 ........................ Pascagoula, MS ................................................................................................................................................... 0.8156 

George County, MS.

Jackson County, MS.

37860 ........................ Pensacola-Ferry Pass-Brent, FL ......................................................................................................................... 0.8096 

Escambia County, FL.

Santa Rosa County, FL.

37900 ........................ Peoria, IL ............................................................................................................................................................. 0.8870 

Marshall County, IL.


jlentini on PROD1PC65 with RULES3
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TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007—Continued 

CBSA code Urban area (constituent counties) Wage 

index 

Peoria County, IL.

Stark County, IL.

Tazewell County, IL.

Woodford County, IL.

37964 ........................ Philadelphia, PA .................................................................................................................................................. 1.1038 

Bucks County, PA.

Chester County, PA.

Delaware County, PA.

Montgomery County, PA.

Philadelphia County, PA.

38060 ........................ Phoenix-Mesa-Scottsdale, AZ ............................................................................................................................. 1.0127 

Maricopa County, AZ.

Pinal County, AZ.

38220 ........................ Pine Bluff, AR ...................................................................................................................................................... 0.8680 

Cleveland County, AR.

Jefferson County, AR.

Lincoln County, AR.

38300 ........................ Pittsburgh, PA ...................................................................................................................................................... 0.8845 

Allegheny County, PA.

Armstrong County, PA.

Beaver County, PA.

Butler County, PA.

Fayette County, PA.

Washington County, PA.

Westmoreland County, PA.

38340 ........................ Pittsfield, MA ........................................................................................................................................................ 1.0181 

Berkshire County, MA.

38540 ........................ Pocatello, ID ........................................................................................................................................................ 0.9351 

Bannock County, ID.

Power County, ID.

38660 ........................ Ponce, PR ............................................................................................................................................................ 0.4939 

Juana Dı ́az Municipio, PR.

Ponce Municipio, PR.

Villalba Municipio, PR.

38860 ........................ Portland-South Portland-Biddeford, ME .............................................................................................................. 1.0382 

Cumberland County, ME.

Sagadahoc County, ME.

York County, ME.

38900 ........................ Portland-Vancouver-Beaverton, OR–WA ............................................................................................................ 1.1266 

Clackamas County, OR.

Columbia County, OR.

Multnomah County, OR.

Washington County, OR.

Yamhill County, OR.

Clark County, WA.

Skamania County, WA.

38940 ........................ Port St. Lucie-Fort Pierce, FL .............................................................................................................................. 1.0123 

Martin County, FL.

St. Lucie County, FL.

39100 ........................ Poughkeepsie-Newburgh-Middletown, NY .......................................................................................................... 1.0891 

Dutchess County, NY.

Orange County, NY.

39140 ........................ Prescott, AZ ......................................................................................................................................................... 0.9869 

Yavapai County, AZ.

39300 ........................ Providence-New Bedford-Fall River, RI–MA ....................................................................................................... 1.0966 

Bristol County, MA.

Bristol County, RI.

Kent County, RI.

Newport County, RI.

Providence County, RI.

Washington County, RI.

39340 ........................ Provo-Orem, UT .................................................................................................................................................. 0.9500 

Juab County, UT.

Utah County, UT.

39380 ........................ Pueblo, CO .......................................................................................................................................................... 0.8623 

Pueblo County, CO.

39460 ........................ Punta Gorda, FL .................................................................................................................................................. 0.9255 

Charlotte County, FL.

39540 ........................ Racine, WI ........................................................................................................................................................... 0.8997 

Racine County, WI.


jlentini on PROD1PC65 with RULES3
48428 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 

TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007—Continued 

CBSA code Urban area (constituent counties) Wage 

index 

39580 ........................ Raleigh-Cary, NC ................................................................................................................................................. 0.9691 

Franklin County, NC.

Johnston County, NC.

Wake County, NC.

39660 ........................ Rapid City, SD ..................................................................................................................................................... 0.8987 

Meade County, SD.

Pennington County, SD.

39740 ........................ Reading, PA ......................................................................................................................................................... 0.9686 

Berks County, PA.

39820 ........................ Redding, CA ........................................................................................................................................................ 1.2203 

Shasta County, CA.

39900 ........................ Reno-Sparks, NV.

Storey County, NV ........................................................................................................................................... 1.0982 

Washoe County, NV.

40060 ........................ Richmond, VA ...................................................................................................................................................... 0.9328 

Amelia County, VA.

Caroline County, VA.

Charles City County, VA.

Chesterfield County, VA.

Cumberland County, VA.

Dinwiddie County, VA.

Goochland County, VA.

Hanover County, VA.

Henrico County, VA.

King and Queen County, VA.

King William County, VA.

Louisa County, VA.

New Kent County, VA.

Powhatan County, VA.

Prince George County, VA.

Sussex County, VA.

Colonial Heights City, VA.

Hopewell City, VA.

Petersburg City, VA.

Richmond City, VA.

40140 ........................ Riverside-San Bernardino-Ontario, CA ............................................................................................................... 1.1027 

Riverside County, CA.

San Bernardino County, CA.

40220 ........................ Roanoke, VA ........................................................................................................................................................ 0.8374 

Botetourt County, VA.

Craig County, VA.

Franklin County, VA.

Roanoke County, VA.

Roanoke City, VA.

Salem City, VA.

40340 ........................ Rochester, MN ..................................................................................................................................................... 1.1131 

Dodge County, MN.

Olmsted County, MN.

Wabasha County, MN.

40380 ........................ Rochester, NY ..................................................................................................................................................... 0.9121 

Livingston County, NY.

Monroe County, NY.

Ontario County, NY.

Orleans County, NY.

Wayne County, NY.

40420 ........................ Rockford, IL ......................................................................................................................................................... 0.9984 

Boone County, IL.

Winnebago County, IL.

40484 ........................ Rockingham County-Strafford County, NH ......................................................................................................... 1.0374 

Rockingham County, NH.

Strafford County, NH.

40580 ........................ Rocky Mount, NC ................................................................................................................................................ 0.8915 

Edgecombe County, NC.

Nash County, NC.

40660 ........................ Rome, GA ............................................................................................................................................................ 0.9414 

Floyd County, GA.

40900 ........................ Sacramento—Arden-Arcade—Roseville, CA ...................................................................................................... 1.2969 

El Dorado County, CA.

Placer County, CA.

Sacramento County, CA.


jlentini on PROD1PC65 with RULES3
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TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007—Continued 

CBSA code Urban area (constituent counties) Wage 

index 

Yolo County, CA.

40980 ........................ Saginaw-Saginaw Township North, MI ............................................................................................................... 0.9088 

Saginaw County, MI.

41060 ........................ St. Cloud, MN ...................................................................................................................................................... 0.9965 

Benton County, MN.

Stearns County, MN.

41100 ........................ St. George, UT .................................................................................................................................................... 0.9392 

Washington County, UT.

41140 ........................ St. Joseph, MO–KS ............................................................................................................................................. 0.9519 

Doniphan County, KS.

Andrew County, MO.

Buchanan County, MO.

DeKalb County, MO.

41180 ........................ St. Louis, MO–IL .................................................................................................................................................. 0.8954 

Bond County, IL.

Calhoun County, IL.

Clinton County, IL.

Jersey County, IL.

Macoupin County, IL.

Madison County, IL.

Monroe County, IL.

St. Clair County, IL.

Crawford County, MO.

Franklin County, MO.

Jefferson County, MO.

Lincoln County, MO.

St. Charles County, MO.

St. Louis County, MO.

Warren County, MO.

Washington County, MO.

St. Louis City, MO.

41420 ........................ Salem, OR ........................................................................................................................................................... 1.0442 

Marion County, OR.

Polk County, OR.

41500 ........................ Salinas, CA .......................................................................................................................................................... 1.4128 

Monterey County, CA.

41540 ........................ Salisbury, MD ...................................................................................................................................................... 0.9064 

Somerset County, MD.

Wicomico County, MD.

41620 ........................ Salt Lake City, UT ............................................................................................................................................... 0.9421 

Salt Lake County, UT.

Summit County, UT.

Tooele County, UT.

41660 ........................ San Angelo, TX ................................................................................................................................................... 0.8271 

Irion County, TX.

Tom Green County, TX.

41700 ........................ San Antonio, TX .................................................................................................................................................. 0.8980 

Atascosa County, TX.

Bandera County, TX.

Bexar County, TX.

Comal County, TX.

Guadalupe County, TX.

Kendall County, TX.

Medina County, TX.

Wilson County, TX.

41740 ........................ San Diego-Carlsbad-San Marcos, CA ................................................................................................................. 1.1413 

San Diego County, CA.

41780 ........................ Sandusky, OH ...................................................................................................................................................... 0.9019 

Erie County, OH.

41884 ........................ San Francisco-San Mateo-Redwood City, CA .................................................................................................... 1.4994 

Marin County, CA.

San Francisco County, CA.

San Mateo County, CA.

41900 ........................ San Germa ́n-Cabo Rojo, PR ............................................................................................................................... 0.4650 

Cabo Rojo Municipio, PR.

Lajas Municipio, PR.

Sabana Grande Municipio, PR.

San Germa ́n Municipio, PR.

41940 ........................ San Jose-Sunnyvale-Santa Clara, CA ................................................................................................................ 1.5099 

San Benito County, CA.


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48430 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 

TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007—Continued 

CBSA code Urban area (constituent counties) Wage 

index 

Santa Clara County, CA.

41980 ........................ San Juan-Caguas-Guaynabo, PR ....................................................................................................................... 0.4621 

Aguas Buenas Municipio, PR.

Aibonito Municipio, PR.

Arecibo Municipio, PR.

Barceloneta Municipio, PR.

Barranquitas Municipio, PR.

Bayamo ́n Municipio, PR.

Caguas Municipio, PR.

Camuy Municipio, PR.

Cano ́vanas Municipio, PR.

Carolina Municipio, PR.

Catan ̃o Municipio, PR.

Cayey Municipio, PR.

Ciales Municipio, PR.

Cidra Municipio, PR.

Comer ́ıo Municipio, PR.

Corozal Municipio, PR.

Dorado Municipio, PR.

Florida Municipio, PR.

Guaynabo Municipio, PR.

Gurabo Municipio, PR.

Hatillo Municipio, PR.

Humacao Municipio, PR.

Juncos Municipio, PR.

Las Piedras Municipio, PR.

Lo ́ıza Municipio, PR.

Manat ́ı Municipio, PR.

Maunabo Municipio, PR.

Morovis Municipio, PR.

Naguabo Municipio, PR.

Naranjito Municipio, PR.

Orocovis Municipio, PR.

Quebradillas Municipio, PR.

R ́ıo Grande Municipio, PR.

San Juan Municipio, PR.

San Lorenzo Municipio, PR.

Toa Alta Municipio, PR.

Toa Baja Municipio, PR.

Trujillo Alto Municipio, PR.

Vega Alta Municipio, PR.

Vega Baja Municipio, PR.

Yabucoa Municipio, PR.

42020 ........................ San Luis Obispo-Paso Robles, CA ..................................................................................................................... 1.1349 

San Luis Obispo County, CA.

42044 ........................ Santa Ana-Anaheim-Irvine, CA ........................................................................................................................... 1.1559 

Orange County, CA.

42060 ........................ Santa Barbara-Santa Maria, CA .......................................................................................................................... 1.1694 

Santa Barbara County, CA.

42100 ........................ Santa Cruz-Watsonville, CA ................................................................................................................................ 1.5166 

Santa Cruz County, CA.

42140 ........................ Santa Fe, NM ...................................................................................................................................................... 1.0920 

Santa Fe County, NM.

42220 ........................ Santa Rosa-Petaluma, CA .................................................................................................................................. 1.3493 

Sonoma County, CA.

42260 ........................ Sarasota-Bradenton-Venice, FL .......................................................................................................................... 0.9639 

Manatee County, FL.

Sarasota County, FL.

42340 ........................ Savannah, GA ..................................................................................................................................................... 0.9461 

Bryan County, GA.

Chatham County, GA.

Effingham County, GA.

42540 ........................ Scranton—Wilkes-Barre, PA ............................................................................................................................... 0.8540 

Lackawanna County, PA.

Luzerne County, PA.

Wyoming County, PA.

42644 ........................ Seattle-Bellevue-Everett, WA .............................................................................................................................. 1.1577 

King County, WA.

Snohomish County, WA.

43100 ........................ Sheboygan, WI .................................................................................................................................................... 0.8911 


jlentini on PROD1PC65 with RULES3
Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 48431 

TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007—Continued 

CBSA code Urban area (constituent counties) Wage 

index 

Sheboygan County, WI.

43300 ........................ Sherman-Denison, TX ......................................................................................................................................... 0.9507 

Grayson County, TX.

43340 ........................ Shreveport-Bossier City, LA ................................................................................................................................ 0.8760 

Bossier Parish, LA.

Caddo Parish, LA.

De Soto Parish, LA.

43580 ........................ Sioux City, IA-NE-SD ........................................................................................................................................... 0.9381 

Woodbury County, IA.

Dakota County, NE.

Dixon County, NE.

Union County, SD.

43620 ........................ Sioux Falls, SD .................................................................................................................................................... 0.9635 

Lincoln County, SD.

McCook County, SD.

Minnehaha County, SD.

Turner County, SD.

43780 ........................ South Bend-Mishawaka, IN–MI ........................................................................................................................... 0.9788 

St. Joseph County, IN.

Cass County, MI.

43900 ........................ Spartanburg, SC .................................................................................................................................................. 0.9172 

Spartanburg County, SC.

44060 ........................ Spokane, WA ....................................................................................................................................................... 1.0905 

Spokane County, WA.

44100 ........................ Springfield, IL ....................................................................................................................................................... 0.8792 

Menard County, IL.

Sangamon County, IL.

44140 ........................ Springfield, MA .................................................................................................................................................... 1.0248 

Franklin County, MA.

Hampden County, MA.

Hampshire County, MA.

44180 ........................ Springfield, MO .................................................................................................................................................... 0.8237 

Christian County, MO.

Dallas County, MO.

Greene County, MO.

Polk County, MO.

Webster County, MO.

44220 ........................ Springfield, OH .................................................................................................................................................... 0.8396 

Clark County, OH.

44300 ........................ State College, PA ................................................................................................................................................ 0.8356 

Centre County, PA.

44700 ........................ Stockton, CA ........................................................................................................................................................ 1.1307 

San Joaquin County, CA.

44940 ........................ Sumter, SC .......................................................................................................................................................... 0.8377 

Sumter County, SC.

45060 ........................ Syracuse, NY ....................................................................................................................................................... 0.9574 

Madison County, NY.

Onondaga County, NY.

Oswego County, NY.

45104 ........................ Tacoma, WA ........................................................................................................................................................ 1.0742 

Pierce County, WA.

45220 ........................ Tallahassee, FL ................................................................................................................................................... 0.8688 

Gadsden County, FL.

Jefferson County, FL.

Leon County, FL.

Wakulla County, FL.

45300 ........................ Tampa-St. Petersburg-Clearwater, FL ................................................................................................................ 0.9233 

Hernando County, FL.

Hillsborough County, FL.

Pasco County, FL.

Pinellas County, FL.

45460 ........................ Terre Haute, IN .................................................................................................................................................... 0.8304 

Clay County, IN.

Sullivan County, IN.

Vermillion County, IN.

Vigo County, IN.

45500 ........................ Texarkana, TX-Texarkana, AR ............................................................................................................................ 0.8283 

Miller County, AR.

Bowie County, TX.

45780 ........................ Toledo, OH .......................................................................................................................................................... 0.9574 


jlentini on PROD1PC65 with RULES3
48432 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 

TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007—Continued 

CBSA code Urban area (constituent counties) Wage 

index 

Fulton County, OH.

Lucas County, OH.

Ottawa County, OH.

Wood County, OH.

45820 ........................ Topeka, KS .......................................................................................................................................................... 0.8920 

Jackson County, KS.

Jefferson County, KS.

Osage County, KS.

Shawnee County, KS.

Wabaunsee County, KS.

45940 ........................ Trenton-Ewing, NJ ............................................................................................................................................... 1.0834 

Mercer County, NJ.

46060 ........................ Tucson, AZ .......................................................................................................................................................... 0.9007 

Pima County, AZ.

46140 ........................ Tulsa, OK ............................................................................................................................................................. 0.8543 

Creek County, OK.

Okmulgee County, OK.

Osage County, OK.

Pawnee County, OK.

Rogers County, OK.

Tulsa County, OK.

Wagoner County, OK.

46220 ........................ Tuscaloosa, AL .................................................................................................................................................... 0.8645 

Greene County, AL.

Hale County, AL.

Tuscaloosa County, AL.

46340 ........................ Tyler, TX .............................................................................................................................................................. 0.9168 

Smith County, TX.

46540 ........................ Utica-Rome, NY ................................................................................................................................................... 0.8358 

Herkimer County, NY.

Oneida County, NY.

46660 ........................ Valdosta, GA ........................................................................................................................................................ 0.8866 

Brooks County, GA.

Echols County, GA.

Lanier County, GA.

Lowndes County, GA.

46700 ........................ Vallejo-Fairfield, CA ............................................................................................................................................. 1.4936 

Solano County, CA.

46940 ........................ Vero Beach, FL .................................................................................................................................................... 0.9434 

Indian River County, FL.

47020 ........................ Victoria, TX .......................................................................................................................................................... 0.8160 

Calhoun County, TX.

Goliad County, TX.

Victoria County, TX.

47220 ........................ Vineland-Millville-Bridgeton, NJ ........................................................................................................................... 0.9827 

Cumberland County, NJ.

47260 ........................ Virginia Beach-Norfolk-Newport News, VA–NC .................................................................................................. 0.8799 

Currituck County, NC.

Gloucester County, VA.

Isle of Wight County, VA.

James City County, VA.

Mathews County, VA.

Surry County, VA.

York County, VA.

Chesapeake City, VA.

Hampton City, VA.

Newport News City, VA.

Norfolk City, VA.

Poquoson City, VA.

Portsmouth City, VA.

Suffolk City, VA.

Virginia Beach City, VA.

Williamsburg City, VA.

47300 ........................ Visalia-Porterville, CA .......................................................................................................................................... 1.0123 

Tulare County, CA.

47380 ........................ Waco, TX ............................................................................................................................................................. 0.8518 

McLennan County, TX.

47580 ........................ Warner Robins, GA ............................................................................................................................................. 0.8645 

Houston County, GA.

47644 ........................ Warren-Farmington Hills-Troy, MI ....................................................................................................................... 0.9871 


jlentini on PROD1PC65 with RULES3
Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 48433 

TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007—Continued 

CBSA code Urban area (constituent counties) Wage 

index 

Lapeer County, MI.

Livingston County, MI.

Macomb County, MI.

Oakland County, MI.

St. Clair County, MI.

47894 ........................ Washington-Arlington-Alexandria, DC–VA–MD–WV ........................................................................................... 1.0926 

District of Columbia, DC.

Calvert County, MD.

Charles County, MD.

Prince George’s County, MD.

Arlington County, VA.

Clarke County, VA.

Fairfax County, VA.

Fauquier County, VA.

Loudoun County, VA.

Prince William County, VA.

Spotsylvania County, VA.

Stafford County, VA.

Warren County, VA.

Alexandria City, VA.

Fairfax City, VA.

Falls Church City, VA.

Fredericksburg City, VA.

Manassas City, VA.

Manassas Park City, VA.

Jefferson County, WV.

47940 ........................ Waterloo-Cedar Falls, IA ..................................................................................................................................... 0.8557 

Black Hawk County, IA.

Bremer County, IA.

Grundy County, IA.

48140 ........................ Wausau, WI ......................................................................................................................................................... 0.9590 

Marathon County, WI.

48260 ........................ Weirton-Steubenville, WV–OH ............................................................................................................................ 0.7819 

Jefferson County, OH.

Brooke County, WV.

Hancock County, WV.

48300 ........................ Wenatchee, WA ................................................................................................................................................... 1.0070 

Chelan County, WA.

Douglas County, WA.

48424 ........................ West Palm Beach-Boca Raton-Boynton Beach, FL ............................................................................................ 1.0067 

Palm Beach County, FL.

48540 ........................ Wheeling, WV-OH ............................................................................................................................................... 0.7161 

Belmont County, OH.

Marshall County, WV.

Ohio County, WV.

48620 ........................ Wichita, KS .......................................................................................................................................................... 0.9153 

Butler County, KS.

Harvey County, KS.

Sedgwick County, KS.

Sumner County, KS.

48660 ........................ Wichita Falls, TX .................................................................................................................................................. 0.8285 

Archer County, TX.

Clay County, TX.

Wichita County, TX.

48700 ........................ Williamsport, PA .................................................................................................................................................. 0.8364 

Lycoming County, PA.

48864 ........................ Wilmington, DE–MD–NJ ...................................................................................................................................... 1.0471 

New Castle County, DE.

Cecil County, MD.

Salem County, NJ.

48900 ........................ Wilmington, NC .................................................................................................................................................... 0.9582 

Brunswick County, NC.

New Hanover County, NC.

Pender County, NC.

49020 ........................ Winchester, VA–WV ............................................................................................................................................ 1.0214 

Frederick County, VA.

Winchester City, VA.

Hampshire County, WV.

49180 ........................ Winston-Salem, NC ............................................................................................................................................. 0.8944 

Davie County, NC.


jlentini on PROD1PC65 with RULES3
48434 Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules and Regulations 

TABLE 1.—INPATIENT REHABILITATION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM

OCTOBER 1, 2006 THROUGH SEPTEMBER 30, 2007—Continued 

CBSA code Urban area (constituent counties) Wage 

index 

Forsyth County, NC.

Stokes County, NC.

Yadkin County, NC.

49340 ........................ Worcester, MA ..................................................................................................................................................... 1.1028 

Worcester County, MA.

49420 ........................ Yakima, WA ......................................................................................................................................................... 1.0155 

Yakima County, WA.

49500 ........................ Yauco, PR ............................................................................................................................................................ 0.4408 

Gua ́nica Municipio, PR.

Guayanilla Municipio, PR.

Pen ̃uelas Municipio, PR.

Yauco Municipio, PR.

49620 ........................ York-Hanover, PA ................................................................................................................................................ 0.9347 

York County, PA.

49660 ........................ Youngstown-Warren-Boardman, OH–-PA ........................................................................................................... 0.8603 

Mahoning County, OH.

Trumbull County, OH.

Mercer County, PA.

49700 ........................ Yuba City, CA ...................................................................................................................................................... 1.0921 

Sutter County, CA.

Yuba County, CA.

49740 ........................ Yuma, AZ ............................................................................................................................................................. 0.9126 

Yuma County, AZ.

1At this time, there are no hospitals located in this CBSA-based urban area on which to base a wage index. Therefore, the wage index value 

is based on the methodology described in the FY 2006 IRF PPS final rule (70 FR 47880). The wage index value for this area is the average 

wage index for all urban areas within the state. 

TABLE 2.—INPATIENT REHABILITATION

FACILITY WAGE INDEX FOR RURAL

AREAS FOR DISCHARGES OCCURRING FROM OCTOBER 1, 2006 

THROUGH SEPTEMBER 30, 2007 

CBSA 

code Nonurban area Wage index 

01 ........ Alabama ........................ 0.7446 

02 ........ Alaska ........................... 1.1977 

03 ........ Arizona .......................... 0.8768 

04 ........ Arkansas ....................... 0.7466 

05 ........ California ....................... 1.1054 

06 ........ Colorado ....................... 0.9380 

07 ........ Connecticut ................... 1.1730 

08 ........ Delaware ....................... 0.9579 

10 ........ Florida ........................... 0.8568 

11 ........ Georgia ......................... 0.7662 

12 ........ Hawaii ........................... 1.0551 

13 ........ Idaho ............................. 0.8037 

14 ........ Illinois ............................ 0.8271 

15 ........ Indiana .......................... 0.8624 

16 ........ Iowa .............................. 0.8509 

17 ........ Kansas .......................... 0.8035 

18 ........ Kentucky ....................... 0.7766 

19 ........ Louisiana ....................... 0.7411 

20 ........ Maine ............................ 0.8843 

21 ........ Maryland ....................... 0.9353 

22 ........ Massachusetts 2 ............ 1.0216 

23 ........ Michigan ........................ 0.8895 

24 ........ Minnesota ..................... 0.9132 

TABLE 2.—INPATIENT REHABILITATION

FACILITY WAGE INDEX FOR RURAL

AREAS FOR DISCHARGES OCCURRING FROM OCTOBER 1, 2006 

THROUGH SEPTEMBER 30, 2007—

Continued 

CBSA 

code Nonurban area Wage index 

25 ........ Mississippi ..................... 0.7674 

26 ........ Missouri ......................... 0.7900 

27 ........ Montana ........................ 0.8762 

28 ........ Nebraska ....................... 0.8657 

29 ........ Nevada .......................... 0.9065 

30 ........ New Hampshire ............ 1.0817 

31 ........ New Jersey 1 ................. ..............

32 ........ New Mexico .................. 0.8635 

33 ........ New York ...................... 0.8154 

34 ........ North Carolina ............... 0.8540 

35 ........ North Dakota ................. 0.7261 

36 ........ Ohio .............................. 0.8826 

37 ........ Oklahoma ...................... 0.7581 

38 ........ Oregon .......................... 0.9826 

39 ........ Pennsylvania ................. 0.8291 

40 ........ Puerto Rico 2 ................. 0.4047 

41 ........ Rhode Island 1 ............... ..............

42 ........ South Carolina .............. 0.8638 

43 ........ South Dakota ................ 0.8560 

44 ........ Tennessee .................... 0.7895 

45 ........ Texas ............................ 0.8003 

TABLE 2.—INPATIENT REHABILITATION

FACILITY WAGE INDEX FOR RURAL

AREAS FOR DISCHARGES OCCURRING FROM OCTOBER 1, 2006 

THROUGH SEPTEMBER 30, 2007—

Continued 

CBSA 

code Nonurban area Wage index 

46 ........ Utah .............................. 0.8118 

47 ........ Vermont ........................ 0.9830 

48 ........ Virgin Islands ................ 0.7615 

49 ........ Virginia .......................... 0.8013 

50 ........ Washington ................... 1.0510 

51 ........ West Virginia ................. 0.7717 

52 ........ Wisconsin ...................... 0.9509 

53 ........ Wyoming ....................... 0.9257 

65 ........ Guam ............................ 0.9611 

1All counties within the State are classified 

as urban. 2 Massachusetts and Puerto Rico have 

areas designated as rural; however, no shrotterm, acute care hospitals are located in the 

area(s) for FY 2007. As discussed in the FY 

2006 IRF PPS final rule (70 FR 47880), we 

use the previous year’s wage index value until 

more recent data is available for those areas. 

[FR Doc. 06–6694 Filed 8–1–06; 4:00 pm] 

BILLING CODE 4120–01–P 


jlentini on PROD1PC65 with RULES3